Presentation on theme: "International Conference Almaty 06 December, 2002 Page 1 Interdepository Relations of Clearstream Banking."— Presentation transcript:
International Conference Almaty 06 December, 2002 Page 1 Interdepository Relations of Clearstream Banking
International Conference Almaty 06 December, 2002 Page 2 Agenda Brief overview of Clearstream and its core activities Why become interdepository relations more and more important? Overview of Clearstreams CSD-links worldwide Legal pre-conditions Types of CSD-links Types of exchanged data Example: Interdepository relation between Clearstream and DTCC Current consolidation activities in Europe and models for the future
International Conference Almaty 06 December, 2002 Page 3 Clearstream International London Branch Clearstream Nominees London Clearstream Banking Luxembourg Clearstream Banking Frankfurt Clearstream Services Luxembourg Clearstream Properties Luxembourg Clearstream International (CI) Luxembourg Deutsche Börse AG (DBAG) Frankfurt am Main LuxClear CSS London Organisation Chart
International Conference Almaty 06 December, 2002 Page 4 Clearstreams core activities Clearing and Settlement An intermediary role to ensure that transactions between financial institutions for bonds and equities are completed efficiently and successfully; Custody Safe custody and management of customer securities held on deposit; Banking Services Provision of additional value added services to customers, for example, securities lending and borrowing, collateral management, etc. Additional Services Operating Luxclear, the Central Securities Depository (CSD) for the Grand Duchy of Luxembourg; Vestima, our innovative STP solution for Investment and fund processing.
International Conference Almaty 06 December, 2002 Page 5 Clearstream Internationals global presence London New York Frankfurt Luxembourg Hong Kong São Paulo Dubai 2,500 customers in 94 countries 1,700 employees 42 nationalities 7 offices world-wide approx. 200,000 eligible securities
International Conference Almaty 06 December, 2002 Page 6 Continuous growth Transactions (millions) Custody volume (in trillions of Euro) growth rate (96-01): +38% % +71% +25% growth rate (96-01): +13 % % 154 market share in Europe approx. 35% % +19% +18% +8% % +6 %
International Conference Almaty 06 December, 2002 Page 7 Interdepository Relations: Why are they necessary? physical delivery of securities via train, ship, plane, etc. low safety levels low effectivity high costs History Today Develop- ment setting up of electronical links immobilisation (jumbo receipts) dematerialization (no printed securites) Book entry
International Conference Almaty 06 December, 2002 Page 8 Target structure of the European securities industry US settlerICSDs National CSDs Market participants Exchanges (cash markets) ECNs, crossing- networks Exchanges (deriva- tives) Off-exchange Repos, Swaps, FI Integrated clearinghouse/ central counterparty Trading Clearing (CCP / netting) Settlement
International Conference Almaty 06 December, 2002 Page 9 World Wide Network of Clearstream International CSD-LINKS: AEX-NECIGEF APK Iberclear BXS-CIK DTCC JSSC Monte Titoli OEKB SIS Euroclear France NCSC World wide sub-custodian network and ICSD-LINKS to: Euroclear CBL CSC
International Conference Almaty 06 December, 2002 Page 10 Custodian Links - Europe Austria: Erste Bank d. oesterr. Spark. Belgium: Banque Bruxelles Lambert Czech Republic: Citibank Denmark: Den Danske Bank Estonia: Eesti Uhispank Finland: Merita Bank France: Banque Paribas Greece: Citibank Hungary: Türkiye Is Bankasi Ireland: Citibank Italy: Bca. Commerciale, San Paolo Luxembourg: Bqe. Internationale a Luxembourg, Banque Paribas, Bqe. de Lux., Chase Manhattan Bank, Kredietbank, Credit Lyonnais Netherlands: KAS-Associatie, Necigef, Abn Amro Norway: Den norske Bank Poland: Citibank Portugal: Banco Santander de Negocios Sweden: Skandinaviska Enskilda Switzerland: UBS Slovakia: CSOB Spain: Banco Bilbao Vizcaya Argentaria Turkey: Türkiye Is Bankasi United Kingdom: Citibank, CrestCo
International Conference Almaty 06 December, 2002 Page 11 Custodian Links - Worldwide Argentinia: Citibank Australia: ANZ Canada: Bank of Nova Scotia China / Shanghai: HSBC China / Shenzhen: HSBC Hongkong: Citibank Indonesia: Citibank Japan: Bank of Tokyo-Mitsubishi, Industrial Bank of Japan, Sumitamo Bank Malaysia: OCBC Mexico: Citibank New Zealand: Reserve Bank of New Zealand Singapore: OCBC South Korea: HSBC South Afrika: Standard Corporate and Merchant Bank Thailand: Thai Farmers Bank USA: Chase Manhattan, Citibank
International Conference Almaty 06 December, 2002 Page 12 Pre-Conditions for the establishment of interdepository relations between Clearstream and a foreign custodian Three Point Declaration To be signed by the foreign custodian: Securities in securities-safekeeping account no. … belong the customers of Clearstream Assertion of any securities lien, right of retention or any similar rights only for such claims as may arise from the purchase, administration and safe custody of these securities, immediate information of Clearstream in case of any third party intervention Securities are kept in safe custody at a place within the frontiers of the ABC-Bank, no entrustment of a third party with the effective safe custody of such securities or transfer to another country without Clearstreams consent In case of registered shares: Registration of a nominee (instead of the beneficial owner). According to the legal situation in the respective country this can be Clearstream by itself or another company (like DTC in the USA).
