Syn~
Market Liquidity:
Efficiency in Market
Infrastructure
Donal O’Brien
November 2006
Atos Euronext Market Solutions
Market Liquidity: Agenda
Introduction
Operating Model Efficiency
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Clearing Model
Settlement Model
Depository Management - Hybrid Model
Registry Management
Short-Selling Controls
Infrastructure Efficiency
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Localisation
Easy Deployment
Integration with Exchanges and Banks
Integration with Brokers and Custodians
Whole Market Infrastructure
Atos Euronext Market Solutions
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Market Liquidity: AEMS - Ownership
Premier Global
IT Services Provider
Leading Global
Exchange
50:50 ownership Atos Origin and Euronext
Atos Euronext Market Solutions
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Market Liquidity: AEMS - What do we do?
IT Services to Exchanges, Clearing houses, Banks and Brokers
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Financial IT Solutions
Global Data Centre Operations
Dedicated Financial Network for Trading
Our Product Range
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Regulatory:
Exchange:
Clearing & Settlement
Capital Markets
Interbanking
Atos Euronext Market Solutions
ARAMIS
NSC, CONNECT
Syn~Clear, CLEARING 21, SARA
Syn~Broker, Investiciel, Apollo
Crystal, Diamis
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Market Liquidity: AEMS Global Service Provision
Montréal
Casablanca BVM Tunis
Toronto
Euronext.liffe Euronext
Warsaw
Beirut
Amman
Tehran
ICE Futures
LCH.Clearnet
Stock Exchange
Stock Exchange
Stock Exchange
Stock Exchange
Winnipeg
BOX
BSX
Minneapolis
CME
CBOT
TFX
Kansas City
Board of Trade
DIFX
Muscat Securities Market
BM&F
Bovespa
Bursa Malaysia
NSC®
Atos Euronext Market Solutions
CONNECT®
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Market Liquidity: Agenda
Introduction
Operating Model Efficiency
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•
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Clearing Model
Settlement Model
Depository Management - Hybrid Model
Registry Management
Short-Selling Controls
Infrastructure Efficiency
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•
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Localisation
Easy Deployment
Integration with Exchanges and Banks
Integration with Brokers and Custodians
Whole Market Infrastructure
Atos Euronext Market Solutions
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Market Liquidity: Clearing Model
Clearing House:
Controls risk for open trades between Trade and Settlement Date
Risks:
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Buyer does not provide Cash
Seller does not provide Securities
Trade Novation into Clearing House name
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Anonymity of Settlement
Liquidity of Market
Allows efficient net settlement of securities and cash
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Market Liquidity: Clearing Model
Margin Requirement
Collateral Management
• Member firm specific account structure
• Initial Margin Calculation
–
• Pledge of Securities or Cash
• Intra-day Margin Calls
Risk of change in price going forward
• Variation Margin Calculation
– Risk
of change in price since trade was done
• Multi-asset offsets
Clearing Member
Trading Member 0
(Same as Clearing
Member)
Fails Account
House
Accounts
Atos Euronext Market Solutions
Trading Member 1
Client
Accounts
House
Accounts
Client
Accounts
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Trading Member 2
House
Accounts
Client
Accounts
Market Liquidity: Settlement Models
Free of Payment Settlement
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High Risk
Inefficient
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No Guarantee
Three ‘Against Payment’ Models:
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DVP1: Gross settlement of Securities and Cash
DVP2: Gross settlement of Securities, Net Settlement of Cash
DVP3: Net settlement of Securities and Cash
CSD Provides:
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Guaranteed Settlement
Efficiency
Lower Cost
OTC Markets:
Exchanges:
Atos Euronext Market Solutions
Typically DVP1 settlement
Move towards DVP2 or DVP3 Settlement
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Market Liquidity: Settlement Efficiency
Settlement Cycle
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Net Settlement by Broker (Securities and Cash)
Instruction Generation
Settlement Cycles
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Securities Blocked until Cash Settled via RTGS
Cash Delivery Management
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ISO 15022 Cash Instructions sent to Central/Clearing Banks (RTGS)
Full response tracking
Unblocking and settlement of Securities
Fails Management
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Settlement Tracking
Lending Pools and Auto-Borrowing
Buy-In Process
Compensation
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Market Liquidity: Depository Management
Position-Keeping Models:
