Sistema de alocação comercial

Alocação de ativos.

O que é 'alocação de ativos'

A alocação de ativos é uma estratégia de investimento que visa equilibrar o risco e a recompensa ao repartir os ativos de uma carteira de acordo com os objetivos de um indivíduo, tolerância de risco e horizonte de investimento. As três principais classes de ativos - ações, renda fixa e caixa e equivalentes - têm diferentes níveis de risco e retorno, de modo que cada um se comportará de maneira diferente ao longo do tempo.

QUEBRANDO "Alocação de Ativos"

Os investidores podem usar diferentes alocações de ativos para objetivos diferentes. Alguém que está economizando para um carro novo no próximo ano, por exemplo, pode investir seu fundo de poupança de carros em uma mistura muito conservadora de dinheiro, certificados de depósito (CDs) e títulos de curto prazo. Outra poupança individual para a aposentadoria que pode estar a décadas de distância normalmente investe a maior parte de sua conta de aposentadoria individual (IRA) em ações, já que ele tem muito tempo para superar as flutuações de curto prazo do mercado. A tolerância ao risco também é um fator importante. Alguém que não se sente confortável em investir em ações pode colocar seu dinheiro em uma alocação mais conservadora, apesar de um longo horizonte de tempo.

Alocação de Ativos Baseados na Idade.

Em geral, as ações são recomendadas para períodos de cinco anos ou mais. As contas do mercado monetário e monetário são apropriadas para objetivos a menos de um ano de distância. Obrigações caem em algum lugar no meio. No passado, os consultores financeiros recomendaram a subtração da idade de um investidor de 100 para determinar quanto deveria ser investido em ações. Por exemplo, um jovem de 40 anos seria 60% investido em ações. Variações da regra recomendam subtrair a idade de 110 ou 120, dado que a expectativa média de vida continua a crescer. À medida que os indivíduos se aproximam da idade de aposentadoria, os portfólios devem geralmente passar para uma alocação de ativos mais conservadora, de modo a ajudar a proteger os ativos que já foram acumulados.

Alcançar alocação de ativos através de fundos do ciclo de vida.

Os fundos mútuos de alocação de ativos, também conhecidos como ciclo de vida ou data-alvo, são uma tentativa de fornecer aos investidores estruturas de carteira que abordam a idade do investidor, apetite de risco e objetivos de investimento com um rateio apropriado de classes de ativos. No entanto, os críticos dessa abordagem apontam que chegar a uma solução padronizada para alocar ativos de portfólio é problemático, porque os investidores individuais precisam de soluções individuais.

O Fundo Vanguard Target Retirement 2030 seria um exemplo de um fundo para datas-alvo. A partir de 2016, o fundo tem um horizonte temporal de 14 anos até que o acionista espere chegar à aposentadoria. Em 30 de junho de 2016, o fundo possui uma alocação de 74% de ações e 26% de títulos. Até 2030, o fundo mudará gradualmente para um mix 50/50 mais conservador, refletindo a necessidade do indivíduo de mais preservação de capital e menor risco. Nos anos seguintes, o fundo se move para 67% títulos e 33% de ações.

ANTECEDENTES DA INVENÇÃO.

Nos mercados de negociação de ações e outros instrumentos financeiros, um comerciante pode comprar e vender instrumentos em nome de diversos clientes e / ou carteiras de investimento. Quando um trader realiza uma negociação, o número de instrumentos negociados pode não satisfazer uma demanda de negociação pendente para os clientes ou carteiras. Em tal situação, pode haver a necessidade de alocar os instrumentos que são negociados entre os clientes ou carteiras em espera. A alocação manual de um comércio pode ser um processo complexo e demorado. Consequentemente, a alocação automatizada por computador de uma negociação é desejável. Uma solução para a alocação de um instrumento negociado é incluir a funcionalidade em um sistema de gerenciamento de pedidos (OMS) para realizar a alocação comercial. No entanto, nos OMSs existentes, os recursos de alocação comercial podem estar ausentes ou inadequados. Uma solução para esse problema é modificar o software do OMS para adicionar recursos de alocação desejados. Na prática, tal modificação pode não ser viável. Por exemplo, o código de software para um OMS pode estar sob o controle de um fornecedor e não ser modificável, ou uma rede de negociação pode incluir uma variedade de OMSs diferentes e, devido a custos ou outras preocupações, a modificação de cada um dos OMSs pode não ser possível. Consequentemente, soluções de alocação de comércio não baseadas em OMS são desejáveis.

SUMARIO DA INVENÇÃO.

Em geral, em um aspecto, a invenção apresenta um método implementado por computador de alocação de uma negociação de instrumentos financeiros entre um grupo de carteiras. O método inclui receber uma mensagem descritiva de uma negociação de um instrumento financeiro. A mensagem pode incluir um identificador de instrumento financeiro e um tamanho do comércio. Uma coleção de carteiras é então identificada com base em uma correspondência entre as classes de risco associadas às carteiras e a classe de risco do instrumento financeiro negociado. A negociação é então alocada entre cada uma das carteiras com base em uma taxa de metas associada a cada carteira.

Em geral, em outro aspecto, a invenção apresenta um sistema de alocação comercial que inclui um sistema de computador tendo uma interface de rede sobre a qual as mensagens podem ser trocadas com um sistema de gerenciamento de pedidos. O sistema de computador também é acoplado a um primeiro banco de dados que armazena portfólios de associação de dados com classes de risco e índices de destino. Um segundo banco de dados armazena instruções para configurar o sistema para receber mensagens de sistemas de gerenciamento de pedidos. Cada mensagem pode incluir um identificador de instrumento financeiro, um tamanho da negociação e um identificador de classe de risco. As instruções também configuram o processador para consultar o primeiro banco de dados para determinar os portfólios que estão associados à classe de risco identificada de um negócio em particular, bem como para determinar uma taxa alvo para cada um dos portfólios. O processador então aloca a negociação entre cada um dos portfólios com base nas taxas alvo.

Implementações podem incluir um ou mais dos seguintes recursos. Um índice objetivo pode ser calculado para cada carteira com base no capital disponível em cada carteira e capital disponível em outras carteiras na mesma classe de risco. As carteiras podem incluir portfólios de múltiplas estratégias. Um portfólio multiestratégico está associado a duas ou mais classes de risco e, correspondentemente, dois ou mais índices alvo. A alocação a um portfólio de múltiplas estratégias pode se basear na taxa de metas da classe de risco que corresponda à do instrumento negociado.

Uma negociação pode ser alocada em múltiplos de um tamanho de lote predeterminado. A alocação pode resultar na geração de uma coleção de mensagens (por exemplo, uma para cada portfólio que recebe uma alocação do comércio). Cada mensagem identifica uma parte da negociação alocada a uma das respectivas carteiras. As mensagens de negociação geradas pelo sistema de gerenciamento de alocação podem então ser enviadas para um sistema de gerenciamento de portfólio.

As implementações também podem incluir recursos para corrigir negociações (e, correspondentemente, alocações comerciais). A correção de uma negociação pode incluir o recebimento de dados de correção comercial no sistema de gerenciamento de alocação. Os dados de correção comercial identificam uma negociação previamente alocada que deve ser corrigida. Um banco de dados de histórico de alocação de negociação pode ser consultado para identificar as proporções de destino que foram usadas para alocar a troca alocada anteriormente. Mensagens de correção de negociação podem ser geradas para cada carteira envolvida na alocação anterior, de forma a alterar a (s) alocação (ões) anterior (es). As mensagens de correção de negociação podem ser enviadas para um sistema de gerenciamento de portfólio. O sistema de gestão de carteiras também pode manter uma contabilidade dos instrumentos financeiros em cada carteira e do capital livre associado a cada carteira. Sistemas de gerenciamento de vários pedidos podem ser conectados ao sistema de gerenciamento de alocação usando uma interface de rede padrão e um protocolo de troca de mensagens (por exemplo, o protocolo FIX, um protocolo XML ou outro protocolo). Outros sistemas (por exemplo, sistemas de reconciliação contábil e de portfólio) também podem ser conectados ao gerenciador de alocação.

Os detalhes de uma ou mais formas de realização da invenção são apresentados nos desenhos anexos e na descrição abaixo. Outras características, objectos e vantagens da invenção serão evidentes a partir da descrição e desenhos, e das reivindicações.

DESCRIÇÃO DOS DESENHOS.

FIG. 1 é um diagrama de arquitetura do sistema de alocação.

FIG. 2 é um diagrama de arquitetura do gerenciador de alocação.

DESCRIÇÃO DETALHADA DA INVENÇÃO.

O Allocation Manager (AM) é um componente do sistema de negociação que pode alocar automaticamente uma negociação de um instrumento financeiro entre vários portfólios de investimento. Por exemplo, um trader pode comprar 100 ações de uma ação “MYSTOCK” (um ticker de ações fictício) e o Allocation Manager pode automaticamente alocar 60 ações dessa negociação em uma primeira carteira, e as 40 ações restantes em uma segunda carteira. O gerente de alocação pode alocar uma negociação entre várias carteiras usando a classificação atribuída à negociação e associada a cada portfólio. Na implementação descrita no presente, o Gerente de alocação realiza alocação comercial com base em uma classificação de risco (uma "classe de risco") que pode refletir uma estratégia de investimento associada a um portfólio. Outras classificações também podem ser usadas (por exemplo, classificações baseadas no comércio ou no tamanho da carteira, classificações baseadas no volume de negócios, classificações de segmentos da indústria, etc.).

O Allocation Manager pode ser implementado como um componente de "middleware" que opera como uma interface entre outros componentes do sistema comercial. FIG. 1 mostra uma arquitetura de sistema de negociação exemplar na qual o Allocation Manager 110 é implementado como um componente de middleware que, entre outras coisas, controla o fluxo de dados relacionados ao comércio entre um ou mais sistemas de gerenciamento de pedidos (OMSs) 101 (três OMSs mostrados), um sistema de gestão de carteiras 102, um sistema de contabilidade 103 e um sistema de reconciliação comercial 104. Cada um destes sistemas 101 - 104 é discutido em maior detalhe, abaixo. À medida que os dados a serem comunicados entre os sistemas 101 - 104 fluem através do Allocation Manager 110, o Allocation Manager 110 pode alterar esses dados para realizar operações de alocação comercial que dividem um comércio entre várias carteiras. Por exemplo, o Gerente de Alocação pode receber dados do OMS 101 indicando que uma negociação ocorreu por trezentas ações da MYSTOCK e, com base em uma classificação atribuída a essa negociação, pode alocar as trezentas ações de ações entre duas ou mais carteiras. Outras operações relacionadas a negociações alocadas também são realizadas pela AM 110.

O Allocation Manager se comunica com outros sistemas 101 - 104 através de interfaces de mensagens 111 - 114. Interfaces 111 - 114 podem ser interfaces baseadas em software implementadas por chamadas de procedimento de aplicação de software, interfaces baseadas em mensagens que comunicam dados entre diferentes sistemas de computador ou outros tipos de interfaces de programação de aplicativos (APIs). Em algumas implementações, uma ou mais das interfaces 111 - 114 e sistemas 101 - 104 e 110 podem ser implementadas em um único computador, enquanto que em outras implementações, uma ou mais das interfaces 111 - 114 podem acoplar diferentes computadores em uma área local. Rede (LAN) ou outra conexão de rede. Embora as interfaces 111 - 114 estejam logicamente separadas, os dados trocados em cada uma dessas interfaces podem ser transmitidos através de um mesmo dispositivo de interface física. Dados trocados através das interfaces 111 - 114 podem estar no formato FIX. FIX é um protocolo de troca de dados usado no setor de comércio para comunicar dados relacionados ao comércio. As interfaces 111-114 também podem incluir APIs alternativas ou adicionais. Por exemplo, o protocolo FIX pode ser complementado, substituído ou encapsulado em transferências de dados baseadas em linguagem de marcação extensível (XML) que podem ser usadas para trocar dados nas interfaces 111 - 114. Os componentes do sistema de negociação 101 - 114 e suas respectivas interfaces 111 - 114 para o Gerente de Alocação são detalhados abaixo:

Order Systems Management (OMSs) e interface OMS-AM.

Os sistemas de gerenciamento de pedidos (OMSs) 101 interagem com os operadores para executar negociações, atribuem classificações a esses negócios e gerenciam o fluxo de negociações entre os operadores. O Allocation Manager pode interagir com uma ou mais mensagens OMS 101 a FIX e / ou outras mensagens de API trocadas pela interface 111. As comunicações não FIX API podem ser usadas para acessar dados AM que não são acessíveis pelo protocolo FIX (como as porcentagens de alocação de comércio padrão do Allocation Manager), enquanto as mensagens FIX podem ser usadas para enviar informações do Allocation Manager sobre trocas preenchidas. As comunicações de API não-FIX podem ser implementadas usando consultas de banco de dados com base na linguagem de consulta estruturada (SQL), no JDBC (Java Database Connectivity Protocol) ou no protocolo Open Database Connectivity (ODBC). Outros protocolos de acesso a dados também podem ser usados.

OMSs 101 pode ser construído usando componentes comercialmente disponíveis. Por exemplo, a estrutura baseada em El-Trader Java / CORBA da InfoReach, Inc. pode ser usada para construir um OMS. O Allocation Manager pode receber mensagens FIX do OMS detalhando negociações preenchidas. O Gerenciador de alocação, em seguida, aloca as negociações preenchidas de acordo com as regras de negócios (explicadas abaixo). Uma vez que a negociação é atribuída, um grupo de mensagens FIX é enviado para o sistema de gestão de carteiras 102, detalhando cada segmento da negociação alocado. Ao enviar e receber essas mensagens FIX, o Allocation Manager pode usar o FIX Engine da InfoReach, Inc. Esse mecanismo FIX consiste em uma coleção de pacotes de classe Java reutilizáveis ​​que fornece implementações multi-usuário e multithread do protocolo FIX.

Sistema de Gerenciamento de Portfólio (PMS) e Interface PMS-AM.

O Sistema de Gerenciamento de Portfólio (PMS) 102 recebe mensagens FIX identificando negociações alocadas do Allocation Manager (AM). Uma única transação inserida no OMS 101 e comunicada ao AM 110 como uma única mensagem pode resultar em várias mensagens FIX sendo formadas no AM e enviadas ao PMS pelo AM. Cada uma das mensagens desse grupo identifica uma parte do comércio original (uma “perna” desse comércio) que é alocada a um portfólio específico. O PMS 102 pode ser implementado usando componentes comercialmente disponíveis.

Sistema de contabilidade (AS) e interface AS-AM 113.

