Minutes of Meeting to Discuss UK Securities Market Working ...



Minutes of UK & IE Securities Market Practice Group

14:00 pm 12th September 2006

at SWIFTsc, London

Attendees:

Barclays Global Investors Ltd Jane Montana

CREST Claire Murray

HSBC Securities Services Peter Chapman, Co-Chair

JPMorgan Chase Worldwide Lynda McCartney, Co-Chair

Securities Services

Northern Trust Tom Jones

RBC Dexia Investor Services Eddie Casey + comments,

ISITC Europe Executive

SWIFTStandards Tim Taylor

Apologies from:

Citigroup Doug Warrington + comments

Goldman Sachs Investment Garry Ainsworth, ISITC Europe Executive

Management

HSBC Securities Services David Ewings

State Street Global Advisors Limited Peter Shum

Also Distributed to:

Aberdeen Asset Management Neil Lewington

Aberdeen Asset Management Stephen Lane

ABNAmro Mellon Luke Haughton

BNPParibas Helene Mir

Citibank Nora Walsh

Deutsche Bank Dianna Wiseman

INVESCO Tom Gardner

M&G Investment Jon Parkhurst

Merrill Lynch Sebastian Mansfield-Steer

Morley Fund Managers Harold Bimpong

Newton Investment Management Brian Bradley

State Street Peter Tulloch

Agenda

1. Previous Minutes and Actions

2. Outstanding and Any Further SMPG Papers Issued for Review

3. Debrief of SR2007 Common and S&R Maintenance Requests Meeting

4. Completion of Review of National Settlement Market Practice

5. Update from Euroclear on Harmonisation

6. SWIFT Update on Derivatives

7. Any Other Business

1.

Previous Minutes and Actions

Previous Minutes

Minutes accepted and may be posted to the UK&IE folder of .

Actions

(1,2) Transaction Code Review, to follow-up.

Northern Trust, to issue to group for review and comment and arrange a meeting if deemed necessary. Status as previously, awaiting delivery of the documentation: the transaction code review; and the full message. The six week review period will start on delivery.

Ongoing (1) The full message has been circulated. The separate paper on the Bank Transaction Code (referred to as Transaction Code Review above) is still expected. Northern Trust to visit SWIFT HQ for a briefing on the Bank to Customer Cash Management documentation (of which the Bank Transaction Code is a part). The intention is that the deadline for comments will be known after this visit.

Follow-on: JPMChase, to contact Northern trust and request a summary of the message and Bank Transaction Code before the next meeting as the deadline for review comments will be not long after the next meeting.

Complete.

(3) UK&IE Short Sale Paper – Reference Bvi – Ongoing

Northern Trust paper has been updated and submitted to SMPG (Joshua Derrick and Alex Kech) for formation of a sub-working group.

Ongoing (2),

Background given on use by IM with prime broker (PB), PB covers short sales from own books or from the market and provides asset servicing. Northern to determine if the MT 535 formats in the document make sense for PBs and whether other GCs are using this outside the UK&IE by liaising with ISITC US.

Action (3), JPMChase and HSBC, at the global SMPG meeting in Sydney, to raise the point regarding the need for an SMPG document index with a brief explanation of each document. Would be user friendly as there now a large number of SMPG documents, eg information on turnaround transactions is found in the linkage market practice.

(4) Splits and Partials

All, but especially JPMChase & Euroclear, to review the new version, of Split market practice document (note that the partial market practice document has not been updated). (Euroclear must review as partials are generated by the settlement system.)

Ongoing (4): JPMChase, JPMChase and Euroclear London have met and agreed what updates are required to the document. This to be written up and circulated to the group before being issued to SMPG in advance of the global meeting.

Note that SR2007 CRs may supersede this market practice,

(5) Co-Existence of ISO15022 and 20022 messages

Concerns voiced around the MT 535 Statement of Holdings message for non fund holdings and an equivalent message in ISO 20022 for fund holdings.

HSBC to contacted Janice Chapman at SWIFT and asked what the business justification was for this. See response from SWIFTStandards in minutes of last meeting.

HSBC, to contact SMPG and request as an agenda item for the next global SMPG meeting.

Ongoing (5): HSBC to monitor.

