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Post-Trade Linkage Models 7th International SASE Conference; October 19, 2012 Necla Kucukcolak, Takasbank International Markets - Manager 1.

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Presentation on theme: "Post-Trade Linkage Models 7th International SASE Conference; October 19, 2012 Necla Kucukcolak, Takasbank International Markets - Manager 1."— Presentation transcript:

1 Post-Trade Linkage Models 7th International SASE Conference; October 19, 2012 Necla Kucukcolak, Takasbank International Markets - Manager 1

2 – 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 AGENDA Necla Kucukcolak, Takasbank International Markets - Manager 2

3 Building Blocks: Basic Direct and Indirect Linkage Necla Kucukcolak, Takasbank International Markets - Manager 3

4 Direct Linkage Model Account Set-up Omnibus Account StructureSegregated Account Structure Necla Kucukcolak, Takasbank International Markets - Manager Primary-CSDIntermediary-CSDResult SegregatedomnibusSegregated: Intermediary-CSD opens segregated accounts at Primary-CSD Omnibussegregated Omnibus: Intermediary-CSD opens an omnibus account at Primary-CSD, and segregate at its own accounts. OmnibusomnibusOmnibus: Intermediary-CSD opens an omnibus account at the Primary-CSD Segregatedsegregated 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. 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. 4

5 Indirect Linkage Model: Sub-Custody Account Set-up Omnibus Account Structure Segregated Account Structure Local custodian bank: Agent bank of the Intermediary-CSD at the country of Primary-CSD; sub- custodian of the Primary-CSD at the target country, provides sub-custody services to the Intermediary- CSD 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

6 Comparison: Direct vs. Indirect Direct LinkageIndirect Linkage Infrastructure set-up costhighlow Ease of account opening proceduresshortermore assistance Ease of communication higher initial set-up costs standard but limited scope Level of operational know- how on settlement and corporate action processing in the target market higherlower Timeliness of notificationsfrom sourcewith delay Uninterupted flow of informationyesno Strictness of instruction deadlinesreal market deadlinesStricter deadlines Enhanced value added servicesless available in many casestypically available Necla Kucukcolak, Takasbank International Markets - Manager 6

7 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

8 Link-Up Markets Source: Link-up Markets, July 2011 Publication -Founded as joint venture by the CSDs of Germany, Greece, Spain, Austria, Switzerland, Denmark and Norway in April 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. 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 8

9 Global Custodian Banks  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 sub- custodian bank, which is indeed a local custodian bank. Necla Kucukcolak, Takasbank International Markets - Manager 9

10 ICSD Two ICSDs of Europe Euroclear Bank, Clearstream Banking Luxemburg. Primary and exclusive service of ICSDs is Eurobond safekeeping and settlement. – 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. 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

11 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. – 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. Source: ABMI Group of Experts Final Report, Part II, Evaluation of the Feasibility of Regional Settlement Intermediary Options for the ASEAN+3, June 2010 Necla Kucukcolak, Takasbank International Markets - Manager 11

12 SIX SIS International Custody Hub Source: SIX SIS internet site Necla Kucukcolak, Takasbank International Markets - Manager 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. 12

13 Euroclear Single Platform Source: “EUI Single Platform Implementation Forum” Publication, April 2008 Necla Kucukcolak, Takasbank International Markets - Manager 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. 13

14 Euroclear ESES Markets Necla Kucukcolak, Takasbank International Markets - Manager 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. 14

15 Target 2S Source: European Central Bank, “T2S Settling Without Borders” Broucher, November 2009 Necla Kucukcolak, Takasbank International Markets - Manager 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. 15

16 Comparison: Focus FocusGlobal Cust.ICSDsSIX SISLink-upSingle Platf.Target 2S Sub-custodian Processing *** Direct Links *** Interoperability * Harmonization and integration of markets ** Necla Kucukcolak, Takasbank International Markets - Manager 16

17 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 CONCLUSION Necla Kucukcolak, Takasbank International Markets - Manager 17

18 Necla Kucukcolak, Takasbank International Markets - Manager 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) 18

19 Takasbank Şişli Merkez Mahallesi Merkez Caddesi No: Şişli İstanbul Thank you Necla Kucukcolak, Takasbank International Markets - Manager 19


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