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 [email protected] [email protected] [email protected] [email protected] Bank [email protected] Börse [email protected] [email protected] [email protected] [email protected] [email protected] Clearnet [email protected] Stanley [email protected] [email protected]

Exceptional inviteesFPL [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

ObserverECB [email protected] [email protected]


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


W3C

UN/CEFACT

e-bMoU

OMG

ISO/TC68

FIX

ISITC-IOAISSA

SMPG

SIA

FISD/MDDL

G30

GiovanniniTC68/SC4

WG

8 & WG

11

EPC/ECBS

ISTH

IFX

RosettaNet/PMP

OAGi

X12

BMA

EACT

FpML

ISDA

IFSA

OASISBolero

ICC

TC68

/SC6&

7

CEFACT/

TBG

5

IIBLP

UNCITRAL

IFSA

Securities Trade Finance

Acord

TC68/SC4&7

Payments Treasury

EAN/UCC

Insurance

UNIFI - ISO 20022

CEFACT/

TBG

15

TWIST

Fedwire

CHIPSTCH

NACHAIFSA

IGTA

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

Tra

de

Dat

e

Sp

ace

1S

pac

e 1

Pre

-tra

de

/ T

rad

e

Sp

ace

3S

pac

e 3

Cle

arin

g &

S

ettl

emen

t

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

Sp

ace

2S

pac

e 2

Po

st T

rad

e /

Pre

-Set

tlem

ent

Tra

de

Dat

e +

X

GCGC

SASA

CCPCCP

SASA

IMIIMI B/DB/D

(I)CSD(I)CSD

SCSC

B/DB/D

Space 4Space 4 - Custody Services

Non Trade Related Activity

1

2

3


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

Tra

de

Dat

e

Sp

ace

1S

pac

e 1

Pre

-tra

de

/ T

rad

e

Sp

ace

3S

pac

e 3

Cle

arin

g &

S

ettl

emen

t

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

Sp

ace

2S

pac

e 2

Po

st T

rad

e /

Pre

-Set

tlem

ent

Tra

de

Dat

e +

X

GCGC

SASA

CCPCCP

SASA

IMIIMI B/DB/D

(I)CSD(I)CSD

SCSC

B/DB/D

Space 4Space 4 - Custody Services

Non Trade Related Activity

1

2

3


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

Data

Network

Messaging

DataSTANDARDS

SECURITY

SERVICES

Participant A Participant B

1

4

7

2

5

8

3

6

9


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

Data

Network

Messaging

DataSTANDARDS

SECURITY

SERVICES

Participant A Participant B

1

4

7

2

5

8

3

6

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

Documents

progress slide

business slide

g30 slide

cesame group meeting

clearing house slide

iag membership criteria

market consultation

eu countries responses