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Clearstream
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The Central Securities Depositories Regulation (CSDR)
Clearstream
The Central Securities Depositories
Regulation (CSDR)
A briefing paper on customer impacts
Clearstream
Your asset safety solution
A briefing paper on how we protect customers' assets
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The Central Securities Depositories Regulation (CSDR)
The Central Securities Depositories Regulation (CSDR)
Key impacts
New settlement
discipline regime
CSD customers will be subject to
mandatory buy-ins and cash
penalites when settlement fails
Wider CSD customer
impacts include
New account segregation rules
Daily reconciliation processes
Book-entry form of securities
Use of Legal Entity Identifer codes
New operating licence
for CSDs
Performance and operational criteria
Enhanced governance, price
transparency and more stringent
prudential requirements
The Central Securities Depositories
Regulation (CSDR) is one of the key
regulations adopted in the aftermath of
the financial crisis. Its objectives are:
To increase the safety and efficiency
of securities settlement and
the settlement infrastructures in
the EU;
To harmonise the different rules
applicable to Central Securities
Depositories (CSDs) in Europe; and
To establish an enhanced level
playing field amongst these CSDs.
The regulation applies to all CSDs
i
n the EU, along with those of Iceland,
Liechtenstein and Norway (as and
when incorporated into the European
Economic Treaty). Switzerland is
also to be subject to certain CSDR
provisions via bilateral agreement.
The CSDR is significant to all financial
market participants in Europe and
globally as it introduces measures
that not only impact European CSDs,
but also the wider financial market
i
nfrastructures and global trading
parties dealing in securities that
settle in an EU CSD or at either of
the international CSDs (ICSDs).
Trading parties, central counterparties
(CCPs) and trading venues will also
be impacted and will have to directly
comply with some of the measures,
i
n particular with the introduction of
mandatory buy-ins and penalties for
settlement failures.
The following information is based on
Clearstream's own interpretations,
and is provided to support Clearstream
customers with their understanding
of a specific EU regulation.
This information does not constitute
nor is it intended to act as any form
of formal legal advice.
"We receive queries from customers
of all sizes and profiles about the
CSDR. We'd like to offer more insight
i
nto what we think this regulation will
mean for the market infrastructure
our customers depend on to execute
their financial transactions like
Clearstream's Central Securities
Depositories and for the financial
i
nstitutions themselves.
Most of our customers' interest is in
the settlement discipline regime,
which will bring in mandatory buy-ins
and cash penalties when settlement
fails, so this is the main focus of
this briefing.
Our door is open to further dialogue
with customers indeed we have
been feeding into various industry
working groups to help form practical
solutions with our customers'
i
nterests at heart."
Philip Brown
Co-CEO, Clearstream Banking
A piece of the EU regulatory
jigsaw
Enhanced operational efficiency
and asset protection
The CSDR is one piece of a wider EU
regulatory jigsaw, reflecting a review
of the entire securities and capital
markets structure with a view to
i
mproving the functioning and stability
of the financial markets. It can be seen
as contributing to the EU's Capital
Markets Union agenda to sustain
the EU's global competitiveness based
on stable and liquid capital markets.
As such, this regulation is
complementary to other EU financial
markets regulations, such as
the Market in Financial Instruments
Directive (MiFID), the Directive on
Alternative Investment Fund Managers
(AIFMD), the Undertakings for the
Collective Investment of Transferable
Securities (UCITS) Directive, the
European Market Infrastructure
Regulation (EMIR) for the regulation
of over-the-counter (OTC) derivatives
and the Capital Requirements
Directive IV (CRD IV) for prudential
rules for banks.
We expect that the CSDR will
contribute to CSDs' compliance with
the international principles for
financial infrastructures set out by
the Committee on Payments and
Market Infrastructures (CPMI) and
the Technical Committee of the
International Organisation of Securities
Commissions (IOSCO). The standards
designed by these organisations
help to ensure that the infrastructure
supporting global financial markets
i
s robust and well placed to withstand
financial shocks.