SMPG response:

[It might be a little too early in November to discuss this though as we are only a the first stages of analysis at SWIFTStandards level and starting discussions too soon would not be fruitful. I think such a discussion would suit best the Amsterdam meeting in March.]

(6) Review of UK&IE Settlement MP

All, to consider any other updates required as a consequence of SR2006.

Closed. Current version to be submitted to SMPG for posting to the website as the SR2006 version.

(7) SWIFT Update on Derivatives

Derivatives are on the agenda at a SWIFT meeting for investment managers on 12th September. GSIM to report.

Closed. GSIM not present at either meeting. To become a standing agenda item.

(8) Settlement’ of Funds/Mutuals/Unit Trusts in General in the UK, IE and Other Markets

JPMChase intend to convene a subset of the UK (&IE) SRT and Funds MPGs to address ‘settlement’ of funds. Initially custodian members are actioned to report to the group if ‘settlement’ of funds causes them ‘pain’. Of interest to Citigroup, HSBC, JPMorgan Chase and Northern Trust.

Action (6): (Interested) Custodians, to identify a funds specialist in their organisation in order to set up a joint meeting of S&R MPG members plus specialist with the UK Funds MPG. Agenda items to be brought to next meeting.

Post Meeting Note, JPMChase co-chair sent the following to the UK Funds MPG co-chairs:

[“All of the Custodians present (at the 12th September meeting) agreed that the process behind the settlement of UK funds/unit trusts is manual to the extreme and therefore are very interested in our two groups coming together for a discussion.

Given this we have decided that the Custodians will identify specialists in their organisation and then we will set up a joint meeting of S&R NMPG members and Funds NMPG members for specific discussion on this topic.

However before this can happen, during our October meeting we will identify specialists, draw up our suggested list of agenda items and then circulate and finally arrange a meeting.”]

Typical ‘pain points’ for custodians are described as follows:

[There are restrictions on Unit Trust type instructions currently. Currently, within the remit of the MT54x process, for against payment subscriptions ( ie RVP trades), the custodian expects the client to quote the payment details of the fund administrator on the trade.

The custodian then manually needs to match the trades with the fund administrator - including Unit amount, consideration, ccy, fund name, trade date, payment details.

Once fully matched the custodian then needs to make a manual payment to the administrator.

This process is predominantly manual and thus prone to errors.

The custodian also encounters problems with receiving funds from fund

administrators for DVP redemptions. Funds frequently pay in bulk for various and different clients, meaning a continuous need to follow up with the FM to identify what they are paying to the custodian.

In an ideal world the custodian would like to see FM's matching in a market (ie Crest or Fundsettle) and payments being generated from trade.

The problem is though that if the client instructs the trade incorrectly the payment may not get formatted correctly or payment may get misplaced.

Fundsettle may be solving many of these problems for the industry, but custodians have found it very difficult to entice clients to Fundsettle due to the reconciliation clean up that they need to do prior to deregistration (migration to Fundsettle).]

2 Outstanding and Any Further SMPG Papers Issued for Review

No further papers received for review from SMPG, nor a detailed agenda for the global meeting. Interim meeting arranged just incase – see Future Meetings below.

3 Debrief of SR2007 Common and S&R Maintenance Requests

3.1 Post maintenance Meeting

A column has been added to the table giving the accept or reject outcome of the maintenance meeting, for details of the CR see the maintenance meeting minutes when they are available, note that often solutions have been refined at the maintenance meeting and may cover part rather than all of the original CR.

3.2 COMMON Maintenance Requests

The common SR2007 CRs were reviewed from documents:

and

:

|No |Area |Title |UK&IE S&R View |Accept / Reject |

|1 |TIC+S&R+CA |MT 56x add new character to Z character set. |See 4 |Accept |

|2 |TIC+S&R+CA |MT 564, 568 enable = and & in field 70E with qualifier WEBB |See 4, amend Z not X char set |Accept |

|3 |TIC+S&R+CA |MT 564-7 enable ‘Z’ character set |See 4 |Accept |

|4 |TIC+S&R+CA |MT 564-8 enable ‘Z’ character set |Supported (including 35B change) |Accept |

