slide 1 independent advisory group giovannini barrier 1 meeting 1 july 19th, 2005

Independent Advisory GroupGiovannini Barrier 1Meeting 1

July 19th, 2005

IAG_190705_v3.ppt Slide 2

Agenda The Independent Advisory Group

– What is it & why do we need one?– What is it going to do & when?

Barrier 1– What progress has been made so far?– What is there still left to do?

Agreement of terms

Focus on the Network Layer– Standards– Security– Service

Any other business

Agreement of terms

Any other business

Independent Advisory Group:What is it & why do we need one? Responses emphasised importance of original key principles:

– Leverage

– Open

– Neutral

– Inclusive

Feedback identified creation of an independent advisory group as a way of maintaining principles

Business not technology focus

Maintain congruency with G30

Independent Advisory Group:What is it & why do we need one?

CESAME group meeting 10th June concurred with suggestion to form IAG

Membership criteria:– CESAME member– Respond to the consultation– 4 exceptions

Independent chair

Independent observer

Independent Advisory Group:What is it & why do we need one?

CESAME members Attendee Alternate if appropriateABN Amro ruud.sleenhoff@nl.abnamro.com chiel.steinvoort@nl.abnamro.comBNP pierre.willems@bnpparibas.comCitigroup brian.crabtree@citigroup.comDeutsche Bank stephen.lomas@db.comDeutsche Börse kvangestel.cb@clearstream.comECSDA joel.merere@euroclear.comFBE D.Hermans@fbe.beEuroclear jan.sonck@euroclear.com luc.castan@euroclear.comLCH Clearnet patrice.renault@lchclearnet.comMorgan Stanley keith.berrett@morganstanley.comNCSD heikki.ylipekkala@ncsdgroup.com

Exceptional inviteesFPL kevin@altkb.com peter.randall@fixprotocol.orgISSA thomas.rohr@ubs.comSMPG catherine.dias@citigroup.com alexandre.kech@swift.comSWIFT jamie.shay@swift.com

ObserverECB Concetta.Cerafogli@ecb.int Daniela.Russo@ecb.int

Independent Advisory Group:What will it do & when?

Ratify

– Where consultation provides conclusive direction

Recommend

– Where consultation results are unclear

Meetings scheduled:

– 19th July

– 3rd August

– 23rd August

– 12th September

Agreement of terms

Any other business

Barrier 1:2003 Giovannini Report states...

Barrier 1Barrier 1

« National differences in the information technology and interfaces used by clearing and settlement providers should be eliminated via an EU wide protocol. SWIFT should ensure the definition of this SWIFT should ensure the definition of this protocol through the Securities Market Practice Groupprotocol through the Securities Market Practice Group. Once defined, the protocol should be immediately adopted by the ESCB in respect of its operations. This barrier should be removed within two years from the initiation of this project. »

2004, Market research

2005, Market consultation:– Paper published 5th January, 2005 – Consultation closed 15th April, 2005

70 physical responses

Responses from 21 out of 25 EU countries

Responses from 30 countries globally

Barrier 1: Progress

Barrier 1:Progress: EU Response statistics 74% from EU organisations

– 56% from FI’s– 23% from Infrastructures– 21% from miscellaneous (Central Banks, Consultancies etc)

29 Institutions & FI ‘clubs’ (e.g. ISITC Europe)

2 ICSD’s

64% of EU CSD’s

50% EU Equity Exchanges

1 Clearing House

Barrier 1:What is there still left to do?

Independent advisory group formed July 05

Summary of consultation responses July 05

Pre-publication of protocol model Q4 05

Final publication Q1 06

Agreement of terms

Any other business

Agreement of terms:‘Protocol’ - Definition

Technical protocolTechnical protocol

« Any agreement that governs the procedures Any agreement that governs the procedures used to exchange information between co-used to exchange information between co-operating entities»operating entities»

Diplomatic protocolDiplomatic protocol

« A code of conduct prescribing how those « A code of conduct prescribing how those taking part should behavetaking part should behave»

BEST PRACTICE

Agreement of terms:‘Standard’ - Definition

StandardStandard

– «« something established by authority, something established by authority, custom or general consent as a model or custom or general consent as a model or example »example »

– « a rule for the measure of quality »« a rule for the measure of quality »

– « regularly and widely used »« regularly and widely used »