Clearstream embraces the changes
CSDR brings. We are committed
to ensuring that customers continue
to benefit from the services we offer
today, in an even safer and more
efficient environment.
A new settlement discipline regime
i
s a key feature of the CSDR and aims
to increase the operational efficiency
of CSDs. The regime introduces a host
of measures designed to incentivise
timely settlement by introducing
a
mandatory cash penalty and buy-in
mechanism
.
CSDR also requires all CSDs to apply
for a universal
CSD licence to operate
.
The licence sets out performance and
operational criteria all CSDs must fulfil
i
ncluding, but not limited to, enhanced
governance, price transparency and
more stringent prudential requirements.
To help increase asset protection,
CSD customer on-boarding and risk
management protocols are also
addressed in the CSDR.
Clearstream: Your asset safety solution
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Clearstream: Your asset safety solution
8
External endorsement
of Clearstream's stability:
Successful stress-test
by the European Central Bank
A particular external endorsement
of the safety of our systems came
i
n October 2014 in the form of
the European Central Bank (ECB)
published results of its stress test and
Comprehensive Assessment of banks.
The ECB undertook a critical analysis
of the balance sheets of 130 Eurozone
banks and banking groups. This was
part of the implementation of
the Single Supervisory Mechanism
("banking union"), which established
the ECB as the highest regulatory
authority for banks in the Eurozone.
Clearstream passed the related ECB
stress test with very good results in all
scenarios. The extensive assessment
i
ncluded an examination of the balance
sheet and a verification of equity
capital coverage levels, which led to
a confirmation by the ECB of the
i
nstitution's high resilience.
Legal compliance and policing by regulators
keeps your assets safe
Clearstream Banking Luxembourg
i
s licensed as a bank by the Commission
de Surveillance du Secteur Financier
(CSSF), and has all the powers and
responsibilities of a licensed credit
i
nstitution under the Law.
The CSSF is Luxembourg's prudential
regulator with authority over all
banks and financial services providers,
payment institutions and investment
vehicles and managers, headquartered
i
n Luxembourg.
In particular, the CSSF implements
the legal framework and issues
Circulars applicable to the supervised
entities. The CSSF also integrates
the responsibilities of monitoring
the stock markets and supervising
the Luxembourg Stock Exchange.
We also comply with international
guidelines the United Nations Global
Compact and standards set by
the International Labour Organisation.
To be transparent about how we comply
with such codes, we offer a corporate
governance declaration in our
annual
report
,
published on our website.
Clearstream's CSDs will soon be
subject to the
EU Central Securities
Depositories Regulation (CSDR)
.
This regulation requires CSDs to obtain
a specific CSDR license to operate
based on minimum transparency
requirements and enhanced capital
requirements, as well as wider
provisions aimed at enhancing CSD
operational efficiency and asset
protection throughout the value chain
right through to the end investor.
(Customers can learn more via our
dedicated CSDR webpages
.
)
Another regulatory responsibility
requires Clearstream to publicly
disclose its risk management principles
i
n its
Pillar III report
,
which we publish
on our website for regulators, clients
and any other interested parties.
Clearstream in addition publishes
i
ts
I
nternational Standard on Assurance
Engagements (ISAE)
reports detailing
i
ts controls, their design and operating
effectiveness, including an independent
assessment of whether the controls
were placed in operation, suitably
designed, and operating effectively.
The reports are intended for you
as customers, your auditors and for
the CSSF.
Clearstream Banking Luxembourg
i
s also recognised as a Securities
Settlement System (SSS) and
i
s therefore subject to the oversight
of the Luxembourg Central Bank
(Banque centrale du Luxembourg,
BcL), in turn responsible for
i
mplementing the monetary policy
decided by the Governing Council
of the European Central Bank (ECB).
BcL oversees the disposition of open
market operations, standing facilities,
minimum reserves and instruments
available to the European System
of Central Banks (ESCB) and the
SSSs to ensure systemic stability of
payment systems and Securities
Settlement Systems.
