Hong Kong Securities Industry Group Update on Implementation of - - PowerPoint PPT Presentation

Hong Kong Securities Industry Group

Update on Implementation of Update on Implementation of G30 Recommendations G30 Recommendations

Andrew Sheng Chairman Securities and Futures Commission 1 March 2005

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Challenges for global securities clearing and settlement system (1)



Disparate domestic securities clearing and settlement system (SCSS) networks impose different standards of efficiency and add unnecessary risks to settle cross-border trades



Interdependency between different domestic SCSS networks gives rise to contagion (e.g. 9.11 risks)



Different domestic rules restrict competition

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Challenges for global securities clearing and settlement system (2)



Cross-border settlement in global SCSS is not cost-effective



Cross-border settlement costs in Europe are higher than the U.S. (NERA Economic Consulting, June 2004)



€5 in the U.S. vs €5-27 in Europe (settled through international CSDs)



contributed by (1) legal, regulatory and cultural barriers to cross-border settlement in Europe and (2) higher costs associated with fragmented infrastructure

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Cooperation key to global markets



Cooperation at regional and global levels can bring about major increases in efficiency and lower levels of risks



Need cooperation at regional and global levels to achieve international recognized technical standards, harmonized business processes and consistent legal and regulatory frameworks



But it is fear of competition that prevents cooperation

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Standardization is happening at various levels

 Regulators - e.g. IOSCO, CPSS, European

Commission

 CPSS/IOSCO Recommendations for SSS (Nov 2001)  CPSS/IOSCO Recommendations for CCP (Nov 2004)  Giovannini 2001 and 2003 Reports

 Service Providers - e.g. ISSA, SWIFT, CCPs

 ISSA Recommendations 2000  EACH Risk Management Standards (2001)

 Users - e.g. G30

 G30 1989 and 2003 Recommendations

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Major standards for SCSSs

Geographic scope Global Regional (Europe)

G30 1989 ISSA 2000 CPSS/IOSCO 2001

G30 2003

Wise Men 2001 Giovannini Group 2001 and 2003 reports

Timeline

Mainly address domestic issues Global focus

Except for the EU markets, no widely accepted regional standards in other regions

CPSS/IOSCO 2004

Provide more comprehensive standards for CCP risk management

EACH 2001

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G30 2003 Recommendations

 Chaired by Sir Andrew Large

Vice-Chairs, John Heimann/David Walker

 Built on key recommendations of 1989

report on domestic SCSS

 Examined implications of global SCSS

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Conduct of the G30 Study

 “Top down” analysis  Assessed existing standards, principles

and other authoritative guidance to identify gaps

 Particular focus on recommendations

issued by ISSA and CPSS/IOSCO

 “Bottom up” analysis  Analysed the current state of the global

SCSS and identified areas of concern based on an industry survey (by PwC)

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What are industry’s concerns

 Industry survey by PwC revealed:

 Access barriers to markets and services that

limit effective competition

 Lack of interoperability and connectivity among

clearing and settlement systems

 Continuing deficiencies in the basic clearing

and settlement model, e.g., finality of transfer and reliance on paper in the process

 Concerns about risk management including

business continuity and disaster recovery

 Impact of complex asset servicing requirements

• n clearing and settlement

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G30 2003 Recommendation Report

 Published the new recommendation report

in January 2003 containing 20 best industry practices

 Target for developed markets (14 major

markets)

 US, Canada, Belgium, France, Germany, Italy,

Luxembourg, Netherlands, UK, Switzerland, Australia, Hong Kong, Japan and Singapore

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G30 Recommendations in Three Areas

• 1. Global standards replace local standards
• 2. Clearing and settlement systems should be

interoperable

• 3. The wider system is rendered fully accessible to

service providers and users Building an efficient and interoperable global network Strengthening network safety and stability Improving governance

Address industry concerns Develop global standards

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G30 Monitoring of Implementation

 Expect to take 5 to 7 years for full implementation  The G30 has established a monitoring committee to

assess the initial stage of implementation progress (met in Dec 2003, July 2004 and Dec 2004)

 Regional monitoring committees have been set up

to review developments in each region:



European Monitoring Committee (chaired by Tom Swaan, ABN AMRO and Stephan Schuster, Deutsche Bank)



North American Monitoring Committee (chaired by Thomspon Swayne, JP Morgan)



Asia-Pacific Monitoring Committee (chaired by Andrew Sheng, SFC)

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Monitoring Process

 Appointed monitoring organizations to assess

implementation progress on each recommendation (e.g. ISSA, PwC, Association of Global Custodians)

 Designated a reviewer to critique each assessment

in terms of (1) timeliness, (2) consistency with the spirit of the recommendations and (3) consistency with initiatives being undertaken

 Implementation of the 20 recommendations has

been in good progress in the 14 major markets

 An interim progress report will be published soon

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Monitoring Efforts in Asia-Pacific

 The Asia-Pacific Monitoring Committee comprises



Securities and Futures Commission (chair)



Australian Securities and Investments Commission



Australian Stock Exchange



Hong Kong Exchanges and Clearing Limited



HSBC Group (advise on operational issues after considering its presence in the Asia region)



Japan Securities Dealers Association



Monetary Authority of Singapore



Central Depository (Pte) Limited (Singapore)

 Also asked 12 emerging markets in Asia to consider

implementing the G30 recommendations

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What are the major areas for improvement in Asia-Pacific (1)

 Implementation of the recommendations on

“interoperability” has been progressing slowly

 High implementation costs due to a legacy of systems

 e.g. capital investment required to fully adopt ISO 15022

 Lack of international standards

 e.g. (1) reference standards for data classes such as

fees, currencies and time zones, (2) standards for trade matching and confirmation and (3) standards in the area of corporate actions

 Wide adoption of domestic standards

 e.g. local securities and client identification codes are

used rather than ISIN and BIC

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What are the major areas for improvement in Asia-Pacific (2)

 Need for regulatory harmonization of standards

across Asia-Pacific region for market integration

 Harmonize regulatory framework to facilitate cross-

border trading

 e.g. strengthen implementation of the IOSCO

Objectives and Principles

 Encourage uncooperative jurisdictions to cooperate

with cross-border enforcement investigations

 e.g. adopt the IOSCO Multilateral MoU as a

standard/benchmark for enforcement cooperation

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What can the industry help (1)

 Industry working groups established to

 Identify their major impediments to cross-border

trading and clearing (e.g. processing inefficiencies in cross-border settlement) and collaborate with the relevant infrastructure providers to find suitable solutions

 Develop globally applicable standards (e.g. reference

data standards and communication protocol)

 Harmonize business practices as far as possible

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What can the industry help (2)

 Regional office to liaise with its head office to

ensure local issues/practices will be addressed

 e.g. standardized templates for electronic dissemination

• f corporate action information should accommodate all

commonly used corporate action types in domestic markets  Market participants to exercise influence over

their key markets to enhance regulatory harmonization of standards across jurisdictions

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Conclusion: Still some way to go

 Implementation of the G30 recommendations has

been in good progress in Australia, HK, Japan and Singapore – other Asian markets have incentives to comply, bringing Asian markets close to global clearing and settlement infrastructure standards

 On regulatory standards, we have also long way

to go, because of historical barriers that have been erected unintentionally

 Need industry support to take the implementation

process forward

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Summary

  The global marketplace is only as good as the

The global marketplace is only as good as the infrastructure that supports it. infrastructure that supports it.

  Effectiveness of the global financial network

Effectiveness of the global financial network is only as strong as its weakest link. is only as strong as its weakest link.

  Efforts from the industry are thus required to

Efforts from the industry are thus required to strengthen the global financial market strengthen the global financial market network. network.

Thank You