NCDCP settlement system eligible for use in Eurosystem credit operations!

(Created: 21.09.2017 16:05, Source: NCDCP)

Based on the results of assessment performed by the European Central Bank (ECB), the ECB’s Governing Council has decided that Národný centrálny depozitár cenných papierov, a. s. (NCDCP) satisfies all the obligatory criteria applicable to an eligible securities settlement system for Eurosystem credit operations.

The formal confirmation of the Governing Council’s decision was issued on 13 September 2017, when NCDCP was added to the list of eligible securities settlement systems for use in credit operations in the Eurozone, which is published on the ECB’s website. In practice this means that counterparties are conducting transfers of collateral issued in a central securities depository (CSD) or an international central securities depository (ICSD) using a securities settlement system (SSS) that undergoes regular assessment by Eurosystem users in accordance with the Eurosystem User Assessment Framework (UAF) to determine its eligibility for use in credit operations.

A stringent assessment process

The decision on the eligibility of the securities settlement system operated by NCDCP followed its meticulous examination and assessment using a two-layer approach. The first layer involved the study of the rules set by the central depository itself whose content overlaps with regulatory oversight. The settlement system must first and foremost comply with the criteria laid down by the competent authorities. In the case of NCDCP, the assessment of the set rules was based on a comparison with the Principles for financial market infrastructures (PFMI) issued by the Committee on Payment and Settlement Systems (CPSS) and the Technical Committee of the International Organisation of Securities Commissions (IOSCO), which are part of the Bank for International Settlements (BIS). The outcome of this was the CPSS-IOSCO questionnaire completed in January 2017.

The second layer was the assessment of specific requirements, to which NCDCP is subject as a user of the settlement system that are not included in the first layer. These requirements supplement the audit of the settlement system in the areas of legal soundness, settlement in central bank money, custody risk, finality of settlement and operating hours and day based on user requirements.

Why the system's eligibility is important

The Eurosystem is aware of the risks that can arise from disturbances in the settlement systems used to settle securities transactions. It is therefore interested in ensuring that its credit operations are conducted using procedures that prevent central banks from assuming excessive risks in conducting monetary policy operations and ensure the same level of safety for the operations of all Eurosystem central banks regardless of the settlement method.

To this end the Eurosystem has implemented standards to protect itself against risks that might be incurred in both domestic and cross-border systems used for the settlement of monetary policy and intraday credit operations and to ensure the safe and effective provision of collateral from counterparties to central banks. Eurosystem standards cover the transfer, settlement and custody of eligible assets as well as the legal and technical environment, in which securities settlement systems operate.

The positive outcome of NCDCP’s assessment means that its securities settlement system is fully eligible for use in Eurosystem credit operations. The common assessment framework ensures that the same stringent standards are applied equally to all security settlement systems and maintains the level playing field in the market.

For NCDCP this is a major success with respect to acceptance in the domestic market and a stronger reputation in international relations. By meeting the requirements to achieve this status, NCDCP has joined a prestigious club whose members include well known European central securities depositories. NCDCP has also achieved another major milestone in one of the most important projects in its short history. Last but not least, we must thank Národná banka Slovenska for its cooperation, valuable advice and patience, which contributed to the achievement of this success.