As a CSD in Frankfurt meanwhile,
our business is regulated by the local
regulators in Germany (Bundesanstalt
für Finanzdienstleistungsaufsicht
(BaFIN)/Deutsche Bundesbank).
Further regulators policing our
operations include the Monetary
Authority of Singapore, for our
Singapore office, and the Financial
Conduct Authority (FCA) of the Bank
of England)/Prudential Regulation
Authority (PRA) for our UK London
branch.
At group level, as part of the wider
Deutsche Börse Group, the German
Corporate Governance Code and
the German Sustainability Code are
key elements of our corporate culture.
Clearstream: Your asset safety solution
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Clearstream: Your asset safety solution
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Knowing our customers helps
keep your assets safe
Know Your Customer (KYC) policies and
due diligence processes are regulatory
duties and part of our business as usual
activities. The key aim is to establish
the optimal security of assets we hold
for customers by determining who
i
s to access the Clearstream system and
for what purpose seeking to minimise
fraud or access by unethical market
participants.
We apply our KYC and due diligence
checks during the full lifetime
of the relationship with a customer
from first contact to on-boarding and
systematically thereafter during
the entire customer relationship.
A thorough approach
to getting to know
our customers
As a customer, you will experience
this KYC process via on-site visits and
face to face meetings, which help us
to fully understand the background
of your business, your business
i
n general, and your desired activity
with Clearstream in particular.
Our KYC checks include an assessment
of the purpose of your account and
a detailed assessment of any client
(or third party) assets that a prospective
customer intends to deposit
with Clearstream.
We also examine and assess the
geography and nature of your own
respective clients, the products
i
n your organisation that your accounts
at Clearstream will be supporting
and an evaluation of your compliance
and control framework.
Finally, in line with Anti Money
Laundering (AML) procedures, laws
and regulations, Clearstream
screens every security and cash-related
i
nstruction prior to releasing it into
the processing lifecycle. We take
appropriate measures immediately
i
f and when any transaction is deemed
to potentially breach sanctions and
embargo regimes or suggests money
laundering, market abuse or other
compliance-related concerns.
A robust risk management strategy,
verified by third parties, helps mitigate
risk in all business areas
Clearstream applies an advanced
operational risk management method
set out in the Basel II banking
recommendations the Advanced
Measurement Approach (AMA), which
i
s subject to approval from our local
regulators. We are continually reviewing
our risk approach in line with regulatory
standards such as the CSDR. Our risk
management model is detailed in our
Pillar III Disclosure Report
,
published
on our website.
Clearstream's Business Continuity
Management (BCM) also forms
an important risk mitigator. As clients,
you are regularly invited to participate
i
n our BCM practices to obtain
first-hand experience and confidence
i
n how these work.
Sound, tested crisis
management system
We offer customers a real-time alert
system to help with incident
management. This is complementary
to the 24-hour, 6-days-a-week
availability of our client services and
operational centres, which service
your needs at the touch of a button,
no matter the time and no matter
your time zone.
Our BCM offers continuity of critical
operations in crisis scenarios.
We offer several alternative connectivity
options to ensure the resilience of
your connectivity to our systems and
continued access to your securities
should our business systems fail,
as well as dedicated backup sites for
operational functions and our data
centre, which mirror data in real time
so that we retain all data online even
i
f one data centre fails.
Clearstream is either directly or via
i
ts parent company Deutsche Boerse
Group, an active member of the
following professional groups, which
helps us keep abreast of latest best
market practices in this field.
Operational Crisis Prevention Group
of the Luxembourg Central Bank;
BCM working groups of the Federation
of European Securities Exchanges
(FESE), the German Financial Industry
(BCMAKFI) and the companies listed
i
n the DAX (BCM DAX30).
Sound and robust
information
and cyber security
As a business based on IT systems
and in charge of customers' data,
Clearstream's information security
policy and standards are fundamental
to our business and top of our agenda.
