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STP in Hungary KELER’s connectivity

STP in Hungary KELER’s connectivity. Tamás Madlena Director Marketing and Customer Relations. ESCB – CESR / 16 Entities providing C&S services + participants +messaging services and network providers Messages Securities identification Counterparty identification Interoperability.

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STP in Hungary KELER’s connectivity

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  1. STP in HungaryKELER’s connectivity Tamás Madlena Director Marketing and Customer Relations

  2. ESCB – CESR / 16 Entities providing C&S services + participants +messaging services and network providers Messages Securities identification Counterparty identification Interoperability Giovannini barrier 1 National differences in IT and interfaces EU-wide protocol SWIFT to define through SMPG Consultation paper is out in January 2005 Reduce risks and costs

  3. Debate Allocation of participant responsibility within the clearing and settlement process.

  4. investment service provider custodian clearing member ICSD, CSD commodities dealer issuer Central Bank Stock Exchange Commodities Exchange spot + derivatives OTC netting + CCP cash accounts local agent registry Colourful client and service pattern

  5. Extremely diversified client and service demands + KELER strategy

  6. Exchange clearing & settlement CCP netting Margining Off-exchange clearing & settlement Matching Provisioning Cash clearing Collateral management STP … in KELER … to KELER Fully automated internal processes STP link should connect STP systems but No STP link exists between CSD and participants Connectivity is the key

  7. Limited STP functionality File import/export Strong authentication At participant employee level Connectivity – Proprietary system Proprietary communication system vs. STP development • True (pull method) STP connectivity solution • Authentication at participant level vs.

  8. ISO 15022 messaging Instructions Confirmations Reports Statements Value added service based on individual agreements Clearstream OeKB KDPW Advantages Increased STP possibilities Widely recognized international protocol Obstacles No unanimous market support Small market Low economies of scale Cost/benefit Connectivity - SWIFT Cross-border context Future possibility STP connectivity for off-exchange settlements Standard CSD connectivity via SWIFT ?

  9. Under the given circumstances… • Investment costs • Many participants unwilling to invest • Short vs. long term views • Changing ownership structure • CSD + CCP separation • Priorities

  10. On-going project • Elimination of the manual pre-matching (market practice) • Client view: the biggest obstacle to STP • KELER solution by the end of 2005

  11. Problems with Matching Exchange of data for matching and commitment to settle are combined in a single instruction Omnibus accounts are held at the CSD and Participants perform provisioning to avoid cross-financing between clients Clients cover positions at the last moment for low cost liquidity but Input of instructions to CSD are delayed Matching occurs very late

  12. Hold/Release Mechanism The hold/release mechanism will allow: • matching to be separated from commitment to settle • participants to forward client instructions for matching purposes upon receipt without provisioning • matching to occur prior to SD • participants to hold/release instructions based on (un)successful provisioning • participants to unilaterally prevent settlement • settlement to take place without further intervention following matching through default arrangements KELER will address the issue with a hold/release mechanism as recommended by ESF and ECSDA WG3

  13. Concluding remarks • KELER’s commitment to apply international standards • No immediate client demand • Difficult to present a business case

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