Risks in Product Diversification Ana Giraldo Associate Director Capital Markets 4th April 2014 © Thomas Murray Data Services 2014 08/11/2018
Background CSDs started as back offices of stock exchanges Their core business was related to Safekeeping of physical and book-entry securities Clearing Settlement Additional services were added Registration Asset Servicing Issuer services © Thomas Murray Data Services 2014 08/11/2018 2
Opposite Pressures from Shareholders and Participants How to find a balance for the conflicting interests of stakeholders Shareholders -Increase revenue -Income diversification -willingness to take on additional risk CSD Stakeholders -Reduce risk -Improve efficiencies -Improve STP © Thomas Murray Data Services 2014 08/11/2018
Product and Service Diversification Examples of Value Added Services Capital market Infrastructure Services CCP services (Brazil, Canada) Withholding tax (Peru) Transfer agency services (Chile, Colombia) OTC Derivatives (Brazil, USA) SWIFT Gateway (South Africa, Mexico) Matching (Chile) Collateral Management (Brazil, Euroclear, Clearstream) © Thomas Murray Data Services 2014 08/11/2018
Product and Service Diversification Examples of Value Added Services Financial Market Infrastructure Tax Registry and Accounting (India) National Lien System (CETIP) Supervisory activities (South Africa, Brazil) Proxy Voting (Turkey) Management of Pension System (Latvia) Trustee Services (Pakistan and Azerbaijan) © Thomas Murray Data Services 2014 08/11/2018
Product and Service Diversification Examples of Value Added Services Commercial Global Custody Services (Panama, El Salvador) Subcustody (Chile, Italy) Software development (Argentina, Brazil) Information Services (Brazil, Canada) Fund servicing (Norway) © Thomas Murray Data Services 2014 08/11/2018
Product and Service Diversification Traditional Services Value Added Services El Salvador, Nicaragua, Costa Rica, Jamaica, Colombia, Peru, Egypt, Russia, China, Chile, Canada, UK, Japan, Singapore, Sweden, Finland, Malaysia, South Africa USA, Norway, Euroclear, Clearstream, India France, Germany, Italy, Poland, Hong Kong, Australia, Thailand, Brazil, Mexico, Denmark Proxy Voting (active) Fails Management Securities Lending Sec. Numbering Central Registrar Database services Courier Services Cash Settlement Investor Services Structured Pdts Issuer Services Collateral Mgmt Funds Servicing OTC Derivatives Trade Repository Corp. Actions Paying Agent Info. Services Safekeeping Settlement Matching Clearing CCP © Thomas Murray Data Services 2014 08/11/2018
Risks in Product Diversification Losses caused by related businesses Additional liability as a result of value added services. In pursuit of profit, CSDs may be prepared to take on additional risk Financial Inability to execute new services Problems in another business may affect the CSD’s name Reputational Conflicting regulations in the provisions of different services Conflicting laws in the provision of cross-border services Legal Technical problems Reduction in resources to cope with other businesses Operational There could be conflicting interests from different shareholders Loss of focus on the CSD’s core activities Governance and Transparency © Thomas Murray Data Services 2014 08/11/2018
Risks in Product Diversification Food for thought How can CSDs diversify their revenue stream without increasing the risk for participants? Is it acceptable for CSDs to provide value added services? Do the provision of value added services increase systemic risk? How can regulators reduce the systemic risk posed by CSDs (e.g CSD-R) Can CSDs provide services to the wider financial industry to reduce risk and increase efficiencies? Can CSDs compete with commercial entities or their own participants? Why should CSDs be constrained to provide services to only the financial market and not support the national infrastructure? © Thomas Murray Data Services 2014 08/11/2018
Thank You © Thomas Murray Data Services 2014 08/11/2018