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Independent Advisory Group Giovannini Barrier 1 Meeting 1

Independent Advisory Group Giovannini Barrier 1 Meeting 1. July 19th, 2005. Agenda. The Independent Advisory Group What is it & why do we need one? What is it going to do & when? Barrier 1 What progress has been made so far? What is there still left to do? Agreement of terms

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Independent Advisory Group Giovannini Barrier 1 Meeting 1

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  1. Independent Advisory GroupGiovannini Barrier 1Meeting 1 July 19th, 2005

  2. Agenda • The Independent Advisory Group • What is it & why do we need one? • What is it going to do & when? • Barrier 1 • What progress has been made so far? • What is there still left to do? • Agreement of terms • Focus on the Network Layer • Standards • Security • Service • Any other business

  3. Agenda • The Independent Advisory Group • What is it & why do we need one? • What is it going to do & when? • Barrier 1 • What progress has been made so far? • What is there still left to do? • Agreement of terms • Focus on the Network Layer • Standards • Security • Service • Any other business

  4. Independent Advisory Group:What is it & why do we need one? • Responses emphasised importance of original key principles: • Leverage • Open • Neutral • Inclusive • Feedback identified creation of an independent advisory group as a way of maintaining principles • Business not technology focus • Maintain congruency with G30

  5. Independent Advisory Group:What is it & why do we need one? • CESAME group meeting 10th June concurred with suggestion to form IAG • Membership criteria: • CESAME member • Respond to the consultation • 4 exceptions • Independent chair • Independent observer

  6. Independent Advisory Group:What is it & why do we need one?

  7. Independent Advisory Group:What will it do & when? • Ratify • Where consultation provides conclusive direction • Recommend • Where consultation results are unclear • Meetings scheduled: • 19th July • 3rd August • 23rd August • 12th September

  8. Agenda • The Independent Advisory Group • What is it & why do we need one? • What is it going to do & when? • Barrier 1 • What progress has been made so far? • What is there still left to do? • Agreement of terms • Focus on the Network Layer • Standards • Security • Service • Any other business

  9. Barrier 1:2003 Giovannini Report states... • Barrier 1 « National differences in the information technology and interfaces used by clearing and settlement providers should be eliminated via an EU wide protocol. SWIFT should ensure the definition of this protocol through the Securities Market Practice Group. Once defined, the protocol should be immediately adopted by the ESCB in respect of its operations. This barrier should be removed within two years from the initiation of this project. »

  10. Barrier 1: Progress • 2004, Market research • 2005, Market consultation: • Paper published 5th January, 2005 • Consultation closed 15th April, 2005 • 70 physical responses • Responses from 21 out of 25 EU countries • Responses from 30 countries globally

  11. Barrier 1:Progress: EU Response statistics • 74% from EU organisations • 56% from FI’s • 23% from Infrastructures • 21% from miscellaneous(Central Banks, Consultancies etc) • 29 Institutions & FI ‘clubs’ (e.g. ISITC Europe) • 2 ICSD’s • 64% of EU CSD’s • 50% EU Equity Exchanges • 1 Clearing House

  12. Barrier 1:What is there still left to do? • Independent advisory group formed July 05 • Summary of consultation responses July 05 • Pre-publication of protocol model Q4 05 • Final publication Q1 06

  13. Agenda • The Independent Advisory Group • What is it & why do we need one? • What is it going to do & when? • Barrier 1 • What progress has been made so far? • What is there still left to do? • Agreement of terms • Focus on the Network Layer • Standards • Security • Service • Any other business

  14. Agreement of terms:‘Protocol’ - Definition • Technical protocol « Any agreement that governs the procedures used to exchange information between co-operating entities» • Diplomatic protocol « A code of conduct prescribing how those taking part should behave» BEST PRACTICE

  15. Agreement of terms:‘Standard’ - Definition • Standard • « something established by authority, custom or general consent as a model or example » • « a rule for the measure of quality » • « regularly and widely used » • Uniform and well established by usage and widely recognised as acceptable » LEVERAGE

  16. Agreement of terms:‘Standards’ Treasury Payments EPC/ECBS EACT CHIPS IGTA TCH RosettaNet/PMP IFSA TWIST NACHA OAGi FpML IFSA ISTH W3C X12 OMG Fedwire ISDA TC68/SC6&7 CEFACT/ TBG5 TC68/SC4&7 IFX ISO/TC68 UNIFI - ISO 20022 UN/CEFACT FIX TC68/SC4 WG8 & WG11 Bolero CEFACT/ TBG15 BMA OASIS SMPG e-bMoU FISD/MDDL IIBLP IFSA SIA EAN/UCC G30 ISSA Acord ISITC-IOA ICC Insurance Giovannini UNCITRAL Securities Trade Finance

