Small local CSDs in a world of globalization and consolidation Peter Falk, Product Director, EXIGO...
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Transcript of Small local CSDs in a world of globalization and consolidation Peter Falk, Product Director, EXIGO...
Small local CSDs in a world ofglobalization and consolidation
Peter Falk, Product Director, EXIGO CSD AMEDA meeting, Marrakech, 20 – 21 April 2006
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OMX owns exchanges in the Nordic Baltic region and develops and provides technology and system services to financial companies around the globe.
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Footprint of our business
Exchanges(Marketplaces and services)
Technology(Customer examples)
Market Participants
4000 broker trading applications
Partnerships:
ORC
Cameron Systems
Information & Data Services
677 listed companies
149 members
Exchanges
Thailand Futures Exchange
ISE
ASX – Australian Stock Exchange
SGX – Singapore Exchange
HKEX – Hong Kong Exchanges
Nord Pool
ICAP
+ 4,000 broker trading applications
EDX London
Copenhagen Stock Exchange
Stockholm Stock Exchange
Helsinki Stock Exchange
Riga Stock Exchange
Tallinn Stock Exchange
Vilnius Stock Exchange
Clearing & CSD
SFE – Sydney Futures Exchange
HKEX – Hong Kong Exchanges and Clearing
Nord Pool
NCSD (20%)
Stockholm Stock Exchange
EDX London
Estonian CSD
Latvian Central Depository
Lithuanian CSD
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Market presence – More than 60 customers
Asia• Hong Kong Exchanges and Clearing• Jakarta Stock Exchange• Korea Exchange• Philippine Dealing & Exchange Corp• Port Moresby Stock Exchange • Singapore Exchange• Shanghai Stock Exchange• Surabaya Stock Exchange• Thailand Futures Exchange
Australasia• Australian Stock Exchange• Bendigo Stock Exchange• New Zealand Exchange Limited• SFE Corporation
Americas• AMEX - American Stock Exchange• Bahamas International
Securities Exchange• Barbados Stock Exchange• Bermuda Stock Exchange• Boston Stock Exchange• Canadian Trading &
Quotation System• ICAP• ISE - International
Securities Exchange• Jamaica Stock Exchange• NASD - National Association
of Securities Dealers• Trinidad & Tobago Stock Exchange
Middle East & Africa• Abu Dhabi Securities Market• Bahrain Stock Exchange• Bourse Regionale des Valeurs
Mobilieres• Cairo & Alexandria Stock Exchange• Doha Securities Market• Dubai Financial Market• Nigerian Stock Exchange• Palestine Securities Exchange• Tadawul (Saudi Arabia)• Tehran Stock Exchange
Europe• Athens Exchange• Borsa Italiana• Bucharest Stock Exchange• Budapest Stock Exchange• Copenhagen Stock Exchange (OMX)• Cyprus Stock Exchange• EDX London• Helsinki Stock Exchange (OMX)• ICAP• Iceland Stock Exchange• Icelandic Securities Depository• Istanbul Stock Exchange• Malta Stock Exchange• MICEX• Nord Pool / Nord Pool Clearing• NOS• NYMEX Europe• OMIP – Iberian Power Exchange• OPCOM / Romanian Power Exchange• Oslo Börs• Polish Power Exchange • Riga Stock Exchange (OMX)• Stockholm Stock Exchange (OMX)• SWX Swiss Exchange• Tallinn Stock Exchange (OMX)• TLX• Turkish Derivatives Exchange• Vilnius Stock Exchange (OMX)• Wiener Börse AG
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CSD Benchmarking Framework
Example CSD Benchmark
High Quality
Efficient Operations
Risk Elimination Broad Service Offering
Adherence to International Standards
Target scenario
Current situation
Level 4: best practice local CSD
Level 5: multi-instrument, multi-currency, links
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Trades
Clearing
Settlement
Custody
Registration
AssetServicing
Managestanding
data
ManageRelationships
Accounting
1.0
2.0
3.0
4.0
5.0
6.0
9.0
8.0
7.0
Reporting10.0
Communica-tions
11.0
Business Functional Analysis
Capture key functional components of a CSD
Agenda
•The current situation
•Problems and challenges
•Driving forces
•Elements to a strategy
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Some characteristics
•Local participants
•Local securities
•Small part of regional and global market
•Small volume but also a broad offering of securities
•Local market consolidation not yet feasible
•Dematerialized?
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Baltic region
8 markets8 currencies
A small corner of Europe(only a few percent)
A small corner of The Nordic Region(only a few percent)
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0
2000
4000
6000
8000
10000
12000
1 2 3 4 5 6
Estonia - Latvia - Lithuania
Value in custody (million €)
20.000 million € in custody
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A broad variety of instruments(national differences)
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0
100
200
300
400
500
600
700
1 2 3 4 5 6
Estonia - Latvia - Lithuania
Daily transaction volume 2005
1000 transactions per day
Agenda
•The current situation
•Problems and challenges
•Driving forces
•Elements to a strategy
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Problems and challenges – local level
•Size
– Small size = small revenues
– Small size = lack of development resources
•Lack of standard interfaces
•Lack of functionality
– Real time DvP
– More than one batch settlement
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Problems and challenges – regional level
•Different market practices
– Account structure
– Corporate actions processing
– Settlement procedures
– Reporting requirements
•Different rules and regulations
– Account structure
– Unlisted companies
– Reporting requirements
•Different custody service solutions
Not all differences are important!
