KEITH DICKINSON is Director of The Settlement & Management Research Consultancy Limited, Principal of Financial Markets Training Limited and a Senior Teaching Fellow at the International Business School Suzhou at Xi'an Jiaotong-Liverpool University, Suzhou. His career has spanned twenty years as an industry practitioner in operations and over twenty years in executive education and academia.

Preface xix

Acknowledgements xxiii

PART ONE

CHAPTER 1 Introduction to Operations 3

1.1 Introduction 3

1.2 Organisational Structure of an Investment Company 5

1.3 Operations’ Relationships 10

1.4 Other Business Functions 13

1.5 Summary 15

CHAPTER 2 Financial Instruments 17

2.1 Introduction 17

2.2 Why Do We Issue Financial Instruments? 18

2.3 Money Market Instruments 19

2.4 Debt Instruments 26

2.5 Equity Instruments 38

2.6 Derivative Instruments 47

2.7 Exchange-Traded Derivatives 52

2.8 OTC Derivatives 71

2.9 Summary 81

CHAPTER 3 Data Management 83

3.1 Introduction 83

3.2 Importance of Reference Data and Standardisation 84

3.3 Types of Reference Data 86

3.4 Data Management 94

3.5 Legal Entity Identification 95

3.6 Summary 99

CHAPTER 4 Market Participation 101

4.1 Introduction 101

4.2 Market Players 102

4.3 Market Structure 131

4.4 Summary 137

PART TWO

CHAPTER 5 Clearing Houses and CCPs 141

5.1 Introduction 141

5.2 Overview of Clearing and Settlement 142

5.3 The Clearing House Model 143

5.4 The Central Counterparty Model 145

5.5 Features of CCPs and Clearing Houses 148

5.6 Summary 150

CHAPTER 6 Securities Depositories (CSDs and ICSDs) 151

6.1 Introduction 151

6.2 Historical Context 151

6.3 Definitions 154

6.4 Central Securities Depositories 154

6.5 International Central Securities Depositories 163

6.6 Linkages – Exchanges, Clearing Systems and CSDs 167

6.7 CSD Associations 171

6.8 Summary 173

CHAPTER 7 Securities Clearing 175

7.1 Introduction 175

7.2 Generic Clearing Cycle 176

7.3 Trade Capture 182

7.4 Trade Enrichment and Validation 184

7.5 Regulatory Reporting 186

7.6 Confirmation and Affirmation 188

7.7 Clearing Instructions 194

7.8 Forecasting – Cash 199

7.9 Forecasting – Securities 203

7.10 Summary 205

CHAPTER 8 Settlement and Fails Management 207

8.1 Introduction 207

8.2 The Different Types of Settlement 208

8.3 Delivery versus Payment 211

8.4 Free of Payment Settlement 215

8.5 Settlement Fails 217

8.6 The Move to Shorter Settlement Cycles 228

8.7 Summary 229

CHAPTER 9 Derivatives Clearing and Settlement 231

9.1 Introduction 231

9.2 Regulatory Changes 232

9.3 Exchange-Traded Derivatives Contracts 234

9.4 Cleared OTC Derivatives Contracts 240

9.5 Non-Cleared OTC Derivatives Contracts 245

9.6 Summary 255

PART THREE

CHAPTER 10 Custody and the Custodians 259

10.1 Introduction 259

10.2 Custody 260

10.3 Holding Securities 263

10.4 The Custodians 267

10.5 Target2Securities (T2S) 279

10.6 Summary 283

CHAPTER 11 Corporate Actions 285

11.1 Introduction 285

11.2 Types of Corporate Action Event 286

11.3 Participation in Corporate Actions 287

11.4 Entitlements, Key Dates and Claims 289

11.5 Corporate Action Event Processing 294

11.6 Information Flows 315

11.7 Corporate Action Risks 320

11.8 Industry Initiatives 323

11.9 Corporate Governance and Proxy Voting 328

11.10 Withholding Tax 333

11.11 Impact on Other Departments 337

11.12 Summary 340

Appendix 11.1: Corporate Action Event Type Categories 340

Appendix 11.2: Voluntary and Mandatory Events for Equities and Bonds 341

CHAPTER 12 Securities Financing 343

12.1 Introduction 343

12.2 Types of Securities Financing 344

12.3 The Players and Their Motivations 346

12.4 Intermediaries 352

12.5 Agreements and Code of Guidance 354

12.6 Securities Lending Lifecycle 356

12.7 Repurchase Agreement Lifecycle 370

12.8 Collateral and Margin 379

12.9 Default and Close-Out Provisions 384

12.10 Central Counterparty (CCP) Services 386

12.11 Summary 389

Appendix 12.1: Credit Ratings – Long Term 390

Appendix 12.2: Delivery by Value (DBV) Class List 391

Appendix 12.3: Technology Vendors 392

PART FOUR

CHAPTER 13 Accounting for Securities 395

13.1 Introduction 395

13.2 The Accounting Equation 397

13.3 The Accounting Lifecycle for Securities 400

13.4 Gains and Losses 405

13.5 The Accounting Lifecycle for Derivatives 411

13.6 Summary 416

Appendix 13.1: Closing Prices for Singapore Equities (SGX) 416

CHAPTER 14 Reconciliation 417

14.1 Introduction 417

14.2 Importance of Reconciliation 418

14.3 Types of Reconciliation 421

14.4 Automation of Reconciliations 427

14.5 Summary 428

About the Author 429

Index 431

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