O Accounting System (AS) 103 pode rastrear capital livre e outros dados relevantes para carteiras específicas. Esses dados podem ser trocados entre o AS e o AM por uma interface 113. Os dados fornecidos pelo AS para o AM podem ser usados ​​para estabelecer as posições de capital do início do dia para cada carteira, bem como para transferir outras informações financeiras e de contas entre o AS e o AM. O Sistema Contábil pode ser implementado usando software de contabilidade de terceiros, como o sistema de contas de Genebra produzido pela Advent Software, Inc. O sistema de contas de Genebra é um sistema de contabilidade de carteira para investidores globais. O Geneva Accounting System oferece acesso aberto a dados por meio do protocolo ODBC (Microsoft Open Database Connectivity) e permite o uso de ferramentas de relatórios baseadas em SQL padrão do setor para acessar dados. Em um sistema baseado em Genebra, e dependendo dos dados de classificação ou outros dados exigidos por uma implementação AM específica, os dados trocados através da interface 113 podem incluir dados relacionados à contabilidade, atividade da conta, avaliação, inventário, razão, gerenciamento, partes, preços, declaração e dados do histórico de transações.

Sistema de Reconciliação (RS) e Interface RS-AM.

O sistema Reconciliation System (RS) 104 fornece dados de reconciliação de conta ao Allocation Manager. Dados de reconciliação podem ser usados, por exemplo, para determinar instrumentos de negociação específicos a serem bloqueados. Os dados do instrumento bloqueado podem ser comunicados ao AM através da interface 114 e podem ser encaminhados para o OMS 101 pelo AM. O RS pode ser implementado usando software de terceiros. Por exemplo, o software Recon, disponível na Financial Models Company, Inc., pode ser usado. Recon é um aplicativo baseado em computador comercialmente disponível que pode trabalhar com sistemas de gerenciamento de portfólio de terceiros e pode automatizar a conciliação de transações, participações e / ou saldos de caixa entre gerentes de investimento, custodiantes, corretores / distribuidores e / ou entre fontes internas.

O Recon pode receber dados de uma variedade de Prime Brokers e agregar esses dados para construir uma visão comercial abrangente que será comparada aos registros do Accounting System 103 para detectar quebras comerciais. Se uma quebra comercial for encontrada, o Recon enviará os dados para o Allocation Manager indicando negociações interrompidas. O Gerente de Alocação pode usar esses dados para determinar o bloqueio imposto a vários instrumentos.

Implementação de Gerenciador de Alocação Exemplar.

FIG. 2 mostra uma implementação baseada em CORBA (Common Object Request Broker Architecture) de um Allocation Manager. O CORBA é um componente de software independente, arquitetura e infraestrutura de mensagens que os aplicativos de computador podem usar para trabalhar juntos em redes. Uma arquitetura de software baseada em CORBA, juntamente com o uso dos padrões associados ao Internet Inter-Operability Protocol (IIOP), pode facilitar a comunicação entre o programa independente do tipo de computador, sistemas operacionais, linguagem de programação e rede em uso por cada programa. A implementação de AM 200 funcionalidades de partições entre um servidor 220 e um componente cliente 210. O componente de servidor 220 processa dados relacionados com comércio enquanto o componente de cliente 210 pode interagir com o componente de servidor para monitorizar o funcionamento do servidor 220 e para configurar o funcionamento do servidor (por exemplo, provisionando dados, definindo limites, etc.). O uso de uma arquitetura baseada em CORBA, bem como o particionamento da funcionalidade AM entre o servidor separado e os componentes do cliente, é opcional. Outras arquiteturas de software (por exemplo, uma arquitetura Microsoft Distributed COM ou COM + ou uma arquitetura proprietária) podem ser usadas.

O Gerente de Alocação inclui um banco de dados 222 que fornece um depósito central para dados de negociação recebidos dos OMSs e para dados de registro no diário sobre as negociações alocadas geradas pelo Gerenciador de Alocação. Os dados no banco de dados 222 também podem servir como um repositório para porcentagens de alocação calculadas, para posições de instrumentos intra-dia e para dados usados ​​para auditar operações de gerenciador de alocação para detectar erros e quebras comerciais. O banco de dados 222 pode ser um banco de dados em memória (por exemplo, uma estrutura de dados na memória RAM), pode ser um banco de dados relacional (por exemplo, um Oracle 8i, Informix, Microsoft SQL Server ou outro banco de dados relacional) ou pode ser implementado usando outros armazenamento de dados e funções de recuperação.

O Allocation Manager 110 pode usar o banco de dados 222 para rastrear um número de itens de dados diferentes. Esses itens de dados são usados ​​para executar, corrigir e corrigir negócios, bem como para operações, administração, manutenção e provisionamento (OAMP) e geração de relatórios. Dados rastreados na base de dados 222 podem incluir dados relacionados com (i) negociações alocadas; (ii) substituições (ou seja, todas as negociações que recebem proporções de alocação externas à aplicação AM; (iii) alvos de porcentagens baseados em cada portfólio e combinação de classe de risco; (iv) dados de bloqueio que identificam negociações que resultem em uma situação de bloqueio; v) dados de exceção que identificam situações de exceção (por exemplo, quando um override causa uma posição longa e curta no mesmo instrumento em fundos (ou Classes de Risco) ou quando a reconciliação com o Prime Broker contém um trade break (ou seja, Quantity Outs e Don't Knows)) (vi) dados de alteração (incluem dados sobre todas as negociações canceladas, bem como as negociações corrigidas. Os cancelamentos e as correções são vinculados usando um número de ID de referência).

Exemplos de dados que podem ser usados ​​pelo Allocation Manager e que podem ser armazenados no banco de dados 222: Porcentagem de alocação - Um campo de dados de porcentagem de alocação contém dados que identificam alocações de alocação de comércio usadas pelo Allocation Manager para alocar uma troca. Tamanho de alocação - Um campo de dados de tamanho de alocação contém dados que identificam um número de compartilhamentos ou contratos alocados a um portfólio e Classe de Risco. Identificador AM - O campo de dados do identificador AM contém um identificador atribuído a trechos de uma negociação que são formados pelo Allocation Manager durante o processo de alocação de uma negociação original a várias carteiras (cada perna alocada recebe uma ID única que, em conjunto com um OMS ID, pode ser usado para criar um registro único Indicador de compra / venda - O indicador de compra / venda identifica o lado de uma transação. Os valores podem incluir, por exemplo, comprar, vender, vender curto e cobrir curto. — Este campo identifica se a transação é um cancelamento ou uma correção. O campo é gerado por uma Trade Trade Tool (TAT) Comentários - Quando uma negociação é inserida com uma porcentagem de alocação de substituição, um trader pode ser solicitado a inserir uma razão para O campo de comentário contém o motivo inserido e pode ser fornecido ao Allocation Manager para análise e / ou processamento de decisão. Porcentagem padrão - o campo Porcentagem padrão contém uma porcentagem de alocação padrão que O gerente de alocação teria aplicado a uma negociação anulada se a negociação não tivesse sido cancelada. Entidade - Esse campo identifica as informações da entidade proprietária associadas a um fundo. Fundo - O campo Fundo captura a estrutura do fundo e indica se faz parte do fundo Multi-Strategy ou se é uma estratégia independente (por exemplo, obrigações convertíveis, arbitragem de risco e valor relativo). Instrumento - O campo do instrumento contém o símbolo no qual a negociação foi feita. Última atualização - o campo Última atualização identifica uma data em que as porcentagens de destino foram alteradas pela última vez. Tipo de bloqueio: o tipo de bloqueio imposto pelo Allocation Manager em uma determinada transação. Os valores podem incluir Hard Lock, Soft Lock e Queue. OMS Identifier - O identificador do OMS é passado em uma mensagem FIX para o Allocation Manager. É um identificador exclusivo atribuído a uma negociação por um OMS. Tamanho da encomenda - fornece o tamanho de uma troca original. Este campo não contém nenhum valor alocado. Porcentagem de substituição - A porcentagem de substituição é a porcentagem de alocação inserida externamente que substitui as regras de alocação e arredondamento do Allocation Manager. Classe de Risco - O campo Classe de Risco identifica uma classificação de risco associada a uma operação ou carteira. Por exemplo, a Classe de Risco pode indicar que uma negociação deve ser alocada entre carteiras de títulos conversíveis ou entre carteiras de arbitragem de risco. Subtotal - O campo Subtotal contém o total agregado de porcentagens para a classe de risco específica. Identificador do Terminal - O identificador do Terminal identifica um terminal de negociação do qual a negociação foi inserida em um OMS. Esse elemento de dados é passado para o Allocation Manager por meio da mensagem FIX. No caso de uma emenda ou correção, o identificador de terminal pode conter o nome da máquina na qual a porcentagem de destino foi alterada. Tempo - Vários parâmetros de tempo diferentes podem ser registrados, incluindo, entre outros, a hora do sistema na qual as porcentagens alvo foram alteradas; o momento em que uma negociação foi inserida no sistema OMS ou uma alteração foi inserida; a hora em que uma negociação foi preenchida. Data de Negociação — A data de negociação indica a data em que uma negociação foi preenchida. Identificador do usuário - O identificador do usuário é um identificador (por exemplo, um nome de login) do usuário que insere o comércio no OMS. Isso é passado para o Gerenciador de alocação por uma mensagem FIX.

A base de dados 222 pode conter dados adicionais ou alternativos. Além disso, os campos de dados precedentes podem estar logicamente inter-relacionados nos registros do banco de dados e podem aparecer em locais diferentes (ou seja, em diferentes registros do banco de dados e em diferentes tipos de registros).

O AM processa dados recebidos dos sistemas 101 - 104, bem como dados no banco de dados 222 usando regras de negócios. Cada regra de negócios inclui lógica usada para controlar uma operação de alocação. As regras de negócios de exemplo contidas aqui implementam um esquema de alocação de negociação pelo qual as negociações podem ser alocadas com base nas porcentagens alvo para abertura de transações e taxas de fechamento para posições de fechamento. Um AM pode validar o lado do negócio e também a posição do instrumento que está sendo negociado e determinar se o negócio é uma transação de abertura ou fechamento. Um AM também pode determinar o identificador do tipo de comércio (por exemplo, comprar, vender, vender curto, cobrir curto e curto contra a caixa). As negociações podem ser alocadas entre uma ou mais carteiras e classes de risco sujeitas ao critério do trader.

Um AM pode alocar operações entre vários portfólios com base em posições de capital gratuitas em cada carteira. Essas posições de capital gratuitas são usadas para calcular as porcentagens-alvo que determinam como uma negociação específica é alocada entre várias carteiras e classes de risco. O capital livre em uma carteira pode ser subdividido com base em uma ou mais classes de risco associadas à carteira. Dados de capital livres podem ser obtidos automaticamente, por exemplo, por uma transferência de dados através da interface 113 entre o AM e o AS 103. Em algumas implementações, os dados de capital livre também podem ser inseridos manualmente por meio de uma interface do Allocation Manager.

Um AM também pode aceitar transações de substituição do OMS. Um trade override contém alocações especificadas pelo trader de um instrumento negociado entre várias Classes de Risco; a AM aloca uma troca de substituição de acordo com os dados de alocação recebidos (ou seja, transações de substituição podem ser usadas para inibir a funcionalidade de alocação automática do Allocation Manager). No processamento de um trade override (assim como durante o processamento de trade override), o Allocation Manager pode implementar funções de validação para determinar se a alocação do instrumento negociado resulta em uma condição de erro (por exemplo, uma posição longa e curta no mesmo instrumento fundos). Os dados referentes a uma transação anulada podem ser registrados com um sinalizador indicando que a troca foi cancelada. Além de substituições, um AM também pode processar correções, emendas e cancelamentos de negociações. O Allocation Manager pode atualizar seu banco de dados de posições de portfólio ao cancelar ou corrigir um negócio.

As negociações podem ser alocadas a carteiras de investimentos específicas com base em uma classe de risco associada à negociação e com carteiras específicas. Em alguns casos, uma carteira de investimentos específica pode estar associada a várias classes de risco diferentes. Da mesma forma, uma única classe de risco pode estar associada a vários portfólios diferentes. Na descrição a seguir, as regras de negócios (isto é, a lógica de negócios) e os processos que podem governar um processo de alocação comercial são descritos posteriormente.

Uma negociação pode ser alocada entre carteiras em uma classe de risco com base em um conjunto de índices alvo. As taxas teóricas referem-se aos índices nos quais as posições podem ser abertas dentro das diversas carteiras associadas a uma determinada classe de risco. Estes rácios podem ser actualizados a pedido (isto é, em tempo real) ou a intervalos predeterminados (por exemplo, no final de cada mês ou trimestre). Para cada classe de risco, uma série de índices teóricos que determinam como os negócios atribuídos a essa classe de risco são divididos entre as carteiras de investimento. O índice objetivo de uma determinada carteira e combinação de classes de risco é definido como:

T ⁢ ⁢ ⁢ ⁢ ⁢ ⁢ ⁢ ⁢ ⁢ ⁢ = = = = = = = = = = = = = = Available Available Available Available Available Available Available Available Available Available Available Available Available Available Available Available Available Available Available Available Available Available Available Total ⁢ ⁢ Livre ⁢ ⁢ Capital ⁢ ⁢ em ⁢ ⁢ Risco ⁢ ⁢ Classe.

Os índices-alvo para uma determinada classe de risco podem ser calculados com base no capital livre disponível em cada carteira de investimento que é membro dessa classe de risco. Os índices para cada classe de risco somam 100%, garantindo assim que uma negociação seja completamente alocada entre carteiras.

Na divulgação a seguir, as operações do Allocation Manager são explicadas usando os seis portfólios exemplificativos descritos na tabela a seguir:

Os dados em um banco de dados Allocation Manager podem ser usados ​​para identificar uma ou mais classes de risco (por exemplo, uma classe de risco "RA" ou uma classe de risco "Long Converts") associada a cada um desses portfólios. Além disso, o Gerente de Alocação pode acompanhar os montantes de capital gratuitos disponíveis em cada carteira. A tabela a seguir identifica um conjunto de exemplos de portfólios e suas classes de risco, bem como o valor do capital livre para cada combinação de classe de risco / carteira:

O Gerente de Alocação pode determinar o capital livre total por classe de risco da seguinte forma: Capital livre total na classe de risco arbitragem (RA) = 100 + 120 + 300 + 60 = 580 Capital livre total na classe de risco long. 200 + 80 + 400 + 40 = 720.

