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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

Cooperative Works between UzSCSD and KSD

December 14, 2001

Tashkent, Uzbekistan

James J.W. KIM

market trends

Integration & Convergence

Competition

Market Trends

Shift to…..

Building a stable, efficient, and reliable

Securities Infrastructure

front office vs back office
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

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

Issues to be dealt with further

Settlement Cycle

Complicated Settlement Process

Implementation of Entitlement

Processing

settlement cycle
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
complicated settlement process
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

ongoing move for integration linkage
Ongoing move for Integration & Linkage

Intensive Competition

Independent & Specialized

from trading part

Integration of back-office sector

Economy of

Scale & Scope

current status of back office integration

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
comparison of settlement costs between european and u s markets
Comparison of Settlement Costsbetween European and U.S Markets

Source : Merrill Lynch(1999),

Murray(2000)

implementation of entitlement processing
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

what we can expect from this project
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

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