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Do you want to sort out the barriers to Clearing & Settlement?

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This week saw the inaugural meeting of the Clearing & Settlement Working Group (CAS-WG), which was well attended by over 100 industry figures from all parts of the investment markets and hosted at BT’s City Head Office in St Paul’s (BT are the first sponsor of the CAS-WG).


The CAS-WG has been initiated by the Financial Services Club to provide an opportunity for open discussion and debate amongst senior market practitioners and service providers on issues affecting Clearing and Settlement, and is created in partnership with the Realization Group who facilitate our Subject Group meetings.

The aim is to provide specific input to the regulatory bodies – including the FSA, its successor bodies the PRA and CBA, and Michel Barnier’s team in the European Commission – on the technology implications of regulations in draft and final form that affect Clearing and Settlement operations, such as EMIR and MiFID II, with the intention of ensuring these regulations are practical, appropriate and effective.

At the first meeting, we covered the four big topic areas of Regulations, TARGET2 for Securities (T2S), Giovanni’s barriers and Standards.

In the first discussion:

  • David Bailey, Acting Head of Department, Market Infrastructure & Policy, the Financial Services Authority (FSA)
  • Andrew Rogan, Policy Director, Capital Markets and Infrastructure, the British Bankers Association (BBA)
  • Karl Spielmann, Head of Legal & Compliance, EuroCCP

debated the impact of regulations on post-trade operations and IT, particularly with regards to OTC Derivatives clearing.


This is the core of the European Markets Infrastructure Regulation (EMIR) developments in Europe.

EMIR is part of the EU’s regulatory response to the global financial crisis and has a two-fold purpose:

  • to recognise and reinforce the role played by CCPs in mitigating certain aspects of market and counterparty risk, CCPs have been recognised as a critical resource that helped protect the stability of the financial system during the financial crisis.
  • the G20 new agenda stresses that new regulation should aim at improving transparency and regulatory oversight of over-the-counter derivatives (OTC) in an internationally consistent and non-discriminatory way.

David, Andrew and Karl discussed this in depth under the Chatham House Rule, so I can’t quote their words here.  There was also a lively debate with the audience, and the net:net is that there’s EMIR, Dodd-Frank, MiFID II, Vickers, Volcker and more coming into force today. 

All of these affect clearing and settlement but none of them are joined-up and, in many instances, it’s more putting the cart before the horse as we’re implementing huge post-trade changes before the basics are agreed and implemented.

The basics being Basel III – the rules for capital which will impact all of the ways in which banks collateralise and leverage their future operations.

In addition, the rules of EMIR appear to be too prescriptive.  We’ve moved well away from the days of principles-based regulation and the Napoleonic rules now seem to apply.

Notably, regulations are far more in vogue today too – gone are the days of Directives – and no-one seems to have worked out (a) will the regulation work to address the issues it seeks to address or (b) how much it will cost to implement these changes.

These are the things that the Working Group will debate as we look at Risk and the first Subject Group spinning out of the CAS-WG meeting is a Regulatory Group.

The CAS-WG Regulatory Subject Group will focus upon interpreting the implications of EMIR on the clearing and settlement technology infrastructures of the City and Europe, and will work closely with other groups such as ISITC’s Working Group which focuses on the impact on operations of new and changing regulation and legislation.

In the second panel:

  • Kevin Milne Director, Post-Trade Services, the London Stock Exchange (LSE)
  • Henry Raschen, Head of Regulatory and Industry Affairs, HSBC Securities Services
  • Kiri Self, Director, the Realization Group

discussed the latest position and situation of TARGET2 for Securities (T2S).


T2S is one of the largest infrastructure projects launched by the Eurosystem so far, and hopes to bring substantial benefits to the European post-trading industry by providing a single pan-European platform for securities settlement in central bank money.

The system is due to go live in June 2015, several years later than originally envisioned but this is because the program is far more ambitious and challenging than first imagined.

As a result, there’s some doubt that June 2015 will be achieved, although the panel all concurred that T2S would go live one day – probably around 2018 – as it will force through change that is necessary if Europe is going to be efficient and effective. 

Namely, it will force the Central Securities Depositories of Europe to compete and no longer be protected by national boundaries.

Part of the discussion got into the pro’s and con’s of T2S, with a clear plus being that it is multicurrency.  T2S will process not just euros, but also Danish Krona and the Romanian Leu.  Shame that GB pounds sterling isn’t included.

Another T2S pro is that it may be a hammer to crack a nut, considering the cost of its development and deployment, but the hammer is a worthy cost as T2S ensures that many of the Giovannini barriers are removed.

Having said that, one of the con’s is that T2S does not incorporate Corporate Actions, but then that’s partly because these are also part of the Giovannini barriers as discussed in the third panel which comprised:

  • Dermot Turing, Partner, Clifford Chance
  • Rob Fair, Director, Product Management, Euroclear
  • Robert Barnes, CEO, UBS MTF
  • Andrew Douglas Head of Public Affairs, Europe, DTCC


There are 15 major barriers to create a transparent, seamless, pan-European clearing and settlement market that were originally identified by the Giovannini Group, which was chaired by Alberto Giovannini who released their final recommendations in a detailed report in 2003.

T2S will solve six of the barriers:

  1. National differences in information technology and interfaces          
  2. National clearing and settlement restrictions that require the use of multiple systems           
  3. Differences in national rules relating to corporate actions, beneficial ownership and custody
  4. Absence of intra-day settlement finality      
  5. Practical impediments to remote access to national clearing and settlement systems             
  6. National differences in operating hours/settlement deadlines

and five are being addressed by legal changes already in play through Directives and Regulations, such as MiFID II and EMIR.