Para portfólios associados à classe de risco de RA, o Gerenciador de alocação calcula as proporções de destino conforme indicado na tabela a seguir:

Para portfólios associados à classe de risco de LC, o Gerente de alocação calcula as seguintes proporções de destino:

Qualquer combinação única de portfólio e classe de risco pode ter zero capital livre disponível. Nesse caso, não é necessário calcular uma taxa teórica para a carteira, pois uma porcentagem padrão de zero pode ser usada. O Allocation Manager usa as taxas de destino calculadas mais recentes para alocar novos negócios. O Allocation Manager também pode manter um histórico de todas as atualizações para as proporções de destino em um banco de dados. Esta informação de histórico pode ser usada, por exemplo, se uma atribuição comercial anterior tiver de ser revertida devido a um erro ou outro motivo para alteração de uma negociação anterior.

Cada portfólio pode incluir um ou mais instrumentos negociáveis. Por exemplo, um instrumento negociável pode ser ações negociadas publicamente ou privadamente. Para cada instrumento negociado em cada carteira, a carteira pode conter uma posição que seja longa (& gt; 0), curta (& lt; 0) ou plana (= 0) em relação a esse instrumento. Uma negociação alocada pode criar uma posição de abertura (ou seja, uma posição longa ou curta) ou uma posição de fechamento em um fundo específico. A alocação de uma negociação pode variar dependendo do tipo de posição criada.

Alocando posições de abertura.

Se uma negociação criar uma posição de abertura, o Allocation Manager alocará a negociação usando as proporções de destino disponíveis (a menos que seja cancelada de outra forma). Uma posição de abertura é definida como uma negociação que faz com que uma posição plana ou longa seja mais longa ou uma posição curta ou plana fique mais curta. Por exemplo, se a classe RA da LUX-MS tiver uma posição fixa em relação à ação MYSTOCK (um ticker de ações fictício), uma negociação para comprar 100 ações de uma ação da classe RA MYSTOCK criará uma posição de abertura para MYSTOCK no Portfólio LUX-MS. Uma posição de abertura também ocorre quando, por exemplo, uma negociação é feita para vender 300 ações da MYSTOCK para LUX-MS que contém uma posição curta (-100 ações) em MYSTOCK. O montante de alocação em uma posição de abertura, portanto, será calculado da seguinte forma:

Onde: Razão Alvo = A taxa de posição de abertura, conforme definido na seção anterior. TradeVolume = Quantidade de ações do instrumento do OMS.

As negociações podem ser alocadas em todas as classes de risco associadas à estratégia dada do negócio. Em algumas implementações, exceções a esse esquema de alocação geral podem existir. Uma possível exceção é uma substituição. Uma substituição é um caso especial em que o comerciante decide alocar uma negociação usando porcentagens de alocação diferentes das porcentagens padrão contidas no Allocation Manager. Por exemplo, um override permite que um trader aloque 100% de um trade de abertura de um estoque de classe RA MYSTOCK para CAY-MS, em vez de permitir que o Allocation Manager divida o negócio de acordo com as porcentagens alvo do AM. Os dados inseridos pelo trader no OMS e comunicados ao Allocation Manager por meio de uma mensagem FIX podem ser usados ​​para instruir o Allocation Manager a realizar essa alocação de caso especial. Esse processamento de caso especial é discutido em maior detalhe, abaixo.

Alocando as posições de fechamento.

Uma posição de fechamento é definida como uma negociação que diminui uma posição longa ou curta. Se a posição for plana, a próxima negociação, independentemente de ser uma venda a descoberto ou uma compra, será uma posição de abertura. Se uma negociação cria uma posição de fechamento em uma carteira, essa negociação pode ser alocada com base na posição atual de uma carteira naquele instrumento em relação à posição entre os fundos. Exemplos de uma posição de fechamento incluem: Uma negociação é feita para vender 100 ações do estoque de classe de risco RA MYSTOCK na carteira de LUX-MS quando a carteira de LUX-MS contiver uma posição longa de MYSTOCK de 200 ações. É feita uma negociação para comprar 100 ações da MYSTOCK para a carteira da LUX-MS, quando a carteira da LUX-MS contiver uma posição vendida da MYSTOCK de 300 ações (−300 ações).

Fechar uma posição em um fundo em relação à posição total em todos os fundos com classes de risco semelhantes garante que, quando uma posição é fechada, todos os fundos se aproximam de uma posição fixa no instrumento em particular. Essa abordagem distribui o risco associado à posição de fechamento entre os fundos.

Se a negociação criar uma situação em que a posição passará de longa para curta ou de curta para longa, ela será mencionada como cruzar a fronteira zero ou uma negociação de fronteira. Nessa situação, o Gerente de alocação pode fechar primeiro (achatar) a posição, usando as regras de posição de fechamento, e depois abrir uma nova posição usando as regras de posições de abertura.

Para uma posição de fechamento, a relação de fechamento é calculada da seguinte forma:

CloseRatio = [CurrentRiskClassPosition TotalRiskClassPosition]

Onde: CurrentRiskClassPosition = Posição atual por Carteira, classe de risco e Instrumento anterior à negociação TotalRiskClassPosition = Posição total por Classe de Risco e Instrumento anterior ao negócio.

O valor da quota de alocação pode ser derivado pelo Allocation Manager por uma multiplicação do CloseRatio pelo número de ações na negociação (ou seja, volume de negociação). A equação é:

Por exemplo, supondo que as posições atuais em MYSTOCK sejam mantidas pelos seguintes fundos:

Uma transação para vender 1500 ações da MYSTOCK será uma transação de posições de fechamento e será alocada da seguinte forma:

Se a transação tivesse envolvido uma venda de 1000 ações, os valores das ações seriam iguais a -133.333, -200, -600 e -66.667, respectivamente. Em algumas implementações, as ações devem ser alocadas em quantidades inteiras e, em alguns casos, em lotes dimensionados (por exemplo, a alocação pode ser em unidades de 100 ações e seus múltiplos;). Allocation Manager may invoke a set of rounding rules to avoid unwanted allocations of fractional shares and unwanted odd-lot allocations. Rounding rules are discussed further, below.

Allocating Across Risk Classes.

In some implementations, an Allocation Manager may incorporate functionality to allocate trades across Risk Classes (e. g., a particular trade may be allocated across both the RA and LC risk classes). To do so, the Allocation Manager may separate an original trade into multiple trades designated for each Risk Class and then process the trades according to the prescribed allocation percentages.

For a multi-risk class trade (i. e., a multi-strategy trade), the different risk classes, and a percentage allocation of the trade into the different risk class, may be specified by a trader at an OMS interface. FIX message parameters may be used to communicate this risk class allocation from the OMS to the Allocation Manager. For example, the OMS may create a delimited string in a FIX message's custom field to identify the risk classes requested. Allocation Manager can parse this risk class identification string and create an allocation for each risk class identified. Other FIX custom data elements describing the selected risk class allocation would be delimited similarly. When a trade is allocated among multiple risk classes, FIX sequence numbers (i. e., the sequence numbers contained in the ExecID and ExecRefID) fields can be generated to track each of the allocated legs. In addition, operations to determine, validate, and handle allocation errors, as well as other transaction processing, may be repeated on a per-Risk Class basis. For example, Cancels and correct operations will be repeated for each of the different risk classes.

Allocation of a trade may cause a round lot trade to be broken into fractional shares (and contracts) and into odd lots. The Allocation Manager may avoid allocation by fractional shares or into odd lots using rounding rules. Rounding rules may be specific to certain types of instruments, risk classes, etc. For example, allocated equities may be rounded to a lot size of 100 shares, while options and futures may be rounded to 1 contract. In some cases, these limits are fixed, while in others they are user-definable (e. g., a user may set the minimum lot rounding size through a graphical user interface).

Target and Closing Ratios.

The Allocation Manager ensures that target ratios and closing ratios add to 100% for each Risk Class. Rounding may result in a in which the sum of the target or closing ratios per Risk Class is not 100%. The Allocation Manager may implement rules to adjust ratios to 100%. The following are a set of example adjustment rules: 1. Calculate the difference between 100% and the sum of the rounded ratios. 2. Add the difference to the Entity, Fund, Risk Class with the greatest ratio (target or closing). 3. If two or more ratios are equal, the difference may be applied to one or more of those funds in a pre-designated order. For example, if both Multi-strategy funds (CAY-MS and LUX-MS) have equal ratios, the CAY-MS fund may receive the difference. If a Multi-strategy fund is not involved then a single strategy fund (e. g., CAY-RA, CAY-LC, LUX-RA, or LUX-LC) can receive the difference.

The following example illustrates application of the target ratio rounding rules. Each table demonstrates how the Allocation Manager application would allocate a trade based on the given free capital and position information.

Given the current free capital figures:

In this case, the sum of the rounded target ratios does not equal 100%, but rather 99.9%. The rounding rules may result in the additional 0.1% being added to the CAY-RA portfolio because the fund possesses the greatest amount of free capital (i. e., the fund possesses the greatest rounded target ratio).

Assume that LUX-RA portfolio receives a $1000 infusion of capital and the CAY-RA portfolio receives a $800 infusion of capital. The target ratios would adjust as follows:

In this case, the sum of the rounded target ratios does not equal 100%, but rather 99.9%, and the LUX-RA/RA fund and the CAY-RA/RA fund have the same amount of free capital (and rounded target ratios). In this case, assuming that precedence is given to the Cayman Island funds (CAY-RA, CAY-LC, CAY-MS), the Allocation Manager adds the additional 0.1% to the CAY-RA fund.

If an additional $980 were added to the LUX-MS/RA portfolio (i. e., the Risk Allocation portion of the multi-strategy LUX-MS portfolio), the ratios would be calculated as follows:

In this case, the sum of the rounded target ratios does not equal 100%, but rather 99.9%. In addition, the LUX-RA fund, the LUX-MS/RA fund, and the CAY-RA fund all have the same amount of free capital (and rounded target ratios). In this case, the Allocation Manager may add the additional 0.1% to the LUX-MS/RA fund (assuming that Multi-Strategy funds have priority over risk-allocation-only funds).

When Allocation Manager receives an opening trade that produces a fractional or odd lot allocation, the Allocation manger can employ rules to calculate the number of shares to apply to the respective funds. For example, the following rules may be used:

Where: Allocation_Amount=The Allocation 13 Amount value is the number of shares determined to be allocated to a particular portfolio and risk class. The Accocation_Amount value may be derived by multiplying the trade volume by the target ratio for an opening position or the close ratio for a closing position Round, LotSize=Round, LotSize represents a function that will round the Allocation Amount according to the minimum allowable rounding size (this size may be predetermined or configurable).

This opening position calculation is repeated for each portfolio having a risk class that matches the relevant trade's risk class. For example, assume that there is an opening trade of 1000 shares in MYSTOCK which is in the RA risk class, and that the current target ratios are as follows:

For a lot rounding size of 100, the Allocation Manager can allocate the trade as follows:

LUX-RA/RA=Round, 100 [0.172*1000]=172, round to 200.

LUX-MS/RA=Round, 100 [0.207*1000]=207, round to 200.

CAY-RA/RA=Round, 100 [0.518*1000]=518, round to 500.

CAY-MS/RA=Round, 100 [0.103*1000]=103, round to 100.

The allocated trades sum to 1000 shares, which equals the trade amount.

In some cases, rounding the trades to lot sizes may result in under-allocation or over-allocation of a trade. For example, for a trade of 1200 shares of MYSTOCK, the following results may be obtained:

LUX-RA/RA=Round, 100 [0.172*1200]=206.4, round to 200.

LUX-MS/RA=Round, 100 [0.207*1200]=248.4, round to 200.

CAY-RA/RA=Round, 100 [0.518*1200]=621.6, round to 600.

CAY-MS/RA=Round, 100 [0.103*1200]=123.6, round to 100.

The allocated trades sum to 1100, but the trade was for 1200. Differences arising between the allocated volume and the trade volume on an opening position will be applied to the portfolio and risk class with the greatest amount of free capital. If free capital is not updated in real time, the portfolio and risk class with the highest target ratio on an opening position may be considered to have the highest amount of free capital. In such a case, CAY-RA/RA will receive 100 shares of MYSTOCK to equate the allocation to the trade. CAY-RA/RA will, therefore, receive 700 (600+100) shares total.

Trades of less than a round lot can be allocated to the fund with the greatest amount of free capital. If several funds have equal target ratios, the trade may be allocated based on the above preference mechanism (other preference mechanisms can also be used).

Closing position trades may be rounded to the nearest unit. For example, assuming the current positions for MYSTOCK are as follows:

A transaction to sell 1000 shares of MYSTOCK will be a closing position transaction and will be allocated as follows:

LUX-RA/RA=[200/1500]*−1000=−133.33, round to −133.

LUX-MS/RA=[300/1500]*−1000=−200, round to −200.

CAY-RA/RA=[900/1500]*−1000=−600, round to −600.

CAY-RA/MS=[100/1500]*−1000=−66.667, round to −67.

Funds may, therefore, contain odd lots, but the risk in closing a position will be evenly disbursed to the funds in relation to the current amount of risk held by the fund. This proportionally reduces the position in each portfolio to zero, without creating a long and short position between portfolios. For example, if the MYSTOCK transaction were a sell of 1490, the allocation would be:

LUX-RA/RA=[200/1500]*−1490=−198.667, round to −199.

LUX-MS/RA=[300/1500]*−1490=−298, round to −298.

CAY-RA/RA=[900/1500]*−1490=−894, round to −894.

CAY-RA/MS=[100/1500]*−1490=−99.333, round to −99.

This allocation would produce the following ending positions:

If two or more funds have the same position and closing ratio, differences in rounding may be allocated using rules that prioritize particular portfolios and/or risk classes.

In some implementations, closing transactions may be rounded using minimum rounding lot sizes. Special allocation rules may need to be applied when odd lot position exists in one or more of the funds (this situation may occur on an opening position as well when the positions are short). Assume, e. g., that the current positions for MYSTOCK are as follows:

A transaction to sell 1000 shares of MYSTOCK is a closing position transaction and can be allocated as follows:

LUX-RA/RA=[70/1000]*−1000=−70, round to −100.

LUX-MS/RA=[300/1000]*−1000=−300, round to −300.

CAY-RA/RA=[600/1000]*−1000=−600, round to −600.

CAY-RA/MS=[30/1000]*−1000=−30, round to 0.

As a result, the overall collection of portfolios being managed will contain long and short positions within the same risk class. This is shown in the following table:

This creation of both long and short positions may be considered erroneous. An validation procedure may be used to automatically rectify this allocation error by applying the short position to the long position to thereby flatten both positions.

Zero Boundary Transactions.

Zero Boundary transactions are trades that cause an instrument's position to move from long to short or short to long.

