Disclosure Framework for
Securities Settlement Systems
Table of Contents
Introduction ... 3
I. Basic information ... 4
II. Rules and procedures of the SSS ... 13
III. Relationships with participants ... 16
IV. Relationship with other SSSs and commercial intermediaries ... 21
V. Securities transfers, funds transfers and linkages between transfers ... 24
VI. Default procedures ... 35
VII. Securities overdrafts, securities lending and back-to-back transactions ... 41
VIII. Risk control measures ... 46
IX. Operational risks ... 53
Introduction
The following document consists of the responses made by Depozitarul Central to the Disclosure Framework for Securities Settlement Systems. The Disclosure Framework was developed under the auspices of the Committee on Payment and Settlement Systems and the International Organization of Securities Commissions.
The sections below are intended to elicit important information from SSSs in the areas of organizational structure and market context, ownership arrangements, rules and procedures, relationships with participants, links to other SSSs and intermediaries, procedures for funds and securities transfers, default procedures, settlement of back-to back transactions, risk control measures and operational risks.
Consistent with the purpose of the Disclosure Framework, Depozitarul Central’s response provides only a general overview on how Depozitarul Central approaches certain risk management issues. Therefore, this document should not be relied upon Depozitarul Central participants or others as a complete discussion of these matters.
The present Depozitarul Central’s “Disclosure Framework for Securities Settlement Systems” is drafted in line with CPSS – IOSCO Recommendations disclosure template in force before the end of 2012.
I. Basic information
This section addresses a number of fundamental features of the SSS, and provides the market context for its operation. The questions establish the basic functions of the SSS, including the securities for which it provides settlement services, as well as whether the SSS offers other services. Questions on the organizational and ownership structure of the SSS elicit information on its legal basis and corporate governance.
A wide variety of organizational structures and business functions are possible for SSSs. For example, systems may be owned by central banks, by their participants or by an independent private sector entity that may or may not be operated for profit. It is helpful to distinguish the type of ownership, the organizational and decision making structure of the SSS and the financial resources of the SSS, as well as the supervisory oversight to which the system is subject, as a first step in clarifying the respective responsibilities of all relevant parties.
A. What is the name of the SSS?
Name of the Romanian SSS: DEPOZITARUL CENTRAL S.A.
Short name: DEPOZITARUL CENTRAL
B. Where and in which time zone is the SSS located?
DEPOZITARUL CENTRAL is located in Central-Eastern Europe, Bucharest, no. 34-36 Carol 1 Boulevard, Floor 8, District 2, Bucharest 020922, Romania.
The applicable time zone is Eastern European Time (EET) that is GMT+2 hour standard.
C. What functions does the SSS perform?
Depozitarul Central provides safekeeping, settlement and registration services for securities traded on the regulated markets or alternative trading systems. It also performs other collateral operations in accordance with the Law 297/ 2004 regarding the capital market, acting also as the administrator of the settlement securities payment system which ensures the clearing of funds and the settlement of trades, according to the National Bank of Romania (NBR) regulations. As Association of National Numbering Agencies (ANNA) member, Depozitarul Central is the sole institution within Romania authorised to allocate and manage International Securities Identification Number (ISIN) and Classification of Financial Instruments (CFI) codes.
Depozitarul Central provides clearing and settlement services for the following trading venues: - Bucharest Stock Exchange (regular spot market)
- Alternative Trading System (ATS) which has two components: local and international
- RASDAQ
- Unlisted market
Additionally, Depozitarul Central provides cross-border settlement and custody services (both for local and foreign investors) and also provides registry and paying agent services for several issuers. For cross-border operations, Depozitarul Central has established direct/indirect DvP links with 20 markets, in 13 different currencies.
1. Does the SSS serve as a securities depository and/or provide securities settlement services?
Depozitarul Central serves as securities depository and provides securities settlement services for the stock exchange and also off-exchange market.
(a) What types of instrument are eligible for deposit at the SSS (e.g. debt, equities, warrants, etc.)?
The following instruments are eligible for deposit at Depozitarul Central: equities, subscription and pre-emptive rights
debts instruments (government securities, municipal and corporate bonds) investment fund, exchange traded funds (ETFs)
index certificates, structured products
All securities issued to the public in Romania are eligible for deposit at Depozitarul Central. In general, foreign securities in book entry form are also eligible but acceptance is subject to the issue’s eligibility at one of Depozitarul Central’s foreign depository service providers (Clearstream Banking Luxembourg, Citibank London UK).
(b) What types of instrument are eligible for transfer within the SSS?
All securities eligible for deposit are also eligible for transfer within Depozitarul Central; see C1.a).
(c) Please describe whether eligible securities are dematerialised, immobilised or transferred physically.
Depozitarul Central processes exclusively dematerialised securities and transfers by book-entry. Financial instruments issued in materialised form will be immobilised and dematerialised before registering them in Depozitarul Central’s system.
(d) Does the SSS provide safekeeping for physical certificates?
No, Depozitarul Central does not provide safekeeping services for physical certificates.
2. Does the SSS provide cash accounts and/or provide funds transfers in conjunction with securities transfers? If so, in what currencies?
Depozitarul Central does not provide cash accounts.
Payment (settlement) banks must have their RON cash accounts directly with the Central Bank (NBR), so in their case the cash leg of settlements (credits/debits) is performed on these NBR accounts. NBR, which owns the national electronic payment system (ReGIS), acts as Depozitarul Central’s agent for the transfer of funds between payment (settlement) banks.
Depozitarul Central is able to directly instruct the payment of funds through the RTGS system (ReGIS) managed by the NBR.
Also, Depozitarul Central provides limited cash services in other currencies for all participants primarily in connection with cross-border transactions.
3. Does the SSS provide a trade matching service? Do others provide such services for securities settled in the SSS?
Yes, Depozitarul Central matches FOP and DVP settlement instructions of off-exchange trading between Depozitarul Central’s participants for off-exchange transactions. On receipt of a settlement instruction from a Depozitarul Central’s participant, mandatory fields are compared against those entered by the counterparty (e.g. trade date, identification of securities and counterparties, total amount, settlement day, etc.). If they do not match then the trade will not be considered for settlement and will be reported as unmatched. This will be reflected to customers on various reports sent by Depozitarul Central via the RoClear Connect or RoClear SWIFT communication channels.
