Report on Clearing And Settlement System

Content

Particulars

1. Introduction

a. Clearing Corporation

b. Clearing Members

c. Custodians

d. Clearing Banks

e. Depositories

f. Clearing

g. Settlement

2. Clearing And Settlement Process

a. Trade Recording

b. Trade Confirmation

c. Determination of Obligation

d. Pay-in of Funds and Securities

e. Pay-out of Funds and Securities

3. Trading And Settlement at BSEa. Compulsory Rolling Settlement Process

i. Pay-in and Pay-out of Securitiesii. Demat pay-in

iii. Auto delivery facility iv. Pay-in of Securities in Physical Formv. Funds Pay-in

vi. Securities Pay-outvii. Funds Payout

4. Salient features of settlement

5. Objectives of The Clearing And Settlement System

6. Features of Clearing And Settlement System

7. Requirements For Clearing And Settlement System

8. Basic network Abilities

9. Operational Challenges In Implementing Clearing And Settlement System

10. Technical Challenges in setting up a new Clearing and Settlement System

11. Features provided by other companies:a. Patsystems

b. Pershing 

c. J.P. Morgan

d. European Multilateral Clearing Facility

e. Calypso

Introduction:

The transactions in secondary market pass through three distinct phases, viz., trading, clearing and settlement. While the stock exchanges provide the platform for trading, the clearing corporation determines the funds and securities obligations of the trading members and ensures that the trade is settled through exchange of obligations. The clearing banks and the depositories provide the necessary interface between the custodians/clearing members for settlement of funds and securities obligations of trading members.

Clearing Corporation: The clearing corporation is responsible for post-trade activities such as risk management and clearing and settlement of trades executed on a stock exchange. The clearing corporation should interpose itself between both legs of every trade, becoming the legal counterparty to both or alternatively should provide an unconditional guarantee for settlement of all trades. National Securities Clearing Corporation Ltd. (NSCCL)

The roles which are mainly performed by a Clearing Corporation are:

To bring and sustain confidence in clearing and settlement of securities;

To promote and maintain, short and consistent settlement cycles;

To provide counter-party risk guarantee, and

To operate a tight risk containment system.

Clearing Members: A member of an exchange that acts as a liaison between an investor and a clearing corporation. A clearing broker helps to ensure that the trade is settled appropriately and the transaction is successful. Clearing brokers are also responsible for maintaining the paper work associated with the clearing and executing of a transaction. The clearing members shall authorize the depositories and depositories participants with whom they have a pool account to debit and/or credit their accounts in accordance with the instructions received from the Exchange or Clearing Agency and to report balances and other credit and/or debit information to the Exchange or Clearing Agency, as may be required by the Exchange or Clearing Agency from time to time.Ex:- IL & FS Securities Services Limited, The Federal Bank Ltd.

Clearing Banks: Clearing banks are a key link between the clearing members and Clearing Corporation to effect settlement of funds. Every clearing member is required to open a dedicated clearing account with one of the designated clearing banks. Based on the clearing member’s obligation as determined through clearing, the clearing member makes funds available in the clearing account for the pay-in and receives funds in case of a pay-out. NSCCL offers settlement of funds through 12 clearing banks namely Canara Bank, HDFC Bank, IndusInd Bank, ICICI Bank, UTI Bank, Bank of India, IDBI Bank, Hongkong & Shanghai Banking Corporation Ltd., Kotak Mahindra Bank, Standard Chartered Bank, Union Bank of India and State Bank of India.

Functions of Clearing Banks:

The banks are required to provide the following minimum services as a single window to all clearing members of National Securities Clearing Corporation Ltd. as also to the Clearing Corporation:

Branch network in cities that cover bulk of the trading cum clearing members High level automation including electronic funds transfer (ETF) facilities Facilities like (a) dedicated branch facilities (b) software to interface with the Clearing Corporation (c)

access to accounts information on a real time basis Value-added services to members such as free-of-cost funds transfer across centres etc. Providing working capital funds Stock lending facilities Services as Professional Clearing Members Services as Depository Participants Other Capital Market related facilities All other banking facilities like issuing bank guarantees / credit facilities etc.

Depositories: Depository is used to refer to any place where something is deposited for storage or security purposes. More specifically, it can refer to a company, bank or an institution that holds and facilitates the exchange of securities. Or a depository can refer to a depository institution that is allowed to accept monetary deposits from customers.

