CSDs and cross-border linkages: How is the landscape evolving?

Abstract

The structure and content of this paper is designed in such a way that it provides an opportunity to describe the clearing and settlements of different Central Securities Depositories (CSD) under the cross-border linkages, risks associated with them and how the rules and regulations revolves around them. The importance of an efficient securities clearing and settlement system lies on the safer transfer of ownership of assets against payment. Such a system must be developed in such a way as to minimise the risks involved in securities transactions and still offer lower costs so that it does not hinder the intention to acquire or dispose of securities.Financial integration in the Asian market is still far from being achieved. The arrangements between the participants in trading, clearing and settlement systems within any country have been organised on the basis of direct or indirect access to the local CSD and by money accounts held in the local banking system. Gaining access in this local market by a foreign investor involves costs in establishing a relationship with a local agent, which financial institutions are ready to pass over to the investor. The costs of a cross-border securities clearing and settlement outside a country are much higher than if cleared and settled domestically.In order to promote the integration of financial markets in Asia, this fragmented access structure must be integrated and consolidated so that investors enjoy opportunities throughout Asia without being threatened by higher settlement fees, risks or increased need for collateral. Thus, a smoothly functioning integrated infrastructure for clearing and settlement within the Asian market is a precondition for the development of the single financial market. The immediate benefits of financial integration in the Asian market are inclusive economic growth. Benefits from the investors’ perspective are higher risk-adjusted returns on savings, better opportunity to diversify a portfolio, higher liquidity and competition in the markets. Additionally, corporations would also be favoured with better access to financing capital and competition would force financial intermediates to offer a wider range of financial products at lower prices.