Depozitarul Central also performs the settlement of securities trades concluded on the Bucharest Stock Exchange, but receives already matched transactions so it is the Exchange itself who performs the matching.
4. Does the SSS provide a trade netting service (as distinct from undertaking the settlement of securities transfers on a net basis)? Do others provide such services for securities settled at the SSS? In either case, what types of netting (bilateral or multilateral), if any, are performed?
Depozitarul Central provides netting services on the cash leg of settlement at the participant level while the security leg of settlement is settled on a gross basis. Depozitarul Central is the sole provider of trade netting services for all transactions concluded on the Exchange.
Off-exchange transactions are settled on a gross basis.
5. Does the SSS offer a securities lending or borrowing programme?
Depozitarul Central offers a securities Borrowing & Lending service beginning of 2011. All securities loan operations are based on a contract drafted according to “Global Master Securities Lending Agreement” (GMSLA). The collateral management, and its evaluation, is performed by Depozitarul Central, as agent, or by the participants to the RoClear system, depending on the type of entities performing the lending. Depozitarul Central verifies that the securities submitted as collateral comply with the eligibility criteria.
6. Does the SSS provide custodial and/or related services such as the collection of interest, dividends, principal or withholding tax reclamation? Which type of service are provided?
Depozitarul Central is authorised to perform central security depository services, notary and central maintenance services with reference to all financial instruments admitted into the system.
In addition, it provides corporate actions services for issuers of financial instruments, general meeting and other communication services related to the exercise of shareholders’ rights. For the processing of dividends, the issuer can choose Depozitarul Central or other entity (an agent). The Dividend National Service, launched by Depozitarul Central, began operations in July 2010 enabling a more efficient dividends payment.
7. Does the SSS act as a central counterparty or principal to transactions with its participants?
Depozitarul Central does not act as a CCP or as a principal. There is no CCP for spot market in Romania.
8. Other? Please specify. Not applicable.
D. What type of organization is the SSS?
Depozitarul Central is a joint stock company and it is 69% owned by the Bucharest Stock Exchange (BSE). Depozitarul Central provides safekeeping, settlement and registration services for securities traded on the BSE or on alternative trading systems. Depozitarul Central also performs other collateral operations in accordance with the Law 297/ 2004 regarding the capital market, and also acts as the administrator of the securities settlement system which ensures the clearing of funds and the settlement of trades, according to the NBR regulations. The Central Depository’s system is called RoClear (Romanian Clearing – Settlement, Custody, Depository and Registry System).
Depozitarul Central started its activity on January 3rd, 2007. Since 2007, Depozitarul Central Central took over clearing-settlement, custody, safekeeping and registry operations from the Bucharest Stock Exchange, SNCDD depository and the independent registrars, thus offering one single point of access for the participants (brokers and custodian banks) and trading venues to the post-trading operations in the Romanian capital market.
1. Please indicate whether the SSS is a public sector or private sector entity. Depozitarul Central is a private sector entity.
2. Please indicate whether the SSS is organised on a for-profit or a non-profit basis. Depozitarul Central is organised on a for-profit basis.
3. What is the legal basis for the establishment of the SSS and for securities transfers made through it?
Law no 297 of June 28th
, 2004 of the capital market (Capital Market Act) Law no. 253 of June 16th
, 2004 on settlement finality in payment and securities settlement systems
Regulation no. 13/2005, regarding the authorization and the functioning of the central depository, of the clearing houses and central counterparties issued by Romanian National Securities Commission (presently, Financial Supervisory Authority)
Regulation No 1/2005 issued by the National Bank of Romania
The Law 297/2004 provides the post-trading activities to be externally of the stock exchange and the establishment of Depozitarul Central.
Securities transfers are governed by the above mentioned acts and the Rulebook of Depozitarul Central approved by Financial Supervisory Authority “FSA” (in Romanian Autoritatea de Supraveghere Financiara) and NBR.
E. Please describe and provide a diagram outlining the organizational and ownership structure
of the SSS.
The organizational structure of Depozitarul Central is as follows:
Board of Governors
CEO CEO’s Secretariat
Settlement Operations Manager
Settlement & Risk Management Department Cross-border Operations
Department Members&Settlement
Strategies, Development and
Communication Manager Financial Manager
Strategies and International Relations Department New Products Development
Department
Financial and Accounting Department Administrative Department
Legal Manager IT Manager
Sales Department
Administr,Security Policies &CommunicationsDepartam ent Administrare, Politici Securitate si Comunicatii
Development IT System Department
Counselors
Human Resources
Legal Departament Compliance Departament
Public Relations and Deputy General Manager
Registry Operations Manager
Registry Operations Issuer Department Registry Operations
Participants DepartmentaHolders&Detin
atori & Arhiva Registry Customers Relations Department
Audit and Internal Control Department
1. Who are the owners of the SSS? Depozitarul Central is owned by:
The Bucharest Stock Exchange (69%) Major issuers (19%)
Credit institutions, investment firms and others (12%)
2. What entity or entities operate the SSS? Which functions of the SSS, if any, are outsourced to third parties?
Depozitarul Central operates its own system. Depozitarul Central uses service suppliers such as communications networks to support Depozitarul Central’s provision of services to its customers.
3. Does the SSS have a Board of Directors? Yes, Depozitarul Central has a Board of Directors.
(a) What is its composition?
The structure of the Board of Directors is determined by the shareholders, who made the proposals, according to the Company Law 31/1990 republished and updated. The General Meeting of shareholders of Depozitarul Central elects the Board of Directors.
There are 9 members of the Board of Directors. All are non-executive members. Currently, the Board of Directors members represent the local participants, investment firms and credit institutions. All members must be authorised by the FSA after their election by the General meeting of shareholders of Depozitarul Central.
(b) What are its responsibilities?
The following matters shall fall within the main competence of the Board of Directors:
notifying the FSA regarding any breach of Capital Market Law of the regulations issued by the National Securities Commission/FSA and the rules of Depozitarul Central, as well as the measures taken in this respect.
supervising the activity of the Depozitarul Central’s Managers
adopting IT security and control mechanisms in order to keep safe the stored data and information, the files and databases, including in case of special events
appointing, dismissing and deciding the salary of the Depozitarul Central’s Managers, also approving their job description
checking the compliance with the integrity and professional experience requirements by the persons with management or control positions within the Depozitarul Central
adopting the Company’s draft budget, presents the Board of Directors’ report
deciding the Company’s main activity and development directions and submits them to the Ordinary General Shareholders Meeting for approval
deciding the accounting and financial control system and approves financial planning The daily management of Depozitarul Central is delegated by the Board of Directors to the Executive Management, which determines and co-ordinates the day-to-day management of the different departments.
