The assessment of Euroclear Bank (ICSD)

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VI. Other issues13. GovernanceGovernance arrangements for CSDs and CCPs should be designed to fulfil public interest requirements and topromote the objectives of owners and users.14. AccessCSDs and CCPs should have objective and publicly disclosed criteria for participation that permit fair and openaccess.15. EfficiencyWhile maintaining safe and secure operations, securities settlement systems should be cost-effective in meetingthe requirements of users.16. Communication procedures and standardsSecurities settlement systems should use or accommodate the relevant international communication proceduresand standards in order to facilitate efficient settlement of cross-border transactions.17. TransparencyCSDs and CCPs should provide market participants with sufficient information for them to identify and evaluateaccurately the risks and costs associated with using the CSD or CCP services.18. Regulation and oversightSecurities settlement systems should be subject to transparent and effective regulation and oversight. Centralbanks and securities regulators should cooperate with each other and with other relevant authorities.19. Risks in cross-border linksCSDs that establish links to settle cross-border trades should design and operate such links to reduce effectivelythe risks associated with cross-border settlements.The results of this assessment of Euroclear Belgium aresummarised in Table 2. This assessment takes into accounta series of mitigating actions that were taken by EuroclearBelgium after the preliminary assessment made by theNBB. As a result, Euroclear Belgium is now fully compliantwith fifteen recommendations, whereas three recommendations(7, 12 and 19) are “broadly observed”. Onerecommendation (3) is considered irrelevant for EuroclearBelgium since it deals with aspects of the settlement cyclefor which Euroclear Belgium cannot be held accountable.The legal framework supports the enforceability of transactionsand the protection of participants’ assets. Italso provides an adequate legal basis for the holdingof securities (immobilisation and dematerialisation), thetransfer of securities by book entry, securities lending anddelivery versus payment with finality. The system’s rulesand contracts are considered enforceable between participants,notwithstanding the insolvency of a participant.Recommendation 1 (legal framework) is observed.Legal riskThe settlement activities of the Euroclear Belgium systemsare governed by consistent, clear and solid laws, rules,procedures and contractual provisions that are public andaccessible to system participants.Pre-settlement riskEuroclear Belgium’s systems settle Euronext Brusselsstock exchange transactions and over-the-counter trades.Rules and practices regarding trade confirmation andsettlement cycles are set by the market itself. In practice,Euroclear Belgium cannot interfere with these rules andpractices. Settlement instructions are matched prior to96
The Assessment of Euroclear Belgiumagainst the CPSS-IOSCO RecommendationsSUMMARY OF THE RESULTS OF THE ASSESSMENT OF EUROCLEAR BELGIUM AGAINST CPSS-IOSCO RECOMMENDATIONSRecommendationAssessment categoryI. Legal riskRecommendation 1 Legal framework ObservedII. Pre-settlement riskRecommendation 2 Trade confirmation ObservedRecommendation 3 Settlement cycles Not relevantRecommendation 4 Central counterparties (CCPs) ObservedRecommendation 5 Securities lending ObservedIII. Settlement riskRecommendation 6 Central securities depositories (CSDs) ObservedRecommendation 7 Delivery versus payment (DVP) Broadly observedRecommendation 8 Timing of settlement finality ObservedRecommendation 9 CSD risk controls to address participants’ failures to settle ObservedRecommendation 10 Cash settlement assets ObservedI V. Operational riskRecommendation 11 Operational reliability ObservedV. Custody riskRecommendation 12 Protection of customers’ securities Broadly observedVI. Other issuesRecommendation 13 Governance ObservedRecommendation 14 Access ObservedRecommendation 15 Efficiency ObservedRecommendation 16 Communication procedures and standards ObservedRecommendation 17 Transparency ObservedRecommendation 18 Regulation and oversight ObservedRecommendation 19 Risks in cross-border links Broadly observedsettlement. Recommendation 2 (trade confirmation) isobserved.Recommendation 3 (settlement cycles) stipulates thatsettlement fails should not be a significant source ofadded risk but, if so, risks from fails should be effectivelymitigated. For over-the-counter trades, the fails rateexceeds 5 p.c. of settlements and can thus be consideredas a source of risk. No information is available regardingrisk mitigation measures as these take place bilaterallybetween the transaction participants. The NBB acknowledgesthat the risk mitigation techniques for coping withfails are bilaterally agreed between the counterparties tothe over-the-counter transaction. Recommendation 3 isthus not relevant for Euroclear Belgium.Recommendation 4 (central counterparties) requires theevaluation of the costs and benefits of a central counterparty(CCP) or the introduction of a CCP mechanism.For Euronext Brussels trades, when the transaction isregistered, the Paris-based clearing house LCH.ClearnetSA positions itself as a CCP between the clearing memberof the buyer and the clearing member of the seller. Therecommendation is being observed.Recommendation 5 on securities lending stipulates thatthere should be no impediments to the development andfunctioning of securities lending. Securities lending helpsto expedite settlement. Securities lending in Belgian stockshas recently become more efficient with a widening of thelending base. In July 2004, a law was passed allowing97
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The assessment of Euroclear Bank (ICSD)

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