Atos Euronext Market Solutions Syn~ Market Liquidity: Efficiency in Market Infrastructure Donal O’Brien November 2006

Atos Euronext Market Solutions

Syn~

Market Liquidity:Efficiency in Market Infrastructure

Donal O’BrienNovember 2006

Atos Euronext Market Solutions 2

Market Liquidity: Agenda

Introduction

Operating Model Efficiency• Clearing Model• Settlement Model• Depository Management - Hybrid Model• Registry Management• Short-Selling Controls

Infrastructure Efficiency• Localisation• Easy Deployment • Integration with Exchanges and Banks• Integration with Brokers and Custodians• Whole Market Infrastructure


Market Liquidity: AEMS - Ownership

Premier Global

IT Services Provider

Leading Global

Exchange

50:50 ownership Atos Origin and Euronext


Market Liquidity: AEMS - What do we do?

IT Services to Exchanges, Clearing houses, Banks and Brokers• Financial IT Solutions

• Global Data Centre Operations

• Dedicated Financial Network for Trading

Our Product Range• Regulatory: ARAMIS

• Exchange: NSC, CONNECT

• Clearing & Settlement Syn~Clear, CLEARING 21, SARA

• Capital Markets Syn~Broker, Investiciel, Apollo

• Interbanking Crystal, Diamis


Market Liquidity: AEMS Global Service Provision

WarsawStock Exchange

Euronext.liffeICE FuturesLCH.Clearnet

Euronext

TFX

Bursa Malaysia

BeirutStock Exchange

BVM TunisCasablanca AmmanStock Exchange

TehranStock Exchange

DIFX

Muscat Securities MarketBM&FBovespa

Montréal

Toronto

CMECBOT

Winnipeg

Minneapolis

Kansas CityBoard of Trade

BOXBSX

NSC® CONNECT®



Introduction




Market Liquidity: Clearing Model

Risks:• Buyer does not provide Cash• Seller does not provide Securities

Trade Novation into Clearing House name• Anonymity of Settlement• Liquidity of Market• Allows efficient net settlement of securities and cash

Clearing House: Controls risk for open trades between Trade and Settlement Date


Market Liquidity: Clearing Model

Margin Requirement• Initial Margin Calculation

– Risk of change in price going forward

• Variation Margin Calculation– Risk of change in price since trade was done

• Multi-asset offsets

Fails Account Client Accounts

Clearing Member

Trading Member 1 Trading Member 2

Client Accounts

Client Accounts

House Accounts

House Accounts

Trading Member 0(Same as Clearing

Member)

House Accounts

Collateral Management• Member firm specific account structure• Pledge of Securities or Cash• Intra-day Margin Calls


Market Liquidity: Settlement Models

Free of Payment Settlement• High Risk• Inefficient• No Guarantee

Three ‘Against Payment’ Models:• DVP1: Gross settlement of Securities and Cash• DVP2: Gross settlement of Securities, Net Settlement of Cash• DVP3: Net settlement of Securities and Cash

CSD Provides:• Guaranteed Settlement• Efficiency• Lower Cost

OTC Markets: Typically DVP1 settlementExchanges: Move towards DVP2 or DVP3 Settlement


Market Liquidity: Settlement Efficiency

Settlement Cycle• Net Settlement by Broker (Securities and Cash)• Instruction Generation• Settlement Cycles

– Securities Blocked until Cash Settled via RTGS

• Cash Delivery Management– ISO 15022 Cash Instructions sent to Central/Clearing Banks (RTGS)– Full response tracking – Unblocking and settlement of Securities

Fails Management• Settlement Tracking• Lending Pools and Auto-Borrowing• Buy-In Process• Compensation


Market Liquidity: Depository Management

Position-Keeping Models:• Direct Holding –

– Final Investor is directly known to the Issuer and the CSD (Current Model)

• Indirect Holding– Final Investor known only to Broker (European and US Model)

• Hybrid Model– Final Investor position with Broker known to the Issuer and the CSD

Advantages of Hybrid Model:• Full disclosure of Final Investor known at CSD• Corporate Action processing well defined • Allows efficient Netting at Broker level for DVP3 settlement


Market Liquidity: Registry Management

Central Registry held at CSD

Real-time Investor Positions• Tradeable• Blocked• Borrowed and Lent• Encumbered• Pledged• Held for Inheritance

Support for Corporate Actions • Benefits, Re-orgs, Advices and IPOs• Calculation of Entitlements• Transformation of Pending Trades• Cash Distribution


Market Liquidity: Short-Selling Controls

Short-Selling in US and Europe:• Trade-date position allowed to be negative• Automatic overnight borrow based upon projected Settlement-date position• Trade allowed to Fail (as of Settlement Date)• Claim process for fails

Short-Selling Restrictions:• Today – No Short-Selling (should be restricted within Exchange system)• Tomorrow – Allow Sell of Security before Buy is Settled

Uncleared Selling Levels1. No Short Selling allowed2. Short Sell allowed on Trade Date but checks for pending Buy3. Full Short Selling Allowed (European Model)

Control Systems: CSD Pledging Fee• Fee calculated on Short Position between Trade and Settlement Date• Configurable rate to control Market Liquidity



Introduction




Market Liquidity: Localisation

Multiple Languages• Arabic, Farsi, English, French, Spanish …

Multiple Calendars• Gregorian, Persian• Holidays• Settlement Date Intervals• Bond Accruals

Ownership point• Trade date vs. Settlement Date• Corporate actions• Registry updates


Market Liquidity: Easy Deployment

Core Processing Infrastructure• Grid Processing – Scale• Linux / Windows – Low-cost• Service Oriented Architectures – Flexibility

– Lifecycle Models– Workflow– Messaging (XML, ISO15022, FIX)

Web-based Front Ends• Zero Footprint• Scales

Reporting and Queries• Denormalised relational model of all data (separate from the OLTP)• Standardised third-party Report Writer support


Market Liquidity: Integration with Exchanges and Banks

Trading Applications

RCE[Data Repository]

Control Module[Investor Checking]

SPI[Buy-In Order Creation]

Aramis[Market Surveillance]

TCS[OTC Trades]

NSC[On-Exchange Trades]

Syn~Clear

UsersWeb Server

InternetSWIFTRTGS

$

Clearing Banks

MMTP Interface

HUB

FTP Interface


Market Liquidity: Integration with Brokers and Custodians

Client / End

Investor

OTC Trading(TCS)

Ca

shT

ran

sfe

rs

Cash Transfers

Orders Executions

Tra

de

s

Orders

Tehran Stock Exchange

(NCS)

Broker System(Syn~Broker)

Clearing BankCSDR

(Syn~Clear)

PAM


Market Liquidity: Whole Market Infrastructure

Entire Market Infrastructure • Exchange Systems• Clearing Systems• CSD Systems• On-line Client Portals• Brokerage Systems

Central ASP Provision • Shared infrastructure - Low cost• Standardised Data Centre Management - Low risk• Large infrastructure – Inherent scale• Easily deployed Regulatory and Market Changes


Market Liquidity: Questions

Questions

Documents

Atos Euronext Market Solutions Syn~ Market Liquidity: Efficiency in Market Infrastructure Donal O’Brien November 2006