Slide 1
Independent Advisory GroupGiovannini Barrier 1Meeting 1
July 19th, 2005
IAG_190705_v3.ppt Slide 2
Agenda The Independent Advisory Group
– What is it & why do we need one?– What is it going to do & when?
Barrier 1– What progress has been made so far?– What is there still left to do?
Agreement of terms
Focus on the Network Layer– Standards– Security– Service
Any other business
IAG_190705_v3.ppt Slide 3
Agenda The Independent Advisory Group
– What is it & why do we need one?– What is it going to do & when?
Barrier 1– What progress has been made so far?– What is there still left to do?
Agreement of terms
Focus on the Network Layer– Standards– Security– Service
Any other business
IAG_190705_v3.ppt Slide 4
Independent Advisory Group:What is it & why do we need one? Responses emphasised importance of original key principles:
– Leverage
– Open
– Neutral
– Inclusive
Feedback identified creation of an independent advisory group as a way of maintaining principles
Business not technology focus
Maintain congruency with G30
IAG_190705_v3.ppt Slide 5
Independent Advisory Group:What is it & why do we need one?
CESAME group meeting 10th June concurred with suggestion to form IAG
Membership criteria:– CESAME member– Respond to the consultation– 4 exceptions
Independent chair
Independent observer
IAG_190705_v3.ppt Slide 6
Independent Advisory Group:What is it & why do we need one?
CESAME members Attendee Alternate if appropriateABN Amro [email protected] [email protected] [email protected] [email protected] Bank [email protected] Börse [email protected] [email protected] [email protected] [email protected] [email protected] Clearnet [email protected] Stanley [email protected] [email protected]
Exceptional inviteesFPL [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]
ObserverECB [email protected] [email protected]
IAG_190705_v3.ppt Slide 7
Independent Advisory Group:What will it do & when?
Ratify
– Where consultation provides conclusive direction
Recommend
– Where consultation results are unclear
Meetings scheduled:
– 19th July
– 3rd August
– 23rd August
– 12th September
IAG_190705_v3.ppt Slide 8
Agenda The Independent Advisory Group
– What is it & why do we need one?– What is it going to do & when?
Barrier 1– What progress has been made so far?– What is there still left to do?
Agreement of terms
Focus on the Network Layer– Standards– Security– Service
Any other business
IAG_190705_v3.ppt Slide 9
Barrier 1:2003 Giovannini Report states...
Barrier 1Barrier 1
« National differences in the information technology and interfaces used by clearing and settlement providers should be eliminated via an EU wide protocol. SWIFT should ensure the definition of this SWIFT should ensure the definition of this protocol through the Securities Market Practice Groupprotocol through the Securities Market Practice Group. Once defined, the protocol should be immediately adopted by the ESCB in respect of its operations. This barrier should be removed within two years from the initiation of this project. »
IAG_190705_v3.ppt Slide 10
2004, Market research
2005, Market consultation:– Paper published 5th January, 2005 – Consultation closed 15th April, 2005
70 physical responses
Responses from 21 out of 25 EU countries
Responses from 30 countries globally
Barrier 1: Progress
IAG_190705_v3.ppt Slide 11
Barrier 1:Progress: EU Response statistics 74% from EU organisations
– 56% from FI’s– 23% from Infrastructures– 21% from miscellaneous (Central Banks, Consultancies etc)
29 Institutions & FI ‘clubs’ (e.g. ISITC Europe)
2 ICSD’s
64% of EU CSD’s
50% EU Equity Exchanges
1 Clearing House
IAG_190705_v3.ppt Slide 12
Barrier 1:What is there still left to do?
Independent advisory group formed July 05
Summary of consultation responses July 05
Pre-publication of protocol model Q4 05
Final publication Q1 06
IAG_190705_v3.ppt Slide 13
Agenda The Independent Advisory Group
– What is it & why do we need one?– What is it going to do & when?
Barrier 1– What progress has been made so far?– What is there still left to do?
