Financial Markets Operations Management

CHAPTER 6 Securities Depositories (CSDs and ICSDs)

6.1 INTRODUCTION

We have seen in previous chapters the roles of the exchanges and trading platforms together with the clearing houses and central counterparties. We have also seen the relationships between both types of infrastructure in terms of management and ownership.

The asset types that are traded and cleared include bonds, equities, exchange-traded derivatives and centrally cleared OTC derivatives.

We are now at the stage where a third type of infrastructure plays an active role: the local (or national) and international central securities depository (CSD). As with the clearing houses and CCPs, CSDs can share certain characteristics with other CSDs but can also differ.

Please note that CSDs play no part in derivatives other than when contracts with securities as the underlying assets are exercised.

This chapter will help you to:

• Understand the purpose of the CSDs and ICSDs;
• Take a detailed look at a selection of these depositories;
• Appreciate the bilateral links between CSDs and ICSDs as well as mergers and acquisitions;
• Consider the different types of customer of the depositories and the services offered to them.

6.2 HISTORICAL CONTEXT

Until the late 20th century, securities were represented in certificated form, i.e. investors would hold physical share and bond certificates. These certificates could be held in one of several ways:

1. By the investor.
2. By a legal representative of the investor (e.g. a solicitor).