Cross-border securities settlement and risk analysis framework for ...

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Topic 4 :The adequacy of local asset protection rulesQuestions1. In the case of a bankruptcy or other insolvency event concerning the intermediary / issuer (I)CSD, does applicablelegislation provide that the assets deposited by the investor (I)CSD do not form part of the assets of theintermediary / issuer (I)CSD ? In this respect, is the legal nature (1) of the holding of the foreign securities in the localjurisdiction a relevant criterion ?2. In the case of a bankruptcy or another insolvency event concerning the intermediary / issuer (I)CSD, does applicablelegislation provide that the investor (I)CSD has undisputed and timely access to any assets deposited with itsintermediary / issuer (I)CSD without having to face legal or other challenges ?3. Regarding the “undisputed and timely access” in the case of bankruptcy or any other insolvency event concerningthe intermediary / issuer (I)CSD, does the Legal Opinion identify and explain (i) any practical hurdles impeding theinvestor (I)CSD’s recovery of the securities held with the intermediary / issuer (I)CSD, (ii) any possibility that exists underlocal law for third party creditors or other interested parties to block the investor (I)CSD’s recovery, and (iii) the likelytimeframe of the recovery process ?4. Is the Legal Opinion that covers the adequacy of local asset protection rules sufficiently recent or recently updated ?Topic 5 :The effectiveness of client recovery rules (2)Question1. In the case of bankruptcy or any other insolvency event concerning the investor (I)CSD, would the liquidator haveundisputed and timely access to any assets deposited with the intermediary / issuer (I)CSD ?Topic 6 :Information about potential attachment / blocking of securities held with the intermediary / issuer (I)CSDQuestions1. Can securities held by the investor (I)CSD with the intermediary / issuer (I)CSD be subject to any attachment bycreditors of the intermediary / issuer (I)CSD, of the investor (I)CSD or of the ultimate beneficiary, or to freezing orblocking instructions issued by local courts or regulators ?2. Has the investor (I)CSD received adequate information about these issues, and is such information sufficiently recentor has it been recently updated ?3. Has the investor (I)CSD adequately informed its participants of such risks, if any ?Topic 7 :Applicability of local finality rulesQuestion1. Has the investor (I)CSD analysed the moment of irrevocability of transfer orders as well as the finality of the securitiesand cash transfers ?(1) The legal nature of the holding of securities is an indication of the level of protection of participants. When the securities holding is property based, the securities do not formpart of the estate of an (I)CSD or other financial intermediary and – in the event of insolvency – a liquidator cannot exercise claims on them. This protection is not assured ifparticipants have only a contractual claim on securities, as they will not get a preferential treatment by the liquidator.(2) The assessment focuses on possible legal or practical uncertainties which might have an impact on the speed with which assets are returned to the participants of the investor(I)CSD, rather than the overall quality of the Belgian asset protection rules.136
CROSS-BORDER SECURITIES SETTLEMENT ANDRISK ANALYSIS FRAMEWORK FOR CROSS-BORDER LINKSSettlement modelTopic 1 :Settlement environmentQuestions1. What is the settlement cycle applicable in the local market (per product) ?2. Is matching of transfer instructions binding in the local market and, if so, as of when does matching become binding ?What are the consequences for failing to meet settlement obligations ?Topic 2 :DVP model and finalityQuestions1. What is the DVP model applied in the intermediary / issuer (I)CSD ?2. Does the DVP model applied in the intermediary / issuer (I)CSD differ depending on the type of transaction (1) , the typeof security transferred, or the currency in which payment is to be made ?3. At what time or after what event(s) do securities and cash transfers become final ?4. Does the timing of finality differ depending on the type of transaction, the type of security transferred, or the currencyin which payment is to be made ?5. Does the investor (I)CSD only credit securities to its participants after finality is achieved on the local market (i.e. nounwinding risk) ?6. Are the participants of the investor (I)CSD clearly notified by the Operating Procedures whether securities and fundstransfers are provisional and as of when they are to be considered final ?Topic 3 :Settlement assetQuestions1. Are securities and funds transfers processed within the same system or in different systems ? In the latter case, howare the two systems linked ?2. Does the intermediary (2) / issuer (I)CSD settle in central bank money ? If not, what are the mitigating measures in placein the intermediary / issuer (I)CSD with respect to the cash settlement asset ?Financial strengthTopic 1 :Solvency and financial resilienceQuestions1. Is the intermediary / issuer (I)CSD a public or private sector entity ?2. What is the ownership structure of the intermediary (3) / issuer (I)CSD, and what entity operates the intermediary / issuer(I)CSD ?3. What is the financial strength (4) of the intermediary / issuer (I)CSD ?(1) An (I)CSD could apply different DVP models for settlement of stock exchange trades or over-the-counter trades.(2) In the case of relayed links where the intermediary is another (I)CSD.(3) In the case of relayed links where the intermediary is another (I)CSD.(4) This could be assessed by evaluating the intermediary / issuer (I)CSD’s ratings and BIS capital ratio, if available.137
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