When a trade (e. g., a sell transaction) results in change from a long to a short position, that trade is processed by the Allocation Manager as if it consists of both a closing transaction and an opening transaction. The closing portion of the transaction reduces the position in each fund to zero (i. e., flat). The opening portion of the transaction in accordance with the rules explained above. Similarly, a buy transaction that results in a change from a short to a long position is treated as consisting of both a closing transaction and an opening transaction. The closing transaction increases the position in each fund to zero (i. e., flat). The opening transaction then creates a long position.

Amendments and Overrides.

An amendment to an allocated trade may be performed by a Trade Amendment Tool (TAT). The Trade Amendment Tool may be a facility of the OMS, or may be implemented as a separate system. To effect an amendment, a correction message is sent from the TAT to the Allocation Manager. The correction message may include a reference ID to identify the originally entered trade that is to be corrected. Allocation Manager can use the reference ID to match the correction to multiple allocated trades and submit a cancel message to the Accounting System. The correction may be allocated according to the original allocation percentages which may be obtained from a database storing a history of allocation percentages. When a correction changes the instrument, strategy, or quantity, the positions stored in Allocation Manager are correspondingly changed. If the user wishes to edit the percentages of the allocated legs, a trade can be canceled and a new trade entered through the TAT.

When an override is entered, Allocation Manager executes validation routines to ensure that the override does not create an allocation error. If an error is created, the override may be automatically rejected. In some implementations, security features (e. g., password limited access) may restrict access to the TAT. For example, the TAT may be available to operations personnel, but not to traders.

Allocation Manager may accept overrides from OMS without applying the allocation and rounding rules. Validation of the override data may take place in OMS while Allocation Manager may determine if the trade meets required validation criteria. If the validation criteria are met, Allocation Manager will update its intra-day positions and send the trade to the risk management system.

In some implementations, amendments and corrections may be automatically generated or electronically received at an interface from, e. g., an interface to another broker's system (an external broker interface). Electronic amendments may be transmitted to the Allocation Manager on an intra-day basis. When a modification or correction message is received at an external broker interface, that message may be processed at the OMS. The OMS processing may include, e. g., locating the OMS ID that was assigned to the original trade. The original trade's data may be updated in the OMS database and a FIX message may be transmitted to the Allocation Manager to amend the trade. At the Allocation Manager, the electronic amendment message can be matched to the multiple allocated trades (using the OMS ID) and cancel messages generated for each allocated trade. The cancel messages are transmitted from the Allocation Manager to the Accounting System.

Allocation exceptions may occur for a number of different reasons. When an allocation exception occurs, the Allocation Manager may “hard lock” the affected instrument. A hard lock prevents or limits further processing of trades in the affected instrument until the exception condition is resolved. Hard locks may be applied when, e. g., an override causes a long and short position in the same instrument across funds (or Risk Classes) or when reconciliation with an external broker contains a trade break. Processing of these two exceptions are discussed in greater detail in the following sections.

Override Allocation Error.

Overrides are received from the OMS system and may occur for a variety of reasons. For example, overrides may be used to re-align the risk in a given portfolio and risk class with a current amount of free capital. This may occur, for example, following a large infusion of cash into a single fund that distorts the risk of a given position relative to the overall fund.

Overrides may be for either buys or sells and may be on either opening or closing positions. Overrides are sent from the OMS to the Allocation Manager as FIX messages containing data that specifically marks these messages as overrides. Processing of these override messages will, in general, bypass Allocation Manager allocation and rounding rules. When processing an override message, Allocation Manager determines if the override is valid relative to the current position of the instrument in a particular risk class. The override is valid if it does not create a long and short position in the same instrument across funds. If the override is valid, then the Allocation Manager will adjust its intra-day positions for this instrument and submit the trade to the portfolio management system 102 . If the override is invalid then Allocation Manager will flag the trade as an exception and reject the trade. Rejected trades must be investigated, fixed, and re-entered into TAT. Since this “trade” is not a cancellation or correction of a trade stored in Accounting System 103 , it may be processed as a new trade. In some implementations, this trade may be flagged as an amendment, thus permitting it to pass through the Allocation Manager without being subject to a lock queue.

Rejected trades automatically create a lock and all trades in the particular instrument subsequent to the lock are queued. The locked trade and subsequent trades (in the same instrument) are not submitted to TPOS because subsequent allocations are based on the correct allocation of the locked trade (opening and closing trades are allocated differently). By locking on the instrument regardless of the Entity and Risk Class, the system protects the integrity of the allocations considering that the user may have entered the override trade's Risk Class incorrectly. The rejected trade is stored allowing operations to investigate the error and re-enter the trade through TAT. Only trades entered into TAT can pass by the locked queue since they possess an amendment flag that indicates that they are meant to amend a trade. In this case, an allocated Accounting System trade is not being cancel/corrected, but rather a new trade is being entered as an amendment to correct the rejected trade. This “amendment” will be submitted to TPOS if it is valid (i. e., does not create an error condition).

When a rejected trade has been amended, operations will open the Lock Window and remove the instrument from the list of locked instruments. This action will automatically release in sequential order the queued trades for that instrument. The positions will be updated and the trader will process the allocations as intended.

Users may be notified via a standard mail API of an override allocation error. The e-mail addresses of the recipient(s) can be stored in the Allocation Manager database.

Trade breaks are caused when the reconciliation with a Prime Broker returns discrepancies. Trade breaks may be determined based on daily reports generated by the Reconciliation System and which containing trade breaks determined from the previous day's data. When the report is received, it is uploaded to the Allocation Manager with a flag indicating that trade breaks are to be created. Based on data in the Reconciliation System report(s), a lock on a particular instrument is created. Subsequent trades in the locked instrument may be queued in the order that they are received until the lock is removed. In general, a lock is removed following resolution of the trade discrepancy that resulted in the lock. If the trade requires an amendment, the user will use TAT to cancel/correct the trade. A lock may be removed when Allocation Manager receives a new Reconciliation System report. The new report can update trade breaks, thereby, removing a previous day's lock. User may be notified via a standard mail API of a soft lock situation. The e-mail addresses of the recipient(s) will be stored in the Allocation Manager database.

Gaps within the allocation process may exist despite the implementation of hard locks. A first type of gap involves trade breaks. Trade breaks may be detected, e. g., the day after a break occurs. However, following a trade break, and prior to its detection, an incorrect trade may be allocated based on a current target or closing ratios. This trade will then impact the positions within the funds that it was allocated to. Subsequent trades in the same instrument will be allocated according to the new position percentages in the case of a closing transaction. If the previous trade was incorrect the closing transactions throughout the day will be improperly allocated. If there is a large volume of trades in the affected instrument, there may be difficulties in canceling trades subsequent to the break and reentering them after the trade correction is made. The Allocation Manager can include OAMP functionality allowing impacted transactions to be determined and enabling the generation of a report that isolates the impacted trades. This process helps to mitigate allocations based on inaccurate position data.

The second gap type occurs where the incorrect trade is identified on the day of its occurrence and is corrected using the TAT application. Although the trade can be cancelled and corrected, subsequent trades may have been allocated based on the assumption that the preceding trades (and, therefore, positions) were correct. Subsequent trades in the same instrument will be allocated according to an erroneous position in the case of a closing transaction.

End of Day Processing.

At the end of the trading day, Allocation Manager can forward to the Reconciliation System a position file containing all instrument positions as of the close of the trading day. This position file may be compared to a position file generated by the Accounting System. A comparison of these different position files can be used to ensure that the Accounting System has received all allocated trades from Allocation Manager. If the position files disagree, operations can research the discrepancies and resolve the differences before the next day open.

Allocation Manager (and the various systems that Allocation Manager ultimately interfaces with) can include functionality to track and identify unique trades. Trade tracking information can be used for other operations such as trade cancellation and correction. Each trade received from a particular OMS 101 can include a unique trade identifier that, in part, can be used by Allocation Manager to track trades. However, because OMS may independently assign trade identifiers, the Allocation manager may need to add additional identifier information to the OMS identifier (or may replace the OMS supplied identifier) to ensure that trade identifiers are unique across all trades from all OMSs. This helps to ensure that the particular OMSs from which a trade originated can be identified as trades flow through, e. g., the Accounting System 103 , Portfolio Management System 102 , and other trading systems. Furthermore, for allocated trades, additional information is added to the OMS identifier so that each allocated portion of the trade can be tracked. This additional information may be a “leg” identifier that, in combination with the OMS identifier, is unique for every allocated portion (i. e., for each allocated trade sent to the other trading systems 102 – 103 )

The invention may be implemented in digital electronic circuitry, or in computer hardware, firmware, software, or in combinations of them. Apparatus of the invention may be implemented in a computer program product tangibly embodied in a machine-readable storage device for execution by a programmable processor; and method steps of the invention may be performed by a programmable processor executing a program of instructions to perform functions of the invention by operating on input data and generating output. The invention may advantageously be implemented in one or more computer programs that are executable on a programmable system including at least one programmable processor coupled to receive data and instructions from, and to transmit data and instructions to, a data storage system, at least one input device, and at least one output device. Each computer program may be implemented in a high-level procedural or object-oriented programming language, or in assembly or machine language if desired; and in any case, the language may be a compiled or interpreted language. Suitable processors include, by way of example, both general and special purpose microprocessors. Generally, a processor will receive instructions and data from a read-only memory and/or a random access memory. Storage devices suitable for tangibly embodying computer program instructions and data include all forms of non-volatile memory, including by way of example semiconductor memory devices, such as EPROM, EEPROM, and flash memory devices; magnetic disks such as internal hard disks and removable disks; magneto-optical disks; and CD-ROM disks. Any of the foregoing may be supplemented by, or incorporated in, specially-designed ASICs (application-specific integrated circuits).

A number of embodiments of the present invention have been described. Nevertheless, it will be understood that various modifications may be made without departing from the spirit and scope of the invention. For example, the current FIX message system does not support convertible bonds. FIX may be modified, or a different protocol substituted, so that the Allocation Manager can interpret convertible bond data. Accordingly, other embodiments are within the scope of the following claims.

Processamento pós-negociação.

O que é "processamento pós-negociação"?

O processamento pós-negociação ocorre após a conclusão da negociação. Nesse ponto, o comprador e o vendedor comparam os detalhes do comércio, aprovam a transação, alteram os registros de propriedade e organizam a transferência de valores mobiliários e dinheiro. O processamento pós-negociação é especialmente importante em mercados não padronizados, como os mercados de balcão (over-the-counter - OTC).

QUEBRANDO O "Processamento Pós-Comercial"

O processamento pós-negociação é importante na medida em que verifica os detalhes de uma transação. Mercados e preços se movem rapidamente; as transações são executadas rapidamente, geralmente instantaneamente. Muitos comércios de valores mobiliários são feitos por telefone; a capacidade de erros é inerente, apesar da habilidade do profissional. Cada vez mais as negociações são executadas em alta frequência apenas por computadores. A chance de pequenos erros se acumularem permanece alta. O processamento pós-negociação permite que o comprador e o vendedor de títulos eliminem e corrijam esses erros. Além de combinar os detalhes das ordens de compra e venda, o processamento pós-negociação inclui a transferência de registros de propriedade e a autorização do pagamento.

Exemplos de processamento pós-negociação.

Na NYSE Bonds Platform, após as conclusões de negociação, todos os Depository Trust & amp; As operações de títulos elegíveis da Organização de Interface Regional (RIO) da Clearing Corporation (DTCC) / Comissão Nacional de Compensação de Valores Mobiliários (NSCC) são enviadas para o NSCC, a fim de corresponder aos detalhes comerciais dos compradores e respectivos vendedores. Detalhes são transmitidos através do RIO.

Os serviços de pós-comércio recentemente vieram à tona como um meio para as empresas financeiras diversificarem seus fluxos de receita. Devido à combinação de novas regulamentações, padronização de derivativos e aumento da necessidade de medidas de processamento mais complexas, devido ao crescimento de ativos alternativos, os serviços de pós-negociação são uma área na qual algumas empresas têm a chance de superar concorrentes.

Trade Allocation Best Practices for Registered Investment Advisors.

The allocation of advisory transactions has and continues to be one of the biggest risk areas for registered investment advisors. This has especially been the case for advisors with performance fee or proprietary accounts trading side by side with non-performance fee accounts. A strong and comprehensive trade allocation policy can go a long way towards mitigating this risk, helping ensure that allocations are made in a fair and equitable manner for all clients. Full and accurate disclosure of these allocation policies and practices and the maintenance of adequate books and records are just as important, particularly as the SEC’s Enforcement Division has stepped up it efforts to combat cherry-picking in recent years.

FUNDO.

Trade allocation practices have long been on the radar of the Securities and Exchange Commission and its Office of Compliance Inspections and Examinations (OCIE). Advisors with performance fee and proprietary accounts and those trading in illiquid securities are especially a high risk in the eyes of SEC examiners. This focus is largely due to the potential for abuse that exists when advisors allocate trades to their clients. In some cases, investment advisors have engaged in “cherry-picking,” where they have systematically allocated profitable trades to favored accounts (usually proprietary or personal accounts of an employee) at a disproportionate rate. In these cases, which are notoriously difficult for clients to detect, the advisor generally makes the allocations after the trades have been executed.

In the last couple of years, the SEC’s Enforcement Division, working alongside the agency’s Division of Economic and Risk Analysis, has launched a data-driven initiative to combat cherry-picking by analyzing large volumes of trade allocation data. According to Julie M. Riewe, Co-Chief of the SEC Enforcement Division’s Asset Management Unit, the initiative was devised “to identify specific custodians providing services to investment advisers and their clients and leverage their trading records and other data to efficiently target preferential trade allocations occurring outside the detection of even the most observant client.” In 2015, the SEC brought charges against a Wisconsin based investment advisor for cherry-picking that was a direct result of this initiative.

When bringing allocation cases against investment advisors, the SEC has been able to rely upon Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 and Section 10(b) of the Securiities Exchange Act of 1934. Another rule the SEC has had at its disposal is Rule 206(4)-7, if an adviser has been found to not have adequate policies and procedures and/or failed to supervise employees engaged in inappropriate activities.

ALLOCATION BEST PRACTICES.

Due to the significant risks associated with trade allocations, advisors should ensure that they have robust policies and procedures, taking into account their portfolio management and trading processes, their types of clients and accounts, and other characteristics specific to their firm. While the SEC doesn’t mandate any specific allocation practice or methodology, there are certain best practices that advisors should consider when drafting or reviewing their allocation policies and procedures.

