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Introduction to DIFC and DIFX - A Gateway to Opportunities in the GCC

This presentation explores the Dubai International Financial Centre (DIFC) and the Dubai International Financial Exchange (DIFX), covering topics such as membership, trading, clearing and risk management, Central Securities Depository (CSD), registry, and systems.

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Introduction to DIFC and DIFX - A Gateway to Opportunities in the GCC

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  1. DIFX Market Model Presentation for AMEDA 20th April, 2006 by Nasser Al Shaali, COO – DIFX & Muffadal Kagalwala, Head - DIFX CSD & Registry

  2. Topics covered in this presentation: • Introduction to DIFC and DIFX • DIFX Membership • DIFX Trading • DIFX Clearing and Risk Management • DIFX Central Securities Depository • DIFX Registry • DIFX Systems

  3. Introduction to the DIFC and DIFX • Dubai International Financial Exchange (DIFX) is a company incorporated under Dubai International Financial Centre (DIFC), a financial free zone situated in the heart of Dubai. • Financial activities in DIFC are governed to the international standards by an independent regulator, the Dubai Financial Services Authority (DFSA) • DIFX is the main gateway of opportunities in the GCC as well as Middle East & Africa. It bridges the gap between Western Europe and far east.

  4. Global Perspective of the DIFC DIFC believesa new financial time zone is fast developing Singapore London

  5. DIFX : Diverse and Complementary • The DIFX complements regional and international stock exchanges • The Exchange is attracting Issuers and Members from across the globe on a level playing field

  6. Products at DIFX • IPOs • Secondary Listings and Offerings • Bonds • Islamic Products • Funds, Indices & Structured Products • Warrants • Futures & Options

  7. Products at DIFX In the pipeline: 3-5 further IPOs by end of Q2 2006

  8. Membership at DIFX • DIFX membership offers 3 types of Membership to its participants: • Non Clearing Member :(NCM) i.e. Trading Only • Individual Clearing Member :(ICM) i.e. Trading & Own Clearing • General Clearing Member :(GCM) i.e. 3rd Party Clearing Only • DIFX CSD offers a Custodian role to international and regional banks. • DIFX CSD also allows HNWI and corporate investors to open direct accounts.

  9. Members at DIFX • Today, DIFX has a presence of World class & International recognized participants on its market as well as strong regional participation. Trading Members: General Clearing Members: Custodian Members:

  10. DIFX Trading • The DIFX Trading platform is a “Hybrid” trading system. • The DIFX Trading system is based on the latest version of AEMS, NSC trading platform. • DIFX trading is an anonymous and order-driven market which also allows for Market Makers to make markets in the products listed. • DIFX offers GL Win Terminals to members for access DIFX • GL also has an internet application which has the same features. • DIFX offers a technical connectivity (API) for users & dealing room equipment providers who wish to develop their own interface. Access to the API is available from Dubai or Paris. • The timing of the trading sessions are from 11.45 am to 04.45 pm • The exchange operates from Monday to Friday.

  11. DIFX Clearing • DIFX offers the Central Counter Party (CCP) for its Clearing Members • Trade novation facility – DIFX becomes buyer to every seller and seller to every buyers. • Eliminates the bilateral counter party risks. • CCP allows the multilateral netting and reduction of settlement volumes. • One delivery obligation per security per date per member. • One cash obligations per currency per date per member. • DIFX has outsourced all its banking activities to a Clearing Bank and the Clearing Bank coordinates with Member’s Settlement Banks for the funds transfers.

  12. DIFX Risk Management • DIFX takes on certain risks in its capacity of Central Counter Party (CCP) for all the On Exchange trades. The risks are:- • Counter Party Risks • Replacement costs Risks • These risks are addressed by DIFX Risk Management Policies • Defining Membership criteria with certain capital adequacy requirements • Margins from DIFX Members • Adequate Clearing Fund

  13. Margins at DIFX – Initial Margin & MTM • Initial Margin • DIFX uses the VAR methodology, based on each night Closing Price. • Initial Margins are therefore expressed as a percentage of the closing price. • Variation Margin – Mark to Market Margins (MTM) • DIFX does not give the notional credits to members – credit variation margin cannot be used to offset margin obligations • Margins are accepted in Cash, Securities, CD and Bank Guarantee

  14. DIFX Central Securities Depository (CSD) • DIFX owns & operates a Central Securities Depository (CSD). • Also, The DIFX owns a bare trustee company called ‘DIFX Guardian Limited’ DIFX Guardian is hold the legal title or beneficial title (where applicable) for the DIFX CSD. • The CSD holds DIFX listed securities in a 100% electronically dematerialized form.

