Stock market’s infrastructures : systems & stakeholders

In the world of securities, market infrastructures are the systems that ensure the good course of the following operations :

• Trading in market places
• Clearing of the transactions
• Settlement through Central Securities Depositories & Cash Settlement Centre.

The stakeholders

Synoptic table of the main institutional stakeholders

The market place

The market place is the place in which a market operates, and offer and demand meet.

It can be an actual or metaphorical place whose role is to provide participants with a secured transaction mechanism

The main quotation places

The following table highlights the main quotation places, as well as their managing institutions.

Geographical area	Quotation place	Codification	Institutional operator	Capitalisation 2005(millions $)
US	The New York Stock Exchange	NYSE	Nyse-Euronext	13 310 592
US	The National Association of Securities Dealers Automated Quotations	NASDAQ	NASDAQ OMX Group	3 603 985
GB	The London Stock Exchange	LSE	The London Stock Exchange Group plc.	3 058 182
FR, BE, NL, PT	Euronext		Nyse-Euronext	2 766 804
DE	Deutsche Börse		Deutsche Börse Group.	1 221 106
SWE, FIN	Optionsmäklarna/Helsinki Stock Exchange	OMX group	NASDAQ OMX Group	802 561
ES	Bolsa de Madrid		Bolsa y Mercado espanoles	959 910
CH	The  Swiss Exchange	SWX	Association SWX Swiss Exchange	935 448
IT	Borsa Italiana		The London Stock Exchange Group plc.	798 073
IN	The Bombay Stock Exchange (Mumbai Seyar Bajar)	BSE	The Bombay Stock Exchange Limited
SG	The Singapore exchange	SGX	Singapore Exchange Limited
HK	The Hong Kong Stock Exchange	HKEX	Hong Kong Stock Exchange and Clearing
CN	The Shanghai Stock Exchange	SSE	China Securities Regulatory Commision (CSRC)
LU	Luxemburg Stock Exchange		Bourse de Luxembourg S.A

Clearing agencies

The Clearing process guarantees the consistent course of operations. Clearing houses set up a central counterpart system which legally substitutes the clearing house to the buyer and the seller in order to ensure the completeness of transactions.

It is called “NOVATION”. Margin calls and deposits are the tools used so that to prevent default risk.

Technically, it is impossible for a clearing house to go bankrupt.

Where 100 buy-sell between two stakeholders would have created 100 transactions, a single but netted transaction is sent to the CSD.

More than just ensuring the course of operations, the clearing house provide a final balance on a net basis between two (Bilateral clearing) or more (multiple clearing) participants.

The main clearing houses

Geographical area	Codification	Clearing house	Institutional operator
FR, BE, NL, PT, UK	LCH Clearnet	(London Clearing House) Clearnet	Euroclear (14,6%), utilisateurs (67,6%), les bourses (17,8%)
DE and the rest of the world for the clearing of international bonds.	Clearstream	-	Deutsche Börse Group
US	DTCC	Depository Trust & Clearing Corporation	DTCC (users association)

The Central Securities Depository / Securities Settlement Centre

The settlement process secures the physical exchange of the securities versus cash, through the settlement of a securities transaction following an OTC (over the counter) trade.

The settlement process may lead to cash settlement if the transaction was done ‘versus payment' (for this leg, a payment system intervenes). To decrease risks both legs have to be simultaneous and connate.

Securities settlement systems may operate on a net basis, transactions are settled one by one and are considered irrevocable.

On a net basis, several transactions are cleared before being globally settled.

From a legal point of view, it is at this level that the transfer of property is finalized. The Central Securities Depository, in line with local custodians, acts as a notary; registering every single existing security and their related corporate actions. Doing so, they can make sure at any time that the number of issued shares booked on the issuer account corresponds to the total amount of shares owned by its participants.

NB  : Do not confuse Depository and Central Securities Depository.
The Central Securities Depository registers the totality of the securities (shares & bonds) that are part of each issue accepted for its operations. In France , the CSD is know as Euroclear France (former Sicovam).
The depository or custodian, is generally a bank and is a CSD adherent.

Main Central Securities Depositories

Central Securities Depository (CSD)	Code	Area	Institutional operator
Euroclear France		FR	Euroclear Plc
Euroclear Nederland		NL	Euroclear Plc
Euroclear Bank		BE	Euroclear Plc
Crest CO		UK	Euroclear Plc
Clearstream		DE	Deutsche Börse Group
Depository Trust & Clearing Corporation	DTCC	US	DTCC (users' association)

The Central Securities Depository / Cash Settlement Centre

A cash settlement centre is a technical platform that handles the settlement of high amounts between international finance companies.

It is generally made up of a real time irrevocable & gross cash settlement system and a secured net one for multilateral clearing purposes.

In order to facilitate, secure and enhance interbank exchanges within the euro Zone, the TARGET project was launched (1999).

It consists in a Trans European Automated Real Time Gross Settlement Express Transfer, shared by each member of the European union, allowing cross border amounts to be transferred.

Main Interbank cash settlement systems

Settlement system	Full name	Area	Institutional operator
CHAPS Clearing Co.		UK	CHAPS Clearing Co Ltd
TARGET 2		Euro	ECB and National Central Banks of the Euro-zone
Fedwire		US	Federal Central Bank
SIC	Swiss Interbank Clearing	CH	Telekurs on behalf of Swiss National Bank

Further than stakeholders, consolidating Institutional operators

Starting from the end of the 90's, the stock market's infrastructure consolidation accelerated without, taking into account the European frontiers and bringing stakeholders together through crossed participations.

Until this point, market places and post market infrastructures (clearing & settlement systems) were state owned and user managed agencies.

At the same period, a privatization wave led to a disengagement of public institution. Gradually, regulation committees replaced the states in market supervision (AMF for France) and led to wild battles between private law companies, for the European race to catch market shares.

In 1999, the very first consolidation of clearing agencies took place; the pan-European extension of Clearnet (the central counterpart of the Euronext group) was preceded by the merge of two old clearing houses that used to intervene in the French stock market (SBF, Matif, BCC).To achieve cost cutting, several countries, where various settlement systems existed, decided to close in.

That is what happened for Spain (CADE & SDL), Italy (CAT & Monte Titoli) as well as the UK (merge of CMO, CGO & Crest).

At the level of settlement, the consolidation was organized around the two international central securities depository (ICSD) : Euroclear & CEDEL. In the late 2000's, the Belgian Euroclear Bank merged with the French CSD; Sicovam SA, to become a 100% Euroclear bank's subsidiary named Euroclear France.

Meanwhile, the merger of the CEDEL bank (based in Luxemburg) and DBC, the german depository, gave birth to Clearstream.

In September 2000, the Belgian and the Dutch stock market joined Euronext and brought a pan-European offer that encompassed multinational agencies that managed market's infrastructure.

In 2001, the Deutsche Boerse, Euronext and the LSE headed to IPO (Initial Public Offering).

A couple of months later, and against all odds, the Portuguese stock exchange and the Londonian derivative market joined Euronext.

The DB, which owns the world leading derivative market (EUREX) is achieving its vertical stategy; called the ‘Silo' strategy (total control of the transaction chain); Trading, Clearing and Settlement, by buying Clearstream in 2002.

After several failed attempts in merging with Euronext and the Deutsche Boerse, the LSE announced its successful take over on the Borsa Italia (the Italian exchange) in 2007.

This consolidation trend is also reaching the united states through the NYSE-Euronext merger.

Detailed stakeholders chart

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