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Central securities depository

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A Central Securities Depository (CSD) is an organization holding securities either in certificated or uncertificated (dematerialized) form, to enable book entry transfer of securities. In general, each country will have only one CSD (although there are some that split equities, fixed-income, and funds into separate CSD's). The CSD will normally only have local financial institutions regulated in the country of the CSD as clients. In some cases these organizations also carry out centralized comparison, and transaction processing such as clearing and settlement of securities. The physical securities may be immobilised by the depository, or securities may be dematerialised (so that they exist only as electronic records).

International Central Securities Depository (ICSD) is a central securities depository that settles transactions in Eurobonds. There are only two ICSD's globally, ClearStream International (earlier Cedel), and Euroclear. Both were established in the early 1970's to provide an efficient settlement environment for the then nascent Eurbond market. Both entities have a joint arrangement with so-called "Common Depositories" in multiple countries to allow them to move securities between clients in both organisations on a book-based basis. In addition to the ICSD functionality which only these two organisations share, both organisations also provide international custody and settlement services in international securities and in various domestic securities, usually through direct or indirect (through local agents) links to local CSDs. In this activity, they are joined by two other CSD's, SIX SIS [http://www.sec.sisclear.com), with some $ 1 trillion in non-Swiss assets and The Depository Trust Company (DTC), holding over $2 trillion in non-US securities and in American Depository Receipts from over 100 nations.

Functions

  • Safekeeping Securities may be in dematerialized form, book-entry only form (with one or more "global" certificates), or in physical form immobilized within the CSD.
  • Deposit and Withdrawal Supporting deposits and withdrawals involves the relationship between the transfer agent and/or issuers and the CSD. It also covers the CSD's role within the underwriting process or listing of new issues in a market.
  • Dividend, interest, and principal processing, as well as corporate actions including proxy voting Paying and transfer agents, as well as issuers are involved in these processes, depending on the level of services provided by the CSD and its relationship with these entities.
  • Other services CSDs offer additional services aside from those considered core services. These services include Securities Lending and Borrowing, Matching, and Repo Settlement
  • Pledge - Central depositories provide pledging of share and securities. Every country require to provide legal framework to protect the interest of the pledgor and pledgee.

However, there are risks and responsibilities regarding these services that must be taken into consideration in analyzing and evaluating each market on a case-by-case basis.[1]

See also

References

CSD Ratings and News Services

  1. ^ exchange-handbook.co uk article on the risks associated with Depositories, at the Handbook of world stock, derivative and commodity exchanges website.


Belgian CSDs : Euroclear Belgium (CIK - https://www.cik.be) and the Belgian National Bank (NBB - http://www.nbb.be/)

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