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Direct Holding –
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Indirect Holding
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Final Investor is directly known to the Issuer and the CSD (Current Model)
Final Investor known only to Broker (European and US Model)
Hybrid Model
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Final Investor position with Broker known to the Issuer and the CSD
Advantages of Hybrid Model:
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Full disclosure of Final Investor known at CSD
Corporate Action processing well defined
Allows efficient Netting at Broker level for DVP3 settlement
Atos Euronext Market Solutions
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Market Liquidity: Registry Management
Central Registry held at CSD
Real-time Investor Positions
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Tradeable
Blocked
Borrowed and Lent
Encumbered
Pledged
Held for Inheritance
Support for Corporate Actions
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Benefits, Re-orgs, Advices and IPOs
Calculation of Entitlements
Transformation of Pending Trades
Cash Distribution
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Market Liquidity: Short-Selling Controls
Short-Selling in US and Europe:
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Trade-date position allowed to be negative
Automatic overnight borrow based upon projected Settlement-date position
Trade allowed to Fail (as of Settlement Date)
Claim process for fails
Short-Selling Restrictions:
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Today – No Short-Selling (should be restricted within Exchange system)
Tomorrow – Allow Sell of Security before Buy is Settled
Uncleared Selling Levels
1.
2.
3.
No Short Selling allowed
Short Sell allowed on Trade Date but checks for pending Buy
Full Short Selling Allowed (European Model)
Control Systems: CSD Pledging Fee
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Fee calculated on Short Position between Trade and Settlement Date
Configurable rate to control Market Liquidity
Atos Euronext Market Solutions
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Market Liquidity: Agenda
Introduction
Operating Model Efficiency
•
•
•
•
•
Clearing Model
Settlement Model
Depository Management - Hybrid Model
Registry Management
Short-Selling Controls
Infrastructure Efficiency
•
•
•
•
•
Localisation
Easy Deployment
Integration with Exchanges and Banks
Integration with Brokers and Custodians
Whole Market Infrastructure
Atos Euronext Market Solutions
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Market Liquidity: Localisation
Multiple Languages
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Arabic, Farsi, English, French, Spanish …
Multiple Calendars
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Gregorian, Persian
Holidays
Settlement Date Intervals
Bond Accruals
Ownership point
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Trade date vs. Settlement Date
Corporate actions
Registry updates
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Market Liquidity: Easy Deployment
Core Processing Infrastructure
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Grid Processing – Scale
Linux / Windows – Low-cost
Service Oriented Architectures – Flexibility
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Lifecycle Models
Workflow
Messaging (XML, ISO15022, FIX)
Web-based Front Ends
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Zero Footprint
Scales
Reporting and Queries
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Denormalised relational model of all data (separate from the OLTP)
Standardised third-party Report Writer support
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Market Liquidity: Integration with Exchanges and Banks
Trading Applications
RCE
[Data Repository]
Control Module
[Investor Checking]
SPI
[Buy-In Order Creation]
NSC
[On-Exchange Trades]
TCS
[OTC Trades]
Aramis
[Market Surveillance]
HUB
FTP Interface
MMTP Interface
$
Syn~Clear
Internet
Users
SWIFT
RTGS
Web Server
Atos Euronext Market Solutions
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Clearing Banks
Market Liquidity: Integration with Brokers and Custodians
Client
/ End
Investor
Orders
Broker System
(Syn~Broker)
Orders
Executions
PAM
Clearing Bank
Atos Euronext Market Solutions
Se
ttle
m
en
ts
Cash
Transfers
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OTC Trading
(TCS)
Trades
Cash
Transfers
Tehran Stock
Exchange
(NCS)
CSDR
(Syn~Clear)
Market Liquidity: Whole Market Infrastructure
Entire Market Infrastructure
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Exchange Systems
Clearing Systems
CSD Systems
On-line Client Portals
Brokerage Systems
Central ASP Provision
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Shared infrastructure - Low cost
Standardised Data Centre Management - Low risk
Large infrastructure – Inherent scale
Easily deployed Regulatory and Market Changes
Atos Euronext Market Solutions
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Market Liquidity: Questions
Questions
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