Transcript SWIFT Securities stand

Independent Advisory Group
Giovannini Barrier 1
Meeting 1
July 19th, 2005
Slide 1
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
IAG_190705_v3.ppt
Slide 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
IAG_190705_v3.ppt
Slide 3
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
IAG_190705_v3.ppt
Slide 4
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
IAG_190705_v3.ppt
Slide 5
Independent Advisory Group:
What is it & why do we need one?
CESAME members
ABN Amro
BNP
Citigroup
Deutsche Bank
Deutsche Börse
ECSDA
FBE
Euroclear
LCH Clearnet
Morgan Stanley
NCSD
Attendee
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
Alternate if appropriate
[email protected]
Exceptional invitees
FPL
ISSA
SMPG
SWIFT
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
Observer
ECB
[email protected]
[email protected]
IAG_190705_v3.ppt
[email protected]
[email protected]
Slide 6
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
IAG_190705_v3.ppt
Slide 7
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
IAG_190705_v3.ppt
Slide 8
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. »
IAG_190705_v3.ppt
Slide 9
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
IAG_190705_v3.ppt
Slide 10
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
IAG_190705_v3.ppt
Slide 11
Barrier 1:
What is there still left to do?
 Independent
 Summary
advisory group formed July 05
of consultation responses July 05
 Pre-publication
 Final
IAG_190705_v3.ppt
of protocol model Q4 05
publication Q1 06
Slide 12
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
IAG_190705_v3.ppt
Slide 13
Agreement of terms:
‘Protocol’ - Definition
 Technical
protocol
« Any agreement that governs the procedures
used to exchange information between cooperating entities»
BEST PRACTICE
 Diplomatic
protocol
« A code of conduct prescribing how those
taking part should behave»
IAG_190705_v3.ppt
Slide 14
Agreement of terms:
‘Standard’ - Definition
 Standard
– « something established by authority,
custom or general consent as a model or
example »
LEVERAGE
– « a rule for the measure of quality »
– « regularly and widely used »
– Uniform and well established by usage and
widely recognised as acceptable »
IAG_190705_v3.ppt
Slide 15
Agreement of terms:
‘Standards’
Treasury
Payments
EPC/ECBS
CHIPS
TCH
IGTA
EACT
RosettaNet/PMP
IFSA
NACHA
OAGi
IFSA
ISTH
Fedwire
X12
TWIST
FpML
W3C
OMG
ISDA
IFX
ISO/TC68
UNIFI - ISO 20022
FIX
BMA
SMPG
FISD/MDDL
SIA
G30
ISITC-IOA
Giovannini
IAG_190705_v3.ppt
UN/CEFACT
Bolero
OASIS
e-bMoU
IIBLP
EAN/UCC
ISSA
Insurance
Securities
Acord
IFSA
ICC
UNCITRAL
Trade Finance
Slide 16
Agreement of terms:
‘Syntax’ - Definition
 Syntax
– « the way in which elements are put
together to form a message »
INTEROPERABILITY
IAG_190705_v3.ppt
Slide 17
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
IAG_190705_v3.ppt
Slide 18
Agreement of terms:
‘Protocol scope’ - Definition
 Scope
defined in the consultation paper as:
– All post trade processes
– All traded instruments
– All participants
IAG_190705_v3.ppt
Slide 19
Agreement of terms:
‘Protocol scope’ - All post trade processes
Trade Date
IMI
Trade Date + X
Space 3
Clearing &
Settlement
Space 2
Post Trade /
Pre-Settlement
Space 1
Pre-trade
/ Trade
Institutional (buy) Side
Order
Street (sell) Side
B/D
Trade
B/D
Exchange
1
VMU /
ETCP
CCP
2
GC
SC
SA
SA
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
(I)CSD
Non Trade Related Activity
3
Space 4 - Custody Services
IAG_190705_v3.ppt
Slide 20
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)
IAG_190705_v3.ppt
Slide 21
Agreement of terms:
‘Protocol scope’ - All participants
Trade Date
IMI
Trade Date + X
Space 3
Clearing &
Settlement
Space 2
Post Trade /
Pre-Settlement
Space 1
Pre-trade
/ Trade
Institutional (buy) Side
Order
Street (sell) Side
B/D
Trade
B/D
Exchange
1
VMU /
ETCP
CCP
2
GC
SC
SA
SA
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
(I)CSD
Non Trade Related Activity
3
Space 4 - Custody Services
IAG_190705_v3.ppt
Slide 22
Agreement of terms:
‘Protocol scope’ - Consultation responses

