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CSDs Assessments Sérgio Weguelin Brazilian
Securities and Exchange Commission CSD8 April
28, 2005 New York
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International Recommendations History and
Evolution

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History and Evolution

• End of 80s
• Institutional investors
• Deregulation
• Increase in traded and settled volumes in
  domestic and international markets
• Growth in the importance of the securities
  markets / securitization
• Crisis of 1987
• Growing concern about the safety and reliability
  of custody and settlement systems

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History and Evolution
G30 / ISSA
CPSS-IOSCO (SSS)
COSRA
ISSA
G-30
FIAB
G-10
1989
1990
1995
1999
2001
1993
2000
New G-30
CPSS-IOSCO (CCP)
WISE MAN
Giovaninni II
Giovaninni I
ESF
CESR/ ECB
2004
2003
2003
2001
2004
2001
2003

• G-30 Group of Thirty
• G-10 Group of Tem
• COSRA Council of Securities Regulators of the
  Americas
• ISSA International Securities Services
  Association
• FIAB Fédération Internationale des Bourses de
  Valeurs (WEF)
• ESF European Securities Forum

• ECB Governing Council of the European Central
  Bank
• CESR Committee of European Securities Regulators
• CPSS Committee on Payment and Settlement Systems
  (BIS)
• IOSCO International Organization of Securities
  Commissions
• Committee of Wise Men on the Regulation of
  European Securities Markets
• The Giovannini Group

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Role and Relevance of the Recommendations
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Role and Relevance of the Recommendations

• General aims
• Risks Mitigation and transparency enhancement
• Reducing systemic risk, avoiding crises and
  protecting investors assets
• Harmonization of practices
• Efficiency improvement and cost reduction

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Role and Relevance of the Recommendations

• Benchmark for international assessment
• Reference for self-assessment and for
  implementation of best practices
• Benchmark for evaluation of international rating
  agencies
• Driving Capital Flows among Marketplaces

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• Assessment Initiatives
• Regulatory Bodies
• Market Driven
• Rating Agencies

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Regulatory Bodies Initiatives
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Regulatory Bodies Initiatives

• CPSS-IOSCO, CESR/ESCB, FSAP, COSRA
• Require minimum standards

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Regulatory Bodies Initiatives
CPSS Committee on Payment and Settlement
Systems IOSCO International Organization of
Securities Commissions
CPSS - IOSCO

• The CPSS-IOSCO Task Force published in 2001 the
  report Recommendation for Securities Settlement
  Systems with 19 recommendations covering such
  issues as legal risk, pre-settlement risk,
  settlement risk, custody risk and other
• Assessment responsibility delegated to national
  authorities and the Financial Sector Assessment
  Program (FSAP sponsored by IMF and WB)

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Regulatory Bodies Initiatives
ECB Governing Council of the European Central
Bank CESR Committee of European Securities
Regulators
CESR / ECB

• Jointly launched, in 2004, the report Standards
  for Securities Clearing and Settlement in the
  European Union based on the CPSS-IOSCO
  Recommendations
• While these standards have no European Community
  Law status, nevertheless regulators will monitor
  their implementation

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Market Driven Initiatives
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Market Driven Initiatives

• Group of Thirty (G-30), International Securities
  Services Association (ISSA) and AGCs Depository
  Information-Gathering Project
• Push the market towards new standards and best
  practices

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Market Driven Initiatives
AGC Association of Global Custodians
AGC Questionaire

• Established in 1997, AGC is an informal group of
  9 North American banks that are major providers
  of securities custody and trade settlement
  services to institutional investors worldwide.
• Applies the AGC Questionnaire (124 questions)
  assessing CSDs based on the Rule 17-f7 of the
  North-American SEC

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Market Driven Initiatives
ISSA International Securities Services
Association
ISSA

• Incorporated in 1989, ISSA is a private sector
  organization composed of institutions such as
  custodian banks, clearing organizations, central
  depositories, stock exchanges, brokers, asset
  managers etc
• Released, in 2000, the report ISSA
  Recommendations with 8 recommendations covering
  industry-wide issues

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Market Driven Initiatives
G-30 Group of Thirty
G-30

• Established in 1978, is a private, nonprofit,
  international body composed of very senior
  representatives of the private and public sectors
  and academia
• Published in 1989 the first 9 recommendations on
  custody and settlement
• Launched the Report Global Clearing and
  Settlement A Plan of Action (2003) with 20 new
  recommendations

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Market Driven Initiatives
Assessment against the New G-30 20
Recommendations
New G-30

• Lead Monitoring Organizations
• ISSA (Rec. 2, 3, 6, 7 and 8)
• AGC (4, 11, 12 and 13)
• Regional Monitoring Committees (1, 4, 5, 11, 12
  and 13)
• PricewaterhouseCoopers (9 and 10)
• Legal Sub-committee (14, 15 and 16)
• Regional Co-chairs (17, 18, 19 and 20)

15 initial capital markets are being assessed
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Rating Agencies Initiatives
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Rating Agencies Initiatives

• Thomas Murray, Wilshire/CALPers, GSCS etc

Develop and sell reports analyzing and
attributing ratings
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Rating Agencies Initiatives

• Thomas Murray
• A rating agency and advisory company that
  produces analysis of 147 CSDs and 89 capital
  markets infrastructures based on proprietary risk
  methodology analysis which considers 7 types of
  risk
• Asset Commitment Risk, Liquidity Risk,
  Counterparty Risk, Asset Servicing Risk,
  Financial Risk, Operational Risk,CSD on CSD
  Credit Risk

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Rating Agencies Initiatives

• Wilshire/CALPers
• An advisory company that provides services for
  North-American institutional investors produces
  the report Permissible Equity Markets Investment
  Analysis (a ranking of emerging markets) for the
  CalPERS (California Pension Retirement System)
• Among other factors, analyzes the efficiency of
  settlements in each country with a rate from 1
  (minimum) to 3 (maximum)

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Rating Agencies Initiatives

• GSCS- Global Securities Consulting Services
• An advisory and rating company that produces
  reports with risk analyses on settlement and
  custody activities in several markets
• It calculates periodically a Settlement Index,
  a Safekeeping Index and a Operational Risk
  Index for each market analyzed

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For the Breakout Session

• Are these assessments appropriate?
• How to coordinate such initiatives?
• What is the real impact of so many assessments?
• What is the role of regulators in this
  evaluation process?

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