We also keep fiercely in line with all
effective data protection laws so that
while you share your data with us,
you can rest assured we keep it safe
and secure.
Product information
Alternative fund price and
reference data service in
partnership with HedgePole
The use of new technology and standardisation has increased
automation in processing alternative investment funds while
also increasing the volume of data that needs to be exchanged
and reconciled between intermediaries. In response to this,
market demand and growing client requests, Clearstream
is offering dynamic and static hedge funds data in partnership
with HedgePole, a specialist provider for hedge funds price
and reference data.
Key benefits
Central source of hedge fund data
Structured data for several
thousands of hedge funds
Pro-active collection and
processing of pricing updates
Data gathering for any
alternative fund
Customised and efficient solutions
Customisable report delivery
Daily electronic feeds of pricing
updates and delivery of investor
statements
Pro-active follow-up for agreed
deadlines, including for funds
in liquidation
Flexible and customised data
and valuation reporting
Real-time data processing based
on dual-key/4 eye principle
Easy access
24/7 online access and electronic
interfaces
Maintenance of a golden copy
of securities master data
Independent and proactive
gathering of alternative
investment fund pricing and
reference data.
Clearstream
VestimaPRIME Data
The VestimaPRIME Data service
provides a combined pricing and
reference data package for any
security upon the fund manager's
authorisation. Subscription is done
at account level and falls within
Clearstream's contractual framework.
VestimaPRIME Data
The delivery of the VestimaPRIME Data
service is available via HedgePole's
HedgeData platform and supports
investors and fund distributors
in the maintenance of their hedge fund
portfolio, from reference data
and pricing to bespoke reporting.
Key features include
24/7 access for clients to web-based
database with prices and related
documents in one central location
A data service, including any price
quality - the official, estimated or
calculated price sourced from
the administrator or manager
Electronic link-up of all the industry
participants and electronic
communication and data exchange
for all industry participants on
a transparent and yet confidential
basis
Full audit trail of user activities
Assignment of unique security
identifiers HPID
TM
Product information
Enhance revenues and
boost settlement efficiency
in Clearstream and on T2S
The migration to the centralised European settlement platform
TARGET2-Securities (T2S) has opened new opportunities for
pooling CSD and ICSD liquidity across asset classes thereby
overcoming collateral fragmentation and maximising
the use of customer's assets by automatically allocating
them for securities lending purposes.
ASL principal is a unique service that
forms part of our harmonised CSD
and ICSD securities lending services
enabling customers to borrow or
lend from a single pool of securities
regardless of their settlement
or custody location.
ASL principal combines the efficiency
of the Automated Securities Lending
service with the simplicity and
security of a principal structure with
Clearstream Banking S.A. as sole
counterparty.
Mitigate the risk of CSDR
mandatory buy-ins
By increasing settlement efficiency,
ASL principal minimises customer
exposure to the upcoming CSDR
mandatory buy-ins.
Clearstream Banking S.A.
as sole counterparty
Borrowers gain access to an extensive
pool of liquidity while lenders benefit
from the risk mitigation associated
with the principal structure.
Key benefits
Lenders: Optimise your
portfolio revenues
Minimise cost with no custody fees
on lent positions
Benefit from close-to-market
cash rates
Mitigate your risk through principal
structure with Clearstream
as AA rated borrower
Benefit from securities recallable
on demand
Borrowers: Reduced risk of failure
in Clearstream and T2S
Enhance settlement efficiency
Reduce the risk of Central
Securities Depository Regulation
(CSDR) mandatory buy-ins
Mitigate reputation damage due to
failed trades
Clearstream Banking S.A.
as sole lender
The ASL principal service
complements Clearstream's
existing ASL and ASLplus
services.
Clearstream
Securities Lending ASL principal
T
Clearstream
Vestima One-stop shop for funds
Process your entire fund portfolio from ETFs to mutual
funds and hedge funds on a single platform
S