Cooperative Works between Uz SCSD and KSD December

Cooperative Works between Uz. SCSD and KSD December 14, 2001 Tashkent, Uzbekistan James J. W. KIM

Market Trends Integration & Convergence Competition Shift to…. . Building a stable, efficient, and reliable Securities Infrastructure 2

Front-Office Vs Back-Office | Front Office v. Monopoly Global competition v. Under pressure to be more specialized, competitive | Back Office v. Increase in settlement costs & risks resulting from large volume transactions v. Global Standardization v. In the process of integration Economy of Scale & More Efficiency 3

Outline | Overview of Uzbekistan securities market & deposit and settlement system | Issues to be dealt with further | What we can expect from this project? 4

Uzbekistan securities market | RSE Toshkent & Elsis Savdo v. Not as active as other off exchange markets | Listed companies : approximately 1, 200 v. Daily average of transactions : 8. 2 v. Daily average of trade volume : 28, 000 shs. 5

Deposit & Settlement system | Settlement Cycle v Toshkent : T+5 / Elsis Savdo : T+2 v Preliminary requirements v Blocking of the securities from disposal | Many institutions related to the settlement process v Uz. SCSD – Securities Delivery v Elsis Kliring – Clearing v Commercial Banks – Cash Transfer v 2 nd Level Depositories Custody v Brokers Intermediation | Entitlement Processing 6

Issues to be dealt with further | Settlement Cycle | Complicated Settlement Process | Implementation of Entitlement Processing

Settlement Cycle T+5 ? ? ? | Higher Settlement Risk due to Longer Settlement Period | G 30 Recommendations v T+5 by 1990 v T+3 by 1992 | ISSA Recommendations v T+1 in a form that does not increase operational risk | Essential foreign investment 8

Complicated Settlement Process | Simultaneous Settlement v BIS, G 30, ISSA Cash Transfer Settlement Bank (Commercial Bank) Transfer Instruction Transaction Data Elsis-Kliring Uz. SCSD Blocking & Delivery Instruction 2 nd level Depository Elsis-Savdo Toshkent Securities Blocking & Delivery Clearing Data / Settlement Instruction | Cash Settlement v Final, Irrevocable, Immediately available to Investors | Settlement Fund through Central Bank Trade Order Broker v ISSA Recommendations 2000 9

Ongoing move for Integration & Linkage Intensive Competition Independent & Specialized from trading part Integration of back office sector Economy of Scale & Scope 10

Current Status of back-office integration State Content U. S. Integration of settlement related organizations dealing with stocks, corporate bond, ABS, and MBS into DTC-initiated integration of DTC and NSCC into DTCC(1999) System integration of two organizations is to be completed by the first quarter of 2003 Ongoing integration of settlement related organizations dealing with Government Bond(GSCC), MBSCC and Emerging Market Bond(EMCC) into DTCC Integration of WCCC(Clearing House) and WCDTC(Deposit and Settlement Entity) into CDS(1996) Canada German Integration of various Deposit and Settlement Entities into DBC(1989) Integration of DBC(CSD) and Cedel International(ICSD) into Clearstream(2000) France Transfer of Government Bond settlement system(Saturne) of Central Bank to Euroclear France (CSD)(1995) British Transfer of the Deposit and Settlement system covering Government Bond and short term financial instrument to CRESTco(June, 2000) Switzer land Integration of SEGA(CSD) and Intersettle(Cross-Border Settlement Entity) into SIS Sega. Intersettle Japan Integration of the Deposit and Settlement Entities divided by types of securities into JASDEC(CSD) (2005) HK Transfer of Custody operation by the Central Bank to HKSCC(CSD) 11

Comparison of Settlement Costs between European and U. S Markets Source : Merrill Lynch(1999), Murray(2000) 12

Implementation of Entitlement Processing Distribution of Bonus Issues Dividends Payment Stable Entitlement Processing System Essential for Foreign Investment Beneficial Owners Information 13

What we can expect from this project? Vitalization of Stock Market Foreign Investments Successful Privatization Strong & Efficient Infrastructure for Deposit & Settlement System Funding from Issuing Market Strengthening Financial Status Enhancing Uzbek Economy 14

Future Development | Memorandum of Understanding | Mutual visits between Uz. SCSD and KSD v Final Consultative Report v Training Program 15

16