WO2007113316A2 - Securities settlement system - Google Patents
Securities settlement system Download PDFInfo
- Publication number
- WO2007113316A2 WO2007113316A2 PCT/EP2007/053307 EP2007053307W WO2007113316A2 WO 2007113316 A2 WO2007113316 A2 WO 2007113316A2 EP 2007053307 W EP2007053307 W EP 2007053307W WO 2007113316 A2 WO2007113316 A2 WO 2007113316A2
- Authority
- WO
- WIPO (PCT)
- Prior art keywords
- cash
- settlement
- liquidity
- credit
- securities
- Prior art date
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Classifications
-
- G—PHYSICS
- G06—COMPUTING; CALCULATING OR COUNTING
- G06Q—INFORMATION AND COMMUNICATION TECHNOLOGY [ICT] SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES; SYSTEMS OR METHODS SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES, NOT OTHERWISE PROVIDED FOR
- G06Q40/00—Finance; Insurance; Tax strategies; Processing of corporate or income taxes
- G06Q40/04—Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
-
- G—PHYSICS
- G06—COMPUTING; CALCULATING OR COUNTING
- G06Q—INFORMATION AND COMMUNICATION TECHNOLOGY [ICT] SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES; SYSTEMS OR METHODS SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES, NOT OTHERWISE PROVIDED FOR
- G06Q40/00—Finance; Insurance; Tax strategies; Processing of corporate or income taxes
Definitions
- the present invention relates to a securities settlement system and methods related to such system.
- Trades can be captured directly from a trading (exchange) system or other external system, such as a CCP, matching service or back office STP system or manually entered by participants.
- Trade matching and confirmation prepare transactions for settlement according to applicable settlement rules.
- Assets and financing are verified, and securities may be locked-in in the investor CSD prior to settlement.
- One important factor is the handling of liquidity/cash/ credits.
- a payment system could be a central bank of a country; it could be one or more commercial banks of a country or some other entity (for instance the securities settlement system) .
- a payment system could also consist of a combination of the previous.
- the payment system interfaces the securities settlement system.
- the first model is an interfaced model, or a realtime settlement model, where no cash is handled at all in the securities settlement system, instead a message is sent to the payment system each time a transfer of liquidity is necessary.
- the second model is a dedicated model, or a prefunding model, where cash is moved into the securities settlement system and is locked during the entire settlement period (normally a day) .
- the third model is an integrated model, or liquidity transfer model, which is a combination of the first two models, i.e. cash is prefunded into the securities settlement system but not completely locked, thus enabling further transfers of liquidity between the payment system and the securities settlement system.
- a securities settlement system for settling trades in central depository systems, comprising a credit line structure forming a tree structure comprising a number of levels with liquidity nodes and/or credit nodes and a control system for minimizing the transfer of cash between accounts by propagating obligations for each node in the tree structure to a highest common level.
- the credit line structure may preferably comprise one level comprising liquidity nodes representing cash providers and one level comprising a credit node substructure for each liquidity node.
- Such substructure may include any number of sublevels or hierarchy of credit nodes (ranging from zero and up) .
- Forecasts can be based on matched, but unsettled, trades as well as on unmatched trades (or both) .
- a securites settlement system In one embodiment of a securites settlement system according to the invention more than one credit line structure are used in parallel, each credit line structure handling different currencys .
- Fig. 1 discloses an example of a cash record, or credit line structure
- Fig. 2 discloses an example of a payment system flow
- Fig. 3 discloses an alternative example of a payment system flow
- Fig. 4 discloses a first example of a flow for settlement in a credit line structure
- Fig. 5 discloses a second example of a flow for settlement in a credit line structure
- Fig. 6 discloses a third example of a flow for settlement in a credit line structure
- Fig. 7 discloses a fourth example of a flow for settlement in a credit line structure
- Fig. 8 examplifies a flow structure for computation of propagated net obligations
- Fig. 9 shows an example of a securities settlement system according to the invention.
- SSS securities settlement system
- a main factor to minimize risk is to settle in central bank money, which has the lowest risk.
