1. CSD Functions and Benefits
6th ACSDA International Seminar
Punta del Este, Uruguay - October 27-28, 2005
CSD Functions and Benefits
Luiz Felipe C. Paiva

2. CBLC’s Depository Services

3. CBLC: Brazilian Clearing and Depository Corporation
Established in 1997, following its spin-off from the São Paulo Stock Exchange
For-profit corporation owned by market participants
Board composed by brokers and banks
Self-regulatory organization under the supervision of the Brazilian Securities & Exchange Commission (CVM) and the Brazilian Central Bank
Core Business: CSD, SSS and CCP
The creation of CBLC was the result of a joint decision of the stock exchange and the market participants to have a modern infrastructure in depository, clearance, settlement and risk management activities

4. CBLC: Depository’s Features (I)
Central Securities Depository
For equities, fixed income instruments, asset-backed securities, real estate investment fund units and other instruments
Securities registered under ISIN codes
Dematerialization
Pioneer in dematerialization of securities held in its depository services (1990)
Asset Servicing
Corporate actions processing for all securities

5. CBLC: Depository’s Features (II)
Fiduciary ownership of all securities
At the issuer level CBLC appears as nominee for safekeeping purposes
Daily reconciliation
Comparison of the number of securities held in CBLC service with the securities registered with the issuer in the name of CBLC as the fiduciary owner
Segregated accounts at the level of the investor
The investors of all securities are identified in CBLC records
The custodians are responsible for holding and moving securities held in the investors accounts, according to the Brazilian Securities and Exchange Comission (CVM)
Allow CBLC to directly inform the final investors of their holdings in the depository service

6. Segregated accounts at the level of the investor
CBLC
Custodian
Custodian
Custodian
Account
Investor
Account
Custodian
Account
Conta
própria
Investor
Account

7. But, what is a CSD?

8. A CSD is…
“A facility (or an institution) for holding securities, which enables securities transactions to be processed by book entry. Physical securities may be immobilised by the depository or securities may be dematerialised (ie so that they exist only as electronic records). In addition to safekeeping, a central securities depository may incorporate comparison, clearing and settlement functions.”
(Bank for International Settlements, 2003)
Core business of a CSD:
Safekeeping
Asset servicing

9. Benefits of a CSD

10. Benefits of a CSD (I)
Act as a intermediary between the issuers, market participants and investors
Investors
Issuer
Participant
Investors
Issuer
Investors
Participant
Issuer
Investors
Participant
Issuer
Investors
Participant
Issuer
Investors

11. Benefits of a CSD (I)
Act as a intermediary between the issuers, market participants and investors
Investors
Issuer
Participant
Investors
Issuer
Investors
Participant
CSD
Issuer
Investors
Participant
Issuer
Investors
Participant
Issuer
Investors

12. Information provider for market participants
Benefits of a CSD (II)
Utility
Infrastructure
Risk control
Costs reduction
Information provider for market participants
Harmonization / standardization
Neutrality
Specialization
Development of core competences
Scale economies
Identification of trends and opportunities

13. Some conclusions

14. Some conclusions
There are inumerous models that can be carefully choosen, considering .....
Market particularities
KEY ISSUES
International Recommendations

15. Market particularities
Some conclusions
Market particularities
Characteristics of the financial system
Regulatory basis
Objectives and requirements of the regulators
Types of instruments
Expectations of market participants
Rules and market practices
Issuers
Stock exchange
Market participants (brokers, banks, etc.)

16. Some conclusions International recommendations
G30 / ISSA / CPSS / IOSCO
“...The range of depository eligible instruments should be as wide as possible. Immobilization or dematerialization of financial instruments should be achieved to the utmost extend possible..”
“Local laws and regulations should ensure that there is segregation of client assets from the principal assets of their custodian; and no possible claim on client assets in the event of custodian bankruptcy or a similar event. Regulators and markets, to further improve investor protection, should work:
to ensure clarity on the applicable law on cross border transactions
to seek international agreement on a legally enforceable definition of finality in a securities transaction
to ensure that local law fully protects the rights of beneficial owners
to strengthen securities laws both to ensure the rights of the pledgee and the protection accorded to client assets held in Securities Systems”