13 Oct 2015 – Based on data collected from 41 CSDs across Europe, ECSDA’s new report describes existing account segregation practices with a view to inform the current debate on the optimal level of segregation, focusing on the perspective of central securities depositories.
The report does not seek to recommend a particular segregation model but highlights some of the complexities and challenges around account structures at infrastructure level. In particular:
- There is a multiplicity of segregation models used for domestic settlement across Europe. The report uses common definitions in order to distinguish between markets which work primarily with omnibus accounts, segregated accounts, or a combination of both (see chart). Within each category however, CSDs offer different types of segregation options, reflecting in large part local market constraints and market participant preferences.
- The right level of segregation cannot be reduced to a trade-off between safety and efficiency. In fact, in many cases, national law appears to be a much more determining factor than CSD account segregation practices in terms of investor protection and issuer transparency.
- Individual client or end investor account segregation typically does not apply in cross-border scenarios. CSD links operate on the basis of omnibus accounts in order to avoid complex and inefficient procedures for cross-border settlement. Even in markets which require significant segregation by domestic participants, omnibus accounts are recognised as necessary to allow non-domestic CSDs to access the local market efficiently. This is especially true for CSDs participating in the Eurosystem TARGET2-Securities (T2S) project.
- There is a complex and sometimes inconsistent interaction between different pieces of EU law as regards segregation rules for securities accounts. The development of CSD links, encouraged by T2S, has resulted in more widespread availability of omnibus accounts at CSDs. However, some pieces of EU law such as EMIR and AIFMD seem to encourage the use of segregated accounts, at least at the level of market intermediaries.
All in all, despite the difficulty to assess the combined impact of existing and future regulations, it is possible that the notion of “investor choice” introduced by the CSD Regulation (2014) could progressively result in more convergence of account segregation practices at CSDs, with segregated and omnibus accounts being offered as a choice, rather than being imposed by law.