  17. Agreement of terms:‘Syntax’ - Definition • Syntax • « the way in which elements are put together to form a message » INTEROPERABILITY

  18. Agreement of terms:‘Protocol, Standard & Syntax’ - proposed ratification • End to end STP can be achieved via interoperability of agreed standards (inc market practices) within a best practice protocol • Interoperability achieved through the adoption of a single data dictionary

  19. Agreement of terms:‘Protocol scope’ - Definition • Scope defined in the consultation paper as: • All post trade processes • All traded instruments • All participants

  20. Agreement of terms:‘Protocol scope’ - All post trade processes Institutional (buy) Side Street (sell) Side Trade Date Order IMI B/D B/D Trade Space 1 Pre-trade / Trade Exchange IMI: Investment Manager B/D: Broker Dealer VMU: Virtual Matching Utility GC: Global Cust SC: Sub-Cust SA: Settlement Agent (Clearer) CCP: Central Counterparty ICSD: (Int‘l) Central Securities Depository 1 VMU / ETCP CCP Space 2 Post Trade / Pre-Settlement Trade Date + X 2 GC SC SA SA Space 3 Clearing & Settlement (I)CSD 3 Non Trade Related Activity Space 4 - Custody Services

  21. Agreement of terms:‘Protocol scope’ - All traded instruments • Giovannini Reports 1 & 2 refer to securities & derivatives: • Equities • Fixed Income • Derivatives (Exchange traded) • Giovannini 1 also includes Clearing & Settlement process flows for Derivatives (Chart 2.6)

  22. Agreement of terms:‘Protocol scope’ - All participants Institutional (buy) Side Street (sell) Side Trade Date Order IMI B/D B/D Trade Space 1 Pre-trade / Trade Exchange IMI: Investment Manager B/D: Broker Dealer VMU: Virtual Matching Utility GC: Global Cust SC: Sub-Cust SA: Settlement Agent (Clearer) CCP: Central Counterparty ICSD: (Int‘l) Central Securities Depository 1 VMU / ETCP CCP Space 2 Post Trade / Pre-Settlement Trade Date + X 2 GC SC SA SA Space 3 Clearing & Settlement (I)CSD 3 Non Trade Related Activity Space 4 - Custody Services

  23. Agreement of terms:‘Protocol scope’ - Consultation responses • 59 responses in total Agree • 14 EU FI 8 – 57% • 16 FI EU rep orgs 8 – 50% • 10 EU C&S Infrastructures 6 – 60% • Total (inc above) 32 – 54% • Disagreements: • Too narrow 10 – 17% • Too broad 10 – 17% • Phasing required 17 – 29%

  24. Agreement of terms:‘Protocol scope’ - Consultation responses • Too narrow, should include: • Pre-trade/trade 3 responses • Geographic Europe 3 responses • Market data 2 responses • Too broad, should not include • Interfaces & networks 4 responses • Total (agree + too narrow) = 42 responses (71%)

  25. Agreement of terms:‘Protocol scope’ - Proposed ratification • The scope is appropriate to the definition of a communication protocol for C&S and asset servicing activity • Phasing by Participant/sector

  26. Agreement of terms:‘Protocol framework’ - Definition Participant B Participant A Data Data 2 5 8 1 4 7 SECURITY STANDARDS SERVICES 3 6 9 Messaging Messaging Network Network

  27. Agreement of terms:‘Protocol framework’ - Consultation responses • 53 responses in total Agree • 15 EU FI 14 – 93% • 12 FI EU rep orgs 9 – 75% • 10 EU C&S Infrastructures 8 – 80% • Total (inc above) 42 – 82% • Disagreement • Should only include Layer 1, Data

  28. Agreement of terms:‘Protocol framework’ - Proposed ratification • The proposed 9 element framework correctly frames a potential communication protocol

  29. Agreement of terms:‘Interoperability’ • Interoperability • Participants? • Standards/syntaxes? • Network? • G30: Clearly refers to participant & standards/ syntaxes interoperability* • Giovannini: less clear but refers to interoperability of users, payment instruments & standards/syntaxes** * Global Clearing & Settlement Plan of Action, 2003 ** Giovannini Second Report, 2003

