A central securities depository (CSD) is a specialized financial market infrastructure organization holding securities such as shares or bonds, either in certificated or uncertificated (dematerialized) form, allowing ownership to be easily transferred through a book entry rather than by a transfer of physical certificates. This allows brokers and financial companies to hold their securities at one location where they can be available for clearing and settlement. In recent decades this has usually been done electronically, making it much faster and easier than was traditionally the case where physical certificates had to be exchanged after a trade had been completed.
In some cases these organizations also carry out centralized comparison and transaction processing such as clearing and settlement of securities transfers, securities pledges, and securities freezes.
In modern corporate debt markets, investors achieve collateralization through CSDs. The CSDs operate as trustees for the owners of the security whereby the collateral is stored and automatically transferred to the lenders in case of non-performance.[1]
History
Building of the Berliner Kassenverein, ca. 1900
The first recorded CSD was the Wiener Giro- und Cassen-Verein in Vienna, established in 1872.[2]:39 Also in 1872, the Berliner Kassenverein[de] introduced a CSD-like service (German: Giro-Effekten-Depots), discontinued it two years later, and revived it on a permanent basis in 1882.[citation needed] Similarly named Kassenverein institutions subsequently spread in Germany, and under the German occupation of France, also to France in the early 1940s. The United States adopted the CSD model with the creation of the Depository Trust Company in 1973 following coordinated initiatives of the financial industry in the late 1960s. In the United Kingdom, the CREST project was only initiated in 1993, leading to the 1996 creation of CRESTCo as the country's first CSD.
The development of the eurobond market in the 1960s led to the first so-called international CSD or ICSD in the form of the Euroclear System initially developed by the Morgan Guaranty branch in Brussels, started in 1968 and reorganized in late 2000 as Euroclear Bank. In reaction, a group of other banks in 1970 founded a competing entity in nearby Luxembourg, initially called Cedel and rebranded in 2000 as Clearstream Banking SA. At least initially, Euroclear was viewed as largely aligned with buy side interests whereas Cedel was closer to the sell side.[2]:35-37
Scope
A CSD can be national or international in nature, and may be for a specific type of security, such as government bonds.
Domestic central securities depository
Many countries have one domestic CSD that was traditionally associated with the national stock exchange. These organizations are typically heavily regulated by the government and may or may not be separate from the exchanges where trading in securities occurs.
International central securities depository (ICSD)
An international CSD is a central securities depository that settles trades in international securities such as eurobonds although many also settle trades in various domestic securities, usually through direct or indirect (through local agents) links to local CSDs. Examples of international CSDs include Clearstream Banking SA (previously Cedel), Euroclear Bank, and SIX SIS. While viewed as a national CSD rather than an ICSD, the US Depository Trust Company (DTC) does hold over $2 trillion in non-US securities and in American depositary receipts from over 100 nations.
Functions
Safekeeping Securities may be in dematerialized form, book-entry only form (with one or more "global" certificates), or in physical form immobilized within the CSD.
Deposit and withdrawal Supporting deposits and withdrawals involves the relationship between the transfer agent and/or issuers and the CSD. It also covers the CSD's role within the underwriting process or listing of new issues in a market.
Dividend, interest, and principal processing, as well as corporate actions including proxy voting Paying and transfer agents, as well as issuers are involved in these processes, depending on the level of services provided by the CSD and its relationship with these entities.
Other services CSDs offer additional services aside from those considered core services. These services include securities lending and borrowing, matching, and repo settlement, or ISIN assistance.
Pledge - Central depositories provide pledging of share and securities. Every country is required to provide legal framework to protect the interest of the pledger and pledgee.
However, there are risks and responsibilities regarding these services that must be taken into consideration in analyzing and evaluating each market on a case-by-case basis.[3]
CSDs have formed five regional associative bodies with partly overlapping membership: for example, the Central Securities Depository of Turkey (Turkish: Merkezi Kayıt Kuruluşu, MKK) is an associate member of ECSDA and a full member of ACG, AECSD and AMEDA. The five associations, in turn, have formed a global body, the World Forum of Central Securities Depositories.
European Central Securities Depositories Association
The European Central Securities Depositories Association (ECSDA), based in Brussels, was established in November 1997 by 13 founding members.[4] As of early 2025, ECSDA had 32 full members and 8 associate members.[5]
Associate members as of early 2025 were the Registry of Securities (RVP) and Central Registry of Securities JSC Banja Luka (CR HoV RS) in Bosnia and Herzegovina; AIX CSD and KCSD in Kazakhstan; Central Securities Depository AD Skopje in North Macedonia; National Depository of Ukraine (NDU); Central Securities Depository and Clearing House (CR HoV) in Serbia; and the Central Securities Depository of Turkey (MKK).
Asia-Pacific Central Securities Depository Group
The Asia-Pacific Central Securities Depository Group, or Asia-Pacific CSD Group (ACG), was also formed in November 1997.[6] As of early 2025, its membership was as follows.[7]
Americas Central Securities Depositories Association
The Americas Central Securities Depositories Association (ACSDA, Spanish: Asociación de Depósitos Centrales de Valores de América) was formed in 1999, with headquarters in Lima.[6] As of early 2025, its membership was as follows.[8]
The Association of Eurasian Central Securities Depositories (AECSD) brings together a number of central securities depositories (CSDs) in 9 countries of the former Soviet Union as well as India, Indonesia, Iran, Mongolia, South Korea, and Turkey. It was formed in Moscow in 2004, following a series of gathering of its would-be members in the previous three years.[9] As of early 2025, a majority of its members (9 of 16) were simultaneously members of the ACG:[10]
1 2 Peter Norman (2007). Plumbers and Visionaries: Securities Settlement and Europe's Financial Market. London: John Wiley & Sons.
↑ exchange-handbook.co uk article on the risks associated with Depositories, at the Handbook of world stock, derivative and commodity exchanges website.
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