Depository holds securities in dematerialized form for the investors in their beneficiary accounts. Each clearing member is required to maintain a clearing pool account with the depositories. He is required to make available the required securities in the designated account on settlement day. The depository runs an electronic file to transfer the securities from accounts of the clearing member to that of National Securities Clearing Corporation (NSCCL) and vice-versa as per the schedule of allocation of securities. The two depositories in India are the National Securities Depository Ltd (NSDL) and Central Depository Services (India) Ltd (CDSL).

Benefits of Depositories:

Reduced workload & manpower requirements due to paperless settlement

Instantaneous transfer of ownership

No risk of damaged, lost, forged or duplicate certificates

No impact in case of sudden increase in settlement volumes

Instant credit of bonus, rights and new issues (IPO)

Convenient pledging of securities

Clearing:

Clearing is all steps of the post-trade processes apart from the final settlement — i.e. apart from the final

payment and change in ownership.

Clearing is closely associated with the control of counter-party risk { The risk that the counterparty will fail to fulfill their obligations - usually either by failing to pay or by failing to deliver securities - is called counterparty risk. There are a number of ways of controlling counterparty risk. Some are

trading mechanisms such as DVP (Delivery of securities (i.e. the change in their ownership) is done simultaneously with payment.) or the use of counterparty. Financial institutions should track and manage counterpart risk in much the same way as any other credit risk, and this should be integrated into institutions' overall risk management system. The counterparty risks from securities trading are either simple credit risks (where the risk is that the other party will not pay) or a combination of credit risk with the risk of a position in a derivative (where the risk is that the other part will not deliver securities). Counterparty risk tends to be at least as much of a concern to regulators as to the institutions exposed to it. This is because a large financial institution will be counterparty to many others, and therefore the knock-on effects of its failure pose a systemic risk.}. Clearing houses may act as central counter-parties [A central counterparty is a financial institution that acts as an intermediary between security market participants. This reduces the amount of counterparty risk that market participants are exposed to. Trades on most major stock exchanges (including London) go through a central counterparty. The seller of a security sells to the central counter party. The central counterparty simultaneously sells to the buyer. This means that if one party defaults then the central counterparty will absorb the loss. This eliminates both the risk of direct financial loss though a default and the risk of indirect loss through having to unwind a trade. It is therefore a more complete method of reducing counterparty risk than alternatives such as simple DVP.]

Settlement:

Settlement is the last step in the post-trade process. Settlement may be:

net: obligations between participants are set-off against each other, or, gross: each transaction is settled individually,

and may be:

real-time: transactions are settled as and when trades are agreed with no delay, or, occur at regular intervals, usually on a rolling schedule at the end of a day.

If settlement is not real-time then it is usual to settle at the end of the days trading. This usually takes place a set number of days after trading that is the standard for a particular market or type of security. The standard terminology is to express this as T + number of days to settlement: so a T + 2 transaction will be settle at the end of the second day after the trade takes place.

Gross settlement is usually real-time, as there is no reason not to set off it batch end of day processing is used. Conversely real-time settlement is usually gross as there are no other transactions made in the same instant to set-off.

Clearing And Settlement Process:

1. Trade Recording: It has following procedure to be followed:a. Investors place orders from their trading terminals. b. Broker houses validate the orders and routes them to the exchange (BSE or NSE depending on

the client’s choice). c. Now Order matching is done at the exchange.

2. Trade Confirmation: Steps involved in this are:a. Trade confirmation to the investors through the brokers. b. Trade details are sent to Clearing Corporation from the Exchange. c. Clearing Corporation notifies the trade details to clearing Members/Custodians who confirm

back to the investors. The typical confirmation document received by the client reports the stock's name and CUSIP number (the security’s 9-character alpha-numeric identifier issued by the Committee on Uniform Security Identification Procedures), the number of units traded, the security price, the broker commission and other fees, along with trade and settlement dates.

3. Determination of Obligation: Based on the confirmation, Clearing Corporation determines obligations.

4. Pay-in of Funds and Securities: It includes: a. Download of obligation and pay-in advice of funds/securities by Clearing Corporation. b. Clearing Corporation gives instructions to clearing banks to make funds available by pay-in time. c. Clearing Corporation gives instructions to depositories to make securities available by pay-in-

time.

5. Pay-out of Funds and Securities: It is comprised of the last two steps of the whole process: a. Depository informs custodians/Clearing members through Depository Participants about pay-in

and pay-out of securities. b. Clearing Banks inform custodians/Clearing members about pay-in and pay-out of funds.

Terms used above:

Pay-in of securities: Clearing Corporation advises depository to debit pool account of custodians/Clearing members and credit its (Clearing Corporation’s) account and depository does the same.

