Central Securities Depository Risk Assessments

Thomas Murray's Central Securities Depository (CSD) Risk Assessments are a key component of its Market Information Guides. They combine detailed factual information about the structure and operations of all planned and operational CSDs with Thomas Murray's assessment of their capabilities against eight categories of risk, plus an overall risk assessment, on the familiar AAA to CCC grading scale. Assessments of 147 CSDs are available and updated daily.

The design, ownership and structure of a CSD has a major impact on the asset safety of investments held in domestic markets. The CSD Risk Assessments address both commercial and regulatory issues, including SEC Rule 17f-7 (US) and FSA COB rules (UK), in order to allow users to identify potential risk exposures suffered by assets owners. Their scope covers settlement and custody risks linked to equity and fixed income transactions processed in local markets.

What information does a typical depository risk assessment contain?

The goal of a depository risk assessment is to assess the risks posed to the safety of assets by CSDs. This is why each assessment focuses on the risks associated with the processing of securities transactions through a CSD.

The Thomas Murray methodology measures eight separate risks:

  • Asset Commitment Risk: the period when cash or securities are in a CSD, but not yet exchanged
  • Liquidity Risk: that the exchange of cash and securities will fail because the cash or securities are not available
  • Counterparty Risk: that a counterparty defaults on its obligations
  • Asset Safety Risk: that assets held in custody at the CSD may be lost or misappropriated, either due to a default or an omission, misuse, or breakdown of controls (legal, operational or other)
  • Asset Servicing Risk: that the value of entitlements is lost because of error or failure by a CSD
  • Financial Risk: that the CSD suffers catastrophic financial failure
  • Operational Risk: that operational shortcomings by the CSD cause loss to users
  • Governance and Transparency Risk: that a participant may incur a loss arising from the depository not acting according to its rules and regulations or not providing full and accurate information on its activities and the activities of the market.

Depository Surveillance

Each CSD is invited to update information held on it directly in Thomas Murray's database on a rolling annual basis, and all submitted amendments are vetted by Thomas Murray's team of analysts before being published. Participants are also invited to review the CSD reports so that users' experiences can be incorporated in a balanced assessment.

The assessments are continuously kept updated by Thomas Murray analysts on the basis of confirmed news items affecting local markets, with each change requiring confirmation from at least two independent sources. Notifications of changes in risks that might affect the assessments are e-mailed to subscribers daily, along with an assessment of their impact on the risk exposures of investors.

Daily Securities Market Flashes are included in the price of a subscription.

pdfDownload the Central Securities Depository Risk Assessments Methodology paper.

Derek Duggan portrait

If you would like to purchase this service, or find out more about it, please contact Derek Duggan at dduggan@ds.thomasmurray.com or telephone him on +44 (0) 20 8600 2300.