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DIFX Market Model Presentation
for AMEDA20th April, 2006
by
Nasser Al Shaali, COO – DIFX
&
Muffadal Kagalwala, Head - DIFX CSD & Registry
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Topics covered in this presentation:
Introduction to DIFC and DIFX
DIFX Membership
DIFX Trading
DIFX Clearing and Risk Management
DIFX Central Securities Depository
DIFX Registry
DIFX Systems
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Introduction to the DIFC and DIFX
Dubai International Financial Exchange (DIFX) is a company incorporated under Dubai International Financial Centre (DIFC), a financial free zone situated in the heart of Dubai.
Financial activities in DIFC are governed to the international standards by an independent regulator, the Dubai Financial Services Authority (DFSA)
DIFX is the main gateway of opportunities in the GCC as well as Middle East & Africa. It bridges the gap between Western Europe and far east.
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DIFC believesa new financial time zone is fast developing
London Singapore
Global Perspective of the DIFC
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The DIFX complements regional and international stock exchanges The Exchange is attracting Issuers and Members from across the globe on a level playing field
DIFX : Diverse and Complementary
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Products at DIFX
IPOs
Secondary Listings and Offerings
Bonds
Islamic Products
Funds, Indices & Structured Products
Warrants
Futures & Options
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Products at DIFX
In the pipeline: 3-5 further IPOs by end of Q2 2006
1 March 2006 KHI – Ordinary Shares
06 February 2006 Mashreqbank – EMTN
26 January 2006 Dubai Ports, Customs and Free Zone Corporation (PCFC) – Sukuks
17 January 2006 National Bank of Dubai – EMTN
27 December 2005 4 Deutsche Bank CROCI Islamic US Index
14 October 2005 Investcom (Global Depository Securities)
26 September 2005 5 Deutsche Bank Index Tracking Certificates
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Membership at DIFX
DIFX membership offers 3 types of Membership to its participants:
Non Clearing Member :(NCM) i.e. Trading Only Individual Clearing Member :(ICM) i.e. Trading & Own Clearing General Clearing Member :(GCM) i.e. 3rd Party Clearing Only
DIFX CSD offers a Custodian role to international and regional banks.
DIFX CSD also allows HNWI and corporate investors to open direct accounts.
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Members at DIFX
Today, DIFX has a presence of World class & International recognized participants on its market as well as strong regional participation.
Trading Members:
General Clearing Members:
Custodian Members:
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DIFX Trading
The DIFX Trading platform is a “Hybrid” trading system. The DIFX Trading system is based on the latest version of AEMS,
NSC trading platform. DIFX trading is an anonymous and order-driven market which also
allows for Market Makers to make markets in the products listed. DIFX offers GL Win Terminals to members for access DIFX GL also has an internet application which has the same features. DIFX offers a technical connectivity (API) for users & dealing room
equipment providers who wish to develop their own interface. Access to the API is available from Dubai or Paris.
The timing of the trading sessions are from 11.45 am to 04.45 pm The exchange operates from Monday to Friday.
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DIFX Clearing
DIFX offers the Central Counter Party (CCP) for its Clearing Members Trade novation facility – DIFX becomes buyer to every seller and
seller to every buyers. Eliminates the bilateral counter party risks. CCP allows the multilateral netting and reduction of settlement
volumes. One delivery obligation per security per date per member. One cash obligations per currency per date per member. DIFX has outsourced all its banking activities to a Clearing Bank and
the Clearing Bank coordinates with Member’s Settlement Banks for the funds transfers.
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DIFX Risk Management
DIFX takes on certain risks in its capacity of Central Counter Party (CCP) for all the On Exchange trades. The risks are:-
Counter Party Risks Replacement costs Risks
These risks are addressed by DIFX Risk Management Policies Defining Membership criteria with certain capital adequacy
requirements Margins from DIFX Members Adequate Clearing Fund
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Margins at DIFX – Initial Margin & MTM
Initial Margin DIFX uses the VAR methodology, based on each night Closing Price. Initial Margins are therefore expressed as a percentage of the closing
price.
Variation Margin – Mark to Market Margins (MTM) DIFX does not give the notional credits to members – credit variation
margin cannot be used to offset margin obligations
Margins are accepted in Cash, Securities, CD and Bank Guarantee
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DIFX Central Securities Depository (CSD)
DIFX owns & operates a Central Securities Depository (CSD).
Also, The DIFX owns a bare trustee company called ‘DIFX Guardian Limited’ DIFX Guardian is hold the legal title or beneficial title (where applicable) for the DIFX CSD.
The CSD holds DIFX listed securities in a 100% electronically dematerialized form.
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DIFX CSD Services
Custody of securities
Settlement Services for DIFX Clearing Members
Securities transfer between accounts (Push Transfers)
Securities transfer with DVP / RVP and DFP /RFP
DIFX facilitates transfer of securities between CSD accounts and Registry accounts
The CSD handles all corporate action processing & IPO processing.
