The Central Depository wants to become the bank of brokerage firms

• Adriana Tănăsoiu: We want to lend the money needed for settling trades to the brokerage firms, at interest, in exchange for adequate collateral

The management of the Central Depository wants to extend the range of services it provides for its members, with deposit-related operations, following the model of Euroclear and of depositories in Austria and Switzerland. As such, the Central Depository wants to lend brokerage firms the money needed for settling trades, using securities in their portfolios as collateral. In turn, brokers would have the possibility of keeping their money in accounts with the Depository, in exchange for interest.

Even though this project has several stages to go through until its completion, the management of the Depository is optimistic that the regulatory framework for this project will be completed and included in the Code of the Central Depository by year-end.

"The plan is to have the participants of the Depository (ed. note: brokerages) to open their cash accounts with us, just as they have financial instrument accounts (stocks, bonds, etc). Therefore, if our clearing system allows us to see if the broker has the money needed for settlement, we would no longer need to wait for confirmations from all the banks that brokerages work with", Adriana Tănăsoiu, the general manager of the Depository said for BURSA. She added: "Another thing we could do would be to lend money to brokers in order to allow them to complete settlement, loans which would be guaranteed with the stocks or bonds that they own in the Central Depository, for a short period, of a day or several days at most. Of course those instruments would not be valued at 100% of their value, but rather we would calculate a risk coefficient for of them, based on their type. Also, only liquid financial instruments specified in the Code of the Central Depository would be eligible for use as collateral".

In case the potential debtor does not return the money on time, the Depository would sell the securities used as collateral. The Depository would be protected against a possible market drop, since the stocks would be marked to market, and a new margin call would be issued daily, if needed, Adriana Tănăsoiu said.

"What would the Depository win? This would increase the efficiency and the safety of the settlement process, seeing that the Central Depository would have direct access to the check the existence of the securities, as well as the availability of the cash needed for the settlement of trades.

The main winners of this service would be market participants themselves, by having the advantage of an integrated system and competitive commissions. What"s more, by leaving their money used for settlement with us, for instance for next-day settlement, they could earn a little interest; we"re not talking deposits, but rather receiving a bonus rate. All the operations will be transparent and will be regulated by the Operating Code of the Depository. We could operate as a bank for brokerages which would handle settlements", Adriana Tănăsoiu added.

In order to finance this project, the Depository needs money, which could come from several sources. The management has several ways it could use to raise funding, although it avoided mentioning the amount that would be needed for this project: "We could choose to use our own funds, or try to raise additional resources by using bank loans. We could also do a share capital increase, but we have not made a decision on this matter, because we first need to complete underlying rules under which this service would be provided", the head of the Depository said.

Even though the idea of turning the Central Depository into a "bank for brokerages" could seem radical, the management of the institution already received positive signals from the management of the two regulatory bodies (the Romanian Central Bank - NBR and the Romanian Securities Commission).

Adriana Tănăsoiu said: "We are reviewing the possibility of making these operations without essentially becoming a full-fledged bank, and we think we could do that as long as we operate by clear rules approved by the NBR and the CNVM alike. I would like to emphasize that the Central Depository plans to handle the cash accounts of the market participants only for the specific purpose of handling their settlements. We will begin drafting the guidelines soon. We just asked whether these operations would be possible on principle, and we were told that nothing would prevent it. But naturally, there will be a need to get the authorities to approve the additions and changes to the Code of the Central Depository".

Since the Bucharest Stock Exchange controls 67% of the Central Depository, and its services are used by brokers, which are customers of the Depository and the Stock Exchange alike, any major project needs to be discussed with the management of the BSE. Adriana Tănăsoiu said that this project was well received by the officials of the BSE: "A similar project was discussed by the Board of the Depository and by the Board of the Stock Exchange, but we also had informal talks with the intermediaries. The initiative was well received, but we will have more elaborate discussions with the brokers before we launch the project. I think that the rumor which was floating around, that Ovidiu Sergiu Pop (ed. note: the Chairman of the Depository), was considering breaking the Depository away from the Stock Exchange is unfounded. The relationship between the Central Depository and the Bucharest Stock Exchange is excellent, and they have a very strong development strategy".

• The Central Depository to complete the service for the distribution of dividends in just a few days

The management of the Central Depository said that in a few days, it will complete the project for the distribution of dividends for issuers of the Bucharest Stock Exchange, as well as for unlisted companies. The Proprietatea Fund, may be included among the latter, even though none of its representatives confirmed this information.

So far, the Depository contacted over 20 issuers, of which several have already expressed their interest in using the new dividend distribution system of the Depository.

"We are very close to effectively announcing the way we will provide this service and who we are going to work with to do so. So far we consulted with a group of 20 issuers, most of them said they would be interested in using this new dividend distribution service", said Mrs. Tănăsoiu.