F. Please describe the financial resources of the SSS. 1. Amount of paid-in capital and retained earnings?
As at 31 December 2013, the share capital of Depozitarul Central is RON 25.29 million consists of 252.919.526 ordinary shares with a nominal value of RON 0.1 per share, all fully paid.
Depozitarul Central’s own financial resources at year-end 2013 consist of shareholder equity of RON 29.17 million (EUR 5. 56 million) broken down into:
Share capital - RON 25.29 million Reserves - RON 1.13 million
Share premium – RON 1.10 million
Revaluation differences - RON 1.6 million
2. Guarantees, insurance coverage or other similar arrangements?
Depozitarul Central has insurances that cover both IT equipment, data loses and directors and officers.
Depozitarul Central has no agreement for credit lines or letters of credit.
4. Powers to assess participants or equity holders?
Pursuant to law and under its rules, Depozitarul Central is entitled to assess and verify that the participants have sufficient economic operating conditions.
G. Please describe whether the SSS or its operator is subject to authorisation, supervision or
oversight by an external authority.
Depozitarul Central is authorised, regulated and oversight by the Financial Supervisory Authority (FSA) and the National Bank of Romania (NBR). Following its internal rules, the FSA carries out planned and targeted inspections of the Depozitarul Central operations and their compliance with laws and regulations.
II. Rules and procedures of the SSS
It is important that SSSs have clear rules and procedures governing all major aspects of their operations. If participants have access to these rules and procedures, they will be able to form clear expectations about the actions of the SSS and will be able to use their understanding to make decisions on that basis. This is particularly important with regard to the resolution of failures to settle or other potential disruptions to the operation of the SSS.
The rules and procedures also typically describe the structures and processes for taking decisions that are at the core of any organization’s corporate governance. For SSS operators, the integrity of the decision-making processes and the means for communicating decisions is important to the level of confidence participants have in the system’s ability to manage risk fairly and effectively.
The questions below focus broadly on how participants can obtain copies of the SSS’s rules and procedures, how participants can provide input to the rules and procedures, how they are notified of changes, the applicability of the rules and procedures to the SSS as well as its participants, and the circumstances under which the rules and procedures can be overridden. Taken together, the questions are intended to provide participants with an understanding of the role that the system’s rules and procedures play within the operation of the SSS.
A. Does the SSS maintain a complete list of the rules and procedures governing the rights and
obligations of participants and the duties of the SSS?
The rights and obligations of Depozitarul Central’s participants are determined in the Rulebook of Depozitarul Central. The relation between participants and Depozitarul Central is governed by contractual agreements. Standard agreements are published on the company website.
Depozitarul Central had implemented all necessary internal procedures related to its own duties and in relation with the rights and obligations and duties of the participants. The internal procedures are revised and updated on regular basis and every time is necessary. The most relevant aspects, with direct impact on the rights and obligations of the participants, are provided in the Depozitarul Central Rulebook, published on the company website.
1. How can participants obtain a copy of the rules and procedures?
The Rulebook is available from Depozitarul Central’s proprietary communication system, its official website www.depozitarulcentral.ro, or directly from the company both in Romanian and English.
Before becoming a Depozitarul Central’s participant, customers are provided with all necessary documentation.
2. Does other documentation provided to participants (e.g. user guides) have the same status as the rules and procedures?
Yes. Other documentation (for example technical procedures) provided to participants does have the same status as the Rules.
3. Describe the process for changing rules and procedures, including any need for regulatory approval.
(a) What authority is required, and how does this differ depending on the type of change involved?
Depozitarul Central’s Rulebook is subject to the approval of the Board of Directors, Financial Supervisory Authority (FSA) and the National Bank of Romania (NBR). In case of amendments there is the same approval procedure to be followed.
(b) How are participants notified of changes in rules and procedures?
All amendments are published through Depozitarul Central’s proprietary communication channel and website. The amendments of the Rulebook are also published in the FSA Official Gazette.
(c) Is there a procedure for participants or others to comment on proposed rule changes?
Depending on the type of rules or procedures being amended and on the urgency of the change, participants may or may not be able to comment on changes prior to their becoming definitive.
The securities players participate in users groups like National Market Practice Group (RO NMPG), Romanian Market Implementation Group (RO-MIG) and T2S Romanian National User Group (RO-NUG). According to the topic of each user group, the key - staff of investments firms, custodian agents and issuers are involved in the setting up the market practices for settlement and reconciliation, corporate actions and in the implementation of European Standards in the Romanian market.
B. Are the rules and procedures binding on the SSS as well as its participants? Under what
conditions and on whose authority can written rules and procedures be waived or suspended by the SSS?
Rules and procedures are binding on both Depozitarul Central and its participants.
Since all the applicable rules and procedures issued by Depozitarul Central are prior approved by FSA and/or NBR, all the waivers or suspension period should be submitted to the same authorities before entering in force. Usually, these measures are considered when transitional periods are needed in order to implement new rules, standards or other technical developments as a result of changes in the secondary legislation.
III. Relationships with participants
In evaluating SSSs, it is essential that participants understand the nature of the relationships that the systems have with their participants. The different types of membership that are available as well as the requirements for admission as a participant should be understood. A knowledge of the account structure of the SSS is also important for an informed evaluation of the system. Participants should understand whether this structure allows or require the segregation of their customers’ cash or securities in separate account or sub- accounts at the SSS.
This section addresses the issues as well as the procedures for and consequences of terminating participation in the SSS. Because of loss-sharing or other arrangements, termination of membership may not extinguish all obligations of participants with respect to the SSS. General limitation on SSS liability to participants are the subject of the final question in this section. These questions are obviously important in enabling participants to establish the magnitude of their exposures to different risks associated with the SSS.
Although these questions provide the basic framework of the relationship between participants and the SSS, many of the most important aspects of these relationships concern the resolution of failures to settle or events of default. Specific questions on these topics are discussed in Section VII below.