Pay-in of funds: Clearing Corporation advises Clearing Banks to debit account of Custodians/Clearing members and credit its account and clearing bank does the same.

Payout of securities: Clearing Corporation advises depository to credit pool accounts of custodians/Clearing members and debit its account and depository does the same.

Payout of funds: Clearing Corporation advises Clearing Banks to credit account of custodians/ Clearing members and debits its account and clearing bank does the same.  Note: Clearing members for buy order and sell order are different and Clearing Corporation acts as a link here.

Trading And Settlement at BSE:

BSE has, for the guidance and benefit of the investors, classified the scrips in the Equity Segment into 'A', 'B', 'T' and 'Z' groups on certain qualitative and quantitative parameters.

The "F" Group represents the Fixed Income Securities.

The "T" Group represents scrips which are settled on a trade-to-trade basis as a surveillance measure.

Trading in Government Securities by the retail investors is done under the "G" group.

The 'Z' group was introduced by BSE in July 1999 and includes companies which have failed to comply with its listing requirements and/or have failed to resolve investor complaints and/or have not made the required arrangements with both the depositories, viz., Central Depository Services (I) Ltd. (CDSL) and National Securities Depository Ltd. (NSDL) for dematerialization of their securities.

Compulsory Rolling Settlement Process:

All transactions in all groups of securities in the Equity segment and Fixed Income securities listed on BSE are required to be settled on T+2 basis (w.e.f. from April 1, 2003). The settlement calendar, which indicates the dates of the various settlement related activities, is drawn by BSE in advance and is circulated among the market participants.

Under rolling settlements, the trades done on a particular day are settled after a given number of business days. A T+2 settlement cycle means that the final settlement of transactions done on T, i.e., trade day by exchange of monies and securities between the buyers and sellers respectively takes place on second business day (excluding Saturdays, Sundays, bank and Exchange trading holidays) after the trade day.

The transactions in securities of companies which have made arrangements for dematerialization of their securities are settled only in demat mode on T+2 on net basis, i.e., buy and sell positions of a member-broker in the same scrip are netted and the net quantity and value is required to be settled. However, transactions in securities of companies, which are in "Z" group or have been placed under "trade-to-trade" by BSE as a surveillance measure ("T" group) , are settled only on a gross basis and the facility of netting of buy and sell transactions in such scrips is not available.

The transactions in 'F' group securities representing "Fixed Income Securities" and " G" group representing

Government Securities for retail investors are also settled at BSE on T+2 basis.

In case of Rolling Settlements, pay-in and pay-out of both funds and securities is completed on the same day.

Members are required to make payment for securities sold and/ or deliver securities purchased to their clients within one working day (excluding Saturday, Sunday, bank & BSE trading holidays) after the pay-out of the funds and securities for the concerned settlement is completed by BSE. This is the timeframe permitted to the Members to settle their funds/ securities obligations with their clients as per the Byelaws of BSE.

The following table summarizes the steps in the trading and settlement cycle for scrips under CRS :

DAY ACTIVITY

T o   Trading on BOLT and daily downloading of statements showing details of transactions and margins at the end of each trading day.

o   Downloading of provisional securities and funds obligation statements by member-brokers.

o   6A/7A entry by the member-brokers/ confirmation by the custodians.

T+1 o   Confirmation of 6A/7A data by the Custodians upto 1:00 p.m. Downloading of final securities and funds obligation statements by members

T+2 o   Pay-in of funds and securities by 11:00 a.m. and pay-out of funds and securities by 1:30 p.m. The member-brokers are required to submit the pay-in instructions for funds and securities to banks and depositories respectively by 10:40 a.m.

T+2 o   Auction on BOLT at 2.00 p.m.

T+3 o   Auction pay-in and pay-out of funds and securities by 09:30 a.m. and 10:15 a.m. respectively.

The pay-in and payout of funds and securities takes places on the second business day (i.e., excluding Saturday, Sundays and bank and BSE trading holidays) of the day of the execution of the trade.

The settlement of the trades (money and securities) done by a Member on his own account or on behalf of his individual, corporate or institutional clients may be either through the Member himself or through a SEBI registered custodian appointed by him/client. In case the delivery/payment in respect of a transaction executed by a Member is to be given or taken by a registered custodian, the latter has to confirm the trade done by a Member on the BOLT System through 6A-7A entries. For this purpose, the custodians have been given connectivity to the BOLT System and have also been admitted as clearing member of the Clearing House. In case a registered custodian does not confirm a transaction done by a Member within the time permitted, the liability for pay-in of funds or securities in respect of the same devolves on the concerned Member.