International Conference Almaty 06 December, 2002 Page 13 Types of CSD-links Indirect Link: CBL has an account with a sub-custodian which has an account in its own name with the CSD. Semi-direct Link: CBL has an account with a CSD in its own name, operated through a technical account with an agent bank (sub-custodian) Direct Link: CBF / CBL has an account in its own name with a CSD DvP or FoP
International Conference Almaty 06 December, 2002 Page 14 CBL Current links – Indirect Link Subcustodian CBL Loro A/C CSD Nostro A/C CSD Subcustodian A/C Instructions: File Transfer/S.W.I.F.T. Confirmations: File Transfer/S.W.I.F.T. Instructions Reconciliation CBL CBF CBL Nostro A/C CBF A/C Subcustodian Nostro A/C Clients A/Cs Confirmations CBL CBF CBL Nostro A/C CBF Loro A/C Subcustodian Nostro A/C Clients A/Cs Outbound Link Type of securities: CSD eligible securities Non-CSD eligible securities Number of accounts: 1 account at subcustodian
International Conference Almaty 06 December, 2002 Page 15 CBL Current links – Semi-direct Link Agent Bank (Subcustodian) CBL Technical A/C CSD Nostro Technical A/C CSD CBL Loro A/C Instructions: File Transfer/S.W.I.F.T. Confirmations: File Transfer/S.W.I.F.T. Instructions Confirmations Reconciliation CBL CBF CBL Nostro A/C CBF Loro A/C Agent Bank Nostro A/C Clients A/Cs Subcustodian A/C Outbound Link Type of securities: CSD eligible securities Non-CSD eligible securities Number of accounts: 1 account at the CSD 1 technical account at agent bank
International Conference Almaty 06 December, 2002 Page 16 CBF Current links –Direct Link Reconciliation Outbound Link CSD CBF CSD Nostro A/C CBF Loro A/C Instructions: File Transfer/ S.W.I.F.T./ Proprietary Confirmations: File Transfer/ S.W.I.F.T./ Proprietary Countries where link exists: Belgium Finland France Italy Netherlands Spain Switzerland USA Type of securities: CSD eligible securities Number of accounts: 1 account at the CSD Clients A/Cs
International Conference Almaty 06 December, 2002 Page 17 The CSD Link CBF - DTCC CSD link between CBF and DTCC, was established in 1992 Bilateral link Free of payment About 250 securities are held within the link, in a Collective Safe Custody status Settlement of trades in these securities is processed through CASCADE system DTCC The Depository Trust & Clearing Corporation (DTCC), is a holding company that oversees two principal subsidiaries - The Depository Trust Company (DTC) and the National Securities Clearing Corporation (NSCC) -. These two firms provide the primary infrastructure for the clearance, settlement and custody of the vast majority of equity, corporate debt and municipal bond transactions in the U.S.
