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Cooperative Works between UzSCSD and KSD

Cooperative Works between UzSCSD and KSD. December 14, 2001 Tashkent, Uzbekistan James J.W. KIM. Integration & Convergence. Competition. Market Trends. Shift to…. Building a stable, efficient, and reliable Securities Infrastructure. Front-Office Vs Back-Office. Front-Office

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Cooperative Works between UzSCSD and KSD

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  1. Cooperative Works between UzSCSD and KSD December 14, 2001 Tashkent, Uzbekistan James J.W. KIM

  2. Integration & Convergence Competition Market Trends Shift to….. Building a stable, efficient, and reliable Securities Infrastructure

  3. Front-Office Vs Back-Office • Front-Office • Monopoly  Global competition • Under pressure to be more specialized, competitive • Back-Office • Increase in settlement costs & risks resulting from large-volume transactions • Global Standardization • In the process of integration  Economy of Scale & More Efficiency

  4. Outline • Overview of Uzbekistan securities market & deposit and settlement system • Issues to be dealt with further • What we can expect from this project?

  5. Uzbekistan securities market • RSE Toshkent & Elsis-Savdo • Not as active as other off-exchange markets • Listed companies : approximately 1,200 • Daily average of transactions : 8.2 • Daily average of trade volume : 28,000 shs.

  6. Deposit & Settlement system • Settlement Cycle • Toshkent : T+5 / Elsis-Savdo : T+2 • Preliminary requirements • Blocking of the securities from disposal • Many institutions related to the settlement process • UzSCSD – Securities Delivery • Elsis-Kliring – Clearing • Commercial Banks – Cash Transfer • 2nd Level Depositories - Custody • Brokers - Intermediation • Entitlement Processing

  7. Issues to be dealt with further Settlement Cycle Complicated Settlement Process Implementation of Entitlement Processing

  8. Settlement Cycle T+5 ??? • Higher Settlement Risk due to Longer Settlement Period • G-30 Recommendations • T+5 by 1990 • T+3 by 1992 • ISSA Recommendations • T+1 in a form that does not increase operational risk • Essential for foreign investment

  9. Complicated Settlement Process Cash Transfer • Simultaneous Settlement • BIS, G-30, ISSA • Cash Settlement • Final, Irrevocable, Immediately available to Investors • Settlement Fund through Central Bank • ISSA Recommendations 2000 Settlement Bank (Commercial Bank) Transfer Instruction Transaction Data Transaction Data Toshkent Elsis-Kliring Elsis-Savdo Clearing Data / Settlement Instruction Securities Blocking & Delivery UzSCSD Blocking & Delivery Instruction Trade Order 2nd level Depository Broker

  10. Ongoing move for Integration & Linkage Intensive Competition Independent & Specialized from trading part Integration of back-office sector Economy of Scale & Scope

  11. State Content U.S. • Integration of settlement related organizations dealing with stocks, corporate bond, ABS, and MBS into DTC • DTC-initiated integration of DTC and NSCC into DTCC(1999) • System integration of two organizations is to be completed by the first quarter of 2003 • Ongoing integration of settlement-related organizations dealing with Government • Bond(GSCC), MBSCC and Emerging Market Bond(EMCC) into DTCC Canada - Integration of WCCC(Clearing House) and WCDTC(Deposit and Settlement Entity) into CDS(1996) German - Integration of various Deposit and Settlement Entities into DBC(1989) - Integration of DBC(CSD) and Cedel International(ICSD) into Clearstream(2000) France -Transfer of Government Bond settlement system(Saturne) of Central Bank to Euroclear France (CSD)(1995) British - Transfer of the Deposit and Settlement system covering Government Bond and short-term financial instrument to CRESTco(June, 2000) Switzer land - Integration of SEGA(CSD) and Intersettle(Cross-Border Settlement Entity) into SIS SegaIntersettle Japan - Integration of the Deposit and Settlement Entities divided by types of securities into JASDEC(CSD) (2005) HK - Transfer of Custody operation by the Central Bank to HKSCC(CSD) Current Status of back-office integration

  12. Comparison of Settlement Costsbetween European and U.S Markets Source : Merrill Lynch(1999), Murray(2000)

  13. Implementation of Entitlement Processing Distribution of Bonus Issues Subscription to Rights Issues Stable Entitlement Processing System Essential for Foreign Investment Dividends Payment Beneficial Owners Information

  14. What we can expect from this project? Vitalization of Stock Market Foreign Investments Successful Privatization Strong & Efficient Infrastructure for Deposit & Settlement System Funding from Issuing Market Strengthening Financial Status Enhancing Uzbek Economy

  15. Future Development • Memorandum of Understanding • Mutual visits between UzSCSD and KSD • Final Consultative Report • Training Program

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