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FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT OCTOBER 2005 TATA CONSULTING SERVICES S. Ramadorai CEO and Managing Director OUR OFFERINGS FOR YOUR MARKETPLACES Over the last couple of years, the securities markets industry worldwide is undergoing unprecedented changes leading to redefining of business models and competitive strategies for many marketplaces. Introduction of new products and value added services, regulatory changes, diversification, demutualization, and emergence of new players are some of the key business drivers for the new generation exchanges and CSD organisations. With the growing volume in trade, various strategies are being implemented to reduce the related risks. Many markets are shortening the settlement cycles and also entering into cross border alliances to grow beyond their national boundaries. The Federation of Euro Asian Stock Exchanges has also embarked on the common cross border trading platform under the SECI project wherein investors will be able to reach every stock exchange from a single trading platform. Technology has played an integral role in the transformation of securities business worldwide. Driven by the quantum leaps in technology, the roles of technology providers have evolved from providing traditional solutions and system integration, to providing value-added products and services. Technology providers have been closely engaged not only in business automation but also in achieving overall operational efficiency and cost reduction for the marketplaces. Extensive experience gained in executing various mission critical exchange and CSD solutions, continuous research and analysis of the best practices in securities industry and a thorough understanding of the potential needs of the leading exchanges and CSD organisations, helps experienced technology providers such as TCS to assess the current and future needs of the marketplace. The key highlight of our assessment is that marketplaces, in future, will require product based solutions compared to bespoke development to quickly respond to market requirements and achieve competitive advantage. PRODUCT BASED OFFERINGS To illustrate how the product based offerings can help you in realize your business objectives, take a look at 3 key aspects of the exchange marketplace and the challenges – both business and technological, posed in them. These 3 aspects are: 1. Trading (exchanges) 2. Post-trading (clearing, settlement, depository organisations) 3. Broker-dealer operations (large brokerage houses / market intermediaries) 1. Trading After witnessing the online screen-based transformation of the traditionally open outcry trading, exchange businesses now need to PAGE 26 With years of providing IT solutions behind it, TCS specializes in developing financial products that are customized and adaptable to the changing landscape of securities markets. gear up for the next challenge – the challenge of coping with the future expectations. This is more evident in case of emerging economies looking for attracting local as well as international trading community. The exchanges are expected to offer trading platform for a variety of financial instruments. Regulatory changes affecting the trading business are expected to be implemented harmoniously with minimum impact. The exchange trading systems must be flexible, scalable, reliable and should offer high performance to meet these business and technological challenges. TradeX TCS’ trading system product – TradeX offers a complete solution to meet these challenges. TradeX comprehensively addresses 4 key concepts of trading namely: • ‘What’ - Instruments available for trading • ‘Where’ - Trading floors and markets • ‘Who’ - Trading participants and user hierarchy • ‘How’ - Trading rules ‘What’ TradeX supports trading in equities, equity derivatives, fixed income instruments, commodities, commodity derivatives and also offers a flexible framework to manage these diverse financial instruments. ‘Where’ TradeX, with its configurable market hierarchy set up, enables you to introduce new trading floors, markets and trading sessions. Trading sessions can be run multiple times and can be extended. TradeX offers variety of trading models such as order driven matching, true quote driven trading model for market markers, hybrid matching and negotiated trade reporting. TradeX also offers variety in matching algorithms and priority of matching. New rules and algorithms for validating and matching the incoming orders and new order type combinations can be added with minimal impact. ‘Who’ TradeX provides for flexible multi-level user hierarchy wherein user categories and hierarchies can be configured as well as extended based on market needs, regulatory conformance and prevalent business practices in your region. You an also assign different roles, business privileges and access controls to these defined users. ‘How’ TradeX works as per the trading parameters set by your operations staff which can be changed to quickly adapt to changing business requirements such as change in circuit filter levels and changes in trading tick size. These parameters can also be set at various levels such as global level and instrument level. In the absence of sophisticated stand alone risk management and on-line monitoring and surveillance systems, we believe that the exchange trading systems themselves have to provide for essential levels of risk containment and surveillance measures. TradeX provides for basic risk management features such as limits and warning alerts based on order value, turnover value and exposure value. It also automatically triggers various disciplinary actions in case of violations. Circuit filter freezes can be