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New Challenges for Market Infrastructures

International Securities Services Association. New Challenges for Market Infrastructures. Urs Stähli. Agenda. 1. A glimpse into the future – our landscape changes!. 2. Conclusions, predictions, implications. 3. Focus Europe. Today. Equity. Bonds. Funds. Deriv. Trading. Trading.

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New Challenges for Market Infrastructures

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  1. International Securities Services Association New Challenges for Market Infrastructures Urs Stähli

  2. Agenda 1. A glimpse into the future – our landscape changes! 2. Conclusions, predictions, implications 3. Focus Europe

  3. Today Equity Bonds Funds Deriv. Trading Trading Trading Trading Clearing Clearing Clearing Clearing Settle- ment Settle- ment Settle- ment Settle- ment Product-specific streams by function and market 1. A Glimpse into the Future Tomorrow? Source: Key note address Boston Consulting Group / ISSA Symposium 2006

  4. Today Equity Bonds Funds Deriv. Trading Trading Trading Trading Clearing Clearing Clearing Clearing Settle- ment Settle- ment Settle- ment Settle- ment Product-specific streams by function and market Our Landscape Changes! Tomorrow Equity Bonds Funds Deriv. Transaction Processing Trading, Clearing, Settlement, Custody Risk Management Data Management Integrated processing and risk management, across products Source: Key note address Boston Consulting Group / ISSA Symposium 2006

  5. 2. Conclusions, Predictions, Implications For post-trade infrastructures, this could mean… Market demand Optionsto respond Reduced exposure to - market risk - counterparty risk - operational risk - Introduce CCP - Improve valuation models - Improve margin management - Increase process automation - Widen asset class coverage Source: Key note address Boston Consulting Group / ISSA Symposium 2006

  6. Optionsto respond Marketdemand - Cross-product margin management - Netting More effective use of capital Source: Key note address Boston Consulting Group / ISSA Symposium 2006

  7. Optionsto respond Marketdemand - Cross-product margin management - Netting More effective use of capital - Contract standardization - Prove "Value for Money" More price transparency Source: Key note address Boston Consulting Group / ISSA Symposium 2006

  8. Optionsto respond Marketdemand - Cross-product margin management - Netting More effective use of capital - Contract standardization - Prove "Value for Money" More price transparency - Process standardization - Automation, STP - Platform expansion (scope) Intermediary consolidation Source: Key note address Boston Consulting Group / ISSA Symposium 2006

  9. Obstacles to Better Post Trade Integration Legacy systems Multiple processing platforms Inefficient interfaces Cost of upgrading technology Paper and manual processes Reconciliation challenges Legal, regulatory issues Source: Key note address Boston Consulting Group / ISSA Symposium 2006

  10. Some Predictions and Implications • Further consolidation - within markets and cross-border • Consolidation creates concentration of market power • Politicians and regulators become more alert to monopoly abuse, particularly where infrastructures are de-mutualized • Infrastructure governance assumes even higher importance • More areas of conflict between owners – users – public sector Source: Key note address Ruben Lee / ISSA Symposium 2006

  11. 3. Focus Europe • More consolidation is required: ECSDA has 36 members; the EU Commission wants one integrated market! • ECSDA, Euroclear Group, European Securities Forum are the key drivers of market practice harmonization • The end vision for the CSD business in Europe is not clear • Industry now committed to "Code of Conduct", rather than being subjected to EU Directive

  12. "Fair & Clear" dispute still ongoing • TARGET 2 for Securities adds a new aspect • Possible mergers NYSE / Euronext and NASDAQ / LSE: >> Implications for the clearing and settlement level? • Horizontal or vertical? - While the giants are talking, the small players set the trend for a third way: diagonal!

  13. Euronext L S ELondon StockExchange ISE XetraIrish Stock Exchange v i r t - x SWX DeutscheBörse Lux StockExchange BorsaItaliana N O R E XOsloReykjavik CopenhagenHelsinkiStockholmTalinRigaVilnius WienerBörse ATHEXAthens Stock Exchange Bolsa yMercados Españoles O M X EUREX LIFFE CH & D XETRA 1 2 3 4 LCH - Clearnet Planned? Clearnet L C HLondon ClearingHouse x - clear EUREX-Clearing C C G Planned? C C P -Austria VPS (Nor) VP (Den) APK (Fin) VBSI (Ice) Euroclear Group Clearstream Group Euroclear CREST S I SSegaInterSettle CBFClearstreamFrankfurt CBLClearstreamLuxemburg MonteTitoli OeKBOesterr. Kontrollbank CSD IBER-CLEAR ECSD (Est) VPC (Swe) CSDL (Lit) LCD (Lat) CH GB IRE D I A GR E LUX N DAN EC France EC Netherland EC Belgium Interbolsa SF ICE F B S planned * Free choice of clearing EST NL P Derivatives * Free choice of settlement LAT LIT *only partially displayed Horizontal? Vertical? Diagonal!

  14. International Securities Services Association ISSA c/o UBS AG FNND OZTH P.O. Box CH-8098 Zurich, Switzerland Phone : +41-44-235 74 21 Fax: +41-44-236 14 74 issa@issanet.org www.issanet.org

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