Financial Markets Operations Management (23 page)

It is usually the case that if an investor (or its agent) wishes to invest in foreign securities, it is not possible to directly access the relevant CSD. There are two options available to the investor/agent:

1. Use a custodian bank that has access to the foreign CSD (see
   Figure 6.3
   ).
   

   

2. Use the local CSD's links with the foreign CSD (see
   Figure 6.4
   ).
   

We will look at Option 1 in Chapter 10: Custody and the Custodians. With Option 2, the link between the local CSD and the foreign CSD enables securities held in the latter to become available in the records of the former.

The local CSD (also referred to as the investor CSD) becomes a customer or participant of the foreign CSD (the issuer CSD). This would be regarded as a unilateral link. If there was a reciprocal arrangement (i.e. the issuer CSD became an investor CSD for its local investors with the original investor CSD becoming an issuer CSD), this would be a bilateral link (see
Figure 6.5
). In either event, both bilateral and unilateral links are regarded as
direct links
.

Table 6.7
shows some examples of direct links.

There is a fourth variation, known as
relayed links
, whereby two CSDs are linked using a third as an intermediary CSD (see
Figure 6.6
).

Examples of relayed links include the following:
^6
6

• Germany: Clearstream Banking AG via Clearstream Banking Luxembourg to Monte Titoli (Italy);
  
• France: Euroclear France via Euroclear Bank (Belgium) to Clearstream Banking AG (Germany);
  
• Luxembourg: LuxCSD via Clearstream Banking Luxembourg to KDD (Slovenia).
  

These links would allow securities to be delivered on a free of payment (FoP) and/or a delivery/receive against payment (DVP/RVP) basis.

Euroclear Bank and Clearstream Banking Luxembourg, the two international CSDs, are regarded as fully interoperable with their use of the bridge (see the next section).

CBL settles a wide range of securities including:

• International debt securities, including global bonds and Eurobonds (straight, floating-rate, convertible etc.);
  
• Foreign bonds;
  
• Money market instruments, including short- and medium-term notes, commercial paper and certificates of deposit;
  
• Domestic bonds (government and corporate);
  
• Equities;
  
• Depository receipts;
  
• Investment funds;
  
• Warrants;
  
• Asset-backed securities and other collateralised debt securities.
  

CBL offers a full range of services from advice to primary distribution using its Global Issuer Hub:

• Advisory services:
  Supporting lead managers, lawyers, issuers and their agents;
  
• Securities admission:
  Eligibility checks and compliance checks prior to admission to the Global Issuer Hub;
  
• Code allocation:
  CBL is the numbering agent for international ISIN codes;
  
• Electronic document transfer:
  This enables the securities to be delivered electronically, rather than physically;
  
• Primary market distribution:
  Supports issuers and their agents in distributing the securities to investors.
  

CBL has three types of settlement:

1. Internal settlement for transactions between two CBL participants.
   
2. External settlement for transactions with non-ICSD participants.
   
3. Bridge settlement for transactions between CBL and Euroclear participants.
   

Transactions can be settled on either a DVP/RVP or free of payment (FoP) basis.

CBL processes income and corporate actions activities together with reports that include income pre-advices, corporate action notifications and market claims.

CBL provides a full range of securities financing services through its Global Liquidity Hub, including:

• Triparty collateral management and general collateral (GC) pooling;
  
• Automated securities lending and borrowing for fails management and strategic lending.
  

CBL's Vestima Funds Hub provides the link between investor, fund distributor, transfer agent and trading platform. The Vestima Funds Hub enables:

• Order routing to funds (or their agents) or to trading platforms;
  
• Post-trade settlement by DVP in commercial bank money;
  
• Collateral using investment funds as an eligible asset class in the triparty repo service;
  
• Value-added services including funds reference data and real-time reporting.
  

We have seen in the previous section that there are direct links between the ICSDs and a selection of local CSDs. These links can either be unilateral or bilateral in nature.

Participants can input instructions, access information, manage corporate action activities, send queries and handle exceptions using one or more connectivity products offered under the CreationConnect service. The three products are:

• CreationOnline:
  Via the Internet or a virtual private network (VPN);
  
• CreationDirect:
  By file transfer using the Internet, the Clearstream VPN, Lima or SWIFTNet FileAct;
  
• Creation via the SWIFT network:
  Link through SWIFTNet FIN.
  

In September 2013, CBL launched ClearstreamXact, an Internet-based system that initially offers participants access to CBL's collateral management service. (Settlement and asset management are planned additional services.)

EB processes a wide range of securities including:

• International bonds, including foreign bonds, global bonds and Eurobonds;
  
• Domestic debt;
  
• Convertible bonds;
  
• Warrants;
  
• Equities;
  
• Depository receipts;
  
• Investment funds.
  

EB helps issuers, lead managers and issuing agents by:

• Helping to identify new issue structures;
  
• Allocating identification codes to new securities (EB is a numbering agency);
  
• Providing DVP issuance of the securities;
  
• Providing relevant administrative services.
  

EB, as with CBL above, has three types of settlement:

1. Internal settlement for transactions between two Euroclear participants.
   
2. External settlement for transactions with non-ICSD participants.
   
3. Bridge settlement for transactions between EB and CBL participants.
   

Transactions can be settled on either a DVP/RVP or free of payment (FoP) basis.

These services include:

• Corporate action notifications;
  
• Real-time processing and reporting;
  
• Income and redemption processing;
  
• Withholding tax assistance;
  
• Proxy voting market claims management.
  

This includes collateral management and securities lending and borrowing.

Money transfer facilities include:

• Book transfers: Internal payments between participants within the EB system;
  
• Wire transfers: External payments made by participants outside the EB system;
  
• Pre-advices: Incoming payments for EB participants from outside the EB system;
  
• Foreign exchange services.
  

EB provides credit facilities to enable participants to manage their operations, especially settlements, borrowing and money transfer. Credit facilities are provided on a secured basis.

EB's investment fund platform is FundSettlement International, which provides a single access point for fund management companies, fund distributors and transfer agents. Users have access to:

• Order validation;
  
• Funds settlement;
  
• Corporate actions processing;
  
• Real-time reporting;
  
• Client support.
  

We have seen in the previous section that there are direct links between the ICSDs and a selection of local CSDs. These links can either be unilateral or bilateral in nature.

Participants can access Euroclear through the following Internet Protocol-based networks:

• Radianz
  
• Infonet
  
• SWIFTNet
  
• The Internet.
  

Applications are either screen-based or computer-to-computer – see
Table 6.8
.

Instructions can also be submitted by tested telex, post and, exceptionally, fax (with telephone call-back).