Wednesday, January 28, 2009

Clearstream is in "good shape" says CEO

At a press briefing this morning in London, Clearstream International CEO, Jeffrey Tessler, quashed ongoing rumours that Deutsche Börse may "spin off" its ICSD.

Back in 2007, at the time that much of the transatlantic consolidation between national exchanges was kicking off and Deutsche Börse had made numerous failed bids for the London Stock Exchange, FinancialTech Insider reported rumours suggesting that the German exchange could sell off parts of its business, including the ICSD Clearstream.

According to newspaper reports at the time, Atticus Capital, which held an 11.68% stake in Deutsche Börse,was keen to see it separate Luxembourg-based Clearstream International from the exchange and return cash to shareholders.

Today in London, Tessler said the board of Deutsche Börse remained committed to the existing business model and that there were no current plans to spin off the ICSD, although it was open to any future debate and discussion regarding this.

Despite ongoing challenges in the credit markets, Tessler said Clearstream was in relatively good shape (it is one of the few custodian banks that is still AA rated, he said) and that, unlike its competitors, it had not been directly exposed to the failure of major sell-side firms such as Bear Stearns and Lehman Brothers as it never had broker dealers as client.

Tessler said Clearstream had witnessed an "explosion" in cash balances, which had tripled as investors perceived the ICSD as a "safe haven". Despite declines in mutual fund settlement as German retail investors shied away from equities, Tessler said Clearstream's main business, Eurobonds, remained promising as debt issuance from both governments and corporates is expected to rise substantially outstripping the capacity of domestic markets, thereby benefiting the international market that the ICSD services.

Despite the difficult economic climate, Tessler reiterated the benefits of Clearstream's strategy of pursuing "interoperability" rather than a single settlement engine, which its competitor, Euroclear is building.

Clearstream Banking Frankfurt is spearheading the Link Up Markets initiative, which will build a format converter to facilitate interoperability between the seven participating securities depositories. Tessler said Link Up Markets would be able to "plug into" any system around the world and would allow CSDs to feel comfortable in a post-TARGET2-Securities world.

Clearstream also appears to be advantaging from the increased uptake of securities financing, which saw its Global Securities Financing business grow by 24%. Clearstream is looking to increase its basket of eligible securities that can be used as collateral by opening it up not just to bonds, but also equities. It has also developed a central bank pledging facility allowing collateral within Clearstream to be used to access central bank money. It is also exploring the use of investment funds for collateral purposes.

Accuracy and quality of payment data

In these credit challenged and uncertain times,ensuring payments are processed on time without the need for manual repair at additional cost, has perhaps never been more important. After all who wants to be on the receiving end of a payment that is held up because it does not contain the correct Bank Identifier Code (BIC) or International Bank Account Number (IBAN), particularly if that person is relying on that payment to finance some other aspect of its business.

In that respect the accuracy and quality of payments reference data has become increasingly important. It should come as no surprise then that the rumor mill has been working overtime regarding a potential tie-up between payment reference data provider CB.Net and Accuity, a leading provider of payment routing data and AML software.

CB.Net's flagship product is its Standing Settlement Instructions (SSI) database, BankSearchPlus, which also validates and links IBANs to BICs, which is important in the context of the Single Euro Payments Area for straight-through processing of payments.

Accuity also has Reference Directories which are used to increase STP in payments and to facilitate the efficient processing of cheques and wire transfers, so the tie-up with CB.Net seems a logical one as banks, regulators and vendors look to make cross-border payments processing more efficient and cost effective.

Wednesday, January 21, 2009

SEPA is stalling

Guest blogger, Paul Styles, business solutions manager, ACI Worldwide, comments on the increasing unrest amongst European banks regarding SEPA's slow progress.

The slow implementation of the SEPA project so far has culminated in a statement from the French Banking Federation (FBF), announcing that its members are ‘downing tools’ on preparation for the introduction of SEPA Direct Debits (SDDs) in November 2009.

As dramatic as this statement may sound, it actually reflects general and widespread stirrings of unrest from Europe’s banks regarding the SEPA project. In fact, as early as September 2008, the FBF warned that they would suspend their SEPA Direct Debit projects in reaction to the European Commission's unclear stance on interchange fees, which they believe threatens their current economic model.

The EC and the European Central Bank (ECB) have stated that banks can use interchange fees on Direct Debits only for an "interim period" and if it is justified. However, French banks point out that the interchange fee system is the "only tried and tested cooperative model" to achieve the financing of SEPA infrastructure investments and maintenance costs. If interchange fees are to be scrapped, then the ECB needs to come up with a long term solution, and quickly.

Nevertheless, whilst the French banks are unwilling to commit to the ECB’s provisional timetable, it seems unlikely that they will completely halt their work on SEPA projects as many have wider European operations. Yet, demand for SDDs in a cross-border context is yet to be proven, and with SDDs due to go live in November, this statement from the FBF speaks volumes that the French banks are not expecting a wholesale shift from their domestic Direct Debits processes to the new SEPA instruments.

While the statement from the FBF may have little impact on the overall roll-out of SDDs, it serves to highlight the fact that the SEPA project is stalling. Without strong customer demand, achieving SEPA through self-regulation will remain problematic. As such, appropriate levels of regulation would help the progress of SEPA implementation and help deliver the much-needed clarification of rules for the financial services industry and its corporate customers.

The FBF statement has served to put further pressure on the European banking industry to set an end-date for the retirement of the legacy payment instruments, which can be no bad thing. The ECB has acknowledged this requirement and has stated that it ‘will work on the modalities – self-regulation or regulation – as well as the end-date itself’. Without such a deadline achieved by some degree of consensus, the FBF refusal to commit to provisional timetables may be just the tip of the iceberg vis-à-vis SEPA challenges.