Searching for the Holy Grail

Despite much hard work, the distant dream of having full harmonization of global settlements and clearing remains a dream.

Imagine: everywhere in the world, investors buying and selling securities using the same platforms, the same settlement procedures, the same clearing protocols. Unfortunately imagination is all you will need, as delegates at Sibos yesterday heard of the many barriers that still prevent that dream becoming reality.

At a panel discussion comprising representatives from the G30, the Giovannini Committee, the SIA, Euoclear and SWIFT, it became clear that much work has been done in the US and Europe to improve the harmonization between various markets' clearing and settlements systems.

Much of this work to date has focused on finding and identifying the barriers that exist. These have now largely been found and the various working groups are now working on ways to eliminate them.

"The G30 has a global plan of action to get global standards and processes in the clearing and settlements of securities," said John Walsh, executive director of the G30 committee. "There are two goals: to improve safety and increase efficiency".

The twenty recommendations that the G30 put forward in the past few years are generally accepted by the market. "We are now moving to a process of implementation," said Walsh.

The sheer scale of the work involved is probably best seen in the efforts under way in Europe to find some common ground on all this. The Giovannini reports of 2002 and 2003 showed the level of disharmony between the various markets. Still, a strong political will from the EU Commission is pushing the issue forward, according to Jacques Philippe Marson from BNP Paribas who sits on one of the Giovannini Committees.

The 17 barriers to a common European clearing and settlement system are still in place, although progress has been found in removing some of them. For instance, in Europe as a whole there are 57 days of the year where there is a public holiday somewhere in Europe when trades cannot happen.

A way to reducing this huge number is being discussed. Similarly the post trade settlement procedures are different throughout Europe, although many have now settled on T+2 with the exception of Germany which is still on T+3. The aim is to move everyone to STP.

What of Asia? According to Walsh at the G30, a regional monitoring committee has been set up under the leadership of Andrew Sheng, the chairman of Hong Kong Securities and Futures Commission. Asia is somewhat different from The Americas and Europe in that the process of harmonization is being led by the official bodies rather than the private sector.

Thus on the G30 committee sit officials from Japan, Australia, Singapore and Hong Kong with some observers from the private sector. But it seems that Asian officials are watching what is happening in the rest of the world rather than driving their own proposals themselves.

"The interest is very strong in Asia but there has been less specific activity than in Europe or the Americas," says Walsh. "I think perhaps the business case for doing this is further away from reality than it is in the EU."

However, while the sheer amount of work that is left to do might have depressed certain members of the audience, the session ended on an upbeat note. Remarking that the internal logic of the harmonization process remains sound, Walsh pointed out that this was an evolution of the market that was in some ways inevitable. It was up to all participants to decide if this evolution was to be done in a coordinated or piecemeal manner.

SWIFT's role in this process was outlined by Andrew Douglas who spoke for the cooperative. He said that with all the work being done around the world, the same conclusion had been reached by all, namely that the market needs one global communication protocol.

Given SWIFT's history of operations, community and neutrality, it was the entity that best suited that goal. Douglas outlined the work SWIFT had done on creating interoperability at the application, messaging and network lines creating the same standards, security and service levels along the way.

In 2005, Swift will publish a protocol and implementation plan for how it thinks it can help overcome the barriers outlined in the G30 and Giovannini reports. In the quest for the Holy Grail, the road to take might be SWIFT.

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