Josef Landolt – If WFC is where CSDs talk to each other, ISSA is where CSDs talk to their users

ISSA is still mistakenly characterised as an association for custodian banks. In reality, CSDs  have belonged to the association and contributed to its work since its first meeting 40 years ago. With the gradual emergence of WFC since the first CSD conference in 1991, a fruitful division of labour has developed, with ISSA hosting dialogue between CSDs and their users and WFC between CSDs only.  With new technologies posing securities services incumbents a variety of challenges and opportunities, that dialogue is bound to become more urgent and intense.

The history of the World Forum of Central Securities Depositories (WFC) and the history of the International Securities Services Association (ISSA) are closely intertwined. Of the 48 institutions which attended the first ISSA Symposium in October 1979, nine were CSDs, and they have stayed involved ever since. There were 22 CSDs at the last ISSA Symposium in Zurich in May 2018.


There were rather more at the last WFC in Hong Kong in November 2017 and will be more still at the WFC in Marrakech this month. But ISSA and the WFC settled on a productive division of labour a long time ago. When the French CSD, Sicovam – which was not acquired by Euroclear until 2000 – hosted the first conference of CSDs in September 1991, the idea owed something, not just to the example set by ISSA, but to the encouragement of its leadership.


CSDs have always been closely involved in the work of ISSA


“I remember Ray Parodi, then the vice-chairman of ISSA, mentioned on repeated occasions that it was ISSA who first suggested to the CSDs that they should have their own gathering in order to deal with their own topics rather than `overloading’ the ISSA  agenda with purely CSD-related issues,” recalls Urs Stähli, secretary of ISSA. “Apparently, it was also decided that ISSA should hold its Symposia in even years, whereas the CSDs would hold their gathering in uneven years.”


The last ISSA Symposium was the nineteenth, while the CSD conference this month is the fifteenth. Technically, it is only the fourth WFC, the Forum in its present form only being agreed between the five regional associations of CSDs at their eleventh conference in Cape Town in April 2011. But the pas de deux between ISSA and the CSD industry over the last 40 years continues – because it has proved mutually beneficial.


ISSA has always sought to encompass every aspect of the post-trade value chain – today, its membership includes four central counterparty clearing houses (CCPs) as well as 40 CSDs – and CSDs play a crucial role in settling trades and safekeeping assets. So it is scarcely surprising that ISSA adapted so readily to the rising importance of CSDs after the publication in 1989 by the Group of Thirty (G30) of Clearance and Settlement Systems in the World’s Securities Markets.[1]


That seminal report, published in the wake of the global equity settlement crisis of the late 1980s, included as its third recommendation that “each country should have an effective and fully developed central securities depository, organised and managed to encourage the broadest possible industry participation (directly and indirectly), in place by 1992.”


That timetable proved ambitious, but ISSA members were among the earliest and keenest supporters of the G30 report. In 1997 ISSA published a status review of progress towards the G30 recommendations spanning 42 major markets. Three years later it extended the G30 recommendations to take account of new developments by adding its own ISSA Recommendations 2000 to them. ISSA also contributed to the 2003 revision of the G30 recommendations themselves.[2]


WFC is for CSD-to-CSD issues and ISSA for CSD-to-user issues


Throughout this time, the number of CSDs increased steadily, and ISSA continued to welcome them as members. Some CSDs had joined as early as 1988, and ten CSDs supported the incorporation of ISSA as Swiss association in August 1989. As the early CSD conferences developed after 1991, and dedicated themselves to CSD-specific issues, ISSA became the forum at which CSDs discussed issues of common interest with their users, as opposed to each other.


“The ISSA board welcomed the initiative of the CSDs to have meetings by themselves,” recalls Stähli. “However, it proved essential to also have an ongoing dialogue between the depositories and their users, for which the ISSA Symposium proved ideally suited. Having a separate CSD conference allowed the CSDs to deal with their own agenda items, while continuing to deal with topics affecting custodian banks and CSDs alike within the realm of ISSA.”


True, CSDs were not admitted to the board of ISSA until the winter of 2008-09, when Don Donahue of the Depository Trust and Clearing Corporation (DTCC), Jeff Tessler of Clearstream and Fred Hannequart of Euroclear took their seats. But, contrary to popular perceptions, this was not because of the competitive tension that had developed at the turn of the century, especially in Europe, between the custodian banks that founded ISSA and the CSDs.


The absence of CSDs from the ISSA board, says Stähli, was simply because until 2008, when ISSA introduced a membership fee, Board directorships were synonymous with the custodian banks which funded all the activities of the association. Today, five of the largest CSDs – Clearstream, DTCC, Euroclear, Hong Kong Exchange and Clearing and SIX – all sit on the ISSA board, and CSDs account for 40 of the 119 member-institutions. [3]


ISSA membership is being taken up by frontier and emerging market CSDs


“CSDs were valued members of ISSA from the outset, because ISSA was designed from the outset to cover the whole of the value chain,” reiterates Josef Landolt, the CEO of ISSA. “That is what makes ISSA unique. No other organisation covers the whole of the value chain.” Landolt himself attends the meetings of some of the five regional associations of CSDs, to ensure ISSA understands their issues and incorporates them into its work.


Others Landolt has met regularly at WFC. And it is at WFC that his engagement with the Africa and Middle East Depositories Association (AMEDA) in particular has encouraged the CSDs of Abu Dhabi, Lebanon and Saudi Arabia to join ISSA in the last year alone. “Having AMEDA members at ISSA gives us information about what is relevant to them,” explains Landolt. “And they will be much more important in the future than they are today.”


