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Clearing and Settlement Risk Management

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Presentation on theme: "Clearing and Settlement Risk Management"— Presentation transcript:

1 Clearing and Settlement Risk Management
Overview Clearing and Settlement Risk Management Samir Jaradat CEO April 2009

2 Delivery Versus Payment
The Securities Depository Center (SDC) of Jordan implemented clearing and settlement on the basis of Delivery versus Payment (DvP) where delivery of sold securities is against payment of their value DvP is a global standard implemented in capital markets

3 Delivery Versus Payment Cycle
Electronic Trading File Buy-In Clearing and Settlement No T+2 Removal of Suspension Causes The number of securities in the selling client’s account with the broker is sufficient to execute the trade according to Sub-Custodian instructions T+1 No Suspended Trade T+0 Delivery of Sold Securities Versus Payment of their Value (DVP) Yes T+0 Accepted Trade Yes T+2 Liquidity Reserve Account Liquidity Reserve Amount Broker T+1 T+2 T+2 Settlement Account Settlement Amount (net to pay-Liquidity Reserve) T+2 T+2 Default Settlement Guarantee Fund

4 Risk Management Settlement Guarantee Fund (SGF)
SDC/ASE Tight Coupled Environment Suspend the value of suspended trades Buy-in & sell out measures Suspension of the defaulting broker from trading. Business Continuity & Disaster Recovery Plans

5 Settlement Guarantee Fund
The Settlement Guarantee Fund was established by virtue of the Securities Law No. (76) of Its objectives include: Covering the cash deficit of a Fund member in connection with his purchases of securities Covering the deficits in the securities account of a Fund member The contributions of the members of the Fund are divided into cash contributions and bank guarantees. The contributions are calculated based on specific formulas and are periodically re-calculated

6 Settlement Bank The Central Bank of Jordan is assigned as a settlement bank to receive/pay securities values, where all payments are processed through the "Real Time Gross Settlement System-Jordan" (RTGS-JO) The SDC opened two accounts at the settlement bank: Liquidity reserve account Settlement account The SDC is a member in the RTGS-JO central bank payment system

7 Tight Coupling Environment
The Amman Stock Exchange (ASE) and the Securities Depository Center (SDC) implemented the ASE-SDC tight coupling on 22 March 2009 together with the new trading system in order to mitigate settlement risk Through the tight-coupled link, the order information is passed from the Trading system to the Depository System to ensure that the securities are indeed available prior to the trade being made

8 (Tight Coupling Environment)

9 SDC’s End of business day
Updating Daily Files Trading file SDC’s End of business day Sending File Updating CCM Files Updating FILES OF (ARAMIS) Trading Data files

10 (SDC-CCM) Files Transfer during trading session
Adjust Accounts’ Ownership Balance Adjust Investors’ Status Adjust Brokers’ Credit Limit Adjust Broker’s Trading Cap Through (MMTP) Yes Bonds Custody Account Yes Custodian Notification Executed Transaction Shares transfer to custody account maintained at Broker level CUSTODIAN

11 Functional Objectives to the Tight-Coupled Link
Trades orders verification: the aimed tight-coupling shall provide the facility to validate and check for each order the existence of investors with their respective available trading balances Trading-cap: maintain the sum amount of permitted selling trades to be executed by the broker to the maximum ceiling limit of their settlement guarantees

12 The advantages of the tight-coupled link
Prevention of uncovered/ naked short sales Prevention of failure of delivery of securities Reinforcement of the concept of registered ownership Prevention of multiple selling orders where the same securities cannot be sold in the same trading session Control and monitoring of ownership percentage Control of financial obligations of broker participants

13 The advantages of the tight-coupled link
Direct Online Verification for trading Orders Percentage of securities ownership Accounts ownership except custodians Clients’ data Brokers’ data Approved trading unit Joint client Developing communication mechanism between capital market institution’s Reduce human interfering Dispense paper environment Apply secure environment Accuracy and Speed of achievement

14 Risk Management The implementation of the ASE-SDC coupled link is expected to reduce the settlement fails in the market by preventing naked short sales; thus having a 'Positive' impact on liquidity risk. The counterparty risk exposure will be also reduced through the monitoring of brokers’ trading-caps

15 Business Continuity & Disaster Recovery Plans
Maintaining access to data at all times, protecting critical business assets and reducing recovery costs based on business risk and information value Maintaining access to data at all times, protecting critical business assets and reducing recovery costs based on business risks and information value

16 Business Continuity & Disaster Recovery Plans
The BCDR site should provide: Accessibility ( for authorized personnel) Security Infrastructure (Network, electricity, etc) Adequate distance form the Production Site, for protection form production site disasters. According to the international standards the distance of the DR site which is located in the north of the kingdom from the main site is (100) Km

17 Business Continuity & Disaster Recovery Plans
BCDR Advantages Continuity of Business Operations International Standards’ Compliance Reduce the cost of Risk Management Security, Privacy & Data Protection Expertise and Skills Maintaining Market Readiness

18 Aspects of Business Continuity

19 Technology Platforms                                        Securities Central Operation Registry Processing & Information Online ®

20 SCORPIO® System The SDC developed an electronic system called “SCORPIO®” consists of a number of support systems: Broker Support System Issuer Support System Sub-Custodian Support System Surveillance and auditing Support System Pledge Support System Services Support System

21 SCORPIO® System Functions
Brokers’ System Issuer’ System Sub-Custodian System Pledgee System Registers System Clearing & Settlement System (DvP) Regulatory authorities Surveillance and Auditing System Reports System Auditing System Web Services System Settlement Surveillance Family Transfer Inheritance Transfer

22 SCORPIO® System Operations

23 Thank You


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