STANDARD SUMMARY PROJECT FICHE 1. Basic Information 1.1 Désirée Number: CZ2003/004-338.02.03 1.2 Title: Capital Markets - Central Depository of Securities 1.3 Sector: Internal Market and Economic Criteria 1.4 Location: Czech Republic 2. Objectives 2.1 Overall objective Functioning market economy as well as the capacity to cope with competitive pressure and market force The ability to take on obligations of membership including adherence of political, economic and monetary union 2.2 Project purpose To improve capital market functionality and transparencyin compliance with EC acquis and best international practice (the Directives 2002/47/EC, 98/26/EC, Recommendation of CESR on Securities Settlement Systems Lamflussy s Report) To facilitate higher efficiency and effectiveness of the capital markets supervision and regulation protecting the investors 2.3 Accession Partnership and NPAA priority AP/NPAA: Reinforce supervision of financial services. Recommendations stemming from the Financial Services Peer Review. Conclusion from the Regular Report 2002: the Czech Republic s efforts now need to focus on further alignment as regard trade licensing, insurance, investment service and securities sectors as well as on strengthening supervision of financial services. 2.4 Contribution to National Development Plan 2.5 Cross Border Impact 3. Description 3.1 Background and justification The project is aimed to improve the functionality and transparency of the capital market in compliance with the EC acquis and best international practice, via the IT support for the Central Depository, ensuring a unified settlement of securities based on the principle delivery versus payment. The implementation of the project (procurement of the appropriate HW & SW) should also facilitate better protection of investors, ensuring the higher efficiency and effectiveness of the capital market supervision and regulation. The adoption of legislative changes is necessary to reach full compliance with the EU legislation as to capital market legislation (the Directives 93/22/EEC, 2001/34/EC, 89/298/EEC, 89/592/EEC, 93/6/EEC, 97/9/EC, 85/611/EEC). According to the Plan of Legislative Work of the Government. MoF has prepared the legislative intention of the Act on Capital Market Bussines and the completely new Act on Collective Investment is under preparation. The both new acts are expected to enter into force in 1 July 2003. With the aim to improve the functioning of the capital market the Czech Securities Commission and the Ministry of Finance are keen to establish the central depository of securities providing the settlement of securities and financial clearing. The existing status and operation should be assessed in view of the Directives 2002/47/EC, 98/26/EC and Lamfalussy s Report. The concrete proposals and recommendations on the comprehensive concept of a unified settlement in the framework of the Central Depository of Securities shall be elaborated under the previous Phare assistance (see project CZ02.04.03). The related measures ensuring the system based on the principle of delivery FILENAMECZ03.02.03.doc 1
versus payment and technical specification for the investment should rank among key outputs of the said project. A preliminary assessment of the costs for the creation of a appropriate Central Depository by one of the stakeholder (Prague Stock Exchange) was 250 300 million CZK. Currently, according to the assessment of experts the total cost might reach 10 MEUR. 3.2 Linked activities This project is a follow-up to the previous Phare project Capital Markets Legislation & Regulation (CZ02.04.03) dealing among other issues with capital market operations, in particular with the settlement of securities and financial clearing through the Central Depository. It is expected that one of the major outcomes of the CZ02.04.03 project will be a new concept and related institutional arrangement and related measures ensuring the system based on the principle of delivery versus payment. The amount of 0,5 MEUR (plus 0,2 MEUR co-financed from the State budget) has been allocated within the project for the investments designed for the IT system of the Central Depository. 3.3 Results a) Fully functioning system of unified settlement of securities (based on the principle delivery versus payment ) in the framework of Central Depository b) Training programmes for management and other relevant staff on the IT support system of settlement 3.4 Activities (1) Technical Assistance Assessment of technical needs; elaboration of technical specification of the IT supply for the Central Depository based on the results of the CZ02.04.03 project; preparation of full tender dossier for the investments. (2) Supply of equipment: Development, delivery and installation of a new Central Depository system, either based on an off-the-shelf package with the necessary adaptations to Central Depository requirements, or a tailored software development, using state-of-the-art development tools and methodologies Testing of the IT system Training of the Central Depository staff in accordance with a schedule mutually agreed between the Central Depository and the supplier in the system software and tools, management tools and application software Providing the MoF, Securities Commission, Prague Stock Exchange and other relevant stakeholders with an appropriate know-how, including manuals, related to the introduced IT system 3.5 Lessons learned Given the character of the project and taking into account the experience with the project(s) preparation and implementation emphasise the necessity of multidisciplinary approach and ensuring the efficient coordination between the institutions involved. 4. Institutional Framework - The Ministry of Finance (MoF) is the main body of the state administration responsible for the legislation of capital market (including financial services, collective investment, securities). At the MoF this agenda falls within the competence of the Department 35 Financial Markets and Banking. The MoF is a parent body of the Securities Centre which is currently discharging a key function of the Central Depository of Securities, while other related functions of the payment and securities clearing and sesstlement system are carried out by other bodies within the existing system infrastructure (such as the UNIVYC adjacent to the Prague Stock Excahnge). - The Securities Commission (SEC) takes interest in this project as the regulator responsible for supervision over the capital market. The SEC has been established as the state administrative authority for the capital market and act as a state supervisor pursuant to the Act No. 15/1998 Coll., on the Securities Commission, and the special Acts. The SEC is completely independent as to its supervision and decision making activities. FILENAMECZ03.02.03.doc 2
5. Detailed Budget (mil. ) Project Components Phare Support National TOTAL Investment Support Institution Building Total Phare (=I+IB) Cofinancing* (1)Technical Assistance 0,2 0,2 0,2 (2) Technical Assistance 0,2 0,2 0.2 (3)Supply of equipment 1,5 1,5 1,5 (4)Supply of equip ment 0,5 0,5 Total 1,5 0,4 1,9 0,5 2,4 * There will be parallel co-financing from the state budget, chapter MoF, as follows: - 2005 The amount has been included in the 2005 Budget forecast. 6. Implementation Arrangements 6.1 Implementing Agency The CFCU is the Implementing Agency responsible for tendering, contracting and accounting. Responsibility for technical aspects related to preparation, implementation and control will rest with the beneficiary institutions and will be co-ordinated by the Ministry of Finance. The contact Person for the Project is Ms Jana Stará, Senior Programme Officer for Phare projects of the MoF and Finance Non-Banking Sector, Ministry of Finance, Letenská 15, Prague, tel. +4202587042612, fax +4257049236, e-mail Jana.Stara@mfcr.cz. 6.2 Twinning n/a 6.3 Non-standard aspects n/a 6.4 Contracts (1) Service Contract / FWC - to assess technical needs ; to prepare technical specification and complete tender dossier for the investment 0,2 M (2) Service Contracr/ FWC - to make independent assessment and testing of the IT system 0,2 M (3)Supply contract 1,5 MEUR) (4)Supply Contract (Czech co-financing, 0,5 MEUR)- for procurement of HW and SW for Custody and Clearing & Settlement components of the system shall be done v ia Supply Contract and eventually by Service Contract(s) in case(s) where the development of SW and delivery of training is recommended under preceding Phare project CZ02.04.03 and the above FWC contract. 7. Implementation Schedule 7.1 Start of tendering/call for proposals Service contract (1) 1Q/04 Supply contract (2) 2Q/04 Service contract (3) 2Q/04 7.2 Start of project activity Service contract (1) 1Q/04 Supply contract (2) 4Q/04 Service contract (3) 1Q/05 7.3 Project Completion Service contract (1) 2Q/04 Supply contract (2) 2Q/05 Service contract (3) 3Q/06 8. Equal Opportunity FILENAMECZ03.02.03.doc 3
Equal opportunity principles and practices in ensuring equitable gender participation in the Project will be guaranteed. 9. Environment 10. Rates of Return 11. Investment Criteria 12. Conditionality and Sequencing ANNEXES TO PROJECT FICHE 1. Logframe planning matrix 2. Detailed implementation chart 3. Contracting and disbursement schedule FILENAMECZ03.02.03.doc 4
06.01.03 ANNEX 1 LOGFRAME PLANNING MATRIX Programme number: CZ 2003/004-338.02.03 Project title: Capital Markets - Central Depository of Securities Contracting period expires: 31/10/2005 Disbursement period expires: 31/10/2006 Beneficiary institution: Ministry of Finance Total budget: 2,4 mil. Phare budget: 1,9mil. Overall objective Objectively verifiable indicators Sources of verification Functioning market economy as well as EC recognition Regular Report the capacity to cope with competitive Peer Review pressure and market force The ability to take on obligations of membership including adherence of political, economic and monetary union; ECB s Assessment of Accession Countries Payment and Securities Clearing and Settlement Systems Infrastructure and Related Oversight Functions Project purpose Objectively verifiable indicators Sources of Verification Assumptions To improve capital market functionality and transparency in compliance with EC acquis and best international practice (the Directives 2002/47/EC, 98/26/EC, Recommendation of CESR on Securities Settlement Systems Lamfalussy`s Report) To facilitate higher efficiency and effectiveness of the capital markets supervision and regulation protecting the investors - Proper functioning of capital market according to EU and international standards (higher effectiveness of settlement, lower costs of trading, etc.).- Increased efficiency and effectiveness of the supervisory body (Securities Commission) higher success rate in dealing with cases resulted from faster evaluation of transactions and enhanced reliability of the data provided by the centralised and compatible systems - Increased confidence of investors. Official Journal (Coll. of laws and legal provisions - Sbirka zákonu).. Ministry of Finance (governmental statistics complying with IMF standards (SDDS) and internal sources. Annual Report, regular Quaterly reports on the situation on the capital market other relevant central administration bodies, research institutions, professional associations and private sector sources Results Objectively verifiable indicators Sources of Verification Assumptions a) Fully functioning system of unified settlement of Delivery of HW for Central Depository.Ministry of Finance (internal securities (based on the principle delivery Delivery of SW for Central Depository specification reports and interviews) versus payment ) in the framework of Central of the IT equipment will be based on the outcomes of Securities Commission (Annual Depository b) Training of the management and other relevant the previous Phare project CZ02.04.03 and will take into account the capacities of the institutions (Securities Report, Quaterly reports, interviews) staff on the IT support system of settlement Centre and UNIVYC) which will merge into a new Central Depository Legal and institutional environment for central depository improved Other relevant part of acquis implemented Capital market in the CR continues to develop Progressive integration of financial markets in general, in EU single market and global economy continues Appropriate legislative measures will be adopted Appropriate IT support will be designed and implemented where relevant Rev-MF-Cpt Mkts
single central depository body other relevant central A new IT supported system of settlement introduced, operational and functioning within the Central Depository Relevant staff trained and using the system administration bodies, research institutions, professional associations and private sector sources Activities Means Assumptions 1/ TA: Assessment of the technical needs; elaboration of /technical specification of the IT supply fot the Central Depository and preparation of full tender dossier, 2/ Supply of equipment: Development, delivery and installation of a new Central Depository system, either based on an off-the-shelf package with the necessary adaptations to Central Depository requirements, or a tailored software development, using stateof-the-art development tools and methodologies Testing of the IT system Training of the Central Depository staff in accordance with a schedule mutually agreed between the Central Depository and the supplier in the system software and tools, management tools and application software Providing the MoF, Securities Commission, Prague Stock Exchange and other relevant stakeholders with an appropriate know-how, including manuals, related to the introduced IT system 1/ Technical assistance: Framewor k contract (FWC) to elaborate technical specification and prepare complete tender dossier for the investment Complete tender dossier will be presented by April 2004 at the latest. 0.2 MEUR 2/ Supply Contract: Procurement of HW & SW for Custody and Clearing & Settlement components of the system shall be done via Supply Contract and eventually by Service Contract(s) in case(s) where the development of SW and delivery of training is recommended under preceding Phare project CZ02.04.03 and the above FWC contract. Phare: 1,5 MEUR 3/ Service contract (FWC) to make independent assessment and testing of the IT system 0,2 MEUR Results of previous Phare projects, in particular Capital Market Legislation & Securities Commission (CZ02-04-03), and other bilateral and multilateral assistance will be utilised Cooperation of all relevant parties (in particular Ministry of Finance and Securities Commission) will be ensured Part of the investments (related to Database component of the system) should be implemented under the CZ02-04-03 project via supply contract in the amount of 0,5 MEUR. Preconditions This project is a follow-up of the previous Phare project Capital Market Legislation and Regulation (CZ02.04.03) on issues related to the establishment of comprehensive concept of a unified settlement in the framework of the Central Depository of Securities and the appropriate technical specification for the investment (IT support for the system delivery versus payment etc.). Relevant legislation should be submitted to the Government according to the Legislative Plan by the end of 2002. FILENAMECZ03.02.03.doc 6
06.01.03 DETAILED IMPLEMENTATION CHART ANNEX 2 Capital Markets - Central Depository of Securities Year 2003 2004 2005 2006 Action J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D 1/ TA: Service contract (FWC) - Start of tendering - Start of project activity - Project completion 2/ Supply contract - Start of tendering - Start of project activity - Project completion 3/ Service contract (FWC) to provide an independent assessment of IT supply and testing - Start of tendering - Start of project activity - Project completion Rev-MF-Cpt Mkts
ANNEX 3 CONTRACTING AND DISBURSEMENT SCHEDULE BY Cumulative Quarterly Contracting Schedule (mil. ) Project 1Q/03 2Q/03 3Q/03 4Q/03 1Q/04 2Q/04 3Q/04 4Q/04 1Q/05 2Q/05 3Q/05 4Q/05 Total Capital Markets - Central Depository of Securities 0,2 1,7 1,9 1,9 Cumulative Quarterly Disbursement Schedule (mil. ) Project 1Q/03 2Q/03 3Q/03 4Q/03 1Q/04 2Q/04 3Q/04 4Q/04 1Q/05 2Q/05 3Q/05 4Q/05 Total Capital Market - Central Depository of Securities 1,0 1,1 1,5 1,55 1,6 1,7 1,9 1,9 8