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 eligibility criteria.

“We are talking to both internal clients and external clients about our CSD business in relation to Emir and the .”

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 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 banks.”

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.

“Three years ago we identified key drivers that would change the European market. Target2-Securities was at the top of the list. As our clients’ needs changed, we wanted to be prepared to handle their requirements be they via commercial bank mechanism or infrastructure.”

“There is new regulatory change that will differentiate between financial market infrastructure such as CSDs, CCPs and commercial bank service providers.”

There has been talk of other banks going down the same route as BNY Mellon but some market participants have said it is unlikely.

There have been rumours about JPMorgan setting up a CSD, particularly following reports about a partnership with the London Stock Exchange Group's new Luxembourg-based CSD. But a spokesperson for the bank explained that its "not a partnership as such, more a client-vendor relationship where we are the client". 

HSBC has no current plans to set up a CSD, said Henry Raschen, head of regulatory and industry affairs, Europe, HSBC Securities Services.

One participant noted that BNY Mellon is unique in having the right components in place to establish a CSD. For example it has an existing corporate trust business that is able to carry out notary functions, which is the initial recording of securities in a book-entry system through initial crediting.

The Bank of New York – as it was known then – acquired the corporate trust business from JPMorgan in 2006.