Research Discussion Papers, Bank of Finland
No 7/2003:
Restructuring securities systems processing – a blue print proposal for real-time/t+0 processing
Harry Leinonen ()
Abstract: Securities settlement is an area, where nobody seems to be
content with the current international processing systems, but neither has
a proposal for improvement emerged that has attracted common support. This
paper describes a possible solution based on an international, harmonised
and simplified institutional structure operating in an open real-time
network structure. All deals are settled in immediate, t+0, real-time,
which means that all assets and funds are delivered immediately and thereby
removing settlement risk. Inter-custodian delivery problems of securities
will disappear, because only securities available on investors’ accounts
can be settled, which continuously equals the amount on the
omnibus-accounts. This will also take out the risks related to ‘naked’
short selling, because in most cases investors have to make securities and
funds available before trading. This may divide the current market in a
spot t+0 and a short term t+3 futures’ market. Corporate actions can be
organised in coordination and executed in synchronisation through the
infrastructure network in which all custodians and registrars/CSDs
participate. The paper describes the concrete new methods required (eg
international custody account number system, ICAN, and DVP-codes for
matching) also the probable impact of immediate real-time settlement on
trading patterns, liquidity issues and risk containment. These are all
areas, where the proposed new infrastructural solutions would bring
benefits to the users, mainly faster/immediate delivery, less risks, lower
processing costs, more competition and more efficient processing of
corporate actions. Custodians’ liquidity management will need to focus on
the sufficiency of the real-time balance of settlement money, which might
be more or less strained compared to the current situation depending on the
off-setting patterns of incoming and outgoing settlements during the day.
International implementation will require coordination and engagement by
key players.
Keywords: securities settlement; securities settlement infrastructure; DVP processing; securities trading interfaces; (follow links to similar papers)
99 pages, March 6, 2003
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