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ACSDA Seminar, Lima, November 14-15, 2002

Giovanni Sabatini, Chairman of ECSDA and CEO of Monte Titoli. ACSDA Seminar, Lima, November 14-15, 2002. “ Trends and Drivers of Financial Services And Their Impact on CSD Services ”. 1. ECSDA- Brief overview. 2. Trends and drivers of C&S. 3. Impacts on CSD Services.

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ACSDA Seminar, Lima, November 14-15, 2002

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  1. Giovanni Sabatini, Chairman of ECSDA and CEO of Monte Titoli ACSDA Seminar, Lima, November 14-15, 2002 “Trends and Drivers of Financial Services And Their Impact on CSD Services”

  2. 1. ECSDA- Brief overview 2. Trends and drivers of C&S 3. Impacts on CSD Services 4. Europe: A lab for studying new challenges Agenda

  3. 1. ECSDA – brief overview • ECSDA (European Central Securities Depositories Association) was founded in 1997 • Present Steering Committee: Chairman: Giovanni Sabatini, Monte Titoli Vice-Chairman: Joel Mérère, Euroclear France Secretary: Jan Hellstrom, VPS Treasurer: Stéphane Bérnard, CIK

  4. 1. ECSDA - brief overview Members CSD SA: Greece Euroclear CIK: Belgium CrestCo: GB Clearstream: Germany Euroclear France HEX: Finland Euroclear Netherlands Interbolsa: Portugal Iberclear: Spain VPS: Norway Monte Titoli: Italy OEKB: Austria SIS: Switzerland VP: Denmark VPC: Sweden

  5. 1. ECSDA - brief overview ECSDA’s tasks • Drawing up technical standards for cross-border settlement (interoperability and risk minimisation) • Representing a forum for exchanging common views and carrying out projects of mutual interests • Adopting initiatives towards European Authorities • Offering advise for legal, regulatory and fiscal matters: contribution to the decision making process shaping the future of European C&S

  6. Agenda ECSDA- Brief overview 2. Trends and drivers of C&S 3. Impacts on CSD Services 4. Europe: A lab for studying new challenges

  7. Globalisation 1 Deregulation – Re regulation 2 Technology 3 Blurring of specialisation 4 2. Trends and Drivers of C&S

  8. Agenda ECSDA- Brief overview 2. Trends and drivers of C&S 3. Impacts on CSD Services 4. Europe: A lab for studying new challenges

  9. 1 Globalisation: increases cross-border activity US Gross acitivity in foreign securities, Sales/ Purchases Foreign gross activities in US securities, “ 3. Impacts on CSD services Investors going global at rapid rates Source: US Treasury

  10. 1 Globalisation 3. Impacts on CSD services Requires CSDs to offer new products/ services Requires CSDs to serve new markets IMPACTS Demands CSDs to reduce costs of cross border settlement and increase efficiency

  11. 2 Deregulation – Re regulation Demutualisation of stock exchanges and of post-trading services providers IMPACTS Consolidation process (both vertical and horizontal) Higher attention paid by both European and non-European regulators (CPSS-IOSCO recommendation N°18) 3. Impacts on CSD services

  12. Technology 3 3. Impacts on CSD services Provide remote access Offer realtime access IMPACTS Offer a single access point for clients operating both on domestic and foreign markets Use new technologies

  13. Blurring of specialisation 4 3. Impacts on CSD services Change of traditional roles of (I)CSDs, custodians, clearing houses Interaction with CCPs IMPACTS Increasing competition among market operators Broadening of product ranges Need to focus on risk management/ transparency of risks

  14. Focus: The interaction between (I)CSDs and custodians 4 3. Impacts on CSD services • (I)CSDs are expanding to low added value level services • Their added value services are aimed at increasing the efficiency of the settlement process • Competition between (I)CSDs and custodians might exist for low added value services • Custodians offer services at the highest added value level • Cooperation is essential because custodians’ services are complementary to the CSDs’ ones

  15. Focus: The interaction between (I)CSDs and CCPs 4 3. Impacts on CSD services • Advantages of the CCP • More efficient risk management • Anonymity of counterparties • Netting • Is it always necessary?CPSS-IOSCO recommendation N° 4: the benefits and costs of a CCP should be assessed • Capability of SSSs to interact with whichever market operator (trading platforms, CCPs, intermediaries, matching and routing engines)

