Latin American Capital Markets

PROMOTING REGIONAL CAPITAL MARKET INTEGRATION 195and through the same organization. However, the establishment of such a RegionClearis commonly agreed to be impractical for several reasons. It would be too expensiveto build and would require large write-offs by the existing systems. User fees wouldbe prohibitively expensive. Countries would be unlikely to eliminate the legal, tax, currency,and regulatory barriers that would hinder the effective functioning of the system.Custodian banks and domestic CSDs would resist development of such a facility.Any failure of the system, or fraud or default within it, would have serious repercussionsthroughout the markets. And finally, as a regional monopoly, it might lack the spurof competition.Central Processing UnitThe central processing unit model is similar to the notion of an ASP Essentially, CSDswould outsource their securities processing functions to a single computer utility or astring of regional utilities using common software. By leaving safekeeping and settlementfunctions in the hands of custodians and CSDs, a central processing unit could standardize,accelerate, and make settlement less expensive without provoking political resistance.However; it would be costly and complex to build and would not make settlementbetween markets more efficient.This model is also now regarded as unworkable.European ClearinghouseCedel (although the model relates primarily to settlement rather than to clearing)proposed a so-called European clearinghouse model.The intention was to merge aninternational CSD with a CSD to obtain a nucleus for settlement activities in Europewith an open and flexible structure. Other depositories and clearing organizationscould then integrate with the European clearinghouse by merging, outsourcing theirsecurities processing services, or establishing electronic delivery versus payment links.While these options allow each national CSD the flexibility of joining the Europeanclearinghouse, they also give rise to complexity that is difficult to manage.Three main benefits were anticipated from the model. First, costs could bereduced via the economies of scale of combining markets and adopting a commontechnology. Second, by pooling the assets of customers in one entity, it would be easierfor customers both to assess more quickly which assets were available and to usethem for trading activities and asset optimization activities, including lending and thecollateralization of payments. This would both reduce costs for customers and provideincreased opportunities for revenue.Third, counterparts would be able to settleCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub