SCEFI I & II - Vision, Concept and Progress Briefing for SFS - - PowerPoint PPT Presentation
SCEFI I & II - Vision, Concept and Progress Briefing for SFS July 2001 SCEFI I - Steering Committee for the Enhancement of Financial Infrastructure Study ways to enhance Hong Kongs competitiveness as an IFC Chaired by the
Briefing for SFS
SCEFI I - Steering Committee for the Enhancement of Financial Infrastructure
Study ways to enhance Hong Kong’s
competitiveness as an IFC
Chaired by the Chairman of SFC Members from SEHK, HKFE, CCASS, FSB,
ITB, HKMA and market participants
Assisted by Andersen Consulting Completed work in September 1999
Vision for success
DISPARATE INTEGRATED
Market Integration Market Reach
GLOBAL LOCAL Hong Kong Australia
Hong Kong
Singapore Japan UK US
Disparate Entity Vertical Silo Complete Integration Within Region Within Country Cross Region Truly Global
Switzerland Germany France
Cross Market Current assessment Strategic direction based on announced plans Legend: Potential direction for Hong Kong in two years
Strategic Positioning
Vision for success Vision as a leading eEconomy: To embrace an infrastructure that allows local and global market participants to access, via a “single window” (which is web-enabled), the full spectrum of financial products and services on an open, robust, secure, scalable, and high performance network.
Vision for success
Creating our future...
One of the leading clearing & settlement centers in the Asian time zone
A center of excellence for risk management & a liquidity center in Asia
Asia’s portal for strategic links with global markets
A center of excellence for financial infrastructure
Recommendations - Single clearing arrangement
Building blocks:
Consolidated clearing account structure
Real-time position creation & management
Unified money settlement through interbank RTGS
Portfolio-based risk management & collateralization
Synchronized processing of consolidated clearing
Key Benefits:
Improve risk management across markets
Reduce settlement risks and improve efficiency
Enhance market liquidity
Recommendations - Straight-through processing
Building blocks:
Transaction flow manager (TFM)
Transaction routing system
Electronic transaction interface
Common banking interface
CSD-to-CSD bridges (multiple bilateral links)
Key Benefits:
Reduce pre-settlement risks and operating cost
Shorten the settlement cycle to achieve T+1 settlement
Increase settlement accuracy/efficiency
Recommendations - Scripless securities market
Building blocks:
Electronic & instantaneous share registration
CSD-to-registrars links
Comprehensive investor participation for direct settlement
CSD/registrars’ infrastructure upgrade
Fine-tune the legal & regulatory framework
Key Benefits:
Ensure instantaneous legal certainty of share transfers
Enable real-time DvP and registration
Through STP, increase efficiency and reduce cost
Recommendations - Robust technology structure
Building blocks:
Unified, open & global access through various channels and complying to standards (e.g., Web, APIs, SWIFT, ISO)
Secure, high performance & resilient community network; scalable, flexible & interoperable with the financial conduit “FinNet”
Reliable gateway for message-based/interactive connections
Integrated global leading league’s services for alliance readiness
Key Benefits:
Pave the way for FinNet implementation
Provide a “single” window access to the full spectrum of financial services
Provide an integrated platform for risk management and STP initiatives
Vision for success
Banks Banks Issuers Issuers Market Regulator Market Regulator Custodians Custodians Fund Managers Fund Managers HKEC Information Services HKEC Information Services Global Users & Investors Global Users & Investors Local Investors Local Investors Brokers Brokers RTGS RTGS
FinNet - Securities & Derivatives Community Network
Share Registration Share Registration Transaction Routing System Transaction Routing System Transaction Flow Manager Transaction Flow Manager Electronic Transaction Interface Electronic Transaction Interface Common Banking Interface Common Banking Interface
Straight-through Processing
Exchanges Exchanges Payment Systems Payment Systems Clearing Houses Clearing Houses Foreign Currency Settlement Depositories Depositories
HKEC Trading
HKEC Clearing
CSD-to-CSD Bridges Cross-collateralization Exchange Alliances
FinNet - Securities & Derivatives Community Network Overseas
Consolidated Clearing Account Cross-market Risk Management Securities Clearing Risk Collateralization Derivatives Clearing Securities Settlement Unified Money Settlement Securities Depository
