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Post-Trade Linkage Models7th International SASE Conference; October 19, 2012
Necla Kucukcolak, Takasbank International Markets - Manager
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– Building Blocks• Concepts• Direct Linkage• Indirect Linkage• Comparison: Direct vs. Indirect
– Expanded and Hybrid Models• Global Custody• ICSD• Asian ICSD• SIX SIS of Switzerland• Link-up Markets• Euroclear Group- Single Platform• ESES Markets• Target 2S• Comparison: Focus
– Conclusion
AGENDA
Necla Kucukcolak, Takasbank International Markets - Manager
Necla Kucukcolak, Takasbank International Markets - Manager 3
Building Blocks:Basic Direct and Indirect Linkage
Necla Kucukcolak, Takasbank International Markets - Manager 4
Direct Linkage Model Account Set-upOmnibus Account Structure Segregated Account Structure
CSDI (Intermediary CSD)
Client I-2
Client I-1
CSDP (Primary CSD)
CSDI
Other clients
CSDI (Intermediary CSD)
CSDP (Primary CSD)
Client I-2
Client …
Client I-1
CSDI
Client I-1
Client I-2
Client …
Other clients
Primary-CSD Intermediary-CSD Result
Segregated omnibus Segregated: Intermediary-CSD opens segregated accounts at Primary-CSD
Omnibus segregated Omnibus: Intermediary-CSD opens an omnibus account at Primary-CSD, and segregate at its own accounts.
Omnibus omnibus Omnibus: Intermediary-CSD opens an omnibus account at the Primary-CSD
Segregated segregated Omnibus: If the segregation level is the same, CSDs might operate on omnibus. The CSDs can develop a process so that they can mirror their account holdings.
• Primary-CSD: securities are primarily deposited. • Intermediary-CSD: intermediates holding, transfer and all related operations of the securities through an account at the Primary-CSD
or at a local custodian bank.
Necla Kucukcolak, Takasbank International Markets - Manager 5
Indirect Linkage Model: Sub-Custody Account Set-up
Omnibus Account Structure Segregated Account Structure
a.
Country of Primary CSD
Country of Intermediary CSD
CSDI (Intermediary
CSD)
Client I-2
Client …
Client I-1
Local Custodian
Bank
CSDI
Client I-1
Client I-2
Client …
Other clients
CSDP (Primary CSD)
Loc. Cust. Bank
CSDI
Other clients
Other clients
Client I-1
Client I-2
Client …
Country of Primary CSD
Country of Intermediary CSD
CSDI (Intermediary
CSD)
Client I-2
Client …
Client I-1
CSDP (Primary CSD)
Local Custodian
Bank
Loc. Cust. Bank
Other clients
Other clients
CSDI
Local custodian bank: Agent bank of the Intermediary-CSD at the country of Primary-CSD; sub-custodian of the Primary-CSD at the target country, provides sub-custody services to the Intermediary-CSD
• Value-added sub-custody services: tax services, enhanced corporate action notifications, market claims, proxy voting, cash sweep service, integrated FX or PvP services.
Necla Kucukcolak, Takasbank International Markets - Manager 6
Comparison: Direct vs. IndirectDirect Linkage Indirect Linkage
Infrastructure set-up cost high lowEase of account opening procedures shorter more assistance
Ease of communication higher initial set-up costs standard but limited scope
Level of operational know- how on settlement and corporate action processing in the target market
higher lower
Timeliness of notifications from source with delayUninterupted flow of information yes no
Strictness of instruction deadlines real market deadlines Stricter deadlines
Enhanced value added services less available in many cases typically available
Necla Kucukcolak, Takasbank International Markets - Manager 7
Expanded and Hybrid Models
• Link-up Markets• Global Custody• ICSD• Asian ICSD• SIX SIS of Switzerland• Euroclear Group- Single Platform• ESES Markets• Target 2S
Necla Kucukcolak, Takasbank International Markets - Manager 8
Link-Up Markets
Source: Link-up Markets, July 2011 Publication
- Founded as joint venture by the CSDs of Germany, Greece, Spain, Austria, Switzerland, Denmark and Norway in April 2008.
- Aim of the joint venture is to establish and maintain a conversion technology which standardizes the communication among CSDs, consequently enables effective and cost efficient interoperability of CSDs.
- CSDs of Cyprus (2008), South Africa (2009) and Egypt (2010) has participated later on.
Link-up model: - Participating CSDs have direct links to each other via bilateral agreements. - A technical functionality that eases the direct CSD to CSD links by enabling standardized format conversions.
Settlement is done through direct accounts of CSDs at one another and cash settlement is done via correspondent banks or T2S.
Necla Kucukcolak, Takasbank International Markets - Manager 9
Global Custodian Banks
Client Level
Banks Financial Institutions
Institutional Investors
Intermediary- CSDs
Individual Investors
Global Level
Global Custodian Bank
Local Level
Primary Depository Level
Agent Bank
Own Agent … …
Primary- CSD
Primary- CSD
Primary- CSD
…
Primary CSDs are national CSDs and ICSDs
A global custodian is a single point that gives settlement, custody and related cash and FX services in addition to tax and reporting services.
A global custodian establishes
- sub-custody links to national markets either
• by using any local custodian bank operating in the country or
• by incorporating its own sub-
custodian bank, which is indeed a local custodian bank.
