Page 1 Depository Risk Controls Jim Micklethwaite 21 April
2006
Slide 2
Page 2 Contents 1.Introduction to Thomas Murray 2.Capital
Market Infrastructure Classic Model 3.Depository Risks 4.Conclusion
5.AMEDA White Label Site Thomas Murray Contents
Slide 3
Page 3 Thomas Murray has four principal businesses surrounding
its primary research, analysis and information group INVESTOR
SERVICES Global custody reviews for institutions Private custody
risk ratings and operational benchmarking NETWORK MANAGEMENT AND
INFORMATION SERVICES Agent bank network management
support/outsourcing Evaluation and risk rating of local markets
Surveillance of network arrangements RATINGS AND ASSESSMENTS Global
custody ratings Domestic custody ratings Market and CSD risk
ratings PRIMARY RESEARCH, ANALYSIS AND INFORMATION Data management
e-platform Data management e-platform ALTERNATIVE INVESTMENTS
Private and public rating of service providers Evaluation,
selection and monitoring of service providers Request for Proposal
Tool Thomas Murray Introduction to Thomas Murray
Slide 4
Page 4 Stock Market CCP/ Clearing House Central Depository
Payment System Thomas Murray CMI Classic Model Classic Capital
Market Infrastructure Model Exchange Risk and Reward Centralise and
Manage Risk Minimise Risk
Slide 5
Page 5 m Asset Commitment Risk - Minimising processing times m
Liquidity Risk - Managing temporary fails m Counterparty Risk -
Managing full defaults m Asset Servicing Risk - Managing corporate
actions servicing m Financial Risk - CSDs financial security m
Operational Risk - Manage internal controls and systems Thomas
Murray Depository Risks
Slide 6
Page 6 m Asset Commitment Risk - Real-time securities and cash
transfers - Intraday finality in settlement system (with legal
basis) m Liquidity Risk - Netting (with legal basis)/ optimisation
- Multiple processing cycles - Stock lending - Credit facilities -
Fails management (fines, buy-ins) - High levels of
immobilisation/dematerialisation - Fast registration/ central
registrar Thomas Murray Depository Risks Summary Risk Containment
Strategies
Slide 7
Page 7 m Counterparty Risk - DVP (market AND client-side) -
Central Bank funds - Settlement assurance (CCP, collateral,
guarantee fund) - Strict participation criteria - Surveillance of
participant volumes/ risk modelling m Asset Servicing Risk -
Multiple sources (Official + verification) - Timely, accurate and
comprehensive event notification - Timely, accurate and
comprehensive event processing - Proactive client servicing -
Straight-Through-Processing - Clear statement of liability Thomas
Murray Depository Risks Summary Risk Containment Strategies
Slide 8
Page 8 m Financial Risk - Adequate capital (FSA states GBP 5m+)
- Operationally profitable - Comprehensive insurance - Any
principal activity fully collateralised - Limited commercial
activity m Operational Risk - Comprehensive controls and procedures
- External operational audits - Limit manual processing - Asset
segregation - Secure and efficient interfaces - DRP/BCP procedures
Thomas Murray Depository Risks Summary Risk Containment
Strategies
Slide 9
Page 9 CountryCSDOverall Assessment (AAA to C) EgyptMCSDA-
JordanSDCA- KuwaitKCCN/R LebanonMidclearA MoroccoMaroclearA-
MauritiusCDSA+ OmanMDSRCBBB TunisiaSTICODEVAMA- UAE (DIFC)DIFXN/R
Thomas Murray Depository Risks AMEDA Member Risk Assessments
Slide 10
Page 10 m Does a risk-free CSD exist? Mitigating one risk may
trigger another. Risk Counterbalances Depository Risks Risk
Containment Mechanism +- RTGSAsset CommitmentLiquidity Credit
FacilitiesLiquidityFinancial NettingLiquidityCounterparty Central
CounterpartyCounterpartyFinancial Pre-fundingLiquidity/
CounterpartyAsset Commitment Thomas Murray
Slide 11
Page 11 Conclusions Thomas Murray Depository Risks m
International standards (ISSA, G30, CPSS-IOSCO) set the base-line
for risk mitigation m No one size fits all approach. Strategies
must account for local realities. m Risk minimisation strategies
require constant evolution. m Risk solutions may need to be
tailored for negative side-effects. m Must communicate how risk is
managed. Transparency is critical.
Slide 12
Page 12 AMEDA White Label Site Thomas Murray AMEDA WLS m Aim is
to share information between AMEDA members m Access to current TM
information - full Data, summary Reports and Newsflashes. m
Requires each AMEDA member to sign an agreement to authorise the
release of their information to other AMEDA members. m Private,
secure zone established exclusively for AMEDA members to upload
AMEDA specific information, notices and run data collection
exercises. m Option to upload AMEDA specific documentation m
Created and administered by TM for the benefit of AMEDA
members.
Slide 13
Page 13 AMEDA White Label Site Thomas Murray AMEDA WLS