National Settlement Depository (NSD) is set to offer its clients the opportunity to open individual securities accounts for the purpose of settlement at the International Central Securities Depositories (ICSDs). Currently, this function is not available to everyone, as NSD acts as the nominee for a large number of Russian clients. The offer will be of interest to brokers who have to trade on foreign markets through intermediaries.
NSD is discussing its new service offering with brokers, i.e., opening of individual accounts with the ICSDs. This may be relevant for brokerage firms actively trading with foreign counterparties. The offer was discussed at the June meeting of NSD's Customer Committee for Settlement and Depository Services and Tariffs.
At present, Russian brokers who do not have individual accounts with the ICSDs keep their assets in the omnibus account of the nominee (i.e., NSD). According to Ms Irina Tissen, Head of Business and Product Development at NSD, individual accounts for companies for the purpose of ICSD settlement will be opened in the name of NSD, but will enable clients to segregate their assets. The clients will be able to use some services offered by the ICSDs which they currently do not have access to, such as flexible settlement sequence management (which allows customers to set the processing sequence of their instructions for clearing and DVP settlement) or linked transactions (which permit to create a pool of linked instructions and control their settlement according to certain predefined parameters). Segregated accounts make it possible to use technical netting, i.e., to set off the client's receivables against its payables. As a result, it is no longer necessary to pre-fund each individual transaction. "In an omnibus account, it is necessary to control the availability of assets because otherwise the transaction may be settled with another participant's funds. In a segregated account with the ICSD, such control is not necessary, because it only contains a single participant's securities and funds", said Ms Tissen.
According to the Kommersant Daily, the question of NSD providing such service has been under discussion for more than three years. Among those participants who initiated the introduction of this service was Otkritie Broker LTD. However, according to Yury Vassilyev, Head of Custody at Otkritie Broker, it is not entirely evident what the economic benefits of the service offering are. "Transfer of securities to a segregated account with an ICSD may have an adverse effect on the account service fees, as a priori, an omnibus account is characterised by higher turnover and hence, lower fees", he noted. Other market participants also still have doubts. According to Mr Alexey Orlov, Head of Operations at Finam Investment Company, the increase in the broker's margin as a result of the segregation of accounts will depend on the type of transaction. "If you only consider safekeeping fees, the margin increases. But if you consider transaction processing fees, you need to understand precisely how NSD submits instructions to the ICSDs – Clearstream and Euroclear – i.e., in a single batch for all clients or separately for each client", he said.
Some brokers (mostly large firms) already have segregated accounts with the ICSDs. Mr Sergey Lukyanov, Head of Investment Department at VTB24, notes that it is more convenient to work with Clearstream and Euroclear directly. However, such relations are not available to everyone, as the ICSDs open accounts on a case-by-case basis, using their own eligibility criteria, said Ms Tissen. A broker should also be able to pay for using SWIFT, the messaging system used by the ICSDs. In any case, said Mr Lukyanov, brokers will make their decision based on the requirements of their major clients. According to Ms Ksenia Vlasova, Chief Operating Officer at ATON Investment Co., it might be beneficial for them to use segregated accounts and apply individual tax rates. "However, right now, we are not seeing a huge demand for such services", she stated.