- the ECB European Central Bank
- the ECB identifies three main models for settling in Central Bank money.
- the integrated model "insource” central bank liquidity in the SSS, and in that way handle the complete transaction clearing and settlement within the SSS.
- the SSS has the full responsibility for the liquidity of cash and securities in the clearing and settlement process, and can minimize the liquidity and transaction risk.
- Liquidity risk is minimized when the clearing process can process all transactions optimally, as all cash and security is under direct control, also the cash liquidity tied up in the SSS can be transferred back to the payment system in real time. Allowing the SSS to control both cash and securities and thus guaranteeing as simultaneous DvP as possible minimizes transaction risk.
- the primary concern is to make sure that the risk taken on by the cash providers is managed and kept to a minimum.
- the SSS must also manage the risk that the cash provider takes on for its clients .
- Clients in this case may be clearing participants and issuer representatives that use the cash provider's liquidity in settlement or corporate actions.
- the credit accounting system must be clearly separated from the liquidity accounting. As the credit lines are multi level, the ways that the credit balances may change on a credit account, is by direct settlements against other cash records, by credit used by depending cash records or by adjustments made to the credit limits.
- the handling of central bank liquidity within the SSS requires an interface to the central bank where cash can be transferred from a cash providers central bank account into the SSS and from a cash providers account in the SSS to the cash providers account in the central bank.
- this interface could preferably be based on general SWIFT payment messages, although no ISO standard applies. This would allow a simple adaptation to each different CSD, and will also serve as a base for other payment interfaces such as to commercial banks for FX settlement.
- the general solution must also provide a base for settlement with direct RTGS transaction to the payment system. This means that the settlement in the SSS involves a direct RTGS transaction between the involved cash providers in the payment system, without using liquidity that has been transferred into the SSS.
- the in-sourced central bank liquidity must not limit the settlement banks total liquidity management outside the SSS.
- the cash providers should be able to transfer liquidity in or out of the settlement system at any moment.
- the credit cash records are required as a way for cash provider to limit the liquidity risk taken in settlement.
- the cash provider should be able pose limits on the liquidity that each clearing participants may use.
- the CCR should also allow the cash provider to control limits on a finer level with limits for different purposes and internal organizational units.
- the liquidity control required may be a standing one-day limit amount, and also the possibility to intervene and stop the credit line as well as stop individual transactions.
- the possibility to intervene should be based on the possibility to do temporary credit limit changes on cash records and to prioritize settlement obligations as is possible in known settlement systems today.
- the cash provider must have immediate control over the credit limits, to be able to manage their risks. This means that all attributes concerning limits and temporary limits as well as the possibility to 'inactivate' a cash record must be possible to perform immediately intraday.
- the structure will unambiguously link the payment system cash record to the associated liquidity cash records. In the same way, will any number of credit levels added under a liquidity cash record will unambiguously link back to the liquidity cash. record.
- the structure must cater for that the responsibilities for the levels are handled correctly.
- the Cash Provider of a cash record must have the control of any limits and may only create 'child' cash records based on cash records where the cash provider is owner themselves.
- a tentative example cash record structure has been illustrated in Fig. 1.
- the payment system interface will ⁇ create' cash in the settlement system when the cash is transferred into the system.
- This cash is ⁇ CSD money' which is considered to be very close to central bank money in terms of risk, as the 4 CSD money' is considered to be isolated for the CSD in the central bank .
- the settlement bank (primary cash provider) request the NCB to transfer cash into the CSD account
- the NCB transfers the cash in the NCB from the settlement bank's account to the CSD account.
- the NCB forwards the transfer instruction to the system as a message.
- the system 'Increase' cash by debiting the payment system cash record and crediting the liquidity cash record of the settlement bank.
- the settlement Bank (primary cash provider) requests the CSD to transfer into an account of the bank in the payment system, e.g. a National Central Bank (NCB) . This is done through the system user interface, or via a message.
- NCB National Central Bank
- the system 'decreases' cash by debiting the liquidity cash record of the settlement bank, and crediting the payment system cash record.
