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When looking at the South East, which is the main focus of the Fund, the corresponding figure is 79% - On the basis of a final compliance notice from the institutions, the Eurogroup Working Group (EWG) agreed late on Friday that the Greek authorities have now completed the first set of milestones and the financial sector measures that are essential for a successful recapitalisation process. The agreement paves the way for the formal approval by the ESM Board of Directors today for disbursing the €2bn sub-tranche linked to the first set of milestones. It also makes subsequent case-by-case decisions by the ESM Board of Directors on the transfer to the HFSF of the funds needed for the recapitalisation of the Greek banking sector out of the €10bn earmarked for this purpose - The performance of the UK credit card asset-backed securities (ABS) market remained positive during the three months ended August 2015, according to the latest indices published by Moody's. Total delinquencies decreased slightly to 1.54% of the outstanding balance in August 2015 from 1.64% in May 2015 and 1.82% in August 2014. The charge-off rate also decreased to 2.65% in August 2015 from 2.83% in May 2015 and 2.79% a year earlier. The payment rate decreased to 17.47% in August 2015 from 18.56% in May 2015 and 21.72% in August 2014 - ETF Securities Group has listed 18 new 3x short and leveraged commodity ETPs and six new 5x short and leveraged currency ETPs on the LSE today. 2015 has seen increased volatility across currencies and commodities and investors globally have demonstrated an increased interest in short and leveraged ETPs, with ETF Securities own platform experiencing US$135mn of inflows year to date. 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We believe the additional leverage will first and foremost allow investors to use the currency products to hedge currency risk as well provide additional opportunities to trade on a short term basis with a competitive total cost of ownership.” - GoldenSourcea provider of Enterprise Data Management (EDM) and Master Data Management (MDM) solutions for the securities and investment management industry, says that Cattolica Assicurazioni has selected its Market Data Solution to efficiently deliver robust pricing and accelerate reporting capabilities for Solvency II. GoldenSource will provide Cattolica with a complete solution for constructing and disseminating fully audited data sets which validates and cleanses multiple sources, ensuring accuracy and timeliness in product control and reporting. After a rigorous evaluation process, GoldenSource was selected due to the completeness of the solution, ease of use and its rapid implementation capabilities - Yes Bank, one of several of India’s private banks, recently signed an agreement with the London Stock Exchange (LSE) regarding the listing of green bonds and equity instruments to raise funds for clean energy infrastructure. The bank has announced plans to list green bonds on LSE worth $500m by December 2016. Yes Bank issued the country’s first green bond in February this year in which it raised $150m. A second green bond issue, floated in partnership with the International Finance Corporation (IFC), raised almost $50m. The Indian Import-Export Bank also raised $500m through the first dollar-denominated green bonds issued in India, and is also expected to issue more bonds raising up to $1.5bn over the next two to five years – Was last week a turning point? The US Fed has given its clearest sign yet that it might raise rates in December, as it notes that inflation looks to be reappearing. However, with global growth continuing to slow, a rate rise is not without risks. After a torrid start to fall, Australian shares closed at their highest level in about a month as a brightening economic outlook buoyed consumer stocks and countered pressure from falling commodity prices. The S&P/ASX 200 rose 20.3 points, or 0.4%. Elsewhere, it a mixed, but not altogether a depressing picture. The Shanghai Composite Index closed down 0.6%, amid expectations that a four-month moratorium on public listings could lift soon, triggering investors to sell current holdings. Hong Kong's Hang Seng Index fell 0.4%. South Korea's Kospi rose 0.7%. Markets in Japan were closed for a holiday. The Straits Times Index (STI) ended 14.42 points or 0.49% lower to 2903.49, taking the year-to-date performance to -13.72%. The top active stocks today were DBS, which declined 0.71%, NOL, which gained4.46%, SingTel, which declined1.03%, OCBC Bank, which declined1.23% and UOB, with a 1.25% fall. The FTSE ST Mid Cap Index declined 0.13%, while the FTSE ST Small Cap Index declined 0.45%. Expectations of higher rates strengthened the dollar against most currencies in trading today with the euro falling to a seven-month low at $1.0599, no surprise when you couple the promise of a US rate rise with the ECB holding out for more easing. ECB President Mario Draghi said Friday that the bank stands ready to deploy its full range of stimulus measures to fight low inflation. A stronger dollar also pressured several commodities, which are priced in the currency. Earlier Monday, three-month aluminum prices on the London Metal Exchange fell to their lowest level since May 2009, to $1,438 a metric ton. The price later edged up to $1,441.50. Brent crude oil, the global benchmark, was down 1.8% at $43.84 a barrel. Prices of West Texas Intermediate fell 3.1% to $40.62 a barrel, after falling below $40 a barrel last week. Gold prices fell 0.5% at $1,070.60 a troy ounce - The European Council says it has extended the mandate of the European Union Special Representative (EUSR) for the South Caucasus and the crisis in Georgia until 28 February 2017. Herbert Salber was appointed in July last year. EUSRs promote the EU's policies and interests in troubled regions and countries and play an active role in efforts to consolidate peace, stability and the rule of law. The first EUSRs were appointed in 1996. Currently, nine EUSRs support the work the High Representative of the Union for Foreign Affairs and Security Policy, Federica Mogherini - Taiwan's Ministry of Economic Affairs (MOEA) approved 3,118 foreign direct investment projects (except from China) with a total value of $3.689bn in January-October 2015, respectively increasing 6.34% and decreasing 6.77% on year, according to MOEA statistics released on November 20th. In the same period, MOEA approved 378 outward direct investment projects (except in China) proposed by Taiwan-based companies or individuals with a total value of $9.4bn, respectively dropping 5.74% and growing 40.42% on year. Also in January-October, MOEA approved 135 investment projects proposed by China-based enterprises with a total value of $134.27m. On the other hand, there were 276 approved projects of direct investment in China proposed by Taiwan-based companies or individuals with a total amount of $8.723bn, slipping 17.61% and rising 11.43% respectively on year. Taiwan's Ministry of Economic Affairs (MOEA) approved 3,118 foreign direct investment projects (except from China) with a total value of $3.689bn in January-October 2015, respectively increasing 6.34% and decreasing 6.77% on year.