CSDs are leading ISSA Working Groups on corporate actions and DLT


Participation in all ISSA Working Groups is open to CSDs, and CSDs are involved in all four of the current Groups. In the Corporate Actions and Proxy Voting Working Group, CSDs make up only six of the 19 members, but they are leading the discussions. “The meetings are composed primarily of CSDs,” says Stähli. “But what comes out is valid for all participants in the securities industry, especially now because they are dealing with transparency issues – such as shareholder reporting. By producing an inventory of all the rules the CSDs help the entire value chain.”


On the Distributed Ledger Technology (DLT) Working Group, where CSDs make up 18 of the 30 members – or nearly two in three participants – the CSDs are even more involved. This partly reflects the fact that the CSD DLT Working Group was incorporated into the ISSA Working Group on DLT in December 2017, but mainly the potential of DLT to create innovative new roles for CSDs.


“The DLT Working Group is attracting a lot of interest from the CSDs, because they see opportunities in crypto- or tokenised assets,” explains Stähli. “The drivers of that Working Group are definitely the CSDs and not the custodian community. However, their involvement has encouraged the custodians to get involved too, because they do not want the CSDs to develop an infrastructure which they then have to adjust to.”


CSDs also make up seven of the 15 institutions on the Cyber-Security Working Group and four of the 16 institutions on the Financial Crime Compliance (FCC) Working Group. “We would welcome a strengthening of representation from the CSD community, particularly for those who have direct cross-border, in-bound clients, on the FCC Working Group,” says Stähli. “Presently, the four CSD community representatives in the FCC working Group are Clearstream, Euroclear, DTCC and SIX.”


Frontier and emerging market CSDs have an open invitation to join ISSA Working Groups


This is characteristic of the CSD representation on the Working Groups as a whole. It is the five large CSDs on the ISSA Board which delegate most of the CSD specialists to the Working Groups. ISSA would like to see more emerging and frontier market CSDs get involved as well. To encourage them, ISSA has welcomed a CSD representative on to its Operating Committee, where seats are normally reserved for sponsors only.


Bruce Butterill, the executive director of the Americas’ Central Securities Depositories Association (ACSDA), recently succeeded Monica Singer, the former CEO of the South African CSD, STRATE, in this role. “Both Monica and Bruce have given us excellent advice on how we can involve the smaller CSDs in our work,” says Landolt. “The more involvement we see from the smaller CSDs, the more we are sure that what we recommend to the industry will be assessed favourably and be implemented. We want to broaden the base to include CSDs from Latin America, the Middle East and Africa and Asia.”


The under-representation of these regions is actually true of ISSA as a whole. At present, nearly three quarters of ISSA members are based in Europe (54 per cent) or North America (17 per cent). Asia accounts for less than a fifth (17 per cent) and both the Middle East and Africa (8 per cent) and Latin America (4 per cent) fall well short of being representative samples.


“With the assistance of our members, ISSA is continually striving to enlarge its member-base in terms of geographic diversity,” says Landolt. “And over the past decade, we have made progress in attracting members from the Asian as well as Middle East and African regions. But we can always do more, and would welcome more members from these regions.”


ISSA would like to see other CSDs following the Asian example. With only 40 of the 140 or so CSDs in the world having joined the organisation, CSDs make up a smaller proportion of the membership of ISSA (34 per cent) than the custodians (40 per cent). “For many CSDs, ISSA membership has not been attractive, either financially or functionally,” says Landolt. “We are working to change that.”


New challenges for CSDs will intensify the relationship between ISSA and WFC


Those CSDs which have joined ISSA have shown a consistently high level of interest in its work, making up a steady 30-40 per cent of attendees at every ISSA Symposium over the last 30 years. “CSD attendees also give consistently higher ratings for the organization of Symposia and the quality of the speakers compared to the overall feedback,” adds Stähli. “They give equally high ratings for the relevance of the topics chosen and the usefulness of the pre-reading material.”


The benefits of joining a global network of custodian banks, vendors and fellow-CSDs – the ability to pool knowledge and experience, address common issues and develop common solutions, learn from participation in Working Groups and devise best practices – are almost too obvious to re-state. Landolt accepts that the membership fee of €2,500 a year remains an insuperable obstacle for some frontier and emerging market CSDs in particular.


But many of them are also – inevitably – absorbed in local issues, and ISSA insists that any topic it chooses to address must be of interest on a global scale and important to every participant along the value chain.  “We cannot consider local or regional issues only, or issues that affect CSDs only,” explains Landolt. “The issues must be global, because ISSA is a cross-border organisation, and they must affect all parts of the securities services industry, including custodian banks. That is why we grant board membership to globally active institutions with a wide cross-border coverage only. ISSA does not want to focus on local or regional topics.”


As it happens, there is a host of issues rising up the agenda of CSDs everywhere which are of a definitively global character. They obviously include cyber-security and DLT, but also the threat of disruption by other new technologies such as artificial intelligence (AI) and machine learning, and new business opportunities in crypto-asset issuance, trading and custody.  The overlap between the work of ISSA and the work of the WFC in all these areas means this 40-year-old relationship, far from being exhausted, is about to get more intense.



Thursday 11 April 2019

10.15-10.45 am

WFC key projects report back, including ISSA

Moderator: Monica Singer


Byungrhae Lee, Chairman, WFC

Thomas Zeeb, CEO, SIX Securities and Exchange and ISSA Board Member

[1] Group of Thirty, Clearance and Settlement Systems in the World’s Securities Markets. March 1989.

[2] Group of Thirty, Global Clearing and Settlement: A Plan of Action, 2003.


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