Latin American Capital Markets

PROMOTING REGIONAL CAPITAL MARKET INTEGRATION 197Euro/inksThe European Central Securities Depositories Association (1999) and Crest put forththe Eurolinks model. Essentially, it advocates direct bilateral links between independentCSDs in order to give customers of one CSD access to the securities in another.Each CSD would provide its customers with a single point of entry that would allowthem to hold and transfer securities issued in any other CSD participating in the networkusing their local CSD's software and connectivity.This would avoid the need todevelop an expensive network of custodial relationships or open settlement membershipsat multiple CSDs.Several main advantages were anticipated. First, the links would be cheaperand could be put in place more quickly than those that result from mergers or moreformal alliances. Second, the establishment of Eurolinks would allow a degree of competitionbetween clearers. Third, technology was developing fast enough to makeEurolinks possible. Fourth, differences in regulations, taxes, and settlement practiceswould not hinder the usefulness of the model. Fifth, standardization would reducecomplexity and cost for CSDs and their members. And sixth, genuine cross-borderdelivery versus payment links would reduce cross-border settlement risk Firms wouldbenefit because Eurolinks would reduce their overheads by limiting the number of interfacesthey require for different CSDs, bring their holdings and transactions withinthe single legal framework of their chosen CSD, and take advantage of their existinginvestment in software and connectivity by using their local CSD to settle foreign securitiesand mobilize cross-border collateral.However, there were some shortcomings with the Eurolinks approach. Interdepositorylinks between domestic CSDs would solve bilateral problems rather thanmultilateral, multicurrency problems. Preserving national CSDs would make it harderto obtain economies of scale. The approach ignores the banking and value-addedservices that some market participants believe are necessary to attract major crossborderinvestors. Finally, it is difficult to fashion flexible and effective links betweenmarkets at different levels of developmentCCP LinkageCrest and Clearstream proposed this model prior to the aborted iX merger.The advantageof the CCP linkage model was that international trades by customers of eachdomestic CSD would be cleared through the CSD country's domestic CCP Only thenet balances between the CCPs would need to be settled internationally via nationalCSDs. Although the cost of these net cross-border trades could be high, there wouldCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub