As Europe’s securities markets prepare for the incoming TARGET2-Securities (T2S) framework, central securities depositories (CSDs) must harmonize their standards on corporate action processing to avoid complications in settlement, according to an executive at Morgan Stanley.
While T2S, as a technical platform, is set to harmonize cross-border settlement services for Europe’s CSDs, concerns remain on the need to coordinate corporate action processing.
Speaking at the CorpActions 2014 conference in London last week Matt Ford, head of corporate action operations EMEA, Morgan Stanley said: “While representing a huge step towards harmonization, corporate action processing does not fall in the main remit of T2S… the impact it will have on corporate action standardization is still a little opaque.”
“The reality is the CSDs will need to at some point harmonize their asset service models, especially in cross border scenarios where securities holdings are recorded in multiple CSDs.”
According to a study by the European Central Bank (ECB) earlier this year, the challenge for corporate action transaction management (flows) in the cross-CSD environment of T2S “stems from the fact that more than one CSD may be involved in the transaction chain, in which case T2S automatically creates necessary alignment instructions for real-time settlement.”
The report also points to the need to harmonize CSDs and markets due to the fact that they will all use the T2S platform for settlement related to processing of corporate actions.
To bring about harmonized standards on corporate action processing it will require an industry-wide effort.
“This (T2S) will not in itself deliver a fully harmonized corporate action framework for Europe, so additional work will be required from infrastructures, intermediaries and participants to adopt and deploy ISSA corporate action principles in their local markets,” says Arnaud Delestienne, head of core product management, Clearstream.
As well as corporate action processing questions over other asset services, such as tax processing, will also be extremely difficult to harmonize due to various national text laws that are not necessarily aligned at the EU level.
Building a comprehensive asset services offering with the requested level of resources and expertise could take years and require substantial investments, according to Delestienne.
“One of the options is therefore for CSDs to partner with local agent banks that have expertise and on-the-ground presence, to offer their clients a value proposition that meets their needs,” he adds.
CSDs Must Harmonize Corporate Action Standards, Says Morgan Stanley Exec
As Europe's securities markets prepare for the incoming TARGET2-Securities (T2S) framework, central securities depositories (CSDs) must harmonize their standards on corporate action processing to avoid complications in settlement, according to an executive at Morgan Stanley.