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Small local CSDs in a world of globalization and consolidation

Small local CSDs in a world of globalization and consolidation. Peter Falk, Product Director, EXIGO CSD AMEDA meeting, Marrakech, 20 – 21 April 2006. OMX owns exchanges in the Nordic Baltic region and develops and provides technology and system services to financial companies around the globe.

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Small local CSDs in a world of globalization and consolidation

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  1. Small local CSDs in a world ofglobalization and consolidation Peter Falk, Product Director, EXIGO CSD AMEDA meeting, Marrakech, 20 – 21 April 2006

  2. OMX owns exchanges in the Nordic Baltic region and develops and provides technology and system services to financial companies around the globe.

  3. Footprint of our business Thailand Futures Exchange ISE ASX – Australian Stock Exchange SGX – Singapore Exchange HKEX – Hong Kong Exchanges Nord Pool ICAP + 4,000 broker trading applications 4000 broker trading applications Partnerships: ORC Cameron Systems Technology (Customer examples) SFE – Sydney Futures Exchange HKEX – Hong Kong Exchanges and Clearing Nord Pool Exchanges Clearing & CSD Market Participants EDX London Copenhagen Stock Exchange Stockholm Stock Exchange Helsinki Stock Exchange Riga Stock Exchange Tallinn Stock ExchangeVilnius Stock Exchange NCSD (20%) Stockholm Stock Exchange EDX London Estonian CSD Latvian Central Depository Lithuanian CSD Information & Data Services 677 listed companies 149 members Exchanges (Marketplaces and services)

  4. Market presence – More than 60 customers • Americas • AMEX - American Stock Exchange • Bahamas InternationalSecurities Exchange • Barbados Stock Exchange • Bermuda Stock Exchange • Boston Stock Exchange • Canadian Trading & Quotation System • ICAP • ISE - International Securities Exchange • Jamaica Stock Exchange • NASD - National Associationof Securities Dealers • Trinidad & Tobago Stock Exchange • Middle East & Africa • Abu Dhabi Securities Market • Bahrain Stock Exchange • Bourse Regionale des Valeurs Mobilieres • Cairo & Alexandria Stock Exchange • Doha Securities Market • Dubai Financial Market • Nigerian Stock Exchange • Palestine Securities Exchange • Tadawul (Saudi Arabia) • Tehran Stock Exchange • Europe • Athens Exchange • Borsa Italiana • Bucharest Stock Exchange • Budapest Stock Exchange • Copenhagen Stock Exchange (OMX) • Cyprus Stock Exchange • EDX London • Helsinki Stock Exchange (OMX) • ICAP • Iceland Stock Exchange • Icelandic Securities Depository • Istanbul Stock Exchange • Malta Stock Exchange • MICEX • Nord Pool / Nord Pool Clearing • NOS • NYMEX Europe • OMIP – Iberian Power Exchange • OPCOM / Romanian Power Exchange • Oslo Börs • Polish Power Exchange • Riga Stock Exchange (OMX) • Stockholm Stock Exchange (OMX) • SWX Swiss Exchange • Tallinn Stock Exchange (OMX) • TLX • Turkish Derivatives Exchange • Vilnius Stock Exchange (OMX) • Wiener Börse AG • Asia • Hong Kong Exchanges and Clearing • Jakarta Stock Exchange • Korea Exchange • Philippine Dealing & Exchange Corp • Port Moresby Stock Exchange • Singapore Exchange • Shanghai Stock Exchange • Surabaya Stock Exchange • Thailand Futures Exchange • Australasia • Australian Stock Exchange • Bendigo Stock Exchange • New Zealand Exchange Limited • SFE Corporation

  5. CSD Benchmarking Framework Example CSD Benchmark High Quality Target scenario Current situation Adherence to Efficient International Operations Standards Broad Service Offering Risk Elimination Level 4: best practice local CSD Level 5: multi-instrument, multi-currency, links

  6. Manage Relationships Communica- tions Registration Settlement Accounting Reporting Asset Servicing Clearing Custody Trades Business Functional Analysis 1.0 7.0 8.0 2.0 9.0 3.0 10.0 4.0 Manage standing data 11.0 5.0 6.0 Capture key functional components of a CSD

  7. Agenda • The current situation • Problems and challenges • Driving forces • Elements to a strategy

  8. Some characteristics • Local participants • Local securities • Small part of regional and global market • Small volume but also a broad offering of securities • Local market consolidation not yet feasible • Dematerialized?