Agreement of terms
Focus on the Network Layer– Standards– Security– Service
Any other business
IAG_190705_v3.ppt Slide 14
Agreement of terms:‘Protocol’ - Definition
Technical protocolTechnical protocol
« Any agreement that governs the procedures Any agreement that governs the procedures used to exchange information between co-used to exchange information between co-operating entities»operating entities»
Diplomatic protocolDiplomatic protocol
« A code of conduct prescribing how those « A code of conduct prescribing how those taking part should behavetaking part should behave»
BEST PRACTICE
IAG_190705_v3.ppt Slide 15
Agreement of terms:‘Standard’ - Definition
StandardStandard
– «« something established by authority, something established by authority, custom or general consent as a model or custom or general consent as a model or example »example »
– « a rule for the measure of quality »« a rule for the measure of quality »
– « regularly and widely used »« regularly and widely used »
– Uniform and well established by usage and Uniform and well established by usage and widely recognised as acceptablewidely recognised as acceptable » »
LEVERAGE
IAG_190705_v3.ppt Slide 16
W3C
UN/CEFACT
e-bMoU
OMG
ISO/TC68
FIX
ISITC-IOAISSA
SMPG
SIA
FISD/MDDL
G30
GiovanniniTC68/SC4
WG
8 & WG
11
EPC/ECBS
ISTH
IFX
RosettaNet/PMP
OAGi
X12
BMA
EACT
FpML
ISDA
IFSA
OASISBolero
ICC
TC68
/SC6&
7
CEFACT/
TBG
5
IIBLP
UNCITRAL
IFSA
Securities Trade Finance
Acord
TC68/SC4&7
Payments Treasury
EAN/UCC
Insurance
UNIFI - ISO 20022
CEFACT/
TBG
15
TWIST
Fedwire
CHIPSTCH
NACHAIFSA
IGTA
Agreement of terms:‘Standards’
IAG_190705_v3.ppt Slide 17
Agreement of terms:‘Syntax’ - Definition
SyntaxSyntax
– «« the way in which elements are put the way in which elements are put together to form a message »together to form a message »INTEROPERABILITY
IAG_190705_v3.ppt Slide 18
Agreement of terms:‘Protocol, Standard & Syntax’ - proposed ratification
End to end STP can be achieved via End to end STP can be achieved via interoperability of agreed standards interoperability of agreed standards (inc market practices) within a best (inc market practices) within a best practice protocolpractice protocol
Interoperability achieved through the Interoperability achieved through the adoption of a single data dictionaryadoption of a single data dictionary
IAG_190705_v3.ppt Slide 19
Agreement of terms:‘Protocol scope’ - Definition
Scope defined in the consultation paper as:
– All post trade processes
– All traded instruments
– All participants
IAG_190705_v3.ppt Slide 20
Agreement of terms:‘Protocol scope’ - All post trade processes
ExchangeExchange
VMU / ETCPVMU / ETCP
Tra
de
Dat
e
Sp
ace
1S
pac
e 1
Pre
-tra
de
/ T
rad
e
Sp
ace
3S
pac
e 3
Cle
arin
g &
S
ettl
emen
t
OrderTrade
IMI: Investment ManagerB/D: Broker DealerVMU: Virtual Matching UtilityGC: Global CustSC: Sub-CustSA: Settlement Agent (Clearer)CCP: Central CounterpartyICSD: (Int‘l) Central Securities Depository
Institutional (buy) Side Street (sell) Side
Sp
ace
2S
pac
e 2
Po
st T
rad
e /
Pre
-Set
tlem
ent
Tra
de
Dat
e +
X
GCGC
SASA
CCPCCP
SASA
IMIIMI B/DB/D
(I)CSD(I)CSD
SCSC
B/DB/D
Space 4Space 4 - Custody Services
Non Trade Related Activity
1
2
3
IAG_190705_v3.ppt Slide 21