The eFrastructure
Components of eFrastructure:
Single clearing arrangement
STP
Scripless securities market
Open, robust, and scalable technology structure
SCEFI I Report published in September 1999
Progress on FinNet and STP was slow during 2000
Financial Secretary reconvened SCEFI II in November 2000
Inaugural meeting of SCEFI II held on 5 December 2000
Differences of views on role of CCASS in FinNet caused delay in agreement on way forward
Consensus reached on FinNet with HKEx in April 2001
2nd meeting held on 27 April 2001
FinNet - SFC Project Team
Outsourcing of FinNet’s network infrastructure service Jointly selected New T&T with HKEx HKEx signed a three-year service contract for CCASS/3 network service on 20 June 2001 SFC is negotiating a service contract for FinNet
Straight through processing - Working Group on Money Settlement of CCASS Items
Advancing money settlement of CCASS CNS transactions to day end of T+2 Appointing a consultant to examine and enhance retail payment for online trading
Dematerialisation - SFC Working Team
“Scriplessness” time table set up in June 2001 Developing a detailed proposal
CCASS/3 architecture
New CCASS network - FinNet ISO 15022 compliance (Q2 2002) User access options (Q2 2002) Browser API SWIFT (GSTPA) Database segmentation Middle-Tier architecture
DCASS architecture
OM SECUR + OM Click = a seamless trading and clearing derivatives platform for futures and stock options
Single clearing arrangement
CCASS/3 + DCASS Common risk management system Common collateral management system
Many networks Many circuits Many workstations Different protocols Different user interfaces Different messaging formats
(New York, London, Hong Kong etc.)
Banks Independent Financial Planners Payment System Securities Brokerage Houses Insurance Companies Regulatory Bodies Futures Exchange Stock Exchange
Brokers participating in all 3 markets require: Dozen+ connections and workstations to:
– Trade stocks, options, futures – Settle transactions with 3 markets – Make payments – Deposit/withdraw securities to/from custodians – Obtain market news – Lack of STP creates costs + risks
Service providers benefit at additional cost to
market
High cost and inconveniences - only
Real issue = No single driver - users
across automated and integrated systems, without data re-entry and conducting non- value-added manual intervention
faster settlement cycle, good audit trail, faster market transparency = more efficient market operation
According to an STP audit conducted by SWIFT, savings for increased STP in Hong Kong could be as much as HK$234-312 million annually.
80% STP Rate Savings USD 15 - 20 million/year Cost of settlement 40% to 45% STP Rate Savings USD 8 - 10 million/year Cost of settlement
Source: SWIFT
OCI MPFA
HKATS & Clearing AMS/3
HKEx
Insurance Companies Independent Insurance Agents Independent Financial Planners Independent Mortgage Brokers Law Firms Boutique Financial Companies Fund Managers
Overseas Systems
Organic Growth of FinNet
RTGS Banks
RTGS Network
Brokerage Houses CCASS CCASS Network FinNet SFC
HKMA
FinNet
Regulatory Bodies
STP PvP DvP TvP CCASS/3
Payment Services
A single secure, open, scalable, high
interconnecting banking, securities,
with a global reach, to effect STP, achieving real time DvP,
Open standards technology - Extranet Uniform user-interface Standard message formats Public key (PKI) security technology High availability and reliability Open to provide service to one another
Available to all licensed financial entities => providing level playing field
Low cost - Allow easy entry by new service providers => cultivating innovation in financial services
STP => reducing risk and enhance productivity
Links to other international financial centres => making markets global, real time, round-the-clock
Online Traders through Web to Broker can:
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Open new account and through standard format link up with bank, custodian and registrar
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Arrange margin funding with IP accounts
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Execute and clear trades on STP with DvP
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Real-time statements of portfolio and cash position
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One stop full range of choice of products - mutual funds, options, futures, fx deposits through Broker or Bank . . . all on FinNet via a single workstation !
