Tends
• ISO and global use
• RMB implications on Securities messaging
• Settlement & Reconciliation Study
• Legal Entity Identifier (LEI)
• MyStandards
200908 FileAct Overview 2
India
Maldives
Sri Lanka
Nepal Bhutan
Bangladesh Burma Laos
Thailand
Cambodia
Brunei
Vietnam
Malaysia
Singapore
Indonesia East Timor
Philippines Hong Kong
Taiwan
South Korea
North Korea
Japan
China
Asian Securities Market Infrastructures Live with ISO
on SWIFT
4
Australia
Live
21 services live
India
Maldives
Sri Lanka
Nepal Bhutan
Bangladesh Burma Laos
Thailand
Cambodia
Brunei
Vietnam
Malaysia
Singapore
Indonesia East Timor
Philippines
Hong Kong
Taiwan
South Korea
North Korea
Japan
China
Implementing
Asian Securities Market Infrastructures Live with ISO
Fixed Income on SWIFT
5
Australia
Live
7 Fixed Income services live
India
Maldives
Sri Lanka
Nepal Bhutan
Bangladesh Burma Laos
Thailand
Cambodia
Brunei
Vietnam
Malaysia Singapore
Indonesia East Timor
Philippines
Hong Kong
Taiwan
South Korea
North Korea
Japan
China
Implementing
Asian Securities Market Infrastructures Live with ISO
Equities on SWIFT
6
Australia
Live
1 Equity service live (+4 projects)
India
Maldives
Sri Lanka
Nepal Bhutan
Bangladesh Burma Laos
Thailand
Cambodia
Brunei
Vietnam
Malaysia Singapore
Indonesia East Timor
Philippines
Hong Kong
Taiwan
South Korea
North Korea
Japan
China
Live
Implementing
Asian Securities Market Infrastructures Live with ISO
Corporate Action Notifications on SWIFT
7
Australia
5 CA services live (+5 projects)
Securities Market Infrastructures
ISO 20022, future de-facto….Avoid duplication in
terms of standards/networks/applications
DTCC Jasdec
T2S
Zengin
Fed
Euroclear
Clearstream
IPF
X9 (BAI)
ANBIMA
Strate
SEPA
CLS
8
ABMF Shenzhen
2 other Asian
Exchanges
(confidential)
10
ASEAN+3: its size and economic impact
Source: IMF
GDP
current prices as of 2010
ASEAN
China
India
NAFTA
MERCOSUR
European
Union
ASEAN+3
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
US
D B
illio
n
Population
as of 2010
ASEAN
ChinaIndia
European
Union NAFTA
MERCOSUR
ASEAN+3
0
500
1,000
1,500
2,000
2,500
millio
n
11
Promoting
Issuance of Local
Currency
Denominated
Bonds
-Credit guarantee
and investment
facility (CGIF)
-Promotion of Asian
Currency Note
Programme
-Promoting issuance
of structured finance
instruments
Facilitating the
Demand of Local
Currency-
Denominated Bonds
-Development of
investment
environment for
institutional investors
-Information
dissemination
Asian Bonds Online
Improving Regulatory
Framework
-Strengthening
regulatory and
supervisory framework
for securities
-Facilitating collaboration
among SROs in the
region
-Improving bankruptcy
procedures related to
bond transaction
-Promoting application of
international accounting
and auditing standards
Improving Related
Infrastructure for the
Bond Market
-Infrastructure for
securities settlement
-Increasing liquidity of
bond markets
-Fostering credit
culture
-Developing
professional services
Technical
Assistance
-Monitor progress and coordinate
future plans
TF1
ABMI Steering Group
ASEAN+3 Finance Ministers
ASEAN+3 Deputy Finance Ministers
TASK FORCE (See next slide for details)
Meet annually
Meet semi-annually
TF2 TF3 TF4 TACT
The Organizational structure of ABMI
ABMF
GoE
12
The ABMF (ASEAN+3 Bond Market Forum)
a common platform to foster standardization of market practices and harmonization of regulations relating to cross-
border bond transactions in the region.
14
ABMF
Sub-Forum 1: Collecting
information on
regulations and market
practices
Sub-Forum 2:
Enhancing regional
Straight-Through-
Processing (STP)
15
Vision of ABMF
National standards
and practices
International
Standards and
practices
International
Standards and
practices
Regional standards and
practices
National standards and practices
Asia should engage standard setting
more closely and should lead
discussions in the international forum
Increasing Opportunities
• RMB-QFII (also known as mini-QFII)
• Overseas investors to use offshore RMB to invest with an initial
quota of RMB 20B (3.1B USD)
• RMB bonds in Hong Kong (Dim Sum Bonds) & FDI
• Mainland Chinese non-financial corporations issue HK bonds
• The remittance of proceeds back to the mainland is expected to be
made easier based on the revamp FDI rules (transparent and
standardized framework).
