CENTRAL SECURITIES DEPOSITORIES (CSD) - THE FUTURE OF LOCAL CSD

How will the announcement by the London Stock Exchange (LSE) to create a Central Securities Depository in Luxembourg impact local CSD? 

Today, most CSD are country-based service centers supporting local market participants via immobilization or elimination of physical certificates, providing book entry trade settlement, collecting interest and dividend payments and processing corporate action. Currently little or no interface to other local CSD is available.

The current local CSD infrastructure requires global participants to join multiple CSD to establish a first-hand presence in local marketplaces. This is expensive beyond multiple membership fees. It requires additional record-keeping, compliance with local regulations, increased risks if regulations don’t offer sufficient protection and additional interface applications.

There are two International Central Securities Depositories (ICSD), Clearstream and Euroclear that address some of inefficiencies of local CSD. They offer services across multiple marketplaces and offer centralized reporting. The LSE announcement adds another ICSD entity for global participants.

                What is the ideal CSD? (Local, International or a combination)

                            Should it be member or privately owned?

                                          How should they be regulated?        

CENTRAL COUNTER-PARTIES (CCP) – HOW MANY ARE NEEDED?

With the global focus on reducing counter-party risk the number of central counter-parties has increased in recent years. CCP play a major role in ensuring safe markets and best practices. Their primary purpose is to mitigate risk between trade counter-parties. CCP traditionally provide a broad range of services to support their members. These services may include; trade reporting, trade comparison, collection of margin or clearing deposits.  

As new regulations take effect there may be an increase in the number of CCP.  The industry relies on the CCP to ensure that counter-parties perform as expected. The CCP becomes a critical component during market price swings, asset class scandals and CCP members face market, internal operational or technology challenges. CCP require broad business expertise and technology platforms to enable their ability to recognize, address, contain and resolve these challenges before the “knock-on” impact on CCP other members?

The industry, as well as regulators, continues to address these as well as other issues. It would be helpful for all market participants and regulators to identify and address these issues on a proactive rather than reactive basis.

What’s ideal CCP ratio for a marketplace, transaction or asset class?

Should the costs associated with a CCP be an issue?

What other CCP related issues are you concerned about?

FINANCIAL TRANSACTION TAX (FTT)

Now scheduled to go into effect in mid 2014 if the there is an agreement before the end of 2013 if addressed .by member states.

Additional revenue is always welcomed. Harmonization of taxes across the EU is also a positive step. Another purpose of the tax was for the financial services industry to pay back some of the money they received during the credit crisis.

But will the imposition of this tax drive participants and / or transactions to offshore markets?  Will all transactions be taxed? What about financing transactions such as “Repos” and transaction types that don’t currently exist?

A new tax sends a signal to the business affected and often has negative consequences.  I have seldom seen a new tax or fee that has raised the estimated revenues. In this era of global markets perhaps a better alternative is to reduce or eliminate existing taxes to attract new business raising income levels and in-turn tax revenues.

The following questions must be addressed before proceeding to provide clarity and ensure that undesired effects are avoided.

Does this tax really make sense?

What‘s the purpose?

   What can the unintended results be?