1 ameda leadership forum – alexandria, egypt, 27 th -30 th april 2009 risk management and...

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AMEDA Leadership Forum – Alexandria, Egypt, 27th -30th April 2009

Risk Management and Depository Services

AMEDA LEADERSHIP FORUM

PRESENTED BY: Anthony van EdenDATE: 28th April 2009


Interbank Money Markets and Payment Systems: A Two Way Relationship

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Glossary of Terms and Acronyms

Capital Event

: Coupon or Maturity payments

CSD : Central Securities Depository

ETME : Electronic Trade Matching Engine

ISIN : International Standard Identification Number

ISO : International Standards Organisation

JSE : JSE Limited – licensed stock exchange

MM : Money Market

MMCCR : MM Central Client Register

MMSR : MM Securities Register

MMPBPR : MM Participant & Business Partner Register

MMSS : Money Market Securities System

On-us : Settlement of counterparties intra-bank

Participant : CSD Participant

RTL : Real Time Line

SARB : South African Reserve Bank

SAMOS : South African Multi-Option Settlement System

SFIDVP : Simultaneous Irrevocable Delivery versus Payment

SOR : Securities Ownership register

STP : Straight Through Processing

SWIFT : Society for Worldwide Interbank Financial Telecommunications

USD : United States Dollar

ZAR : South African Rands

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South African Money Market statistics;

Background to the South African Money Market;

Risk management through the deployment of infrastructure in MM -

The South African Dematerialisation of MM Project;

Other benefits associated with a dematerialised MM.

Presentation Overview

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South African Money Market Statistics

Approximate Monthly Nominal Value (billions)(Extracted May 2008)

ZAR USD (USD1=ZAR10)

Primary Issues 78,60 7,86

Secondary trades 243,50 24,35

Maturities 85,9 8,59

Aggregate Value in Issue 514,0 51,40

Average Nominal Trade Value 35,00 3,50

Average Duration per Issue -100 days

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Informal market– no exchange or Automated Trading Systems;

Clearing and settlement unchanged since inception of MM;

No formal Market Association;

Bearer certificates; telephonic trading ; paper based settlement instructions; physical

custody; manual recording of “ownership” and coupon calculations; no guaranteed

SFIDvP; certificate splitting; physical delivery against Capital Events;

Stringent exchange controls;

Background to the South African Money Market

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Securities Services Act;

National Credit Act;

Deposit Taking Institutions Act;

Central Bank (SARB) responsible for monetary policy and supervision;

Capital Adequacy Ratio: Required 9,75%; Actual 2008 between 12% - 14%;

Liquid Asset Requirement - Banks can only use 50 % intra-day and 25% of

collateral at SARB inter-day;

Banking IT systems, processes and procedures robust and relatively advanced;

Background to the South African Money Market (continued)

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Risk Reduction:

Operational;

Credit;

Settlement;

Systemic; and

Reputational.

Risk Management Through the Deployment of Infrastructure in Money Markets

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Strate’s Money Market Securities System – Phase 1

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MMS

MMPBPR MMCCR MMSR

ETMEBulk

Matching

Bilateral Bulk Trade Allocation SOR

MFA

JSE(NNA)

Traders

Settling Bank

CL

IEN

TS

Settling Banks

SAMOS RTL

9A

11

4

2

5

6

10

12

11

10

13

7

4

3

2

1

4

2

3

4Optional

4

2

3

9

9B

Message Router

Mes

sage

Rou

ter

Mes

sage

Rou

ter

1110

A

FULLParticipant

Trader

Custodian

Issuer Agent

Corporate

Participant

1

Issuers

1

1

1

Custodian

Issuer Agent

Trader

Information Flows:

A - Client Maintenance 2 - ISIN Issue 4 - Trade Reporting 6 - Allegement 8 - Payment Request 10 - Payment Advice 12 - SFIDVP

1 - ISIN Request 3 – Amend Issue 5 - Trade Matching 7 - Commit 9 – Payment Instruction 11 – Settlement Confirmation 13 – Status Confirmation

A A

5

5

13

14 - Cash Movement…

A

52

A

8

8

14

Ref Nos.

Ref Nos.

