Date post: | 19-Dec-2015 |
Category: |
Documents |
View: | 216 times |
Download: | 0 times |
November 2006
HSBC Securities ServicesMiddle East
Securities Services in MENA Marketsa Comparison with International Benchmarks
Agenda
• Middle East Capital Markets: An Overview
• Middle East markets and G30 recommendations – A comparison
• Suggested improvements for MENA markets
HSBC’s Custody and Clearing Global Network
Bahrain Mauritius
EgyptPalestinian
Autonomous Area
Jordan Qatar
Lebanon Saudi Arabia
Oman United Arab Emirates
Greece UAE - DIFX
Kuwait Turkey
Malta
Australia Malaysia
Bangladesh New Zealand
Hong Kong Philippines
India Singapore
Indonesia Sri Lanka
Japan Taiwan
Kazakhstan Thailand
Korea VietnamMainland China
(Shenzhen, Shanghai)
Argentina Bermuda
Brazil M exico
Middle East/Mediterranean
Asia Pacific
Americas
covers 37 markets of which 11 are in the Middle East
HSBC’s global network includes 9,500 offices in 76 countries and territories
Middle East Capital Markets- An Overview
The Region – Economy and Capital Market
• Market cap more than USD 1 Trn.• Key drivers
High oil price, creating huge liquidity Repatriation of Arab money back to the Gulf Diversification and privatisation efforts
• More stocks are opening up for foreign investors – some countries allow up to 100%, left to the discretion of the companies
• Stable exchange rate, no restrictions on repatriation• No tax in most countries• Electronic trading, stocks held in dematerialised form • Significant growth (assets - 200%, trxns 140% over 2004)
• Needed – more robust regulations, institutional investors, international settlement and custody practices
The Region – Market Settlement features
• Account structureSegregated accounts - Beneficial owner marketsOmnibus account structure not allowed
Impact: Longer time to market, increased paperwork and costs
• Settlement practiceSD varies from T to T+3Stock moves on T, cash on SDTwo accounts – depository and trading (broker access)Before trading, stock should be in trading accountHence no fails, but little scope to control movement of stock after trade – risk for sale trades
Impact: Settlement exposure, inadequate custodial control, front running risk
The Region – Market Settlement features
• Securities Lending No short sales, no stock lending Securities lending announced in some markets but yet to
take off
Impact: Low volumes and portfolio yields
• Custodian services Market settlement between brokers, not with custodian Role of custodian not well understood, but changing
Impact: Inadequate risk management
Typical Structures for Foreign Institutional Investors (FIIs)
FII
International Broker
Local market settlement
Global Custodian
Local Sub-Custodian Local Broker
Middle East markets and G30 recommendations –
A comparison
G30 – Recommendations - 2003
Eliminate paper and
automate
• Eliminate issuance, use, transfer, and retention of paper certificates
• Market participants to automate elements of process such as confirmations and trade allocations.
• Use of electronic communication
• Avoid duplicate recording of data and manual addition of information
Creating a strengthened, interoperable Global Network
G30 – Recommendations - 2003
Eliminate paper and
automate
• Dematerialized securities
• Issuance of electronic trade notes in MT515 format to facilitate STP
• Online connectivity to depositories
Creating a strengthened, interoperable Global Network
G30 – Recommendations - 2003
Eliminate paper and
automate
• Dematerialized securities
• Issuance of electronic trade notes in MT515 format to facilitate STP
• Online connectivity to depositories
Creating a strengthened, interoperable Global Network
Harmonize messaging
standards &
communication
protocols
• Adopt ISO15022 as global standard for straight through securities messaging
G30 – Recommendations - 2003
Eliminate paper and
automate
• Dematerialized securities
• Issuance of electronic trade notes in MT515 format to facilitate STP
• Online connectivity to depositories
Harmonize messaging
standards &
communication
protocols
• Adopt ISO15022 as global standard for straight through securities messaging –
to be used across all market participants to achieve 100% STP
Creating a strengthened, interoperable Global Network
G30 – Recommendations - 2003
Eliminate paper and
automate
• Dematerialized securities
• Issuance of electronic trade notes in MT515 format to facilitate STP
• Online connectivity to depositories
Harmonize messaging
standards &
communication
protocols
• Adopt ISO15022 as global standard for straight through securities messaging –
to be used across all market participants to achieve 100% STP
Creating a strengthened, interoperable Global Network
Develop and
implement reference
data standards
• Identify, develop and adopt universal securities, counter party and relevant generic reference data standards
• Issuers, exchanges to make all relevant information available to market for a fair price and timely basis
G30 – Recommendations - 2003
Eliminate paper and
automate
• Dematerialized securities
• Issuance of electronic trade notes in MT515 format to facilitate STP
• Online connectivity to depositories
Harmonize messaging
standards &
communication
protocols
• Adopt ISO15022 as global standard for straight through securities messaging –