International Conference Almaty 06 December, 2002 Page 18 The Link Structure GERMANY USA Clearstream Banking Frankfurt CBF 7911 DTCCReceiving Filetransfer and Clearing Corporation DTCC Delivering account 2000 CBF account Depository Trust Delivery of securities account Credit of securities
International Conference Almaty 06 December, 2002 Page 19 Examples 1. Customer A buys 100 Microsoft shares in Berlin; the counterparty is a CBF member. Clearing and settlement takes place in CBF/CASCADE system. 2. Customer A sells 100 Microsoft shares in Nasdaq Europe; the counterparty has no clearing and settlement arrangement with CBF. Clearing and settlement takes place between Creation, Citibank N.Y. and the receiving counterparty s U.S. custodian. Customer A must deliver 100 Microsoft shares FoP from Cascade to Creation. 3. DvP settlement can now take place between the customers CREATION account and the receiving counterpartys custodian bank.
International Conference Almaty 06 December, 2002 Page 20 Example 1: Settlement of a trade executed in Berlin SellerBuyer Sell Confirmation (Schlussnote) Buy Confirmation (Schlussnote) XONTRO-Trades Sell Order Buy Order CASCADE LION-Pending S/E Transactions Instruction EXCHANGE XONTRO-Orders Broker After end of trading, matched instructions are sent to XONTRO-trades. Instructions are processed. Contract notes (Schlussnoten) are sent to the counterparties; discrepancies have to be notified in T+1, before beginning of trading. After trade enrichment contract notes (Schlussnoten) are sent to CASCADE/LION where instructions are generated. Buyer account +100 Instruction
International Conference Almaty 06 December, 2002 Page 21 Example 2: Transfer of sec. from CASCADE to CREATION CREATION Customer account +100 CASCADE Customer account DTCC account Citibank New York Citibank N.Y account Clearstream Banking
International Conference Almaty 06 December, 2002 Page 22 Transfers from CASCADE into CREATION (Depository US) In relation to transfers from CASCADE into CREATION, following data have to be instructed in CASCADE: Credit-advice account:7911 (DTCC) End beneficiary account:908(Citibank N.A., New York) Text: /XXXXX(XXXXX= CREATION account) Additionally, instructions in CREATION/ CEDCOM have to be fed as follows: Instruction Type: 6F Counterpart Account:U2000 Trade Date:DDMMYY(mandatory field) Narrative:XXXX(XXXX= CASCADE account of deliverer)
International Conference Almaty 06 December, 2002 Page 23 Example 3: DVP settlement with U.S. counterparty Rec. Customer Customer account +100 Citibank N.Y. account Clearstream Banking CREATION Customer account U.S. Custodian account Receiving Customer
International Conference Almaty 06 December, 2002 Page 24 Corporate Actions Interests and dividends on CSC-holdings in CASCADE will be net-credited on the according CREATION-account in USD. The posting takes place one day after payment day, value date payment day. A compensation of yields on open stock exchange transactions and OTC- transactions will not take place. At present, tax claim and proxy voting service can not be offered by Clearstream Banking Frankfurt for CSC-holdings. If these services are needed, holdings have to be transferred timely before the relevant date to CREATION. The procedure for capital-changes related to US-securities held in a CSC status will be published, case oriented, under the internet-address in rubric X- List.
