The Roles and Risks of European Central Security Depositories

Jens-Hinrich Binder and Paolo Saguato (eds), Financial Market Infrastructure: Law and Regulation (OUP, 2021)

37 Pages Posted: 22 Dec 2020 Last revised: 14 Jan 2022

See all articles by Eilis Ferran

Eilis Ferran

University of Cambridge - Faculty of Law; European Corporate Governance Institute (ECGI)

Eleanore Hickman

University of Bristol

Date Written: August 10, 2020

Abstract

International Central Securities Depositories ((I)CSDs) play a critical role in fostering financial stability and the efficient operation of the financial system. They were established for the purpose of reducing risk and increasing efficiency by immobilising securities certificates, acting as a central reference point for the entire financial market.

Perhaps more than most Financial Market Infrastructures, the operation of (I)CSDs is widely unseen and poorly understood, occupying a backstage role in the financial markets. Yet the impact of (I)CSD disruption or failure would be severe. The annual volume of transactions settled by the European complex (I)CSD groups (the primary focus of this paper) alone exceeds global GDP by many multiples, making the scale of what is at risk is hard to exaggerate.

(I)CSDs are situated at key intersections of the securities markets whilst also being closely connected to the money markets. They form part of complex networks that bring together custodian and investment banks, central banks, funds and other financial institutions. There is much about the role, business models and systemic risks posed by (I)CSDs that may benefit from scrutiny. The objective of this paper is to lay the foundations for a better understanding of (I)CSDs though a consideration of their role, the risks they pose and how those risks and related responses can be distinguished from those of central counterparties. In addition, the paper sets out an agenda for the continuation of this research process. Without further research, (I)CSDs will remain mysterious and, given that they are in a unique position to rapidly transmit failure throughout the financial system, neglecting to unravel the mystery could prove dangerous.

Keywords: central securities depositories, financial market infrastructures, financial stability, securities, systemic risk

Suggested Citation

Ferran, Eilis and Hickman, Eleanore, The Roles and Risks of European Central Security Depositories (August 10, 2020). Jens-Hinrich Binder and Paolo Saguato (eds), Financial Market Infrastructure: Law and Regulation (OUP, 2021) , Available at SSRN: https://ssrn.com/abstract=3708936

Eilis Ferran

University of Cambridge - Faculty of Law ( email )

10 West Road
Cambridge CB3 9DZ
United Kingdom
+ 44 1223 338335 (Phone)
+ 44 1223 338340 (Fax)

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Eleanore Hickman (Contact Author)

University of Bristol ( email )

36 Tyndall's Park Road
Bristol, Avon BS8 1TB
United Kingdom

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