| efm: Philippe, Clearstream is pushing fast for efficient transaction and settlement systems in the fund business. Could you tell us about the latest developments in this sector?
Seyll: About 18 months ago, we launched CFF, which, in essence, is an efficient settlement system. It brings all the attributes of an equity settlement system into the fund world. The most important attribute is delivery versus payment. Another one is matching transactions on trade dat
.
efm: What kind of securities can be settled on CFF? And how many are on Clearstream’s platform by now?
Seyll: Deutsche Boerse Group has many different settlement systems, but CFF is designed for mutual funds only. But here, we can have the full range, i.e., we have all UCITS funds on CFF. In addition, we can have property funds, hedge funds, etc., if they are tradable securities. Currently, we have over 40,000 funds that are on CFF.
efm: Next to your settlement system CFF, you are also offering the transaction platform Vestima+. Just to keep us up to date: How many funds do you currently have on Vestima+?
Seyll: On Vestima+, we currently have 55,000 funds.
efm: Clearstream has implemented an additional service, which supports using funds as collateral. Could you give us some background information on this?
Seyll: Of course! Asset managers in their day-to-day business are involved in transactions that require posting collateral. Today, asset managers take the asset class that is easiest to transfer, which is normally cash. The money is wired to the collateral taker, but the disadvantage is that it is an expensive collateral. One of the main reasons fund managers are still using cash as collateral is that when you post cash, you can be certain that it will be there the next day. But while cash is easy collateral, you are losing the opportunity to receive overnight interest on your cash.
efm: So, what is it that you are suggesting now?
Seyll: Nowadays, collateral is scarce. Clearstream has the ambition to open that pool of collateral to investment funds. Clearstream’s solution is that instead of sending cash to the collateral taker, the fund manager invests his cash into a money market fund and then delivers the fund units as collateral.
efm: Aren’t government bonds also often taken as collateral? This way, the fund is also earning interest, while securities are posted as collateral.
Seyll: Yes, absolutely and this is
the bulk of the activities of Clearstream’s Global Securities Financing department, which has monthly outstandings of close to EUR 500 billion! We aim to build on their strong positioning and provide customers with another type of collateral, investment funds.
efm: With your solution for funds, is there a time lag, i.e., a certain time where there is a processing risk?
Seyll: No, the transaction is done on the same day, on T+0. We are the only platform in the world that can do this. By offering this service, we have attracted asset classes which are usually not on our platform. For example, money market funds are usually not on CFF. This service helps us to increase the number of such funds on our platform.
| efm: Are you already profitable with your platform, CFF?
Seyll: Yes, indeed, we are. Ninety percent of Luxembourg funds are on the platform, less than 2 years after its launch. That is impressive. And we have convinced funds from other marketplaces, such as Switzerland, Ireland, Austria, and Belgium to join CFF, which is even more impressive.
efm: Are you offering your systems 24 hours a day?
Seyll: That question is hard to answer. Of course, our systems are available 24 hours a day, but we
do not need to stand beside them every minute. Let’s take a Luxembourg-based fund which is designed for Asian investors. We would support those clients from our Singapore office. The business itself does not need human support all the time.
efm: What about T2S, what does this acronym mean, first of all?
Seyll: It means “target 2 for securities,” and it is the name of the European Central Bank’s project to harmonize cross-border securities settlement in the Euro zone. We at Clearstream share this goal and support this project, which aims to go live in 2013.
efm: Isn’t this already standard in the United States?
Seyll: The US is one country, one market, one currency, one set of regulations. This makes settlement more efficient in America, as opposed to Europe where each
CSD (Central Securities Depository) is very efficient but where cross-border trades are more difficult and more costly, particularly at the settlement level. The ECB is trying to make settlement in Europe safer, quicker, and cheaper.
efm: Is this also applying to fund units?
Seyll: Yes, there are strong indications that it will, and Europe is the largest cross-border market for funds.
efm: Is it true that only CSDs (Central Securities Depositories) are allowed access to European Central Bank settlements?
Seyll: Yes, that is true.
efm: Does Luxembourg have a CSD?
Seyll: No, it does not have a CSD yet. However , Clearstream plans to add central bank money settlement to the range of functionality already offered to its customers. This could make available to the market a centralising facility for instruments of all types.
efm: Let me move into another direction: Currently, it is difficult for investment companies to tell where a ticket is coming from, as most of the business is coming through platforms or omnibus accounts. As Clearstream is dealing with settlement and transactions, you have much of the information needed in your hands…
Seyll: That is right. We are also offering a service called “FMRS ” which stands for “fund management reporting system”. It gives an answer to two questions: First: Who did the sale? And second: Which distribution agreement is in place with that particular distributor, i.e., what are the conditions for this transaction?
efm: Thank you, Philippe, for this interview!
| |