7

4

23

4

4Optional

3

High Level Interaction

Issuer

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Accurate and complete recording

End to end STP – from ISIN issue to Maturity;

Standardised electronic communication with MMSS – ISO 15022 message types;

All MM securities will be:-

standardised into four generic categories;

allocated an ISIN real-time via the CSD;

issued, traded and settled electronically;

Use of unique identifiers - Participants, Business Partners, investors, security issuing,

SOR Securities Accounts, trade matching, clearing and settlements trades and Capital

Events;

Electronic Trade Matching Engine (“ETME”) – post trade/pre-settlement validation trade

information;

Reduction of Operational risk

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Accurate and complete recording (continued)

Any change in beneficial ownership must be reported to ETME;

Trade details cannot be modified or cancelled once matched;

Carries, Repurchase Agreements (Repos) and Reverse Repos treated as Sale and Buy

Back transactions –change in beneficial ownership of Securities;

Both legs to Buy Backs reported simultaneously - all four legs must match;

Amendment to 2nd leg of Buy Back reported by both counterparties to ETME for matching;

ETME warns trading party where counterparty leg match not made within Market agreed

time interval;

Standardised generic settlement procedures for trades and Capital Events;

Reduction of Operational risk (continued)

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Security

Securities issued into and retained in electronic format in the SOR in CSD;

SOR legally regarded as record of definitive ownership;

Communication with MMSS via SWIFT or Strate WAN – reliable, secure and robust;

Use of unique identifiers for Participants and Business Partners linked to roles in the

MMSS;

Transfer of ownership based on SFIDvP;

Capital Events paid to entitled investors’ Participants in total for dissemination.via

accounting entry.

Existing secure and proven inter-bank settlement systems via SARB SAMOS RTL using

ISO 15022 messages over SWIFT infrastructure;

Reduction of Operational risk (continued)

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Carries; Repurchase and Reverse Repurchase Agreements treated as change in beneficial

ownership i.e. Buy Backs;

All four legs to Buy Backs reported MUST matched for settlement of 1st leg;

Amendment to 2nd leg of Buy Back reported to ETME;

Matched bulk trades cleared and settlement instructions processed on a gross principal-to-

principal basis;

Participants have access to real time records of client Securities accounts.

Participants commit to delivery of securities/settlement for client’s matched trades “Against” and

“Free” of Payment;

Reduction of Settlement Risk

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Payment instructions only sent to Participant by CSD once commitments for delivery and

settlement matched by MMSS;

Securities committed to delivery “reserved/locked” in SOR Securities Account pending

confirmation of final and irrevocable settlement;

Pledged securities reserved/locked in SOR Securities Account until Pledge Release instructions

received or security matures;

Participants notified immediately by CSD when insufficient securities for delivery ;

Trade settlement only fails at close of SARB settlement windows;

Reduction of Settlement Risk (continued)

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Settlement status messages sent by MMSS to Participants which can also query on-line, real-

time ;

“Real-time” settlement in Central Bank funds (SAMOS RTL) or intra-bank (“on-us”;) for trades

and Capital Events;

Existing secure and proven inter-bank settlement systems via SARB SAMOS RTL using ISO

15022 messages over SWIFT infrastructure;;

Transfer of securities simultaneous with confirmation “Final and Irrevocable” settlement in

Central bank Funds or “on us.”

Capital Events settled electronically on payment date;

Standardised generic settlement procedures for trades and Capital Events;

Reduction of Settlement Risk (continued)

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Participants have to commit to cash settlement before securities are reserved/locked;

Use of SARB SAMOS RTL:-

Final and irrevocable settlement;

Real time availability of funds on settlement date;

Facilitates more efficient and accurate credit management – cash flow forecasting;

SARB has real time statistics of compliance with Liquid Asset Requirements;

Reduction of Credit Risk

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Bulk trades cleared and settled on Gross principal to principal settlement – avoid one “fail all fail;”

Participants have ability to electronically freeze Securities Accounts of its clients;

Curator appointed by the SARB has the ability to place freeze over all of a banks Securities

Accounts.

SARB has real time statistics of compliance with Liquid Asset Requirements;

Reduction in Systemic risk

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Combating Money Laundering

Ownership maintained in CSD at beneficial owner level in SOR;

Only foreign companies can open Nominee accounts in SOR;

SOR legally regarded as the “definitive record of ownership.”

Settlement excellence

Achieved through risk mitigation outlined above.

Reduction in Reputation risk

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Improvement in Liquidity

More timely settlement of trades and Capital Events via SAMOS RTL should increase

activity in the secondary market;

Enhanced STP

Commensurate Cost savings associated with paper driven issuing, recording, custody

and settlements.

Other Benefits Associated with a Dematerialised MM

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THANK YOU

1 ameda leadership forum – alexandria, egypt, 27 th -30 th april 2009 risk management and...

Documents

south african rands

money market mmccr

money market securities

days slide

securities register

presentation overview

central bank sarb responsible

payment systems