Clearstream introduces DVP settlement solution in Russia


Clearstream introduces DVP settlement solution in Russia

http://www.atmonitor.co.uk/news/newsview.aspx?title=clearstream-introduces-dvp-settlement-solution-in-russia

Published on   May 30, 2013

As momentum continues in the reform of Russia’s capital markets, Clearstream is keeping pace and is supporting the set-up of an effective settlement framework by delivering its improved settlement solution and introducing municipal bonds via its direct link to the new Russian Central Securities Depository (CSD), the National Settlement Depository (NSD).

This week, Clearstream goes live with its new delivery versus payment (DVP) settlement solution – the market’s preferred settlement choice since it is more efficient, more secure and offers more real time settlement compared to the free of payment (FOP) option. For DVP settlement, a clear link is established between a securities transfer system and a funds transfer system that ensures delivery occurs only as and when payment occurs. This move by Clearstream is helping to pioneer a shift within the market from its current system of settling in cash batches, to a system which is closer to real-time settlement. The extent to which real-time securities settlement becomes a real possibility will still depend on the decision by Russian market participants to move away from the batch system for local cash transfers.

Clearstream this week also introduces Russian municipal and regional bonds for settlement via the NSD and extends settlement deadlines for its free of payment (FOP) settlement service by several hours (from 13:55 to 17:20 CET summer time). These steps reflect good pace in Clearstream’s – and the wider market’s – settlement and custody services development since the establishment of the NSD as CSD for Russia at the end of last year. As a next milestone, Clearstream plans to introduce settlement for Russian corporate bonds and to enhance its access model for Russian equities as soon as local legislation allows for this.

Jeffrey Tessler, Chief Executive Officer of Clearstream, said: “I am delighted we keep developing and enhancing our settlement and custody services in the Russian market. Our new delivery versus payment settlement solution is an exciting milestone as it helps pave the way for the Russian market to move more towards a real time settlement environment, keeping up with other capital markets around the world as part of Russia’s capital market reform.”

Eddie Astanin, Chairman of the Executive Board, National Settlement Depository, commented: “Switching to delivery versus payment (DVP) using the link between the National Settlement Depository and Clearstream will create additional opportunities for foreign investors who conduct transactions with Russian fixed income instruments. We are happy to see a high rate of technological development of Clearstream’s link, which in turn is contributing to the development of the national infrastructure and, as a consequence, makes the Russian financial market more attractive and competitive.”

Clearstream’s services in Russia

Clearstream offers a comprehensive service taking full advantage of the new Russian securities law and market infrastructures refocus, including custody and settlement for the following instruments:

Equities – held in omnibus form via Clearstream’s local agent bank Deutsche Bank Moscow’s link with the NSD and deliverable free of payment (FOP) in the local market;

OFZ bonds and municipal bonds – held in omnibus form via Clearstream’s own direct link with the NSD;

Delivery versus payment (DVP) multicurrency settlement against all Clearstream Banking Luxembourg and Clearstream Banking Frankfurt international central securities depository customers;

Delivery versus payment (DVP) settlement against all NSD counterparties in Russian rubles for OFZ bonds and municipal bonds.

What the ICE/NYSE Merger Means for the Industry courtesy of the TABB Group


With each passing day, the acquisition of NYSE Euronext by ICE seems more likely to receive final approval. Here are 5 ways the deal will impact the capital markets.

February 15, 2013, marked the end of the Hart-Scott-Rodino Act waiting period in the acquisition of NYSE Euronext by IntercontinentalExchange(ICE). With each passing day, the acquisition seems more likely to receive final approval. As we await the next phase of regulatory approval from the SEC, we wanted to share a few thoughts on how we believe the acquisition will impact current clearing, reporting and trading operations, as well as how the two exchanges can benefit from the merger.

1. Need for Physical Trading Floor

The future format of the NYSE trading floor seems to be on the minds of everyone. There are analyst speculations that ICE’s CEO, Jeffrey Sprecher, will close the trading floor, as was done to the New York Board of Trade in 2012 four years after it was acquired by ICE. However, according to interviews, Sprecher has expressed intentions to keep the physical trading floor intact.

[Related: “It May Be ‘Bye-Bye to the Big Board,’ But the NY Times Should Get Its Story Right”]

Both companies have robust electronic trading, and Sprecher has acknowledged the value of NYSE’s legacy in voice brokering. As technology continues to dominate the exchange space, there has been recognition of the value of voice brokering (by which the NYSE is defined). The market has ironically become too complex to rely only on computer-to-computer trading, showing the physical trading floor still provides an intrinsic value in keeping an orderly marketplace.

2. Impact on Clearing

US-based firms that are major players in the derivative space will benefit by having a local trading and clearing venue, through reductions in clearing costs and operational risks. Typically, coordinating multiple back-office processes and reconciliations between the US and UK calls for duplicate efforts, resulting in back-to-back bookings to flatten balance sheets and delays in handling breaks; having the ability to manage these operational processes will make for a more efficient process.

