Customers prefer single points of access to multiple markets and asset classes and so pre- fer using an open architecture infrastructure. Clearstream’s business philosophy is about enhancing interoperability through partnerships rather than targeting consolidation through acquisition. Foremost among the initiatives it has rolled out in support of this strategy are the launch of Link Up Markets by Clearstream Banking AG, Frankfurt, together with seven other European CSDs, the launch of a new generation of settlement capability bringing full interoperability with the major local markets, and the ongoing enhancement of the Bridge settlement link by Clearstream Banking S.A., Luxembourg, with Euroclear Bank.
Clearstream: Committed to T2S, dedicated to innovation in settlement
On 17 July 2008, the European Central Bank (ECB) confirmed that it will be going ahead with the implementation of TARGET2-Securities (T2S). The aim is to provide settlement services in euro central bank money on a single technical platform. The overall objectives – to integrate European financial markets, improve efficiency and reduce risk – are widely shared by all stake- holders. T2S could become the nucleus of change in the European processing landscape.
Securities settlement in central bank money will be fully commoditized, allowing for increased competition between custodians and CSDs in asset servicing and value-added services. How- ever, the benefits for the European capital mar- ket will depend on how T2S is implemented, whether the final objectives can be achieved and how many major markets join and in what way. Clearstream will continue to provide con- structive support to the ECB project team by participating in all subgroups and having senior representatives in the Advisory Group in order to help define and implement T2S in the most efficient way.
Link Up Markets: Optimized interoperability between CSDs
In April 2008, Clearstream Banking AG Frankfurt (Germany), Hellenic Exchanges S.A. (Greece), Iberclear (Spain), Oesterreichische Kontrollbank AG (Austria), SIX SIS AG (Switzer- land), VP Securities Services (Denmark), VPS (Norway) and recently the Cyprus Stock Exchange have joined forces to significantly improve post-trade efficiency and reduce the costs of cross-border business in Europe. Link Up Markets will create a common infra- structure through which the partner CSDs will easily connect with one another and absorb the differences in communication standards that currently exist between them. Thereby it will facilitate the implementation of links between CSD markets and introduce efficient cross-border processing capabilities. By con- necting to the common infrastructure, each participating CSD will have access to the ser- vices of other participating CSD markets across all securities. From a risk perspective, Link Up Markets will implement delivery-versus-pay- ment settlement in central bank money in all participating markets and thereby ensure risk- free securities settlement.
CSD customers will benefit from a single access to 50 percent of the European securities market and receive consistent best-in-class CSD settle- ment and custody services. This central access, based on the existing local CSD infrastructure
Enhancing inter- operability through partnerships
SIX SIS Iberclear VPS VP Securities Services Hellenic Exchanges Clearstream Oesterreichische Kontrollbank
Other CSDs SIX SIS
Iberclear Oesterreichische Kontrollbank Other CSDs VPS VP Securities Services Hellenic Exchanges Clearstream Link Up Markets 39 The Business: Clearstream
Link Up Markets model: Common infrastructure with one interface
Today In future
which customers are already familiar with, trans- lates into reduced cross-border transaction costs and savings from a harmonized set of processes. Link Up Markets has the potential to reduce current cross-border settlement costs by up to 80 percent. The infrastructure is scheduled to be launched in the first half of 2009. Link Up Markets will act as a facilitator both prior to and post T2S implementation: prior to T2S via preparing CSDs and market participants alike for a world with T2S, post T2S via the asset servicing provided by CSDs.
Faster processing: The entire transaction life cycle in real-time
In 2008, Clearstream launched a new-genera- tion processing environment to deliver real-time transaction processing across the full instruction life cycle throughout the daytime settlement period. The scope of services that benefit from these enhancements ranges from instruction validation, matching, domestic market instruc- tion handling and feedback, instruction sequenc- ing, provisioning, and collateral allocation to substitution and customer reporting. Real-time
settlement includes cash netting, securities netting and securities financing that support the market by meeting the demands of the fast- expanding lending and repo market. Real-time settlement at Clearstream is not limited to set- tlement against counterparties who are also customers of Clearstream; it extends to counter- parties settling in the local markets around the world. Clearstream’s capabilities are such that customers now receive feedback on instructions against local markets within 30 minutes through- out the operating day. Consequently, Clearstream has significantly improved settlement deadlines for securities in 36 domestic markets world- wide, cash instruction deadlines for 26 curren- cies including the euro, and corporate action processing in domestic markets. The new- generation processing environment will ensure seamless cross-border settlement interoperability with multiple liquidity pools.
In 2009, Clearstream will focus on further improving the service levels for Asian-Pacific customers throughout their working day.
Joint effort: Further enhancing the Bridge
The electronic Bridge between Clearstream and Euroclear Bank, an electronic link across which securities worth in excess of €80 billion on average are settled every night, was further Existing connections
Significant improve- ments to settlement deadlines
40 The Business: Clearstream
enhanced in 2008. Customers now benefit from improved settlement services between the two ICSDs including
■ extended input deadlines for instructions
■ additional pre-matching and settlement
exchanges
■ faster and more frequent transaction-repair
and fails-management information The interoperability of the Bridge has signifi- cantly contributed to attracting liquidity from new customers. In addition, Clearstream intro- duced an aligned fee structure for internal settlement transactions (transactions between two Clearstream customers / accounts) and Bridge settlement transactions (between Euro- clear and Clearstream). The fee structure no longer distinguishes between an internal and a Bridge transaction and provides large-volume customers with substantial economies of scale. With these initiatives, Clearstream offers cus- tomers the opportunity to settle against counter- parties worldwide, irrespective of the trading and custody location, and as efficiently as if they were internal Clearstream counterparties.
Accuracy in asset servicing
Custody is valuable for market participants, far beyond mere safekeeping. Each time a com- pany issues a dividend, makes an interest pay- ment, or undertakes any one of a staggering variety of capital restructuring events, a wide range of market participants must be informed about it, quickly and accurately. As the capital markets have grown in complexity and volume, Clearstream is challenged to meet this increased demand in a competitive environment that asks for utmost flexibility, but gives no margin for error. This is why Clearstream is determined to focus on achieving excellence in asset servicing and to provide best-in-class custody services for its customers.
In 2008, Clearstream rolled out same-day corpo- rate action notifications and same-day instruction deadlines for customers in twelve key local markets, effectively combining the best of global and local service levels in one facility.
Clearstream also opened an Operations Centre in Prague during 2008, adding reach to and increasing efficiency in its operating capacity. In a first wave, cash processing teams in Frank- furt, securities reconciliation teams in Luxem- bourg and tax services teams in Luxembourg and Frankfurt have benefited from new cost-effective capacity in Prague. Activities from new issues, income, corporate actions and cash processing teams (Luxembourg) have been transferred in early 2009. The transitions were accomplished seam lessly and production in Prague started successfully, reflecting Clearstream’s strength in planning and executing complex projects.
Customer focus recognized in industry surveys
Clearstream’s best-in-class philosophy has been highly valued by industry surveys that measure customer satisfaction. In the annual surveys conducted by Global Custodian maga- zine, Clearstream was once again awarded
■ first place as an ICSD
■ best-in-class in the categories “Cross-Border”
and “Leading Client” with 18 out of 22 awards
■ best provider of triparty repo services to the international securities market in Europe Customers who participated in this survey explicitly commended Clearstream’s flexibility in providing customized solutions.
Further efficiencies in the settlement of transactions
41 The Business: Clearstream