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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Necla Kucukcolak, Takasbank International Markets - Manager Thank you international@takasbank.com.tr Necla Kucukcolak, Takasbank International Markets - Manager