The Central Securities Depository Prague (CSD Prague) provides participants in the CSD Prague Settlement System with:
- settlement of exchange trades
- settlement of OTC trades and transactions
The settlement of trades in securities generally includes the following two operations:
- transfer of funds (financial settlement)
- transfer of securities (settlement of securities)
If both operations are completed within the defined time limit of the settlement process, this is a model for the delivery of securities against their payment, referred to as “delivery versus payment”. Some transfers may be executed via the CSD Prague in the form of a free delivery of securities, referred to as “delivery free of payment”. In these transactions, the CSD Prague only assists with the transfer and delivery of the securities; the relevant payment settlement is performed outside the CSD Prague.
Individual steps in the settlement are regulated in the Trade Settlement Time Schedule, which is attached to the UNIVYC Settlement System Rules.
The CSD Prague carries out financial settlement of trades by debiting or crediting individual bank accounts in the relevant payment systems operated by central banks, i.e. for the Czech crown in the CERTIS system, operated by the Czech National Bank, and for the euro in the TARGET2 system, operated by the ECB. For other currencies – USD and GBP – the CSD Prague uses its own cash account maintained with a selected commercial bank.
From the perspective of financial settlement, we distinguish two types of CSD Prague participants:
- Participant clearing bank
- Czech or foreign banking institution with a banking licence
- The participant clearing bank has a clearing account established in one of the payment systems (CERTIS, TARGET2), and the trades that are concluded are settled directly through this account. The participant’s account is either debited upon the settlement of a purchase of securities or credited with the relevant amount upon the settlement of a sale of securities.
- Non-banking participant
- A domestic or foreign participant in the CSD Prague Settlement System without a banking licence, or also a banking participant who does not have direct access to the given payment system.
- A non-banking participant does not have a clearing account established in the payment system. The trades concluded by this type of participant are settled via the clearing account of a selected bank. On the basis of this contractual relationship, the bank becomes the “clearing bank” for the non-banking participant. The clearing bank’s account is debited or credited as part of the settlement; the bank is informed in advance of the individual debit and credit payments.
Settlement of Securities
This concerns the transfer of securities from a seller to a buyer. The Central Securities Depository Prague settles the trades of both dematerialised securities and certificates; however, most issues traded on the Exchange or settled within the CSD Prague in the form of OTC transactions are represented by dematerialised securities.
Certificates traded and transferred among CSD Prague participants are maintained by the CSD Prague.
The CSD Prague keeps records of securities in the asset accounts of individual participants divided into the trader’s own securities registered in the account of a CSD Prague participant and the securities of its clients registered in the settlement participant’s client account in the CSD Prague or the participant’s customer account.
As of the trade settlement date, the CSD Prague carries out transfers of participants’ securities from the sellers’ to the buyers’ accounts. In order to achieve maximum efficiency in settlement, the CSD Prague has implemented the following functionalities, in particular:
- settlement through special sub-accounts “securities under transfer”
- multi-cycle settlement
- technical netting
Settlement of Exchange Trades
Exchange members enter their purchase and sale orders into the Exchange trading system, and the subsequently concluded exchange trades are registered in real time in the UNIVYC Settlement System. Exchange members, as well as the participants which may arrange the settlement of trades for Exchange members, thus have information on closed trades without delay and in real time.
The settlement of exchange trades is carried out in the form of “delivery versus payment” (DVP), through a CSD Prague participant, which may also be an Exchange member. If an Exchange member is not a CSD Prague participant, they are what is called a remote member (RM). An RM must have the settlement of its trades arranged either by the participant in the role of a Clearing Agent or in the role of a General Clearing Member. In the event of settlement being settled through a participant in the role of a Clearing Agent, the Exchange member itself must become a member of the CSD Clearing Fund. Membership of the CSD Clearing Fund thus determines the entity that is responsible for the settlement of the exchange trades of a given Exchange member.
The settlement of exchange trades is irrevocable and is guaranteed by the CSD Clearing Fund. As a general rule, settlement is conducted on the day S=T+2, where T is the trade conclusion date and S is the settlement date.
If any of the parties fails to comply with its obligation arising from a concluded trade, it is provided with an extra three-day period for the additional settlement of the trade. If the trade is still not settled after this period, the CSD Prague will cancel its settlement and, if the non-failing party is interested, intermediate a substitute trade. The CSD Prague will address all Exchange members to represent the party which has caused the cancellation of the settlement in the trade concerned.
Upon the conclusion of a substitute trade, the price difference, if any, between the original and substitute trade shall be settled by the failing party to the party that is affected.
Settlement of OTC Trades and Transactions
OTC transactions, the settlement of which is arranged by the CSD Prague, are trades and transactions that are registered through the matching module of the UNIVYC Settlement System. With the exception of defined exceptions (trades from markets, transfers within one participant), all instructions are obligatorily matched between participants.
