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BNY Mellon has ambitious plans for CSD
03 December 2013
Chris Prior-Willeard reveals plans for the business to be much more than an issuer CSD. Stephanie Baxter reports
BNY Mellon has plans to turn its new central securities
depository (CSD) into an investor CSD, according to Chris
Prior-Willeard, CEO of BNY Mellon CSD.
Since the creation of the new business in January the CSD has
been approved as an issuer CSD and has been granted securities
settlement system status by a Belgian Royal Decree which means
it is formally recognised under the European Markets and
Infrastructure Regulation (Emir).
But the bank has more ambitious plans for the entity.
"We want to become an investor CSD. We've been very active in
speaking to other markets participants and CSDs about how we
could have linkages with them. We have a very clear strategy.
Becoming an investor CSD would enable BNY Mellon to link to
other CSDs to do cross-border settlement.
"In the meantime things like Emir have crept up," he said. Emir
requires margin in OTC derivative transactions to be held
directly at CSDs by central counterparties (CCPs) and cannot be
held through a custodian bank.
The bank intends to open the CSD to both internal and external
customers. It will be open to participants that meet the
"We are talking to both internal clients and external clients
about our CSD business in relation to Emir and the [Alternative
Investment Fund Managers (AIFM) directive]."
A provision in the AIFM directive has led to talk about how
depositary banks could reduce their liability for loss of
assets by having a direct account at a CSD as opposed to
holding them at a CSD through a sub-custodian's account [see
December cover story http://bit.ly/1beImdO].
"The option for depositary banks to reduce their liability
under the AIFM directive by holding a direct account at a
CSD is at the heart of why we've done this. The CSD is
segregated in terms of systems and account structure. Being
regulated in the way we are, we aim to offer full protection
for those assets."
"Our buy-side clients are telling us they appreciate that CSDs
offer an additional channel from a regulatory point of view.
That's point's been picked up. I think the time has come, we
are very much responding to the messages regulators are giving
to the market."
BNY Mellon has received some criticism for moving into the
financial infrastructure business.
Prior-Willeard pointed out that some CSDs have moved into the
commercial banking territory: "Our setting up another business
is not unique in the market and we've seen CSDs trying very
hard trying to take on business historically done by
He added: "The development of our CSD is in line with the mood
and direction of European regulators to differentiate between
commercial bank risk and financial market infrastructure, which
is seen as less risky. Being the organisation we are, we would
argue being a CSD is more straightforward for us given our
traditional independent service structure."
At the time of launch BNY Mellon cited various regulations as
the drivers for setting up a CSD, one
being Target2-Securities (T2S) which will harmonise
settlement across Europe, lower settlement costs, and make it
easier for CSDs to link to one another.