  9. Baltic region 8 markets 8 currencies A small corner of Europe (only a few percent) A small corner of The Nordic Region (only a few percent)

  10. 20.000 million € in custody

  11. A broad variety of instruments(national differences)

  12. 1000 transactions per day

  13. Agenda • The current situation • Problems and challenges • Driving forces • Elements to a strategy

  14. Problems and challenges – local level • Size • Small size = small revenues • Small size = lack of development resources • Lack of standard interfaces • Lack of functionality • Real time DvP • More than one batch settlement

  15. Problems and challenges – regional level • Different market practices • Account structure • Corporate actions processing • Settlement procedures • Reporting requirements • Different rules and regulations • Account structure • Unlisted companies • Reporting requirements • Different custody service solutions Not all differences are important!

  16. Agenda • The current situation • Problems and challenges • Driving forces • Elements to a strategy

  17. Driving forces • Globalization, regionalization, single market • Localization • Regional and international players • Moving towards standards • Efficiency, costs, competitive pressure

  18. CSDs – a historical view Improvement market by market • Local models, local systems Role models • Frankfurter Kassenverein and DTC • Euroclear • VP and Sicovam Decades of convergence • ISSA, FIBV, G-30, BIS, IOSCO … CSDs are mature businesses undergoing great change

  19. Foreign securities Local securities Local investors Foreign investors The traditional CSD turf is getting smaller Foreign securities Local securities Local investors Foreign investors Yesterday Tomorrow

  20. G-30 1989: 9 recommendations (*) 2003: 20 recommendations CPSS (BIS/IOSCO) 2001: Core principles – payment systems 2001: Recommendations for securities settlement systems (*) 2002: Assessment methodology 2004: Risk management for CCPs IMF and World Bank: FSAP assessments Hague Convention: removal of conflict-of-law The Giovannini Group Action plan for removing the 15 barriers ECB 9 minimum operational standards for SSS ECB / CESR Moving 19 CPSS recommendations  binding standards The European Commission Directives on collateral, finality, investment services Principles for functional regulation. Global initiatives with implications for CSDs (*) = local scope

  21. Conflict: International vs. local Regional and international market participants request easy, secure and low cost access to several markets. Large issuers require large liquidity pool Small and medium-sized issuers, local investors, local participants and domestic considerations request extremely efficient STP transaction flows for domestic trades

  22. Nordic and Baltic region OMX regional ambition: To make the Nordic and Baltic region be perceived as one securities market, so efficient and attractive that it will climb the ladder of the leading European markets

  23. Exchange members: growth in remote, local stable HEX HELSINKI STOCKHOLMSBÖRSEN

  24. Cost of market participation – coarse view Cost Settlement Exchange # of trades per year 0

  25. NOREX is the first stock exchange alliance to implement a joint system for equity, fixed income and derivatives trading as well as harmonised rules Cross membership Single point of liquidity - One single order book ICEX Local clearing & settlement Link-Up opportunitieswith other exchanges worldwide Joint Infrastructure OMX Trading & Clearing systems A FULLY INTEGRATED MARKET! Common regulatory framework: Harmonized membership and trading rules HEX • Wide Distribution Network: • SB Members • OB Members • CSE Members • HEX members • - ICEX members • - RSE members • TSE members • VSE members • - (EDX London Members) OB SB TSE RSE EDX* London CSE Wide range of products and services VSE One membership and one connection for members! Shared technology reducing cost *Derivatives

  26. Nordic vision DK ICE NO SE FI EST LAT LIT DK ICE TRADING TRADING TRADING TRADING TRADING TRADING TRADING TRADING CCP One access point SETTLMNT CSD CSD CSD CSD CSD CSD CSD CSD

  27. Agenda • The current situation • Problems and challenges • Driving forces • Elements to a strategy

  28. Elements to a strategy • Local CSDs with local registers, local service and support • SWIFT standard messages • Realignment of rules and market practices (not all!) • Shared settlement • A single standard systems platform • Possibility to handle a broad list of instruments • Step by step implementation

  29. Shared settlement engine for two CSDsEnables co-operation and retains local independence Shared settlement platform CSD A CSD B • CSD A operate under the rules of country A • CSD B operate under the rules of country B • The settlement engine follows joint settlement rules CLEARING ISSUERCSD ISSUER CSD Trading systems CCP CSD links SETTLMT(DVp) INVESTOR CSD INVESTOR CSD Central Bank ACentral Bank B Add-ons (example): Collateral Mgmt Sec. Borrow/Lending

  30. 3-step roadmapMove towards international standards Establish target Prepare for regional and/or international standards Move to “best practice” CSD where needed

  31. Benchmark Functional Service OfferingSample assessment FUNCTIONALITY 60,00 50,00 40,00 30,00 20,00 10,00 0,00 CSD1 CSD2 CSD3… CSD

  32. End of presentation Peter Falk, Product Director, EXIGO CSD AMEDA meeting, Marrakech, 20 – 21 April 2006

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