1. Risks in Product Diversification
Ana Giraldo
Associate Director Capital Markets
4th April 2014
© Thomas Murray Data Services 2014
08/11/2018

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. Thank You
© Thomas Murray Data Services 2014
08/11/2018