A. Please describe the types of membership offered by the SSS.
Depozitarul Central’s participants and members are of the following types: intermediaries (investment firms and credit institutions), custodian agents, payment (settlement) banks, CSDs, central banks.
There are also issuers which are clients of Depozitarul Central but are not considered members in this sense.
1. How do the types differ?
Payment (settlement) banks are credit institutions authorised by the NBR or by another supervision authority of another member state which participate in the funds settlement of transactions with securities carried out within the trading systems and where intermediaries (investment firms as participants to the clearing-settlement and registry system managed by Depozitarul Central) are holders of cash settlement accounts.
Intermediaries are participants to the clearing-settlement and registry system and are defined according to Law 297/2004 regarding the capital market, art. 2, point 14, which concluded a contract for participating to Depozitarul Central’s system.
Custodian Agents are intermediaries registered in the FSA Register, intermediaries section, the object of activity of which includes the service mentioned at art. 7 par. (1) point 6, letter a) of Government Emergency Ordinance no. 99/2006, approved by Law no. 227/2007, carrying out securities custody and administration services for clients that empowered it accordingly and that concluded a contract for the participation to Depozitarul Central ’s system based on the specific custody regulations issued by Depozitarul Central.
2. Within each membership category, are all participants subject to the same rules and procedures? Please describe important exceptions, including both differences in rules across participants and the rationale for these differences.
All members within the same membership level are subject to the same rules and procedures.
B. Can participants establish accounts for their customers’ assets that are segregated from
their own asset accounts at the SSS?
Participant’s asset accounts are segregated from their customers’ asset accounts.
1. If so, is this accomplished through a single omnibus customer account or through a multiplicity of accounts and/or sub-accounts?
The direct participants in the Depozitarul Central system (i.e. intermediaries and custodians) open proprietary and client global accounts at the Depozitarul Central level. The sub-accounts of global accounts in the name of participant’s clients are opened at the participant level.
2. Is the segregation optional or compulsory?
The segregation between proprietary and client assets is compulsory by law.
3. Does the fact that a sub-account at the SSS bears the name of a third party give any rights to that third party as a participant under the rules of the system?
There are no sub-accounts at the SSS. Depozitarul Central does not recognize this type of indirect relationship with such third parties.
C. Please describe participant requirements for each type of membership.
1. Are participants required to be domiciled or resident in a particular jurisdiction? Participants are not required to be domiciled or resident in a particular jurisdiction.
2. Are participants required to be subject to a supervisory regime? If so, please describe. The primary criterion of membership within Depozitarul Central is a valid license from a relevant supervisory authority. The FSA cooperates with supervisory bodies of the EU Member States for the supervision of companies providing investment services resident in the EU offering services in Romania.
Intermediaries have to be authorized by the FSA and Depozitarul Central, or registered in the FSA Public Registry and authorized by Depozitarul Central.
3. Are participants required to hold an equity stake in the SSS?
No, there is no requirement for its participants to hold an equity stake in Depozitarul Central. 4. Are there financial, economic, personal or other requirements (e.g. minimum capital
requirements, "fit and proper" tests)? If so, please describe.
Depozitarul Central membership is open to any party that is eligible for membership according to the law.
When an institution applies for becoming Depozitarul Central’s participant it has to meet a list of criteria (operational, technical, minimum capital requirements etc) such as:
• technical terms requested by Depozitarul Central (hardware and software minimal configuration), respectively the minimal technical requirements in order to run the client application of Depozitarul Central’s system
• at least two agents participating in the clearing-settlement and registry system authorized by Depozitarul Central;
• paying the fee for admission as Participant;
• concluding of a set of standards documents made available by Depozitarul Central (e.g.: the contracts)
• paying the contribution to the Guarantee Fund and submitting the margin according to the provisions of Depozitarul Central’s Rulebook;
• concluding of a settlement contract with a clearing participant (if the case maybe);
• the intermediaries intending to obtain the quality of custodian agent must have a share capital amounting to at least the equivalent of EUR 2,000,000.
The intermediaries contribution to the Guarantee Fund is 3% applied to the value of their equity capital but no more than 10,000 EUR. Custodian agents’ contribution to the Guarantee Fund is a fixed amount of 20,000 EUR.
Settlement banks:
In order to be admitted by Depozitarul Central as a settlement bank, the applicant credit institution must submit to Depozitarul Central the following documents:
a) admission application;
b) copy of the authorization issued by NBR;
c) copy of the participation contract to the ReGIS system;
d) copy of the contract for collateral pledge and execution concluded with the NBR; e) copy of the Registration Certificate;
f) copy of the IBAN account for the billing account;
g) settlement contract concluded with Depozitarul Central, signed by the legal representatives of the requesting institution;
h) signature specimens page for at least two persons authorized to sign the correspondence with Depozitarul Central;
i) payment order that proves the payment of fees established by Depozitarul Central.
D. Does the SSS engage in oversight of its participant’s to ensure that their actions are in
accordance with its rules and procedures? If so, please describe.
The SSS monitors to ensure that participants’ actions are in accordance with its rules and procedures. The supervision of Depozitarul Central’s participants is the duty of FSA.
E. Under what conditions can participants terminate their membership in the SSS? Does this
mark the end of all liabilities of the participant? If not, please describe what liabilities could remain.
Participants can terminate their membership according to the conditions stated in the Rulebook of Depozitarul Central and following a written application signed by the authorized signatories. The termination is effected only if all due obligations have been settled.
F. Under what conditions can the SSS terminate a participants membership in the SSS? Participant membership can be suspended:
if the participant breaches the provisions of the Rulebook and following a sanction applied by Depozitarul Central for an illegal fact according to the legal status of the Depozitarul Central
when the requirements for maintaining the quality of Participant are not complied with, as mentioned in the Rulebook (Section 3 “Maintaining the quality of participant to the clearing-settlement and registry system in Depozitarul Central’s system, Title I)
following a sanction given by the FSA, NBR or, as the case may be, the competent authorities of other member states/competent authorities from the origin states of the intermediaries from non-member states, without the functioning authorisation being withdrawn;
following the initiation of the insolvency procedure. Participant membership can be terminated:
following a sanction applied by the Central Depository for an illegal fact according to the legal status of the Central Depository;
when the requirements for maintaining the quality of Participant are not complied with, as mentioned in the Rulebook (Section 3 “Maintaining the quality of participant to the clearing-settlement and registry system in Depozitarul Central’s system” of the present Title I), over a period exceeding one month.
