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Atos Euronext Market Solutions
Syn~
Market Liquidity:Efficiency in Market Infrastructure
Donal O’BrienNovember 2006
Atos Euronext Market Solutions 2
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 3
Market Liquidity: AEMS - Ownership
Premier Global
IT Services Provider
Leading Global
Exchange
50:50 ownership Atos Origin and Euronext
Atos Euronext Market Solutions 4
Market Liquidity: AEMS - What do we do?
IT Services to Exchanges, Clearing houses, Banks and Brokers• Financial IT Solutions
• Global Data Centre Operations
• Dedicated Financial Network for Trading
Our Product Range• Regulatory: ARAMIS
• Exchange: NSC, CONNECT
• Clearing & Settlement Syn~Clear, CLEARING 21, SARA
• Capital Markets Syn~Broker, Investiciel, Apollo
• Interbanking Crystal, Diamis
Atos Euronext Market Solutions 5
Market Liquidity: AEMS Global Service Provision
WarsawStock Exchange
Euronext.liffeICE FuturesLCH.Clearnet
Euronext
TFX
Bursa Malaysia
BeirutStock Exchange
BVM TunisCasablanca AmmanStock Exchange
TehranStock Exchange
DIFX
Muscat Securities MarketBM&FBovespa
Montréal
Toronto
CMECBOT
Winnipeg
Minneapolis
Kansas CityBoard of Trade
BOXBSX
NSC® CONNECT®
Atos Euronext Market Solutions 6
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 7
Market Liquidity: Clearing Model
Risks:• Buyer does not provide Cash• Seller does not provide Securities
Trade Novation into Clearing House name• Anonymity of Settlement• Liquidity of Market• Allows efficient net settlement of securities and cash
Clearing House: Controls risk for open trades between Trade and Settlement Date
Atos Euronext Market Solutions 8
Market Liquidity: Clearing Model
Margin Requirement• Initial Margin Calculation
– Risk of change in price going forward
• Variation Margin Calculation– Risk of change in price since trade was done
• Multi-asset offsets
Fails Account Client Accounts
Clearing Member
Trading Member 1 Trading Member 2
Client Accounts
Client Accounts
House Accounts
House Accounts
Trading Member 0(Same as Clearing
Member)
House Accounts
Collateral Management• Member firm specific account structure• Pledge of Securities or Cash• Intra-day Margin Calls
Atos Euronext Market Solutions 9
Market Liquidity: Settlement Models
Free of Payment Settlement• High Risk• Inefficient• No Guarantee
Three ‘Against Payment’ Models:• 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:• Guaranteed Settlement• Efficiency• Lower Cost
OTC Markets: Typically DVP1 settlementExchanges: Move towards DVP2 or DVP3 Settlement
Atos Euronext Market Solutions 10
Market Liquidity: Settlement Efficiency
Settlement Cycle• Net Settlement by Broker (Securities and Cash)• Instruction Generation• Settlement Cycles
– Securities Blocked until Cash Settled via RTGS
• Cash Delivery Management– ISO 15022 Cash Instructions sent to Central/Clearing Banks (RTGS)– Full response tracking – Unblocking and settlement of Securities
Fails Management• Settlement Tracking• Lending Pools and Auto-Borrowing• Buy-In Process• Compensation
Atos Euronext Market Solutions 11
Market Liquidity: Depository Management
Position-Keeping Models:• Direct Holding –
– Final Investor is directly known to the Issuer and the CSD (Current Model)
• Indirect Holding– Final Investor known only to Broker (European and US Model)
• Hybrid Model– Final Investor position with Broker known to the Issuer and the CSD
Advantages of Hybrid Model:• 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 12
Market Liquidity: Registry Management
Central Registry held at CSD
Real-time Investor Positions• Tradeable• Blocked• Borrowed and Lent• Encumbered• Pledged• Held for Inheritance
Support for Corporate Actions • Benefits, Re-orgs, Advices and IPOs• Calculation of Entitlements• Transformation of Pending Trades• Cash Distribution
Atos Euronext Market Solutions 13
Market Liquidity: Short-Selling Controls
Short-Selling in US and Europe:• 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:• Today – No Short-Selling (should be restricted within Exchange system)• Tomorrow – Allow Sell of Security before Buy is Settled
Uncleared Selling Levels1. No Short Selling allowed2. Short Sell allowed on Trade Date but checks for pending Buy3. Full Short Selling Allowed (European Model)
Control Systems: CSD Pledging Fee• Fee calculated on Short Position between Trade and Settlement Date• Configurable rate to control Market Liquidity
Atos Euronext Market Solutions 14
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 15
Market Liquidity: Localisation
Multiple Languages• Arabic, Farsi, English, French, Spanish …
Multiple Calendars• Gregorian, Persian• Holidays• Settlement Date Intervals• Bond Accruals
Ownership point• Trade date vs. Settlement Date• Corporate actions• Registry updates
Atos Euronext Market Solutions 16
Market Liquidity: Easy Deployment
Core Processing Infrastructure• Grid Processing – Scale• Linux / Windows – Low-cost• Service Oriented Architectures – Flexibility
– Lifecycle Models– Workflow– Messaging (XML, ISO15022, FIX)
Web-based Front Ends• Zero Footprint• Scales
Reporting and Queries• Denormalised relational model of all data (separate from the OLTP)• Standardised third-party Report Writer support
Atos Euronext Market Solutions 17
Market Liquidity: Integration with Exchanges and Banks
Trading Applications
RCE[Data Repository]
Control Module[Investor Checking]
SPI[Buy-In Order Creation]
Aramis[Market Surveillance]
TCS[OTC Trades]
NSC[On-Exchange Trades]
Syn~Clear
UsersWeb Server
InternetSWIFTRTGS
$
Clearing Banks
MMTP Interface
HUB
FTP Interface
Atos Euronext Market Solutions 18
Market Liquidity: Integration with Brokers and Custodians
Client / End
Investor
OTC Trading(TCS)
Ca
shT
ran
sfe
rs
Cash Transfers
Orders Executions
Tra
de
s
Orders
Tehran Stock Exchange
(NCS)
Broker System(Syn~Broker)
Clearing BankCSDR
(Syn~Clear)
PAM
Atos Euronext Market Solutions 19
Market Liquidity: Whole Market Infrastructure
Entire Market Infrastructure • Exchange Systems• Clearing Systems• CSD Systems• On-line Client Portals• Brokerage Systems
Central ASP Provision • Shared infrastructure - Low cost• Standardised Data Centre Management - Low risk• Large infrastructure – Inherent scale• Easily deployed Regulatory and Market Changes
Atos Euronext Market Solutions 20
Market Liquidity: Questions
Questions