Clearstream is a post-trade services provider owned by Deutsche Börse AG. It provides settlement and custody as well as other related services for securities across all asset classes, it is one of two European International Central Securities Depositories. Clearstream operates securities settlement systems based in both Luxembourg and Germany, which allow for the holding and transfer of securities. Clearstream operates its International Central Securities Depository from Luxembourg, it is a joint partner in the Luxembourgish Central Securities Depository, LuxCSD, together with the Central Bank of Luxembourg. In Germany, Clearstream operates the German CSD, Clearstream Banking AG. Clearstream has links to over 50 domestic markets worldwide, issues and safekeeps Eurobonds. In 2014, the value of assets under custody on behalf of customers averaged 12.2 trillion euros. Clearstream has around 2,500 customers in 110 countries. Clearstream accepts central banks and AML-regulated credit institutions as customers.
Clearstream does not accept natural persons as customers and no account is opened in the name of a natural person. Clearstream has therefore been described as a "bank for banks". Clearstream was founded as "Cedel" in September 1970 by 66 of the world's major financial institutions as a clearing organisation whose objective was to minimise risk in the settlement of cross-border securities trading in the growing Eurobond market. In 1995, a new corporate structure was introduced, establishing a parent company - Cedel International - with a subsidiary company, Cedelbank. Clearstream was formed in January 2000 through the merger of Cedel International and Deutsche Börse Clearing; the full integration of Clearstream was completed in July 2002. Today Clearstream has operational centres in Cork, Luxembourg and Singapore, it maintains representative offices in London, Hong Kong, Dubai, New York and Zurich. In July 2010, Clearstream founded LuxCSD together with the Luxembourg Central Bank, to act as a CSD for Luxembourg.
In December 2010, Clearstream co-founded REGIS-TR, a joint venture with the Spanish Central Securities Depository Iberclear, to act as a trade repository for derivatives transactions, helping participants meet their regulatory reporting obligations brought about by the introduction of the European Market Infrastructure Regulation. Based in Luxembourg and Germany, Clearstream is subject to the supervision of the regulatory authorities of these two countries. In Luxembourg, the Commission de Surveillance du Secteur Financier is the prudential regulator with authority over all banks and financial service providers. In Germany, Clearstream is regulated as a bank according to the German Banking Act and is therefore subject to the prudential supervision of the German Federal Financial Supervisory Authority. Moreover, Clearstream is regulated in each market where it has operational centres, for example by the Monetary Authority of Singapore; as the operator of securities settlement systems in both Luxembourg and Germany, Clearstream is additionally regulated by the central banks of these two countries, namely the Banque centrale du Luxembourg and the Deutsche Bundesbank.
Clearstream is responsible for the management, safekeeping/custody and administration of securities under custody. Services include corporate actions as well as tax and proxy voting; the majority of securities safekept by Clearstream are immobilised. Securities are reflected in book-entry form in the accounts of customers at Clearstream regardless of whether they are held in physical or dematerialised form; this means that they are no longer represented by physical certificates, but instead by data entered into the Clearstream systems. Securities financing is the ability to lend cash or securities against collateral. In securities financing, collateral comprises assets given as a guarantee by a borrower to secure a securities loan and subject to seizure in the event of default. Collateral management refers to the handling of all tasks related to the monitoring of collateral posted by a borrower to meet a financial obligation. Clearstream's collateral management, securities lending and borrowing services are gathered under the Global Liquidity Hub.
It provides a pool of liquidity through links to agent banks, trading platforms, clearing houses and other market infrastructures. Clearstream is a member of the Liquidity Alliance, established in January 2013 as a platform for CSDs to collaborate on collateral management, it was founded by ASX, Clearstream and Strate. Clearstream has developed the world's largest cross-border fund processing platform, called Vestima, it handles all types of funds, from mutual funds to exchange-traded funds and hedge funds. In addition to providing access to all fund types, Vestima supports their cross-border distribution. Services offered by Vestima include order routing, centralised delivery versus payment settlement, asset servicing and collateral management. ICSDs and CSDs are used to bring a security issue to the market, as they possess the necessary infrastructure for distributing the securities to
Euroclear is a Belgium-based financial services company that specializes in the settlement of securities transactions as well as the safekeeping and asset servicing of these securities. It was founded in 1968 as part of J. P. Morgan & Co. to settle trades on the developing eurobond market. Euroclear settles domestic and international securities transactions, covering bonds, equities and investment funds. Euroclear provides securities services to financial institutions located in more than 90 countries. In addition to its role as an International Central Securities Depository, Euroclear acts as the Central Securities Depository for Belgian, Finnish, Irish, Swedish and UK securities. Euroclear owns EMXCo, the UK's leading provider of investment-fund order routing. Euroclear is the largest international central securities depository in the world. Retail investors are able to have direct accounts in local CSDs, according to local laws and procedures; the Euroclear System was operated by the Belgian branch of Morgan Guaranty Trust Company from its founding in December 1968 until the start of 2001, when they transferred control to Euroclear Bank.
