Securities settlement

The basic concept of the CGO within CREST remains the same—that is, the provision of secure settlement for gilt-edged securities through an efficient and reliable system of electronic book-entry transfers in real time against an assured payment. The CGO is a real-time, communication-based system. Settlement on the specified business day (T + 1 for normal gilt trades) is dependent on the matching by CGO of correctly input and authenticated instructions by both of the parties and the successful completion of presettlement checks on the parties stock account balances and credit headroom. 

The main securities settlement mechanisms in France is SICOVAM, the central securities depositary system. This body operates a system known as Relit Grand Vitesse or RGV, an integrated real-time settlement mechanism for bonds, money market instruments and equities. It provides real-time matching, settlement and reporting cycles, and operates for 22 hours out of 24. Put simply, the settlement process works as follows ... 

Spot only of derived ones.) To see how the derivation works, consider the ten hypothetical U.S. Treasuries whose maturities, prices, and yields are shown in FIGURE 16.2. Assume that the yield curve is positive and that the securities settlement date—March 1, 1999—is a coupon date, so none of them has accrued interest. 

Equation (17.7) differs from the conventional redemption yield formula in that every cash flow is discounted, not by a single rate, but by the zero-coupon rate corresponding to the maturity period of the cash flow. To apply this equation, the zero-coupon-rate term structure must be known. These rates, however, are not always readily observable. Treasury prices, on the other hand, are and can be used to derive implied spot interest rates. (Although in the market the terms are used interchangeably, from this point on, zero coupon will be used only of observable rates and spot only of derived ones.) To see how the derivation works, consider the 10 hypothetical U.S. Treasuries whose maturities, prices, and yields are shown in FIGURE 17.9. Assume that the yield curve is positive and that the securities settlement date—March 1, 1999—is a coupon date, so none of them has accrued interest. 

Settlements can be estimated, although the margin for error is large. Secure commercial hazardous waste landfills have the smallest displacement, <1.5%. Displacements at new larger solid waste landfills can be estimated at 15%, while older, unregulated facilities with mixed wastes have settlements of up to 50%. 

Furthermore it is not just submarine patents on IP that can cause problems. There may also be issues relating to manufacture, obligations secured against product rights which may include leases, covenants for loan guarantees and similar structures which can lurk in a company behind a product as an unseen liability. In certain cases a product or other assets of a company may not even be divested without the permission of a financial institution or equity holder who holds such a covenant or lien. This can mean a requirement to make a settlement with that institution outside the terms of an acquisition and can add considerably to the costs of a transaction both in time and in money. 

I recall seeing such settlements in the Philippine provinces of Tarlac and Pangasinan, where each house displayed, in large letters on the front near the steps, the names and ages of all the family members who slept there, allowing security forces on their nightly patrols to more easily identify any unauthorized visitors. 

The Centre also organises programmes for rural as well as urban community. These programmes are related to the problems of pollution, health, security, population, communication, settlement and values. The Centre is basically a community centre where people come with their children and learn science where interested teachers and scientists experiment new ideas in teaching and learning. 

We will illustrate the sources of euro returns using an example. In early July 2003, the 5-year German government bond (i.e., bund) was trading at 100.103 assuming a settlement date of 9 July 2003. The security description screen from Bloomberg is presented in Exhibit 3.8. This bond carries a coupon rate of 3% and matures on 11 April 2008. Cou-... 

To illustrate the various yield to call measures, consider a callable bond with a 5.75% coupon issued by DZ Bank. The Security Description screen from Bloomberg is presented in Exhibit 3.12. The bond matures on 10 April 2012 and is callable on coupon anniversary dates until maturity at a call price of 100. Exhibit 3.13 present the Yields to Call screen. Using a settlement date of 22 July 2003, the various yield to call measures are presented. 