|5 |TIC+S&R+CA |MT 5xx account owner identification |20060509 |Accept |

| | | |UK&IE SRT MPG endorse the change | |

| | | |20060815 | |

| | | |Supported | |

|6 |TIC+S&R+CA |MT 56x fine tuning of MICO definition |Supported |Accept |

|7 |TIC+CA |MT 502 code harmonization for rounding methods with MT 564566 |N/A |Accept |

|8 |TIC+CA |MT 564, 566 pro rata rounding |N/A |Accept |

|9 |S&R+CA |MT 508 blocking of securities and cash due to CA. |Business concept agreed. More information required on the |Reject |

| | | |solution, eg capability of MX option | |

|10 |S&R+CA |MT 508 corporate action event Indicator |Supported – combination of ISIN, CORP ref and CAEV code identifies |Accept |

| | | |event unambiguously | |

|11 |TIC+S&R |MT 5XX underlying instrument repetitive |Supported |Accept |

|12 |TIC+S&R |MT 5XX repo sequence scope expansion |Supported, but query name ‘second leg details’ as some information |Accept |

| | | |applies to the arrangement as a whole and/or to opening leg | |

|13 |TIC+S&R |MT 5xx moving of repurchase type indicator from seq. D to seq. E |Supported, however, query use of REPE as used in Function of |Accept |

| | | |Message field in CA messages | |

|14 |S&R+CA |Alignment of MT 564, 566 INDX rate to TIC and S&R |Supported |Accept |

|15 |MT 524 |Modification of the MT 524 scope |Supported |Accept |

3.3 Settlement and Reconciliation Maintenance Requests

The settlement and reconcilaition SR2007 CRs were reviewed from documents:

and

|No |Raised by |Title |UK&IE View |Accept / Reject |

|1 |CH/SCFS |MT 535, new balance qualifiers and balance types |Unable to decide without further business context |Accept |

|2 |LU |MT 535, new sub-balance and amount |Unable to decide without further business context- what statement |Accept |

| | | |basis – impact on other balances | |

|3 |UK&IE |MT 535, sub-balances for pending on loan, borrowed delivery and |Supported |Accept |

| | |receipt | | |

|4 |UK&IE |MT 535, place of listing in subsequence B1b |Supported |Accept |

|5 |LU |MT 535, last movement date |NOT supported, over complicates an already complicated message + |Accept |

| | | |additional overhead to support | |

|6 |US |MT 535, addition of a new sub balance for collateral |Unable to decide. How different from existing loaned and |Reject |

| | | |collateral out sub-balances? What other activities besides | |

| | | |sell/buy-back? Which statement basis would this be used with? | |

|7 |ISITC |MT 536, trade date basis |Supported. Note scope of message must be amended and scope of MTs |Accept |

| | | |535 and 536 kept in step | |

|8 |DK |MT 548, duplicate as rejection reason |Supported, however, concern that availability for both NMAT and |Accept |

| | | |REJT reasons may give rise to confusion. (Depends on SLA?) | |

|9 |Euroclear Group[1] |MT 548, centrally generated transactions |20060509 |Accept |

| | | |No definitive decision from UK&IE SRT MPG. Noted other markets do | |

| | | |not require the functionality in order to process transformations. | |

| | | |20060815 | |

| | | |Agree business context. Query suggested definition – “generated by| |

| | | |the account servicer” should this be CSD, or similar? | |

|10 |LU |MT 548, 537, add pre-matching status |Unable to decide without further business context |Accept |

|11 |LU |MT 548, 537, repair status and codes |NOT supported, consider should be covered by 24B::PPRC + reason |Accept |

| | | |code | |

|12 |ISITC |MT 540-8, 535, original and current face values usage harmonisation|Supported |Accept |

| |SMPG | | | |

|13 |Euroclear Group[2] |MT 540-7, physical information |20060509 |Accept |

| |UK&IE | |UK&IE SRT MPG endorse the change | |

| | | |20060815 | |

| | | |Agree MT 540 & MT 542 only | |

| | | |Clarification of role of sender and receiver | |

|14 |Euroclear Group[3] |MT 540-3, allow repeatable info on reporting in settlement |20060509 |Accept |