to be used across all market participants to achieve 100% STP
Creating a strengthened, interoperable Global Network
Develop and
implement reference
data standards
• All ME markets should make use of International Securities Identification Numbers(ISINs) for securities transactions
• A central regional authority should be appointed and entrusted with the
function of assigning ISINs for all Middle east listed securities
G30 – Recommendations - 2003
Eliminate paper and
automate
• Dematerialized securities
• Issuance of electronic trade notes in MT515 format to facilitate STP
• Online connectivity to depositories
Harmonize messaging
standards &
communication
protocols
• Adopt ISO15022 as global standard for straight through securities messaging –
to be used across all market participants to achieve 100% STP
Creating a strengthened, interoperable Global Network
Develop and
implement reference
data standards
• All ME markets should make use of International Securities Identification Numbers(ISINs) for securities transactions
• A central regional authority should be appointed and entrusted with the
function of assigning ISINs for all Middle east listed securities
Synchronize timing
between clearing,
settlement, and
payment systems
• Operation of payments and forex systems should not reduce efficiency or increase risk in the clearing and settlement systems and vice versa.
• Develop a comprehensive action plan to increase efficiency and safety of cross border securities transactions
G30 – Recommendations - 2003
Eliminate paper and
automate
• Dematerialized securities
• Issuance of electronic trade notes in MT515 format to facilitate STP
• Online connectivity to depositories
Harmonize messaging
standards &
communication
protocols
• Adopt ISO15022 as global standard for straight through securities messaging –
to be used across all market participants to achieve 100% STP
Creating a strengthened, interoperable Global Network
Develop and
implement reference
data standards
• All ME markets should make use of International Securities Identification Numbers(ISINs) for securities transactions
• A central regional authority should be appointed and entrusted with the
function of assigning ISINs for all Middle east listed securities
Synchronize timing
between clearing,
settlement, and
payment systems
• The Middle East markets are not true DVP markets as there is no simultaneous
cash and securities settlements.
• Several Middle East markets settle direct with brokers as against the custodianswho are the settlement agents appointed by institutional investors.
G30 – Recommendations - 2003
Automate and
standardize
institutional trade
matching
• Market participants to collectively develop and use fully compatible and industry accepted technical and market practice standards for automated
confirmation and agreement of institutional trade details on the day of trade.
Creating a strengthened, interoperable Global Network
G30 – Recommendations - 2003
Automate and
standardize
institutional trade
matching
• Trades executed by brokers on the exchange auto match and flow into the depository systems for settlement.
• Pre-matching of trades between brokers and custodian is upon receipt ofclient instructions and broker trade note via facsimile.
Creating a strengthened, interoperable Global Network
G30 – Recommendations - 2003
Automate and
standardize
institutional trade
matching
• Trades executed by brokers on the exchange auto match and flow into the depository systems for settlement.
• Pre-matching of trades between brokers and custodian is upon receipt ofclient instructions and broker trade note via facsimile.
Creating a strengthened, interoperable Global Network
Expand the use of
central counterparties
• Assess the potentially substantial risk reduction and efficiency improvementsof using a central counter party.
G30 – Recommendations - 2003
Automate and
standardize
institutional trade
matching
• Trades executed by brokers on the exchange auto match and flow into the depository systems for settlement.
• Pre-matching of trades between brokers and custodian is upon receipt ofclient instructions and broker trade note via facsimile.
Expand the use of
central counterparties
• The clearing house run by exchanges in the Middle East should provide acentral counter party system that will guarantee that trades between membersare settled and eliminate default risk.
Creating a strengthened, interoperable Global Network
G30 – Recommendations - 2003
Automate and
standardize
institutional trade
matching
• Trades executed by brokers on the exchange auto match and flow into the depository systems for settlement.
• Pre-matching of trades between brokers and custodian is upon receipt ofclient instructions and broker trade note via facsimile.
Expand the use of
central counterparties
• The clearing house run by exchanges in the Middle East should provide acentral counter party system that will guarantee that trades between membersare settled and eliminate default risk.
Creating a strengthened, interoperable Global Network
Permit Securities
Lending and
borrowing
• Relevant authorities should permit securities lending and borrowing as a method for expediting the settlement of securities transactions.