The following statements can be downloaded by the Members in their back offices on a daily basis.

a. Statements giving details of the daily transactions entered into by the Member.

b. Statements giving details of margins payable by the Member in respect of the trades executed by him.

c. Statements of securities and fund obligation.

d. Delivery/Receive orders for delivery /receipt of securities.

BSE generates Delivery and Receive Orders for transactions done by the Members in A, B1, B2 and F and G group scrips after netting purchase and sale transactions in each scrip whereas Delivery and Receive Orders for "T", "C" & "Z" group scrips and scrips which are traded on BSE on "trade-to-trade" basis are generated on a gross basis, i.e., without netting of purchase and sell transactions in a scrip. However, the funds obligations for the Members are netted for transactions across all groups of securities.

The Delivery Order/Receive Order provides information like the scrip and quantity of securities to be delivered/received by the Members through the Clearing House. The Money Statement provides scrip wise/item wise details of payments/receipts of monies by the Members in the settlement. The Delivery/Receive Orders and Money Statement can be downloaded by the Members in their back office

Pay-in and Pay-out of Securities

The trades done on BOLT by the Members in all securities in CRS are now settled on BSE by payment of monies and delivery of securities on T+2 basis. All deliveries of securities are required to be routed through the Clearing House,

The Pay-in /Pay-out of funds based on the money statement and that of securities based on Delivery Order/ Receive Order issued by BSE are settled on T+2 day.

Demat pay-in :

The Members can effect pay-in of demat securities to the Clearing House through either of the Depositories i.e. the National Securities Depository Ltd. (NSDL) or Central Depository Services (I) Ltd. (CDSL). The Members are required to give instructions to their respective Depository Participants (DPs) specifying details such as settlement no., effective pay-in date, quantity, etc.

Members may also effect pay-in directly from the clients' beneficiary accounts through CDSL. For this, the

clients are required to mention the settlement details and clearing member ID through whom they have sold the securities. Thus, in such cases the Clearing Members are not required to give any delivery instructions from their accounts.

In case a Member fails to deliver the securities, the value of shares delivered short is recovered from him at the standard/closing rate of the scrips on the trading day. 

Auto delivery facility :

Instead of issuing delivery instructions for their securities delivery obligations in demat mode in various scrips in a settlement /auction, a facility has been made available to the Members of automatically generating delivery instructions on their behalf from their CM Pool accounts maintained with NSDL and CM Principal Accounts maintained with CDSL. This auto delivery facility is available for CRS (Normal & Auction) and for trade-to-trade settlements. This facility is, however, not available for delivery of non-pari passu shares and shares having multiple ISINs. Members wishing to avail of this facility have to submit an authority letter to the Clearing House. This auto delivery facility is currently available for Clearing Member (CM) Pool accounts and Principal accounts maintained by the Members with the respective depositories.

  Pay-in of Securities in Physical Form

In case of delivery of securities in physical form, the Members are required to deliver the securities to the Clearing House in special closed pouches along with the relevant details like distinctive numbers, scrip code, quantity, etc., on a floppy. The data submitted by the Members on floppies is matched against the master file data on the Clearing House.If there is no discrepancy, the securities are accepted.

Funds Pay-in

The bank accounts of Members maintained with the clearing banks, viz.,  Axis Bank Ltd.,Bank of India,  Bank of Baroda, Canara Bank, Citi Bank, Corporation Bank, Dhanalaxmi Bank, HDFC Bank Ltd., Hongkong & Shanghai Banking Corporation Ltd.,  ICICI Bank Ltd, Indusind Bank Ltd., IDBI Bank, Kotak Mahindra Bank, Oriental Bank of Commerce., Punjab National Bank, State Bank of India, Standard Chartered Bank, Union Bank of India, Yes Bank  are directly debited through computerized posting for their funds settlement obligations.

In case of Members whose funds pay-in obligations are not cleared at the scheduled time, action such as levy of penalty and/or deactivation of BOLT TWSs , is initiated as per the prescribed penalty norms.

Securities Pay-out

Demat securities are credited by the Clearing House in the Pool/Principal Accounts of the Members. BSE has also provided a facility to the Members for transfer of pay-out securities directly to the clients' beneficiary owner accounts without routing the same through their Pool/Principal accounts in NSDL/ CDSL. For this, the concerned Members are required to give a client wise break up file which is uploaded by the Members from their offices to the Clearing House. Based on the break up given by the Members, the Clearing House instructs the depositories, viz., CDSL & NSDL to credit the securities to the Beneficiary Owners (BO) Accounts of the clients. In case delivery of securities received from one depository is to be credited to an account in the other depository, the Clearing House does an inter-depository transfer to give effect to such transfers.

