Link Up Markets, the 2-year-old joint venture between ten CSDs, is one of the most successful of numerous attempts to bring harmonization to the notoriously fragmented European settlement landscape. Irene Mermigidis, who has just been appointed the new managing director of Link Up Markets, discusses whats next for the group. With T2S on the horizon, her sights are set well beyond continental Europe
What is on your agenda as the new managing director of Link Up Markets?
Overall my objective will be to continue to support the joint venture partners to intensify their relationships and strengthen their status in all markets. Link Up Markets operational model helps transform CSDs to become more specialized custodians for outbound business so they can diversify services, generate new revenue streams and build cross-border abilities in-house or streamline existing cross-border business by offering direct access to markets at domestic CSD cost, and simplify setup and maintain the links they have.
I will also continue to promote Link Up Markets model to other market infrastructures in order to achieve further economics of scale and broader access to markets.
The European settlement landscape is notoriously fragmented. Have there been any tangible improvements since Link Up Markets was launched two years ago?
Link Up Markets has proven interoperability is not just a promise but a pragmatic approach to efficiency. Link Up Markets has been a showcase for interoperability and delivered from year one the Link Up Markets Converter, an IT solution that proved it can be feasible and cost effective by sharing costs between joint venture partners. Link Up Markets allows reuse of the local infrastructures of the CSDs while it absorbs the different market standards, and has been acting as a harmonization factor of participating CSDs. Link Up Markets partners make a technical connection to the Link Up Markets Converter and use this connection and their initial mapping of the converter for all future links to other CSDs. This saves time and effort.
What opportunities do you think CSDs can draw from Link Up Markets that they have not yet exploited?
I think in the first years of Link Up Markets we have learned and improved the overall service offering as issuer CSDs and have developed new functionality and services as investor CSDs. Maybe the terms of issuer CSDs and investor CSDs are not commonly known. Issuer CSDs make available home securities to other cross-border CSDs, allowing the cross-border CSD to invest in the issuer CSD’s securities. Investor CSDs enable other CSDs to invest in their home market.
The Link Up Markets partners have also realized that with T2S moving forward they need to establish closer links with other CSDs, and Link Up Markets offers such a possibility without losing their independence. I believe Link Up Markets has shown only a part of the potential for harmonization, and what we would call a community effect that can be achieved between market infrastructures that come together as partners, and away from requests generated from regulation meaning harmonization as a result of partnership rather than a prerequisite.
Joining Link Up Markets has been a factor for harmonizing connectivity, standards, formats and services between partners. What we call the community effect has only just started. Link Up Markets has brought them closely together, and has been a platform for identifying other business opportunities between CSDs for new product development and partnerships. These opportunities have been spun off because of this same concept of bringing together CSDs as partners.
Do you see a benefit for more non-European CSDs to join Link Up Markets, as South Africa’s Strate and Egypt’s MCDR have, or should Link Up Markets refocus on Europe?
Link Up Markets offers access to 50% of European and 90% of African markets via a single technological link. Having achieved critical mass in Europe and Africa, the Link Up Markets operational model can be very attractive for market infrastructures on other continents as a gateway to the region. In the short term it offers immediate access to their own market and their own regional network via a single window. In the longer term, it offers regional access to a global network. Link Up Markets continues discussions to potential partners from other continents as well, and in recent months we have been in discussions with the Asian infrastructures in particular.
Pending regulatory changes in Europe such as T2S will have a significant impact on Link Up Markets members. Can you explain how CSDs will be affected by the legislation and how Link Up Markets will facilitate T2S adoption?
The Link Up Markets CSDs realized that with T2S they need to establish closer ties with other CSDs. In the post-T2S era links between CSDs would become necessary. T2S would provide a common settlement system; however, custody links would still be required for servicing or receiving services from other markets. Experience in creating such links would be necessary. Link Up Markets CSDs have established between them bilateral link agreements, which are standardized among Link Up Markets participants. The opening of accounts and bilateral agreement signing will be required for T2S. Link Up Markets partners have the legal structure in place in order not to lose the first-mover advantage when T2S goes live.
In 2011, the focus will be on understanding technological T2S requirements to further support European Link Up Markets partners to decide to what extent Link Up Markets could be the efficient solution for a technical link to the T2S and reduce their cost of change for new technology requirements. Link Up Markets has allowed and continues to encourage closer business relationships, restrengthening CSDs position without losing their independence.
Christopher Gohlke