Half of European CSD Links Used Every Day

Shanny Basar

More than half of the links between European central securities depositories are used on a daily basis for cross-border settlement, illustrating the need for Target2-Securities, the project to simplify securities settlement in the Eurozone.

The European Central Securities Depositories Association, which represents 41 national and international central securities depositories across 37 European countries, said in a report today that 52% of CSD links are used on a daily basis by market participants.

A link allows a CSD to give clients access to securities issued in another CSD, without requiring these clients to be direct participants in the other CSD to facilitate cross-border securities deliveries.

The report said 39% of the remaining links are used infrequently (e.g. on a weekly or monthly basis), and 9% have been established but are not currently used due to lack of market demand.

Euroclear Bank, Clearstream Banking Luxembourg and SIX SIS in Switzerland specialise in international securities and so have an exceptionally high number of links with more than 30 in Europe alone. However excluding these three CSDs, European CSDs have on average 7 links to other CSDs. In the EU the average is higher at 8.5 links.

The report said: “Links with non-European CSDs are relatively frequent. For example, Clearstream Banking and Euroclear UK & Ireland have a direct link with DTCC in the US. Iberclear has two direct links with the CSDs in Argentina and Brazil.”

ECSDA’s report provides an overview of CSD links at the end of last year for all 41 members.

The network of links highlights the complexity of settling cross-border securities in Europe and why the European Central bank has pushed for T2S, the project to harmonize securities settlement in the region and reduce costs. The cost of cross-border transactions can be as much as 10 times more expensive than domestic transactions.

T2S began operating a year ago after being launched by the European Central Bank in 2008 to end fragmentation in securities settlement across the Eurozone. The single IT platform allows settlement in central bank money across borders, central securities depositories and currencies so there is no difference between domestic and cross-border transactions.

A progress report this month after the first year of operation found that banks are increasingly using a single or few points of access to settle cash and securities in Europe.

Clearstream, Deutsche Börse’s central securities depository, commissioned Accenture to carry out a survey of international banks between March and April this year.

The report said: “We observe the emergence of a trend towards direct access at the infrastructure level: 90% of banks surveyed are opting for direct CSD access as a component of their strategy, with 40% expressing strategic interest, particularly in investor CSD-based approaches, which allow banks to access multiple T2S markets via a single CSD of their choice.”

The benefits of T2S cited by survey respondents were liquidity management, followed by settlement processing, collateral management and network rationalization.

Marc Robert-Nicoud, chief executive of Clearstream Holding, said in blog that it makes sense that more customers are choosing direct CSD access, which allows all settlement volume to go through a single Clearstream point of access. “This allows them access to the full functionality of the new T2S platform and the liquidity and collateral pooling advantages it entails,” he added.

The first wave of CSD migrations to T2S were between June and August last year and seven markets have joined the platform. Euroclear is due to join in September this year in the third wave, seven months later than originally planned. Clearstream is slated to migrate in February next year with the final migrations in September 2017.

Meike Ströter, deputy head of market infrastructure management division at the European Central Bank, said in the ECB special report on T2S in May that an average of nearly 100,000 transactions have been settled each day this year. Ströter said: “According to our projections, by the time the remaining 14 markets are connected to T2S, we expect to hit 550,000 transactions per day.”

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