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

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

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

4. Direct Linkage Model Account Set-up
Omnibus Account Structure
Segregated Account Structure
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.
Primary-CSD
Intermediary-CSD
Result
Segregated
omnibus
Segregated: Intermediary-CSD opens segregated accounts at Primary-CSD
Omnibus
segregated
Omnibus: Intermediary-CSD opens an omnibus account at Primary-CSD, and segregate at its own accounts.
Omnibus: Intermediary-CSD opens an omnibus account at the Primary-CSD
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.
Necla Kucukcolak, Takasbank International Markets - Manager

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

6. Comparison: Direct vs. Indirect
Direct Linkage
Indirect Linkage
Infrastructure set-up cost
high
low
Ease of account opening procedures
shorter
more 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
higher
lower
Timeliness of notifications
from source
with delay
Uninterupted flow of information
yes no
Strictness of instruction deadlines
real market deadlines
Stricter deadlines
Enhanced value added services
less available in many cases
typically available
Necla Kucukcolak, Takasbank International Markets - Manager

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

8. Necla Kucukcolak, Takasbank International Markets - Manager
Link-Up Markets
Founded as joint venture by the CSDs of Germany, Greece, Spain, Austria, Switzerland, Denmark and Norway in April 2008.
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.
Source: Link-up Markets, July 2011 Publication
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

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

10. Necla Kucukcolak, Takasbank International Markets - Manager
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

11. Necla Kucukcolak, Takasbank International Markets - Manager
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

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

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

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

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

16. Sub-custodian Processing Harmonization and integration of markets
Comparison: Focus
Focus
Global Cust.
ICSDs
SIX SIS
Link-up
Single Platf.
Target 2S
Sub-custodian Processing *
Direct Links
Interoperability
Harmonization and integration of markets
Necla Kucukcolak, Takasbank International Markets - Manager

17. Necla Kucukcolak, Takasbank International Markets - Manager
CONCLUSION
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
Necla Kucukcolak, Takasbank International Markets - Manager

18. Necla Kucukcolak, Takasbank International Markets - Manager
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)
Necla Kucukcolak, Takasbank International Markets - Manager

19. Necla Kucukcolak, Takasbank International Markets - Manager
Thank you
Necla Kucukcolak, Takasbank International Markets - Manager