Post-Trade Linkage Models
7th International SASE Conference; October 19, 2012
Necla Kucukcolak, Takasbank International Markets - Manager
1
AGENDA
– 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
Necla Kucukcolak, Takasbank International Markets - Manager
2
Building Blocks:
Basic Direct and Indirect Linkage
Necla Kucukcolak, Takasbank International Markets - Manager
3
Direct Linkage Model Account Set-up
Omnibus Account Structure
CSDI
(Intermediary CSD)
CSDP
(Primary CSD)
Segregated Account Structure
CSDI
(Intermediary CSD)
CSDP
(Primary CSD)
CSDI
Client I-1
Client I-1
Client I-1
CSDI
Client I-2
Client I-2
Client I-2
Other clients
Client …
Client …
Other clients
• 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.
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.
Necla Kucukcolak, Takasbank International Markets - Manager
4
Indirect Linkage Model: Sub-Custody Account Set-up
Omnibus Account Structure
Country of
Intermediary CSD
CSDI
(Intermediary
CSD)
Country of Primary CSD
Local
Custodian
Bank
CSDI
Client I-1
CSDP
(Primary CSD)
Loc. Cust.
Bank
Segregated
Account Structure
a.
Country of
Intermediary CSD
CSDI
(Intermediary
CSD)
Country of Primary CSD
Local
Custodian
Bank
CSDI
Client I-1
CSDP
(Primary CSD)
Loc. Cust.
Bank
Client I-1
Client I-2
Client …
CSDI
Client I-2
Client …
Client I-1
Client I-2
Other clients
Client I-2
Other clients
Client …
Other clients
Other clients
Client …
Other clients
Local custodian bank: Agent bank of the Intermediary-CSD at the country of Primary-CSD; subcustodian of the Primary-CSD at the target country, provides sub-custody services to the IntermediaryCSD
• 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
5
Comparison: Direct vs. Indirect
Direct Linkage
high
shorter
higher initial
set-up costs
Indirect Linkage
low
more assistance
higher
lower
from source
yes
with delay
no
Strictness of instruction deadlines
real market deadlines
Stricter deadlines
Enhanced value added services
less available in many cases
typically available
Infrastructure set-up cost
Ease of account opening procedures
Ease of communication
Level of operational know- how on
settlement and corporate action
processing in the target market
Timeliness of notifications
Uninterupted flow of information
standard but limited scope
Necla Kucukcolak, Takasbank International Markets - Manager
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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
7
Link-Up Markets
- 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.
Source: Link-up Markets, July 2011 Publication
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
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Global Custodian Banks
Financial Institutions
Client
Level
Intermediary- CSDs
Institutional Investors
Primary
Depository
Level
Individual Investors
Global Custodian
Bank
Global
Level
Local
Level
Banks
Agent
Bank
PrimaryCSD
…
PrimaryCSD
Own
Agent
PrimaryCSD
 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 subcustodian bank, which is indeed
a local custodian bank.
Primary CSDs are national CSDs and ICSDs
Necla Kucukcolak, Takasbank International Markets - Manager
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ICSD
Financial Institutions
ICSD
Clients
•
Two ICSDs of Europe Euroclear Bank,
Clearstream Banking Luxemburg.
•
Primary and exclusive service of ICSDs is
Eurobond safekeeping and settlement.
Banks
Intermediary- CSDs
Institutional Investors
Individual Investors
Euroclear
Bank
ICSDs
Common
Depositories
Common
Depository
– 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.
Clearstream
Bank
Common
Depository
…
•
Issuers
Issuer
…
Issuer
…
Issuer
…
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.
Necla Kucukcolak, Takasbank International Markets - Manager
10
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.
Source: ABMI Group of Experts Final Report, Part II, Evaluation of the Feasibility of
Regional Settlement Intermediary Options for the ASEAN+3, June 2010
–
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.
Necla Kucukcolak, Takasbank International Markets - Manager
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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
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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
13
Euroclear ESES Markets
ESES Clients
ESES PLATFORM
Belgian Market Participants
Group Securities
French Market Participants
Euroclear
Belgium
Dutch Market Participants
-Trade confirmation
- Settlement
-Custody
-Collateral Management
-New Issues
International Clients (links)
Euroclear
Netherlands
Euroclear
France
ESES Issuers
Issuers
Foreign CSDs
ICSDs
Eligible
Foreign
Securities
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
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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
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Comparison: Focus
Focus
Global Cust.
ICSDs
SIX SIS
Sub-custodian Processing
*
*
*
*
*
Direct Links
Interoperability
Link-up
Single Platf.
Target 2S
*
*
*
*
Harmonization and integration
of markets
Necla Kucukcolak, Takasbank International Markets - Manager
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CONCLUSION
• 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
Necla Kucukcolak, Takasbank International Markets - Manager
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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
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Thank you
Takasbank
Şişli Merkez Mahallesi
Merkez Caddesi
No:6 34381 Şişli İstanbul
+90 212 315 25 25
international@takasbank.com.tr
Necla Kucukcolak, Takasbank International Markets - Manager
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