Data Provisioning at ICSD: Past, Present and Challenges

AECSD Conference, Minsk9 September 2010

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The data provisioning landscape at ICSDs (I)

Today, the data provisioning services at ICSDs look like this:

ICSD = international securities depository

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The data provisioning landscape at ICSDs (II)

A multitude of players interacting independently and providing data to Clearstream:

Issuers / prospectus Data vendors (Bloomberg, Reuters, Telekurs, FT, …) Other CSDs Paying, calculation, exchange agents Agent banks

Around 25-30 different sources may at any time provide security data to Clearstream.

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The data provisioning landscape at ICSDs (III)

Additionally …

still no full straight-through processing (STP) of incoming data still labour intensive processes

… while customers …

expect Clearstream to be the “Trusted Source”. expect to receive data provisioning at no extra cost

(“bundled with safekeeping fees”). will benchmark against other providers (“Bloomberg is always right”)

but not pay for the service. will legally challenge Clearstream in case of errors.

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Some facts on operational risks associated with data provisioning

Large operational risk in ICSDs is with corporate actions / income, not with settlement (collateralised).

On average, 1.5 percent of income payments need to be reversed because of incorrect incoming data.

What if …

Clearstream pays out a coupon incorrectly and client goes in default? issuer goes in default and Clearstream paid out, based on incorrect information?

Settlement activity is collateralised, not income / corporate actions activity

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Actions taken to provide clean data (I)

Data provisioning can be compared to the diamond industry:

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“Cleansing and Scrubbing” programme

Actions taken to provide clean data (II)

Create one database for incoming data

Compare based on past performance of data-vendors

Select best possible data out of various providers

Make selection of purest data and provide to client

Cleansing and Scrubbing reduced reversals by 60 percent. Challenge: How to recuperate multi-million investment?

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Challenges of (I)CSDs concerning data provisioning

Do my General Terms and Conditions provide space for data provisioning services? Are we legally covered in case of incorrect information?

How do we charge data provisioning? Can we process incoming data STP? Since the core of our industry’s income is safekeeping fees based on market

value, are we sure prices are correct for complex / illiquid securities? Can we outsource (part of) the data provisioning function?