– Uniform and well established by usage and Uniform and well established by usage and widely recognised as acceptablewidely recognised as acceptable » »

LEVERAGE

UN/CEFACT

e-bMoU

ISO/TC68

ISITC-IOAISSA

FISD/MDDL

GiovanniniTC68/SC4

8 & WG

EPC/ECBS

RosettaNet/PMP

OASISBolero

CEFACT/

UNCITRAL

Securities Trade Finance

TC68/SC4&7

Payments Treasury

EAN/UCC

Insurance

UNIFI - ISO 20022

CEFACT/

Fedwire

CHIPSTCH

NACHAIFSA

Agreement of terms:‘Standards’

Agreement of terms:‘Syntax’ - Definition

SyntaxSyntax

– «« the way in which elements are put the way in which elements are put together to form a message »together to form a message »INTEROPERABILITY

Agreement of terms:‘Protocol, Standard & Syntax’ - proposed ratification

End to end STP can be achieved via End to end STP can be achieved via interoperability of agreed standards interoperability of agreed standards (inc market practices) within a best (inc market practices) within a best practice protocolpractice protocol

Interoperability achieved through the Interoperability achieved through the adoption of a single data dictionaryadoption of a single data dictionary

Agreement of terms:‘Protocol scope’ - Definition

Scope defined in the consultation paper as:

– All post trade processes

– All traded instruments

– All participants

Agreement of terms:‘Protocol scope’ - All post trade processes

ExchangeExchange

VMU / ETCPVMU / ETCP

OrderTrade

IMI: Investment ManagerB/D: Broker DealerVMU: Virtual Matching UtilityGC: Global CustSC: Sub-CustSA: Settlement Agent (Clearer)CCP: Central CounterpartyICSD: (Int‘l) Central Securities Depository

Institutional (buy) Side Street (sell) Side

CCPCCP

IMIIMI B/DB/D

(I)CSD(I)CSD

B/DB/D

Space 4Space 4 - Custody Services

Non Trade Related Activity

Agreement of terms:‘Protocol scope’ - All traded instruments

Giovannini Reports 1 & 2 refer to securities & derivatives:

– Equities

– Fixed Income

– Derivatives (Exchange traded)

Giovannini 1 also includes Clearing & Settlement process flows for Derivatives (Chart 2.6)

Agreement of terms:‘Protocol scope’ - All participants

ExchangeExchange

VMU / ETCPVMU / ETCP

OrderTrade

IMI: Investment ManagerB/D: Broker DealerVMU: Virtual Matching UtilityGC: Global CustSC: Sub-CustSA: Settlement Agent (Clearer)CCP: Central CounterpartyICSD: (Int‘l) Central Securities Depository

Institutional (buy) Side Street (sell) Side

CCPCCP

IMIIMI B/DB/D

(I)CSD(I)CSD

B/DB/D

Space 4Space 4 - Custody Services

Non Trade Related Activity

Agreement of terms:‘Protocol scope’ - Consultation responses

59 responses in total Agree– 14 EU FI 8 – 57%– 16 FI EU rep orgs 8 – 50%– 10 EU C&S Infrastructures 6 – 60%– Total (inc above) 32 – 54%

Disagreements:– Too narrow 10 – 17%– Too broad 10 – 17%– Phasing required 17 – 29%

Agreement of terms:‘Protocol scope’ - Consultation responses

Too narrow, should include:

– Pre-trade/trade 3 responses

– Geographic Europe 3 responses

– Market data 2 responses

Too broad, should not include

– Interfaces & networks 4 responses

Total (agree + too narrow) = 42 responses (71%)

Agreement of terms:‘Protocol scope’ - Proposed ratification

The scope is appropriate to the The scope is appropriate to the definition of a communication protocol definition of a communication protocol for C&S and asset servicing activity for C&S and asset servicing activity

Phasing by Participant/sector Phasing by Participant/sector

Agreement of terms:‘Protocol framework’ - Definition

Network

Messaging

Network

Messaging

DataSTANDARDS

SECURITY

SERVICES

Participant A Participant B

Agreement of terms:‘Protocol framework’ - Consultation responses

53 responses in total Agree

– 15 EU FI 14 – 93%

– 12 FI EU rep orgs 9 – 75%

– 10 EU C&S Infrastructures 8 – 80%

– Total (inc above) 42 – 82%

Disagreement

– Should only include Layer 1, Data

Agreement of terms:‘Protocol framework’ - Proposed ratification

The proposed 9 element framework The proposed 9 element framework correctly frames a potential correctly frames a potential communication protocolcommunication protocol

Agreement of terms:‘Interoperability’

Interoperability– Participants?– Standards/syntaxes?– Network?

