CSDs Assessments Sérgio Weguelin Brazilian Securities and Exchange Commission

1. CSDs Assessments Sérgio Weguelin Brazilian Securities and Exchange Commission CSD8 – April 28, 2005 New York

2. International Recommendations: History and Evolution

3. History and Evolution • End of 80’s • Institutional investors • Deregulation • Increase in traded and settled volumes in domestic and international markets • Growth in the importance of the securities markets / securitization • Crisis of 1987 Growing concern about the safety and reliability of custody and settlement systems

4. G-30: Group of Thirty G-10: Group of Tem COSRA: Council of Securities Regulators of the Americas ISSA: International Securities Services Association FIAB: Fédération Internationale des Bourses de Valeurs (WEF) ESF: European Securities Forum History and Evolution G30 / ISSA CPSS-IOSCO (SSS) COSRA ISSA G-30 FIAB G-10 1989 1993 2001 1990 1995 1999 2000 New G-30 CPSS-IOSCO (CCP) WISE MAN Giovaninni II Giovaninni I ESF CESR/ ECB 2004 2003 2003 2001 2001 2004 2003 • ECB: Governing Council of the European Central Bank • CESR: Committee of European Securities Regulators • CPSS: Committee on Payment and Settlement Systems (BIS) • IOSCO: International Organization of Securities Commissions • Committee of Wise Men on the Regulation of European Securities Markets • The Giovannini Group

5. Role and Relevance of the Recommendations

6. Role and Relevance of the Recommendations • General aims • Risks Mitigation and transparency enhancement Reducing systemic risk, avoiding crises and protecting investor’s assets • Harmonization of practices Efficiency improvement and cost reduction

7. Role and Relevance of the Recommendations • Benchmark for international assessment • Reference for self-assessment and for implementation of best practices • Benchmark for evaluation of international rating agencies Driving Capital Flows among Marketplaces

8. Assessment Initiatives • Regulatory Bodies • Market Driven • Rating Agencies

9. Regulatory Bodies Initiatives

10. Regulatory Bodies Initiatives • CPSS-IOSCO, CESR/ESCB, FSAP, COSRA Require minimum standards

11. TheCPSS-IOSCOTask Forcepublished in 2001 the report “Recommendation for Securities Settlement Systems”with 19 recommendations covering such issues as legal risk, pre-settlement risk, settlement risk, custody risk and other Assessment responsibility delegated to national authorities and the Financial Sector Assessment Program (FSAP – sponsored by IMF and WB) Regulatory Bodies Initiatives CPSS: Committee on Payment and Settlement Systems IOSCO:International Organization of Securities Commissions CPSS - IOSCO

12. Jointly launched, in 2004, the report “Standards for Securities Clearing and Settlement in the European Union” based on the CPSS-IOSCO Recommendations While these standards have no European Community Law status, nevertheless regulators will monitor their implementation Regulatory Bodies Initiatives ECB: Governing Council of the European Central Bank CESR: Committee of European Securities Regulators CESR / ECB

13. Market Driven Initiatives

14. Market Driven Initiatives • Group of Thirty (G-30), International Securities Services Association (ISSA) and AGC’s Depository Information-Gathering Project Push the market towards new standards and best practices

15. Established in 1997, AGC is an informal group of 9 North American banks that are major providers of securities custody and trade settlement services to institutional investors worldwide. Applies the AGC Questionnaire (124 questions) assessing CSDs based on the Rule 17-f7 of the North-American SEC Market Driven Initiatives AGC: Association of Global Custodians AGC Questionaire

16. Incorporated in 1989, ISSA is a private sector organization composed of institutions such as custodian banks, clearing organizations, central depositories, stock exchanges, brokers, asset managers etc Released, in 2000, the report “ISSA Recommendations” with 8 recommendations covering industry-wide issues Market Driven Initiatives ISSA: International Securities Services Association ISSA

17. Established in 1978, is a private, nonprofit, international body composed of very senior representatives of the private and public sectors and academia Published in 1989 the first 9 recommendations on custody and settlement Launched the Report “Global Clearing and Settlement – A Plan of Action” (2003) with 20 new recommendations Market Driven Initiatives G-30: Group of Thirty G-30

18. Market Driven Initiatives Assessment against the New G-30: 20 Recommendations New G-30 • Lead Monitoring Organizations • ISSA (Rec. 2, 3, 6, 7 and 8) • AGC (4, 11, 12 and 13) • Regional Monitoring Committees (1, 4, 5, 11, 12 and 13) • PricewaterhouseCoopers (9 and 10) • Legal Sub-committee (14, 15 and 16) • Regional Co-chairs (17, 18, 19 and 20) 15 initial capital markets are being assessed

19. Rating Agencies’ Initiatives

20. Rating Agencies Initiatives • Thomas Murray, Wilshire/CALPers, GSCS etc Develop and sell reports analyzing and attributing ratings

21. Rating Agencies Initiatives • Thomas Murray • A rating agency and advisory company that produces analysis of 147 CSDs and 89 capital markets infrastructures based on proprietary risk methodology analysis which considers 7 types of risk: • Asset Commitment Risk, Liquidity Risk, Counterparty Risk, Asset Servicing Risk, Financial Risk, Operational Risk,CSD on CSD Credit Risk

22. Rating Agencies Initiatives • Wilshire/CALPers • An advisory company that provides services for North-American institutional investors; produces the report “Permissible Equity Markets Investment Analysis” (a ranking of emerging markets) for the CalPERS (California Pension Retirement System) • Among other factors, analyzes the efficiency of settlements in each country with a rate from 1 (minimum) to 3 (maximum)

23. Rating Agencies Initiatives • GSCS- Global Securities Consulting Services • An advisory and rating company that produces reports with risk analyses on settlement and custody activities in several markets • It calculates periodically a “Settlement Index”, a “Safekeeping Index” and a “Operational Risk Index” for each market analyzed

24. For the Breakout Session … • Are these assessments appropriate? • How to coordinate such initiatives? • What is the real impact of so many assessments? • What is the role of regulators in this evaluation process?