That leaves four which are here to stay as they are too politically charged to change.  Most of these are around Company Law and fiscal policies for example, which is why Corporate Actions is missing from T2S and most discussions of European Clearing & Settlement standardisation.

However, when the panel got into the meat of the discussions, it turns out that the Giovannini barriers are no longer relevant anyway as technology, regulatory and market changes are creating a transparent and seamless pan-European clearing capability, regardless of the national borders and barriers.

This would certainly be true if German companies could post their securities settlement through CREST for example, but that’s barrier number nine which discusses the national restrictions on the location of securities.  Until that barrier is solved, even with all the technical will in the world, pan-European processing is not going to be possible.

This led to the final debate around Standards with:

  • Richard Young, Regulatory Affairs, SWIFT
  • Kevin Houstoun, Co-chair – Global Technical Committee, FIX Protocol Ltd
  • George Handjinicolaou, Deputy Chief Executive Officer and Head of Europe, ISDA
  • Chris Pickles, Head of Industry Initiatives, Global Banking & Financial Markets, BT

in debate.


This panel agreed that standards were being resolved across global markets through things like the investment roadmap.

The investment roadmap affirms the commitment of each organization (FIX, FpML, SWIFT, XBRL, ISITC and FISD) to the ISO 20022 business model by laying the groundwork for defining a common underlying financial model and ensuring some level of interoperability by producing a consistent direction for utilization of messaging standards and communicating that direction clearly to the industry.

A key to ensuring this roadmap works is that the regulators are behind it, as global markets cannot be globally fragmented and if global standards avoid global fragmentation then that’s in the G20’s interest.

That is why a shared business model with a shared vocabulary is so important.

There was a little scepticism in this context as UNIFY and other projects have tried to do this in the past, but the regulatory stick is a key one.

If the markets cannot standardise voluntarily in the way they want, then the regulators will force it through in the way they might not want.

This is why the CAS-WG concluded with a call to action through the creation of a number of specialist Subject Groups, facilitated by the Realization Group.

Anyone can be a member of a Subject Group and anyone can suggest areas that the Subject Groups should focus upon.

At the inaugural meeting, five Subject Groups were suggested, themed around the following areas:

  • Regulation: interpreting the implications of EMIR on the clearing and settlement technology infrastructure.
  • Risk: assessing the ability of the clearing and settlement technology infrastructure to handle a complete counterparty default of a major bank, CCP or CSD.
  • Standards: addressing the development of technology standards to incorporate change, specifically assessing the implementation and operation of the investment roadmap. 
  • Transaction Reporting and Trade Data Repositories: identifying the structure for technically reporting through the clearing and settlement technology infrastructures the full transaction history of all financial instruments and, specifically, the methodology for tracking OTC Derivatives from trade to repository.
  • Technology: what are the developments in technologies, software, networking, telecommunications and any other capabilities that are relevant to clearing and settlement operations.

These are not specific, limited or exclusive, and there may well be others you believe should be included.  Just let us know what they are, and whether you would like to join them.

There are also a number of Subject Groups already in existence with other organisations.

For example, the Realization Group established the Counterparty Default Management Working Group.

The Counterparty Default Management Working Group has a range of objectives, namely to:

  • Identify key challenges and barriers to harmonisation and standardisation of default management practices across major market infrastructure providers e.g. exchanges, clearing houses, central securities depositories.
  • Prioritise the key challenges and barriers in terms of impact and importance to markets and  its participants.
  • Define an approach to removing the barriers and addressing the challenges with the aim to  establishing harmonised and  standard practices across all markets and underlying  infrastructures.
  • Establish best practice frameworks for market participants to manage counterparty defaults  effectively minimising market, credit, liquidity, operational and capital risks.

ISITC also have three key groups in existence today.

  • A long-standing working group which focuses on the impact on operations of new and changing regulation and legislation.
  • A Post-Trade Operations group focused upon the operational impact of T2S, T+2 and local versus central matching issues.
  • An LEI working group, which looks at the practical considerations of using LEIs.

CAS-WG believes in supporting these groups, rather than reinventing them, and hence the regulatory group suggested at the inaugural meeting we will integrate with the ISITC program wherever possible.

We also expect that these groups will report back their activities to the CAS-WG at the next plenary meeting, which is planned for late Q2 2012.

If you would like to be involved in any of these Subject Groups, or want to suggest other Subject Groups, please let us know.


Next Steps

As can be seen, this is just the start of a process and we now need to discover if you have the appetite to get involved.  We will advise all concerned of the progress of these discussions, the dates for meetings of the Subject Groups and the next plenary meetings as these are agreed, and all other dialogue around the development of the CAS-WG. 

Please bear in mind one key thing: this is your group.  You shape it, you form it, you develop it.  Nothing is fixed at this stage, so please let anyone who has an interest in clearing and settlement know about the CAS-WG so that, over time, we can develop a clear mechanism of feedback to the regulatory authorities in London and Brussels of the development of new regulations and their impact on our technology operations.

Finally, we aim to run the CAS-WG so that attendance and involvement is completely free and open.  As participation is intended to be free, we aim to cover the costs of running the CAS-WG through sponsorship.  Sponsorship is open to any organisation that wishes to be seen as a thought-leader in this area, or who wishes to engage and influence the market participants outlined above.  If you are interested in sponsorship, please let us know.



Chris Skinner Author Avatar

Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog,, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...

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