The difficult art of planning for the future at a CSD
Central securities depositories (CSDs) have always led an unglamorous existence. They are overshadowed by trading and investment activities, even when the post-trade revenues they generate are more reliable or more profitable or even just larger. The rise of the digital asset has not improved their lot. They are threatened with disintermediation by securities tokens issued, traded and safekept on blockchain networks that promise to replace the issuance and registration and settlement services of the incumbent CSDs with a single process on a digital ledger. Central banks pondering the introduction of central bank digital currencies (CBDCs), mostly on to blockchain-based networks as well, seem to have forgotten that every securities transaction settled by a CSD entails a payment as well as a delivery. Other regulators seem to remember nothing except that sellers must earmark what they have sold until it can be delivered against payment, even where the risk is nugatory, or eliminated altogether by a central counterparty clearing house (CCP) or stock loan service. It is near-impossible for CSDs to embrace the burgeoning data economy by developing new products based on data because the data belongs to their users, who often double as their owners. Those CSDs that are able to make the case for change find budgets for investment are far from generous. So are CSDs caught in an impossible dilemma or can they adapt successfully to the age of the digital asset? Dominic Hobson, co-founder of Future of Finance, spoke to Chris Richardson, CEO of Percival Software, one of the leading suppliers of technology to central securities depositories (CSDs), about how his clients are conceiving and preparing for the future.