• Greater Integration between Hong Kong and Mainland
China
• China likely to increase the issuance of sovereign bonds
• HK Exchange-traded fund (ETF) will allow Chinese investment
• More mainland enterprises encouraged to IPO in Hong Kong.
• Hong Kong banks will be allowed to engage in Mainland mutual fund
business
SSC_OffsiteMeetingSlides_1105_v1.pptx 18
• Provide global network
• Help to develop RMB
business, esp. in HK
• Increase automation,
market practice guide
• SWIFT as international
gateway to CNAPS
• Facilitate industry debate
& understanding, at key
conferences and events
• RMB White Paper
• RMB education webinar,
on operational aspects
• RMB Business Insights
report with key statistics
• Watch Value Analyser
• Bespoke insight services
(e.g. peer comparisons)
SWIFT’s positive role to fully support
the RMB internationalisation Source: SWIFT
Facilitate
RMB
transactions
& automation
Broaden
industry
understanding
Provide
business
insights
21
Major trends
COST CUTTING
Financial crisis
NEW PENDING REGULATIONS
(MiFID II, EMIR, Dodd-Frank,…)
Concentration of actors
Change in securities processing paradigms
Globalization
Clearing of OTC trades by CCP
FOCUS ON RISK
Blurring of role frontiers
Industry initiatives: Giovanini, T2S, CCI,..
Increase in Trading Volumes
Internalization
ASIA versus EUROPE & US Emerging versus mature markets
Headlines of the industry
“Most observers reckon the industry’s (investment banking)
revenue could fall by up to a fifth in 2010 as the exceptional
market conditions that followed the bail-outs have faded.”
The Economist November 6th 2010
“IT budget have been down from 5% in 2009 globally, the
allocated share to third-party service providers (including
SWIFT) is much lower; they are often the first piece of the
budget to cut.” Aite "IT Service Vendors in Securities and
investments“, Sept 2009).
“Securities trading volumes over 2010-15 will grow faster in Asia than in the US or Europe.” TowerGroup, “Securities Trading “ September 2010
“Investors will want transparency into the way firms manage risk, and
regulators will require more disclosure to better identify the types and
severity of risks that the firm introduces into the system.” Tower Group:
2010 Top 10 Business Drivers, Strategic Responses, &IT Initiatives in
Securities and Capital Markets
Quotes from the industry
“The geographic rebalancing in favour of Asia and Latin
America has already started – just look at the growing
size of the markets.” P. Cole, CEO BP2S
“Alongside better regulation for banks and systemically
important financial institutions, the establishment of safe and
sound post-trading infrastructures will reduce the likelihood
and severity of financial crises” N. Calvino, Deputy Director
General Internal Markets, European Commission.
“The unintended consequence of new regulations could be a concentration in
larger players with existing strategic competitive advantages and the creation of
deeper barriers to entry”. A. Long, head of global transaction banking, HSBC.
1. Major impacts of the financial crisis (1)
24
1. Short-term impacts (2009- begin 2010)
1. Regional differences
• Weakened Western financial institutions
• Government intervention
2. Fall in Securities revenues
• Fees of assets under management
• Front office fees
• Transaction fees
• Fees of assets under custody
• Low interest rates
1. Major impacts of the financial crisis (2)
25
2. Longer term impacts
1. Return to basics
• Enhanced risk management
• Cost cutting
• Focus on Backoffice costs
• Need for increasing real-time information
• Ops & IT investment freeze
2. Regulatory scrutiny
• Focus on risk
• Pending new regulations (Basel 3, Dodd Frank, EMIR...)
• Need for more transparency in the whole processing chain
3. Consolidation increase
2. Other trends affecting the industry (1)
26
1. Economic influence shift
• Rise of new economies
• Move from local to overseas for higher returns
2. Growing sophistication of the buy-side
• Multi assets and multi markets
• Tailored solutions
3. Reduction in costs of securities processing
• Trading volume explosion
• Commoditization of the post-trade processing
4. Consolidation
• Less competition in some areas
• Unbundling and outsourcing of non-core activities to specialized
actors
27
5. Market infrastructure changes
• CCP introduction
• Increased competition before future consolidation
6. Change of traditional processing channels
• Blurring of roles
• Internalization
• Decrease of entry barriers
7. Technology innovation
• Innovation in the trading space
• Decrease in costs of securities processing
• Facilitation of outsourcing
2. Other trends affecting the industry (2)
29
1. Rise of the region
• Minor negative impact of the crisis
• Explosion of trading volumes
• High net worth individual population growth
2. Flexing of national barriers
• Cross-market investments
• Regional initiatives (ASEAN Trading link, Asian Bond Market)
3. Western influence
• Arrival of US and European institutions
• Trading space (MTFs, dark pool trading,..)
