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6th ACSDA International Seminar Punta del Este, Uruguay - October 27-28, 200 5 CSD Functions and Benefits Luiz Felipe C. Paiva. CBLC’s Depository Services. CBLC: Brazilian Clearing and Depository Corporation. Established in 1997 , following its spin-off from the São Paulo Stock Exchange
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6th ACSDA International Seminar Punta del Este, Uruguay - October 27-28, 2005 CSD Functions and Benefits Luiz Felipe C. Paiva
CBLC: Brazilian Clearing and Depository Corporation • Established in 1997, following its spin-off from the São Paulo Stock Exchange • For-profit corporation owned by market participants • Board composed by brokers and banks • Self-regulatory organization under the supervision of the Brazilian Securities & Exchange Commission (CVM) and the Brazilian Central Bank • Core Business: CSD, SSS and CCP The creation of CBLC was the result of a joint decision of the stock exchange and the market participants to have a modern infrastructure in depository, clearance, settlement and risk management activities
CBLC: Depository’s Features (I) • Central Securities Depository • For equities, fixed income instruments, asset-backed securities, real estate investment fund units and other instruments • Securities registered under ISIN codes • Dematerialization • Pioneer in dematerialization of securities held in its depository services (1990) • Asset Servicing • Corporate actions processing for all securities
CBLC: Depository’s Features (II) • Fiduciary ownership of all securities • At the issuer level CBLC appears as nominee for safekeeping purposes • Daily reconciliation • Comparison of the number of securities held in CBLC service with the securities registered with the issuer in the name of CBLC as the fiduciary owner • Segregated accounts at the level of the investor • The investors of all securities are identified in CBLC records • The custodians are responsible for holding and moving securities held in the investors accounts, according to the Brazilian Securities and Exchange Comission (CVM) • Allow CBLC to directly inform the final investors of their holdings in the depository service
Segregated accounts at the level of the investor CBLC Custodian Custodian Custodian Account Investor Account Conta própria Custodian Account Investor Account
A CSD is… “A facility (or an institution) for holding securities, which enablessecurities transactions to be processed by book entry. Physicalsecurities may be immobilised by the depository or securities maybe dematerialised (ie so that they exist only as electronic records).Inaddition to safekeeping, a central securities depository mayincorporate comparison, clearing and settlement functions.” (Bank for International Settlements, 2003) Core business of a CSD: Safekeeping Asset servicing
Issuer Issuer Issuer Issuer Issuer Investors Investors Participant Investors Participant Participant Participant Investors Investors Investors Benefits of a CSD (I) • Act as a intermediary between the issuers, market participants and investors
Issuer Issuer Issuer Issuer Issuer Investors Investors Participant Investors Participant Participant Participant Investors Investors Investors Benefits of a CSD (I) • Act as a intermediary between the issuers, market participants and investors CSD
Benefits of a CSD (II) • Utility • Infrastructure • Risk control • Costs reduction • Information provider for market participants • Harmonization / standardization • Neutrality • Specialization • Development of core competences • Scale economies • Identification of trends and opportunities
Some conclusions • There are inumerous models that can be carefully choosen, considering ..... Market particularities KEY ISSUES International Recommendations
Some conclusions • Market particularities • Characteristics of the financial system • Regulatory basis • Objectives and requirements of the regulators • Types of instruments • Expectations of market participants • Rules and market practices • Issuers • Stock exchange • Market participants (brokers, banks, etc.)
Some conclusions • International recommendations • G30 / ISSA / CPSS / IOSCO • “...The range of depository eligible instruments should be as wide as possible. Immobilization or dematerialization of financial instruments should be achieved to the utmost extend possible..” • “Local laws and regulations should ensure that there is segregation of client assets from the principal assets of their custodian; and no possible claim on client assets in the event of custodian bankruptcy or a similar event. Regulators and markets, to further improve investor protection, should work: • to ensure clarity on the applicable law on cross border transactions • to seek international agreement on a legally enforceable definition of finality in a securities transaction • to ensure that local law fully protects the rights of beneficial owners • to strengthen securities laws both to ensure the rights of the pledgee and the protection accorded to client assets held in Securities Systems”