Recommendation 1 Recommendation 2 Recommendation 3 Recommendation 4

Recommendation 5 Recommendation 6 Recommendation 7 Recommendation 8

Market selection

Recommendation 5

The major risks in Securities Systems should be mitigated by five key measures:

• the implementation of real delivery versus payment
• the adoption of a trade date plus one settlement cycle in a form that does not increase operational risk.
• the minimisation of funding and liquidity constraints by enabling stock lending and borrowing, broad based cross collateralisation, the use of repos and netting as appropriate
• the enforcement of scrip-less settlement
• the establishment of mandatory trade matching and settlement performance measures.

1.	Does the market use DvP settlement procedures in accordance with one of the recognised BIS models? If so, which one? If the model is not BIS model 1, are there plans to move to this model?	Austraclear Yes - Model 1. RITS Yes - Model 1 (see question 2.2) CHESS The default settlement discipline is BIS model 3. BIS model 1 settlement is also supported and transactions may be diverted to it by mutual agreement between counterparties. There are no plans to move exclusively to BIS model 1.
2.	Does the market have a rolling settlement cycle of T+3 or shorter for all exchange traded instruments?	Austraclear Yes. Market practise is T+3 however the system can settle T. RITS Yes, t+3 except for repurchase agreements where market convention is generally same day settlement. (However, note that settlements across RITS arise from an OTC rather than exchange traded market). CHESS Yes - T+3.
3.	Could the market reduce the current settlement period to T+2 or below, without increasing fails rates? If so, how would this be achieved, and what plans are there to shorten the existing settlement cycle?	Austraclear Changes to current market practise would need to be undertaken. Austraclear provides its members with a number of STP options. Unfortunately due to some members own internal situations eg internal technical expertise, these options have not been embraced. RITS There are no obstacles from the depository side in regards to reducing the settlement period from T+3, however there are no plans by the market to do so at present. CHESS Probably No. The industry would experience a significant increase in fails (from the current low base of around 1.2%) pending a significant speeding up of procedures, particularly for trade confirmation processing between brokers, custodians and both domestic and foreign institutional investors. There are tentative plans to move to T+1 in 2004/2005.
4.	Is matching of trade details achieved on trade date, at least for direct market participants; and by trade date plus one for indirect participants?	Austraclear Trade date matching is desirable and market standard but it is not always achieved. RITS Trade date matching is desirable and market standard but it is not always achieved. CHESS Trade date matching applies for direct market participants. Indirect market participants may match up to the morning of T+3.
5.	Is the depository scrip-less, and, if not, is it working to enable scrip-less settlement?	Austraclear Not entirely, 85% of securities are dematerialisation achieved, while the remainder are immobilised. RITS Yes. CHESS Yes, already scrip-less.
6.	Does the market allow partial settlements?	Austraclear Yes. RITS Yes. Note that if the original trades have been entered into RITS, new ones must be entered for the partial settlements. RITS provides trade splitting functionality which can be used to assist in this if required. CHESS Yes, assuming use of the optional RTS model 1 settlement facility.
7.	Can the depository accommodate same day turnarounds?	Austraclear Yes. RITS Yes, if "same day turnaround" is taken to mean same day settlement. Same day settlement is standard practice for repurchase agreements. CHESS Yes, assuming use of the optional RTS model 1 settlement facility.

Bank of International Settlements (BIS) Settlement Models

Model 1:	Systems that settle transfer instructions for both securities and funds on a trade-by-trade (gross) basis, with final (unconditional) transfer of securities from the seller to the buyer (delivery) occurring at the same time as final transfer of funds from the buyer to the seller (payment).
Model 2:	Systems that settle securities transfer instructions on a gross basis, with final transfer of securities from the seller to the buyer (delivery) occurring throughout the processing cycle, but settle funds transfer on a net basis, with final transfer of funds from the buyer to the seller (payment) occurring at the end of the processing cycle.
Model 3:	Systems that settle transfer instructions for both securities and funds on a net basis, with final transfers of both securities and funds occurring at the end of the processing cycle.