G. Please describe the scope of the SSS’s liability to participants, including the standard of
liability (negligence, gross negligence, wilful misconduct, strict liability or other), the force majeure standard, and any limitation to the scope of liability of the SSS (e.g. indirect or consequential damages). Where are these liabilities and their limitations set out (e.g. in statute or contract)?
Depozitarul Central’s liability and its limitation are set out mainly in the participation agreement and Depozitarul Central Rulebook. These provisions are complemented by general rules on liability that are found in laws (e.g. the Civil Code).
Unless otherwise provided in the contracts and Depozitarul Central’s Rulebook, Depozitarul Central will be liable to his participants for not observing the provisions of the contracts and the applicable legal framework. In those circumstances Depozitarul Central will be liable for direct and foreseeable prejudices.
IV. Relationship with other SSSs and commercial intermediaries
Many SSSs have relationships with intermediaries who perform critical tasks for the SSS and indirectly, therefore, for the system’s participants and their customers. In particular, relationships or linkages between SSSs may be important for an understanding of the implications of settlement arrangements. For example, in those instances where the linkage includes using another SSS or a commercial intermediary as a securities sub-custodian, disclosure of information concerning the linkage would be essential for participants to fully evaluate the associated risks. The appraisal of risks may differ depending on whether the linkage allows only free deliveries or whether cash accounts at the two SSSs are also involved. The latter types of linkage deserve particular attention to ascertain whether they increase the potential for settlement disruptions to spread quickly between different systems.
Because it is the SSS and not its participants that negotiates and concludes the agreements with these third parties, it is important for participants to be fully advised on the relevant aspects of the system’s various intermediary relationships, including the standards used by the SSS in the selection and monitoring of intermediaries, the functions that the intermediaries perform and any specific risk management mechanism in place specifically to protect against the risks posed by these relationships. It is also important to identify instances in which the SSS advances funds or securities on behalf of third parties or intermediaries, as these actions can pose risks to the SSS and its participants.
A. Does the SSS maintain linkages (including sub-custodian or cash correspondent
relationships) or other relationships with other SSSs?
1. Please identify each of the other SSSs used and the type of securities transferred via the linkages.
(a) What is the name of the other SSS? Where is it located?
Depozitarul Central maintains settlement links to:
Clearstream Banking Luxembourg (ICSD) - Luxemburg Citibank London - United Kingdom
SaFIR, the Issuer CSD for Government bonds operated by the National Bank of Romania Through its links Depozitarul Central provides cross-border operations, for 20 markets (South Africa, Austria, Belgium, Bulgaria, Canada, Czech Republic, Denmark, France, Germany, Greece, Hungary, Ireland, Luxembourg, Netherlands, Poland, Spain, Switzerland, Sweden, United Kingdom and USA) , in 13 different currencies.
(b) What securities are eligible for transfer via the linkage to the other SSS?
All securities that are eligible for settlement at the partner SSSs are eligible for transfer via the respective link in book-entry form.
(c) Are transfers of securities made via the linkage to the other SSS limited to only those that are free of payment or are transfers against payment also made via the linkage to the other SSS? If against payment, please describe the timing of the transfers and the corresponding payments.
The linkages allow for securities to be transferred either free of payment or against payment based exclusively on settlement instructions submitted by participants.
In case of securities transferred against payment, cash or securities (depending on the direction of the transaction) are blocked on the participants’ accounts upon their instruction. Once confirmed by the partner SSS transfer and payment are booked simultaneously in Depozitarul Central’s system.
(d) Does the other SSS provide custody services to the SSS and, if so, who bears any credit or custody risks?
The SSS provides custody services to Depozitarul Central. The custody and credit risk of the deposit of assets with the other SSS is borne by Depozitarul Central customers.
B. Does the SSS use securities custodians (other than the other SSSs addressed in the previous
question) and/or commercial cash correspondents? Please identify the custodians or cash correspondents used and the duties that each performs.
Depozitarul Central uses Citibank London UK, as domestic agent as well as commercial cash correspondents.
C. Please describe the standards used in approving or reviewing relationships with other SSSs,
custodians or cash correspondents, including any financial or operational requirements or the presence of insurance or public supervision.
The establishment and review of relationships (custodian and/or cash correspondent) or links to other SSSs is managed on a case-by-case basis. In general, consideration is given to whether the institution is well-established with respect to legal, financial, and operational stability. Before concluding any new cross-border connection agreements with other SSSs or custodians, Depozitarul Central will previously request the principle agreement of the FSA, regarding the conclusion of the respective agreement. The FSA, the NBR, the participants to the clearing-settlement and registry system, clearing-settlement banks and the investors will be notified by Depozitarul Central about the concluded cross-border business agreements.
The relationships are reviewed on an on-going basis as needed, based on review of market developments, practices, regulations or other infrastructure-related and all necessary measures will be taken to minimize the potential sources of operational, credit and liquidity risks.
D. Does the SSS advance funds or securities to or on behalf of other intermediaries such as
issuing or paying agents? If so, please identify the circumstances in which such exposure could arise.
No.
E. Please describe measures in place to protect the SSS and its members against the failure of
other SSSs or commercial intermediaries to meet obligations to the SSS, including risk controls, collateral or alternative sources of funds and securities.
V. Securities transfers, funds transfers and linkages between transfers
At the heart of the operations of SSSs are the transfers of securities and fund that actually comprise the settlement process. The questions in this section begin by focusing on the process, if any, for matching settlement instructions prior to beginning the settlement process itself. In some markets, matched settlement instructions are binding, which may impose additional obligations on participants that are important for them to understand.
This section next considers issues raised by the practice of securities registration. Because the laws of different countries vary widely in this regard, this disclosure framework has not been designed to substitute for the legal analysis of the implications of registration, for example the issue of the nature of the title to securities that is transferred in the SSS if the system itself is not also the registrar. The questions are instead focused on the circumstances in which the SSS itself becomes involved in the registration process, as well as the risks that may arise if participants fail while securities are in the process of being re-registered in the buyer’s name. In particular, it is important to understand whether the rules and procedures of the SSS would require transactions to be unwound in such an event.
