International Securities Market Advisory Group (ISMAG)
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International Securities Market Advisory Group (ISMAG) Standardising the Processing of International Securities. 1. Introduction and Background. 2. Recommendations. 3. Conclusion. Corporate Actions Pre-advising events , e.g. puts, calls, conversions, warrant exercises

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Introduction and Background

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International Securities Market Advisory Group (ISMAG)Standardising the Processing of International Securities

1.

Introduction and Background

2.

Recommendations

3.

Conclusion


Corporate Actions

Pre-advisingevents, e.g. puts, calls, conversions, warrant exercises

Need to advise applicable dates (payments), deadlines (for instructions)

Sending concise event notifications to customers, also making full (applicable) documentation available

Ensure cash or security proceeds received and credited to holders without delay

Provide updates for any adjourned meetings and voting requirements, etc.

Income Processing

Record and notify security holders of forthcoming income events

Need to pre-advise applicable dates (record, payment, fixing and/or determination)

Need to pre-advise accurate income entitlements, limiting reversals/amendments

Processing payments by confirming cash amounts processed the day prior to value-date, enabling same-day use of funds

1. IntroductionAsset Servicing through ICSDs - Summary

Pro-active value added services

The ICSDs have to receive timely and accurate information

for onwards STP delivery to their clients

(for onwards delivery to their underlying clients)


Issuer

Data

Vendors

ICSD

PPA

CD

Issuer

s

Investors

Agent

IntroductionCurrent inefficiencies & risks in Information flows

Issuer

Issuer

  • * * Each party :

  • to receive the information,

  • to understand/interprete it

  • to store it

  •  creating its own golden copy

No STP

No STP

**

Issuer = Golden soure & copy

Data

Data

Vendors

Vendors

No STP

No STP

No STP

No STP

No STP

No STP

STP

ICSD

ICSD

No STP

No STP

STP

PPA

PPA

CD

CD

Issuer

Issuer

s

s

Agent

Agent

**

**

**

**

Access to each ICSD

Access to each ICSD

security and event database

security and event database

-> lack of a unique golden source & copy (various golden copies e.g. payment dates, ..)

-> lack of Information « push » from Issuer and its agent (current « pull/chasing » from downstream parties)

-> lack of STP from upstream parties (starts with ICSDs providers)

ISMAG objective:

to address current high inefficiencies, costs and risks related to

International Securities Asset servicing (New Issues, Corporate Action & Income)

information coverage, timeliness and quality


1. Introduction

ISMAG Organisation : End-to-end from Issuers to Investors

G.E.

EIB

JP Morgan

Barclays

Goldman Sachs

UBS

Crédit Suisse

Rabobank

Commerzbank

Royal Bank of Scotland

BNP & SG

Citibank N.A.

Deutsche Bank

BNYM

HSBC

BP2S

Société Generale

BAML

ICMSA

ICMA as observer

AGC & Northern Trust

ISSA


  • IntroductionStatus & Next steps

2007

2008

2009

2010

Increase STP

by converging

§

Information checklists to ISO

standards

2011 +

P

I

L

L

A

R

1

I

M

P

L

E

M

E

N

T

A

T

I

O

N

Define benchmarks & guidelines of best practices = MPB Feb 2011

PILLAR 2

Raise market awareness on MPB to foster implementation

  • Monitor adherence to MPB benchmarks : KPIs

  • NI closing +1 BD (IPA/LM)

  • Income rate fixing (Calculation Agent)

  • Reversals volumes + timeliness (Offender)

  • + TBD CA e.g. fixing on Cash/Shares redemption (Calculation Agent)

P

I

L

L

A

R

3

Market framework definition

and implementation: Letter of

representation (LoRs),

ISMAG label, reporting to

issuers/agents

§


2. ISMAG Recommendations in line with ISSA principles

  • defined with & for upstream parties, i.e. Issuers, their Legal counsels and their Agents

  • to address inefficiencies and risks linked to information provision processes

    • Information coverage (completeness & accuracy)

    • Information timeliness

    • Information processing

       adherence to and usage of the best practices will ensure an efficient and effective service to investors through end-to -end processing chain

Operational Market Practice Book (MPB)- February 2011


2. ISMAG Recommendations – MPB 2011 “Bottom-up” approach

  • ISMAG taxonomy : information checklists and specific recommendations

     to achieve completeness and common understanding

  • End-to-End Roles & Responsibilities at issuance and during securities lifecycle

  • who needs to do what to whom by when

  • by when - specific information benchmarks

    E.g. variable rate notification - no later than Fixing / Determination Date + 1 Business Day

    from Calculation Agent to Paying Agent

  • Processing best practices

  • E.g. Paperless corporate action processing – electronic instead of paper instructions

  • E.g. Root cause of income amendments (who, why, what)


2. ISMAG RecommendationsImplementation monitoring e.g. rate fixing timeliness

-> Calculation Agents’ performance

  • Ref. benchmarks:

Fixing/ Determination date + 1 BD

 Calculation Agents to work differently:

from Payment Date to Fixing/Determination Date

Sources: IPA data from BP2S, BNYM, CITI, Deutsche Bank


Investors

3. Conclusion: Market Framework

To foster best practices implementation by the Market

  • Proposed ICSDs framework aims to:

    achieve increased transparency

Market

Framework

to increase

transparency

Issuer

on securities portfolio

& expected service level :

ISMAG Adherent or ISMAG exempt ?

on securities service level :

ISMAG compliant or not ?

  • optimise end-to-end operational efficiencies and reduce risks :

    from a downstream parties pull model to an upstream parties push model


3. Conclusion : Market FrameworkLetter of Representation : engagement to implement MPB standards

Service quality to Investors highly dependent from various Issuer's Agents performance

 Market framework (starts on a voluntary basis) :

1. Issuer LoR (and exemption possibilities for rate fixing timeliness)

2. Issuers’ Agents LoR

Issuer LoR

Issuers

Issuer/Agents agreements

Issuer Agent / Trustee(Representative)

Market Practice Book

Agents’ Monitoring via KPI’s

ICSD’s

Various Agents

CD / CSP

Issuer’s Agent LoR


3. ConclusionISMAG =end-to-endbenefits

… for Investors

  • Improved service levels in asset servicing / Corporate Actions / Income events

    i.e. timeliness, completeness and accuracy of information & processing

  • Increased transparency on their assets performance/structure (e.g. New Reversal Communication)

    … for Issuers

  • Increased Investors’ satisfaction

  • Attractive and competitive issuance model to expand Investor base

  • Better servicing and increased efficiency, leading to reduced costs and risks

    … for Intermediaries

  • Improved service level towards Investors and Issuers,

  • Attractive issuance model to expand Investor base

  • Better cost control in a volume increasing and complex environment

  • Better risk controls through increased efficiency and standardisation

  • Increased communication amongst various Market players


ismag.pmo@euroclear.com

www.euroclear.com/ISMAG

Additional Information?

ismag_pmo@clearstream.com

www.clearstream.com/ISMAG


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