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EU seeks CSD regulation and proportionality

Thursday, 19 April 2012
EU seeks CSD regulation and proportionality In early March this year the European Commission issued proposals to improve securities settlement in the EU and the operation of central securities depositories (CSDs). The proposal has the potential to speed-up harmonisation of post-trade processes in Europe, thereby helping to make cross-border securities transactions less complex, less risky and less costly. The proposal now passes to the European Parliament and the Council (member states) for negotiation and adoption under Europe’s co-decision procedure. Francesca Carnevale reports.

In early March this year the European Commission issued proposals to improve securities settlement in the EU and the operation of central securities depositories (CSDs). The proposal has the potential to speed-up harmonisation of post-trade processes in Europe, thereby helping to make cross-border securities transactions less complex, less risky and less costly. The proposal now passes to the European Parliament and the Council (member states) for negotiation and adoption under Europe’s co-decision procedure. Francesca Carnevale reports.

The EU Commission’s proposal aims to harmonise both the timing and conduct of securities settlement in Europe and the rules governing central securities depositories (CSDs) which operate the infrastructures enabling settlement. CSDs constitute the last layer in the post-trade infrastructure. Their role is to ensure the smooth completion of securities transactions once these have been traded and cleared. The proposal harmonises timing and discipline of securities settlement in the EU and forwards the establishment, for the first time at European level, a common authorisation, supervision and regulatory framework for CSDs.

“The Commission is optimistically working on the assumption that the ­regulation will generally come into force in early 2013. However provisions relating to the harmonised T+2 settlement period won’t come into force until 1 January 2015 and the provisions imposing the dematerial­isation/immobilisation of securities will not enter into force until 1 January 2020,” explains James Tinworth, funds partner in the corporate practice at law firm Stephenson Harwood.

Alan CameronAlan Cameron, head of client segment, financial institutions and broker-dealers, at BNP Paribas ­Securities ServicesEssentially, the proposals are designed to increase the safety of settlements, particularly for cross-border transactions, by ensuring that buyers and sellers receive their securities and money on time and without risks; increase the efficiency of settlements by introducing a true internal market for the operations of national CSDs; and to augment the safety of CSDs by applying high prudential requirements in line with international standards. “Essentially it is about reducing risks and costs; in line with regulation, the industry also has to focus on these elements. Neither element is exclusivel but in reality the industry has tended to focus either or one or the other,” concedes Alan Cameron,  head of client segment, financial institutions and broker-dealers, at BNP Paribas Securities Services.

