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1. Infrastructural Demands: Integrated Vs Decentralised Clearing and Settlement Systems Jagdish Bhandari Vice President Presentation.

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Presentation on theme: "1. Infrastructural Demands: Integrated Vs Decentralised Clearing and Settlement Systems Jagdish Bhandari Vice President Presentation."— Presentation transcript:

1 1. Infrastructural Demands: Integrated Vs Decentralised Clearing and Settlement Systems Jagdish Bhandari Vice President Presentation to 20th November, 2003 TCS. Beyond the Obvious. TM

2 2. Agenda 2 Infrastructural Demands 3 Integrated Vs Decentralised Business Models 1 About TATA and TCS 4 Integrated Vs Decentralised Systems : Technology Issues 5 Our Solution: eClearSettle

3 3. The TATA Group  India’s Largest Conglomerate  Represents Excellence & Integrity  Pioneering Spirit  Trusteeship Concept  Leaders in many Businesses  Group turnover of USD 10.4 billion

4 4.  Established in 1968  Over 24,000 Associates  SEI-CMM Level 5, PCMM Level 4 & ISO 9001:2000  Global presence - over 100 branches across 32 countries  Largest Software R&D Centre in India  Asia’s Largest IT Services Company  First Indian software company to cross the $1 Bln mark in revenues. TCS – an overview Globally Proven experience in Clearing, Settlement and Depository Arena  SegaInterSettle, Switzerland – SECOM Solution celebrates its 10 years  STRATE, South Africa – changes the South Africa Settlement scenario  CDS, Canada – ready for T + 1, wins Banker’s Technology Award, 2003  KCC, Kuwait – state of the art technology solution  NSCCL, India processes over 1.6 min transaction per day across equity, debt and derivative markets  NSDL, India – crosses handling over 4.3 million direct accounts  RBI, India – real time gross settlement of government securities transactions  CCIL, India – clearing house for Govt. securities, Repo and FOREX

5 5. Agenda 2 Infrastructural Demands 3 Integrated Vs Decentralised Business Models 1 About TATA and Industry Experience 4 Integrated Vs Decentralised Systems : Technology Issues 5 Our Solution: eClearSettle

6 6.  Consolidation of Markets for different products  Markets/Exchanges as profit oriented companies want to improve profitability  Need for Capital efficiency and risk management brings new products to clearing houses  Central Counter Party (CCP) Clearing in Cash markets as well to provide Guaranteed Settlement  Common Risk view across product segments  Links with RTGS for funds settlement  Users demanding consolidation, cost reduction and value added services  Flexibility to introduce new instruments, services at shorter notice  Open access platforms to provide easier and safer access to remote participants  Scalable infrastructure to meet growing transaction processing needs at affordable costs  Disparate infrastructures built for historical reasons need either replacement or integration - need to protect the existing investments  Systemically important institutions need to build strong Business Continuity Planning  Need to adapt to International Standards and Best Practices Infrastructural demands

7 7.  Multiple clearing houses for different products increases the cost of operations and operational risk  Broker/dealers and investors are required to post separate collateral for margins for different products at different clearinghouses  Sub optimal utilization of capital and collateral Current Scenario: Vertical Integration based on product lines Equities Governments Repo Swaps Mortgages Options Futures Governments Repo Swaps Mortgages Options Futures FICC OCC CME CH CME CH Broker/dealer A Broker/dealer B I n v e s t o r Institutional Equities NSCC Example: US Scenario Trading Clearing Settle- ment Equity Trading Clearing Settle- ment Bonds

8 8. Agenda 2 Infrastructural Demands 3 Integrated Vs Decentralised Business Models 1 About TATA and Industry Experience 4 Integrated Vs Decentralised Systems : Technology Issues 5 Our Solution: eClearSettle

9 9. Market Segments have  Market Practices  Settlement period  Volumes of transactions  Volume Vs Value  Processing needs  User Community  Risk Perception  Types of Instruments Differences  Similar processes  Acceptance, Matching, Settlement  Interface with Payment Systems and Banks  Foundation Systems  Instrument Masters  Participant Masters  Accounting and Billing  Technical Infrastructure needs  Scalability  Reliability  Adaptability  Flexibility  Disaster Recovery needs Similarities

