The Bank of Finland sees its role in the context of securities clearing and settlement systems in three areas: as overseer, user (outsourced tasks) and service provider.
In performing its oversight function, the Bank of Finland seeks to ensure that risks inherent in systems remain at acceptable levels, with activities aligned with efficiency targets, by verifying that system operation meets with the internationally agreed recommendations. Following acquisition in November 2008, the trade name of the Finnish Central Securities Depository (APK) changed into Euroclear Finland Ltd on 2 February 2009. As an obvious consequence of the acquisition, the Bank of Finland commenced supervisory work with supervisors and overseers of the Euroclear group’s central securities depositories. The principles of this cooperation are documented in the Memorandum of Understanding (MoU), which came into force on 5 October 2009. Already earlier – following formation of a Nordic Central Securities Depository (NCSD) group between the Finnish APK and the Swedish Värdepapperscentralen (VPC) – the Bank of Finland launched similar cooperation with the central bank of Sweden.
Eligible assets used as collateral in Eurosystem monetary policy operations are held in custody with central securities depositories. The Bank has outsourced the maintenance of its collateral management accounts related to these operations to the APK.
The Bank of Finland provides cheque account services to publicly supervised credit institutions, authorised to operate in the European Economic Area (EEA), and, for exceptional purposes, to the State Treasury, investment firms and clearing houses. This enables use of central bank money in the clearing and settlement of shares and debt securities. In using central bank money, the system enables reducing liquidity and counterparty risks related to operations.
The securities market infrastructure continues to undergo integration – through both systems integration and ownership arrangements. This is visible in both the European and the global operating environments. Integration developments between European and US stock exchanges have reached an advanced stage (for example, Nasdaq OMX). The Markets in Financial Instruments Directive (MiFID), effective since November 2007, has changed securities trading structures. Accordingly, Europe has witnessed the establishment of a number of new multilateral trading facilities (MTFs).
The Helsinki Stock Exchange launched central counterparty (CCP) services in October 2009. A central counterparty receives trade data either from the marketplace or counterparties to a trade. It then nets out the obligations of various parties instrument by instrument, interposing itself between the counterparties to the trade, becoming the buyer to the seller and the seller to the buyer, for accepted products.
The operating environment is undergoing profound changes, which is also reflected in increased supervisory challenges. Prompt decisions by the authorities are needed on the features of a regulatory and supervisory framework for new stock exchanges, including the definition of areas of responsibility between authorities and forms of cooperation between supervisors. Exercise of extensive cooperation may be necessary if integration between stock exchanges is to continue.
Infrastructures for post-trade processes continue to be fairly fragmented in Europe, and there is an urgent need to give a boost to their development. A smooth operation of securities clearing and settlement systems within the EU is even more important than integration of marketplaces through ownership arrangements. Inefficient clearing and settlement systems, irrespective of the degree of integration, weaken the ability and willingness of market participants to engage in EU-wide securities trade. They reduce financial market liquidity and unnecessarily increase the price of capital. The Eurosystem’s response to this is the TARGET2-Securities initiative, which is currently underway.