In case of physical securities, the Receiving Members are required to collect the same from the Clearing

House on the pay-out day.

Funds Payout

The bank accounts of the Members having pay-out of funds are credited by the Clearing House with the Clearing Banks on the pay-in day itself

In case a Member fails to deliver the securities, the value of shares delivered short is recovered from him at the standard/closing rate of the scrips on the trading day.

Salient features of settlement:

Delivery of shares in street name and market delivery (clients holding physical shares purchased from the secondary market) is treated as bad delivery. The shares standing in the name of individuals/HUF only would constitute good delivery. The selling/delivering member must necessarily be the introducing member.

Any delivery of shares which bears the last transfer date on or after the introduction of the security for trading in the LP market is construed as bad delivery.

Any delivery in excess of 500 shares is marked as short and such deliveries are compulsorily closed-out. Shortages, if any, are compulsorily closed-out at 20% over the actual traded price. Unrectified bad

delivery and re-bad delivery are compulsorily closed-out at 20% over the actual traded price. All deliveries are compulsorily be required to be attested by the introducing/ delivering member. The buyer must compulsorily send the securities for transfer and dematerialisation, latest within 3

months from the date of pay-out. Company objections arising out of such trading and settlement in this market are reported in the same

manner as is currently being done for normal market segment. However securities would be accepted as valid company objection, only if the securities are lodged for transfer within 3 months from the date of pay-out.

Implications for Information Management:

The clearing and settlement process brings trade participants together – Brokers, Exchange, Custodial Bank, Virtual Matching Utility, Central Counterparty or Clearinghouse, and Securities Depository – in a confederated system of sorts. They function as a network of loosely coupled, interdependent systems that interact to enable the flow of transactions.The heart of the process is the conveyance of trade-related information: orders and reference data, instructions, confirmations, alarms, calls to action, and so on, all under some form of process control. In a “hub and spokes” model (Figure 2), the process control application oversees clearing and settlement on behalf of its trading clients. Around the edges, communication “spokes” reach the various trade participants, providing a secure communications conduit for the access and delivery of instructions and data.

Implementing an effective hub and spokes model isolates client applications from changes in industry standards and protocols, enables the necessary “any-to-any” communications capability, and provides the basis for centrally monitoring and managing the clearing and settlement process. Such a solution must:

Support industry standard and proprietary protocols: proven, reliable implementations of standard messaging protocols (such as FIX and ISO 15022), as well as support for proprietary network interfaces and client- or application-specific protocols. Application integration will require evolution toward next generation standards (e.g. XML, SOAP and UDDI).

Manage trade data quality. Errors need to be caught and corrected as close to the source as possible, early min the process. Wherever possible, product information should only be entered once, and flow from the central database into the trade.

Dynamic database synchronization, updating and replication: The clearing process is incredibly dynamic. Situations change, requiring continuous, transaction-intensive updating of various client databases.

Application integration is ultimately where the most difficult work and greatest returns will occur. Integration of legacy, batch-style applications with an increasingly real-time structure will pose a particular challenge. Better process monitoring, and eventually, actual control over the settlement process, will require process to process communication across business entities. Middleware, web services, and associated development tools, together with the expertise and architectural perspective to use them, will provide the critical building blocks.

Objectives of The Clearing And Settlement System:

1. Facilitating securities trades to encourage higher level of trading activities.2. Reducing risks resulting from handling shares during trading process.3. Applying the Delivery versus Payment principle (DVP), which is the norm in international capital markets.4. Executing the clearing and settlement transaction at an exact specified period.

5. Speeding up securities turnover as a result of guaranteeing the completion of the settlement in a specified time

Features of Clearing And Settlement System:

1. It provides multi-entity support, 2. It is a multi-lingual system, 3. It has the capacity to settle in multiple BIS settlement models 4. It can work with entire gamut of global securities5. It can manage different market segments - Equity, Fixed Income and Derivatives, effectively

and efficiently. 6. The solution is built on component based layered Architecture 7. It provides easy maintainability, scalability and high performance with low TCO and quick

time to market.

Network Design Principles For Clearing And Settlement System:

Extensibility: the system should grow easily with the addition of new member firms or with the addition of new member firms or with the addition of new processing capability at the clearing-house hub. Conversely, shrinkability is also important- the ability for the system to easily delete a member if needed.