59 responses in total
– 14 EU FI
– 16 FI EU rep orgs
– 10 EU C&S Infrastructures
– Total (inc above)
Agree
8
– 57%
8
– 50%
6
– 60%
32
– 54%

Disagreements:
– Too narrow
– Too broad
– Phasing required
10
10
17
IAG_190705_v3.ppt
– 17%
– 17%
– 29%
Slide 23
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%)
IAG_190705_v3.ppt
Slide 24
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
IAG_190705_v3.ppt
by Participant/sector
Slide 25
Agreement of terms:
‘Protocol framework’ - Definition
Participant B
Participant A
Data
Messaging
Network
IAG_190705_v3.ppt
S1
T
A
N
D4
A
R
D
S7
S2
E
C
U
R5
I
T
Y
8
S3
E
R
V
I 6
C
E
S
9
Data
Messaging
Network
Slide 26
Agreement of terms:
‘Protocol framework’ - Consultation responses
 53
–
–
–
–
responses in total
15 EU FI
12 FI EU rep orgs
10 EU C&S Infrastructures
Total (inc above)
Agree
14 – 93%
9
– 75%
8
– 80%
42 – 82%
 Disagreement
– Should only include Layer 1, Data
IAG_190705_v3.ppt
Slide 27
Agreement of terms:
‘Protocol framework’ - Proposed ratification
 The
proposed 9 element framework
correctly frames a potential
communication protocol
IAG_190705_v3.ppt
Slide 28
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
IAG_190705_v3.ppt
Slide 29
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
IAG_190705_v3.ppt
Slide 30
The Network Layer:
Participant B
Participant A
Data
Messaging
Network
IAG_190705_v3.ppt
S1
T
A
N
D4
A
R
D
S7
S2
E
C
U
R5
I
T
Y
8
S3
E
R
V
I 6
C
E
S
9
Data
Messaging
Network
Slide 31
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
IAG_190705_v3.ppt
Slide 32
The Network Layer:
Element 7: Proposed ratification
 The
minimum acceptable network
standard is the implementation of IP for
communication and routing
IAG_190705_v3.ppt
Slide 33
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
IAG_190705_v3.ppt
Slide 34
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
IAG_190705_v3.ppt
Slide 35
The Network Layer:
Element 8: Network Security - ‘Policing’
 Validate
 Report
 Stop
against std structure
violation to sender
traffic
 Optional
IAG_190705_v3.ppt
26
- 51%
10
- 20%
8
- 16%
13
- 25%
Slide 36
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
IAG_190705_v3.ppt
Slide 37
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
IAG_190705_v3.ppt
Slide 38
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
IAG_190705_v3.ppt
Slide 39
The Network Layer:
Network Service - Consultation responses


24x7
– EU FI
– FI EU rep orgs
– EU C&S Infrastructures
– Total (inc above)
Agree
6
3
2
15
– 40%
– 27%
– 22%
– 31%
99.999% availability
– EU FI
– FI EU rep orgs
– EU C&S Infrastructures
– Total (inc above)
Agree
5
2
2
11
– 33%
– 18%
– 22%
– 22%
IAG_190705_v3.ppt
Slide 40
The Network Layer:
Element 9: Proposed ratification
 Service
must satisfy business &
regulatory requirements for performance,
resilience and network management
IAG_190705_v3.ppt
Slide 41
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
IAG_190705_v3.ppt
Slide 42
The next meeting is…..
3rd August
at 11.00am
The
subject will be the
messaging or interface layer
IAG_190705_v3.ppt
Slide 43
AoB – Time permitting
 Accreditation
– Do we need accreditation of
Messaging/Network suppliers?
– If yes, who should provide the
accreditation service?
IAG_190705_v3.ppt
Slide 44
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
IAG_190705_v3.ppt
Slide 45
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
IAG_190705_v3.ppt
Slide 46
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
IAG_190705_v3.ppt
Slide 47