Agreement of terms:‘Protocol scope’ - All traded instruments
Giovannini Reports 1 & 2 refer to securities & derivatives:
– Equities
– Fixed Income
– Derivatives (Exchange traded)
Giovannini 1 also includes Clearing & Settlement process flows for Derivatives (Chart 2.6)
IAG_190705_v3.ppt Slide 22
Agreement of terms:‘Protocol scope’ - All participants
ExchangeExchange
VMU / ETCPVMU / ETCP
Tra
de
Dat
e
Sp
ace
1S
pac
e 1
Pre
-tra
de
/ T
rad
e
Sp
ace
3S
pac
e 3
Cle
arin
g &
S
ettl
emen
t
OrderTrade
IMI: Investment ManagerB/D: Broker DealerVMU: Virtual Matching UtilityGC: Global CustSC: Sub-CustSA: Settlement Agent (Clearer)CCP: Central CounterpartyICSD: (Int‘l) Central Securities Depository
Institutional (buy) Side Street (sell) Side
Sp
ace
2S
pac
e 2
Po
st T
rad
e /
Pre
-Set
tlem
ent
Tra
de
Dat
e +
X
GCGC
SASA
CCPCCP
SASA
IMIIMI B/DB/D
(I)CSD(I)CSD
SCSC
B/DB/D
Space 4Space 4 - Custody Services
Non Trade Related Activity
1
2
3
IAG_190705_v3.ppt Slide 23
Agreement of terms:‘Protocol scope’ - Consultation responses
59 responses in total Agree– 14 EU FI 8 – 57%– 16 FI EU rep orgs 8 – 50%– 10 EU C&S Infrastructures 6 – 60%– Total (inc above) 32 – 54%
Disagreements:– Too narrow 10 – 17%– Too broad 10 – 17%– Phasing required 17 – 29%
IAG_190705_v3.ppt Slide 24
Agreement of terms:‘Protocol scope’ - Consultation responses
Too narrow, should include:
– Pre-trade/trade 3 responses
– Geographic Europe 3 responses
– Market data 2 responses
Too broad, should not include
– Interfaces & networks 4 responses
Total (agree + too narrow) = 42 responses (71%)
IAG_190705_v3.ppt Slide 25
Agreement of terms:‘Protocol scope’ - Proposed ratification
The scope is appropriate to the The scope is appropriate to the definition of a communication protocol definition of a communication protocol for C&S and asset servicing activity for C&S and asset servicing activity
Phasing by Participant/sector Phasing by Participant/sector
IAG_190705_v3.ppt Slide 26
Agreement of terms:‘Protocol framework’ - Definition
Network
Messaging
Data
Network
Messaging
DataSTANDARDS
SECURITY
SERVICES
Participant A Participant B
1
4
7
2
5
8
3
6
9
IAG_190705_v3.ppt Slide 27
Agreement of terms:‘Protocol framework’ - Consultation responses
53 responses in total Agree
– 15 EU FI 14 – 93%
– 12 FI EU rep orgs 9 – 75%
– 10 EU C&S Infrastructures 8 – 80%
– Total (inc above) 42 – 82%
Disagreement
– Should only include Layer 1, Data
IAG_190705_v3.ppt Slide 28
Agreement of terms:‘Protocol framework’ - Proposed ratification
The proposed 9 element framework The proposed 9 element framework correctly frames a potential correctly frames a potential communication protocolcommunication protocol
IAG_190705_v3.ppt Slide 29
Agreement of terms:‘Interoperability’
Interoperability– Participants?– Standards/syntaxes?– Network?
G30: Clearly refers to participant & standards/ syntaxes interoperability*
Giovannini: less clear but refers to interoperability of users, payment instruments & standards/syntaxes**
* Global Clearing & Settlement Plan of Action, 2003** Giovannini Second Report, 2003
IAG_190705_v3.ppt Slide 30
Agenda The Independent Advisory Group
– What is it & why do we need one?– What is it going to do & when?
Barrier 1– What progress has been made so far?– What is there still left to do?
