FinSec Consulting provides expert consulting services across many areas of the financial services industry, including clearing and settlement, custody, securities lending, payments, technology solutions, treasury and cash management, and performance and risk management. The presentation discusses several topics in detail, including:
1. TARGET2-Securities, the EU initiative to create a single capital market and settlement system to compete with other regions.
2. Collateral management processes that will be impacted by TARGET2-Securities and how to address changes required by various global market regulations.
3. FinSec's managed team approach, which provides advisory services, subject matter expertise, regular support and reports, and guidance on market intelligence and project scoping.
1. FinSec Consulting
Subject FinSec Consulting
Speaker Stuart Egerton
Presentation to
T: +44 (0)20 3 780 3990 www.finsecconsulting.com E: info@finsecconsulting.com
FinSec Consulting, 6th Floor, 50 Mark Lane, London, EC3R 7QR
FinSec Consulting is the trading name of IT Skillfinder Limited – Incorporated in England & Wales – Company Registration No: 4974279
2. Contents of Presentation
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1. FinSec Consulting Overview
2. TARGET2-Securities
3. Collateral Management
4. Global Market Regulations
5. Managed Team Lead Approach
6. Conclusions
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3. FinSec Consultancy Profile
Due to our business model, any domain can be reached
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Clearing and Settlement services
• Settlement, Local clearing, Global clearing, Trade
entry, Broker-dealer clearing, Clearing of
government securities
Custody Services
• Safekeeping, income processing, Corporate
actions, Reporting, Proxy voting, Tax reclamation,
Liquidity management
Securities Lending services
• Securities loans, Repo and reverse repo, Collateral
management, Risk management, Reinvestment,
Compliance, Auctions, Reporting
Payment services
• Payments Service Directive, SEPA and Target 2
Technology solution services
• Trade processing, Billing, Support, Outsourcing
middle and/or back office
Treasury and cash management services
• Foreign exchange, Cash forecasting, Liquidity
management, Short term funding, Cash
pooling, Money market investment
Performance and Risk Management
services
• Investment review, Performance attribution,
Calculation methods VAR &APT, Reporting
Issue services
• Issuer agent, Issuer advisor, Paying agent,
Shareholder service, Trustee service,
Registration, Holder Identification
Financial Messaging standardisation
• Swift format (MT100, MT200), ISO15022,
ISO20022, FIX, FPML, STP process improvement
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4. TARGET2-Securities
EU agenda for becoming more competitive
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Objective
• Create a single capital market, and ensure well-functioning payment and securities settlement systems,
that can compete with regions such as US and Asia
Obstacles
• The cost of clearing and settlement (direct and indirect and an important component of the overall cost
of a securities transaction) is 4 times as high as competitive regions
• Post-trading infrastructure is still very fragmented (i.e. investing cross-border is still considerably more
expensive than investing at home)
• Europe needs a single pool of securities to stimulate competition, growth and harmonisation. There is no
other realistic Europe-wide approach to create this pool
Solution
• T2S is a technical platform to support CSDs by providing core, borderless and neutral settlement services.
The objective is to achieve harmonised and commoditised delivery-versus-payment settlement in central
bank money in euro (and possibly other currencies) in substantially all securities in Europe.
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Collateral Management processes impacted
• Initial Margin for CCP transactions
• Pledge transactions between two parties
• Securities Lending and Borrowing
• Tri-partite repo collateral services
Different layers of T2S collateral management functions
• How to use auto-collateral in T2S (Auto-collateral: Central bank providing cash to payment bank, Client-
collateral: Payment bank providing cash to client)
• How to use the solutions of current providers (e.g. CSD, GC and Agent solutions)
• How to use the T2S functions for collateral management (E.g. linking, restrictions)
Collateral Management
Collateral Management in T2S context
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Much has been written and discussed over the last years with regard to the regulations surrounding
collateralisation.
Whilst the regulations create a strategic imperative to change operations, we understand that the impacts
of those changes are not due exclusively driven by the regulatory demand.
Whilst changing operations to support the regulations there are increased possibilities and opportunities that
an enhanced collateral operating model can create for you.
We can help you change or evolve your functional and technical operating model to support the impacts
of the following initiatives;
Dodd-Frank
EMIR
BIS / IOSCO proposals
Basel III recomendations
CFTC and ESMA directives
Collateral Landscape
7. Collateral Management
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Initial Margin Segregation
Understanding local regulators interpretations of these
proposals
Typical areas where enhancement is required are;
Initial Margin Calculation
Non Net vs netted margin movements
DODD FRANK & EMIR
Exchange connectivity
Transaction Reporting
Typical areas where enhancement is required are;
Trade data enrichment
Multiple versions of SSI data
Operational enhancement
BASEL III
Analysis of your current processes against Basel III
recommendations covering areas such as;
Adequate staffing
Adherence to Collateral agreement terms
Data integrity
Collateral concentration
Rehypothication analysis
Non cash collateral correlation and wrong way risk
Collateral netting
CFTC & ESMA
Analysis of your current processes against
recommendations covering areas such as;
Adherence to rules on portfolio reconciliation
Creation of policies and procedures for
resolving trade valuation differences
Connectivity to the market standard portfolio
reconciliation platforms
Understanding the subtle differences between
CFTC and ESMA in relation to dispute resolution
and reporting.
BIS / IOSCO proposals
8. Collateral Management
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Key Challenges
Current key market challenges as we see them are:
• Keep pace with the evolving regulatory landscape
• Meet the demands of higher quality and more diverse collateral requirements
• Protect or ensure collateral asset return in the event of counterparty default
• More process complexity combining the Clearing process with existing Collateral Operations
• Managing re-use and re-investment limitations
• Asset Reuse and re investment limitations
• Ensuring appropriate client asset segregation ensuring appropriate client asset segregation
9. Managed Team Approach
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Advisory service items such as:
• Conceptual guidance
• Workshop preparation
• Business architecture advice
• Competitive guidance
Managed Team
• Support from our subject matter expert – off-site
• Regular contact and support with the Consultants and advice on any specific project challenges
• Regular report to the client on work undertaken & deliverables achieved – monthly dashboard
• Client visits to review work and progress – implement any adjustments to project scoping
• Inclusive guidance to the Client on market intelligence & project scoping
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Conclusions/Questions?