CSD8: Bringing a Global Outlook to The Securities Depository Business
More than 160 delegates from 64 countries met in New York the last week in April. But they didn’t gather at the United Nations building and they didn’t come for a 2012 Olympic Committee meeting.
Instead, they were representatives of central securities depositories (CSDs) from around the world, coming together for their eighth biennial conference, and they got down to business quickly, examining everything from risks in corporate actions processing to depository business models to global trends in clearing and settlement.
Critical Role of Central Depositories
Jill Considine, DTCC chairman and CEO, welcomes Alan Cooper, CEO of the Canadian Depository for Securities Limited, left, and Gerardo Mejia, CEO of SC Indeval SA de CV of Mexico.
Hosted jointly by The Depository Trust & Clearing Corporation (DTCC) and The Brazilian Clearing and Depository Corporation (CBLC), the gathering was the Eighth Conference of Central Securities Depositories or, more briefly, CSD8.
Opening the conference were Gilberto Mifano and Jill Considine, CEOs of the host depositories. “What makes this kind of meeting so interesting,” Mifano said, “is that, although we are all in the same industry, sharing the same problems and issues, we also have different approaches and sometimes very different market realities to deal with.”
Timothy Geithner, president and CEO of the Federal Reserve Bank of New York, noted that the conference agenda closely mirrored the degree to which CSDs are now considered critical components of the economy by regulatory authorities and the securities industry all over the world.
“This is probably the first meeting of the century in which we can build on a perception in the capital markets of what the future will hold,” added Donald F. Donahue, DTCC chief operating officer who co-chaired conference sessions with Amarilis Sardenberg, chief operating officer of CBLC.
Delegates, for their part, many of who actively participated in drawing up the agenda, were not shy in voicing their opinions about the changing and increas-ingly competitive business environment for CSDs.
Curing Global Corporate Actions
Delegates at the opening session of the conference.
One of the key agenda items – corporate actions processing – sparked considerable commentary and debate.
“Everyone is seeking a cure for the problem of global corporate actions,” added Jorge Hernan Jaramillo, president of DECEVAL, Columbia’s CSD. “The aim is to protect investor rights, but corporate actions can be a ‘shock factor,’” he noted.
Fod Barnes, a principal of Oxera, the London-based economic consultancy whose research last year revealed very high loss potential in corporate actions processing, briefed the conference delegates on his company’s study and the implications for the industry.
Marco Strimer of SIS, Switzerland’s CSD, stressed that issuers need to be brought into the corporate actions process to get standardization and guarantees of information. “You know the saying,” he said, “garbage in, garbage out. We need to end that.”
“The conclusion of our discussion group,” said DTCC Managing Director James Femia, who served as moderator, “was to hold off on forming yet another industry working group, but to leverage all the existing standards efforts now going on in the industry. This includes pursuing ‘at source’ initiatives and finding a way to utilize the work of standards bodies such as the regional CSD associations.”
Challenges of Consolidation
Among the delegates attending CSD8 were, from left to right, Endang Triningsih, division head, the Indonesian Central Securities Depository, Kong Khai Chua, head of depository, Bursa Malaysia Depository Berhad, and Jane Yeo, vice president, The Central Depository (PTE) Limited of Singapore.
“Consider this,” said Paolo Cittadini, General Manager of Monte Titoli S.p.A., Italy’s central securities depository, who spoke about the progress in Europe toward integrating securities settlement systems. “In the course of streamlining the securities business through the consolidation of depositories, you might end up with one central securities depository, but if it has four, five or six operating platforms, the problem is still the same.”
Earlier in the conference, Joël Mérère, the CEO of Euroclear France and the chairman of the European Central Securities Depositories Association, talked about the regional association’s role in working with the European Union Commission and European regulatory authorities to find ways to improve cross-border clearing and settlement throughout Europe.
The aim, he emphasized, was not only to harmonize securities processing but to centralize market liquidity into a larger pool.
Growing Importance of Regional CSD Bodies
“The deepening bonds among depositories – sharing information and solving problems regionally – is a very encouraging and progressive trend,” DTCC’s Considine said in her opening address.
Sardenberg added that the role the regional associations can play in coordinating CSD aims is “growing in importance.” She noted that a new CSD regional association – for Africa and the Middle East – had actually been “born” on the first day of the conference. The new regional association joins four other regional groups already organized for Europe, Central and Eastern Europe, the Asia-Pacific region and the Americas.
Singing the Paperwork Blues
Gilberto Mifano, CEO of the Brazilian Clearing & Depository Corporation, addresses delegates.
“Look at this,” said Barbara Amsden, an assistant vice president of the Canadian Depository for Securities, holding up a one-foot-high stack of papers and folders. “These are all the assessment and evaluation documents our depository has to fill out every year for various agencies and businesses. This is a huge paperwork burden and, as an industry, we need to find a way to rationalize it,” she said.
Amsden was the moderator for a group of conferees examining the rising number of forms, surveys and assessments securities depositories now fill out so that regulators and others can measure liquidity, efficiency and risk in post-trade processing. The group had a chance to grill representatives from many of the organizations seeking data, including the Association of Global Custodians, the International Securities Services Association (ISSA) and Thomas Murray, a London-based risk rating and advisory company.
What the CSDs want, Amsden said, is to have some common terminology, to avoid duplication and to be able to update information regularly online. There was also a recommendation that CSD working groups meet with the International Organization of Securities Commissions (IOSCO) to standardize both central and regional data bases involving CSDs.
Evolving CSD functions
In an examination of how far many CSDs are moving beyond their core functions, Elzbieta Pustola, president and CEO of Poland’s CSD, raised questions about how deeply CSDs may expand into related lines of business and how the expansion might affect risk control.
As CSDs evolve, she said, they find themselves bumping into the business of global custodians, clearing firms, service bureaus and other participants in the securities industry. “Is there a clear dividing line between these functions?” she asked. “How far should CSDs go?”
In formally closing the conference, DTCC’s Considine announced that, based on the decision of the regional CSD associations, CSD9 would be held in Asia in 2007, and that serving as co-hosts would be Japan’s Securities Depository Center, Inc., and Securities Settlement and Custody organization, together with the Korea Securities Depository and the Taiwan Securities Central Depository.
Speaking on behalf of his co-hosts for CSD9, Michael Lin, the senior executive vice president for Taiwan’s central securities depository, said he wanted “to thank DTCC and Brazil’s CBLC for organizing such a successful event. We’ll see you in Asia in 2007.” @
[Editor’s Note: The conference Web site, www.csd8.com, created and operated by CBLC in Brazil, is currently posting conference presentations and related documents to the site in English.]