CPMI-IOSCO

We are no longer in an age of brokers trading shares in a splendid baroque room in Amsterdam, under a willow tree in lower Manhattan, or in the coffee houses of London. We are no longer in an age of imposing 19th century bourgeois edifices lining Europe’s most important boulevards, underscoring the central position of finance - of stocks and bonds - for national economies as a keystone of Victorian social progress. And we are no longer in an age of outbound transfer of European thinking and law about securities finance to nearly every corner of the world – almost no matter what the political structure in place, the idea of marketable securities seems to have won the day. And it carries on, often in unlikely circumstances where the “soil” would have seemed too shallow for this “plant” to take root.

We are in an age where the price discovery of securities is being led by algorithmic computer programs. Most likely, we have been in this age for longer than we realized; certainly, it has been coming on for decades. The Computer Assisted Trading (“CAT”) software developed in Toronto is generally recognized as having been the first such electronic trading system established in a central, regulated marketplace. It was introduced in the now distant year of 1977, a full 40 years ago.

Agreed and launched in 2012, the CPMI-IOSCO Principles for Financial Market Infrastructures (‘PFMIs’) require that all central securities depositories (CSDs), central clearing houses (CCPs), payment systems, and trade repositories perform a very detailed self-assessment of how well they observe these global standards. The self-assessments are meant to be published as a matter of enforcing transparency on these systemically critical systems, and also to reassure the markets and public that these national institutions are meeting a consistent set of minimum standards. The PFMIs are one set of the body of standards orchestrated by the Financial Stability Board on behalf of G20 governments.

This is the second in a series of articles on PMFIs.

In response to the Global Financial Crisis of 2007-2009, the G20 countries developed a series of public policy initiatives in order to reorder and de-risk the world’s financial system. As initially announced in the 2009 Pittsburgh Declaration by the heads of those 20 governments, a key element focused on solidifying market infrastructures, themselves a central focus of Thomas Murray’s work since the company’s founding in 1994.

Earlier this month, Euroclear UK & Ireland (EUI) issued a consultation to participants concerning their proposals to enhance the US dollar settlement arrangements in the CREST system, and make relevant changes to CREST documentation. Thomas Murray wholeheartedly supports these proposals.

This is the first in a series of four articles considering central bank payment systems self-assessments against the PFMIs.

Introduction and the Bank of England Example

In response to the financial crises of 2007-2009, at the behest of G20 governments, the Financial Stability Board and its constituent bodies developed broad global standards to shore up a system that had proven all too fragile – though it must be said that the public, regulated marketplaces did function throughout (except in isolated cases where for a few days their governments closed them for fear of collapsing prices). The same cannot be said of the freezing up of the far larger OTC and banks’ market operations in that period, which was the source of the economic and social damage inflicted.

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