As a starting point, your policies and procedures should require that all allocations be made and documented prior to the time the trade is placed. You should also decide on an allocation methodology or formula that is both suitable and fair. If you place block orders on behalf of multiple accounts, a pro rata allocation based on the net assets of each participating account is generally considered to be a fair and equitable method. If a block order is placed on behalf of 5 accounts, for instance, and Account A has 30% of the total net assets of all 5 accounts, a pro rata allocation to Account A would be 30% of the total shares that were executed from the order. If instead orders are placed separately for each account, rotating the order that accounts are filled is generally the fairest way to allocate orders. As a result, the same account won’t always be the first or last account in line to receive an execution.

Be sure to document whatever methodology your firm has adopted in your policies and procedures as well as the reasons, if any, why exceptions may be made. Valid exceptions may include accounts not participating because they are in a different investment strategy, have investment restrictions (e. g., no tobacco stocks), or have significantly larger or smaller cash balances (e. g, because of subscriptions or redemptions). A partial fill on a block order is another common reason for not allocating to certain accounts or allocating on a non-pro rata basis.

Another best practice is to have the portfolio management, trading, and compliance departments review on a daily basis a report showing all allocations and exceptions to your policies and procedures for the day. The report might highlight, for instance, which accounts in a strategy were excluded from a trade as well as whether any allocations were not made on a pro rata basis. Reviewing such data and investigating exceptions on a daily basis allows you to promptly identify and address any trade errors arising from trade allocations.

BOOKS AND RECORDS.

An investment advisor should also ensure that it is maintaining all required books and records pertaining to its allocations. To begin with, you should be able to document the time of the initial allocation of a trade, the time the order is placed with the broker, and the time the trade is executed. Most order management systems (OMS) today automatically capture and retain this information. If there is an exception to your allocation policy, it is a good idea to add a note to your trade ticket explaining the reason for the exception and maintain supporting documentation. Similarly, if the allocation is modified after the order is placed, an audit trail of the trade should be maintained together with supporting documentation.

FORENSIC TESTING.

While you may be confident that your allocation policies and procedures are adequate, you should also perform forensic testing to help identify any patterns or trends that may indicate that certain accounts are being favored over others. Most importantly, your firm should be periodically (e. g., quarterly) comparing the performance returns of your accounts within each strategy to determine whether there is any performance dispersion. Be sure that you are comparing returns gross of management and performance fees as the inclusion of fees may skew the returns of certain accounts. In those cases where dispersion does exist, be sure to document the results of your investigation regarding the reasons for the dispersion as well as any corrective action taken. Some valid reasons for performance dispersion may include different inception dates, subscriptions and/or redemptions, and investment restrictions specific to a client. An attribution analysis through FactSet or other vendors should help identify the reasons for any difference in performance between any two accounts.

Another good forensic test is to sample a percentage of all allocations during the previous month or year (e. g., 10%) and determine whether certain accounts are repeatedly being excluded or receiving non pro rata allocations. Depending on your portfolio accounting software, you may be able to configure your trade blotter to show the actual and pro rata allocation percentages for each trade to help facilitate this analysis. Remember to pay special attention to performance fee and proprietary accounts.

You can also sample trades where the initial and final allocation are different and investigate whether the reasons for the change are legitimate. If your firm participates in a large number of initial public offerings (IPOs), you should also review these allocations to determine whether certain IPO eligible accounts are repeatedly receiving a disproportionate amount of allocations to “hot” IPOs. Finally, depending on your portfolio accounting system, you should consider calculating the percentage of trades allocated to each account that were profitable. This test, together with the other tests mentioned above, can help identify cherry-picking and other wrongdoing with respect to trade allocations.

DIVULGAÇÃO.

Perhaps most importantly, you should ensure that your actual allocation practices not only mirror your written policies and procedures but also what you have disclosed to clients. A definite red flag to regulators is if there are inconsistencies between your disclosure documents and how you are actually allocating trades. Remember to not only check your Form ADV but also private placement memorandums, due diligence questionnaires, marketing materials, and other disclosure documents you are providing to clients and prospective clients.

With the SEC increasingly focusing on problematic allocation practices such as cherry-picking, registered investment advisors, more than ever, should ensure that they have strong allocation policies and procedures. These policies and procedures should address the firm’s allocation methodology and when and how exceptions should be made. Potential conflicts of interest, such as the existence of performance fee and proprietary accounts, should also be addressed. Advisors must also ensure that they maintain adequate books and records that can support any allocations and exceptions made in the past. Finally, advisors must fully and accurately disclose their allocation practices to clients and verify that all disclosure documents are consistent with these practices. In doing so, advisors can help mitigate one of their most significant risk areas.

Hayley Nelson is the President and Principal Consultant of NCA Compliance, Inc. She has 20 years of regulatory and industry experience and received a national award from the SEC for outstanding service.

The EU Emissions Trading System (EU ETS)

The EU Emissions Trading System explained.

The EU emissions trading system (EU ETS) is a cornerstone of the EU's policy to combat climate change and its key tool for reducing greenhouse gas emissions cost-effectively. It is the world's first major carbon market and remains the biggest one.

operates in 31 countries (all 28 EU countries plus Iceland, Liechtenstein and Norway) limits emissions from more than 11,000 heavy energy-using installations (power stations & industrial plants) and airlines operating between these countries covers around 45% of the EU's greenhouse gas emissions.

For a detailed overview, see:

A 'cap and trade' system.

The EU ETS works on the 'cap and trade' principle.

A cap is set on the total amount of certain greenhouse gases that can be emitted by installations covered by the system. The cap is reduced over time so that total emissions fall .

Within the cap, companies receive or buy emission allowances which they can trade with one another as needed. They can also buy limited amounts of international credits from emission-saving projects around the world. The limit on the total number of allowances available ensures that they have a value.

After each year a company must surrender enough allowances to cover all its emissions, otherwise heavy fines are imposed. If a company reduces its emissions, it can keep the spare allowances to cover its future needs or else sell them to another company that is short of allowances.

Trading brings flexibility that ensures emissions are cut where it costs least to do so . A robust carbon price also promotes investment in clean, low-carbon technologies .

Key features of phase 3 (2013-2020)

The EU ETS is now in its third phase – significantly different from phases 1 and 2.

The main changes are:

A single, EU-wide cap on emissions applies in place of the previous system of national caps Auctioning is the default method for allocating allowances (instead of free allocation), and harmonised allocation rules apply to the allowances still given away for free More sectors and gases included 300 million allowances set aside in the New Entrants Reserve to fund the deployment of innovative renewable energy technologies and carbon capture and storage through the NER 300 programme.

Sectors and gases covered.

The system covers the following sectors and gases with the focus on emissions that can be measured, reported and verified with a high level of accuracy:

carbon dioxide (CO 2 ) from power and heat generation energy-intensive industry sectors including oil refineries, steel works and production of iron, aluminium, metals, cement, lime, glass, ceramics, pulp, paper, cardboard, acids and bulk organic chemicals commercial aviation nitrous oxide (N 2 O) from production of nitric, adipic and glyoxylic acids and glyoxal perfluorocarbons (PFCs) from aluminium production.

Participation in the EU ETS is mandatory for companies in these sectors , but.

in some sectors only plants above a certain size are included certain small installations can be excluded if governments put in place fiscal or other measures that will cut their emissions by an equivalent amount in the aviation sector, until 2016 the EU ETS applies only to flights between airports located in the European Economic Area (EEA).

Delivering emissions reductions.

The EU ETS has proved that putting a price on carbon and trading in it can work. Emissions from installations in the scheme are falling as intended – by around 5% compared to the beginning of phase 3 (2013) (see 2015 figures).

In 2020 , emissions from sectors covered by the system will be 21% lower than in 2005 .

Developing the carbon market.

Set up in 2005, the EU ETS is the world's first and biggest international emissions trading system, accounting for over three-quarters of international carbon trading.

The EU ETS is also inspiring the development of emissions trading in other countries and regions. The EU aims to link the EU ETS with other compatible systems.

Main EU ETS legislation.

30/04/2014 - Consolidated version of Directive 2003/87/EC of the European Parliament and of the Council establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC 23/04/2009 - Directive 2009/29/EC of the European Parliament and of the Council amending Directive 2003/87/EC so as to improve and extend the greenhouse gas emission allowance trading scheme of the Community 19/11/2008 - Directive 2008/101/EC of the European Parliament and of the Council amending Directive 2003/87/EC so as to include aviation activities in the scheme for greenhouse gas emission allowance trading within the Community 27/10/2004 - Directive 2004/101/EC of the European Parliament and of the Council amending Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading within the Community, in respect of the Kyoto Protocol's project mechanisms 13/10/2003 - Directive 2003/87/EC of the European Parliament and of the Council establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC.

Carbon market reports.

23/11/2017 – COM(2017) 693 – Report on the functioning of the European carbon market 01/02/2017 - COM(2017) 48 - Report on the functioning of the European carbon market 18/11/2015 - COM(2015) 576 - Report on the functioning of the European carbon market 14/11/2012 - COM(2012) 652 - The state of the European carbon market in 2012.

Revision of the EU ETS for phase 3.

04/02/2011 - European Council conclusions of 4 February 2011 (see conclusions 23 and 24) 18/03/2010 - Guidance on interpretation of Annex I of the EU ETS Directive (excl. aviation activities) 18/03/2010 - Guidance paper to identify electricity generators 06/04/2009 - Council press release on the adoption of the climate and energy package 12/12/2008 - Presidency conclusions of the European Council (11 and 12 December 2008) 12/12/2008 - European Council Statement on the use of auction revenues 23/01/2008 - Proposal for a Directive of the European Parliament and of the Council amending Directive 2003/87/EC so as to improve and extend the greenhouse gas emission allowance trading system of the Community 23/01/2008 - Commission staff working document - Accompanying document to the Proposal for a Directive of the European Parliament and of the Council amending Directive 2003/87/EC so as to improve and extend the EU greenhouse gas emission allowance trading system - Impact assessment.

Implementação.

04/07/2013 - Amended Draft Regulation on determining international credit entitlements 05/06/2013 - Draft regulation on determining international credit entitlements 05/05/2013 Commission Regulation (EU) No 389/2013 of 2 May 2013 establishing a Union Registry pursuant to Directive 2003/87/EC of the European Parliament and of the Council, Decisions No 280/2004/EC and No 406/2009/EC of the European Parliament and of the Council and repealing Commission Regulations (EU) No 920/2010 and No 1193/2011 Text with EEA relevance 18/11/2011 - Commission Regulation establishing a Union Registry for the trading period commencing on 1 January 2013, and subsequent trading periods, of the Union emissions trading scheme pursuant to Directive 2003/87/EC of the European Parliament and of the Council and Decision 280/2004/EC of the European Parliament and of the Council and amending Regulations (EC) No 2216/2004 and (EU) No 920/2010 - not yet published in the Official Journal 07/10/2010 - Commission Regulation (EU) No 920/2010 for a standardised and secured system of registries pursuant to Directive 2003/87/EC of the European Parliament and of the Council and Decision No 280/2004/EC of the European Parliament and of the Council - version not including changes brought by Regulation of 18 November 2011 08/10/2008 - Commission Regulation (EC) No 994/2008 for a standardised and secured system of registries pursuant to Directive 2003/87/EC of the European Parliament and of the Council and Decision No 280/2004/EC of the European Parliament and of the Council - version applicable until 31 December 2011 26/10/2007 - EEA Joint Committee Decision No 146/2007 linking the EU ETS with Norway, Iceland and Liechtenstein 13/11/2006 - Commission Decision 2006/780/EC on avoiding DOUBLE COUNTING of greenhouse gas emission reductions under the Community emissions trading scheme for project activities under the Kyoto Protocol pursuant to Directive 2003/87/EC of the European Parliament and of the Council (notified under document number C(2006) 5362) 21/12/2004 - Consolidated version of Commission Regulation (EC) No 2216/2004 for a standardised and secured system of registries amended by Commission Regulation (EC) No 916/2007 of 31 July 2007, Commission Regulation (EC) No 994/2008 of 8 October 2008 and Commission Regulation (EU) No 920/2010 of 7 October 2010 - version not including changes brought by Regulation of 18 November 2011.

Application of VAT.

Legislative History of Directive 2003/87/EC.

Work prior to the Commission proposal.

08/02/2000 - COM(2000) 87 - Green Paper on greenhouse gas emissions trading within the European Union Mandate and results of ECCP Working Group 1 : Flexible mechanisms 04/09/2001 - Chairman's Summary Record of Stakeholder consultation meeting (with Industry and Environmental NGOs) 19/05/1999 - COM(1999) 230 - Preparing for Implementation of the Kyoto Protocol 03/06/1998 - COM(1998) 353 - Climate Change - Towards an EU Post-Kyoto Strategy Scope of the EU ETS: 07/2007 - Small Installations within the EU Emissions Trading System 10/2006 - Inclusion of additional activities and gases into the EU Emissions Trading System Further harmonisation and increased predictability: 12/2006 - The approach to new entrants and closures 10/2006 - Auctioning of CO2 emission allowances in the EU ETS 10/2006 - Harmonisation of allocation methodologies 12/2006 - Report on international competitiveness ECCP working group on emissions trading on the review of the EU ETS 15/06/2007 - Final report of the 4th meeting on Linking with Emission Trading Systems in Third Countries 22/05/2007 - Final report of the 3rd meeting on Further Harmonisation and Increased Predictability 26/04/2007 - Final Report of the 2nd meeting on Robust Compliance and Enforcement 09/03/2007 - Final Report of the 1st meeting on The Scope of the Directive.

Commission proposal of October 2001.

22/01/2002 - Non-paper on synergies between the EC emissions trading proposal (COM(2001)581) and the IPPC Directive 23/10/2001 - COM(2001) 581 - Proposal for a framework Directive for greenhouse gas emissions trading within the European Community.

Commission's reaction to reading of the proposal in Council and Parliament (including Council's common position)

18/07/2003 - COM(2003) 463 - Opinion of the Commission on the European Parliament's amendments to the Council's common position regarding the proposal for a Directive of the European Parliament and of the Council 20/06/2003 - COM(2003) 364 - Commission Communication to the European Parliament concerning the Council's Common Position on the adoption of a Directive establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC 18/03/2003 - Common Position (EC) No 28/2003 - Council's Common Position on the adoption of a Directive establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC 27/11/2002 - COM(2002) 680 - Amended proposal for a directive of the European Parliament and of the Council establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC Faq.

Open all questions.

Questions and Answers on the revised EU Emissions Trading System (December 2008)

What is the aim of emissions trading?