The mechanics of securities and funds transfers are then addressed, including the issue of where cash transfers associated with securities transfers at the SSS take place. These questions also address the circumstances under which the SSS extends credit to participants as an aspect providing funds transfer capability at the SSS. It is clearly important for participants to understand what types of cash account are offered at the SSS and on whom they take a risk with respect to cash deposits, as well as whether the SSS itself bears credit risk in conjunction with these accounts.
The questions then explore the timing of processing within the SSS, whether the SSS is a DVP system, and what type of DVP model, if any, has been adopted by the SSS. DVP is a mechanism which ensures that final delivery occurs if and only if final payment occurs, which eliminates principal risk and contributes to reduction in liquidity risk.
The issues which arise in the practical implementation of DVP were outlined in the DVP Report referred to in the Introduction, and mainly concern the finality of the securities transfers and the funds transfers which together constitute the DVP settlement. Transfers are final if they are both irrevocable and unconditional. A transfer is irrevocable when the parties to it can no longer revoke their instructions, and it becomes unconditional when there are no longer any circumstances that could cause the SSS to unwind it. If transfers are provisional at the time of processing, even if DVP is achieved, the risk remains that transfers may have to be unwound later if finality cannot be achieved.
If not properly recognized and controlled, this „finality risk” could have systemic effects. Members of SSSs are often provided with immediate availability of securities received, even if the transfer is not final. If these members sell the securities again, or make them available to custodial clients, and the original transfer is subsequently unwound, additional transfers by the member or the member’s clients may also have to be unwound, spreading the impact of the unwind to unrelated parties. It could also ultimately lead to losses to be shared among participants. For these reasons, the questions below attempt to clarify precisely the circumstances under which transfers become final.
The questions also address the provision of settlement guarantees by the SSS. If guarantees exist, it is necessary for participants to understand the events that trigger the guarantee as well as the coverage that is provided by the guarantee, including the liability of the SSS with respect to the guarantee.
A. Please discuss whether and how settlement instructions are matched between participants
prior to processing by the SSS.
Trades concluded on the Bucharest Stock Exchange (BSE) are already matched and forwarded to Depozitarul Central by the BSE. No further matching is performed by Depozitarul Central.
The settlements of off-exchange trades are based on participants’ settlement instructions. These instructions have to be matched in Depozitarul Central’s system. Matching takes place by comparing the mandatory matching criteria: type of transaction, direction of transaction, safekeeping account, underlying security, quantity of securities, settlement amount, settlement date, trade date, counterparty.
1. Is matching required for all transactions without exception? Yes.
2. What procedure is used when instructions do not match?
This scenario is only applicable to off-exchange exchange settlement processing. The system cancels all settlement instructions that are not matched on the intended settlement date, end of business.
3. Are matched settlement instructions binding on participants? Yes
(a) If so, please describe the consequences of failure by participants to meet obligations (e.g. forced settlement, penalties, short positions).
Failure to meet the obligations results in penalty fees, paid by the participants to Depozitarul Central, and in case of stock exchange trades, penalty is imposed by the Bucharest Stock Exchange as well.
With respect to stock exchange settlements the fails management mechanisms operated by the SSS combine:
- Penalties
- Special buy-in and enforced buy-in - Special sell-out and enforced sell-out
- Credit facilities provided by the credit institutions - Guarantee Fund and Margins
- Securities lending and borrowing - Trading limit.
(b) Please describe whether this is a feature of the SSS’s rules and procedures or of national law or regulations.
This is a feature of the rules and regulations of the CSD. The fails management mechanism is operated by Depozitarul Central.
(c) Please provide a time line indicating the points at which matched instructions become binding, as well as any pre-matching process that takes place.
According to Depozitarul Central’s rules the trading systems transmit to the Depozitarul Central the transactions concluded and confirmed by the trading system (“matched trades”) on the trade date, as quickly as possible after their conclusion and the latest when transmitting the trading report to the participants to the trading systems. Transactions are considered registered within the Depozitarul Central’s system after they are technically validated and after Depozitarul Central’s issues the settlement Reports containing the respective transactions. At this moment exchange transactions (matching instructions) become binding. Starting with the time mentioned above, the transfer orders registered in the system may not be revoked by a participant to Depozitarul Central’s system or by a third party, being protected according to the provisions of Law no. 253/2004 on the final nature of settlement in payment systems and settlement systems for securities operations and Law 297/2004, even in case an insolvency procedure is initiated against a Participant to the clearing-settlement and registry system.
Off-exchange settlements become binding at the time of matching the transfer instructions in Depozitarul Central’s system.
B. Are securities transferred within the SSS registered? 1. Who is the registrar?
For domestic securities, Depozitarul Central is the registrar. All securities transferred within Depozitarul Central are subject to registration. Depozitarul Central maintains and updates the shareholders list on the basis of the participants’ information.
2. Is it normal practice to register securities in the name of the SSS (or its nominee) or in the name of the beneficial owner? Are there instances in which securities housed within the SSS are registered to neither the SSS (or its nominee) nor the beneficial owner?
Usually, securities are not registered in the name of Depozitarul Central. The only instance when foreign securities are registered in the name of Depozitarul Central’s omnibus account is the case where Depozitarul Central provides cross-border settlement services to its clients and plays the role of Investor CSD.
The direct participants in the Depozitarul Central system (i.e. brokers and custodians) open proprietary and client global accounts at the Depozitarul Central level. Segregation is mandatory for participants who must open separate accounts for proprietary and clients' assets. The client’s assets are kept in individual sub-accounts opened at the participants’ level in the name of their clients.
The participants have disclosure obligations towards Depozitarul Central, based on issuers or authorities requests.
3. If the SSS offer custodial services, will it hold securities registered in the name of the beneficial owner?
Please see V./B./2.
4. Under what circumstances does the SSS initiate registration of securities in the buyer’s name?
When Depozitarul Central acts as registrar of the securities, the registration will be performed according to the provisions of the Rulebook and the type of account opened and operated in the buyer’s name (i.e. individual or global accounts).
5. How long does the registration process typically take? Are participants notified when registration is complete?
On the settlement date, Depozitarul Central will transfer the financial instruments from the sellers’ accounts to the buyers’ accounts, according to the transactions concluded, immediately after receiving the NBR confirmation for the final settlement of the funds. Currently, the settlement cycle is T+2 (T is the transaction date). Participants are notified when registration is complete. The participants are required to maintain in their books segregated accounts and register the shares in the name of their clients.