G30: Clearly refers to participant & standards/ syntaxes interoperability*

Giovannini: less clear but refers to interoperability of users, payment instruments & standards/syntaxes**

* Global Clearing & Settlement Plan of Action, 2003** Giovannini Second Report, 2003

Agreement of terms

Any other business

The Network Layer:

Messaging

Network

Messaging

DataSTANDARDS

SECURITY

SERVICES

Participant A Participant B

9Network

The Network Layer:Element 7: Network Standards

G30: IP

Consultation paper: IP (based on discussions with COLT & Equant)

Most end devices (PC, Servers etc) communicate

/route using IP

There is no "Best Practice" for building or operating IP networks, each has its own rules but if interoperability between networks is not a requirement, IP implementation is academic

The Network Layer:Element 7: Proposed ratification

The minimum acceptable network The minimum acceptable network standard is the implementation of IP for standard is the implementation of IP for communication and routingcommunication and routing

The Network Layer:Element 8: Network Security

G30: “Security should be set at a level that satisfies business & regulatory requirements and that meets the needs of all stakeholders in the industry”

Barrier 1 Consultation paper: Secure private network (VPN) plus data encryption using a strong standard algorithm

– Network encryption vs message encryption

– Message validation or not

The Network Layer:Element 8: Network Security - ‘Policing’

– 14 EU FI 12 – 86%

Disagreement

– 12 respondents (24%) explicitly disagreed that network standards should be policed

The Network Layer:Element 8: Network Security - ‘Policing’

Validate against std structure 26 - 51%

Report violation to sender 10 - 20%

Stop traffic 8 - 16%

Optional 13 - 25%

Security, at either the network or the messaging layer, must be set at a level that satisfies business & regulatory requirements

The Network Layer:Element 9: Network Service

Is service a commercial differentiator between network providers?

Is a minimum level of service required?

– Performance - inc. provisioning & implementation times, availability, restore time etc

– Resilience - diversity, contingency etc (Fed, ECB, FSA guidelines already exist – Leverage)

– Management – maintenance, fault identification & rectification etc

The Network Layer:Network Service - Consultation responses

– 15 EU FI 14 – 93%

Disagreement

– 7 respondents (14%) explicitly disagreed that network standards are required

The Network Layer:Network Service - Consultation responses

24x7 Agree

– EU FI 6 – 40%

– FI EU rep orgs 3 – 27%

– EU C&S Infrastructures 2 – 22%

99.999% availability Agree

– EU FI 5 – 33%

– FI EU rep orgs 2 – 18%

– EU C&S Infrastructures 2 – 22%

Service must satisfy business & regulatory requirements for performance, resilience and network management

Agreement of terms

Any other business

The next meeting is…..

3rd August at 11.00am

The subject will be the messaging or interface layer

AoB – Time permitting

Accreditation

– Do we need accreditation of Messaging/Network suppliers?

– If yes, who should provide the accreditation service?

Communication solution providers:Accreditation - Consultation responses

– 14 EU FI 13 – 93%

Disagreement

– 5 respondents (9%) explicitly disagreed that accreditation

Communication solution providers:Accreditation - Consultation responses

Who should accredit?

– Independent organisation 20

– SWIFT 9

– Regulator 2

– ECB 2

– ISO 3

– EU 2

– Self certification 5

– Market forces 10

Communication solution providers:Accreditation - Proposed ratification

Accreditation of messaging/network providers Accreditation of messaging/network providers is requiredis required

This activity should be carried out by ______This activity should be carried out by ______

_______ should determine the accreditation _______ should determine the accreditation process based on the criteria laid out in the process based on the criteria laid out in the Giovannini protocolGiovannini protocol

slide 1 independent advisory group giovannini barrier 1 meeting 1 july 19th, 2005

progress slide

business slide

g30 slide

cesame group meeting

clearing house slide

iag membership criteria

market consultation

eu countries responses

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