International Conference Almaty 06 December, 2002 Page 25 Current consolidation activities in Europe The Exchanges are driving the strategies for consolidation Key drivers for Exchanges –Liquidity –Product range –Cost Competition benefits all market participants Four models demonstrate how Exchange strategies drive Clearing and Settlement infrastructure
International Conference Almaty 06 December, 2002 Page 26 Virt-x : An Open model Exchange strategy: Single trading platform for pan-European blue-chip equities Clearing and Settlement Model: Independent (I)CSDs co-operating to support an exchange Flexible settlement location - offers a degree of user choice Virt-x defines which (I)CSDs form part of virtual single settlement system Virt-x Transaction Engine SISCrestEuroclearSIS
International Conference Almaty 06 December, 2002 Page 27 Euronext: A Quasi-Vertical model ++ Euronext Paris Euronext Brussels Euronext Amsterdam Exchange strategy: Expand trading in European equities by absorbing domestic exchanges Clearing and Settlement Model: CSDs from a single business group, supporting a related group of exchanges Today, each exchange retains direct link to its home CSD Ultimate plan - a single settlement system supporting a single trading platform Necigef CIK Euroclear France Single Trading Platform Single CSD and settlement system (ultimately)
International Conference Almaty 06 December, 2002 Page 28 LSE Model Exchange strategy: To encourage International companies to list and be traded on the Exchange. Clearing and Settlement Model: Until recently, a single CSD supporting a trading platform Euroclear due to be added to attract more non-UK members to the exchange LSE CrestEuroclear To be implemented
International Conference Almaty 06 December, 2002 Page 29 DBAG: The so-called Vertical model Clearing and Settlement Model: A single CSD supporting a trading platform Existing infrastructure of an efficient domestic CSD also settles transactions of European and International markets DBAG Clearstream Banking Frankfurt Exchange strategy: Enable trading in International equities on a single platform via Xetra Stars segments
International Conference Almaty 06 December, 2002 Page 30 Consolidation activities in Europe Is the public debate the real issue? Horizontal consolidation brings together institutions, such as stock exchanges [or clearing and settlement providers], that provide the same services. Avoidance of duplicate standards, procedures, systems and costs creates economy of scale for customers. Vertical integration brings together institutions providing different but complementary services - for example, trading, clearing and settlement along the value chain. The attractions are a consistent package with an opportunity for efficiency gains and savings. (Source: The Banker, January 2002)
International Conference Almaty 06 December, 2002 Page 31 Both directions of consolidation possess advantages and disadvantages lower cross-border costs potential cost cuts economies of scale Vertical Horizontal Disadvantages Advantages lower potential for cost cuts lower economies of scale can be very costly / high installation costs (industry experience) Long time spans until benefits are reaped rise of a monopoly competition to the customers benefit easy and fast to realise low installation costs for customers easier straight-through-processing reduced interfaces > reduced risk increased legal certainty increased speed, safety and risk management reduced risk and costs
International Conference Almaty 06 December, 2002 Page 32 Are high cross border costs due to a lack of horizontal integration? 40% 20% Costs being influenced by intermediaries and stock exchanges Different market practices Higher economies of scale Costs being influenced by the EU and member states Different legal and tax systems Different rules for corporate actions Different countries Which are difficult to influence or can only be influenced in the long term Small volumes Different languages and cultures Source: The Future of Equity Trading in Europe - a joint research by McKinsey and JPMorgan
International Conference Almaty 06 December, 2002 Page 33 In summary: Continuing towards the goal of a single European capital market Support the elimination of legal/regulatory/tax barriers; Competition helps deliver what users want - Monopolies are not the answer; The equity strategies of the major Exchanges are: –all seeking to eliminate cross-border settlement; –creating some form of vertical silos. The target model must be an open one; Not be distracted by popular myths of the path to consolidation; With the support of Clearstream Banking Frankfurt (CBF), DBAG strategy is already delivering real value to the market and our customers.
International Conference Almaty 06 December, 2002 Page 34 How we see the future Industry structure Concentration into 2 or 3 hubs built around the major exchanges; Strong competition between these few; Open Model enabling global customer access. Our business Contribute actively to the creation of the premier European stock exchange; Become a leading player in custody, clearing and settlement through delivering high quality, low cost products and services; Continue to play an active role in the consolidation of the European market; Prepare new sources of revenue for the future; Develop our people and our corporate culture.
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International Conference Almaty 06 December, 2002 Page 36 Back- up
International Conference Almaty 06 December, 2002 Page 37 CSC / NCSC Definitions CSC Business: CSC is described in German Depository Law and determines the right of customer on deposited securities. It states that the end customer is co-owner of the deposited securities. CBF would be liable for any claim that the customer makes. The current stock exchange rules require securities to have a CSC status to be eligible for trading. Exception: OTC trades (3rd segment). NCSC Business: NCSC indicates that the customer has a pro-rata claim on the securities. CBF is only liable for those losses for which CBF itself is at fault.
International Conference Almaty 06 December, 2002 Page 38 CSC / NCSC Eligibility rules for CSC business German securities: Securities obtain the CSC status when held in the CBFs vaults. Foreign securities - two scenarios apply: German Depositary Receipts are created based on underlying foreign securities. Since the German DRs are deposited in CBF's vaults, they have CSC status. CBF offers CSC status for the foreign securities held at CSDs with which CBF maintains a direct link (Article 5.4 of the Law on the Safe Custody and Acquisition of Securities of 4 February 1937). Note: The list of eligible securities and the addition of new securities in the link is subject to bilateral agreement.