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DIFX CSD Accounts Structure
Custodian can hold securities for their clients under their account at the CSD. The custodian account type are Omnibus without details and OWN accounts.
Trading Members will operate accounts at the CSD for Settlement purposes. The account type is normal accounts.
The Clearing Member will operate accounts at the CSD for Settlement, and other purposes. The account types are SSP and normal accounts.
HNWI and Corporate Investors operate accounts at the CSD for Custody purposes. The account type is normal accounts.
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DIFX Settlement
DIFX follows a continuous T + 3 rolling Settlement cycle.
Securities settlement takes place on the DIFX CSD and Cash settlement takes place through the DIFX Clearing Bank
DIFX has nominated Standard Chartered as its Clearing Bank.
All Clearing Members are required to have a Securities Settlement Pool account (SSP) for settlement purposes and a Settlement Bank account for Cash.
Presently, All securities traded are denominated, cleared & settled in US Dollars.
Settlement activity is not performed on US Fed Reserve holidays.
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DIFX Settlement (T+3)
07:00 16:40 13:00 14:30 16:30 17:15
2.Reservation CB liaises with
SB to conduct Cash
settlement
4.Re-compute
securities & cash obligations
8.Reconcile andCompute Cash
Shortfall
7. Receive
confirmationfrom CB
6. Send Cash obligations
to CB
9.Book transfer(Settlement)
Securities through CCP
19:30
10. Announce
Completion of
Settlement (excl. fails)
for T day trades
12. DIFX
Performs EOD for CSD
/Registry
1. DIFX
Performs BOD for
CSD/Registry
3. Identificatio
n of shortfall
14:15 17:30
11. CCP to
create new trades for
carry forward of
the security
fails
5. CCP to inform
affected CMs regarding
recomputed obligations
14:00
Start Time End Time
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DIFX Fails Settlement (T+4)
07:00 09:00 12:40 10:00 10:20 12:30 13:00
2.Reservation for
fails
CB liaises with SB to
conduct Cash
settlement4.
Re-compute securities
obligations
3. Identify security
shortfall for fails &
compute Cash
Settlement for the same
8.Reconcile andCompute Cash
Shortfall
10:30
7. Receive
confirmationfrom CB
6. Send Cash obligations
to CB
9.Book transfer(Settlement)
Securities through CCP
19:30
10. Announce
Completion of
Settlement for
Fails of T+3 day
11. DIFX
Performs EOD for
CSD/Registry
1. DIFX
Performs BOD for
CSD/Registry
5. CCP to inform
affected members regarding
recomputed obligations
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Future programs of DIFX CSD
DIFX envisages in future to have links with other International CSD (ICSD) which will enable DIFX account holders to move securities from one market to another markets.
The DIFX also plans to tie-up with regional CSD’s to allow investors to hold DIFX securities in their existing accounts
DIFX CSD also plans to offer other value added services:- Pledge of securities. Securities Lending & Borrowing of securities (SLB). SMS alerts, WAP / IVR based services. eC connect & eC access facilities. Online risk management profile.
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DIFX Registry
Holds the Shareholder Register of Legal Title for the Issuer.
Company Registrar functions.
Corporate Actions Processing.
IPO processing for the Issuers & Lead Managers.
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DIFX Clearing, CSD and Registry System (eClearSettle)
The DIFX uses its eClearSettle system for Clearing, Settlement, CSD and Registry activities.
The DIFX eClearSettle systems has been developed by Tata Consultancy Services (TCS Ltd) India.
It’s a Highly secured web based application system. It is an end to end integrated systems capable of performing Clearing,
Settlement, CSD, Risks Management & Registry Functions. It is SWIFT compliant for all internationally accepted messages. User friendly reports (PDF) on the pre specified email address. On-line query of all accounts & securities balances held. Participants can participate & instruct in all corporate action –
mandatory & voluntary.
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DIFX Clearing, CSD and Registry System (eClearSettle)
COMMON LIBRARY
Communication Layer
RegistryServices
RegistryServices
CSDServices
CSDServices
Integrated Risk ManagementIntegrated Risk Management
Cross BorderSettlement
Cross BorderSettlement
Repo Repo
Cash Clearing & Settlement
Cash Clearing & Settlement
Derivatives Clearing & Settlement
Derivatives Clearing & Settlement
BusinessPartnerMaster
BusinessPartnerMaster
InstrumentMaster
InstrumentMaster
CalendarCalendarUser
AdministrationUser
Administration
System ParametersSystem
Parameters
FeesAnd
Billing
FeesAnd
Billing
ReportsReports
SWIFTISO 15022
WAP IVR emailWeb
InterfaceFile
Transfer
SecuritiesLending andBorrowing
SecuritiesLending andBorrowing
Payment Services
Payment Services
CorporateActions
CorporateActions
PledgePledge
AccountsAccounts
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Thank You