CPSS-IOSCO Principles for FMIs and TM Assessments Ana Giraldo Guatemala - April 2013

Agenda CPSS – IOSCO Principles Vs Thomas Murray’s Risks Key differences Comparison of CPSS-IOSCO, AGC and TM CPSS-IOSCO principles in TM public ratings 2

I. CPSS-IOSCO Principles vs Thomas Murray’s Risks

Governance & Transparency CPSS-IOSCO vs TM Ratings Principle Asset Commitment Liquidity Counterparty Asset Servicing Financial Operational Asset Safety Governance & Transparency General Details Principle 1: Legal Basis   ü  Principle 2: Governance ü Principle 3: Framework for the comprehensive management of risks Principle 4: Credit Risk Principle 5: Collateral Principle 6: Margin Principle 7: Liquidity Risk Principle 8: Settlement Finality Principle 9: Money Settlement Principle 10: Physical Deliveries Principle 11: Central Securities Depositories Principle 12: Exchange-of-value Settlement Systems Read the heading and point to the fact that no element is included in asset safety

Governance & Transparency CPSS-IOSCO vs TM Ratings Principle Asset Commitment Liquidity Counterparty Asset Servicing Financial Operational Asset Safety Governance & Transparency CSD on CSD Principle 13: Participant-default rules and procedures   ü Principle 14: Segregation and Portability Principle 15: General Business Risk Principle 16: Custody and Investment Risk Principle 17: Operational Risk Principle 18: Access and Participation Requirements Principle 19: Tiered Participation Arrangements Principle 20: FMI Links Principle 21: Efficiency and Effectiveness Principle 22: Communication Procedures and Standards Principle 23: Disclosure of rules and Key Procedures Principle 24: Disclosure of Market Data

II. Key Differences Between Thomas Murray’s Assessments and IOSCO Self-Assessments

Thomas Murray Key Differences with other Assessments Data Validation Asset Servicing Risk Continuous Updates Data Validation Adherence to best market practices Transparency Separate assessment per type of FMI

Asset Servicing Risk Why Asset Servicing Risk is important? Trend: There is an increasing number of CSDs providing asset servicing and corporate actions-related services to participants. Risk: Asset servicing carries a high degree of risk given that it is a commercial activity. In many cases it can be provided in competition with custodians. It is also the area with the largest potential losses for a CSD. TM weighting: TM gives a high weighting to the overall risk score to asset servicing risk. In fact, it is the heaviest single weighted risk in our methodology. Involvement of CSDs: There is a varied degree of involvement in asset servicing ranging from simple interest payment distribution to complex corporate actions processing. Back

Asset Servicing Risk Why Asset Servicing Risk is important? Back

Data Updates Continuous Updates Thomas Murray provides on-going surveillance on changes to the CSDs, CCPs and capital market infrastructures. Thomas Murray receives information directly from local sources such as support banks, CSDs, stock exchanges and regulators. There is also a (at least) monthly monitoring of websites to ensure developments are not missed. Daily newsflashes are sent to clients and other interested parties in respect of changes and developments in the marketplaces. A risk impact is added every time a piece of news has a relevant impact on any of the assessed entities. Assessments are updated and revised upon receipt of information. The ratings are also reviewed and taken to the Ratings Committee if a significant event takes place. There are also annual general updates with the co-operation of the CSDs and the support banks to validate the data. Back

Permanent Updates Number of Newsflashes Sent by Thomas Murray Back

Data Validation Validation Thomas Murray information is collected from CSDs but data is validated by some participants that are our support banks. The support banks provide an annual update and review of Thomas Murray assessments. Examples of support banks:

Best Market Practice Adherence to best market practices Thomas Murray’s assessment methodology is based on best market practices rather than minimum standards. Thomas Murray provides a gap analysis that shows the CSD where it stands compared to best market practices. The rating scale is designed in a way that CSDs can determine how far they are from the best market practice in each risk.

Transparency Transparency of methodology and reports Thomas Murray’s assessment methodology is published so CSDs can understand the basis they have been rated. TM methodology is prescriptive and detailed enough for CSDs to determine their strengths and weaknesses in each risk. TM reports are available to all our clients and public rating reports are publicly available. TM reports are also available to the CSDs once they are finalised/updated. Since the reports highlight the strength and weaknesses, CSDs can use them to decide areas to work on and issues to address.

Separate Assessments Analysis per type of entity Thomas Murray undertakes separate assessments and analysis according to the type of infrastructure entity. Different types of risks apply to different type of infrastructure entity (e.g. CPSS-IOSCO principles for FMIs apply equally to all FMIs although some principles are not applicable to all (e.g Principle 6: Margin, only applies to CCPs). Back

III. Comparison Between AGC, CPSS-IOSCO and TM on Key Issues

Thomas Murray AGC CPSS/IOSCO

IV. CPSS-IOSCO Principles for FMIs in TM Public Ratings

Comment on Publicly Rated CSD Principle CPSS-IOSCO Comment on Publicly Rated CSD 4 – Credit Risk An FMI should effectively measure, monitor, and manage its credit exposures to participants and those arising from its payment, clearing, and settlement processes. An FMI should maintain sufficient financial resources to cover its credit exposure to each participant fully with a high degree of confidence. XXX participants do not have any credit exposure in the case of pre-funded on-exchange trades. For off-exchange settlements, there is full counterparty exposure if the participant chooses to settle on an FOP basis. If settled DVP, there is no risk of principal loss, but some consequential market losses may occur since there are no fails management mechanisms. While XXX doesn’t undertake a thorough check on participants, other agencies check that requirements are met. 5 - Collateral An FMI that requires collateral to manage its or its participants’ credit exposure should accept collateral with low credit, liquidity, and market risks. An FMI should also set and enforce appropriately conservative haircuts and concentration limits. XXX supports the settlement of repo and reverse repo transactions on the Exchange and accepts the deposit of securities as collateral. 6 - Margin A CCP should cover its credit exposures to its participants for all products through an effective margin system that is risk-based and regularly reviewed. Not applicable as XXX does not act as central counterparty in the market.

Thank you! December 2012