UK CSD CREST, which was acquired by Euroclear a year ago, says the dematerialisation of the 160 billion (Euros 225 billion) domestic money market will be completed in September this year. Once it is, CREST expects the annual costs of issuing, holding and settling trades in UK money-market instruments to be reduced by 85 per cent. CREST expects lower prices to increase the volume of business.
The migration of the settlement of money-market instruments from the current Central Moneymarkets Office (CMO) system into CREST, and the replacement of physical certificates with electronic book entries, was proposed by the Bank of England in 1998. Always scheduled to follow the migration of gilt market settlement from the Central Gilts Office (CGO) to CREST, the CSD has actually operated the Central Money Markets Office (CMO) since 1999 but used a Bank of England platform to process transactions.
All instruments will now migrate to CREST over the weekends of 19 September (Euro-denominated money market instruments), 26 September (Treasury Bills), 3 October (Bankers’ Acceptances) and 10 October (Certificates of Deposit). Once they are processed on the CREST system, the securities will no longer appear in physical form and will disappear from the CMO’s vaults. Instead, money-market transactions will be processed in de-materialised (or electronic book entry) form.
Instruments will be identified by an ISIN, as is the case with other CREST-eligible securities. CREST records will serve as the definitive record of title for dematerialised money-market instruments, which is different from the CMO’s current practice of tracking ownership of individual securities that are deposited in certificated form. Issuance can be for either same-day or forward-dated value, and the ISINs will be allocated automatically by CREST as part of the issuance process.
The elimination of paper means that, from September, market participants will pay lower tariffs Settlement of a transaction in a money market instrument will cost 0.50 (Euros 0.70) or less, as opposed to the current average charge of 4.50 (Euros 6.30) when settled in the CMO. CRESTCo also announced that the custody fee to hold money-market instruments will be removed once these securities have migrated from the CMO to CREST. The issuance fee will be set at 15 (Euros 21) per new issue. CRESTCo will not charge CMO members for the migration of their instruments on to the CREST system.
CREST emphasises that existing members will be able to hold money-market securities and settle trades in them without needing to make any system changes. CREST adds that its clients will also have the additional benefit of being able to manage their money-market, equity and gilt collateral movements through a single system.
“The de-materialisation of UK money-market instruments in CREST will allow customers to benefit from the world-leading standards of efficiency and risk reduction we already provide for other securities,” says CREST chief executive Hugh Simpson. “It will soon be possible to have a new money-market issue created and delivered to investors within minutes. All of this will be achieved in tandem with substantial cost savings for the industry.”