The proposals have been forwarded to help mitigate risk in the post trade environment, at a time when cross border trading of securities is rising and where legislation (T2S and EMIR, for instance) proposes heightened responsibilities for institutions in the post trade segment. The environment is dynamic: as cross-border transactions in Europe, ranging from usual purchases/sales of securities to collateral transfers, continue to increase and CSDs become increasingly interconnected. These trends are expected to accelerate with the advent of Target2 Securities (T2S), a project launched by the Eurosystem to provide a common technical platform for securities settlement in Europe, which is scheduled to start in 2015.

While generally safe and efficient within national borders, settlement across borders presents higher risks and costs for investors than domestic operations. The EU believes it to be important to have a harmonised set of measures across Europe for settlement, which will also serve to help CSDs. “Post trade costs have come down,” explains Cameron, “ and continue to fall. However, there’s a point where people are concerned about the huge infrastructure that is emerging in this search for harmonisation.”

Up to now CSDs have tended to be regulated at the national level and lack a common set of prudential, organisational and conduct of business standards at ­international (or European) level. This ­regulation does not in essence change this infrastructure.

As it stands under current proposals, CSDs will be authorised and supervised by “national competent authorities specifically designated by the member states”. These authorities must, however, consult and cooperate with “other relevant authorities, which include the authorities from the member states responsible for the oversight of each securities settlement system operated by CSDs and the central banks in whose accounts securities transactions are settled”.

Moreover, “Where a CSD has subsidiaries in several member states the proposed regulation requires the authority responsible for the supervision of the CSD to cooperate with the authorities responsible for the ­supervision of its subsidiaries. This co­operation also implies immediate information of the authorities involved in case of emergency situations affecting the liquidity and stability of the financial system in any of the member states where the CSD or its participants are established,” states the EC Commission website.

The European ­Securities and Markets Authority (ESMA) however will be responsible for ensuring cooperation between national authorities and developing commonly applied technical standards. Within hours of the release of the proposal, the European Central Securities Depositary Association (ECSDA) stated that it welcomed the regulation. The association represents some 42 national and inter­national CSDs across Europe, providing a forum for its members to exchange views and take forward projects of mutual interest. Combined, members of the ­association held approximately €37.9trn in securities at the start of 2011; no mean amount.

ECSDA notes that CSDs support the move to a settlement cycle of two business days after trade date for most securities across Europe. “The adoption of a common framework for settlement discipline could also benefit market transparency and safety by reinforcing incentives for market ­participants to fulfill their obligations and deliver securities on time,” says the association. Soraya Belghazi, secretary general of ECSDA, notes: “Like other critical market infrastructures, CSDs exist to take risk out of the market, which is why global ­regulators and the G20 in particular are keen to encourage their use by market participants. Rather than disrupting the existing market structure in post-trade, ECSDA thinks that financial stability can be enhanced by tight regulation of the limited credit function of some CSDs and by the adoption of an effective resolution regime for market infrastructures.”

Soraya BelghaziSoraya Belghazi, secretary general of ECSDAThe adoption of a common framework for settlement discipline could also benefit market transparency and safety by reinforcing incentives for market participants to fulfil their obligations and deliver securities on time. Even so, not all the EU proposals have been received positively. According to ECSDA some measures put forward by the Commission “do not seem proportionate given the strength and resilience of CSDs particularly during the financial crisis. These measures are not justified by any market failure and should be recalibrated to avoid disrupting the operation of existing CSDs in some markets”.

In particular, the association suggests the regulation could make it more difficult for CSDs to establish links with other CSDs, in contradiction to the spirit of the TARGET2-Securities (T2S) project of the eurosystem which encourages CSDs to build links and to compete for cross-border business. “It is possible that ECSDA is concerned that there will be less need for a CSD to establish links with CSDs in other member states given that it could just passport into the relevant member states under the regulation,” comments Tinworth at Stephenson Harwood. “I assume, however, that ECSDA is primarily referring to the numerous requirements in the proposed Regulation relating to “CSD links”. The main requirement is that a CSD intending to set up a “CSD link” would need to apply for authorisation. It does seem as if the proposed requirements will make it more difficult for CSDs to establish links with other CSDs, although, crucially, Articles 48-50 give CSDs the right to have access to any other CSD,” he adds.

However, Tinworth, adds a more nuanced consideration: “It is not correct to say that T2S is intended to encourage CSDs to build links and to compete for cross-border business. T2S is actually encouraging CSDs to build only one link between CSDs – itself. In any event, the Commission has said that it is trying to ensure that the two initiatives are complementary. I can only find one exception in the regulation that is meant for T2S, however, and there are numerous requirements relating to “CSD links” that provide no exceptions for T2S. These may need to be given some further consideration.”

