A Licence To Operate

by Berthold Kracke, CEO of Clearstream Banking Frankfurt


All things being equal, this time next year, all EU Central Securities Depositories (CSDs) - the infrastructures which execute and administer financial trades - will be eagerly awaiting their license to operate. While this might not seem quite as thrilling as a “00” license, it will be a crucial step to comply with the new regime designed to help make the financial markets more secure, as introduced by the European Central Securities Depository Regulation (CSD-R).

It is often too easy, whilst being buried in all the technical detail of the project, to forget to share the meaning of such a framework or regime to wider financial market infrastructures, market participants and indeed, to anyone interested in how we can make our markets more secure. So here are some insights.

One key way CSD-R is designed to help make the markets safer is by requiring all CSDs in Europe to be granted a license to operate.

Enhanced capital requirements, increased transparency requirements and an obligation for CSDs to provide vertical access to other market infrastructures such as clearing houses and trading venues are all at the top of the criteria list for CSDs to fulfil in order to obtain their operating licence form their respective local regulators.

In the unlikely event that a CSD defaults for example, the enhanced capital requirement measure would ensure that the CSD would have more capital to draw on to help mitigate any resulting knock-on effects of the default on the market.

From the European trade perspective, I might point at the enhanced capital requirements measure as a positive example of EU harmonisation policy as it brings all CSDs in Europe to the same, enhanced level of secured operations. Similarly, increased transparency requirements whereby CSDs will have to report on their operations in a more detailed and frequent way and under more scrutiny of the regulators, should help the regulators (and any other interested parties) to better understand – and monitor - the operations of European CSDs better.

Coupled with the single European settlement platform project, TARGET2-Securities (T2S) - whereby settlement will increasingly become centralised rather than fragmented across individual European markets - a topic which I have previously blogged about, - the CSD-R regime should ultimately help to make cross-border settlement processing more efficient and in turn hopefully less costly for CSD participants, that is, for the banks, other financial institutions and corporates who use CSD services.

To sum up, CSD-R is both bold in ambition and wide-ranging in market impact. In true Bond spirit, at Clearstream, we’re more stirred into positive action than shaken by the arrival of CSD-R. We see our role not just as helping to realise the CSD-R objectives through obtaining licenses for our CSDs to operate, but as one of sharing our expertise and guidance as far as we can, to help the wider market infrastructure machinery align with the new regime. Interested readers can delve into more CSD-R detail on Clearstream’s CSD-R - Frequently Asked Questions webpage.