- the settlement system forwards the transfer instruction to the NCB and the NCB transfers the cash from the CSD account to the settlement bank's account
- the NCB may confirm the transfer to the settlement system or the bank, and the system may confirm the transfer to the bank.
- the settlement system interface to the central bank should comply as far as possible to international standards and practices. There are no international standards, but European de facto standard is the TARGET network definition that defines the central bank communication using proprietary MT198 messages with subtype 202.
- a single platform is foreseen for the European central banks, and the messaging decided on there for the settlement model allowing outsourced liquidity to a securities settlement system would rely on proprietary SWIFT messages. Transfer requests can be formed only to be accepted from registered primary cash providers. (This is directly or indirectly attached to the ownership of a liquidity cash record in a specific currency) .
- the basic algorithm used for one-trade clearing should be aimed at minimizing the usage of cash on higher levels.
- the priorities need only to be Active and Deferred, constituting an on and off tool for the cash record owner.
- the information on propagated payments available to the cash record owner must be limited in the same way as transaction information is limited for cash providers currently. This means that the full transaction information is not available, for example information on the purpose of the transaction.
- the propagated payments records should be possible to view and reconcile.
- the historical information of the payment should also be equally treated.
- Fig. 4 illustrates the effect of a settlement involving two payment destinations for each of the two parties.
- position forecasting is fundamentally to allow the provider and the owner of cash records, to predict the future cash need. This is always based on future transactions, i.e. represented as settlement instructions that are yet to settle. Note that there might be nessecary to distinguish between settlement instructions ready for settlement, and settlement instructions that ar not yet ready (unmatched, lacking information etc) .
- Position forecasting must be possible to perform with one cash record as the viewpoint and for a specific settlement date.
- Each child of the root represents a cash record with real money, transferred into the settlement system from the central bank or another payment system (using SWIFT typically) .
- Such top-level cash records have a zero limit, and a positive balance, where the balance equals the amount of cash the owning participant has reserved with the payment system on behalf of the CSD.
- Such records (cr5 and cr ⁇ ) are shown in Fig. 5.
- the owner of such a cash record is a real cash provider, i.e they have a direct relationship with the payment system defined for the currency (only one payment system per currency is allowed) .
- Further levels of cash records represent the credit lines allocated by the top-level cash providers, where these may exceed the available cash of those cash providers in the settlement system.
- Such setups imply that the top-level cash providers grant larg credit lines to trusted sub-level providers (such as branches of a bank or institutional customers) .
- the complication this setup creates is that clearing a cash debit must consider the payment levels each time, i.e. a debit is cleared if it does not exceed the available cash (i.e. balance + limit) at any level, when tree-walking from the debited cash record to the credited cash record.
- the debited amount is checked in each node upwards, until a node is reached above the credited cash record. From this node and downwards the same amount is credited until the target cash record is reached, as seen in Fig. 6.
- the initial cash is deposited via SWIFT messages, or in the future via automated liquidity support, which represent notifications from the payment system that money has been deposited on behalf of the participants referenced in the messages.
- SWIFT messages or in the future via automated liquidity support, which represent notifications from the payment system that money has been deposited on behalf of the participants referenced in the messages.
- these deposits are made into cr5 and cr ⁇ (from cr9) .
- the obligation creation algorithm is as follows (we use the expression (CR, A) to refer to a settlement obligation that contains a payment instruction that updates the cash record CR with the amount A, which may be a negative amount) .
- SIl the set of instructions chosen to be settled together, i.e. they will be settled by the same group, SOG.
- Amount is created for each ancestor cash record.
- the above algorithm can be used for propagating payment obligations in both gross and net setttlements .
- Cash record transactions must reflect whether the debit/credit was propagated, by reflecting the fact that the transaction was made by a propagating net obligation.
- the list of transactions on a cash record may therefore include propagating obligations (for which there are no instructions, hence, the view must take this into account) .
- Fig. 1 shows an embodiment of how a securities settlement system 901 according to the invention may be set up.
- the securities settlement system 901 is connected to a trading system 902 from which it at least receives information regarding matched trades.
