Finnish custodians wrestling with client service complaints have long had to struggle with one of the least developed market infrastructures in Europe. So they are among supporters of the plan by the Helsinki Stock Exchange (HEX) to develop a new clearing and settlement system for the Finnish market. The aim of the new system is to combine the existing equity settlement system and the existing money market settlement system, and introduce an RTGS environment. The testing of the new system is scheduled to start this spring, with implementation scheduled for the autumn. Sairio Jopi of OKO Bank, whose presence as the alternative custody provider of choice in Helsinki is now being felt by the established market leader Nordea, talked to GC.com about what the HEX clearing and settlement project adds up to.
GC.Com: Is this a clearing system or a clearing and settlement system?
Sairio: The new system, called HEXClear, is a clearing and settlement system.
GC.Com: Does the new clearing system incorporate a central counter party (CCP) and netting capability?
Sairio: As it seems that a Nordic CCP is inevitable in the future, HexClear will have these capabilities.
GC.Com: Is this new system for equities only?
Sairio: In the first phase HEXClear will be able to handle equities, warrants, exchange traded funds and dematerialised options. In later phases of the project all money market instruments will be included.
GC.Com: There are presently two separate settlement systems in Finland. What will HEXClear be replacing?
Sairio: At the moment there indeed are two different settlement systems, one for bonds – the Ramses-system – and one for equities – the Kati-system. They are both operated by the Finnish CSD, APK. There are two major differences between the systems. In both the bond market and on- exchange equity trades, trades are matched automatically by Ramses and Kati. However, OTC equity trades though need to be matched manually. The other major difference is the settlement “frequency”, if you like. Ramses has real time gross settlement (RTGS) while equity trades are settled once a day in a single batch.
GC.Com: Where does Finland now stand in relation to plans for regional CSD/CCP arrangements in Scandinavia, and does it prefer to link up with, say, Deutsche Borse?
Sairio: According to the Finnish CSD, a Nordic CCP will be established at some point. The schedule is still unknown. But even though a Nordic CCP is likely to become a reality in the future, it is possible that only the most actively traded equities would be netted through it before being settled in the local system. For the Scandinavian CSDs, it is for the time being very unlikely that any mergers will take place between them. However, the Finnish CSD has established links with CSDs in Germany, the Netherlands, France and Switzerland. Via these links, it is possible to transfer cash and securities between Finnish traders and investors and each of those markets by book-entry.
GC.Com: Are links planned to the Baltic exchanges?
Sairio: None that we know of. The only co-operation with the Baltic markets is the co-operation agreement between HEX and the Tallinn Stock Exchange (TSE). The most visible sign of this co-operation is that the TSE will implement the HEX trading system – known as HETI – from 28 January 2002. From this point TSE-listed shares will be traded in euros, though investors will still be able to place trading orders in Estonian kroons, with the amounts merely converted into euros in accordance with the official exchange rate of the Central Bank of Estonia. This will afford members of HEX easy access to Estonian securities.
GC.Com: Finland has had well-advertised problems with its clearing and settlement infrastructure. What improvements, apart from this latest measure, have been made in the last two years or so?
Sairio: In the Ramses system there has been no drastic changes. In the equity settlement system there have been two major improvements. First, the centralisation of book-entry registrars. Instead of six independent registrars, the Finnish CSD is now the only registrar and the former six registrars act only as operators. Secondly, the introduction of electronic book-entry registrar bookings. Before April 2001 all bookings to the registrar were made manually; now the process is automated.
GC.Com: HEX recently announced it will cut trading hours by one from April 2, 2002, ending evening trading at 8 pm. Why was this?
Sairio: Low volumes of activity. As evening trading accounted for just 6 per cent of daily volume, and two thirds of that occurred during the first evening trading hour, it was felt that the last hour was irrelevant. The decision was based on full consultation with investors and brokers.