Competition will grow, but don’t expect a revolution

Harmonisation will certainly allow for more competition between CSDs, but it will also give us an even more stable, secure and investor-protected post trade environment in Europe. I would not recommend comparing CSDR to MiFID1, says Anna Kulik from ECSDA.


Recently – in the days when VP SECURITIES applied for its European license under CSDR - the Secretary General from the European Central Securities Depositories Association (ECSDA) visited Denmark. Anna Kulik is new as the head of ECSDA and she met representatives from the Nordic financial sector in a meeting about CSDR hosted by VP. We took the opportunity to ask her some questions and get some interesting answers.

“I do not see a big revolution coming, although it will be easier and more secure to work cross border”, says Secretary General Anna Kulik from ECSDA, when she visited Denmark to meet representatives from the Nordic financial sector in a meeting about CSDR hosted by VP.

Q. What are the societal benefits to Europe by harmonising this market?

A. We come from a European situation with quite fragmented national legislation for infrastructures, where CSDR will build a level playing field for CSDs. The preparation for T2S ECB project has helped to harmonise many domestic differences. It’s even more the case as a result of the CSDR. By using the same standards and working under one legal framework we will see a common market. The biggest winners of the single market are those who use CSDs most – participants and issuers. But bear in mind that market participants are already trading and settling cross-border and internationally. Harmonisation will fuel this, and make it easier and more convenient. For companies, it will be easier to issue their securities abroad to find new investors and hence create new business and jobs. For market players, the benefits are huge – even smaller ones will be able to become direct participants in a CSD, they will have higher certainty on delivery of securities on time and hence be able to optimise their use. Participants will even be able to influence some decisions taken by CSDs. In spite of these advancements, many barriers to a truly European market remain, such as those related to tax or corporate actions processing.

Q. CSDs are competing against each other. How would you characterize this competition after the CSDR?

A. We shall not overestimate the effect of CSDR on competition in the CSD space. I do not see a quick revolution coming from the regulation. You should not expect the same impact as MiFID1 had on the exchanges. The new requirements for European CSDs are very stringent, and we therefore cannot speak about liberalisation or lowering the barrier to become a CSD. We have seen how complicated it is to become a CSD even for institutions with relevant business cases and strong expertise in post-trade.

However, thanks to the CSDR and T2S, European CSDs have sounder grounds to enter a new market and optimise service offering and technology across different countries. CSDs providing single access to multiple markets will bring their participants present in several markets real benefits, particularly for the management of assets and liquidity pools.

Q. What will differentiate a CSD in the future?

A. All 41 CSDs in our association are quite different and have different business models, but they are tied together by a common task of making the post-trade environment even more secure and efficient. Being utilities is their nature and their biggest asset. CSDs are aiming at being highly relevant to markets and real economy, including understanding their customer’s needs and offering new technologies to support market efficiency and safety. The main current barrier towards this goal is a regulatory saturation. Despite all the benefits that regulation brings, it involves human and technological resources that cannot be used to advance the industry in other areas. This is however just a temporary phase and does not prevent innovation in the long run. It is the CSDs that are thinking beyond the immediate regulatory challenges today that will make a difference tomorrow.

Q. What is your view on Blockchain in relation to CSDs?

A. I see distributed ledger and Blockchain technologies as being relevant to CSDs, even if there are several complicated questions linked to it. One of them is the question of interoperability between current and old systems and between different ledger platforms themselves. Even legal questions including the appropriate conflict of laws solution, and bigger cyber risk exposure is relevant here. We do have members working to use it, and I see it as complimentary tool the CSDs may – or may not – utilize in their business where relevant.

Q. Do you see geo-cultural differences in the European landscape of CSDs?

A. The Nordic markets are closely connected and have great similarity. Like-minded concepts of securities law, quite similar close relationship with the issuer, questions related to ownership and strong tradition for direct holding so important for investor-protection mean fewer and smaller differences than you would find in many other European regions.

Q. New pan-European settlement discipline is under way. What is in your view the biggest challenges facing the implementation?

A. It is certainly a big project, and I see T2S as an enabler for Eurozone markets. But right now, it is a little too early to say. We have not yet seen the final standards, the implementation is being discussed at the moment, and we will have to see how it all unfolds. What is certain is that it will require attention from CSD participants.

Anna Kulik visited Copenhagen and VP SECURITIES on 23 May. The meeting with around 50 guests from the financial sector also had participation from Director Anders Balling, Head of Capital Markets Division, Finantilsynet. Both Balling and Kulik participated in a panel session with a string of questions from the audience.