Central Facility for Funds 4 th Fund Summit – Paris, 6 June 2007
What is CFF? Central Facility for Funds is a new post-trade Central Facility for Funds is a new post-trade infrastructure for European domiciled Funds infrastructure for European domiciled Funds designed to provide greater efficiency and cost- designed to provide greater efficiency and cost- effectiveness in the settlement process. effectiveness in the settlement process. 4 th Fund Summit 6 June 2007 Page 2
What Does the Market Want ? …key stakeholders across the board are in general agreement Market consensus for a post-trade funds infrastructure that provides: A single point of access to replace many-to-many n relations ! Risk reduction by standardised DVP settlement n Centralised and standardised corporate action n and income event processing A high level of STP processing and support of n industry standards 4 th Fund Summit 6 June 2007 Page 3
Existing Market Models Transfer Agent Model CSD Model Investors Fund Distributor Promoter Fund Distributor Custodian / Bank Supermarket Broker Local Settlement Custodian Agent (CSD Member) (CSD Member) TA TA TA TA CSD Funds Funds Funds Funds Promoter Promoter Promoter Promoter 4 th Fund Summit 6 June 2007 Page 4
CFF Operating Model Best of both models Investors Fund Custodian / Distributor Bank Supermarket Broker CFF TA TA TA TA Funds Funds Funds Funds Promoter Promoter Promoter Promoter CFF targets those distributors who hold a direct account on the register. The use of CFF as a settlement mechanism is independent of the mechanism used to route the related orders 4 th Fund Summit 6 June 2007 Page 5
Vestima + and CFF positioning Fund Investors Promoters Communication Channels Order Banks Transfer Routing Distributors Vestima + Agents 100% DVP DVP STP Central Settlement Facility for Funds & Custody 4 th Fund Summit 6 June 2007 Page 6
CFF within Clearstream Banking Euroclear Distributor CFF-Customer Bank Clearstream Banking Clearstream Customer Bridge Customer Banking Account Luxembourg Account Account Luxembourg CFF-Service Core Settlement and Settlement Custody Services Fund Fund Fund Fund Fund Issuance Issuance Customer Customer Customer Issuance Issuance Issuance Account Account Account Account Account Account Account Account Pictet Schröders TA TA TA Funds Register Funds Register 4 th Fund Summit 6 June 2007 Page 7
Settlement Process: subscriptions and redemptions TAs operate the Fund Issuance Account n n TAs sends the settlement instruction to CFF as soon as possible after updating the register n The settlement instruction officially confirms that the register had been updated n Manage cash accordingly DvP is always based on a matched instruction. It is the simultaneous exchange of cash n and securities in an integrated step - performed all or nothing Successful settlement within the Fund Issuance Account automatically creates and n delivers the securities to CFF in the case of a subscription or withdraws the securities from CFF in an integrated step 4 th Fund Summit 6 June 2007 Page 8
Settlement Process: Transfers By default, funds admitted in CFF will be freely transferrable n CFF informs TAs of all intra CFF transfers ex-post n Transfers are always based on standard matching instructions (MT54x based) n Transfers in / out of CFF are processed via the Fund Issuance Account operated by the n TA which leave him in full control as to when the transfer takes place For transfers between participants: Trade date = Settlement date n For transfers-in and –out: Trade date is the TD confirmed by the TA in his settlement n instruction 4 th Fund Summit 6 June 2007 Page 9
Corporate Actions Processing Corporate Actions processing in CFF is performed in a similar way as today in the ICSD. n The TA sends the Corporate Action notification for the CBL Omnibus Account to CFF. n CBL reconciles with the TA effective register date (entitlement date) and sends the notification of the Corporate Action to their individual CFF account holders. n CFF receives a bulk payment or the securities from the TA and distributes them to the CBL account holders accordingly. One major difference: entitlements will be calculated based on trade date positions instead of settled positions. 4 th Fund Summit 6 June 2007 Page 10
Benefits to Market participants Transfer Agents: Distributors: q Risk mitigation through DVP and operational processes q Risk mitigation through DVP and operational simplification processes q Streamlining of settlement procedures as everything q Streamlining of settlement procedures as everything settles through the same hub settles through the same hub (including proceeds distributions) q Consistency of settlement processes across asset classes (same instructions, centralised cash q Simplified procedures compared to current ICSD management) model q Consistency of services re: Asset Servicing q Transparency: direct view on the distributors is kept q Consistency of transactional reporting (not TA (e.g. transfers reporting) dependant) q One CFF account allows settlement against CFF as q Transfers facilitation well as ICSD accounts q Improved reconciliation processes through systematic q Improved reconciliation processes through use of matching instructions systematic use of matching instructions q Reduced operational and transactional costs q Reduced operational and transactional costs q Transactions driven pricing vs. AUM driven pricing q Simple and very reasonable pricing 4 th Fund Summit 6 June 2007 Page 11
Clearstream’s Commitment Pilots Strategy of TAs Q3 2005 Q1 2007 Q3 2007 migration onto CFF § Schröders 26 March 2007 § Pictet Specification Full Launch Phase 2 Phase x Pilot § BP2S § UBS FS n Working groups n CFF to be n Further market-led n Launch CFF n Entend service § Fortis consisting of launched for enhancements to all scope major market Early Adopters § Fastnet customers n Possible geographic players n Limited service extension n Migrate TAs § Automated Cash Pay-out n Dedicated project scope to CFF § Automated re-investment team n Executive § Pre-advice & NOSTRO management § Position Blocking commitment to § Connectivity Integration for Vestima & COL finding a solution § CVS file upload for transactions 4 th Fund Summit 6 June 2007 Page 12
Thank you ! patrick.wallerand@ clearstream.com 4 th Fund Summit 6 June 2007 Page 13
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