POST-TRADE SERVICES USERS AND PROVIDERS EUROPEAN POST TRADING FORUM Brussels, 04 March Photo under CC via Flickr

Transcription

1 POST-TRADE SERVICES USERS AND PROVIDERS EUROPEAN POST TRADING FORUM Brussels, 04 March Photo under CC via Flickr

2 Post-Trade Services Users and Providers 1. Ecosystem and Banks Perspective 2. Evolution of Post-Trade Services 3. Key Themes for User and Providers 4. Conclusions and Next Steps 2

3 Securities Industry Value Chain Pre-Trade and Trade Post-Trade Issuer Services Research Analytics & Risk Management Order Entry and Execution Clearing and Settlem ent Custody and Asset Servicing Financing Accounting Admin and Trustee Services Investor Services Issuance Trustee Services Trade Operations Performance Measurement Client Reporting / Data Mining Settlement and Reconciliations Pre-Matching Cash and Securities Movement FX Fails Coverage Reporting Credit Safe Keeping Settlement Corporate Actions Income Processing Tax Reclamation Proxy Voting Cash / Liquidity / Collateral Market Info Securities Pricing Agent Lending Collateral Mgmt NAV / Fair value pricing Partnership accounting Performance reporting Compliance and regulatory Subscriptions and redemptions Shareholder recordkeeping KYC / AML Partnership allocations Transfer agent and registrar Shareholder services Principal and Local Paying and Issuing Agent Dividend and corporate action processing Fiduciary and fiscal services for fixed income, structured finance and project finance M&A Escrow Debt Exchange Source: Citi Investor relations 3

4 Basic Concepts and Key Regulations in Post-Trade Clearing Formally through a CCP clearing house, or informally directly between buyer and seller. EMIR Settlement Exchange of cash vs securities ( DVP basis), typically on TD+2 or TD+3, whereby the buyer receives the purchased securities and the seller receives the corresponding cash for those securities. CSDR, T2S Custody & Asset Servicing Safekeeping of assets; asset servicing functions e.g. income collection, corporate action processing, tax reclamation and proxy voting services. MiFID ( ancillary services ), Shareholder Rights Directive Investment fund operations Accounting Admin, Transfer Agency & Trustee Services; legislative initiatives in the area of investment funds (UCITS, AIFMD) and private sector initiatives: corporate action standards, general meeting standards (CAJWG, JWGGM). Intermediary/Settlement Chain Links and connections amongst intermediaries and their respective settlement agents, to facilitate the clearing and settlement processes. Custody Holding Chain Global custodians and prime brokers are responsible for the safekeeping of assets and cash in multiple jurisdictions on behalf of investors typically institutional investors, investment funds, pension funds, hedge funds and broker/dealers. 4

5 The Post-Trade Services Eco-System Asset Owners Portfolio Management Issuers Trade Execution Asset Gatherers Settlement Asset Managers Infrastructure Asset Servicers Fund Operations Custody Issuer Services 5 Issuer Intermediary Investor Research & Analysis External Information Providers Prospectuses, Financial Statements Broker Account 8 Trader Order Order Portfolio Manager Accumulation of Assets Trade Details Execution Execution Exchange Executing Broker Mid-Office Trades Investment Accounting Holdings / Trades Risk / Performance Settlement, Asset Svc Trade Details Trade Details Fund Services Direct Custodian Global Custodian Global Custody Fund Administrator (NAV) Transfer Agent Settlement, Asset Svc Subscriptions/ Redemptions Listing Settlement Asset Services Settlement Securities Registration Corporate / Issuer Central Securities Depository Direct Custody & Clearing Securities Lending Agent Securities Finance Source: Citi Borrowing Broker Settlement Securities NB: in red, key roles and services performed by banks in Post Trade Services

6 Banks Role in the Custody Chain The term custody refers to the function of looking after, or safekeeping, assets on behalf of investors. Investment / Custody Chain Investors use custodians to hold their securities and cash through safekeeping accounts and cash accounts. Custodians in return hold theirs clients assets in centralised custody via the CSDs established in each local market. A custodian bank is a specialized financial institution responsible for safeguarding a firm s or individual s financial assets and is not necessarily engaged in traditional commercial or consumer/retail banking such as mortgage or personal lending Custodian banks are often referred as global custodians if the safekeep assets for their clients in multiple jurisdictions around the world, using their own local branches or other local custodian banks with which they contract to be in their global network in each market to hold account for their respective clients. Investors Global custodian Sub-custodian CSDs Issuer 6

