New challenges for securities and derivatives clearing and settlement

Edward LeachHead of Africa South, EMEA region, SWIFT8th April 2009

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Discussion points

• Trends and developments in securities settlement systems

• Development in Standards

• Main industry initiatives

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Trends and developments in securities settlement systems

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SWIFTNet FIN traffic by market

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Average daily number of FIN messages (mio)

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Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec2007 Actuals 2008 Actuals 2009 Actuals

March 09SWIFT - average daily traffic

Market infrastructures during the credit crunch• MIs coped extremely well with the volume spikes • Reliability top of the priority list• Standards an important enabler to ensure high levels of STP

and reduction in operation risk• Focus in 2009 on mitigating risks, reducing and managing costs

• Further automation envisaged

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Development in standards – ISO 20022

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What is driving the move to ISO 20022?

• New initiatives– Global harmonisation– Market infrastructures– Automation in the ‘funds’ market

• New players– Corporates, fund managers

• New technology– XML, SOA, web services

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General Assembly

TC

Council

Technical Management Board (TMB)

TC TCTC 68

Financial Services

Central Secretariat

SC 7Banking

SC 4Securities

SC 2Security

National Standards Bodies (BSI, ANSI, AFNOR, DIN, SFS, etc)

WGWG WG WGWG WG WGWG WG

201 Technical Committees

2,287 Working Groups

542 SubCommittees

157 Countries

17,000 International Standards

50,000 ‘voluntary’experts

620 international or regional Liaison Organisations

ISO20022RMG

SEG SEG SEG SEG

RATSG SEG

WG4ISO 20022

What is ISO?International Organisation for Standardisation

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SWIFT standards

• SWIFT sets standards because a common language for financial transactions:– Improves automation

– Ensures human understanding of the data

– Reduces errors and risks

– Helps cost savings

• All new standards development currently undertaken by SWIFT uses the ISO 20022 methodology

• SWIFT works with the financial community to coordinate standards convergence worldwide to avoid unnecessary duplication

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Current ISO 20022 development pipelineSecurities• Securities

– Pre-trade/Trade (FIX/SWIFT) – 29 messages– Funds Processing Passport (SWIFT) – 2 messages– Settlement and Reconciliation (SWIFT) – 29 messages– Corporate Actions (SWIFT) – 13 messages– Post-trade (Omgeo/SWIFT) – 12 messages– Market Claims/Transformations (Euroclear) – 14 messages– Securities Registration and Holder ID (Euroclear) – 14 messages– Securities Issuance (Euroclear) – 27 messages– Total Portfolio Valuation Statement (ISITC) – 6 messages– Alternative Funds (SWIFT) – 8 messages– Settlement Instruction Modification & Allegement rejection (SWIFT) – 5 messages– Securities Static Reference Data (SWIFT) – 15 messages– T2S (4CB) – number of messages not yet known

• FX and Derivatives– No current or pending development

> 150 messages

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Investment Roadmap FIX, ISO, FpML syntax (HIGH LEVEL)

FIX ISO(1) FpML(1) Represents ISO 20022, ISO 15022 and SWIFT FIN messages(2) See OTC Derivatives breakout for details:

- Commercial Loans, Privately Negotiated FX, and OTC Equity, Bond, Interest Rate, Credit, and Commodity Derivatives- Combination of FIX + FpML is supported for post-trade allocations for OTC Derivatives

Cash Equities &Fixed Income

Forex(2) Listed Derivatives

OTC Derivatives(2)

Funds

Pre-Trade

Trade

Post-Trade

Clearing / Pre-Settlement

Asset Servicing N/A

Settlement

Pricing / Risk / Reporting

Asset Class

Transaction cycleEquities, FI Forex Money Markets Listed derivatives OTC derivatives Commodities Repos Syndicated Loans Cash

Pre-trade / trade Trading (FIXand FIN)

Trade Capture –New!

Trading (FIXand FIN)

Post-trade / pre-settlement

Trade confirms Trade notification

Trade confirms Trade notification,

Affirmation

Trade confirms Trade notification,

Affirmation

Trade confirms Trade notification

Trade confirmsTrade notification

(FIN+FpML), Affirmation

Trade confirms Trade confirms

Pre-settlement matching

Allocation processing as well as confirmation matching, SSI – New!

Clearing & Settlement Settlement& Reconciliation

Settlement& ReconciliationCLS 3rd Party

service

Settlement& Reconciliation

Settlement& Reconciliation

(FIN+FpML)

Settlement& Reconciliation

Settlement& Reconciliation

Agent notices, Credit agreement, Rollover (FpML)

Cash management

Payments

Cash reportingCash settlementCash reporting

Cash settlementCash reporting Cash reporting Cash reporting Cash reporting Cash reporting

Exception Management

Asset servicing & Administration

Data distribution Data distribution Agent notices (FpML - EOC CUG,

DTCC)Corp. Action Corp. Action (Corp. Action)

Proxy voting

Portfolio Administration Total Portfolio Valuation (TPV) – New!

Collateral management

Collateral Management

Collateral Management – New!

Portfolio Reconciliation – New!

Securities Financing Securities Financing – New!

Securities Financing – New!

Regulatory Reporting Transaction Reporting

Transaction Reporting

Transaction Reporting

Transaction Reporting

Planned solutions Available Solution

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Coexistence framework and approach

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Overall coexistence framework

1. Prepare MX 2 . Introduce MX 3. Implement MX

MTMX

MT/MX MXMT

Decisions by Standards Committee (STC) and business committees (BPC and SSC)

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Overall coexistence framework

1. Prepare MX 2 . Introduce MX 3. Implement MX

MTMX

MT/MX

Decision to build/use MX

MX live on SWIFT

MT removal

MXMT

Milestones, dates and length of phase to be determined by each MT or MT group, governed by users

Decisions by Standards Committee (STC) and business committees (BPC and SSC)

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Coexistence – current status

• The MTs are not going away anytime soon• SWIFT will support customers through the

coexistence period with additional products and services designed to make coexistence ‘easier’

• A coexistence implementation plan was started in 2007, but community feedback indicated it was too early for consensus on milestones and dates for many MTs

• SWIFT remains fully committed to ISO 20022 for all standards development

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Business areas considering dates for MX convergence • Investment Funds

– Targeted date for removal of MT message - end 2012– Subject to reaching identified milestones

• Exceptions and Investigations (E&I)– Targeted date for removal of MT message - end 2012– Subject to reaching identified milestones

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Main industry initiatives

Example of main industry initiatives

• T2S• CCI • Link Up Markets• CCP

– Trade 2 Clear• Regional initiatives, e.g.

– CoSSE– EAC

• Domestic market infrastructure

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Sibos_2009_ update_20090320 - Confidentiality: Public 21

Sibos is coming to Hong Kong:14 to 18 September 2009

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Thank you