10 10. Broker/dealers reduce internal clearing costs by posting one collateral Broker/dealer A Institutional Investors reduce execution costs by clearing directly through common clearinghouse Vision of Integrated Clearinghouse Governments Repo Swaps Mortgages Options Futures IntegratedclearinghouseIntegratedclearinghouse Governments Repo Equities Mortgages Options Futures Equities Broker/dealer B Investor Institutional Clearing  Common central counterparty for different Markets: Netting and margin calculation across markets, single margin payment, common collateral pool,  Cross collaterisation Settlement  Common depositories handling range of instruments e.g. equities, bonds, money market instruments etc Trading Clearing Settle- ment Equity Trading Clearing Settle- ment Bonds

11 11. Central Depository Trading Equities Participants RTGSBANKS OTHER EXCHANGES Equities Clearing Fixed Incomes Clearing Common Master Data Risk & Collateral Management Banking Interface Margining Integrated Clearing Solution: an Example Derivatives Clearing Trading Derivatives Trading Bonds etc Commodities Forex

12 12. Integrated Model  Positions Calculation and Monitoring Common Account  Positions in single location  Margining  on Portfolio level possible / cross products  Risk offsets possible  Integrated Risk Management  Multi-lateral Netting  Single Guarantee Fund  Collateral Management easier in single location  Decision Support, Data Warehousing and Mining  Foundation Systems  Common Master Data  Billing & Financial Accounting  Operational ease through Single Interface  Simplified Business Practices and Operating efficiency  common records, formats, reports, processing schedules, banking transactions Advantages Dis Advantages  Concentration of Risk  Demarcation issues  Under margining  Mixing of different risk perception  Clash of interest if different set of users are involved across segments  Benefit of scale not suitable to smaller players Centralised clearing could receive additional boost as Basel II regulation bites – to reduce both operational and counterparty risk

13 13. Working Models of Integration  Organisational merger precedes IT integration  Gradual integration of system after Architectural study  Integrated system for Equities and Derivatives Markets – CCASS/3  Equities already operational from May 2002  Derivatives to be operationalised from Q  Achieves the advantages  User friendly common interface  Common Market View/Surveillance  Integrated Risk Management  Common Collateral  Integrated Systems for multiple countries  Covers multiple segments such as Equities, Derivatives, Bonds and Pension Funds  HEX provides systems for Finland, Estonia & Latvia  HEX provides Outsourcing of IT system to CSDs of Estonia and Latvia  HEX controls ownership of Estonia and Latvia Depositories HONGKONG Integration NORDIC Outsourcing INDIA Shared Infrastructure  Integrated Infrastructure for multiple exchanges and market segments  Common facilities for NSEIL, OTCEI & NCDEX  Supports Equities, Derivatives, Wholesale Debt Markets & Commodities  No common view across markets despite sharing infrastructure

14 14. Agenda 2 Infrastructural Demands 3 Integrated Vs Decentralised Business Models 1 About TATA and Industry Experience 4 Integrated Vs Decentralised Systems : Technology issues 5 Our Solution: eClearSettle

15 15. Integrated IT Systems  Single platform -hardware and systems software  Skill set required for maintenance has lesser variations  Reduces/eliminates duplication of Master data  Common Operational Interface improves efficiency  Optimised network requirements  Lesser training effort – single application  Less Storage space  Reduce data warehousing investments AdvantagesDis Advantages  Managing Scalability for growth in volumes becomes complex – need to split applications across machines/platforms  Greater regression testing effort  Difficult to change specific functions to new technology  Systems become complex  Need for asynchronous processes to handle performance issues

16 16. Decentralised IT Systems  Vertical scalability can be compartmentalised  Easier to tailor individual areas to the needs of separate segments  New technology can be leveraged for specific areas  Less regression testing effort Advantages Disadvantages  Integration and monitoring issues are higher  Data synchronisation issues  Possible data duplication  Different interfaces could result in more training effort and complicated change management  Complex workflow requirements