6. Can securities be transferred within the SSS before registration in the buyer’s name is complete? If so, do the rules and procedures of the SSS provide for an unwind or reversal of such transfers in case bankruptcy or other events which result in the buyer’s name not being entered on the register?
No.
C. Please describe how securities transfers are processed within the SSS.
Stock exchange trades are electronically transmitted from the stock exchange trading system to Depozitarul Central and finally settled in Depozitarul Central system.
The net settlement of transactions concluded in the trading systems through Depozitarul Central’s system is carried out at T+2, using BIS Model 2.
Off-exchange settlement instructions are entered in the RoClear system by the participants and finally settled in Depozitarul Central settlement system. SWIFT can also be used for instructing and receiving confirmation.The gross settlement of off exchange trads registered in Depozitarul Central’s system is carried out at the date agreed by the participants, but no later than T+3, using BIS Model 1.
FoP transfers are processed either by participants for their clients or by Depozitarul Central for the holders for which Depozitarul Central provides direct custodial services.
1. Please indicate whether the transfers are processed as debits and credits to members’ account or via some other method.
Securities transfers within Depozitarul Central are processed as debits and credits to participants’ accounts.
2. On a continuous (real-time) basis, or in one or more batches?
a) Depozitarul Central system currently use one daily batch for the net settlement of the stock exchange trades.
b) Off-exchange trades are settled in three batches. c) FoP transfers are processed on real time basis.
3. If continuous, during what hours does the processing occur? If in batches, at what time or times is the processing initiated and completed?
On settlement date, securities transfer between seller's account and buyer's account takes place in one batch for net settlement (Model 2) between 15:00 and 15:15 and in three batches for gross settlement (Model 1) presented below: - 1st batch starting at 12:15 until 12:25; - 2nd batch starting at 13:30 until 13:40; - 3rd batch starting at 16:35 until 16:45.
FoP transfers can be processes between 08:00 am and 5:40 pm.
4. Do securities settlements occur daily? Please identify securities for which settlement occurs only on specific days of the week or month.
D. Please describe whether final funds transfers in conjunction with the SSS are made as debits
and credits to balances held at the SSS, at one or more commercial banks, at the central bank, or via some other method.
Securities transaction related funds transfers are made as debits and credits on the accounts of the payment (settlement) banks held with NBR.
1. Does the SSS maintain cash accounts for its participants? Are these accounts equivalent to deposit accounts at a commercial or central bank or do they serve only as „cash memorandum” accounts?
Depozitarul Central does not maintain cash accounts for its participants.
2. On what entity (SSS or other) does the participant bear cash deposit risk?
At the payment (settlement) banks level, the risk management is performed by NBR. Also, in order to ensure the existence of the funds for net settlement, payments (settlement) banks have to pledge collaterals (cash and financial instruments) in an amount exceeding the net debit positions on a daily basis.
Participant without the cash account maintained in the central bank, settling the cash leg of its trades via payment (settlement banks) bears the risk of the commercial bank at which cash accounts have been opened.
3. Under what circumstances does the SSS provide credit extensions or advances of funds to its participants and thereby expose itself to credit risk?
Depozitarul Central does not provide credit extensions or advances of funds to its participants, so there is no such credit risk exposure.
4. How long can such credit extension last? How long do they typically last? Not applicable.
E. Is the SSS a DVP system? If so, please describe the DVP model used according to the models
outlined in the DVP Report (see the Introduction). Please also provide a diagram indicating the timing of events in the processing of securities and funds transfers in the SSS. Where the SSS provides more than one alternative for settlement processing, please provide a response for each alternative and indicate the relative importance of each alternative.
The settlement models are BIS Model 2 (gross settlements of securities followed by net settlement of funds) and BIS Model 1 (Gross – Gross). DvP capabilities for Model 1 are in place and have been used for off exchange domestic and international settlements, including for the settlement of turnaround trades.
1. Are funds transfers and securities transfers processed within the same system or in different systems? If different, how they are linked?
Funds transfers and securities transfers are processed in two different systems. The settlement of the securities leg is processed in Depozitarul Central system. The settlement of the cash leg of transactions is handled in ReGIS (RTGS system administrated by NBR).
All participants to the Depozitarul Central’s system have the obligation to open a settlement account with a payment (settlement) participant that has concluded an agreement with Depozitarul Central regarding the participation to ReGIS and also an agreement regarding the guarantees registered in favour of NBR.
Depozitarul Central is able to directly instruct the payment of funds through the ReGIS system. NBR will confirm to Depozitarul Central the execution of the final settlement by sending via secure VPN the net positions of settlement reports. Immediately after the confirmation of payments, Depozitarul Central transfers the securities from sellers' accounts to buyers' accounts according to the concluded trades registering the ownership transfer from the seller to the buyer. After receiving the settlement report of the net positions from NBR, and after the securities are settled, Depozitarul Central will send to the clearing participants (payments banks) the confirmation of the finalization of the settlement. After Depozitarul Central communicates the completion of the settlement, the Participants to the clearing-settlement and registry system are obliged and exclusively liable to register in their own records the transfer of ownership to the sub-accounts of global accounts for each global account.
(a) Please describe whether each securities transfer is linked to a specific funds transfer on a trade-by-trade basis or on a net basis or via some other method.
Depozitarul Central Settlement Model 2 is based on Net Settlement of Funds Transfers followed by Gross Settlements of Securities Transfers (DvP capabilities for Model 2 are in places and have been used for trading systems settlements) .
Depozitarul Central Settlement Model 1 is based on Gross Settlement of Funds Transfers followed by Gross Settlement of Securities Transfers (DvP capabilities for Model 1 are in place
and have been used for off exchange domestic and international settlements, including for the settlement of turnaround trades).
(b) Does the SSS „split” large transactions into multiple transactions or require the participants to do so?
No, Depozitarul Central does not split any transactions into multiple transactions and does not require the participants to do so.
2. When do securities and funds transfers become final?
(a) At what time do securities transfers become final? After what event or events?
Securities transfers become final after the fund transfers occurs for DvP settlements. Depozitarul Central performs the settlement of the securities immediately after receiving the NBR confirmation regarding the settlement of funds.
FoP transfers become final immediately after processing, on real time basis.