The aim of the EU Emissions Trading System (EU ETS) is to help EU Member States achieve their commitments to limit or reduce greenhouse gas emissions in a cost-effective way. Allowing participating companies to buy or sell emission allowances means that emission cuts can be achieved at least cost.

The EU ETS is the cornerstone of the EU's strategy for fighting climate change. It is the first international trading system for CO 2 emissions in the world and has been in operation since 2005. As of I January 2008 it applies not only to the 27 EU Member States, but also to the other three members of the European Economic Area – Norway, Iceland and Liechtenstein. It currently covers over 10,000 installations in the energy and industrial sectors which are collectively responsible for close to half of the EU's emissions of CO 2 and 40% of its total greenhouse gas emissions. An amendment to the EU ETS Directive agreed in July 2008 will bring the aviation sector into the system from 2012.

How does emissions trading work?

The EU ETS is a 'cap and trade' system, that is to say it caps the overall level of emissions allowed but, within that limit, allows participants in the system to buy and sell allowances as they require. These allowances are the common trading 'currency' at the heart of the system. One allowance gives the holder the right to emit one tonne of CO 2 or the equivalent amount of another greenhouse gas. The cap on the total number of allowances creates scarcity in the market.

In the first and second trading period under the scheme, Member States had to draw up national allocation plans (NAPs) which determine their total level of ETS emissions and how many emission allowances each installation in their country receives. At the end of each year installations must surrender allowances equivalent to their emissions. Companies that keep their emissions below the level of their allowances can sell their excess allowances. Those facing difficulty in keeping their emissions in line with their allowances have a choice between taking measures to reduce their own emissions – such as investing in more efficient technology or using less carbon-intensive energy sources – or buying the extra allowances they need on the market, or a combination of the two. Such choices are likely to be determined by relative costs. In this way, emissions are reduced wherever it is most cost-effective to do so.

How long has the EU ETS been operating?

The EU ETS was launched on 1 January 2005. The first trading period ran for three years to the end of 2007 and was a 'learning by doing' phase to prepare for the crucial second trading period. The second trading period began on 1 January 2008 and runs for five years until the end of 2012. The importance of the second trading period stems from the fact that it coincides with the first commitment period of the Kyoto Protocol, during which the EU and other industrialised countries must meet their targets to limit or reduce greenhouse gas emissions. For the second trading period EU ETS emissions have been capped at around 6.5% below 2005 levels to help ensure that the EU as a whole, and Member States individually, deliver on their Kyoto commitments.

What are the main lessons learned from experience so far?

The EU ETS has put a price on carbon and proved that trading in greenhouse gas emissions works. The first trading period successfully established the free trading of emission allowances across the EU, put in place the necessary infrastructure and developed a dynamic carbon market. The environmental benefit of the first phase may be limited due to excessive allocation of allowances in some Member States and some sectors, due mainly to a reliance on emission projections before verified emissions data became available under the EU ETS. When the publication of verified emissions data for 2005 highlighted this “over-allocation”, the market reacted as would be expected by lowering the market price of allowances. The availability of verified emissions data has allowed the Commission to ensure that the cap on national allocations under the second phase is set at a level that results in real emission reductions.

Besides underlining the need for verified data, experience so far has shown that greater harmonisation within the EU ETS is imperative to ensure that the EU achieves its emissions reductions objectives at least cost and with minimal competitive distortions. The need for more harmonisation is clearest with respect to how the cap on overall emission allowances is set.

Os dois primeiros períodos de comércio mostram também que os métodos nacionais amplamente divergentes de atribuição de licenças a instalações ameaçam a concorrência leal no mercado interno. Furthermore, greater harmonisation, clarification and refinement are needed with respect to the scope of the system, the access to credits from emission-reduction projects outside the EU, the conditions for linking the EU ETS to emissions trading systems elsewhere and the monitoring, verification and reporting requirements.

What are the main changes to the EU ETS and as of when will they apply?

The agreed design changes will apply as of the third trading period, i. e. January 2013. While preparatory work will be initiated immediately, the applicable rules will not change until January 2013 to ensure that regulatory stability is maintained.

The EU ETS in the third period will be a more efficient, more harmonised and fairer system.

Increased efficiency is achieved by means of a longer trading period (8 years instead of 5 years), a robust and annually declining emissions cap (21% reduction in 2020 compared to 2005) and a substantial increase in the amount of auctioning (from less than 4% in phase 2 to more than half in phase 3).

Foi harmonizada mais harmonização em muitos domínios, incluindo no que diz respeito à fixação de limites (limite máximo à escala da UE em vez dos limites nacionais nas fases 1 e 2) e às regras para a atribuição gratuita a título transitório.

The fairness of the system has been substantially increased by the move towards EU-wide free allocation rules for industrial installations and by the introduction of a redistribution mechanism that entitles new Member States to auction more allowances.

How does the final text compare to the initial Commission proposal?

The climate and energy targets agreed by the 2007 Spring European Council have been maintained and the overall architecture of the Commission's proposal on the EU ETS remains intact. That is to say that there will be one EU-wide cap on the number of emission allowances and this cap will decrease annually along a linear trend line, which will continue beyond the end of the third trading period (2013-2020). The main difference as compared to the proposal is that auctioning of allowances will be phased in more slowly.

Quais são as principais alterações em relação à proposta da Comissão?

In summary, the main changes that have been made to the proposal are as follows:

Certain Member States are allowed an optional and temporary derogation from the rule that no allowances are to be allocated free of charge to electricity generators as of 2013. This option to derogate is available to Member States which fulfil certain conditions related to the interconnectivity of their electricity grid, share of a single fossil fuel in electricity production, and GDP/capita in relation to the EU-27 average. In addition, the amount of free allowances that a Member State can allocate to power plants is limited to 70% of carbon dioxide emissions of relevant plants in phase 1 and declines in the years thereafter. Furthermore free allocation in phase 3 can only be given to power plants that are operational or under construction no later than end 2008. See reply to question 15 below. There will be more details in the Directive on the criteria to be used to determine the sectors or sub-sectors deemed to be exposed to a significant risk of carbon leakage , and an earlier date of publication of the Commission's list of such sectors (31 December 2009). Moreover, subject to review when a satisfactory international agreement is reached, installations in all exposed industries will receive 100% free allowances to the extent that they use the most efficient technology. The free allocation to industry is limited to the share of these industries' emissions in total emissions in 2005 to 2007. The total number of allowances allocated for free to installations in industry sectors will decline annually in line with the decline of the emissions cap. Member States may also compensate certain installations for CO 2 costs passed on in electricity prices if the CO 2 costs might otherwise expose them to the risk of carbon leakage. The Commission has undertaken to modify the Community guidelines on state aid for environmental protection in this respect. See reply to question 15 below. The level of auctioning of allowances for non-exposed industry will increase in a linear manner as proposed by the Commission, but rather than reaching 100% by 2020 it will reach 70%, with a view to reaching 100% by 2027. As foreseen in the Commission's proposal, 10% of the allowances for auctioning will be redistributed from Member States with high per capita income to those with low per capita income in order to strengthen the financial capacity of the latter to invest in climate friendly technologies. A provision has been added for another redistributive mechanism of 2% of auctioned allowances to take into account Member States which in 2005 had achieved a reduction of at least 20% in greenhouse gas emissions compared with the reference year set by the Kyoto Protocol. The share of auctioning revenues that Member States are recommended to use to fight and adapt to climate change mainly within the EU, but also in developing countries, is raised from 20% to 50%. The text provides for a top-up to the proposed permitted level of use of JI/CDM credits in the 20% scenario for existing operators that received the lowest budgets to import and use such credits in relation to allocations and access to credits in the period 2008-2012. New sectors, new entrants in the periods 2013-2020 and 2008-2012 will also be able to use credits. The total amount of credits that may be used will, however, not exceed 50% of the reduction between 2008 and 2020. Based on a stricter emissions reduction in the context of a satisfactory international agreement, the Commission could allow additional access to CERs and ERUs for operators in the Community scheme. See reply to question 20 below. The proceeds from auctioning 300 million allowances from the new entrants reserve will be used to support up to 12 carbon capture and storage demonstration projects and projects demonstrating innovative renewable energy technologies. A number of conditions are attached to this financing mechanism. See reply to question 30 below. The possibility to opt-out small combustion installations provided they are subject to equivalent measures has been extended to cover all small installations irrespective of activity, the emission threshold has been raised from 10,000 to 25,000 tonnes of CO 2 per year, and the capacity threshold that combustion installations have to fulfil in addition has been raised from 25MW to 35MW. With these increased thresholds, the share of covered emissions that would potentially be excluded from the emissions trading system becomes significant, and consequently a provision has been added to allow for a corresponding reduction of the EU-wide cap on allowances.

Will there still be national allocation plans (NAPs)?

No. In their NAPs for the first (2005-2007) and the second (2008-2012) trading periods, Member States determined the total quantity of allowances to be issued – the cap – and how these would be allocated to the installations concerned. This approach has generated significant differences in allocation rules, creating an incentive for each Member State to favour its own industry, and has led to great complexity.

As from the third trading period, there will be a single EU-wide cap and allowances will be allocated on the basis of harmonised rules. National allocation plans will therefore not be needed any more.

How will the emission cap in phase 3 be determined?

The rules for calculating the EU-wide cap are as follows:

From 2013, the total number of allowances will decrease annually in a linear manner. The starting point of this line is the average total quantity of allowances (phase 2 cap) to be issued by Member States for the 2008-12 period, adjusted to reflect the broadened scope of the system from 2013 as well as any small installations that Member States have chosen to exclude. The linear factor by which the annual amount shall decrease is 1.74% in relation to the phase 2 cap.

The starting point for determining the linear factor of 1.74% is the 20% overall reduction of greenhouse gases compared to 1990, which is equivalent to a 14% reduction compared to 2005. However, a larger reduction is required of the EU ETS because it is cheaper to reduce emissions in the ETS sectors. The division that minimises overall reduction cost amounts to:

uma redução de 21% nas emissões do setor RCLE-UE em relação a 2005 até 2020; a reduction of around 10% compared to 2005 for the sectors that are not covered by the EU ETS.

The 21% reduction in 2020 results in an ETS cap in 2020 of a maximum of 1720 million allowances and implies an average phase 3 cap (2013 to 2020) of some 1846 million allowances and a reduction of 11% compared to the phase 2 cap.

All absolute figures indicated correspond to the coverage at the start of the second trading period and therefore don't take account of aviation, which will be added in 2012, and other sectors that will be added in phase 3.

The final figures for the annual emission caps in phase 3 will be determined and published by the Commission by 30 September 2010.

How will the emission cap beyond phase 3 be determined?

The linear factor of 1.74% used to determine the phase 3 cap will continue to apply beyond the end of the trading period in 2020 and will determine the cap for the fourth trading period (2021 to 2028) and beyond. It may be revised by 2025 at the latest. In fact, significant emission reductions of 60%-80% compared to 1990 will be necessary by 2050 to reach the strategic objective of limiting the global average temperature increase to not more than 2°C above pre-industrial levels.

An EU-wide cap on emission allowances will be determined for each individual year. Will this reduce flexibility for the installations concerned?

No, flexibility for installations will not be reduced at all. In any year, the allowances to be auctioned and distributed have to be issued by the competent authorities by 28 February. The last date for operators to surrender allowances is 30 April of the year following the year in which the emissions took place. So operators receive allowances for the current year before they have to surrender allowances to cover their emissions for the previous year. Allowances remain valid throughout the trading period and any surplus allowances can now be "banked" for use in subsequent trading periods. In this respect nothing will change.

The system will remain based on trading periods, but the third trading period will last eight years, from 2013 to 2020, as opposed to five years for the second phase from 2008 to 2012.

For the second trading period Member States generally decided to allocate equal total quantities of allowances for each year. The linear decrease each year from 2013 will correspond better to expected emissions trends over the period.

What are the tentative annual ETS cap figures for the period 2013 to 2020?

The tentative annual cap figures are as follows:

These figures are based on the scope of the ETS as applicable in phase 2 (2008 to 2012), and the Commission's decisions on the national allocation plans for phase 2, amounting to 2083 million tonnes. These figures will be adjusted for several reasons. Firstly, adjustment will be made to take into account the extensions of the scope in phase 2, provided that Member States substantiate and verify their emissions accruing from these extensions. Secondly, adjustment will be made with respect to further extensions of the scope of the ETS in the third trading period. Thirdly, any opt-out of small installations will lead to a corresponding reduction of the cap. Fourthly, the figures do not take account of the inclusion of aviation, nor of emissions from Norway, Iceland and Liechtenstein.

Will allowances still be allocated for free?

Sim. Industrial installations will receive transitional free allocation. And in those Member States that are eligible for the optional derogation, power plants may, if the Member State so decides, also receive free allowances. It is estimated that at least half of the available allowances as of 2013 will be auctioned.

While the great majority of allowances has been allocated free of charge to installations in the first and second trading periods, the Commission proposed that auctioning of allowances should become the basic principle for allocation. This is because auctioning best ensures the efficiency, transparency and simplicity of the system and creates the greatest incentive for investments in a low-carbon economy. It best complies with the “polluter pays principle” and avoids giving windfall profits to certain sectors that have passed on the notional cost of allowances to their customers despite receiving them for free.

How will allowances be handed out for free?

By 31 December 2010, the Commission will adopt EU-wide rules, which will be developed under a committee procedure (“Comitology”). These rules will fully harmonise allocations and thus all firms across the EU with the same or similar activities will be subject to the same rules. The rules will ensure as far as possible that the allocation promotes carbon-efficient technologies. The adopted rules provide that to the extent feasible, allocations are to be based on so-called benchmarks, e. g. a number of allowances per quantity of historical output. Such rules reward operators that have taken early action to reduce greenhouse gases, better reflect the polluter pays principle and give stronger incentives to reduce emissions, as allocations would no longer depend on historical emissions. All allocations are to be determined before the start of the third trading period and no ex-post adjustments will be allowed.

Which installations will receive free allocations and which will not? How will negative impacts on competitiveness be avoided?

Taking into account their ability to pass on the increased cost of emission allowances, full auctioning is the rule from 2013 onwards for electricity generators. However, Member States who fulfil certain conditions relating to their interconnectivity or their share of fossil fuels in electricity production and GDP per capita in relation to the EU-27 average, have the option to temporarily deviate from this rule with respect to existing power plants. The auctioning rate in 2013 is to be at least 30% in relation to emissions in the first period and has to increase progressively to 100% no later than 2020. If the option is applied, the Member State has to undertake to invest in improving and upgrading of the infrastructure, in clean technologies and in diversification of their energy mix and sources of supply for an amount to the extent possible equal to the market value of the free allocation.