Necla Kucukcolak, Takasbank International Markets - Manager 10
ICSD• Two ICSDs of Europe Euroclear Bank,
Clearstream Banking Luxemburg.
• Primary and exclusive service of ICSDs is Eurobond safekeeping and settlement.
– Today Eurobonds are issued in Euroclear Bank Brussels or in Clearstream Banking Luxemburg and settlement is completed real time internally within the ICSDs or in batches (15 batches per day) between the two ICSDs.
• ICSDs today also offer global custody services.
– They have established direct and indirect links to the local markets.
– ICSDs are leading institutions for market integration and post trade consolidation in Europe.
ICSD Clients
Banks Financial Institutions
Institutional Investors
Intermediary- CSDs
Individual Investors
ICSDs Euroclear
Bank
Common Depositories
Issuers
Common Depository
Issuer
Clearstream Bank
Common Depository …
… Issuer … Issuer …
Necla Kucukcolak, Takasbank International Markets - Manager 11
Asian ICSD • ASEAN ICSD Link– Exclusively designed for ASEAN+3
• Bonds• Securities Markets
– Not live yet
• ASEAN Trading Link– Aim is to connect exchanges throughout
Southeast Asia.
– went live on September 2012 with a link-up between the Singapore Exchange and Bursa Malaysia.
– Stock Exchange of Thailand is expected to link-up from in October.
– Viet Nam's two exchanges will participate at a later date, together with stock exchanges in the Philippines and Indonesia.
– As of September, 31 brokers from across Malaysia, Singapore and Thailand have joined ASEAN Trading Link.
Source: ABMI Group of Experts Final Report, Part II, Evaluation of the Feasibility of Regional Settlement Intermediary Options for the ASEAN+3, June 2010
Necla Kucukcolak, Takasbank International Markets - Manager 12
SIX SIS International Custody Hub
Source: SIX SIS internet site
SIX SIS Business Model: Combination of local and international settlement and custody models.- SIX SIS takes settlement instructions for market settlement of Swiss Exchange and other European Markets
like SWX Europe, Eurex directly or through SIX x-Clear. - Settlement instructions for OTC trades are sent to SIX SIS via SWIFT or proprietary messaging systems . - SIX x-Clear is the Clearing House and CCP for Swiss market. It is also interoperable in UK market as CCP. - SIX SIS has direct links to ICSDs and some CSDs. To some other CSDs it uses local custodian banks as agents. It
is the Primary-CSD for Swiss securities and Intermediary-CSD for all others. It is one of the founding participants of Link-Up Markets.
Necla Kucukcolak, Takasbank International Markets - Manager 13
Euroclear Single Platform
Source: “EUI Single Platform Implementation Forum” Publication, April 2008
• Idea is to harmonize Euroclear markets in terms of legal and functional structure.
• Aim was to create a single platform for issuers and investors, in which they can issue securities, get issuer and investor services in corporate actions and tax issues.
• High technical cost, difficulties in harmonizing country specific procedures and regulations were the main obstacles. After the financial crisis of 2008, the project is postponed to an unknown future.
Necla Kucukcolak, Takasbank International Markets - Manager 14
Euroclear ESES Markets
ESES Clients
Belgian Market Participants
-Trade confirmation - Settlement -Custody -Collateral Management -New Issues
Euroclear Netherlands
Euroclear France
French Market Participants
Dutch Market Participants
International Clients (links)
Euroclear Belgium
Group Securities
Eligible Foreign
Securities Foreign CSDs ICSDs
ESES PLATFORM
ESES Issuers
Issuers
ESES, Euroclear Settlement of Eurozone Securities- is a harmonized
system of trade confirmation, settlement and custody for securities listed in Euronext market place kept in Euroclear France, Euroclear Belgium and Euroclear Netherlands.
Necla Kucukcolak, Takasbank International Markets - Manager 15
Target 2S
Source: European Central Bank, “T2S Settling Without Borders” Broucher, November 2009
• Aim is to settle all securities traded in Europe on a single platform and to eliminate the difference between domestic and cross-border settlement in Europe.
• The core service that T2S provides is the “real time DvP settlement in central bank money” for securities traded in Europe
• “Optimization of settlement” is achieved by optimization algorithms and real time technical netting functionality.
Necla Kucukcolak, Takasbank International Markets - Manager 16
Comparison: Focus
Focus Global Cust. ICSDs SIX SIS Link-up Single Platf. Target 2S
Sub-custodian Processing * * *
Direct Links * * *
Interoperability *
Harmonization and integration of markets * *
Necla Kucukcolak, Takasbank International Markets - Manager 17
• Post trade linkage models– First step to internationalize capital markets
• Globalization and interoperability of markets
– Inspirational and modeling examples for regional and international linkage projects
• Cost-benefit analysis and feasibility studies need to be completed
CONCLUSION
Necla Kucukcolak, Takasbank International Markets - Manager 18
Takasbank• Central Clearing and Settlement Institution of Turkey
– providing post-trade securities services as well as banking facilities for the Turkish Capital Market participants
• Enhance integration with international settlement and clearing systems– Euroclear Bank (direct link, since 1997)– Other links in progress
• with CSDs and ICSDs (e.g. SIX SIS, Clearstream)• With global custodians (Citibank London)
Necla Kucukcolak, Takasbank International Markets - Manager 19
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Thank you