The CSD Prague settles OTC transactions in accordance with participants’ requests, in the following two essential manners:
- as deliveries versus payments (DVP), i.e. the transfer of securities for consideration, consisting of financial settlement and the settlement of securities, or
- as deliveries free of payment (DFP), i.e. just the transfer of securities, where the transfer of money is not executed via the CSD Prague.
Although the CSD Prague does not guarantee the settlement of OTC transactions, i.e. that transfers of securities from the seller to the buyer will always take place, it guarantees what is called the finality of the settlement, i.e. that there can be no delivery of securities without payment and, vice versa, there can be no transfer of money without a transfer of securities. This guarantee thus represents a significant reduction in risks for participants, both operational and counterparty risks.
Settlement days are chosen by the transaction counterparties from within the following ranges:
- T-99 to T+99 for all types of trades and types of settlement.
Settlement takes place in the following settlement cycles:
|8:00||first settlement cycle||(DVP all currencies + DFP)|
|9:00||second settlement cycle||(DVP all currencies + DFP)|
|10:00||third settlement cycle||(DVP all currencies + DFP)|
|11:00||fourth settlement cycle||(DVP all currencies + DFP)|
|12:00||fifth settlement cycle||(DVP all currencies + DFP)|
|13:00||sixth settlement cycle||(DVP all currencies + DFP)|
|15:30||seventh settlement cycle||(DVP EUR)|
|15:45||eighth settlement cycle||(correction cycle EUR)|
|17:00||ninth settlement cycle||(DFP)|
Accounting Day Calendar
The CSD Prague defines accounting day calendars valid for CZK as every business day in the Czech Republic.
For the euro, the CSD Prague accounting days follow the TARGET2 schedule, i.e. an accounting day is every day except Saturdays, Sundays, 1 January, Good Friday, Easter Monday, 1 May, and 25 and 26 December.
For USD and GBP, a common schedule is set, given the unification of all days on which it is not possible to execute payment orders due to non-business days.
for USD and GBP:
*for all currencies
Method of Communication with Participants
The CSD Prague enables communication via the international SWIFT network in the ISO 15022 and ISO 20022 formats. Through this communication channel, all services related to instructions, settlement status information, settlement confirmation and reports at the end of the accounting day are available to participants, and, through the new ISO 20022 format, services under the European Directive as regards the encouragement of long-term shareholder engagement (SRD II) are supported. The CSD Prague also carries out what is called a Self-Assessment every year in accordance with the SWIFT rules, through which it declares compliance with the implementation of the SWIFT architecture within its IT infrastructure.
The CSD Prague also enables communication on the basis of a defined CSD Prague data interface, which the participants access either on the basis of the implementation of a communication server or on the basis of web services. The CSD Prague data interface provides participants with the use of all services of a settlement and registration nature in a fully automated manner.
In addition to the two methods mentioned above, which are fully automated and meet the requirements for STP processes, the CSD Prague has also been offering the new CSD Prague Enter application since March 2021. This web application allows participants to access all CSD Prague services manually. The application is intended mainly as a backup solution in the event of a failure of the primary system, for the solution of services that the participant has not implemented, for the purposes of reconciliation and checks.
Management of Risks Associated with the Settlement of Investment Instrument Trades
Administration and Management of Participants’ Deposits in the CSD Clearing Fund
The CSD Clearing Fund (CLF) is established to secure liabilities and to cover risks arising from the settlement of exchange trades concluded by Exchange members from the position of clearing and non-clearing participants in the CSD Prague.
The CSD Prague keeps records of funds in the CLF separately and the use of the fund is regulated by the Settlement System Rules. CLF funds are made up of participants’ cash contributions. The minimum deposit amount and parameters for the daily recalculation of CLF participants’ deposits are based on the CSD Prague regulation entitled Clearing Fund Parameters. The amount of the contribution is determined on the basis of exchange rate differences and the open position of exchange trades. If a participant is unable to fulfil its obligations, other participants shall contribute the missing threshold amount to the CLF in proportion to their own deposits. The CSD Prague is responsible for the administration and management of participants’ deposits. The CSD Prague uses the CLF funds through investment operations on the financial market. The resources from the CLF may be used if any of the exchange trade participants default on the fulfilment of their obligation. In the event of the buyer’s insolvency or delay on the part of the seller, the CSD Prague will organise a substitute trade and ensure the transfer of funds to the seller and the delivery of the relevant securities to the buyer.
Information on CSD Prague Insurance
The CSD Prague has taken out insurance for its professional liability for damage caused to third parties. The insurance covers financial losses caused mainly by dishonest and fraudulent acts or errors and omissions of CSD Prague employees, computer systems, electronic data and media, computer viruses and cyber risks.
Report on Settlement Fails
In accordance with Table 1 of Annex III to Commission Delegated Regulation (EU) 2018/1229, OeKB CSD publishes the report on settlement fails on an annual basis: