The Euroclear Single Platform Project

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The Euroclear Single Platform Project
SII Operations Forum
Michael Kempe Director May 4, 2006
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Agenda

• General overview of the aims of the project
• Governance Structure
• How does this overlap with the Giovannini process
• Examples of progress - Custody achievements
• Questions

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Why has harmonisation become important?

• Globalisation of investment strategies has
  intensified awareness of market fragmentation in
  recent years
• Multiple systems
• Widely differing functions market practices
• Europe is (rightly) seen as a complicated place
  to do business
• Increased focus by the authorities and market
  constituencies on overcoming the inefficiencies
  which result
• Giovannini Group
• G30
• ECB-CESR
• SMPGs etc

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Delivering a domestic market for Europe Why are
we involved in harmonisation?
Systems
Consolidating cross-border settlement internal
book-entry settlement
Delivering a domestic market for Europe
Creating a single platform for Europes domestic
settlement
Harmonisation
Consolidating domestic settlement custody
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Why are we involved? - Harmonisation

• Markets are defined by their post-trade
  infrastructure Alberto Giovannini
• Harmonisation and infrastructure change go hand
  in hand
• We can represent and achieve neutrality between
• all segments of market players
• all types of market structure
• and therefore provide leadership to the market
• We have key relationships with all the key
  non-customer stakeholders, eg
• Regulators government bodies
• Issuer agents
• Lawyers
• Stock Exchanges Clearing Houses
• Pressure from European Commission
• If we do not harmonise ourselves then the
  Commission will do it to us !

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Why are we involved? - Systems

• Harmonisation is inherent in platform
  consolidation post merger
• we dont want to build a new system that
  performs the same function in five different ways
• Doing the right thing
• Classic role of the market infrastructure
  provider
• Contribute to creating a genuinely Single Market
• Transforming cross-border settlements into book
  entry settlements
• Delivering a domestic market for Europe is now
  the Mission Statement

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Full Integration
Common User Interface
CREST
Euroclear France
Euroclear Nederland
Euroclear Belgium
Euroclear Bank
Domestic Service
Full Service
Full integration of legacy systems and
functionality
Single Settlement Engine
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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 payment mechanism for settlement
  between
• Central bank money
• Commercial bank money
• Open questions about where these payment services
  are delivered

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What harmonisation isnt

• Signs of customer concerns in early 2004
• Paris opinion was that harmonisation is an evil
  Anglo-Saxon conspiracy
• London opinion was that harmonisation is an evil
  French conspiracy
• We had no preconceived notions about specific
  outcomes at the start
• Not an exercise in picking components from each
  location to ensure a balanced distribution of
  pain
• Compromise is inevitable from time to time
• but it is not a goal
• High risk that politically driven process results
  in compromise solutions based around sub-optimal
  and inconsistent design
• Crucial to minimise that risk if we want a stable
  and coherent system capable of lasting several
  years

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Harmonisation Migration towards a single platform

• Ambitious timetable

• 2005

• 2006

• 2007

• 2008

• 2009

• 2010

SSE
Market by market
TARGET2
ESES
Market by market
SP Phase IGradual rollout for custody
Market by market
SP Phase II - Gradual rollout for settlement
Market by market
CCI Standards
ESES
Single Gateway Legacy SAP
Custody
Early harmonisation
Settlement
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Agenda

• General overview of the aims of the project
• Governance Structure
• How does this overlap with the Giovannini process
• Examples of progress - Custody achievements
• Questions

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Delivering a domestic market for Europe
Cross-border Market Advisory Committee
Custody
Settlement
Payment
Legal
Tax
Communication
Cross-border Harmonisation WGs
Euroclear divisions
governance
Local Harmonisation Groups / initiatives
involvement
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Harmonisation Consultation process
Harmonisation Consultation process

• Harmonisation proposal by Working Group

Consultation process
Service descriptions
Detailed Service descriptions
Implementation
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Where are we in this process?
Phase ESES SP
Proposals discussed with WG 100 100
Consultation paper 11 out of 11 21 out of 24
Service Description 9 out of 11 4 out of 21
Detailed service description As from early 2006 As from early 2007
Implementation  End 2007 As from end 2008 
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Agenda

• General overview of the aims of the project
• Governance Structure
• How does this overlap with the Giovannini process
• Examples of progress - Custody achievements
• Questions

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Working in a European context

• Consciously working in a framework which is
  broader than Euroclear group
• Neither right nor in our interests to develop a
  Euroclear standard which is incompatible with
  the rest of Europe
• Close collaboration with other initiatives
• ECSDA
• FBE
• ESF
• SWIFT
• (in future) Nordic CSD (VPC APK)
• Proving to be highly effective
• What does this mean for Euroclear?

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Agenda

• General overview of the aims of the project
• Governance Structure
• How does this overlap with the Giovannini process
• Examples of progress - Custody achievements
• Questions

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Euroclear - Objectives for custody

• To provide a single, harmonised platform for
  corporate actions in Belgium, France, Ireland,
  The Netherlands and The United Kingdom
• That the solution be in line with Giovannini
  initiatives (ECSDA, FBE) and with other
  harmonisation efforts (ESF, SMPG)
• However, timing is different
• To provide harmonisation for all parties without
  removing choice for issuers
• Harmonisation of all corporate actions processes
  that affect both holdings and transactions
  including data and its provision, timing,
  election processing, resources, payment
  mechanisms and transaction management
• Reduce cost and risk through harmonisation and
  removal of paper processes
• Harmonisation of processes on both the
  operational side of corporate actions processing
  and the governance aspects embedded in them e.g.
  shareholder rights
• Allow for a harmonised process for issuers to
  gain transparency of their shareholders
  throughout the securitys lifecycle

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Types of events

• Distributions
• Reorganisations Meetings
• - Which type of event a corporate action is will
  be announced to clients for processing reasons.
  Considered by clients as a large cost saving.

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Announcements
Investor / Agent
Issuer / Agent
Euroclear
Client

• Made as soon as information is public
• Objective is that the issuer (agent) will input
  formatted details directly to CSD
• Single database within SP
• Sent to all holders in real time
• Sent to all new holders or those with open
  transactions in real time
• Changes sent to all previous recipients in real
  time
• If no holding?

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Entitlements
Issuer / Agent
Investor / Agent
Euroclear
Client

• Sent on close of business on record date
• Only actual holdings taken into account in
  domestic service
• No reminders or alarm bells in domestic service
• Entitlements only for mandatory events

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Elections
Issuer / Agent
Investor / Agent
Euroclear
Client

• Elections without paper
• Cash and stock moving in the system
• Investor inputs MT565 but message to issuer agent
  unclear (MT 508?)
• MT567 used for technical validation
• Acceptance message unclear
• One issuer agent rather than many
• Co Domiciles will continue to exist

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Proceeds and confirmations
Issuer / Agent
Investor / Agent
Euroclear
Client

• Way of distribution depends on type of event
• Messages to be used by issuer agent unclear
• MT566 for debit and credit

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Euroclear Business Model

• Progress is being made
• It is recognised that there are barriers to
  implementation
• Although primarily a European / Euroclear process
  it will affect the template for all markets
• All markets are being asked to change to bring
  benefits to all
• All markets have been willing to change so far
  and momentum is high
• Harmonisation will occur Delivering a Domestic
  Market for Europe

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Agenda

• General overview of the aims of the project
• Governance Structure
• How does this overlap with the Giovannini process
• Examples of progress - Custody achievements
• Questions

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Appendix 1 - Domestic and Full Service
Full Service
Domestic Service

• Typical Euroclear Bank services
• Higher valued added services (eg in custody)
• Access to 35 markets on a DvP basis (bridging
  complexity and diversity gaps)
• Banking and credit services
• Automated Lending and Borrowing and Triparty
  Collateral Management
• For group and non-group securities
• Securities holding under a single legal regime
  (Belgian law)
• Active customer support
• Commercial Bank Money Settlement
• Competitively prices

• Harmonised CSD services, based on harmonised
  market practices but with local specifics where
  needed
• STP and standardised custody and settlement
  services
• For group securities
• Securities holding under security Home asset
  protection law
• Standardised customer support
• Very low risk, CSD-type liability
• Priced on cost basis (not bundled with higher
  cost services)

Central bank money settlement and cross-quality
payments