| | |instructions |Not discussed | |

| | | |20060815 | |

| | | |Supported | |

|15 |LU |MT 508, 538, replacement of AVAI by AWAS |No decision |Accept |

|16 |NL and LU |MT 578 / 586, removal reason |Supported – proposal II. Confirm all scenarios covered. Note SMPG|Accept |

| | | |Allegement paper must be clarified – section B (Removal) – reasons | |

| | | |why | |

|17 |US |MT 542-3, reason for return |Unable to decide without clarification. Which parties impacted: |Accept |

| | | |IM, global, sub etc? Should be specific US MP with SETR and DSS | |

| | | |for the transaction type. | |

|18 |US |MT 578, status and reason codes |Unable to decide without clarification. See section e – what is |Reject |

| | | |meant by receiver’s collateral? Note that MT 548 has PEND//YCOL. | |

| | | |Market specific – US only MP? | |

|19 |US (ISITC – Settlements, AMF/Swaps, |MT 540-548, collateral movement information PART 1 |See 20 |Accept |

| |and Securities Lending WGs) | | | |

|20 |US (ISITC – Settlements, AMF/Swaps, |MT 540-548, collateral movement information PART 1 (2?) |Supported |Accept |

| |and Securities Lending WGs) | | | |

|21 |ISITC |MT 540-3, reallocations |Supported. Agree with SWIFT comment – SETR not to become |Accept |

| | | |repetitive | |

|22 |ISITC |MT 540-3, tracked and untracked loans and/or collateral |No objection to business concept. Query if US specific – does this|Accept |

| | | |occur in other markets? Continue with ISIT DSS? | |

|23 |US, ISITC, Settlements Market |MT 548, addition of a pending code |Supported |Accept |

| |Practice | | | |

|24 |US, ISITC, Settlements Market |MT 540-8, closing of an option through assignment |Supported |Accept |

| |Practice | | | |

|25 |BE |MT 586, scope expansion |NOT supported – previous SMPG discussions restricted the business |Accept |

| | | |concept to retail only. | |

|26 |IL |MT 544, 545, buy-in indicator in confirmation |Supported. Requires MP to supply cross reference to underlying |Accept |

| | | |delivery instruction. Ensure CR is applied to all occurrences of | |

| | | |SETR in messages where applicable. | |

|27 |Euroclear Group[4] |MT 527, 558, 569, collateral instruction |20060509 |Accept |

| | | |UK&IE SRT MPG agree the change conceptually, but do NOT endorse the| |

| | | |change as lending and borrowing experts are not present at the | |

| | | |meeting | |

| | | |20060815 | |

| | | |Supported. Must be made clear that use is CSD and direct | |

| | | |participants only. Data element names should be generic (not DBV) | |

|28 |ICSDs supported by HWGSS |MT 5xx, requirements for processing change |Business need agreed. |Accept |

| | |(see also MTXXX v1.3) |Scope to also include parties beyond direct participants of CSD – | |

| | | |this requirement already exists in the market. | |

| | | |Query whether CANC is possible as a business concept because the | |

| | | |processing change instruction is applied immediately in real time | |

| | | |to the transaction. | |

| | | |Query if sequence C (security ids etc.) required as all processing | |

| | | |should be carried out by cross referencing. | |

3.4 Additional Points

• Additional feedback required on II.12 from the TIC and CA maintenance groups.

• The payment codes EXT, TRA and TCM were discussed and accepted.

• The MiFID CRs where put for review by the TIC group, there were accepted. The TIC group considered that, to be on the safe side as the details of the regulators requirements for trade reporting are not known yet, the changes should also be included in the S&TR messages as optional fields.

4. Completion of Review of National Settlement Market Practice

No further change requests identified. The document to be submitted to SMPG for publication.

Action (7): SWIFTStandards.

5. Update from Euroclear on Harmonisation

UK&IE involvement will not be required until the end of the year at the earliest.

No change

6. SWIFT Update on Derivatives

No updates since the last meeting.

7. AOB

SMPG PSET for Funds Telco 17th August 2006

This issue has been resolved (see previous minutes), the following received from one of the SMPG Investment Funds co-chairs:

[We had further discussion on the PSET issue during the funds conference call last Thursday (17th August) and I wanted to run the conclusions that were drawn past you.