(b) At what time do funds transfers become final? After what event or events? Does this timing allow for same-day retransfer of funds received in exchange of securities?
According to the agreement between Depozitarul Central and NBR, Depozitarul Central may input the net settlement instructions into the ReGIS system at 3.00 pm. Since the full implementation of the STP interface between RoClear and ReGIS in December 2008, the settlement of payment instructions is processed in around 1 minute, which is the time needed for the exchange of the information between Depozitarul Central and NBR. Usually Depozitarul Central transmits the net settlement instruction at 3.00 pm and NBR confirms at 3.01 pm. Funds transfers become final and irrevocable after NBR confirm to Depozitarul Central the execution of the final settlement by sending via secure VPN the net positions of settlement report.
(c) If final delivery of securities precedes the final transfer of funds, can participants dispose freely of such securities prior to funds finality? If so, what actions will be taken if funds are not received?
(d) If final delivery of funds precedes the final transfer of securities, can participants dispose freely of such funds prior to securities finality, If so, what actions will be taken if securities are not received?
Participants cannot dispose freely of such funds prior to securities finality.
(e) Does the timing of finality differ depending on the type of security transferred or the currency in which payment is to be made? Please describe.
The timing of finality is not depending on the type of securities transferred or currencies in which payment is done.
3. Please discuss whether participants are notified of securities or funds transfers while they are still provisional, only when they are final, or both.
Provisional transfers are not applicable to Depozitarul Central. Notification is sent upon finality.
F. Does the SSS itself „guarantee” funds or securities transfers?
Depozitarul Central itself does not "guarantee" funds or securities transfers but its activity is supported by complex risk management mechanisms.
Regarding the cash leg, Depozitarul Central has the following risk management measures at the participants' level in order to ensure funds settlement: trading limit, Guarantee Fund, margins, special sell out trades, imposed sell-out procedures. Depozitarul Central establishes a trading limit for each participant (except the custodians), in order to mitigate the risk of non-payment of the obligations resulted from the settlement of transactions. Each participant have to make contributions to the Guarantee Fund and margins, which are administered by the Depozitarul Central. If, on settlement day, a participant does not have enough money available in its settlement account, he must try to get a credit from his settlement bank or from other credit institutions, or, he can initiate special sell-out trades. If the funds obtained are not enough, Depozitarul Central will use the funds from Guarantee Fund and margins in order to fulfil the settlement. In case the funds from Guarantee Fund and margins are not enough to cover the settlement, Depozitarul Central postpones a list of participant's trades for next day settlement cycle. When the participant does not repay the funds used, Depozitarul Central can initiate the imposed sell-out procedure in order to sell the securities of the participant.
1. Under what circumstances and at what point are transfers guaranteed by the SSS? See F
2. What actions does the guarantee obligate the SSS to take? See F
3. Please indicate whether the guarantee is a feature of the SSS’s rules and procedures or of national law or regulations.
VI. Default procedures
Events of default are among the most difficult and stressful occurrences that market participants and SSSs may experience. The IOSCO Report underscores the need for transparency in the area of default procedures on the grounds that it will provide more certainty in the operation of critical market mechanism during these stressful events, and thereby reduce the risk that a single default will cause further disruptions.
Because the definition of a default event may differ across systems, the IOSCO Report recommends disclosure with regard to the circumstances in which action may be taken, as well as who may take it, and the scope of the actions that may be taken. In some cases, the term „default” may not be used by the SSS in its rules and procedures or in contracts with its participants. In these instances, SSSs should attempt to spell out for their participants both how they would address the insolvency of a participant and any other circumstances in which they would initiate exceptional measures to fulfil settlement or other obligations to their participants.
In this regard, this section attempts to lay out in one place the available resources of the SSS with respect to meeting obligations in the event of a default or other events that would trigger exceptional measures. It is important for participants to understand that these resources are as well as the order in which they will be accessed. The questions also address the possibility that securities or funds transfers will be unwound by the SSS. Because unwinds are a way to reallocate liquidity pressures and credit losses, it is vital that participants understand all the possible circumstances in which an unwind can occur.
A. Please discuss the events or circumstances that would constitute default of a participant
under the rules and procedures of the SSS or that would lead the SSS to make use of exceptional settlement arrangements or unwind procedures.
1. Failure by a participant to meet a test of its solvency under the applicable laws of its jurisdiction?
2. Failure to make payments or deliveries of securities within the time specified?
3. To the extent that the rules and procedures grant discretion in the determination of the use of default or other exceptional procedures, please discuss where the authority to exercise such discretion resides and the circumstances in which this authority would be used.
According to Depozitarul Central’s regulations, there are some criteria for suspending participants, as follows:
• upon the request of the Participant to the clearing-settlement and registry system; • following a sanction applied by Depozitarul Central;
• when a participant does not complied with the requirements for maintaining the quality of participant;
• following a sanction given by the FSA, National of Bank of Romania or the competent authorities of other member states/competent authorities from the origin states;
• as a result of the initiation of the insolvency procedure.
Depozitarul Central’s Rulebook and also the contracts between Depozitarul Central and participants have provisions regarding the obligations of participants if insolvency proceedings were opened against a participant.
The Rulebook of Depozitarul Central states that the time on which the transfer orders are considered introduced in Depozitarul Central’s clearing-settlement system, namely they are valid/irrevocable and opposable to third parties producing legal effects between the Participants to the clearing-settlement and registry system is the time on which the transaction is registered in the Depozitarul Central’s system according.
The transfer orders registered in the system cannot be revoked by a participant to Depozitarul Central’s system or by a third party, as they are protected according to the provisions of Law 253/2004 regarding the permanent nature of settlement in the payment systems and the settlement systems of operations with securities and Law 297/2004, even in case a Participant to the clearing-settlement and registry system is subject to a winding-up procedure.
In case of stock exchange settlements, a failure to deliver securities or make payment on time would trigger default procedures according to the Rulebook of Depozitarul Central (risk management procedures).
B. What procedures are followed by the SSS once it has determined that a default event has
occurred or that exceptional settlement arrangements are to be employed?
Securities default
Special Buy-in procedure
• If a participant does not have the necessary securities to settle the trade, then it has the obligation to request the trading system to carry out special buy-in transactions.
In case a custodian agent does not have enough securities to settle the trade, it may request the Depozitarul Central to use the special buy-in procedure in its name, in order to obtain the
