Clearstream Moves to Real-Time Settlement
March 24, 2008
A decade after first announcing its plans, Luxembourg-based international depository Clearstream International has migrated from continuous batch to real-time settlement.
Under real-time settlement, which is increasingly common among national depositories, trades do not settle immediately after they are executed. Rather, when a settlement instruction is sent, whether immediately or several days after an execution, it can be matched and processed right away instead of waiting for the next batch process.
Euroclear's national securities depositories in France and the Netherlands already offer real-time settlement. All five depositories in the Euroclear group are moving to a single settlement platform in 2010.
The Depository Trust & Clearing Corp. in the U.S. does not provide real-time settlement and says that it has no plans to change its consolidated settlement system, which combines the settlement platforms of its Depository Trust Co. (DTC) and National Securities Clearing Corp. (NSCC) subsidiaries. The system facilitates end-of-day net settlement of a participant's obligations resulting from daily trading activity. Settling banks--those that transfer money to and from DTC and NSCC on behalf of customers--make only one payment, to the Federal Reserve System's Fedwire.
Clearstream and international depository Euroclear Bank in Brussels planned to offer real-time settlement in 1998 but both initiatives were postponed at the last minute. Euroclear said it had discovered technical glitches during testing, while Clearstream, then known as Cedel, said it had higher priorities--such as the introduction of the euro and Y2K.
Clearstream launched its continuous settlement system in July 1999 for daytime processing; two months later Euroclear introduced real-time settlement for daytime processing. Both depositories retain their batch processing cycles during the night, when most of their settlement activity takes place.
The move to real-time settlement will not affect Clearstream's Frankfurt operations for German bunds and equities, which relies on a separate settlement system known as Cascade. Clearstream's Luxembourg operations run on the Creation platform.
Clearstream officials, who declined to comment on the long implementation timeframe, said that the move to real-time settlement was required to synchronize its processing with local markets to ensure interoperability with local depositories. Such a move, encouraged by European regulators, will lead to more efficient and less costly clearing and settlement of cross-border transactions.
Michael Jaeggi, head of product management for Clearstream, said that depository members can now optimize their securities and collateral movements during the daytime processing cycle, which begins at 4:30 a.m. Central European time and ends at 6:00 p.m.
Just as important, according to Jaeggi, is the ability to trade more efficiently with a local market counterparty that isn't a Clearstream member. Members of the international depository will avoid losing a day's value in cash and securities when trading with local counterparties--due to time zone and processing cycle differences--because the new settlement process allows participants to submit settlement instructions to Clearstream later in the day.
"Settlement deadlines have been improved for securities in 36 domestic markets worldwide," said Jaeggi. Among the most dramatic shifts are for Italy, where the deadline for settlement instructions has moved from 3:00 p.m. to 4:20 p.m. Central European time, and Norway, from 4:00 p.m. to 5:35 p.m. The average deadline extension was about 30 minutes.
Jaeggi said that Clearstream will also extend the daytime deadline for its members in Luxembourg settling trades with Euroclear Bank members via the automated link between the two. Most of the bridge transactions settle in the overnight batch process. On July 12 the deadline will be extended to 1:00 p.m. from 12:30 p.m., a timetable imposed in January 2007.