In other sectors, allocations for free will be phased out progressively from 2013, with Member States agreeing to start at 20% auctioning in 2013, increasing to 70% auctioning in 2020 with a view to reaching 100% in 2027. However, an exception will be made for installations in sectors that are found to be exposed to a significant risk of 'carbon leakage'. This risk could occur if the EU ETS increased production costs so much that companies decided to relocate production to areas outside the EU that are not subject to comparable emission constraints. The Commission will determine the sectors concerned by 31 December 2009. To do this, the Commission will assess inter alia whether the direct and indirect additional production costs induced by the implementation of the ETS Directive as a proportion of gross value added exceed 5% and whether the total value of its exports and imports divided by the total value of its turnover and imports exceeds 10%. If the result for either of these criteria exceeds 30%, the sector would also be considered to be exposed to a significant risk of carbon leakage. Installations in these sectors would receive 100% of their share in the annually declining total quantity of allowances for free. The share of these industries' emissions is determined in relation to total ETS emissions in 2005 to 2007.

CO 2 costs passed on in electricity prices could also expose certain installations to the risk of carbon leakage. In order to avoid such risk, Member States may grant a compensation with respect to such costs. In the absence of an international agreement on climate change, the Commission has undertaken to modify the Community guidelines on state aid for environmental protection in this respect.

Under an international agreement which ensures that competitors in other parts of the world bear a comparable cost, the risk of carbon leakage may well be negligible. Therefore, by 30 June 2010, the Commission will carry out an in-depth assessment of the situation of energy-intensive industry and the risk of carbon leakage, in the light of the outcome of the international negotiations and also taking into account any binding sectoral agreements that may have been concluded. The report will be accompanied by any proposals considered appropriate. These could potentially include maintaining or adjusting the proportion of allowances received free of charge to industrial installations that are particularly exposed to global competition or including importers of the products concerned in the ETS.

Who will organise the auctions and how will they be carried out?

Member States will be responsible for ensuring that the allowances given to them are auctioned. Each Member State has to decide whether it wants to develop its own auctioning infrastructure and platform or whether it wants to cooperate with other Member States to develop regional or EU-wide solutions. The distribution of the auctioning rights to Member States is largely based on emissions in phase 1 of the EU ETS, but a part of the rights will be redistributed from richer Member States to poorer ones to take account of the lower GDP per head and higher prospects for growth and emissions among the latter. It is still the case that 10% of the rights to auction allowances will be redistributed from Member States with high per capita income to those with low per capita income in order to strengthen the financial capacity of the latter to invest in climate friendly technologies. However, a provision has been added for another redistributive mechanism of 2% to take into account Member States which in 2005 had achieved a reduction of at least 20% in greenhouse gas emissions compared with the reference year set by the Kyoto Protocol. Nine Member States benefit from this provision.

Any auctioning must respect the rules of the internal market and must therefore be open to any potential buyer under non-discriminatory conditions. By 30 June 2010, the Commission will adopt a Regulation (through the comitology procedure) that will provide the appropriate rules and conditions for ensuring efficient, coordinated auctions without disturbing the allowance market.

How many allowances will each Member State auction and how is this amount determined?

All allowances which are not allocated free of charge will be auctioned. A total of 88% of allowances to be auctioned by each Member State is distributed on the basis of the Member State's share of historic emissions under the EU ETS. For purposes of solidarity and growth, 12% of the total quantity is distributed in a way that takes into account GDP per capita and the achievements under the Kyoto-Protocol.

Which sectors and gases are covered as of 2013?

The ETS covers installations performing specified activities. Since the start it has covered, above certain capacity thresholds, power stations and other combustion plants, oil refineries, coke ovens, iron and steel plants and factories making cement, glass, lime, bricks, ceramics, pulp, paper and board. As for greenhouse gases, it currently only covers carbon dioxide emissions, with the exception of the Netherlands, which has opted in emissions from nitrous oxide.

As from 2013, the scope of the ETS will be extended to also include other sectors and greenhouse gases. CO 2 emissions from petrochemicals, ammonia and aluminium will be included, as will N2O emissions from the production of nitric, adipic and glyocalic acid production and perfluorocarbons from the aluminium sector. The capture, transport and geological storage of all greenhouse gas emissions will also be covered. These sectors will receive allowances free of charge according to EU-wide rules, in the same way as other industrial sectors already covered.

As of 2012, aviation will also be included in the EU ETS.

Will small installations be excluded from the scope?

A large number of installations emitting relatively low amounts of CO 2 are currently covered by the ETS and concerns have been raised over the cost-effectiveness of their inclusion. As from 2013, Member States will be allowed to remove these installations from the ETS under certain conditions. The installations concerned are those whose reported emissions were lower than 25 000 tonnes of CO 2 equivalent in each of the 3 years preceding the year of application. For combustion installations, an additional capacity threshold of 35MW applies. In addition Member States are given the possibility to exclude installations operated by hospitals. The installations may be excluded from the ETS only if they will be covered by measures that will achieve an equivalent contribution to emission reductions.

How many emission credits from third countries will be allowed?

For the second trading period, Member States allowed their operators to use significant quantities of credits generated by emission-saving projects undertaken in third countries to cover part of their emissions in the same way as they use ETS allowances. The revised Directive extends the rights to use these credits for the third trading period and allows a limited additional quantity to be used in such a way that the overall use of credits is limited to 50% of the EU-wide reductions over the period 2008-2020. For existing installations, and excluding new sectors within the scope, this will represent a total level of access of approximately 1.6 billion credits over the period 2008-2020. In practice, this means that existing operators will be able to use credits up to a minimum of 11% of their allocation during the period 2008-2012, while a top-up is foreseen for operators with the lowest sum of free allocation and allowed use of credits in the 2008-2012 period. New sectors and new entrants in the third trading period will have a guaranteed minimum access of 4.5% of their verified emissions during the period 2013-2020. For the aviation sector, the minimum access will be 1.5%. The precise percentages will be determined through comitology.

These projects must be officially recognised under the Kyoto Protocol’s Joint Implementation (JI) mechanism (covering projects carried out in countries with an emissions reduction target under the Protocol) or Clean Development Mechanism (CDM) (for projects undertaken in developing countries). Credits from JI projects are known as Emission Reduction Units (ERUs) while those from CDM projects are called Certified Emission Reductions (CERs).

On the quality side only credits from project types eligible for use in the EU trading scheme during the period 2008-2012 will be accepted in the period 2013-2020. Furthermore, from 1 January 2013 measures may be applied to restrict the use of specific credits from project types. Such a quality control mechanism is needed to assure the environmental and economic integrity of future project types.

To create greater flexibility, and in the absence of an international agreement being concluded by 31 December 2009, credits could be used in accordance with agreements concluded with third countries. The use of these credits should however not increase the overall number beyond 50% of the required reductions. Such agreements would not be required for new projects that started from 2013 onwards in Least Developed Countries.

Based on a stricter emissions reduction in the context of a satisfactory international agreement , additional access to credits could be allowed, as well as the use of additional types of project credits or other mechanisms created under the international agreement. However, once an international agreement has been reached, from January 2013 onwards only credits from projects in third countries that have ratified the agreement or from additional types of project approved by the Commission will be eligible for use in the Community scheme.

Will it be possible to use credits from carbon ‘sinks’ like forests?

No. Before making its proposal, the Commission analysed the possibility of allowing credits from certain types of land use, land-use change and forestry (‘LULUCF’) projects which absorb carbon from the atmosphere. It concluded that doing so could undermine the environmental integrity of the EU ETS, for the following reasons:

LULUCF projects cannot physically deliver permanent emissions reductions. Insufficient solutions have been developed to deal with the uncertainties, non-permanence of carbon storage and potential emissions 'leakage' problems arising from such projects. The temporary and reversible nature of such activities would pose considerable risks in a company-based trading system and impose great liability risks on Member States. The inclusion of LULUCF projects in the ETS would require a quality of monitoring and reporting comparable to the monitoring and reporting of emissions from installations currently covered by the system. This is not available at present and is likely to incur costs which would substantially reduce the attractiveness of including such projects. The simplicity, transparency and predictability of the ETS would be considerably reduced. Moreover, the sheer quantity of potential credits entering the system could undermine the functioning of the carbon market unless their role were limited, in which case their potential benefits would become marginal.

The Commission, the Council and the European Parliament believe that global deforestation can be better addressed through other instruments. For example, using part of the proceeds from auctioning allowances in the EU ETS could generate additional means to invest in LULUCF activities both inside and outside the EU, and may provide a model for future expansion. In this respect the Commission has proposed to set up the Global Forest Carbon Mechanism that would be a performance-based system for financing reductions in deforestation levels in developing countries.

Besides those already mentioned, are there other credits that could be used in the revised ETS?

Sim. Projects in EU Member States which reduce greenhouse gas emissions not covered by the ETS could issue credits. These Community projects would need to be managed according to common EU provisions set up by the Commission in order to be tradable throughout the system. Such provisions would be adopted only for projects that cannot be realised through inclusion in the ETS. The provisions will seek to ensure that credits from Community projects do not result in double-counting of emission reductions nor impede other policy measures to reduce emissions not covered by the ETS, and that they are based on simple, easily administered rules.

Are there measures in place to ensure that the price of allowances won't fall sharply during the third trading period?

A stable and predictable regulatory framework is vital for market stability. The revised Directive makes the regulatory framework as predictable as possible in order to boost stability and rule out policy-induced volatility. Important elements in this respect are the determination of the cap on emissions in the Directive well in advance of the start of the trading period, a linear reduction factor for the cap on emissions which continues to apply also beyond 2020 and the extension of the trading period from 5 to 8 years. The sharp fall in the allowance price during the first trading period was due to over-allocation of allowances which could not be “banked” for use in the second trading period. For the second and subsequent trading periods, Member States are obliged to allow the banking of allowances from one period to the next and therefore the end of one trading period is not expected to have any impact on the price.

A new provision will apply as of 2013 in case of excessive price fluctuations in the allowance market. If, for more than six consecutive months, the allowance price is more than three times the average price of allowances during the two preceding years on the European market, the Commission will convene a meeting with Member States. If it is found that the price evolution does not correspond to market fundamentals, the Commission may either allow Member States to bring forward the auctioning of a part of the quantity to be auctioned, or allow them to auction up to 25% of the remaining allowances in the new entrant reserve.

The price of allowances is determined by supply and demand and reflects fundamental factors like economic growth, fuel prices, rainfall and wind (availability of renewable energy) and temperature (demand for heating and cooling) etc. A degree of uncertainty is inevitable for such factors. The markets, however, allow participants to hedge the risks that may result from changes in allowances prices.

Are there any provisions for linking the EU ETS to other emissions trading systems?

Sim. One of the key means to reduce emissions more cost-effectively is to enhance and further develop the global carbon market. The Commission sees the EU ETS as an important building block for the development of a global network of emission trading systems. Linking other national or regional cap-and-trade emissions trading systems to the EU ETS can create a bigger market, potentially lowering the aggregate cost of reducing greenhouse gas emissions. The increased liquidity and reduced price volatility that this would entail would improve the functioning of markets for emission allowances. This may lead to a global network of trading systems in which participants, including legal entities, can buy emission allowances to fulfil their respective reduction commitments.

The EU is keen to work with the new US Administration to build a transatlantic and indeed global carbon market to act as the motor of a concerted international push to combat climate change.

While the original Directive allows for linking the EU ETS with other industrialised countries that have ratified the Kyoto Protocol, the new rules allow for linking with any country or administrative entity (such as a state or group of states under a federal system) which has established a compatible mandatory cap-and-trade system whose design elements would not undermine the environmental integrity of the EU ETS. Where such systems cap absolute emissions, there would be mutual recognition of allowances issued by them and the EU ETS.

What is a Community registry and how does it work?

Registries are standardised electronic databases ensuring the accurate accounting of the issuance, holding, transfer and cancellation of emission allowances. As a signatory to the Kyoto Protocol in its own right, the Community is also obliged to maintain a registry. This is the Community Registry, which is distinct from the registries of Member States. Allowances issued from 1 January 2013 onwards will be held in the Community registry instead of in national registries.

Will there be any changes to monitoring, reporting and verification requirements?

The Commission will adopt a new Regulation (through the comitology procedure) by 31 December 2011 governing the monitoring and reporting of emissions from the activities listed in Annex I of the Directive. A separate Regulation on the verification of emission reports and the accreditation of verifiers should specify conditions for accreditation, mutual recognition and cancellation of accreditation for verifiers, and for supervision and peer review as appropriate.

What provision will be made for new entrants into the market?

Five percent of the total quantity of allowances will be put into a reserve for new installations or airlines that enter the system after 2013 (“new entrants”). The allocations from this reserve should mirror the allocations to corresponding existing installations.

A part of the new entrant reserve, amounting to 300 million allowances, will be made available to support the investments in up to 12 demonstration projects using the carbon capture and storage technology and demonstration projects using innovative renewable energy technologies. There should be a fair geographical distribution of the projects.

In principle, any allowances remaining in the reserve shall be distributed to Member States for auctioning. The distribution key shall take into account the level to which installations in Member States have benefited from this reserve.

What has been agreed with respect to the financing of the 12 carbon capture and storage demonstration projects requested by a previous European Council?

The European Parliament's Environment Committee tabled an amendment to the EU ETS Directive requiring allowances in the new entrant reserve to be set aside in order to co-finance up to 12 demonstration projects as requested by the European Council in spring 2007. This amendment has later been extended to include also innovative renewable energy technologies that are not commercially viable yet. Projects shall be selected on the basis of objective and transparent criteria that include requirements for knowledge sharing. Support shall be given from the proceeds of these allowances via Member States and shall be complementary to substantial co-financing by the operator of the installation. No project shall receive support via this mechanism that exceeds 15% of the total number of allowances (i. e. 45 million allowances) available for this purpose. The Member State may choose to co-finance the project as well, but will in any case transfer the market value of the attributed allowances to the operator, who will not receive any allowances.

A total of 300 million allowances will therefore be set aside until 2015 for this purpose.

What is the role of an international agreement and its potential impact on EU ETS?

When an international agreement is reached, the Commission shall submit a report to the European Parliament and the Council assessing the nature of the measures agreed upon in the international agreement and their implications, in particular with respect to the risk of carbon leakage. On the basis of this report, the Commission shall then adopt a legislative proposal amending the present Directive as appropriate.

For the effects on the use of credits from Joint Implementation and Clean Development Mechanism projects, please see the reply to question 20.

What are the next steps?