defined at instrument level for pro-active market monitoring and surveillance. For exchanges running multiple markets, it is essential to avoid duplication of their infrastructure, hardware, maintenance costs and operations staff and have an integrated view of the market – both from business and technology side. This view is available in TradeX wherein traders have a single trading terminal for trading in all markets. TradeX is also easy to administer for exchange operations staff as there is a common repository of users and instruments available for trading on the exchange. It also helps you to take a holistic view of the market happenings and assess the risks. On the technological side, the acid test of the exchange trading systems is in checking their ability to provide high performance and quick response to transactions. Using TradeX, a trading system prototype was developed for a large Asian stock exchange. It successfully demonstrated high performance requirements such as: • Peak up to 8,000 orders/second in single security • Peak of 20,000 orders/second • Order response time to be < 1 second for 95% of orders Further, TradeX architecture is layered, componentised, platform independent and scalable. This helps the exchanges in introducing new functionality with lower system impact cost in critical areas such as user testing, redeployment and migration of the system. TradeX also provides a unified view of the deployed system infrastructure and also for a consolidated monitoring of various critical resources through its Optimax layer. 2. Post-Trading Today, exchanges, clearing houses and settlement organizations are witnessing a variety of business models in the area of clearing and settlement services. An exchange can provide both trading and clearing services while settlement is provided by another agency or the clearing and settlement being provided by a single organization or vertical integration of all services or the horizontal integration model and emergence central counterparty clearing and so on. In short, post-trading infrastructure needs to be geared up for change in the combination of its business model in either of the directions. Further, to stay competitive and cost-effective, the CSD organizations have started offering various value added services such as registrar services, collateral services, securities lending and borrowing. Shortening of settlement cycles is also posing systemic challenges in addition to operational ones. It is becoming imperative for the CSD systems to be flexible to handle combinations of settlement models as well as settlement cycles. An integrated platform across a range of securities and market segments
FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT OCTOBER 2005 provide a unified view of the risk management and cross margining opportunities. If real time response is the buzzword for exchange trading systems, STP compliance and real time linkages with key participants like trading system, payment systems have become the business necessities of CSD systems today. CSD participants are actively opting for the convenience offered by browser based CSD systems and the standardization of interface messages like SWIFT and XML. Lastly, the CSD systems are expected to be scalable, reliable and extendable to cater to such evolving business situations. eClearSettle TCS’ eClearSettle is a comprehensive product for clearing and settlement for the equities, fixed income and derivatives segments. eClearSettle provides an integrated platform for a global range of financial instruments that include equity, fixed income and derivative instruments. It also has multi-market capability and supports linkages to multiple exchanges. eClearSettle offers various components for clearing, settlement, depository, registrar and risk management services to adapt to business model you have chosen for offering post-trading services. These components can be deployed independently or as an integrated system. It also offers value added services like securities lending and borrowing, collateral management, central counterparty services and services for OTC settlement. You can configure the parameters of clearing and settlement schedules such as settlement cycle, type of settlement and settlement models as per your needs. In addition, the payment systems, external clearing house or depository can be linked up on real-time mode. eClearSettle also possesses STP capabilities for achieving greater efficiency in your post-trading operations. It complies with international practices such as G30, IOSCO recommendations and choice of internationally recognized messaging standards such as SWIFT, XML and ISO15022. eClearSettle works on a user-friendly browser based interface which allows CSD participants to conveniently access the system anywhere in the world. The integrated reporting module of eClearSettle enables you and CSD participants to generate various useful reports. The reports module, powered by Crystal report features, allows you to customize the information and layout of the report. You can see the reports in PDF, RTF and HTML formats and also directly despatch them to the desired persons using the email interface already provided in the system. eClearSettle is based on state-of-the-art technology thus protecting you from obsolescence and cost of technology upgradation. Further, the architecture is layered and component based. It helps you to scale up your operations as and how you need it. You can also introduce new features with lower system impact. 