7 Post-Trade Services Users and Providers 1. Ecosystem and Banks Perspective 2. Evolution of Post-Trade Services 3. Key Themes for User and Providers 4. Conclusions and Next Steps 7

8 Recent Changes in the Post-Trade Services Eco-System SFTR CRD MiFID II EMIR Recent regulatory changes CSDR SHRD T2S Recent regulatory reforms are forcing evolution of the post-trading services in many areas: Increasing safety of the financial sector Enhanced, more stringent supervision More transparency / Less privacy Higher regulatory compliance costs Large investment costs for adaptations Increased, enhanced role for CCPs and CSDs Level playing field, open market access Concentration of systemic risks in few FMIs Controls & monitoring over implementation Evolving roles and profiles for all key stakeholders 8 AIFMD UCITS V FTT

9 Multiplicity of Central Roles for Banks in Post-Trading Users Banks play various key roles in the posttrading services industry, at the heart of all post-trading processes Agents BANKS Providers Multi-level and multi-faceted interactions grant a privileged view over the needs and challenges faced by all other stakeholders Recent industry evolutions have even further enhanced the complexities of these central roles 9 Market Players Safety, efficiency and resilience are key components for the success of bank actors in post-trading services

10 Post-Trade Services Users and Providers 1. Ecosystem and Banks Perspective 2. Evolution of Post-Trade Services 3. Key Themes for User and Providers 4. Conclusions and Next Steps 10

11 Key Themes for User and Providers The most important project for the post-trade industry over last 10 years Large investment costs, significant drain on resources, BUT Growth driver for increased cross-border flows (good for Capital Markets Union) Significant achievements already visible (e.g. liquidity & collateral management) Further harmonization expectations for the near future - catalyst effect Asset services / Corporate actions streamlining (in progress) Case Study 1: evolving business models for CSDs and custodians Case Study 2: role of Payment Banks Case Study 3: role of Account Operators (e.g. Nordic Holding Model) 11 Source: ECB

12 Regulatory Landscape Collateral & Liquidity Management issues (EMIR, T2S, Basel 2/3) Reporting Issues (CASS, EMIR, SFTR, CSDR) Depositary liability issues (AIFMD, UCITS) Settlement Discipline Regime implementation (CSDR) Physical segregation of client assets (AIFMD/UCITS) and lack of consistency (CSDR, CASS, etc.) Issuer-Investor Relations, shareholding and participation rights (SHRD); institutional vs retail services Conflicts of Law / Legal Certainty / Securities Law / Insolvency Law Lack of common definition of custody and safekeeping Systemic Risks in FMI / concentration issues Amount of legislations, limited timeframes and repapering challenges Impact on PT of current financial market conditions, market volatility, etc. (e.g. increased clearing risks; ZIRP & NIRP) 12 Key Themes for User and Providers

13 Key Themes for User and Providers Private Sector Initiatives T+2 implementation Standardization and harmonization of COAC processing Portfolio Transfers Harmonization of ETF processing ISSA Financial Crime Compliance Principles 13

14 Key Themes for User and Providers FinTech: Innovative / Disruptive Technologies Blockchain Hype or Real? Decentralised system and processes Supervision vs Transparency Cybersecurity Capacity and resource constraints, Scalability Legal status, Regulation of new technology Level Playing Field 14

15 Post-Trade Services Users and Providers 1. Ecosystem and Banks Perspective 2. Evolution of Post-Trade Services 3. Key Themes for User and Providers 4. Conclusions and Next Steps 15

16 The Rise of the Post-Trade Services Previously seen as an unfashionable world, the market for post-trade services has come of age and is now viewed as an opportunity Regulation has made the use of post-trade service providers a necessity for many market participants that would never have considered using them in the past. 16 Regulations that address weaknesses in global market infrastructure and counterparty risk mitigation have led to new client requirements and are bolstering demand for post-trade services

17 What s Next? Further Harmonisation Further Regulatory Convergence Widening the scope of the Giovannini Barriers (inclusion of collateral management, trade reporting, derivatives risk profiling, etc). Many of them have been dismantled. What s left? A lot has been done on the settlement side, while not much on the asset servicing and WHT processing Recovery & Resolution Plans for FMIs (CPMI-IOSCO Principles) Securities law Legal certainty / conflict of laws Call for Evidence Post-trading industry identified several issues. How will these be handled? Monitoring of implementation programs? Better Regulation? Disruptive Technology Application of the distributed ledger technology and related innovations to the Post-Trading Services area 17

18 18 Thank you!