17 17. Architecture is the key  Architecture is fundamental to derive the advantages  Need to consider  Multi-layered architecture  Component based design  Message based interaction between components  Decoupled reporting and Business Intelligence  Platform independence  Globally accepted standards – SWIFT ISO 15022, XML  Open Access Layer to provide for APIs, multiple protocols

18 18. Layered Architecture IVR Mobile WAN / LAN / INTRANET External Application Messaging /OLTP Middleware Client-side PresentationServer-side PresentationBusiness Logic LayerDatabase Layer RDBMS (UDB / Oracle) StorageArea Network Network(SAN) HTTPS,SSL TCP/IP, HTTP TCP/IP, SSL HTTP. HTTPS, SSL, TCP/IP, FTP, SWIFT TCP/IP, SSL Application components Transaction Manager Restart / Recovery House keeping Archival Reports Manager Web Server (JSP, Servlets) IVR Server WAP Server Mail Server IO Communications Report Server

19 19. Best of both worlds Middleware For Connectivity Middleware For Connectivity Data Warehouse Integration Layer for Transformation & Business Intelligence User System for Equities System for Bonds System for Derivatives Advantages of Integrated systems can be derived even from the decentralised systems by  Judicious use of middleware  Message brokers

20 20. Agenda 2 Infrastructural Demands 3 Integrated Vs Decentralised Business Models 1 About TATA and Industry Experience 4 Integrated Vs Decentralised Systems : Technology Issues 5 Our Solution: eClearSettle

21 21. A Comprehensive & Integrated solution for Cash & Derivatives Markets covering Equities, G Secs, Repos, Futures, Options:  Cash Clearing and Settlement  Derivatives Clearing and Settlement  Depository  Risk Management  Registrar Services  RTGS  Global range of securities  Multi entity / Multi market and Multi currency capability  Combination of settlement models & payment methods  Component based design using Object Technology, UML  Platform independent, Multiple networks and protocol support  Scalable, Flexible, Extensible Solution  State-of-the -art access channels - Internet, , IVR, WAP, SMS Central Depositories Clearing Organizations Central Banks eClearSettle

22 22. Functional Architecture Common Library Instrument Master, Business Partner Master, Calendar, User Administration, Accounts, Fees and Billing Derivatives Clearing & Settlement Futures & Options –Index, securities, commodities Clearing Settlement through cash and delivery Web Interface / Message Interface Stock Exchanges Overseas/ Other Clearing Corporations Overseas/ Other Depositories Participants Payment Systems/ Banks Cash Clearing & Settlement Clearing including Central Counter Party Settlement Cross Border settlement Information vendors Record keeping Transfers Corporate actions Registrar Services Depository Services Demat Remat Account transfers Securities lending borrowing Corporate actions Margin computation Margin administration Collateral management Interfaces to SPAN/ TIMS Integrated Risk Management Inter bank transfers Intra day liquidity Security settlement Various models- V, Y Real Time Gross Settlement (RTGS)

23 23. Technical Architecture Database Manager Services Messaging/ OLTP Middleware Derivatives Clearing & Settlement Cash Clearing & Settlement Depository Registrar ServicesRisk Management Accounts User AdminBusiness PartnerInstrument Master Report Manager Archival Audit Recovery/ Restart Messaging/ OLTP Middleware RDBMS (UDB or Oracle) IO-Communication SWIFT, XML ISO File Transfer External Interfaces IVR IVR, Server Messaging Middleware Web Server Messaging Middleware Mobile WAN / LAN / INTRANET Internet Browser Clients RTGS Fees & Billing WAP Server Multiple Deployment Platforms RS/6000, AIX, Sun Sparc, Solaris Intel, Linux Integra Lotus Notes MS Exchange Windows 2000 Websphere, Weblogic Jataayu

24 24. Technology can improve efficiency, service and lower costs…. But only if: integrated organizational strategy  it is part of an integrated organizational strategy ey people  it has the support of the key people enablenew ways  it is used to enable new ways of working correct technologies  you identify and acquire the correct technologies  Look for a “Sympathetic” model that links:  to your cost structure  rewards based on continuous improvements  the solution provider into your success

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