Agreement of terms
Focus on the Network Layer– Standards– Security– Service
Any other business
IAG_190705_v3.ppt Slide 31
The Network Layer:
Messaging
Data
Network
Messaging
DataSTANDARDS
SECURITY
SERVICES
Participant A Participant B
1
4
7
2
5
8
3
6
9Network
IAG_190705_v3.ppt Slide 32
The Network Layer:Element 7: Network Standards
G30: IP
Consultation paper: IP (based on discussions with COLT & Equant)
Most end devices (PC, Servers etc) communicate
/route using IP
There is no "Best Practice" for building or operating IP networks, each has its own rules but if interoperability between networks is not a requirement, IP implementation is academic
IAG_190705_v3.ppt Slide 33
The Network Layer:Element 7: Proposed ratification
The minimum acceptable network The minimum acceptable network standard is the implementation of IP for standard is the implementation of IP for communication and routingcommunication and routing
IAG_190705_v3.ppt Slide 34
The Network Layer:Element 8: Network Security
G30: “Security should be set at a level that satisfies business & regulatory requirements and that meets the needs of all stakeholders in the industry”
Barrier 1 Consultation paper: Secure private network (VPN) plus data encryption using a strong standard algorithm
– Network encryption vs message encryption
– Message validation or not
IAG_190705_v3.ppt Slide 35
The Network Layer:Element 8: Network Security - ‘Policing’
51 responses in total Agree
– 14 EU FI 12 – 86%
– 12 FI EU rep orgs 8 – 67%
– 9 EU C&S Infrastructures 7 – 78%
– Total (inc above) 37 – 73%
Disagreement
– 12 respondents (24%) explicitly disagreed that network standards should be policed
IAG_190705_v3.ppt Slide 36
The Network Layer:Element 8: Network Security - ‘Policing’
Validate against std structure 26 - 51%
Report violation to sender 10 - 20%
Stop traffic 8 - 16%
Optional 13 - 25%
IAG_190705_v3.ppt Slide 37
The Network Layer:Element 8: Proposed ratification
Security, at either the network or the messaging layer, must be set at a level that satisfies business & regulatory requirements
IAG_190705_v3.ppt Slide 38
The Network Layer:Element 9: Network Service
Is service a commercial differentiator between network providers?
Is a minimum level of service required?
– Performance - inc. provisioning & implementation times, availability, restore time etc
– Resilience - diversity, contingency etc (Fed, ECB, FSA guidelines already exist – Leverage)
– Management – maintenance, fault identification & rectification etc
IAG_190705_v3.ppt Slide 39
The Network Layer:Network Service - Consultation responses
49 responses in total Agree
– 15 EU FI 14 – 93%
– 11 FI EU rep orgs 7 – 64%
– 9 EU C&S Infrastructures 8 – 89%
– Total (inc above) 39 – 80%
Disagreement
– 7 respondents (14%) explicitly disagreed that network standards are required
IAG_190705_v3.ppt Slide 40
The Network Layer:Network Service - Consultation responses
24x7 Agree
– EU FI 6 – 40%
– FI EU rep orgs 3 – 27%
– EU C&S Infrastructures 2 – 22%
– Total (inc above) 15 – 31%
99.999% availability Agree
– EU FI 5 – 33%
– FI EU rep orgs 2 – 18%
– EU C&S Infrastructures 2 – 22%
– Total (inc above) 11 – 22%
IAG_190705_v3.ppt Slide 41
The Network Layer:Element 9: Proposed ratification
Service must satisfy business & regulatory requirements for performance, resilience and network management
IAG_190705_v3.ppt Slide 42
Agenda The Independent Advisory Group
– What is it & why do we need one?– What is it going to do & when?
Barrier 1– What progress has been made so far?– What is there still left to do?
Agreement of terms
Focus on the Network Layer– Standards– Security– Service
Any other business
IAG_190705_v3.ppt Slide 43
The next meeting is…..
3rd August at 11.00am
The subject will be the messaging or interface layer
IAG_190705_v3.ppt Slide 44
AoB – Time permitting
Accreditation
– Do we need accreditation of Messaging/Network suppliers?
– If yes, who should provide the accreditation service?
IAG_190705_v3.ppt Slide 45
Communication solution providers:Accreditation - Consultation responses
53 responses in total Agree
– 14 EU FI 13 – 93%
– 12 FI EU rep orgs 9 – 75%
– 9 EU C&S Infrastructures 6 – 67%
– Total (inc above) 43 – 81%
Disagreement
– 5 respondents (9%) explicitly disagreed that accreditation
IAG_190705_v3.ppt Slide 46
Communication solution providers:Accreditation - Consultation responses
Who should accredit?
– Independent organisation 20
– SWIFT 9
– Regulator 2
– ECB 2
– ISO 3
– EU 2
– Self certification 5
– Market forces 10
IAG_190705_v3.ppt Slide 47
Communication solution providers:Accreditation - Proposed ratification
Accreditation of messaging/network providers Accreditation of messaging/network providers is requiredis required
This activity should be carried out by ______This activity should be carried out by ______
_______ should determine the accreditation _______ should determine the accreditation process based on the criteria laid out in the process based on the criteria laid out in the Giovannini protocolGiovannini protocol