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About the author

Ana Giraldo

Chief Risk Officer and Director Americas | Management

Ana Giraldo is Thomas Murray’s Chief Risk Officer. She is based in Bogotá, Colombia, and also serves as Director, Americas. She leads our Risk Committee, and developed several internal risk methodologies to help clients assess their risk exposures to third parties. Ana is also the author of several technical papers on post-trade entities and risk.

The 25th Americas Central Securities Depository Association (ACSDA) general assembly took place from 26 to 28 April 2023 in the Dominican Republic.

Our Chief Risk Officer Ana Giraldo, as part of the Business Diversification panel, provided insights into the way that CSDs can go beyond traditional diversification methods in a way that still aligns with their core business aims. Here’s a summary of her presentation to the ACSDA general assembly.

Business diversification is a key financial tool that any company, in any industry, should use to avoid the risk of concentration and dependency on a single type of product or service. We have all heard the saying that you shouldn’t put all your eggs in the same basket. But what does that mean in the CSD world? 

CSDs are financial market infrastructures and, in most cases, are natural monopolies. This means that they do not have the same pressures or levels of competition that organisations in other industries face. Nevertheless, as you’d expect, business diversification is as essential for CSDs as it is for any other business in any other sector.

But what do we mean when we talk about CSD business diversification? Does it refer to any investment that takes them beyond their traditional business interests? For instance, Egypt’s CSD had an investment in a football team, which could mean that it is well diversified, right? In one way, perhaps the answer is yes – but let’s just say that there are other ways to diversify that are more in line with what’s expected from a CSD as a business.

In terms of business diversification for CSDs, there are two types: Utility CSDs and commercial services CSDs.

Utility CSDs

These are the CSDs that offer additional infrastructure services in addition to their core services – namely, the safekeeping of securities, the corporate action services associated with those securities, securities clearing and settlement, and so on.

We have two very different yet interesting examples of this in action: 

  • In addition to its own CSD (the Depository Trust Co), the Depository Trust and Clearing Corporation (DTCC) has leveraged its technology and infrastructure to extend the automation and standardisation of processes to other sectors of the financial market. 

    For example, it offers mutual funds services that include information on mutual funds (MF Indo Xchange), as well as the settlement of these and other collective funds (FundServ). DTCC also provides information on retirement plans (Networking – RPR), among other services. 

  • India’s National Securities Depository Ltd (NSDL) has also decided to leverage its technology to expand its infrastructure services, but it goes beyond the financial system to provide services to the national government.

    Through its subsidiary NSDL Database Management Ltd (NDML), it has a Know-Your-Customer registry, an insurance repository and it manages a government payment system. Because India is such a big country, it also offers a centralised repository of academic achievements where companies can verify the academic credentials of their prospective employees. Furthermore, on behalf of the ministry of commerce, NSDL also offers customs payments for special economic zones. 

“Commercial CSDs”

Certain CSDs have opted to offer commercial services, sometimes in competition with their own participants such as custodian banks, issuers, or registrars. 

This obviously grants CSDs the potential to increase their income. It also allows for a more direct and effective relationship with their participants, or with their participants’ clients (global custodians, for example). 

But this comes at a cost, which includes: 

  • an increase in the in the technology costs required to match the services of its competitors;
  • an increase in capital to fulfil industry requirements; 
  • a banking licence, which will be required for handling cash (and therefore being regulated like a bank); 
  • an increase in risk profile; 
  • possible reputational risk; and 
  • a mindset change, from being part of an infrastructure to being a commercial entity. 

Furthermore, one of the most significant changes in the securities depository industry has been the introduction of T2S in Europe, which allows CSDs to disintermediate sub-custodians as global custodians can potentially open accounts directly in the CSDs.

This, undoubtedly, reduces counterparty risk for global custodians: The exposure is directly to the CSD, not to a commercial bank that is more likely to fail. 

In addition, there is access to settlement in central bank money (through the CSD), cost reductions, and greater control over the assets held by the CSD. However, among the disadvantages is the fact that there is generally less automation and investment in technology in CSDs than there is in most commercial banks.