Title VII of the Dodd Frank Act, which requires central clearing for certain derivatives contracts, has limited NYSE’s presence in the US-based interest rate swaps clearing business. Currently, the NYSE has a small presence in the US-based interest rate swap clearing business, due to a lack of access to a central clearinghouse, now mandated by the Dodd-Frank Act. Through the acquisition, NYSE will be able to benefit from ICE’s presence in European fixed income derivative trading and clearing.

3. Impact on Market Participants

Reductions in clearing costs can translate into cost savings for market participants. Just last year, ICE had to increase its trading and clearing fee due to “regulatory burdens,” and with the merger of NYSE Euronext, ICE will also have to compete with other exchanges on transaction costs. Even if fees increase after the merger, market participants would still fare better than if the two companies operated independently. This newly merged exchange will be able to offer a larger array of products and services, so that market participants can look to fewer companies for trading execution and clearing services, thereby decreasing expenses associated with initial client on-boarding.

4. Impact on Reporting

NYSE’s core data products make U.S. market data free and available, using consolidated tapes, giving transparency to last-sales price and quotes. It also sells its non-core data products to analytics traders, researchers and academics. ICE will be able to leverage NYSE’s experience in data reporting, as it looks to setup its own swap data repository (SDR), in order to meet CFTC mandates for real time swap reporting.

[Related: “Commissioner O’Malia Talks Derivatives Reform: Assessing and Improving the Change”]

ICE has already set up a registered SDR — and the ICE Trade Vault, which will offer both recordkeeping and reporting services for credit default swaps. However, as reporting requirements go live for additional asset classes, it will be necessary to offer data recordkeeping and reporting services to these as well. This is where NYSE’s existing core data products can benefit ICE.

5. Benefits in Merging of Exchanges

Although ICE and NYSE’s product offerings differ vastly, the functions of trading, clearing and settlement demands often overlap, and both are registered with the CFTC as designated contract markets. Efficiencies can be gained when these two exchanges tackle the requirements in swaps reporting and recordkeeping, external business conduct rules and documentation standards in this era of heightened standards for SIFI. As regulatory mandates increase the operating costs for exchanges, it is becoming prudent to explore additional mergers.

SEC amendment to Custody Rule 206(4)-2 creates need for Private Custody Services Example below)


OAK BROOK, IL–(Marketwire – Mar 20, 2013) – Millennium Trust Company, a leading financial services firm specializing in the custody of alternative investments and private fund assets, announces it has reached $1 billion in fund assets under custody in less than two years of launching the firm’s Private Fund Custody service. With efforts to deter fraud, safeguard client assets and provide further transparency, the Securities and Exchange Commission (SEC) made amendments to the Custody Rule 206(4)-2 under the Investment Advisers Act of 1940 resulting in a new need for private fund advisors to engage the services of an independent qualified custodian. Although the amended rule has been in effect for quite some time, many advisors to private funds are still unsure as to which assets are required to be held with a qualified custodian.

As the SEC continues to ramp up its examination process, advisors are gaining a better understanding of how the custody rule applies to their practice and are actively searching for a qualified custodian who can address their specific custody needs. Earlier this month, the SEC issued a risk alert stating that one-third of the advisory firms examined showed significant deficiencies involving advisor custody and safety of client assets. Millennium Trust’s service can effectively address each specific custody need to funds that range in value from a few hundred thousand dollars to funds steadily growing towards one billion dollars in value. Leveraging over a decade of experience in alternative asset custody, Millennium Trust is the only specialized custodian to provide a scalable, customizable and cost effective solution to private fund advisors.
“We recognized early on that if we took a proactive approach and capitalized on our expertise, we could effectively address the unique custody needs of advisors to private funds and help reduce the burdens those fund managers faced as a result of the amended custody rule,” states Sandra Reese, SVP and Private Fund Custody Manager at Millennium Trust.
Millennium Trust’s qualified custodian service has also attracted firms that are developing alternative investment products based on peer-to-peer lending and private equity investing through various crowdfunding platforms.
“A large financial institution suggested that we speak with Millennium Trust regarding our unique custody requirements. We were delighted to discover a qualified custodian willing to collaborate with us to create tailored solutions that addressed both our immediate and future custody needs,” stated Carrie Dolan, CFO of LC Advisors and Lending Club, a leading platform for investing in and obtaining personal loans.
In this current regulatory environment, advisors can greatly benefit from Millennium Trust’s Private Fund Custody service as it is designed to meet the specific custody and reporting needs defined by regulation while offering scalable service solutions, customized pricing and dedicated senior account managers. Millennium Trust only foresees robust future growth of their Private Fund Custody service as the need for advisors to offer investors an extra level of asset protection continues to increase and the services of a qualified custodian effectively provide all parties with a beneficial solution.

About Millennium Trust Company:
Millennium Trust Company is a leading financial services firm offering niche alternative custody solutions to institutions, advisors and individuals. We serve as a complement to traditional services offered by other custodians. Our innovative solutions include alternative asset custody, rollover solutions, private fund custody and advisor services. Additional information about Millennium Trust Company may be found at http://www.mtrustcompany.com.
Millennium Trust performs the duties of a custodian and, as such, does not provide investment advice or sell investments, nor offer any tax or legal advice.

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