It appears that 540/2/4/6 (free of payment) messages are used as appropriate between custodians and transfer agents to instruct the TA (and for them to confirm) re stock transfers (ie. from JPM Nominees to HSBC Nominees). It is within these messages that the BIC of the TA is entered as PSET, apparently in accordance with MP for the FIN Fund Templates. TAs do not see or use the 541/3/5/7 (against payment) messages, 541 and 543 being the ones referred to specifically in the S&R MP relating to funds.

The feeling was that, as we are talking about different messages being used different purposes (purchases/sales vs. transfers), there wasn't really an issue. Certainly, Luxembourg was represented by someone from RBC Dexia who covers both TA and custody and they said it caused no problems there, although they are but one custodian.

How does this sit with you?]

UK&IE SRT MPG co-chair responded:

[One point of note, whilst the S&R MP does talk about DVP/RVP instructions, we can receive FOP instructions if the client has handled the cash directly themselves with the TA and purely wants us to settle the units - this would still constitute a purchase/sale and not a transfer as per the below.]

8. Future Meetings

The date of the next meeting will be Wednesday 18th October at 14:00

HSBC Bank plc

Institutional Funds Service

Mariner House

Pepys Street

London

EC3N 4DA

To confirm attendance please contact: peter.j.chapman@

Nearest underground station Tower Hill

Note that an interim meeting has been pencilled in for Tuesday 3rd October, at

Barclays Global Investors Limited

Murray House

1 Royal Mint Court

London

EC3N 4HH

To confirm attendance please contact: Jane Montana

jane.montana@.

Telephone 0207 668 8230.

Nearest Underground station is Tower Hill

Peter Chapman will advise if this meeting is required in order to review any recently published SMPG documents prior to the global SMPG meeting.

Future meeting dates for 2006 are on the second Tuesday of the month:

Outline agenda:

1. Previous Minutes and Actions

2. Debrief of SMPG Meeting

3. Affirm Country Vote on SR2007 Common and S&R Maintenance Requests

4. Update from Euroclear on Harmonisation

5. SWIFT Update on Derivatives

6. Any Other Business

9. Actions carried Forward

|Section/Page |Who |What |

|1.2/p2 |Northern Trust |Issue the Bank Transaction Code Review to group for review and |

|(1) | |comment, when available, and arrange a meeting if deemed necessary. |

|1.2/p2 |Northern Trust |To determine if the MT 535 formats in the UK&IE Short Sale paper |

|(2) | |make sense for PBs and whether other GCs are using this outside the |

| | |UK&IE by liaising with ISITC US. |

|1.2/p2 |JPMChase and HSBC |To raise the point regarding the need for an SMPG document index |

|(3) | |with a brief explanation of each document. |

|1.2/p3 |JPMChase & Euroclear |Comments on Split Settlements to be written up and circulated to the|

|(4) | |group before being issued to SMPG in advance of the global meeting. |

|1.2/3 |HSBC |To monitor SMPG coexistence as an agenda item for forthcoming global|

|(5) | |SMPG meeting |

|1.2/4 |(Interested) Custodians |To identify a funds specialist in their organisation in order to set|

|(6) | |up a joint meeting of S&R MPG members plus specialist with the UK |

| | |Funds MPG. Agenda items to be brought to next meeting. |

|4/13 |SWIFTStandards |To submit updated UK&IE Settlement MP for publication on the |

|(7) | |website. |

10. Open Issues

|Ongoing: to reconvene Lending and Borrowing Settlement Market Practice Group |

|Ongoing: to invite interested UK&IE participants to identify the business elements required by investment managers and custodians |

|and brokers when information about derivatives is communicated. The purpose is to give a base line against which to assess the US |

|Derivatives templates and business case |

--------------------------------------------------End of Document----------------------------------------------

-----------------------

[1] See UK&IE SRT MPG Review of Eurclear SR2007 CRs from meeting of 9th May 2006

[2] See UK&IE SRT MPG Review of Eurclear SR2007 CRs from meeting of 9th May 2006

[3] See UK&IE SRT MPG Review of Eurclear SR2007 CRs from meeting of 9th May 2006

[4] See UK&IE SRT MPG Review of Eurclear SR2007 CRs from meeting of 9th May 2006

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