- the securities settlement system 901 can be connected to several trading systems dealing with same or different kinds of financial instruments and/or any other source of information regarding a trade or similar to be settled on the securities settlement system 901.
- the information provided from the trading system 902 (and any other trading system connected to the securities settlement system 901) may also include information regarding orders and quotes that has not been matched.
- the securities settlement system 901 is further connected to a first payment system 903 and a second payment system 904.
- the payment systems 903, 904 could be banks or other institutuions/organizations .
- a typical example of a bank that can be connected to the securities settlement system 901 is a national central bank.
- the number of payment systems connected to the securities settlement system 901 could be more or fewer than the two shown in the figure.
- the securities settlement system 901 functionally comprises inter alia an interface 905, a credit line structure unit 906 and a control unit 907.
- an interface 905 a credit line structure unit 906
- the hardware may consist of one or more servers (HP or other brand) for web services, applications services, database and network infrastructure.
- the credit line structure unit 906 is designed to host a credit line structure such as the one shown in Fig. 1 and the control unit 907 is adapted to inter alia carry out the propagation features and other control flows described above .
Description
Claims
Priority Applications (1)
Application Number | Priority Date | Filing Date | Title |
---|---|---|---|
AU2007233631A AU2007233631B2 (en) | 2006-04-06 | 2007-04-04 | Securities settlement system |
Applications Claiming Priority (4)
Application Number | Priority Date | Filing Date | Title |
---|---|---|---|
US78957406P | 2006-04-06 | 2006-04-06 | |
US60/789,574 | 2006-04-06 | ||
US11/724,312 | 2007-03-15 | ||
US11/724,312 US7848997B2 (en) | 2006-04-06 | 2007-03-15 | Securities settlement system |
Publications (1)
Publication Number | Publication Date |
---|---|
WO2007113316A2 true WO2007113316A2 (en) | 2007-10-11 |
Family
ID=38068404
Family Applications (1)
Application Number | Title | Priority Date | Filing Date |
---|---|---|---|
PCT/EP2007/053307 WO2007113316A2 (en) | 2006-04-06 | 2007-04-04 | Securities settlement system |
Country Status (4)
Country | Link |
---|---|
US (1) | US7848997B2 (en) |
AU (1) | AU2007233631B2 (en) |
TW (1) | TW200805192A (en) |
WO (1) | WO2007113316A2 (en) |
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US7698207B2 (en) * | 2003-07-11 | 2010-04-13 | OMX Technology | Automated method and a system for clearing and settling trades in a CSD-system |
US20070250437A1 (en) | 2006-04-06 | 2007-10-25 | Omx Technology Ab | Securities settlement system |
US20100030676A1 (en) * | 2008-07-31 | 2010-02-04 | De Brebisson Cyrille | Auto Increment In Financial Calculation |
US20100088250A1 (en) * | 2008-10-03 | 2010-04-08 | The Bank Of New York Mellon | Auction Method and Platform |
US8458091B2 (en) | 2010-07-26 | 2013-06-04 | Accenture Global Services Limited | System and method for prioritizing processing of payment instructions |
US20150081491A1 (en) * | 2013-09-16 | 2015-03-19 | International Business Machines Corporation | Intraday cash flow optimization |
WO2018131098A1 (en) * | 2017-01-11 | 2018-07-19 | 株式会社野村総合研究所 | Financial transaction management system, financial transaction management method, and computer program |
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-
2007
- 2007-03-15 US US11/724,312 patent/US7848997B2/en active Active
- 2007-04-04 AU AU2007233631A patent/AU2007233631B2/en not_active Ceased
- 2007-04-04 TW TW096112136A patent/TW200805192A/en unknown
- 2007-04-04 WO PCT/EP2007/053307 patent/WO2007113316A2/en active Application Filing
Also Published As
Publication number | Publication date |
---|---|
AU2007233631B2 (en) | 2012-04-12 |
US7848997B2 (en) | 2010-12-07 |
TW200805192A (en) | 2008-01-16 |
AU2007233631A1 (en) | 2007-10-11 |
US20070288347A1 (en) | 2007-12-13 |
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