cpss-iosco principles for fmis and tm assessments ana giraldo

CPSS-IOSCO Principles for FMIs and TM Assessments

Ana Giraldo

Guatemala - April 2013

© 2013 Thomas Murray Ltd.

CPSS – IOSCO Principles Vs Thomas Murray’s Risks

Key differences

Comparison of CPSS-IOSCO, AGC and TM

CPSS-IOSCO principles in TM public ratings

Agenda


I. CPSS-IOSCO Principles vs Thomas Murray’s Risks


Principle Asset Commitment

Liquidity Counterparty

Asset Servicing

Financial Operational

Asset Safety

Governance & Transparency

General Details

Principle 1: Legal Basis ü Principle 2: Governance ü Principle 3: Framework for the comprehensive management of risks ü ü Principle 4: Credit Risk ü Principle 5: Collateral ü Principle 6: Margin ü Principle 7: Liquidity Risk ü Principle 8: Settlement Finality ü Principle 9: Money Settlement ü Principle 10: Physical Deliveries ü Principle 11: Central Securities Depositories ü ü Principle 12: Exchange-of-value Settlement Systems ü

CPSS-IOSCO vs TM Ratings


Principle Asset Commitment

Liquidity Counterparty

Asset Servicing

Financial Operational

Asset Safety

Governance & Transparency

CSD on CSD

Principle 13: Participant-default rules and procedures

ü Principle 14: Segregation and Portability ü Principle 15: General Business Risk ü Principle 16: Custody and Investment Risk ü Principle 17: Operational Risk ü Principle 18: Access and Participation Requirements

ü Principle 19: Tiered Participation Arrangements

ü Principle 20: FMI Links üPrinciple 21: Efficiency and Effectiveness ü Principle 22: Communication Procedures and Standards

ü Principle 23: Disclosure of rules and Key Procedures

ü Principle 24: Disclosure of Market Data

CPSS-IOSCO vs TM Ratings


II. Key Differences Between Thomas Murray’s Assessments and IOSCO Self-Assessments


Thomas

Murray

Asset Servicing

Risk

Continuous Updates

Data Validation

Adherence to best market

practices

Transparency

Separate assessment per type of

FMI

Key Differences with other Assessments

Thomas Murray

© 2013 Thomas Murray Ltd.Page 8 Private and Confidential

Asset Servicing Risk

Why Asset Servicing Risk is important?

Trend: There is an increasing number of CSDs providing asset servicing and corporate actions-related services to participants.

Risk: Asset servicing carries a high degree of risk given that it is a commercial activity. In many cases it can be provided in competition with custodians. It is also the area with the largest potential losses for a CSD.

TM weighting: TM gives a high weighting to the overall risk score to asset servicing risk. In fact, it is the heaviest single weighted risk in our methodology.

Involvement of CSDs: There is a varied degree of involvement in asset servicing ranging from simple interest payment distribution to complex corporate actions processing.

Back

Thomas Murray


Asset Servicing Risk

Why Asset Servicing Risk is important?

Back

Americas Asia Pac M&A Eurasia WE0

5

10

15

20

25

30

35

40

2224 23

10

35

47 8

4 3

YesNo

Provision of Asset Services

Thomas Murray


Data Updates

Continuous Updates

Thomas Murray provides on-going surveillance on changes to the CSDs, CCPs and capital market infrastructures.

Thomas Murray receives information directly from local sources such as support banks, CSDs, stock exchanges and regulators. There is also a (at least) monthly monitoring of websites to ensure developments are not missed.

Daily newsflashes are sent to clients and other interested parties in respect of changes and developments in the marketplaces.

A risk impact is added every time a piece of news has a relevant impact on any of the assessed entities.

Assessments are updated and revised upon receipt of information. The ratings are also reviewed and taken to the Ratings Committee if a significant event takes place.

There are also annual general updates with the co-operation of the CSDs and the support banks to validate the data.

Back

Thomas Murray


Permanent Updates

Number of Newsflashes Sent by Thomas Murray

Back

2010 2011 20120

500

1000

1500

2000

2500

3000

3500

2460

2840

3331

11361263

1490

1010 11071305

SMICSDCMIRR

Thomas Murray


Data Validation

Validation

Thomas Murray information is collected from CSDs but data is validated by some participants that are our support banks.

The support banks provide an annual update and review of Thomas Murray assessments. Examples of support banks:

Thomas Murray


Best Market Practice

Adherence to best market practices

Thomas Murray’s assessment methodology is based on best market practices rather than minimum standards.

Thomas Murray provides a gap analysis that shows the CSD where it stands compared to best market practices.

The rating scale is designed in a way that CSDs can determine how far they are from the best market practice in each risk.

Thomas Murray


Transparency

Transparency of methodology and reports

Thomas Murray’s assessment methodology is published so CSDs can understand the basis they have been rated.

TM methodology is prescriptive and detailed enough for CSDs to determine their strengths and weaknesses in each risk.

TM reports are available to all our clients and public rating reports are publicly available. TM reports are also available to the CSDs once they are finalised/updated. Since the reports

highlight the strength and weaknesses, CSDs can use them to decide areas to work on and issues to address.

Thomas Murray


Separate Assessments

Analysis per type of entity

Thomas Murray undertakes separate assessments and analysis according to the type of infrastructure entity.

Different types of risks apply to different type of infrastructure entity (e.g. CPSS-IOSCO principles for FMIs apply equally to all FMIs although some principles are not

applicable to all (e.g Principle 6: Margin, only applies to CCPs).

Back


III. Comparison Between AGC, CPSS-IOSCO and TM on Key Issues


Thomas Murray

AGC

AGC

CPSS/IOSCO


IV. CPSS-IOSCO Principles for FMIs in TM Public Ratings


Principle CPSS-IOSCO Comment on Publicly Rated CSD

4 – Credit Risk An FMI should effectively measure, monitor, and manage its credit exposures to participants and those arising from its payment, clearing, and settlement processes. An FMI should maintain sufficient financial resources to cover its credit exposure to each participant fully with a high degree of confidence.

XXX participants do not have any credit exposure in the case of pre-funded on-exchange trades. For off-exchange settlements, there is full counterparty exposure if the participant chooses to settle on an FOP basis. If settled DVP, there is no risk of principal loss, but some consequential market losses may occur since there are no fails management mechanisms. While XXX doesn’t undertake a thorough check on participants, other agencies check that requirements are met.

5 - Collateral An FMI that requires collateral to manage its or its participants’ credit exposure should accept collateral with low credit, liquidity, and market risks. An FMI should also set and enforce appropriately conservative haircuts and concentration limits.

XXX supports the settlement of repo and reverse repo transactions on the Exchange and accepts the deposit of securities as collateral.

6 - Margin A CCP should cover its credit exposures to its participants for all products through an effective margin system that is risk-based and regularly reviewed.

Not applicable as XXX does not act as central counterparty in the market.

Thomas Murray


Thank you!

December 2012

cpss-iosco principles for fmis and tm assessments ana giraldo

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