The 14-year-old Association of Eurasian Central Securities Depositories (AECSD) unites 15 central securities depositories (CSDs) of the Eurasian region. Dominic Hobson talked to Dmitry Ivanov, head of securities account network management at the National Settlement Depository (NSD) in Moscow, and Secretary of the AECSD since 2016, about what his members are thinking and worrying about. The AECSD secretarial role is one to which Dmitry Ivanov is well-suited, since his responsibilities at NSD, which he joined after working in securities services at both Citi and ING, include co-ordinating relations with other CSDs and international financial institutions, initiating partnerships and commercial agreements, and establishing operational links.
Hobson: What issues are top of the AECSD agenda today?
Ivanov: Our core mission is to develop and enhance depository activities and to support the unification of standards and technologies in order to help AECSD members to become a part of the global settlement infrastructure. To fulfill that mission, the AECSD is working on establishing a common depository environment. We believe this can best be achieved by harmonization of the regulatory framework for depository activities, relevant rules and standards, the development of electronic data inter-changes and the establishment of depository links among the members to support cross-border securities transactions.
Hobson: How do you set about achieving that, in terms of practical steps?
Ivanov: We hold regular conferences and educational seminars. We also have three active working groups on depository activities, legal issues and legal developments, and the administration of the Association’s website and marketing. At the beginning of this year the AECSD secretariat also conducted a survey of members on the results of the 2017 plans and our upcoming plans for this year. The survey defined six key areas for development. These are new financial instruments, cash settlement, collective investment funds servicing, corporate information and corporate actions, technological solutions and developments, and new links between markets. Despite the fact that the domestic securities markets of the members of the AECSD are at different stages of development, we observe that these topics are on the agenda of all AECSD members today.
Hobson: You mentioned new financial instruments as one of the six priorities. Which asset classes do AECSD members have in mind?
Ivanov: Servicing new asset types is the most important topic on the agenda of CSDs all over the world, not just among AECSD members. And it is not only about crypto-assets. Warehouse certificates, securities linked to commodities and other assets which have never been a traditional subject for custody in CSDs before are also being explored.
Hobson: Beyond the six key initiatives, what new issues are rising up the AECSD agenda to be addressed tomorrow?
Ivanov: CSDs have historically performed not only their traditional CSD functions, but also actively participated in governmental programmes to improve the lives of their citizens and acted as a research and development centre of excellence for national financial markets, especially in technology. Almost all CSDs actively participate in some nationally important governmental projects, like pension savings administration or simplification of access to financial markets for domestic retail investors. These nationally important projects will be the main topics on the agenda of AECSD members for the immediate future. It is also worth noting another on-going trend in the AECSD region – the transfer of government bond safekeeping functions from national central banks to CSDs. In Russia and Kazakhstan this process is already complete, while in Armenia and Belarus it is still in progress. In other countries, including Tajikistan and Ukraine, the transfer it is only at the stage of initial discussions between local regulators and market participants. However, this trend is definitely one of the core axes of market infrastructure development in the AECSD region.
Hobson: You mention making it easier for retail or individual investors to access markets. How can CSDs help this to happen?
Ivanov: The extension of product lines for domestic individual investors is an excellent opportunity for CSDs in the AECSD region. It includes providing simplified access to securities transaction services and reporting, participation in the pension and education systems, becoming a registrar for financial transactions, and many other services. Traditionally, individual investor activity is relatively low in the AECSD region. Therefore, almost every CSD that belongs to AECSD is working with their national regulators and other market participants to bring individual investors to the securities markets. They are using a variety of methods, including mobile applications, special types of government and national bond issues, mutual funds market standardization and simplification, and tax incentives.
Hobson: What other product line extensions are AECSD members exploring?
Ivanov: Development of non-core services is a hot issue for CSDs everywhere today, and not just in our region. CSDs are trying to develop their businesses in new ways and are looking closely at crypto-assets, e-services, social projects, crowd funding, and outsourcing services.
Hobson: As you look across the global industry, what are the biggest opportunities you see for CSDs?
Ivanov: All the new services, and optimizations of existing services, that I have described are opportunities. In the AECSD region, integration of markets is the biggest opportunity for CSDs.
Hobson: And what about threats – what are the biggest threats to CSDs?
Ivanov: Digital technologies are evolving fast and cyber-threats are evolving even faster. Cyber-crimes and technological risks have become the most significant threats not only to CSDs but to the whole global financial community. This is why the National Settlement Depository (NSD) and every other member of the AECSD is paying such a lot of attention to these issues. Within the World Forum of CSDs (WFC), a new working group was created to co-ordinate and develop co-operation between regional CSD associations in these areas. In our opinion, joint efforts by all participants in WFC it will make it possible to keep cyber-resilience at the required level. But disruptive technologies will also affect significantly the business of CSDs. CSDs are unlikely to disappear completely in the immediate future but CSDs will have to modify their current business model and their traditional services.
Hobson: Which CSD issues affect your region in particular and which affect CSDs everywhere?
Ivanov: Integration and harmonization are global trends in the CSD industry. The standardization of laws and regulations, electronic communication channels and market and business practices encourage the development of a common and reliable environment for efficient interactions between markets everywhere, as well as in the AECSD region. That is why they help the integration of our region with the global financial marketplace. We can see, for example, that the successful implementation of TARGET2-Securities (T2S) in the European Union (EU) has stimulated integrational processes in other regions as well.
Hobson: T2S is obviously the creation of a supranational authority. Are there similar bodies in your region that can drive harmonization and integration initiatives?
Ivanov: Inter-state unions such as the Commonwealth of Independent States (CIS), the Eurasian Economic Union (EAEU) and others that unite member-states of the AECSD region do define the areas of development and harmonization. This contributes to the building of a common financial environment, which is simplifying cross-border trading and investment in the region. Despite the fact that the AECSD is not itself a supranational authority, it is nevertheless an actively used platform for sharing ideas about how the CSD industry can develop and enhance its services, create a common CSD space, and integrate CSDs – which are, after all, the AECSD members – into the global securities settlement system.
Hobson: Do you have a vision of the future of the CSDs in your region?
Ivanov: I believe the trends of harmonization, non-core services development, services for individual investors and cross-market connectivity will remain subjects of interest throughout the AECSD region for the foreseeable future. These are global trends. As a result of them, our members will create securities safekeeping and settlement systems that will enable investors to approach the AECSD markets safely and conveniently, using unified standards, procedures and message formats that reduce risk and minimize cost.
Hobson: What messages do you expect to convey at WFC 2019?
Ivanov: One of the main topics at WFC 2019 is the need for greater co-operation between CSDs and harmonization of both the core and non-core services of CSDs. The WFC Board has always paid a lot of attention to the exchange of information and experience between members to help this to happen. One recent initiative is the implementation of “E-learning” – http://wfc-knowledgecentre.com/e-learning/. This is a single, open and web-based platform for exchanging information about the achievements of CSDs, submitted by participants in the regional associations of CSDs that make up the membership of the WFC. The platform allows CSDs to share their experience of implementing services, and to monitor developments at other CSDs. As the E-learning project administrator, NSD will be drawing the attention of the audience to this WFC initiative, to encourage CSDs to exchange information on existing services and future developments. This will improve our understanding of each other’s activities and so contribute to a more efficient integration of CSDs into the international financial community. Another issue which will definitely be raised during the conference is the growing role of the CSDs as leaders of their local financial markets in formulating a response to new technologies and in the implementation of new services that make use of those technologies.