Reliability and robustness: here, Structured exception handling is critical. Standards must be in place to handle unexpected events: malformed token headers or data contents, network slowdown or fragmented transmission, etc. the network must also have redundant hardware components to create fault tolerance.

Member firm hardware and software freedom- an outgrowth of opennesss: It is impractical to insist that member firms agree on a single hardware processing or network connectivity platform. The network should operate on a protocol that is comliant with all major processing and network vendors.

Standardization: A robust, well-defined protocol which is not reliant on a for–profit entity for for further development carries many advantages. Third perty vendors can develop network-aware software efficiently.

Security: Naturally, network members have no basis to trust eath-other with the details of their trades. Therefore, an extremely secure algorithm mechanism must be selected to encrypt the packets before they enter the outer ring.

Performance: Speed is of essence when dealing with trades in millions of rupees. Naturally, firm would not want a slow network to contribute to the risk of outstanding questioned trades by extending the time needed to resolve them.

Basic network Abilities:

Initiation: Each participant can initiate a Token, the fundamental unit of data on the network. Each token has a source address, a destination address and some other header information.

Routing: Each participant, if acting as middleman (receiving a token that has yet not reached its final destination) has the appropriate software to find the best network path for that token so that it reaches its final destination most efficiently. The best path is the local network congestion and of temporarily down nodes.

Recognition: Each participant has the power software to recognize a token’s header – e.g. some tokens require further routing, some require a lookup routine on the internal database of rules, and some require other forms of software action.

Operational Challenges In Implementing Clearing And Settlement System:

Formulation and promulgation of necessary laws – Electronic Trading/Settlement & Depository has set of different challenges e.g. authentication and non-repudiation of transaction should have legal backing, paperless share holding etc.

Formulation of comprehensive Regulations & Procedures to serve as SOPs for the relevant body.

Confidence building of the different segments being affected by the implementation of the automated systems like the Listed Companies, Stock Brokers, Financial Institutions, Share Registrars and General Public at large.

Technical Challenges in setting up a new Trading, Clearing and Settlement System:

Highly skilled IT Setup

Extensive Hardware / software platform

Hardware Redundancy, Backup and Failure Switch Over Capability

Extensive database administration and performance tuning

Extensive Networking with redundancy and backups

IT security – OS, network, DB, viruses etc

Highly skilled business users who are proficient with computers

Reliability of hardware platform and network

Reliability, extensive QA and low bug count in trading / clearing software

Provisions of prompt support and fixing in case of live hardware/software problems – service level agreements, service time guarantees

Features provided by other companies:

Patsystems ( http://www.patsystems.com )

Patsystems work in partnership with its customers to deliver robust systems that align with their business strategies – and have done since their foundation in 1994. Patsystems are proficient in:

Trading solution Exchange solution Risk solution

J-Clear is an event-based processing module that enhances the Patsystems trading platform. Put simply, it is a tool that initiates specific processes in response to particular events or scenarios, facilitating real-time fill processing. J-Clear enables straight-through processing of trades executed via the Patsystems platform.J-Clear allows a wide variety of functional requirements to be fulfilled without the need for constant code updates. Widely used by Patsystems exchange customers in Japan and South Asia, J-Clear manages more than US$0.5 billion of funds every day with an annual transaction value over US$0.75 trillion. The J-Clear processing module fulfils the following exchange requirements:

Enables trade registration and multi-level clearing and settlement

Harmonizes the exchange clearing framework with the existing regulatory requirements

Customizes clearing and settlement processes to meet member needs without code changes

Enables day-to-day administration functions:— Member account management— Offset contract calculation— Collateral management— Contract management— Margin management— Fee management— Gross/net position management

Pershing   ( http://www.pershing.com )

Pershing is the industry's largest provider of global clearing and settlement solutions. We are the trusted choice for more than 1,150 financial organizations and independent registered investment advisors in over 40 countries, with a reputation built on proven reliability and practical, hands-on expertise. Pershing offers a complete range of tightly integrated, multicurrency capabilities that cover clearance, settlement, custody, and reporting—plus access to value-added solutions for asset movement, anti-money laundering (AML) programs, and more.

Its clearing and settlement service provide following special features:

Equities Processing

Fixed and Variable Annuities

Mutual Funds

Non-U.S. Dollar Processing

Options

J.P. Morgan ( http://www.jpmorgan.com )

J.P. Morgan helps clients optimize, protect and manage their complex portfolios with a comprehensive clearance, settlement and collateral management solution.  Our automated and proprietary technology enables clients to efficiently manage holistic risk exposure according to customized risk constraints, make better decisions about their incremental transactions and identify new financing activities.