Kidder Peabody had been the first major trading firm to tell the market that it would only deal with firms that cleared through Euroclear. Euroclear's creation provoked a reaction in Luxembourg among firms which were competitors with Morgan, who feared that Morgan could use their settlement data to its trading advantage; this led to the launch of a competitor, Cedel, in September 1970. Euroclear acquired Sicovam in 2001, the Dutch and CRESTCo Ltd, the CSD for UK & Irish securities using the CREST application in 2002, it acquired Caisse Interprofessionnelle de Dépôts et de Virements de Titres, the Belgian CSD, in 2007. These local CSDs were renamed as Euroclear France, Euroclear Netherlands, Euroclear UK & Ireland and Euroclear Belgium, respectively. Euroclear took a 20% stake in the capital of LCH. Clearnet, the UK/French entity responsible for the clearing of Euronext, London Stock Exchange and other stock exchange transactions; the CSDs of Finland and Sweden, now operating as Euroclear Finland and Euroclear Sweden were acquired by Euroclear in October 2008.
In October 2012, Euroclear granted access to Russia’s National Settlement Depository, making it easier for other countries hooked to Euroclear's system to trade with Russia, making Russia’s capital market integrated into London's and New York's markets. 3 years Russia mimicked the Euroclear system to create an exchange system with China. In May 2013, Euroclear and the US' Depository Trust and Clearing Corporation offered access to each other’s vast inventory of collaterals. While the initial offering provides a two-way automatic transfer and retention of collaterals, it is intended to evolve as a single pool of depositories. In April 2014, Euroclear linked its system to the Central Latinoamericana de Valores to open Panama to international investors, thus creating a single pool of liquidity. In February 2015, Mexico opened up its corporate bonds to Euroclear's trading platform, hoping it will facilitate and increase raising funds for its development programs. In March 2016, the central bank of France linked with Euroclear for securities lending, with the Mexican Stock Exchange to connect the Mexican mutual funds market with the Belgian trade company.
On 25 March, 2015, New York judge Thomas Griesa ordered Euroclear to stop processing payments of Argentina's debt bonds. This court injunction follows Argentina's decade-long dispute with its creditors; the next day, the trading bridge between Euroclear and Clearstream on those Argentine bonds were shuttered until further notice. The intent of this injunction was to force Argentina to pay their creditors in order to gain back access to its bond-selling program. In April 2012, Euroclear participated in the restructuring of the Greek debt by swapping 41 billion euros of Greek bonds, which represented about a third of the foreigner-held Greek debt. In 2005, a new Belgian holding company, Euroclear SA/NV, was created as the owner of all the shared technology and services supplied to each of the Euroclear CSDs and the ICSD. In January 2010, Tim Howell became CEO of Euroclear, replacing Pierre Francotte whose tenure lasted 10 years. On 1 January 2017, Lieve Mostrey was appointed CEO of Euroclear, replacing Tim Howell.
In 2015, Euroclear reported €27.5 trillion in safekept clients assets, €674.7 trillion in annually traded assets. Each of the Euroclear CSDs are regulated by the relevant authorities within their respective home countries. Incorporated in Belgium, Euroclear SA/NV is subject to the supervision of the Belgium Financial Services and Markets Authority; the National Bank of Belgium has oversight. Euroclear plc is authorised as a service company by the Financial Conduct Authority in the United Kingdom. RIA on clearing and settlement market Clearstream Euroclear portal T2S Project of the Eurosystem
A security is a tradable financial asset. The term refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some jurisdictions the term excludes financial instruments other than equities and fixed income instruments. In some jurisdictions it includes some instruments that are close to equities and fixed income, e.g. equity warrants. In some countries and languages the term "security" is used in day-to-day parlance to mean any form of financial instrument though the underlying legal and regulatory regime may not have such a broad definition. In the United Kingdom, the national competent authority for financial markets regulation is the Financial Conduct Authority. In the United States, a security is a tradable financial asset of any kind. Securities are broadly categorized into: debt securities equity securities derivatives; the company or other entity issuing the security is called the issuer. A country's regulatory structure determines. For example, private investment pools may have some features of securities, but they may not be registered or regulated as such if they meet various restrictions.
