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New Business for CSDs, Business Continuity Planning & Corporate Actions

New Business for CSDs, Business Continuity Planning & Corporate Actions. 7 th AMEDA Meeting Mauritius, 22-24 May 2008. Agenda New Business for CSDs Business Continuity Planning Corporate Actions. New Business For CSDs. Why should CSDs diversify from core services? - Stabilise revenue

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New Business for CSDs, Business Continuity Planning & Corporate Actions

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  1. New Business for CSDs, Business Continuity Planning & Corporate Actions 7th AMEDA Meeting Mauritius, 22-24 May 2008

  2. Agenda • New Business for CSDs • Business Continuity Planning • Corporate Actions

  3. New Business For CSDs Why should CSDs diversify from core services? - Stabilise revenue - React to Market Demands (Utility approach) - Disintermediate custodians (Competitive approach) - Commoditise added value services Obstacles to diversification? - Ownership and Governance - Competition with owners/participants discouraged - Abuse of ‘de-facto’ monopoly - Lack of expertise and/or commercial ideology

  4. New Business For CSDs Product Diversification vs Development Ideology Euroclear Russia Competitor Utility Clearstream Italy Norway South Africa China Tunisia Israel Sweden Brazil Bahrain Palestine Nigeria Kuwait Lebanon Canada Libya Oman Jordan Egypt USA ADSM Morocco Mauritius Saudi DIFX Core Services Added Value Services Alternatives Servicing

  5. New Business For CSDs Potential non-core new business areas: - Registration and transfer agency - Issuer Services - Investor Services - Securities Lending - Central Counterparty Services - Cash management - Collateral Management - Funds services - Portfolio accounting - Derivatives and alternatives (carbon clearing)

  6. Business Continuity I. Definitions • Business Continuity Plan (BCP): The ability of the company to continue its business when the main site is not accessible to the staff. • Disaster Recovery Plan (DRP): The ability of the company to continue to process its activities when the main production system is not operational (concerns of provision of appropriate back-up for IT systems)

  7. Business Continuity II. Key Attributes of the BCP • Back-up site situated in an appropriate location with sufficient work stations for the staff to operate • Documented procedures of the plan • Regular tests of the BCP • Taking account of interactions with participants, e.g. delivery of documents • The ability to work from home

  8. Business Continuity • Ability to re-activate the system in a short period of time, i.e. within a few hours • Redundancy of all the IT components • Storage of back-up data off-site • Documented procedures of the plan • Regular tests of the DRP, preferably in a live environment, i.e. involving participants • Uninterruptible Power Supply (UPS) systems III. Key Attributes of the DRP

  9. Business Continuity IV. Existing Arrangements on BCP - AMEDA: Number of CSDs with a BCP: - Western Europe: out of 16 CSDs, 11 have BCP arrangements, the information is not disclosed for the other 5.

  10. Business Continuity V. Existing Arrangement on DRP - AMEDA: Number of CSDs with a DRP: - AMEDA: Distance of the back-up site from the main site:

  11. Business Continuity - AMEDA: Time to re-activate the system following a disaster:

  12. Business Continuity - AMEDA: Frequency of the tests of the DRP:

  13. Business Continuity VI. Challenges • Developing a BCP or a DRP at a cost in line with the effectiveness of the plan (cost/effectiveness trade off) • Assessing the various risks: • Natural disaster (e.g. flood in Tunisia in 2004) • Organisation issues (e.g. fire, flood) • Technical problems specific to system operated • Neighborhood issues (e.g. adjoining building fire, road closure) • viral issues (e.g. bird flu) • political issues (e.g. Lebanon in May 2008)

  14. Corporate Actions Types Mandatory – easy to automate, static conditions, no investor input required Voluntary – difficult to automate, variable conditions, investor input required Securities – natural for CSD to service Cash – natural for banks to service Stages Information – receipt, validation, enhancement, distribution, monitoring Calculation – shareholder identification, entitlement calculation, tax Execution – instruction receipt and management, securities settlement, income payment

  15. Corporate Actions Issues Should Asset Servicing be centralised in the CSD? Pros Efficiency Standardisation Revenue stream …………. …………. …………. Cons Risks Monopoly Servicing Lack of expertise No banking facilities ………….. …………..

  16. Corporate Actions Challenges • - Direct links to Issuers • - Direct links to Participants • Uniform messaging (e.g. ISO 15022/20022) • Proactive and customer focussed attitude • Timely action • Banking licence(?) • Legal amendments

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