Globe Clear provides on-exchange and over the counter (OTC) clearance in markets around the world, helping our clients access 30 OXC and more than 60 OTC markets.  Based on a single agreement and legal structure, our simple operating model offers clients:

Straight through processing and same day turnaround for securities

Sophisticated asset servicing via J.P. Morgan’s award-winning global custody platform

Investment, liquidity and financing solutions, including securities borrowing to efficiently cover fails and secured financing for long positions

Calypso ( http://www.calypso.com/ )

Calypso OTC Clearing & Processing enables direct bank clearing members to clear and process OTC derivatives products on behalf of clients across multiple exchanges andclearing houses.

Calypso OTC Clearing & Processing includes:

• Real-time Multi-CCP Connectivity

• Full Cross-Asset Valuation Engine

• Independent Margin Calculation

• What-If Margin Analysis

• Credit Limits Checking for Client Trades

• Trade and Margin Reconciliation

• Market Risk Management for Client Accounts

• Client Statements & Reporting

Calypso OTC Clearing & Processing enables compliance with regulatory mandates while providing market-leading capability to compete at the highest levels of clearing efficiency and client service.

Multi-Clearing House Aggregation

Calypso® OTC Clearing & Processing aggregates OTC derivatives from multiple clearing houses in real-time. Calypso creates a single view of all client activity and enabling banks to deliver a one-stop clearing and processing services.

Margining

Calypso performs both legs of the margining process – from bank-to-clearing house and bank-to-client. The cross-asset valuation and processing platform provides a single unified margining framework that covers:

• Multiple CCP’s

• Valuation

• Margin Calculations (SPAN/VaR-based)

• What-If Margin Analysis across Clearing HousesBanks can build in-house margining models to apply to their client base, with credit-adjustments on a client-by-client basis. Advanced VaR-based margining is performed on all OTC derivative products while also supporting SPAN-based methods.

Connectivity

Calypso connects to all required internal and external systems including clearing systems, trade affirmation platforms, data vendors, collateral systems, accounting systems and other margining platforms. Calypso® OTC Clearing & Processing fits into the existing systems environment and operates seamlessly with surrounding business processes. As new clearing houses are added to a bank’s upstream clearing services they can be readily connected into the clearing-processing platform and activated. Calypso handles all clearing interaction including trade notifications, trade import, validation, consents and standing orders for allocations.

Client Account Risk Management

Calypso communicates with in-house risk management systems while also offering the option of its own bank-wide risk management capabilities. Clearing, margining and processing can be monitored and risk managed down to the beneficial-owner level including:

• Risk Aggregation

• Position Calculations (Net/Gross)

• Limits Checking

• Liquidity Testing

• Market Risk

• Stress Testing

• Back Testing of Initial Margins

Collateral Management

Calypso manages collateral for clearing including:

• Cash and Securities

• Valuation of Collateral

• Margin Requirements vs Collateral Held

• Generate Margin Calls

• Lodge Collateral Received

Processing

Calypso performs full trade lifecycle processing on all OTC, thereby enabling the bank to provide a complete clearingand processing service to their clients. Processes performed include:

• Trade Event Processing (novations, allocations, closeouts, exercises, etc)

• Client Statements

• Confirmations

• Margin Calls

• Settlements

• Accounting entries (GL/Sub-ledger)

Reconciliation

A full range of reconciliations are performed with end-of-day files from Clearing Houses including:

• Market Data

• Positions and Trades

• Trade Events

• Fees and Accruals

• Variation Margin

Reporting

Calypso OTC Clearing & Processing provides a comprehensive set of end-of-day reports across a range of areas including margin reports, P&L reports, fees and commissions reports, position reports, reconciliation reports, client activity reports, limits reports, risk reports, stress test reports and liquidity reports.

Fully Integrated & Future Proof

Calypso Client OTC Clearing is a future-proof clearing and processing solution that enables efficient entry into newmarkets, products and geographies.

European Multilateral Clearing Facility ( http://www.euromcf.nl/ )

AboutUs

European Multilateral Clearing Facility N.V. (EMCF) is Europe's largest cash equities clearing company and one of the top two Central Counterparty (CCP) clearing providers in Europe. Our offering is focused on providing a reliable service against transparent and predictable pricing and using robust risk management systems.

Services overview

EMCF offer CCP Clearing services in the most important European stocks and are committed to providing the lowest clearing cost solutions available through a simple and transparent pricing structure.

Their services include the full range of CCP services you can expect from a leading European CCP. This includes: novation, gross trade netting, risk management, settlements, and fails and buy-in management.