Securities may be represented by a certificate or, more "non-certificated", in electronic or "book entry" only form. Certificates may be bearer, meaning they entitle the holder to rights under the security by holding the security, or registered, meaning they entitle the holder to rights only if he or she appears on a security register maintained by the issuer or an intermediary, they include shares of corporate stock or mutual funds, bonds issued by corporations or governmental agencies, stock options or other options, limited partnership units, various other formal investment instruments that are negotiable and fungible. Securities may be classified according to many categories or classification systems: Currency of denomination Ownership rights Terms to maturity Degree of liquidity Income payments Tax treatment Credit rating Industrial sector or "industry". Region or country Market capitalization State Securities are the traditional way that commercial enterprises raise new capital; these may be an attractive alternative to bank loans depending on their pricing and market demand for particular characteristics.
Another disadvantage of bank loans as a source of financing is that the bank may seek a measure of protection against default by the borrower via extensive financial covenants. Through securities, capital is provided by investors who purchase the securities upon their initial issuance. In a similar way, a government may issue securities too. Investors in securities may be retail, i.e. members of the public investing other than by way of business. The greatest part of investment, in terms of volume, is wholesale, i.e. by financial institutions acting on their own account, or on behalf of clients. Important institutional investors include investment banks, insurance companies, pension funds and other managed funds; the traditional economic function of the purchase of securities is investment, with the view to receiving income or achieving capital gain. Debt securities offer a higher rate of interest than bank deposits, equities may offer the prospect of capital growth. Equity investment may offer control of the business of the issuer.
Debt holdings may offer some measure of control to the investor if the company is a fledgling start-up or an old giant undergoing'restructuring'. In these cases, if interest payments are missed, the creditors may take control of the company and liquidate it to recover some of their investment; the last decade has seen an enormous growth in the use of securities as collateral. Purchasing securities with borrowed money secured by other securities or cash itself is called "buying on margin". Where A is owed a debt or other obligation by B, A may require B to deliver property rights in securities to A, either at inception or only in default. For institutional loans, property rights are not transferred but enable A to satisfy its claims in the event that B fails to make good on its obligations to A or otherwise becomes insolvent. Collateral arrangements are divided into two broad categories, namely security interests and outright collateral transfers. Commercial banks, investment banks, government agencies and other institutional investors such as mutual funds are significant collateral takers as well as providers.
In addition, private parties may utilize stocks or other securities as collateral for portfolio loans in securities lending scenarios. On the consumer level, loans against securities have grown into three distinct groups over the last decade: 1) Standard Institutional Loans offering low loan-to-value with
A government bond or sovereign bond is a bond issued by a national government with a promise to pay periodic interest payments and to repay the face value on the maturity date. Government bonds are denominated in the country's own currency, in which case the government cannot be forced to default, although it may choose to do so. If a government is close to default on its debt the media refer to this as a sovereign debt crisis; the terms on which a government can sell bonds depend on how creditworthy the market considers it to be. International credit rating agencies will provide ratings for the bonds, but market participants will make up their own minds about this; the first general government bonds were issued in the Netherlands in 1517. Because the Netherlands did not exist at that time, the bonds issued by the city of Amsterdam are considered their predecessor which merged into Netherlands government bonds; the average interest rate at that time fluctuated around 20%. The first bond issued by a national government was issued by the Bank of England in 1694 to raise money to fund a war against France.
It was in the form of a tontine. The Bank of England and government bonds were introduced in England by William III of England, who financed England's war efforts by copying the approach of issuing bonds and raising government debt from the Seven Dutch Provinces, where he ruled as a Stadtholder. Governments in Europe started issuing perpetual bonds to fund wars and other government spending; the use of perpetual bonds ceased in the 20th century, governments issue bonds of limited term to maturity. A government bond in a country's own currency is speaking a risk-free bond, because the government can if necessary create additional currency in order to redeem the bond at maturity. There have however been instances where a government has chosen to default on its domestic currency debt rather than create additional currency, such as Russia in 1998. Currency risk is the risk that the value of the currency a bond pays out will decline compared to the holder's reference currency. For example, a German investor would consider United States bonds to have more currency risk than German bonds.
