1 copyright © securities depository center, jordan. all rights reserved. clearing and settlement...

1Copyright © Securities Depository Center, Jordan. All Rights Reserved.

Clearing and Settlement Risk Management

Samir JaradatCEO

April 2009

Overview


Delivery Versus Payment

The Securities Depository Center (SDC) of Jordan implemented clearing and settlement on the basis of Delivery versus Payment (DvP) where delivery of sold securities is against payment of their value

DvP is a global standard implemented in capital markets


Delivery Versus Payment Cycle

Electronic Trading File

Suspended Trade

Accepted Trade

Buy-In

Delivery of Sold Securities

Versus Payment of their Value

(DVP)

Settlement Guarantee Fund

No

Yes

T+1

T+2

T+2

Settlement Account

Default T+2

Removal of Suspension

Causes

No

Yes

T+2

The number of securities in the selling client’s account with the broker is sufficient to execute the trade according to Sub-Custodian instructions

Liquidity Reserve Account

Clearing and Settlement

Broker

T+2

T+1

Settlement Amount (net to pay-Liquidity Reserve)

Liquidity Reserve Amount

T+2

T+0

T+0


Risk Management

Settlement Guarantee Fund (SGF)

SDC/ASE Tight Coupled Environment

Suspend the value of suspended trades

Buy-in & sell out measures

Suspension of the defaulting broker from trading.

Business Continuity & Disaster Recovery Plans


Settlement Guarantee Fund

The Settlement Guarantee Fund was established by virtue of the Securities Law No. (76) of 2002. Its objectives include:

1. Covering the cash deficit of a Fund member in connection with his purchases of securities

2. Covering the deficits in the securities account of a Fund member

The contributions of the members of the Fund are divided into cash contributions and bank guarantees. The contributions are calculated based on specific formulas and are periodicallyre-calculated


Settlement Bank

The Central Bank of Jordan is assigned as a settlement bank

to receive/pay securities values, where all payments are

processed through the "Real Time Gross Settlement

System-Jordan" (RTGS-JO)

The SDC opened two accounts at the settlement bank:

Liquidity reserve account

Settlement account

The SDC is a member in the RTGS-JO central bank

payment system


Tight Coupling Environment

The Amman Stock Exchange (ASE) and the Securities Depository Center (SDC) implemented the ASE-SDC tight coupling on 22 March 2009 together with the new trading system in order to mitigate settlement risk

Through the tight-coupled link, the order information is passed from the Trading system to the Depository System to ensure that the securities are indeed available prior to the trade being made


(Tight Coupling(Tight Coupling Environment)Environment)


Updating Daily Files

SDC’s End of business day

Sending File

Trading file

Updating CCM Files Updating FILES OF(ARAMIS)

Trading Data files


(SDC-CCM) Files Transfer during trading session

Custodian

Notification

Adjust Accounts’ Ownership

Balance

Executed Transaction

CUSTODIAN

Custody Account

Shares transfer to custody account maintained at

Broker level

Adjust Investors’ Status

Adjust Brokers’ Credit Limit

Bonds

Adjust Broker’s Trading Cap

Through (MMTP)

Yes

Yes


Functional Objectives to the Tight-Coupled Link

Trades orders verification: the aimed tight-coupling shall provide the facility to validate and check for each order the existence of investors with their respective available trading balances

Trading-cap: maintain the sum amount of permitted selling trades to be executed by the broker to the maximum ceiling limit of their settlement guarantees


Prevention of uncovered/ naked short sales

Prevention of failure of delivery of securities

Reinforcement of the concept of registered ownership

Prevention of multiple selling orders where the same securities cannot be sold in the same trading session

Control and monitoring of ownership percentage

Control of financial obligations of broker participants

The advantages of the tight-coupled link


● Direct Online Verification for trading Orders

Percentage of securities ownership Accounts ownership except custodians Clients’ data Brokers’ data Approved trading unit Joint client

● Developing communication mechanism between capital market institution’s

Reduce human interfering Dispense paper environment Apply secure environment Accuracy and Speed of achievement

The advantages of the tight-coupled link


Risk Management

The implementation of the ASE-SDC coupled link is expected to reduce the settlement fails in the market by preventing naked short sales; thus having a 'Positive' impact on liquidity risk. The counterparty risk exposure will be also reduced through the monitoring of brokers’ trading-caps



Business Continuity:

Maintaining access to data at all times, protecting critical business assets and reducing recovery costs based on business risk and information value Maintaining access to data at all times, protecting critical business assets and reducing recovery costs based on business risks and information value



The BCDR site should provide:

Accessibility ( for authorized personnel)

Security

Infrastructure (Network, electricity, etc)

Adequate distance form the Production Site, for protection form production site disasters.

According to the international standards the distance of the DR site which is located in the north of the kingdom from the main site is (100) Km


BCDR Advantages

Continuity of Business Operations

International Standards’ Compliance

Reduce the cost of Risk Management

Security, Privacy & Data Protection

Expertise and Skills

Maintaining Market Readiness



Aspects of Business Continuity

BusinessContinuity

Fault-tolerant, failure-resistant infrastructure supporting continuous application

processing

Non-disruptive backups andsystem maintenance coupled with

continuous availability of applications

Protection against unplanned outages such as disasters through reliable,

predictable recovery

Disaster Recovery

Continuous Operation

High Availability


Technology Platforms

Securities Central Operation Registry Processing & Information Online ®


SCORPIO® System

Broker Support System

Issuer Support System

Sub-Custodian Support System

Surveillance and auditing Support System

Pledge Support System

Services Support System

The SDC developed an electronic system called “SCORPIO®”

consists of a number of support systems:


SCORPIO® System Functions

● Brokers’ System

● Issuer’ System

● Sub-Custodian System

● Pledgee System

● Registers System

● Clearing & Settlement System (DvP)

● Regulatory authorities Surveillance and Auditing System

● Reports System

● Auditing System

● Web Services System

● Settlement Surveillance

● Family Transfer

● Inheritance Transfer


SCORPIO® System Operations

Issuer

Broker and/or Custodian

Register Submitted by Issuer

Authentication Request

Shareh

olderClie

nt

Transfer Request

Identification and Account

Opening Form

Client Identification & Account Opening SDC Database

Clients and Accounts

Electronic Trading File

Settlement Bank

Broker and Issuer

Deposit Request

Securities Central Registry

Ownership RestrictionsCorporate Actions

§ Lien§ Freeze

§ Pledge

§ Increase and/or Decrease of Capital

§ Stock Split§ Merger

Clearing & SettlementTransfers

Accounts Maintained by

BrokersCustodians§ Settlement

Guarantee Fund§ Settlement Cap.§ Suspension Notice

Pledge System

Website Services

Transfers

Transfers

Transfers


Thank You

www.sdc.com.jo

1 copyright © securities depository center, jordan. all rights reserved. clearing and settlement...

Documents

securities account

settlement bank

number of securities

purchases of securities

securities law

settlement broker t

depository system

settlement account default