The services are offered against a simple and transparent pricing structure comprised of a fixed clearing fee per execution or per order. Other fees, such as settlement fee and fail fee, are charged on an "at-cost-basis" without additional mark-ups. There are no 'hidden' charges in our services, such as membership fees, testing fees, collateral and corporate action handling fees or fees for real-time cleared trade confirmation. Since our launch in 2007, we have put constant downward pressure on clearing fees to the benefit of traders and other market participants.All clearing operations, including clearing of securities listed or traded in other countries, take place in the Netherlands. 

Novation and netting

Once the trade has been registered in the EMCF system, it will immediately be novated. EMCF interposes itself as a buyer to each seller and as a seller to each buyer. Two new contracts are created - between EMCF and the buyer and EMCF and the seller - to replace the single contract between the two parties. This principle allows the market to remain anonymous.

When the trade has been novated, it will be netted in real time on a multilateral basis. Per clearing party, netting is done by ISIN, by currency, by the client, house account or combined account at a level specified by the clearing participant.

Risk management

EMCF employs the most advanced and prudent risk management practices in the industry, giving clients the confidence that risks are managed in a competent and timely manner. We update positions and recalculate margin requirements on a near real time basis, thereby greatly reducing our exposure.

Our sophisticated risk management system is the Correlation Haircut System, which is validated by both the

Dutch and the UK financial markets regulators for calculating Basel II capital requirements for credit and market risk. We calculate the correlation haircut, stress haircut, margin and concentration risk of our portfolios on an ongoing basis and store these values in a central database.

Our first line of defence is a set of strict membership requirements which are laid down in the EMCF Rules Book. Among other things, the following capital requirements are applicable to EMCF Clearing Participants: 

Direct Clearing Member: 7.5 million.General Clearing Member: 25 million.

The second line of defence is the margins calculated over open positions in EMCF's books. These are calculated using the Correlation Haircut System, which has proven to work effectively during years of operation by Fortis Bank Global Clearing across 60 exchanges worldwide. A key feature of the system is the implementation of a linear factor model that enables us to process the complicated correlation structures observed in different markets.

The third line of defence, is the clearing fund to which each Clearing Participant must contribute and which can be used in full when handling a clearing participant default.

Settlement

Settlement is always done at the local central securities depository (CSD). EMCF either operates its own CSD accounts or uses the services of settlement agents and/or account operators. Our current settlement agents include ABN AMRO Bank, BNP Paribas, SEB, Credit Suisse, Deutsche Bank and Bank Austria-Creditanstalt. 

Net settlements are treated as OTC transactions in the local CSDs, while regular DVP/RVP instructions are generally communicated to the CSD.

Reporting

EMCF offers clearing participants a range of reports and data files, distributed via e-mail or FTP. The reporting files contain all required information both in printable statements as well as in data files for further processing. All transactions and positions, as well as the settlement instructions and money movements are reported in these files. 

EMCF also delivers a full set of risk reports before midnight on the trade date in order to provide insight into the margin requirements and the risk situation of the open position.

Clearing and settlement fees by EMFC:

MarketSegment

Clearing fee in € Settlementfee per netsettlementinstruction

Per order Per execution

A B C D

Austria 0.05 0.03 0.03 0.01 4.50

Belgium 0.05 0.03 0.03 0.01 1.70

CzechRepublic

0.05 0.03 0.03 0.01 15.10

Denmark 0.05 0.03 0.03 0.01 1.70

Netherlands

0.05 0.03 0.03 0.01 1.70

Other countries, where EMFC provides its services are:Finland, France, Germany, Hungary, Ireland, Norway, Portugal, Spain, Sweden, Switzerland

Description of above columns:

Column A: Clearing fee per order:If one or more trading Participants, clearing with the same Clearing Participant, have opted for being charged clearing fee per order instead of per execution, then for the first 75,000 orders cleared per day in total for the Clearing Participant, the fee in column A will be charged.

Column B: Clearing fee per order:If one or more Trading Participants, clearing with the same Clearing Participant, have opted for being charged clearing fee per order instead of per execution, then for all orders cleared per day in total for the Clearing Participant, in excess of 75,000, the fee in column B will be charged.

Column C: Clearing fee per execution:For the first 100,000 executions cleared per day in total for a Clearing Participant, excluding the executions that were part of an order that was charged under columns A or B, the fee in column C will be charged.

Column D: Clearing fee per execution:For all executions cleared per day in total for a Clearing Participant in excess of 100,000, excluding the executions that were part of an order that was charged under columns A or B, the fee in column D will be charged.