Overview on latest developments in settlement systems EUROCLEAR ...

Overview on latest developments in settlement systems EUROCLEAR BUSINESS MODEL Paris - September 2003 Agenda      Euroclear Group Corporate Structure Business Model: principles Platform consolidation Harmonisation Consultation 2 Euroclear group 120 financial institutions Former CREST shareholders Sicovam Holding Euroclear plc 100 % MAC = Market Advisory Committee 100% 100% Euroclear Euroclear Bank Bank 100% 20% CRESTCo Consultative Bodies Local MAC Euroclear France Local MAC Euroclear Netherlands Local MAC Clearnet Cross-border MAC 3      Euroclear Group Corporate Structure Business Model: principles Platform consolidation Harmonisation Consultation 4 “Delivering a Domestic Market for Europe” Consolidating Cross-Border Settlement “internal book-entry settlement” Systems Consolidation Delivering a domestic market for Europe Consolidating Domestic Settlement & Custody Creating a single platform for Europe’s Domestic Settlement Harmonisation 5 Platform consolidation and harmonisation are key to reduce costs Sources of costs (I)CSDs investment and running costs – Duplication of investments (including IT platforms) – Network costs Solutions Platform Harmonisation Consolidation Settlement    Custody – Fragmentation = complexity = higher running costs   User back-office costs – (I)CSD/Agents fees – Fragmentation = complexity = higher running cost – Reduced financing efficiency (liquidity / collateral)      Financing 6 “Delivering a domestic market for Europe” is based on progressive platform integration Vision Objective   Key functionalities Book entry settlement of domestic and crossborder transactions CeBM/CoBM with crossNCB and cross-quality payments Open communication architecture and standards Harmonisation of settlement and custody processing and market practices Key investments  Delivering a domestic market for Europe Domestic-like settlement and custody (cost and risk) Across markets Through a single user interface  Phase 1 SSE    Common User Interface Phase 2  Full Systems Consolidation Phase 2 7 Business Model – Key Principles  Single group platform to reduce investment and running costs and to allow for low-cost domestic-like settlement across the group Choice of two service offerings, Domestic and Full Service, allowing users to have direct access to domestic services No cross subsidy between CSDs and ICSD – external certification by external auditor of arm’s length/costs sharing financial arrangements – Euroclear Bank charged same tariff scale by CSDs as other users    Gradual harmonisation of domestic packages across the group to form the “European domestic package”, recognising local specifics Domestic Service charged at “cost-plus”, Full Service charged competitively User governance and active market consultation to ensure that service developments are in line with market needs 8   The Business Model, recognising the different market/user needs, is based on choice  Choice of service levels, between – Domestic Service packages, typical CSD service – Full Service package, typical Euroclear Bank service  Choice of access to services (direct account) – directly – through agent bank – through Euroclear Bank  Choice of asset protection jurisdiction, between – group securities under each issuer’s jurisdiction (Domestic Service) – all securities under single law / Belgian Royal Decree 62 (Full Service)  Choice of payment mechanism for settlement between – Central bank money (for Domestic and Full Services) – Commercial bank money in Euroclear Bank (Full Service) 9      Euroclear Group Corporate Structure Business Model: principles Platform consolidation Harmonisation Consultation 10 Today Customer Agent Agent Agent CREST Settlement Euroclear France Settlement Euroclear Netherlands Settlement CIK Settlement Euroclear Bank Settlement Cross-platform links 11 Today Customer Customer Customer Customer Customer • UK securities /Irish equities • Some foreign securities • French securities • Some foreign securities • Dutch securities • Some foreign securities • Belgian equities & corp bonds • Some foreign securities Mutlimarket securities (30+ markets incl eurobonds) UK/Irish Law French Law Dutch Law (Wge) Belgian Law (RD62) Belgian Law (RD62) « UK » Settlement & Custody « French » Settlement & Custody « Dutch » Settlement & Custody « Belgian » Settlement & Custody Multimarket (ICSD) settlement and custody • CeBM with BoE (EUR, GBP) • USD assured payment CeBM with BdF (EUR) CeBM with DNB (EUR) CeBM with BNB (EUR) CoBM with EB (30+ currencies) CREST platform RGV/Relit+ SEF EMS / FMS / CDMS NEXT CREST EF ENL CIK EB 12 Phase 1 - Single Settlement Engine (SSE) Customer Agent Agent Agent CREST Euroclear France Euroclear Netherlands CIK Euroclear Bank Single Settlement Engine 13 Phase 1 Customer Customer Customer Customer Customer • UK securities /Irish equities and all other group securities • Some foreign UK/Irish Law • French and all other group securities • Some foreign • Dutch and all other group securities • Some foreign Dutch Law (Wge) « Dutch » Custody (not harmonised) • Belgian equities & corp. bonds & all other group securities • Some foreign Belgian Law (RD62) « Belgian » Custody (not harmonised) Mutlimarket securities (30+ markets incl eurobonds) Belgian Law (RD62) Multimarket (ICSD) custody French Law « UK » Custody (not harmonised) « French » Custody (not harmonised) • CeBM with BoE (EUR, GBP) • USD assured payment CeBM with BdF (EUR) CeBM with DNB (EUR) CeBM with BNB (EUR) CoBM with EB (30+ currencies) Cross-NCB CeBM (EUR) Cross-Quality Settlement (EUR, GBP) SSE CREST EF ENL CIK EB 14 Phase 2 - Common Client Interface Customer Agent Common User Interface CREST Euroclear France Euroclear Netherlands CIK Euroclear Bank Single Settlement Engine 15 Phase 2 - Full Integration Customer Agent Common User Interface CREST Euroclear France Euroclear Netherlands CIK Euroclear Bank Domestic Service Full Service Full integration of legacy systems and functionality Single Settlement Engine 16 Overview Phase 2 - Open access to Domestic Service Customer Customer Customer Agent Bank Euroclear Bank CREST CIK EF ENL EB Domestic Service Single Platform Full Service Access to low-cost domestic services will be direct for all customers (including agents) without the need for a Euroclear Bank account. 17      Euroclear Group Corporate Structure Business Model: principles Platform consolidation Harmonisation Consultation 18 Harmonisation is necessary to eliminate fragmentation costs Source of fragmentation  Savings potential  Role/answer of Euroclear group  Settlement / Custody processing differences Difference in communication standards and means High Harmonisation across Euroclear group markets through single IT platform Common User Interface   Medium   Market practices differences (e.g. market claims) Tax and regulation differences Language & cultural differences  High  Work jointly with Central Banks, Stock Exchanges and CCP’s Euroclear group can contribute, but not lead No specific role 19   High High          Euroclear Group Corporate Structure Business Model: principles Platform consolidation Harmonisation Consultation 20 Business Model Implementation - Planning 2003 Q2 2003 Q3 2003 Q4 2004 2005 2006 2007 2008 Business Model Business Model Consultation feedback Further consultation (and papers) as needed Systems Consolidation SSE & subsequent deliverables SSE client impact per market Business plan Further consultation (and papers) expected to outline customer impacts, migration, next stages of consolidation and contingency arrangements Harmonisation Harmonisation Roadmap Inventory of needs First set of harmonisation recommendations Agree on second harmonisation wave and detailed recommendations Financial Model Earlier Market communication Market communication Consultation phase 21 22