  16. Agenda ECSDA- Brief overview 2. Trends and drivers of C&S 3. Impacts on CSD Services 4. Europe: A lab for studying new challenges

  17. Strategic objectives to reap the full benefits of the Euro and to ensure continued stability and competitiveness of EU financial markets: N° 1:A single EU wholesale market N° 2:Open and secure retail markets N° 3:State-of-the-art prudential rules and supervision General Objective: wider conditions for an optimal single financial market 4.1 The European financial integration The two pillars of the integration 2001: Introduction of the Euro 1999: Adoption of the Financial Services Action Plan (FSAP)

  18. 4.2 Present difficulties • Technical barriers and market practice • Barriers of high importance • National restrictions and practical impediments to remote access • Differences in national rules relating to corporate actions, beneficial ownership and custody • Barriers of medium importance • Absence of intra-day settlement finality • National differences in settlement periods • Tax barriers:Stamp duty in UK, withholding tax in Italy • Legal barriers:Companies law, bankruptcy law

  19. 4.3 Progress already made Starting point: A fragmented environment:“Fragmentation in the EU clearing and settlement infrastructure complicates significantly the post-trade processing of cross-border securities transactions relative to domestic transactions" (Giovannini Report) • Harmonisation process started: Investment Service Directive (ISD) 1993 • Adoption of new directives: Settlement Finality Directive, Collateral Directive, 6 other legislative proposals and the updated ISD (to be approved within the end of 2002) • Comitology procedure: making financial services legislation more timely and flexible

  20. 4.3 Progress already made Starting Point: Technical/Market practice:“The EU clearing and settlement landscape could be significantly improved by market-led convergence in technical requirements/market practice across national” (Giovannini Report) • ECSDA WG 4: Technical specifications of minimum standards and messages (SWIFT ISO 15022) • ECSDA WG 2: Model agreement • ECSDA WG 3: ECSDA model for settling cross border transactions • ECSDA WG 5: Standardisation of corporate actions and events processing • Forthcoming Report 2 of the Giovannini Group

  21. 4.4 The way ahead: false issues • C&S as a natural monopoly • Consolidation versus integration • Religious war: verticalists versus horizontalists

  22. 4.4 The way ahead: real issues • Significant reduction in cross-border investment/ runningcosts • Risk reduction • Efficiency • Reliability, resilience, integrity and scalability

  23. Interoperability A Effective Level Playing Field B 4.5 Steps for further rationalisation 1. What market participants need: A single integrated “process” for European C&S rather than legal consolidation 2. How to be achieved:

  24. Interoperability A 4.5 Steps for further rationalisation • Capability of systems to interoperate with each other (e.g. also with payment systems) • Open architecture of clearing/ settlement systems • Minimisation of sunk costs for intermediaries • Independent from governance • Non preemptive with regard to a different long term solution

  25. 4.5 Steps for further rationalisation Interoperability: Network industries A good example is the telecommunication industry where different actors interact as a single integrated process without requiring consolidation

  26. Effective Level Playing Field B 1 Clarification of the rights of access to/choice of C&S facilities(EU Commission) 2 Overcoming the main legal and fiscal obstacles (Giovannini report) Adoption of the “functional” approach 4.5 Steps for further rationalisation New ISD proposal A directive on C&S ? ECB/CESR standards 3 Common regulatory approach/ minimum standards 4 CPSS- IOSCO disclosure framework Guaranteeing full transparency

  27. 4.5 Steps for further rationalisation A directive on C&S? • Avoiding over-regulation: flexible regulatory framework • Promoting a clear, unambiguous legislative framework (minimise conflicts of laws/ ensure level playing field) • Ensuring transparency of risks • Favouring continuous dialogue between European Authorities and market participants • Yes, but in line with the aim of: Source: Comments of the ECSDA regarding the Communication from the EU Commission, September 2002

  28. 5. ECSDA Contacts For further information, please contact: Giovanni Sabatini (Monte Titoli, Italy): g.sabatini@montetitoli.it Joel Mérère (Euroclear Fra.): joel.merere@euroclearfrance.com Jan Hellstrom (VPS, Sweden): jhe@vps.no Stéphane Bernard (CIK, Belgium): s.bernard@euronext.com or visit the: ECSDA Website: http://www.ecsda.com

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