Agenda
•The current situation
•Problems and challenges
•Driving forces
•Elements to a strategy
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Driving forces
•Globalization, regionalization, single market
•Localization
•Regional and international players
•Moving towards standards
•Efficiency, costs, competitive pressure
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CSDs – a historical view
Improvement market by market
• Local models, local systems
Role models
• Frankfurter Kassenverein and DTC
• Euroclear
• VP and Sicovam
Decades of convergence
• ISSA, FIBV, G-30, BIS, IOSCO …
CSDs are mature businesses undergoing great change
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Local investors Foreign investors
Loca
l se
curi
ties
Fore
ign
secu
riti
es
Local investors Foreign investors
Loca
l se
curi
ties
Fore
ign
secu
riti
es
Yesterday
The traditional CSD turf is getting smaller
Tomorrow
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Global initiatives with implications for CSDs
• G-30
– 1989: 9 recommendations (*)
– 2003: 20 recommendations
• CPSS (BIS/IOSCO)
– 2001: Core principles – payment systems
– 2001: Recommendations for securities settlement systems (*)
– 2002: Assessment methodology
– 2004: Risk management for CCPs
• IMF and World Bank: FSAP assessments
• Hague Convention: removal of conflict-of-law
• The Giovannini Group
– Action plan for removing the 15 barriers
• ECB
– 9 minimum operational standards for SSS
• ECB / CESR
– Moving 19 CPSS recommendations binding standards
• The European Commission
– Directives on collateral, finality, investment services
– Principles for functional regulation.
(*) = local scope
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Conflict: International vs. local
Regional and international market participants request easy, secure and low cost access to several markets.Large issuers require large liquidity pool
Small and medium-sized issuers, localinvestors, local participants and domesticconsiderations request extremely efficientSTP transaction flows for domestic trades
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Nordic and Baltic region
OMX regional ambition:To make the Nordic and Baltic region be perceived as one securities market, so efficient and attractive that it will climb the ladder of the leading European markets
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*Foreigned owned with branch in Sweden
0
5
10
15
20
25
30
35
40
45
50
55
60
65
70
75
1965 1980 1987 1990 1993 1996 1999 2002
Local Foreign owned * Remote
0
5
10
15
20
25
30
35
40
45
1980 1983 1986 1989 1992 1995 1998 2001 2004
Local Remote
STOCKHOLMSBÖRSEN
HEX HELSINKI
Exchange members: growth in remote, local stable
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# of trades per year
Cost
0
Exchange
Settlement
Cost of market participation – coarse view
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NOREX is the first stock exchange alliance to implement a joint system for equity, fixed income and derivatives trading as well as harmonised rules
One membership and one connection for members!Shared technology reducing cost
Cross membership
Local clearing & settlement
A FULLY INTEGRATED MARKET!
Wide Distribution Network:- SB Members- OB Members- CSE Members- HEX members- ICEX members- RSE members- TSE members- VSE members- (EDX London Members)
Wide range of products and services
Common regulatory framework: Harmonized membership and trading rules
Single point of liquidity - One single order book
Joint InfrastructureOMX Trading & Clearing systems
EDX* London
Link-Up opportunitieswith other exchanges worldwide
*Derivatives
CSE
SB
OBHEX
ICEX
RSE
TSE
VSE
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DK ICEDK ICE NO SE FI EST LAT LIT
TRADINGTRADING TRADING TRADING TRADING TRADING TRADING TRADING
CSDCSD CSD CSD CSD CSD CSD CSD
CCP
SETTLMNT
Nordic visionO
ne a
ccess
poin
t
Agenda
•The current situation
•Problems and challenges
•Driving forces
•Elements to a strategy
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Elements to a strategy
•Local CSDs with local registers, local service and support
•SWIFT standard messages
•Realignment of rules and market practices (not all!)
•Shared settlement
•A single standard systems platform
•Possibility to handle a broad list of instruments
•Step by step implementation
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SETTLMT(DVp)
INVESTORCSD
INVESTORCSD
Trading systems
CCP
CSD links
Central Bank ACentral Bank B
Add-ons (example):Collateral Mgmt
Sec. Borrow/Lending
Shared settlement platform
ISSUERCSD
CLEARINGISSUER
CSD
CSD BCSD A
Shared settlement engine for two CSDsEnables co-operation and retains local independence
CSD A operate under the rules of country A CSD B operate under the rules of country B The settlement engine follows joint settlement rules
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3-step roadmapMove towards international standards
Establish target
Roadmap Step 1 Roadmap Step 3Roadmap Step 2
Move to “best practice” CSD where needed
Prepare for regional and/or international standards
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Benchmark Functional Service OfferingSample assessment
FUNCTIONALITY
0,00
10,00
20,00
30,00
40,00
50,00
60,00
CSD1 CSD2 CSD3… CSD
End of presentation
Peter Falk, Product Director, EXIGO CSD AMEDA meeting, Marrakech, 20 – 21 April 2006