  30. Agenda • The Independent Advisory Group • What is it & why do we need one? • What is it going to do & when? • Barrier 1 • What progress has been made so far? • What is there still left to do? • Agreement of terms • Focus on the Network Layer • Standards • Security • Service • Any other business

  31. The Network Layer: Participant B Participant A Data Data SECURITY 2 5 8 3 6 9 STANDARDS SERVICES 1 4 7 Messaging Messaging Network Network

  32. The Network Layer:Element 7: Network Standards • G30: IP • Consultation paper: IP (based on discussions with COLT & Equant) • Most end devices (PC, Servers etc) communicate /route using IP • There is no "Best Practice" for building or operating IP networks, each has its own rules but if interoperability between networks is not a requirement, IP implementation is academic

  33. The Network Layer:Element 7:Proposed ratification • The minimum acceptable network standard is the implementation of IP for communication and routing

  34. The Network Layer:Element 8: Network Security • G30: “Security should be set at a level that satisfies business & regulatory requirements and that meets the needs of all stakeholders in the industry” • Barrier 1 Consultation paper: Secure private network (VPN) plus data encryption using a strong standard algorithm • Network encryption vs message encryption • Message validation or not

  35. The Network Layer:Element 8: Network Security - ‘Policing’ • 51 responses in total Agree • 14 EU FI 12 – 86% • 12 FI EU rep orgs 8 – 67% • 9 EU C&S Infrastructures 7 – 78% • Total (inc above) 37 – 73% • Disagreement • 12 respondents (24%) explicitly disagreed that network standards should be policed

  36. The Network Layer:Element 8: Network Security - ‘Policing’ • Validate against std structure 26 - 51% • Report violation to sender 10 - 20% • Stop traffic 8 - 16% • Optional 13 - 25%

  37. The Network Layer:Element 8:Proposed ratification • Security, at either the network or the messaging layer, must be set at a level that satisfies business & regulatory requirements

  38. The Network Layer:Element 9: Network Service • Is service a commercial differentiator between network providers? • Is a minimum level of service required? • Performance - inc. provisioning & implementation times, availability, restore time etc • Resilience - diversity, contingency etc (Fed, ECB, FSA guidelines already exist – Leverage) • Management – maintenance, fault identification & rectification etc

  39. The Network Layer:Network Service - Consultation responses • 49 responses in total Agree • 15 EU FI 14 – 93% • 11 FI EU rep orgs 7 – 64% • 9 EU C&S Infrastructures 8 – 89% • Total (inc above) 39 – 80% • Disagreement • 7 respondents (14%) explicitly disagreed that network standards are required

  40. The Network Layer:Network Service - Consultation responses • 24x7 Agree • EU FI 6 – 40% • FI EU rep orgs 3 – 27% • EU C&S Infrastructures 2 – 22% • Total (inc above) 15 – 31% • 99.999% availability Agree • EU FI 5 – 33% • FI EU rep orgs 2 – 18% • EU C&S Infrastructures 2 – 22% • Total (inc above) 11 – 22%

  41. The Network Layer:Element 9:Proposed ratification • Service must satisfy business & regulatory requirements for performance, resilience and network management

  42. Agenda • The Independent Advisory Group • What is it & why do we need one? • What is it going to do & when? • Barrier 1 • What progress has been made so far? • What is there still left to do? • Agreement of terms • Focus on the Network Layer • Standards • Security • Service • Any other business

  43. The next meeting is….. • 3rd August at 11.00am • The subject will be the messaging or interface layer

  44. AoB – Time permitting • Accreditation • Do we need accreditation of Messaging/Network suppliers? • If yes, who should provide the accreditation service?

  45. Communication solution providers:Accreditation - Consultation responses • 53 responses in total Agree • 14 EU FI 13 – 93% • 12 FI EU rep orgs 9 – 75% • 9 EU C&S Infrastructures 6 – 67% • Total (inc above) 43 – 81% • Disagreement • 5 respondents (9%) explicitly disagreed that accreditation

  46. Communication solution providers:Accreditation - Consultation responses • Who should accredit? • Independent organisation 20 • SWIFT 9 • Regulator 2 • ECB 2 • ISO 3 • EU 2 • Self certification 5 • Market forces 10

  47. Communication solution providers:Accreditation - Proposed ratification • Accreditation of messaging/network providers is required • This activity should be carried out by ______ • _______ should determine the accreditation process based on the criteria laid out in the Giovannini protocol

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