ECSDA also suggests the regulation would introduce new restrictions on the provision of cash and credit for the purpose of CSD settlement. While ECSDA supports the inclusion of strict safeguards in the ­regulation, “we wish to ensure that CSDs currently offering limited banking services can continue to do so in the future and that likewise, other CSDs are allowed to develop such services in response to market need. Limited banking services of CSDs are primarily used to provide liquidity to market participants on a fully collateralised basis and to facilitate settlement in foreign currencies”.

The EU counters, holding that: “The ­objectives of the proposed regulation are consistent with those of T2S, a project launched by the eurosystem to create a common technical platform to support CSDs in providing borderless securities ­settlement services in Europe. The two ­initiatives are complementary: the proposed regulation harmonises legal aspects of ­securities settlement and the rules for CSDs at European level, allowing T2S, which ­harmonises operational aspects of securities settlement, to achieve its goals more effectively”.

Outsource to T2S

Under the scheme national CSDs will outsource part of their role to T2S, which will be operated by the European Central Bank (ECB) and four national central banks (from France, Italy, Germany and Spain); though they will still have some important functions. As Richard Turrell, global head of product at BNP Paribas Securities Services explains, “T2S is not a record keeper; that function will still sit with the CSDs, but the core function of delivery versus payment will be provided by T2S.”

T2S itself is at a critical point, says Turrell, who explains that there is a financial incentive package in place for CSDs signing on by April 2012 for the first wave of adoption. This includes a waiver of the one-off entry fee, no fees for the first three months following the go-live date, from July to September 2015, and after that month, there will be a fee reduction by one-third for the whole price list until the end of the last regular migration wave.  

“CSDs deciding to sign the T2S Framework Agreement for adoption in April 2012 will benefit from reduced prices; then there is another round in June. After then there will be no financial incentives on offer and CSDs will have to sign up at full tariffs. It means that those CSDs that do sign up in either of the first two rounds will have a competitive advantage,” he states. However, he adds, that he thinks that some CSDs are still struggling with the T2S concept; and might not sign up straight away. “It depends on the way that CSDs will manage this interim period and accommodate their business models to suit the new regime,” adds Turrell. “It involves reviews of their coding practices and the way, for instance, that they will decommission their architecture.”

Richard TurrellRichard Turrell, global head of product at BNP Paribas Securities ServicesThe European Central Bank, in an official release, notes that this early bird package is justified because adopters will encounter “teething problems” and will likely need to support the testing activities of CSDs that migrate later. If a CSD signs by June 2012, it will still benefit from the one-off waiver but will not receive other incentives. “The Programme Office is very confident that the CSDs and their markets have understood the benefits of the project and that they need to participate,” the ECB wrote in a recent project update.

Separately, ECSDA is also concerned with limits on competitiveness and says the ­regulation would prevent CSDs from owning and operating subsidiaries offering non-CSD services. Such a measure would force a number of existing CSDs to overhaul their corporate structures, but it is far from certain that these changes will enhance market safety.

In the light of these limitations, however, Belghazi underscores that the association welcomes the proposal, “as a good basis for discussion. We trust that the European legislator will work to improve the current text in a way which allows CSDs to further contribute to enhance the safety, efficiency and transparency of Europe’s financial markets.”

In the short term, the proposed regulation is likely to create more competition between CSDs, with expected benefits for the quality and price of cross-border services. In the medium to long term, the CSD market could become more consolidated and less fragmented. There could be less intermediation for cross-border holding of securities and CSD services, and cross-border settlement will become safer and cheaper. This would translate into lower costs for investors along the whole post trading chain. The expected reduction in the costs of holding and settling securities, especially cross-border, would benefit both issuers, by increasing their ability to raise capital, and investors, by allowing them to place their funds more efficiently. The ­securities market in the EU would therefore become more efficient in supporting the financing of the economy and ­sustainable growth. SMEs, in particular, would benefit from the expected cost reductions since the fees charged by CSDs for the issuance and custody of their ­securities are often proportionally higher than for larger companies.

However, markets will require further clarity on the scope of the regulation and the way that it dovetails into parallel directives and rules governing the trading markets, such as EMIR and MiFID. Questions are still extant on whether CSDs may be subject to the rules of MiFID for certain services they provide, such as the provision of securities accounts and, possibly, collateral management services. It remains for the European Parliament, the EC and member states to clarify, in the context of the current review of MiFID, whether, similarly to banks, CSDs should be exempted from certain rules of MiFID or not.

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