Member States have to bring into force the legal instruments necessary to comply with certain provisions of the revised Directive by 31 December 2009. This concerns the collection of duly substantiated and verified emissions data from installations that will only be covered by the EU ETS as from 2013, and the national lists of installations and the allocation to each one. For the remaining provisions, the national laws, regulations and administrative provisions only have to be ready by 31 December 2012.

The Commission has already started the work on implementation. For example, the collection and analysis of data for use in relation to carbon leakage is ongoing (list of sectors due end 2009). Work is also ongoing to prepare the Regulation on timing, administration and other aspects of auctioning (due by June 2010), the harmonised allocation rules (due end 2010) and the two Regulations on monitoring and reporting of emissions and verification of emissions and accreditation of verifiers (due end 2011).

Interpretação:

Confirmation and Affirmation of Securities Trades; Matching.

COMISSÃO DE SEGURANÇA E CÂMBIO.

17 CFR PART 241.

(RELEASE NO. 34-39829; FILE NO. S7-10-98)

CONFIRMATION AND AFFIRMATION OF SECURITIES TRADES; MATCHING.

AGÊNCIA: Comissão de Valores Mobiliários.

ACTION: Interpretive Release; Request for Comments.

SUMMARY: The Securities and Exchange Commission ("Commission") is publishing its interpretation that a "matching" service that compares securities trade information from a broker-dealer and the broker-dealer’s customer is a clearing agency function. The Commission also is soliciting comment on two possible approaches for providing exemptive relief from full clearing agency regulation for qualified electronic trade confirmation ("ETC") vendors that fall within the Commission’s interpretation of clearing agency because they provide a matching service.

DATES: The interpretation contained in Section III of this release is effective (insert date of publication in the Federal Register ).

Comments should be submitted on or before (insert date 60 days after publication in the Federal Register ).

ADDRESSES: Interested persons should submit comments in triplicate to Jonathan Katz, Secretary, Securities and Exchange Commission, 450 5th Street, N. W., Washington, DC 20549-6009. Comments can be submitted electronically at the following E-mail address: rule-comments@sec. gov. All comment letters should refer to File No. S7-10-98; this file number should be included on the subject line if E-mail is used. All comments received will be available for public inspection and copying in the Commission's Public Reference Room, 450 5th Street, NW, Washington, DC 20549. Electronically submitted comment letters will be posted on the Commission's Internet Web site (sec. gov).

FOR FURTHER INFORMATION CONTACT: Jerry W. Carpenter, Assistant Director; Jeffrey Mooney, Special Counsel; or Theodore R. Lazo, Attorney; at 202/942-4187, Office of Risk Management and Control, Division of Market Regulation, Securities and Exchange Commission, Washington, D. C. 20549.

SUPPLEMENTARY INFORMATION:

Recently, the New York Stock Exchange ("NYSE"), the National Association of Securities Dealers ("NASD"), and the Municipal Securities Rulemaking Board ("MSRB")(collectively "SROs") filed proposed rule changes under Section 19(b) of the Securities Exchange Act of 1934 ("Exchange Act") 1 to amend their rules dealing with the post-trade processing of trades executed by their members. The SROs’ current rules require their broker-dealer members to use the facilities of a securities depository 2 for the electronic confirmation and affirmation of transactions where the broker-dealer provides delivery-versus-payment ("DVP") or receive-versus-payment ("RVP") 3 privileges to its customer ("SRO confirmation rules"). 4 As a practical matter, the SRO confirmation rules require broker-dealers to use The Depository Trust Company's ("DTC") Institutional Delivery ("ID") system because it is the only confirmation/affirmation service offered by a securities depository. 5 Under the proposed amendments to the SRO confirmation rules, broker-dealers will be permitted to use entities that are not registered clearing agencies for the confirmation and affirmation of RVP/DVP transactions as long as the entities are qualified ETC vendors as defined by the SRO rules. A qualified ETC vendor intermediary will only transmit information between the parties to a trade, and the parties will confirm and affirm the accuracy of the information.

The Commission understands that the next step in the evolution of post-trade processing will be the development of matching services. "Matching" is the term used to describe the process by which an intermediary reconciles trade information from the broker-dealer and its customer to generate an affirmed confirmation which is then used in effecting settlement of the trade.

The Commission is of the view that matching constitutes a clearing agency function within the meaning of the clearing agency definition under Section 3(a)(23) of the Exchange Act. 6 Specifically, matching constitutes "comparison of data respecting the terms of settlement of securities transactions." The Commission concludes that matching is so closely tied to the clearance and settlement process that it is different not only in degree but also different in kind from the current confirmation and affirmation process. The purpose of this release is to seek comment on the concept of providing exemptive relief either through registration as clearing agencies subject to reduced requirements or through the grant of a conditional exemption from registration to qualified ETC vendors that provide a matching service.

A. Confirmation and Affirmation Process.

The confirmation/affirmation process refers to the transmission of messages among broker-dealers, institutional investors, and custodian banks regarding the terms of a trade executed for the institutional investor. Because the trades of institutional investors involve larger sums of money, larger amounts of securities, more parties, and more steps between order entry and final settlement, institutional trades are usually more complex than retail transactions.

1. Confirmation Using the ID System.

The typical components of the "customer-side" settlement of an institutional trade under the current SRO confirmation rules are illustrated in Figure 1. 7.

Typically, an institutional trade will begin with the institution's investment manager placing an order with the broker-dealer. After the broker-dealer executes the trade, the broker-dealer will advise the institution of the execution details. This is commonly referred to as giving notice of execution (step 1 of Figure 1). The institution then advises the broker-dealer as to how the trade should be allocated among its accounts (step 2 of Figure 1). 8 The broker-dealer then submits the trade data to DTC (step 3 of Figure 1).

Next, DTC adds the transaction to the ID system's trade database, assigns an ID control number, and forwards an electronic confirmation to the institution, the broker-dealer, the institution's settlement agent, and other interested parties ( e. g. , trustees, plan administrators, or correspondent banks) (step 4 of Figure 1). The institution reviews the confirmation for accuracy. If accurate, the institution or its designated affirming agent affirms the trade through the ID system (step 5 of Figure 1). DTC then generates an affirmed confirmation and sends it to the broker-dealer and to the institution’s settlement agent (step 6 of Figure 1). 9 At this point, the trade is sent into DTC’s settlement system ( i. e. , the ID system is not a settlement system in that no money or securities move through it) and must be authorized by the party obligated to deliver the securities ( i. e. , the selling party) institution or the settlement agent before settlement occurs (steps 7 and 8 of Figure 1). "Quality Control" involves DTC’s monitoring and production of various reports for regulators and ID system users which show such things as when a confirmation was sent and the affirmation was received (step 9 of Figure 1).

2. Confirmation Using a Qualified ETC Vendor.

Under the proposed SRO rule changes, a qualified ETC vendor may be used for the confirmation/affirmation process. The broker-dealer submits trade data to the qualified ETC vendor which generates and sends a confirmation to the institution (steps 3 and 4 of Figure 1). After reviewing the confirmation, the institution sends an affirmation to the broker-dealer through the facilities of the qualified ETC vendor (step 5 of Figure 1). At some point in this process, the qualified ETC vendor forwards the confirmation to DTC in an ID system format in order that DTC can assign an ID control number to the trade. DTC sends the confirmation with the control number back to the qualified ETC vendor, and the qualified ETC vendor provides the control number to the broker-dealer and the institution. After receipt of the affirmation from the institution, the qualified ETC vendor sends the affirmed confirmation with the ID control number to DTC in ID system format. In this process, a qualified ETC vendor only transmits information between the parties to the trade and the parties verify the accuracy of the information.

The components of customer-side settlement of an institutional trade through a "matching" system are illustrated in Figure 2.

"Matching" is the term that is used to describe the process whereby an intermediary compares the broker-dealer's trade data submission (step 2 of Figure 2) with the institution's allocation instructions (step 1 of Figure 2) to determine whether the two descriptions of the trade agree. 10 If the trade data and institution’s allocation instructions match, an affirmed confirmation is produced (step 3 of Figure 2). This would eliminate the separate steps of producing a confirmation (step 4 of Figure 1) for the institution to review and affirm (step 5 of Figure 1). At this point, the trade goes into DTC’s settlement process but must be authorized by the delivering party agent before settlement occurs (steps 4 and 5 of Figure 2). 11

III MATCHING AS A CLEARING AGENCY FUNCTION.

Section 3(a)(23)(A) of the Exchange Act defines a clearing agency broadly as "any person who acts as an intermediary in making payments or deliveries or both in connection with transactions in securities or who provides facilities for comparison of data respecting the terms of settlement of securities transactions, to reduce the number of settlements of securities transactions, or for the allocation of securities settlement responsibilities." 12 Section 17A of the Exchange Act and Rule 17Ab2-1 thereunder require any person who engages in any of these functions to register with the Commission as a clearing agency or obtain an exemption from registration. 13

Based on the language, purposes, and policies of Section 3(a)(23) and 17A, the Commission concludes that an intermediary that captures trade information from a buyer and a seller of securities and performs an independent reconciliation or matching of that information is providing facilities for the comparison of data within the scope of Exchange Act Section 3(a)(23). 14 As a result, the intermediary is performing a clearing agency function. Accordingly, under this interpretation, only an entity that is registered as a clearing agency or is exempt from such registration may provide a matching service.

The legislative history of the Securities Acts Amendments of 1975 ("1975 Amendments") supports this statutory interpretation, 15 including the purposes of establishing a national clearance and settlement system and the scope of authority granted to the Commission. Moreover, considering a matching service to be a clearing agency function is consistent with the purposes of the Exchange Act regulation of the clearance and settlement system. Congress viewed the clearance and settlement system in the early 1970s as inadequate and in the 1975 Amendments directed the Commission to facilitate the development of an improved national clearance and settlement system. Congress articulated the goals of this national system in Section 17A of the Exchange Act, 16 and gave the Commission the authority and responsibility to regulate, coordinate, and direct the operations of all persons involved in processing securities transactions toward the goal of a national system for the prompt and accurate clearance and settlement of securities transactions. 17 Congress specifically declined to address the merits of any particular system or to dictate the shape a national clearance and settlement system should take. 18 Instead, Congress recognized that "data processing and communications techniques" involved in clearance and settlement processes would continue to evolve. 19 As a result, the Commission was given broad authority over the clearance and settlement system and wide discretion in determining what activities fall within the clearing agency function triggering the requirement to register as a clearing agency.

In fact, the clearance and settlement process for institutional trades has evolved dramatically. When the 1975 Amendments were enacted, the processing of institutional trades was carried out directly between the broker-dealer and the institution with little or no automation. The SROs’ rules requiring the use of electronic confirmation and affirmation of institutional trades were adopted in response to the increased complexity of institutional trades and the need to automate the process. Today, the volume of institutional trades has grown to an extent that they now account for a large portion of the trading activity in the U. S. securities markets. 20 Because of the increased volume and complexity of institutional trades, virtually all of them are now processed through electronic systems.

Matching is inextricably intertwined with the clearance and settlement process. A vendor that provides a matching service will actively compare trade and allocation information and will issue the affirmed confirmation that will be used in settling the transaction. 21 In addition, matching addresses two areas that the Commission and the securities industry view as critical to maintaining a sound clearance and settlement system: reducing errors and reducing the amount of settlement time.

As noted above, matching combines certain steps in the confirmation and affirmation process and therefore can help to reduce errors. Effective matching also will be critical in any effort to shorten the settlement cycle. 22 At the same time, matching concentrates processing risk in the entity that performs matching instead of dispersing that risk more broadly to broker-dealers and their institutional customers. In particular, matching eliminates a separate affirmation step that would allow the detection of errors that could delay settlement or cause the trade to fail. 23

Accordingly, the Commission believes that an entity providing matching would have a significant impact on the national clearance and settlement system. The breakdown of a matching system’s ability to accurately compare the trade information from hundreds of institutions and broker-dealers involving thousands of transactions and millions of dollars worth of securities could result in a widespread systemic failure of the national clearance and settlement system. 24 Without any regulatory authority over matching vendors, the Commission would have only limited ability to guard against such failure. Congress granted the Commission broad power to establish a centralized system of regulation over the national clearance and settlement system in order to prevent such a situation from occurring. 25 Given the significant role played by matching services and the scope of the definition, the Commission believes that some form of regulation is appropriate to assure the prompt and accurate clearance and settlement of securities. 26.

IV. POSSIBLE REGULATORY APPROACHES.

Even though matching services fall within the definition of clearing agency, the Commission preliminarily is of the view that an entity that limits its clearing agency functions to providing matching services need not be subject to the full panoply of clearing agency regulation. The Commission has broad exemptive authority under Section 17A. Section 17A(b)(1) authorizes the Commission to exempt (conditionally or unconditionally) any clearing agency from any provision of Section 17A if the Commission finds that such exemption is consistent with the public interest, the protection of investors, and the purposes of Section 17A.

Two alternative approaches may provide an appropriate regulatory structure for entities providing matching facilities: limited registration or conditional exemption. Under either approach only those regulatory requirements that the Commission views as necessary and appropriate to achieve the goals of Section 17A would be applicable to an entity providing a matching facility. 27 The limited registration alternative is a "scaled back" approach, which would register the matching service provider as a clearing agency while providing exemptions from individual clearing agency requirements. The conditional exemption alternative is a "building block" approach, which would exempt the entity from clearing agency registration subject to appropriate conditions. 28 Under either approach, the Commission would publish for comment a notice of the qualified ETC vendor’s application for limited registration or conditional exemption, including the proposed terms of the registration or exemption, before approving the application. 29

The Commission requests commenters’ views on whether limited clearing agency registration or conditional exemption from clearing agency registration is the best alternative for regulating qualified ETC vendors that provide matching services. Does either or both of these proposed alternatives provide a prudent method to ensure the safety and soundness of the national system for clearance and settlement of securities transactions and the continued development of linked and coordinated clearance mechanisms subject to uniform standards? Generally speaking, what clearing agency requirements under Section 17A(b) would be necessary and appropriate for matching services, and which would not? Are there other alternatives by which the Commission could maintain oversight of matching by qualified ETC vendors that would ensure the safety and soundness of the national clearance and settlement system?

List of Subjects in 17 CFR Part 241.

Amendment of the Code of Federal Regulations.

For the reasons set out in the preamble, Title 17 Chapter II of the Code of Federal Regulations is amended as set forth below:

PART 241 -- INTERPRETATIVE RELEASES RELATING TO THE SECURITIES EXCHANGE ACT OF 1934 AND GENERAL RULES AND REGULATIONS THEREUNDER.

Part 241 is amended by adding Release No. 34-39829 and the release date of April 6, 1998 to the list of interpretive releases.