• Clearing space (CCP, third-party clearing,..)
4. Possible Regulatory arbitrage
3. Regional view: Asia Pacific
LEI summary
• The purpose is to define an identifier scheme to uniquely
identify legal entities on a global scale that are involved in
financial transactions.
• A legal entity is either a legal person that is organized under the
corporate laws of any jurisdiction, as well as a trust or
partnership arrangement.
• These entities include but are not limited to corporates, all
financial intermediaries, banks and finance organisations, all
entities listed on an exchange, all entities that issue or trade
financial instruments, and all entities under the purview of a
financial regulator and their holding.
• An ISO LEI scheme will facilitate financial reporting and the
management of systemic risk.
200908 FileAct Overview 32
LEI – SWIFT’s involvement
• A coalition of financial services firms and trades associations
coordinated by SIFMA and the Global Financial Markets
Association (GFMA) is aiming to provide an LEI scheme.
• A joint response with DTCC/Avox and SWIFT for the LEI Utility
and ISO TC68 Financial Services for the LEI standard - our
proposed solution has been recommended by the GFMA.
SSC_OffsiteMeetingSlides_1105_v1.pptx 33
LEI implementation
• Engagement - we are working actively with the SIFMA Executive
Committee and with the global regulatory community to keep the
momentum and facilitate the appropriate implementation and adoption
of the LEI solution in line with current and future legislative
requirements
– While we initially expected a mandate by the US based Office for
Financial Research (OFR), the FSB has taken the lead and will
ensure a truly global solution changing the perception that LEI is
an US driven solution.
• Structure and Governance - work cooperatively with all parties
involved in defining and establishing the LEI Utility structure and
agreeing the governance model, the funding model and the regulatory
oversight
– The LEI solution will be based on ISO17442 standard
– SWIFT has been appointed Registration Authority for this new standard.
– ISO has its own governance model and approval processes.
SSC_OffsiteMeetingSlides_1105_v1.pptx 34
LEI implementation
• Planning - The implementation timeline will be driven by the global
regulators
• We anticipate that the first requirements will be based on identification
of counterparties for the OTC derivatives in the Swap Data
Repositories (SDRs) (possibly Q1 2012).
• The first phase of the LEI solution will be based on leveraging and
expanding the existing infrastructure both from DTCC/Avox and from
SWIFT to be able to meet the needs of the regulators and the financial
industry for the SDRs (ie 30-40k enitites).
• Financials - The LEI solution will operate on a cost recovery model
based on revenues generated by the self-registration of legal entities
and the annual maintenance fee supported by the legal entities
identified with LEI.
• Service Development - new areas for service development in entity
and security reference data will emerge outside of the scope of the LEI
Utility.
SSC_OffsiteMeetingSlides_1105_v1.pptx 35
OTC Derivatives summary
• Asia constitutes a small part of the global OTC markets (notional
outstanding volumes total $600,000bn) - trading volumes are rising
fast and most international dealers have established footholds across
in the region (source BIS).
• In Japan - the biggest market in the region - the notional outstanding
amount of interest-rate swaps expanded by 47% between June 2007
and June 2009, according to the Bank of Japan, reaching $27,100bn,
or about 6% of the global interest-rate swap market.
• G20 and Dodd Frank regulations are leading the establishment of
regulation for “Trade Repositories” and “CCP’s”. The proliferation of
initiatives has led to concern that there could be too many
CCPs… A fragmented approach will lead to weaker institutions
and greater risk.
37
The G20 countries
• Argentina
• Australia
• Brazil
• Canada
• China
• European Union
• France
• Germany
• India
• Indonesia
• Italy
• Japan
• Mexico
• Russia
• Saudi Arabia
• South Africa
• South Korea
• Turkey
• United Kingdom
• United States
38 Red indicates Asian member
Asian steps for G20 agreement compliance
Country Steps taken
Australia ASX announced domestic clearing of OTC IR products
($30bn per day market) – no timelines
Hong Kong* Will start to clear OTC NDF and IRS in 2012
India Has developed the Clearing Corporation of India to act as
a central counterparty (CCP) and trade repository for the
domestic OTC market
Japan Yen based OTC trades to be cleared in JP
Singapore* SGX already live with NDF clearing
South Korea Finalised plans for mandatory clearing of OTC derivatives
[Market scientism as to whether this occurs]
39 *Non G20 Country
Solution and CCP fragmentation
• The G20 mandated that nations create clearing solutions. Fragmentation is emerging as a result.
