How to ensure that your CSD is relevant even in a tokenised future
Central securities depositories (CSDs) are of more recent provenance than impatient reformers of the global financial system sometimes assume. Though they did exist before the great paper-driven securities settlement crunch of the late 1980s – notably in the United States, which chose a CSD in response to a paper settlement crisis of its own in the 1970s – it was the Group of Thirty (G30) Recommendations on how to avoid a repeat of that expensive disaster which prescribed a CSD for every market. CSDs became the great infrastructural innovation of the global securities markets of the 1990s.
One firm which emerged from the maelstrom is Percival Software, whose platform is now installed at 19 CSDs around the world. Recently, Percival added a trading component to its existing issuance, settlement, registration, custody, asset servicing and securities financing functionality. Dominic Hobson, co-founder of Future of Finance, spoke to Chris Richardson, CEO of Percival Software, about the origins of the firm, what he has learned, and how Percival is helping clients respond to the twin challenges of crypto-currencies and tokenisation.
Questions that are being asked
1. Historically, your main products are a CSD platform and a share registration platform. There are obviously links between them, but which came first and how?
2. Does the world need registrars if it has CSDs?
3. Percival is working directly with issuers such as Kerry Group, Coop Bank of Kenya and Ghana Commercial Bank, which use the technology to run their shareholder registers. Are you also working with third party registrars – and, if so, how do their demands differ?
4. What are the advantages to a corporate issuer of internalising maintenance of the share register?
5. Understandably, your share registration business has led Percival to support employee share and share option schemes. How important is it in attracting and retaining issuer interest?
6. Your CSD platform is now in place at 19 CSDs around the world, mainly in Africa (Kenya, BVRM of Benin, Bukina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal, Togo), Middle East (Armenia) CEE (Estonia, Latvia, Lithuania, Ukraine) and the Caribbean (Barbados, Bahamas, Jamaica, Trinidad & Tobago). What do markets such as these require of CSD systems that large, developed markets do not?
7. Why no clients in Asia?
8. The functionality of the CSD platform is extensive – in addition to settlement and registration, it includes corporate actions, electronic voting and securities financing (stock loan and collateral management). How much of it do buyers want, and how much must they have?
9. How difficult is it to implement or integrate the Percival CSD platform?
10. What is the most important lesson you have learned from all the CSD implementations you have done?
11. This year you have moved into trading platforms as well, and have just implemented the system in Barbados. What explains the decision to add trading?
12. You have supported one regional exchange grouping in west Africa. Economics suggests there should be more but national rivalries make it hard for these groupings (a) form and (b) to deliver on their promise of additional flows and enhanced liquidity. Can technology overcome politics?
13. CSDs are in theory early adopters of the ISO 20022 standard. What do you say to those CSD clients who say that there is no business case to move from ISO 15022 to ISO 20022?
14. How much of the functionality you have to develop is driven by regulation?
15. The settlement discipline regime of the CSDR will see CSDs directly involved in fines but deeply reluctant to get involved in buy-ins. How are you helping clients affected to prepare?
16. The origins of Percival date back to the doomed TAURUS project to replace the London Stock Exchange settlement system in the mid-1980s. How did you get involved in preparing for that?
17. You have worked with partners in Estonia since the early 1990s. What is the story of that relationship?
18. How do you keep your developers engaged?
19. Does a Cloud-based SaaS model make sense for your clients?
20. You ensure your systems can work with .NET. How future proof is that?
21. You work with the exchanges in the Baltic states and Iceland, which are owned by Nasdaq, which is itself a vendor of CSD and exchange technology. How does that relationship work?
22. Your clients (such as the Barbados and Jamaica Stock Exchanges) are interested in trading crypto-currencies and other digital assets – and are working with Blockstation in Toronto. What is the impact of these novelties on the competitive position of Percival?
23. The Bahamas exchange is also interested in blockchain-based assets, and the central bank has issued one of the first CBDCs (the Sand Dollar). What’s the opportunity for Percival?
24. Are the technologies you have developed for issuance, registration and now trading easily adapted to the demands of digital assets?
25. If the securities markets do develop a tokenized component, there will be a long (and perhaps even permanent) period of coexistence. Is a multiplicity of instruments, currencies, trading platforms and technologies an opportunity for Percival, or a problem?