A bond paying in a currency that does not have a history of keeping its value may not be a good deal if a high interest rate is offered. Inflation risk is the risk. Investors expect some amount of inflation, so the risk is that the inflation rate will be higher than expected. Many governments issue inflation-indexed bonds, which protect investors against inflation risk by linking both interest payments and maturity payments to a consumer prices index. If a central bank purchases a government security, such as a bond or treasury bill, it increases the money supply, in effect creating money. In the UK, government bonds are called gilts. Older issues have names such as "Treasury Stock" and newer issues are called "Treasury Gilt". Inflation-indexed gilts are called Index-linked gilts. UK gilts have maturities stretching much further into the future than other European government bonds, which has influenced the development of pension and life insurance markets in the respective countries. Consol Foreign exchange reserves of the People's Republic of China Government debt List of government bonds Municipal bond Treasury War Bonds
Securities market participants (United States)
Securities market participants in the United States include corporations and governments issuing securities and corporations buying and selling a security, the broker-dealers and exchanges which facilitate such trading, banks which safe keep assets, regulators who monitor the markets' activities. Investors buy and sell through broker-dealers and have their assets retained by either their executing broker-dealer, a custodian bank or a prime broker; these transactions take place in the environment of equity and equity options exchanges, regulated by the U. S. Securities and Exchange Commission, or derivative exchanges, regulated by the Commodity Futures Trading Commission. For transactions involving stocks and bonds, transfer agents assure that the ownership in each transaction is properly assigned to and held on behalf of each investor. Supporting these transactions, there are three central securities depositories and four clearing organizations that assure the settlement of large volumes of trades.
Market data consolidators inform investors and regulators in real time of the bid and offer prices of each security through one of two securities information processing systems. The basis for these transactions is controlled both through self-regulatory organizations and the two securities commissions, the SEC and the CFTC; this article covers those who deal in futures in US markets. Securities include equities and options thereon. Derivatives include options thereon as well as swaps; the distinction in the US relates to having two regulators. Markets in other countries have similar categories of securities and types of participants, though not two regulators. Parties to investment transactions include corporations and governments which raise capital by issuing equity and debt, the selling and buying investors, the broker-dealers and stock exchanges that have the means to transact those deals. An issuer is a government which raises capital by issuing either debt or equity. Debt and equity may be issued in various forms, such as bonds and debentures for debt.
Issues may be sold to investors, or sold to the public via the various markets described below. An investor is a person or corporate entity that makes an investment by buying and selling securities. There are two sub-categories: retail and institutional. Investment managers are either investment companies such as mutual funds or investment advisers which invest for clients. Investors may not be members of stock exchanges. Rather they must buy and sell securities through broker-dealers which are registered with the appropriate regulatory body for that purpose. In accepting investors as clients, broker-dealers take on the risks of their clients not being able to meet their financial obligations. Hence retail investors are required to keep their investment assets in custody with the broker-dealer through which they buy and sell securities. A broker-dealer would not accept an order to buy from a retail clients unless there is sufficient cash on deposit with the broker-dealer to cover the cost of the order, nor sell unless the client has the security in the broker-dealer's custody.
Institutional investors buy and sell on behalf of their individual clients, be they pension funds and the like, or pooled funds such as mutual funds, unit trusts or hedge funds. As such, their client assets are safe kept with either custodian broker-dealers. Furthermore, institutional investors may buy and sell through any number of broker-dealers which in turn settle such trades at the designated custodians and prime brokers. Investment managers differ from hedge funds on how much risk each pursues in its investment strategies. For example, investment managers do not sell short, but hedge funds do. Buying and selling can be either long or short: Retail clients may buy or sell short only under specific agreement with their broker-dealers under a margin account, in which case the broker-dealer either finances the buy or borrows the security for the sell. Institutional investors must inform their executing broker-dealers as to whether orders are long or short, since those brokers have no way of knowing their clients' positions are in each security.
Were investors able either to buy short naked, or sell short naked, such practices could lead to market manipulation of stock prices: since buyers or sellers would not have the restraint of providing cash or securities, they could conceivably have unlimited buys or sells, which would drive prices up or down. Naked short buying is not a problem because custodians and prime brokers have their own finances from which to lend money to their clients in order to settle the trades. Naked short selling can be a problem, it occurs when a prime broker is unable to borrow the stock because there is none available for that purpose. Hedge funds are expected to find sources of stock which can be borrowed before executing short sell orders. If they fail to do so, their prime broker cannot borrow for them the settlement of such trades cannot take place on the settlement date. Whether such a "fail" is due to poor co-ordination among the various parties or to a naked short sale is impossible to determine. In the US the SEC ended such instances by making the cost of a failed short sell too expensive for the hedge fund to risk.
If on the morning the short sell is scheduled to settle the prime broker cannot deliver the securities to the executing broker the la