• This results in too many CCPs, splitting liquidity in OTC products across the globe, with regulators having insufficient oversight over them all
• The Financial Stability Board (FSB) in April noted that it was “concerned with the substantial variation across jurisdictions in the pace of implementation”
• ISDA identified what it called the “potentially significant extraterritorial effects and the proliferation of central clearing solutions in the region”
• Asian markets “don’t want to necessarily have solutions imposed on them by other jurisdictions”
• Asian regulators want to ensure that trades in which institutions in their jurisdictions are involved are cleared through entities over which they have some control
40
Paul Landless, a senior associate at the Hong Kong office of Clifford Chance, says: “Trying to
reconcile Asia into the global dynamics [of OTC regulation] is going to be a challenge.”
Available and planned ISO/MT messages
flows with CCPs (1/4)
41
Major European CCPs already use SWIFT for:
• payments and settlement
• CCP to member communication
CCP - Member messaging live and planned
• CCP to settlement system messaging – live
• CCP to clearing member messaging – live H2 2011
• Accord to CCP messaging for OTC EQ/FI – live H2 2011
•Strong synergies between FX & Securities services
•Interoperability flows (TBD)
Key (SWIFT flows)
Available and planned ISO/MT messages
flows with CCPs (2/4)
42
Clearing
Member
Clearing
Members
Accord
matching
CSDs
CCP1 CCP2
CCP to settlement (ISO15022)
CCP to Clearing Member (ISO20022)
Accord to CCP (ISO15022)
Interoperability flows
Exchange
or MTF
Exchange
or MTF
Available and planned ISO/MT messages
flows with CCPs (3/4)
Phase I:
• CCP to GCM/ICM
• Equities and Fixed income 43
ICM GCM NCM
CCP
Trade Leg Reporting
Margining
Collateral Mgt
Default Fund
Settlement Netting
Buy In
GiveUp / TakeUp
Posting / Splitting
Trade Transfer
Position Transfer
Exercises Assignements
Corrections
Offsettings
Margining enquiries
Phase 1
Phase 2
Phase II:
• CCP to GCM/ICM and GCM to NCM
• Listed derivatives and other (TBD)
Possible options
• Replicate the proposed DTCC model with domestic repositories
in each market (SWIFT messaging is available)
• Local regulators and markets could use the existing DTCC
repository in each market for the FX contracts
– The benefits to the market for both approaches is the re-use
of the same messaging and standards for different markets
• FINInform copy of the MT3XX into the trade repositories. This
means that the participants will not have to change their
infrastructure. The other alternative is that the participants will
have to be able to create a file in FpML format for the TR (this
could be a painful and expense solution for a regulatory need).
44
Different scopes, different standards questions
46
Standards in your community Standards in your institution
Middleware
Translation
Processable
structures
Documentation
Specifications
Implementer /
Integrator
Analyst
• How can I easily analyse the impact of a standards
release or updated market practice on all my systems?
• Can I easily compare and analyse market practices?
• How can I easily advertise my capabilities?
• How to simply create & distribute standards-related
documentation to my counterparties?
• How can I easily enable standards in my
middleware and backoffice ?
• Can I process MT and MX with the same tools?
• How to simply create standards-related docs?
• How can I interoperate between equivalent MT
& MX messages?
Analyst
Market
Practice
groups
(SMPG,…)
Counterparty
analysts
Standards and
standards release info
Internet
Different scopes, different standards questions
47
UHB
SDK
Analysts Customised specs
Developers Implementation
Different scopes, different standards questions
48
MyStandards
UHB
SDK
Analysts Customised specs
Developers Implementation
Standards Developer Kit & MyStandards
49
MyStandards: publishing & analysis
- Uploading formal market practices / specs
- Advertising capabilities
MyStandards
- Update impact
- Analysis tools
- documentation
- value added
services
Sharing Privacy
MX Repository
Dictionary
Message Catalogue
MT/ XML
Schema
Library
Translation
Reference
MT/XML Converter
Reference
Standards excel
Source Code
SDK: developing and design
Standards product family
Mainly targeted at: Implementers & Integrators
Partly targeted at: Analysts (message syntax spreadsheets)
Mainly targeted at: Analysts
Partly targeted at: Implementers & Integrators (consumption of
documentation and processable output)