G30 – Recommendations - 2003
Automate and
standardize
institutional trade
matching
• Trades executed by brokers on the exchange auto match and flow into the depository systems for settlement.
• Pre-matching of trades between brokers and custodian is upon receipt ofclient instructions and broker trade note via facsimile.
Expand the use of
central counterparties
• The clearing house run by exchanges in the Middle East should provide acentral counter party system that will guarantee that trades between membersare settled and eliminate default risk.
Creating a strengthened, interoperable Global Network
Permit Securities
Lending and
borrowing
• Securities lending and borrowing is not permitted in all ME markets
• Lending allows increase in portfolio yields while maintaining ownershipbenefits and related entitlements on lent securities.
• Borrowing avoids failed trades & reduces financing costs of failed settlements
G30 – Recommendations - 2003
Automate and
standardize
institutional trade
matching
• Trades executed by brokers on the exchange auto match and flow into the depository systems for settlement.
• Pre-matching of trades between brokers and custodian is upon receipt ofclient instructions and broker trade note via facsimile.
Expand the use of
central counterparties
• The clearing house run by exchanges in the Middle East should provide acentral counter party system that will guarantee that trades between membersare settled and eliminate default risk.
Creating a strengthened, interoperable Global Network
Permit Securities
Lending and
borrowing
• Securities lending and borrowing is not permitted in all ME markets
• Lending allows increase in portfolio yields while maintaining ownershipbenefits and related entitlements on lent securities.
• Borrowing avoids failed trades & reduces financing costs of failed settlements
Automate and
standardize asset
servicing processes
• Market participants to advise investors all details of corporate events in an automated, timely manner and in compliance with industry standards.
• Harmonize and make transparent the processes, documentation andcommunication of information connected with foreign ownership restrictions
G30 – Recommendations - 2003
Automate and
standardize
institutional trade
matching
• Trades executed by brokers on the exchange auto match and flow into the depository systems for settlement.
• Pre-matching of trades between brokers and custodian is upon receipt ofclient instructions and broker trade note via facsimile.
Expand the use of
central counterparties
• The clearing house run by exchanges in the Middle East should provide acentral counter party system that will guarantee that trades between membersare settled and eliminate default risk.
Creating a strengthened, interoperable Global Network
Permit Securities
Lending and
borrowing
• Securities lending and borrowing is not permitted in all ME markets
• Lending allows increase in portfolio yields while maintaining ownershipbenefits and related entitlements on lent securities.
• Borrowing avoids failed trades & reduces financing costs of failed settlements
Automate and
standardize asset
servicing processes
• Corporate event information is sometimes delayed on exchange websites and if available are often in Arabic that involves translation delays and thereby delayed relay of information to investors.
• Foreign ownership limits are monitored by the exchanges/depositories
G30 – Recommendations - 2003
Financial integrity and
risk management
practices
• Settlement and clearing service providers should have in place risk management processes to enable them conduct business in safe, sound and prudent manner.
• Users of services of clearing and settlement service providers must establishrobust due diligence procedures and counter party risk management controls.
Mitigating Risk
G30 – Recommendations - 2003
Financial integrity and
risk management
practices
• Due diligence should be carried out on settlement participants both upfront,while admitting for membership and ongoing.
• In case custodian is settling the trade, broker limits should be blocked tillcustodian confirms the trade
Mitigating Risk
G30 – Recommendations - 2003
Ensure financial
integrity of clearing
and settlement service
providers
• Due diligence should be carried out on settlement participants both upfront,while admitting for membership and ongoing.
• In case custodian is settling the trade, broker limits should be blocked tillcustodian confirms the trade
Mitigating Risk
Ensure final,
simultaneous transfer
and availability of
assets
• Link securities transfers to fund transfers in a way that achieves effectivedelivery versus payment (DVP).
• Make transparent at which stage finality of transfer is achieved with rules thatenable the receiver to re-use securities and cash without further delay.
G30 – Recommendations - 2003
Ensure financial
integrity of clearing
and settlement service
providers
• Due diligence should be carried out on settlement participants both upfront,while admitting for membership and ongoing.
• In case custodian is settling the trade, broker limits should be blocked tillcustodian confirms the trade
Mitigating Risk
Ensure final,
simultaneous transfer
and availability of
assets
• ME markets do not practice a true delivery versus payment (DVP) settlement system – stock moves on T, cash moves on T+2/3
• In most markets, securities move out on trade date itself without confirmation of investor.
• Concept of trading account reduces investor control over his holdings.
G30 – Recommendations - 2003
Ensure financial
integrity of clearing
and settlement service
providers
• Due diligence should be carried out on settlement participants both upfront,while admitting for membership and ongoing.
