Supervision Framework for Clearing and Settlement Systems: Main Elements and Issues

1. SUPERVISION FRAMEWORK FOR CLEARING AND SETTLEMENT SYSTEMS: MAIN ELEMENTS AND SOME ISSUES TO INCLUDE IN THE OVERSIGHT OF THE SYSTEMS Iñigo de la Lastra Deputy Director Secondary Markets Directorate Markets General Directorate Global Payments Week Vienna, September 11th 2008

2. Main elements for a supervision framework (i) • MAIN ELEMENTS FOR A SUPERVISION FRAMEWORK OF C & S SYSTEMS • Identification of the main objectives of the oversight • enhancement of the safety, reliability and efficiency of C & S systems • reduction of systemic risk • reinforcement of investors’ protection • attainment of efficient and competitive post trading infrastructures • To establish public, transparent and effective policies for oversight for assuring the compatibility among the objectives of the oversight and an efficient enforcement of the regulation by means of • previous identification of the most significant risk in the C & S systems • distribution of the existing resources for the oversight according to the objectives to be fulfilled, the main risks involved, the probability of their occurrence and the importance of the impact in case of occurrence, considering the mechanisms of risk mitigation put in place

3. Main elements for a supervision framework (ii) • MAIN ELEMENTS … • To procure that the overseers have the real capability for accessing the necessary information • gathering the information needed rapidly • end-to-end audit trail of C & S systems activity • To implement a co-operative framework among the authorities in charge of the regulation and oversight of C & S systems • adequate co-ordination among the different authorities responsible • establishing co-operation arrangements among the relevant regulators and overseers, both domestic and cross-border • establishing appropriate information-sharing arrangements • implementing specific arrangements for the oversight of the C & S cross-border systems

4. Some issues to include in the oversight (i) • SOME ISSUES TO INCLUDE IN THE OVERSIGHT OF THE C & S SYSTEMS • Adequate documentation of the procedures established for the C & S systems and control of their enforcement and their modifications • Periodic analysis of the potential systemic risk of C & L services that bear credit and liquidity risks • Sufficiency and timely delivery of the requested collateral for covering credit and liquidity risks introduced by • C & S systems which bear principal risks in their provision of services such as securities lending facilities and intraday or overnight credit • the participants in the C & S systems • Settlement activity of the cash settlement agent, in co-ordination with central bank, provided that settlement payments are done in commercial bank money • Settlement failures of the settlement participants: failed transactions, delays and cancellations

5. Some issues to include in the oversight (ii) • SOME ISSUES … • Appropriate activity of the entities holding securities in custody: • regular audits of the custodians’ securities books • reconciliation among the securities holdings recognized in the custodian books and those registered in the CSD • adequate segregation among customer securities and custodian own securities held in the books of the custodians • mechanisms for allowing ultimate beneficial owners to comply with their significant shareholdings disclosure obligations • Control for the CSD of the amount of each securities issue recorded in the system • Timely and correct updating of the securities’ ownership registries • adequacy of the securities’ registration procedures • Adequate operational risk management: failures, timely settlement, updating of contingency plans and functioning of the backup facilities • Access criteria and corporate governance arrangements for the C & S systems • Suitability of the cross-border links established

6. THANK YOU VERY MUCH • FOR YOUR ATTENTION !