JJ Mois Année

April 2010

I N T R O D U C T I O N

Enhancing the role of the Central Securities Depositaries

R. BOURGI

CONFERENCE AMEDA

227/04/2010

1. The role of the CSD’s

2. What benefits the market participants?

3. Does vertical integration really benefit the market participants?

4. How can Horizontal integration really benefit the market participants?

A G E N D A

327/04/2010

1) A Central Securities Depositary (CSD) is an organization holding securities either in certificated or uncertificated (dematerialized) form, to enable book entry transfer of securities. In general, each country will have only one CSD (although there are some that split equities, fixed-income, and funds into separate CDS’s).

2) Functions Safekeeping Deposit and Withdrawal Dividend, interest, and principal processing, as well as corporate actions including proxy voting Other services CSD’s offer additional services aside from those considered core services. These

services include Securities Lending and Borrowing, Matching, and Repo Settlement Pledge – Central depositories provide pledging of share and securities

3) 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

1. The role of the CSD’s

427/04/2010

─ Operational efficiency – short trade cut offs

─ Risk mitigation

─ Diverse set of instruments

─ Straight through processing with market participants

─ Enhancing returns in a risk free manner

─ Expertise and knowledge of “core services”. Leave the valve ADD to those who have done it for years and have the scale and knowledge and client interphases

─ Transparency and the ability to have more than a single record keeper i.e. custodian & CSD reconciliation

─ Etc…

2. Benefit to market participants from the role of the CSD

527/04/2010

1) Except simple tasks that have no capital implications and does not impact transparency and reconciliation

2) Stick to core services

3) Custodians have for years developed the value add. Play a necessary role and if you take the juice you are minimizing their role and they will only increase their costs to handle the difficult services that CSD’s cannot handle

4) Fail safe securities lending is highly recommended as it enhances returns with minimal risks. Euroclear has done it successfully for years complementing custodians

3. Vertical integration

627/04/2010

— Great initiative if done properly.

EG. MCDR and STRAIT covering ME & African countries respectively

— Gives clients access to a larger set of markets through a central hub. This increases inflows to those markets, reduces their costs in duplicating services, must be a hub and spoke as certain services have to be done local

— Increases the scale of the hubs, this making then more efficient

— Definitely benefit the investor and the custodian

— Need to be careful not to impair the role and the profitability of the single CSD !!!

4. Horizontal integration