3. Broker-Dealer Operations Considering large brokerage institutions offering brokerage services in a multi-market, multi-instrument environment, the important concerns of these brokerage houses are: CONTACT INFORMATION • Improvement in business performance • Sustained operational efficiency • Lower processing costs • Need for a rule based solution that offers high degree of flexibility in handling various operational intricacies of local as well international market practices. Additionally, deploying effective internal risk management measures as well as providing multiple access channels and compliance with multiple messaging interfaces are the vital business challenges for these firms. This is being addressed by our eIBS suite of products, namely: • eIBS Matrix – the brokerage front office product • eIBS Precision – the clearing and settlement back office product. The eIBS suite of products embeds a rules engine which allows the users to define their own business rules to quickly react to market changes. To illustrate, eIBS Matrix provides for centralised risk management both at preexecution and execution level. One can parameterise the risk profile of the user and monitor risk limits and alerts on real time basis. eIBS suite of products are compliant with standard messaging and offer the much needed STP capabilities by providing an online interface with the payment systems and CSD organisations. In addition, one can also integrate news, streaming data and important market data into eIBS Matrix. eIBS Precision eIBS Precision has rules based settlement scheduling for settlement operations in different markets and instruments. It also offers configurable brokerage schemes (e.g. special brokerage schemes may apply to relationship based clients). Besides acting as a back office desk for standard clearing and settlement operations through multiple access channels, eIBS Precision offers integrated modules for client servicing which includes collateral management, corporate actions, billing and accounting. It also offers extensive and configurable MIS reporting facilities for regulatory reporting and internal MIS. eIBS Matrix eIBS Matrix is a single window order routing platform for multi-market, multi-instrument environment. It offers trading facility to both offline and online clients. Offline clients can trade through the Trader Work Station (TWS), while the online clients can trade either through highly secure and reliable internet trading platform or can use the call center facility (Operator Work Station). Besides this, eIBS Matrix also offers offline order placing facility to Internet clients. It also provides for various business functionalities desired in brokerage operations like arbitrage, basket trading, portfolio management, advanced trading strategies, on-line charting and online calculators. On the technology front, we feel that brokerage solutions would need to be more robust, reliable and scalable to sustain the dynamic business situations. The architecture of eIBS suite of products possesses all these technical capabilities. Contact Name Mr. Jagdish Bhandari E-mail jagdish.bhandari@tcs.com Website www.tcs.com CONSULTING OFFERINGS The market intermediaries, exchanges, and CSD organizations play a formidable role in shaping up the securities markets policies of the country as well as of the region. While doing so, it is becoming imperative to look at the experiences and practices of other markets and adopt the best-in-class models that suit the local needs. TCS’ business consultants can help you in blending the best of both the worlds and arrive at a winning strategy in the areas of exchanges, clearing and settlement organizations, depositories, brokerage firms, mutual funds and others. Our financial services consulting practice is spearheaded by industry specialists having an expertise in global capital markets and possess the experience of architecting mission critical solutions for international players. We provide an array of consulting services focused on customers’ business, processes, systems and operations. From the concept stage to the implementation stage, we have enabled marketplaces in North America, Europe, Asia Pacific and Middle East to achieve operational efficiency, chart out growth strategies, develop new business models and adapt to changing business environment. ABOUT TATA CONSULTANCY SERVICES For over a decade, TCS has been very closely engaged in the financial markets domain. Besides providing mission-critical and high performance solutions to our global customer base, we have also designed specialised solutions that have transformed the business operations of leading financial powerhouses. Our valued customers include new generation exchanges, CSD organisations, central market surveillance and regulatory bodies, brokerage houses in the both matured markets like North America, Europe, Canada as well as emerging markets like the Middle East, Africa. Closer home, we have been instrumental in transforming the securities marketplace in the Indian subcontinent. Additionally, TCS participates in important industry initiatives of securities industry and is carrying out collaborative research in the financial service area with institutions such as Harvard Business School, University of Massachusetts and University of Chicago. Established in 1968, TCS, a part of TATA group, is Asia’s largest and one of the world's leading global information technology (IT) services, business process outsourcing and consulting organizations. Besides the financial services business, TCS also caters to the IT needs of diverse businesses like banking, insurance, manufacturing, life sciences and healthcare, telecom, retail and consumer goods, s-governance, transportation, energy and utilities. The pioneer of the flexible global delivery model for IT services, we offer a comprehensive range of technology driven business solutions. PAGE 27
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