Traditional yield spread analysis for a nongovernment bond involves calculating the difference between the risky bond s yield and the yield on a comparable maturity benchmark government security. As an illustration, let s use a 5.25% coupon BMW Finance bond described in Exhibit 3.10 that matures on 1 September 2006. Bloomberg s Yield Spread Analysis screen is presented in Exhibit 3.14. The yield spreads against various benchmarks appear in a box at the bottom left-hand corner of the screen. Using a settlement date of 9 July 2003, the yield spread is 31 basis points versus the interpolated 3.1-year rate on the Euro Benchmark Curve. This yield spread measure is referred to as the nominal spread. 

To illustrate the computation, let s examine a 4.2% coupon, lO-year Spanish government security that matures on July 30, 2013. Bloomberg s Yield Analysis Screen is presented in Exhibit 4.7. If the bond is priced to yield 3.724% on a settlement date of June 6, 2003, we can compute the PVBP by using the prices for either the yield at 3.734 or 3.714. The bond s initial full price at 3.724% is 104.5673. If the yield is decreased by 1 basis point to 3.714%, the PVBP is 0.085 (1104.5673 - 104.65221). Note that our PVBP calculation agrees with Bloomberg s calculation labeled PRICE VALUE OF A 0.01 that is presented in the Sensitivity Analysis box located in the lower left-hand corner of the screen. 

For example, consider the UK gilt principal strip discussed earlier that matures on June 7, 2021 and on a settlement date of May 30, 2003 is priced to yield 4.435%. Exhibit 4.1 presents Bloomberg s Yield Analysis screen for this security. Let s change (i.e., shock) the note s required yield up and down by 20 basis points and determine what the new prices will be in the numerator of equation (4.1). If the required yield were decreased by 20 basis points from 4.435% to 4.235%, the strip s price would increase to 46.99. Conversely, if the yield increases by 20 basis points, the strip s price would decrease to 43.99. Thus,... 

To illustrate the calculation, consider the following three-bond portfolio in which all three bonds are Irish government securities. Exhibit 4.25 presents a brief description for each bond that includes the following full price per 100 of par value, its yield, the par amount owned, the market value and its duration assuming a settlement date of 6 June 2003. Since these securities are priced with a settlement date between coupon payments dates, the market prices reported are full prices. The... 

There will be two parties to a repo trade, let us say Bank A (the seller of securities) and Bank B (the buyer of securities). On the trade date the two banks enter into an agreement whereby on a set date, the value or settlement date Bank A will sell to Bank B a nominal amount of securities in exchange for cash. The price received for the securities is the market price of the stock on the value date. The agreement also demands that on the termination date Bank B will sell identical stock back to Bank A at the previously agreed price consequently. Bank B will have its cash returned with interest at the agreed repo rate. 

As in a classic repo transaction, coupon or dividend payments that become payable on a security or bond during the term of the loan will be to the benefit of the stock lender. In the standard stock loan legal agreement, known as the OSLA agreement,there is no change of beneficial ownership when a security is lent out. The usual arrangement when a coupon is payable is that the payment is automatically returned to the stock lender via its settlement system. Such a coupon payment is known as a manufactured dividend. 

This is part of the general collateral (GC) market, and is more common in the United States than elsewhere. Consider the case of a cash-rich institution investing in GC as an alternative to deposits or commercial paper. The better the quality of collateral, the lower the yield the institution can expect, while the mechanics of settlement may also affect the repo rate. The most secure procedure is to take physical possession of the collateral. However, if the dealer needs one or more substitutions during the term of the trade, the settlement costs involved may make the trade unworkable for one or both parties. Therefore, the dealer may offer to hold the securities in his own custody against the investor s cash. This is known as a hold-in-custody (HIC) repo. The advantage of this trade is that since securities do not physically move, no settlement charges are incurred. However, this carries some risk for the investor because they only have the dealer s word that their cash is indeed fully collateralised in the event of default. Thus this type of trade is sometime referred to as a Trust Me repo it is also referred to as a due-bill repo or a letter repo. 

If a participant has insufficient funds to settle a security transfer during the day, the Banque de France automatically enters into a repo trade with it to guarantee final payment this eliminates intraday cash shortfall, thus reducing intraday settlement risk. 

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