  15. DIFX CSD Services • Custody of securities • Settlement Services for DIFX Clearing Members • Securities transfer between accounts (Push Transfers) • Securities transfer with DVP / RVP and DFP /RFP • DIFX facilitates transfer of securities between CSD accounts and Registry accounts • The CSD handles all corporate action processing & IPO processing.

  16. DIFX CSD Accounts Structure • Custodian can hold securities for their clients under their account at the CSD. The custodian account type are Omnibus without details and OWN accounts. • Trading Members will operate accounts at the CSD for Settlement purposes. The account type is normal accounts. • The Clearing Member will operate accounts at the CSD for Settlement, and other purposes. The account types are SSP and normal accounts. • HNWI and Corporate Investors operate accounts at the CSD for Custody purposes. The account type is normal accounts.

  17. DIFX Settlement • DIFX follows a continuous T + 3 rolling Settlement cycle. • Securities settlement takes place on the DIFX CSD and Cash settlement takes place through the DIFX Clearing Bank • DIFX has nominated Standard Chartered as its Clearing Bank. • All Clearing Members are required to have a Securities Settlement Pool account (SSP) for settlement purposes and a Settlement Bank account for Cash. • Presently, All securities traded are denominated, cleared & settled in US Dollars. • Settlement activity is not performed on US Fed Reserve holidays.

  18. 07:00 13:00 14:00 14:15 14:30 16:30 16:40 17:15 17:30 19:30 2. Reservation 3. Identification of shortfall 5. CCP to inform affected CMs regarding recomputed obligations 8. Reconcile and Compute Cash Shortfall CB liaises with SB to conduct Cash settlement Start Time End Time 11. CCP to create new trades for carry forward of the security fails 10. Announce Completion of Settlement (excl. fails) for T day trades 1. DIFX Performs BOD for CSD/Registry 7. Receive confirmation from CB 9. Book transfer (Settlement) Securities through CCP 12. DIFX Performs EOD for CSD /Registry 4. Re-compute securities & cash obligations 6. Send Cash obligations to CB DIFX Settlement (T+3)

  19. 07:00 09:00 10:00 10:20 10:30 12:30 12:40 13:00 19:30 2. Reservation for fails 3. Identify security shortfall for fails & compute Cash Settlement for the same 5. CCP to inform affected members regarding recomputed obligations 8. Reconcile and Compute Cash Shortfall 9. Book transfer (Settlement) Securities through CCP CB liaises with SB to conduct Cash settlement 1. DIFX Performs BOD for CSD/Registry 11. DIFX Performs EOD for CSD/ Registry 6. Send Cash obligations to CB 10. Announce Completion of Settlement for Fails of T+3 day 4. Re-compute securities obligations 7. Receive confirmation from CB DIFX Fails Settlement (T+4)

  20. Future programs of DIFX CSD • DIFX envisages in future to have links with other International CSD (ICSD) which will enable DIFX account holders to move securities from one market to another markets. • The DIFX also plans to tie-up with regional CSD’s to allow investors to hold DIFX securities in their existing accounts • DIFX CSD also plans to offer other value added services:- • Pledge of securities. • Securities Lending & Borrowing of securities (SLB). • SMS alerts, WAP / IVR based services. • eC connect & eC access facilities. • Online risk management profile.

  21. DIFX Registry • Holds the Shareholder Register of Legal Title for the Issuer. • Company Registrar functions. • Corporate Actions Processing. • IPO processing for the Issuers & Lead Managers.

  22. DIFX Clearing, CSD and Registry System (eClearSettle) • The DIFX uses its eClearSettle system for Clearing, Settlement, CSD and Registry activities. • The DIFX eClearSettle systems has been developed by Tata Consultancy Services (TCS Ltd) India. • It’s a Highly secured web based application system. • It is an end to end integrated systems capable of performing Clearing, Settlement, CSD, Risks Management & Registry Functions. • It is SWIFT compliant for all internationally accepted messages. • User friendly reports (PDF) on the pre specified email address. • On-line query of all accounts & securities balances held. • Participants can participate & instruct in all corporate action – mandatory & voluntary.

  23. Web Interface SWIFT ISO 15022 WAP IVR email File Transfer Communication Layer Integrated Risk Management Registry Services Payment Services Cash Clearing & Settlement Cross Border Settlement Pledge Securities Lending and Borrowing CSD Services Derivatives Clearing & Settlement Corporate Actions Repo COMMON LIBRARY Business Partner Master Instrument Master Calendar User Administration Accounts System Parameters Fees And Billing Reports DIFX Clearing, CSD and Registry System (eClearSettle)

  24. Thank You

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