• In case custodian is settling the trade, broker limits should be blocked tillcustodian confirms the trade
Mitigating Risk
Ensure final,
simultaneous transfer
and availability of
assets
• ME markets do not practice a true delivery versus payment (DVP) settlement system – stock moves on T, cash moves on T+2/3
• In most markets, securities move out on trade date itself without confirmation of investor.
• Concept of trading account reduces investor control over his holdings.
Ensure effective
business continuity
and disaster recovery
planning
• All market participants must regularly review, update and test their business continuity and disaster recovery plans as well as those of a systemicallyimportant institution.
• Plans should be robust to ensure with reasonable certainty that critical operations will continue with high level of integrity following disruption.
G30 – Recommendations - 2003
Ensure financial
integrity of clearing
and settlement service
providers
• Due diligence should be carried out on settlement participants both upfront,while admitting for membership and ongoing.
• In case custodian is settling the trade, broker limits should be blocked tillcustodian confirms the trade
Mitigating Risk
Ensure final,
simultaneous transfer
and availability of
assets
• ME markets do not practice a true delivery versus payment (DVP) settlement system – stock moves on T, cash moves on T+2/3
• In most markets, securities move out on trade date itself without confirmation of investor.
• Concept of trading account reduces investor control over his holdings.
Ensure effective
business continuity
and disaster recovery
planning
• While the depositories and exchanges have business continuity and disaster recovery plans, it is difficult to confirm the robustness of these plans in absence of testing results.
• Regulators must encourage the process of industry wide contingency planning.
G30 – Recommendations - 2003
Ensure financial
integrity of clearing
and settlement service
providers
• Due diligence should be carried out on settlement participants both upfront,while admitting for membership and ongoing.
• In case custodian is settling the trade, broker limits should be blocked tillcustodian confirms the trade
Mitigating Risk
Ensure final,
simultaneous transfer
and availability of
assets
• ME markets do not practice a true delivery versus payment (DVP) settlement system – stock moves on T, cash moves on T+2/3
• In most markets, securities move out on trade date itself without confirmation of investor.
• Concept of trading account reduces investor control over his holdings.
Ensure effective
business continuity
and disaster recovery
planning
• While the depositories and exchanges have business continuity and disaster recovery plans, it is difficult to confirm the robustness of these plans in absence of testing results.
• Regulators must encourage the process of industry wide contingency planning.
Advance legal
certainty over rights to
securities, cash or
collateral
• Market participants must be able to determine what law defines and governstheir rights to securities, cash or collateral in a clearing and settlement system.
G30 – Recommendations - 2003
Ensure financial
integrity of clearing
and settlement service
providers
• Due diligence should be carried out on settlement participants both upfront,while admitting for membership and ongoing.
• In case custodian is settling the trade, broker limits should be blocked tillcustodian confirms the trade
Mitigating Risk
Ensure final,
simultaneous transfer
and availability of
assets
• ME markets do not practice a true delivery versus payment (DVP) settlement system – stock moves on T, cash moves on T+2/3
• In most markets, securities move out on trade date itself without confirmation of investor.
• Concept of trading account reduces investor control over his holdings.
Ensure effective
business continuity
and disaster recovery
planning
• While the depositories and exchanges have business continuity and disaster recovery plans, it is difficult to confirm the robustness of these plans in absence of testing results.
• Regulators must encourage the process of industry wide contingency planning.
Advance legal
certainty over rights to
securities, cash or
collateral
• Legal framework, particularly with respect to collateral needs improvement
Suggested improvements for MENA markets
Best practices of international markets
• Effective securities market rules and regulations
• Access to foreign institutional investors
• Well defined roles of market intermediaries• Active involvement of market participants in market
development and regulatory initiatives
• Robust risk management systems
• Effective business continuity and disaster recovery
planning
Suggested steps for MENA markets
• Simplified account opening procedures – currently some markets require notarization and consularization of documents.
• Facilitate omnibus account structure
• Recognition of sub-custodians for institutional investors
• DVP settlement with simultaneous settlement of cash and securities
• Settlement should be controlled by custodian
• Restrict access to client holdings to authorized agents of the client
• Direct and electronic link to depository systems
• Electronic fund transfer and income payment infrastructure
• No requirements of pre-funding or pre-advice
International investor requirements…
Account Administration
MarketNews
CorporateActions
IncomeCollection
24X7
Client
Services
Der
ivat
ives
Reporting
Taxa
tionTreasury
Cash M
gmt
TradeSettlement
Clearing