Online Trading - The Korean Experience
50 100 150 200 250 Jan-98 Mar-98 May-98 Jul-98 Sep-98 Nov-98 Jan-99 Mar-99 May-99 Jul-99 Sep-99 Nov-99 Jan-00 Mar-00 May-00 Jul-00 Sep-00 Nov-00 Jan-01 Mar-01 0% 10% 20% 30% 40% 50% 60% 70% Online trading value (Korean won, billion) share (%)
Online trading - 67% of total trade jumped 337 times since Jan 1998 value
Demonstration of Single Window Access for FinNet:
Single Window for Investors Single Window for Intermediaries
Once Online Trading becomes killer application on FinNet, economies of scale will allow next stage development for e- Commerce
Entrepreneurs starting up businesses can:
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Apply licenses
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Execute and clear trades
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Make payments
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Engage lawyers and accountants
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Seek out partners to form consortium
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Boutique financial services find niches
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Secure funding
. . . all on FinNet via a single workstation !
For regulatory reporting
All banks connected 210/852 brokers connected
eIPO
Sept/2000 - MTRC/ Central Registration Ltd
7/47 (5+%) intermediaries used it Shares applied: 19+%
Nov/2000
Convenience Retail Asia Ltd/ Abacus Share Registrar
Ltd Jan/2001
Hong Kong Registration Ltd (thr’ HKEx - FinNet
connection)
CCASS/3 Network is core of FinNet Jointly selected a reputable network operator 600+/852 brokers will be on FinNet together
with CCASS/3 release
Adding all AIs (banking community), when
SCEFI Working Party on CCASS/HKICL Linkage completes its work
FinNet is formed!
Appoint consultant to speed up Online
Trading implementation
Promote use to other regulators - Office of
Commissioner of Insurance and MPFA
Connecting securities settlement with
payment system
Recruit information providers in FinNet -
Reuters, AFE, etc
Recruit service providers on FinNet - Swift,
Thomson, etc
Work with market participants to speed up
Online Trading usage
Work with Mainland Clearing and Settlement
systems to align on standards and eventual cooperation
Develop capacity to trade and settle in
different currencies
HKEx alliances with
EuroClear/Clearstream/DTCC?
The Clearing and Settlement Centre for Asian Time Zone
Value-added services Value-added services
further consolidation of the trading layer to form fully integrated exchanges
Strong political rivalries;
political union unlikely
Level of cross border trading is low and
growing slowly
Different currencies; many
control regimes
Growth of custodians due to lack of interest in x-border trades of local CSDs persuade them to migrate to an integrated platform, a compelling case must be made the CSD functions in the region would have to integrate, which is Unrealistic in the short term majority of
Custodians are usually: Well capitalised global financial institutions Highly regulated by foreign supervisory bodies
role of sub-custodians cannot be depositories are jealously guarded at the national level, presenting an almost insurmountable obstacle Moreover, sub-custodians, suggesting that potentially huge economic benefits can be achieved if this layer of intermediaries is removed myriad of
Form JV/Alliances at a few levels (clearing and/or settlement) with multiple players to create a dominant back- end utility company
Joint company with pooled
Tight cooperation Loose cooperation
EUROPEAN EUROPEAN
to Chicago’s Clearing21 system 14 European member CSDs Partial merger of Nordic CSDs in support of the Norex exchange CRESTCo, CGO, CMO Consolidation of UK domestic clearing infrastructure for equities and bonds DBC and Cedel to create Clearstream Announcement in November of merger of Euroclear and SICOVAM
Depository Trust and Clearing Corporation
Government Securities Clearing Corporation
Facing rapid change within the industry the NSCC and DTC agreed to an integration which was The world’s largest securities depository, DTC provides a wide range of securities custody, asset and tax related services for its participant banks, broker dealers and clearing agencies This followed nine approved by the Securities and Exchange Commission in September 1999. DTC’s network links more than 11,000 broker/dealers, custodian banks and institutional
Law and member of the Federal Reserve System