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Governance of securities clearing and settlement systems

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  • Daniela Russo
  • Terry L. Hart
  • Chryssa Papathanassiou
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    Abstract

    In the context of securities clearing and settlement systems, the nature of governance arrangements acquires a dimension that goes beyond their traditional function in corporate law. They constitute a tool for regulators and central banks to achieve their respective policy goals relating to market operation, market integrity, and systemic stability. In the light of the analysis of this paper, and pending a further evolution in the regulation of securities clearing and settlement in the Community, the following conclusions can be drawn. Whatever the model of corporate governance used in a jurisdiction, securities clearing and settlement systems should adopt and ensure effective implementation of the highest corporate governance standards or best practices adopted or recommended for companies in the jurisdiction in which it operates as such standards or practices evolve over time. Generally, this would imply that securities clearing and settlement systems at minimum should adopt and implement the best practices recommended for listed companies. Additionally, a securities clearing or settlement system should adopt corporate governance mechanisms adequate to address the interests of users and the public in the operation of the system. Such mechanisms should be organized so that the criteria followed to select participants on the board or on specialized committees are established ex ante. Board members should also take into account the interests of users and the public in board decisions, in particular, those relating to qualifications for system access, fair pricing, the integrity of the risk management system, innovation and efficiency, and the achievement of the policy objectives of competent authorities. Securities clearing and settlement systems should make adequate disclosures regarding their corporate governance arrangements so that users and the public can ascertain the manner in which conflicts of interest among owners, the board, users and the public interest are prevented, resolved or mitigated. Corporate governance arrangements of securities clearing and settlement systems should be the subject of adequate regulation and oversight to ensure that services are provided at fair prices to users under fair and equitable conditions of access; that the risk management programs of system operators are effective; that risk management decisions are not affected by considerations extraneous to the risk management function; and that, to the maximum extent possible, functional service providers compete in equivalent conditions of competition. Looking forward, the adoption of a harmonized regulatory regime for securities clearing and settlement systems should be considered to complete the internal market within the Community and to better achieve the policy goals identified in this paper relating to the governance of those systems.

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    Bibliographic Info

    Paper provided by European Central Bank in its series Occasional Paper Series with number 21.

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    Length: 43 pages
    Date of creation: Oct 2004
    Date of revision:
    Handle: RePEc:ecb:ecbops:20040021

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    Keywords: clearing; settlement; governance; risk management; oversight.;

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    References

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    1. Henning Ahnert & Geoff Kenny, 2004. "Quality adjustment of European price statistics and the role for hedonics," Occasional Paper Series 15, European Central Bank.
    2. Claus Brand & Dieter Gerdesmeier & Barbara Roffia, 2002. "Estimating the trend of M3 income velocity underlying the reference value for monetary growth," Occasional Paper Series 03, European Central Bank.
    3. Fernando Gonzalez & François Haas & Ronald Johannes & Mattias Persson & Liliana Toledo & Roberto Violi & Martin Wieland & Carmen Zins, 2004. "Market dynamics associated with credit ratings - a literature review," Occasional Paper Series 16, European Central Bank.
    4. Francesco Mazzaferro & Arnaud Mehl & Michael Sturm & Christian Thimann & Adalbert Winkler, 2002. "Economic relations with regions neighbouring the euro area in the ‘euro time zone," Occasional Paper Series 07, European Central Bank.
    5. Angela Maddaloni & Darren Pain, 2004. "Corporate ‘excesses’ and financial market dynamics," Occasional Paper Series 17, European Central Bank.
    6. Andrea Enria & Lorenzo Cappiello & Frank Dierick & Sergio Grittini & Andrew Haralambous & Angela Maddaloni & Philippe Molitor & Fatima Pires & Paolo Poloni, 2004. "Fair value accounting and financial stability," Occasional Paper Series 13, European Central Bank.
    7. ., 2004. "Market dynamics associated with credit ratings: a literature review," Financial Stability Review, Banque de France, issue 4, pages 77-93, June.
    8. Adalbert Winkler & Francesco Mazzaferro & Carolin Nerlich & Christian Thimann, 2004. "Official dollarisation/euroisation - motives, features and policy implications of current cases," Occasional Paper Series 11, European Central Bank.
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    Cited by:
    1. Kirsi Ripatti, 2005. "Central counterparty clearing: constructing a framework for evaluation of risks and benefits," Finance 0508021, EconWPA.
    2. Schmiedel, Heiko & Malkamaki, Markku & Tarkka, Juha, 2006. "Economies of scale and technological development in securities depository and settlement systems," Journal of Banking & Finance, Elsevier, vol. 30(6), pages 1783-1806, June.
    3. Ripatti, Kirsi, 2004. "Central counterparty clearing: constructing a framework for evaluation of risks and benefits," Research Discussion Papers 30/2004, Bank of Finland.

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