Clearstream
Clearstream Clearing and Settlement
PPM.net can assist with all of your Clearstream needs Clearstream Banking S.A. (CB) is the clearing and settlement division of Deutsche Börse, based in Luxembourg and Frankfurt.
Clearstream was created in January 2000 through the merger of Cedel International and Deutsche Börse Clearing. Its main functions are acting as International Central Securities Depository (ICSD), Clearstream also acts as the Central Securities Depository (CSD) for Germany and Clearing House for a number of securities. It is one of the biggest custodians and clearer of the eurobonds market.
Clearstream has been criticized for allowing banks to move money undetected and has been accused of involvements in a number of cases involving money laundering and tax evasion. Two notable cases have become known as the Clearstream Affair which started with the release of the book Révélation$ in 2001 by the investigative reporter Denis Robert and ex-Clearstream banker Ernest Backes and the Second Clearstream Affair which started in 2004 when anonymous denunciations was sent to magistrate Renaud Van Ruymbeke accusing a number of major French political figures of having received kickbacks.
History
Clearstream’s customers are banks or financial institutions who have accounts with Clearstream which are used to settled and delivered eurobonds with their counterparts. No individual can open an account with Clearstream.
In 1996, Clearstream obtained its own banking license.
In January 2000 it became Clearstream through the merger of Cedel International and Deutsche Börse Clearing, a subsidiary of Deutsche Börse Group, which owns the Frankfurt Stock Exchange when it took a 50% shareholding.
In July 2002, Deutsche Boerse bought the remaining 50% of Clearstream International for 1.6 billion euros. In 2009 Clearstream contributed Earnings Before Interest and Taxes of €720 million to Deutsche Börse’s. It handled 102 million transactions, and was custodian of securities worth €10.3 trillion.
Settlement and custody
Clearstream often has been described as a bank for banks, as it practices what is called settlement and custody operations (“Plumbers and Visionaries, a history of settlement and custody in Europe”, Peter Norman). Basically, its duty is to record transactions between the accounts of different banks, and use that data to calculate the relative financial positions of banks with regard to each other. So a bank can just order a transaction between its own account and the other bank’s account, in lieu of less secure methods such as carrying a case full of currency or securities around on the street; the bank merely transmits an order to Clearstream to credit/debit one of its own accounts and the other bank’s account(s). This general system is in use between regular companies, governments, and banks around the world.
The purpose of International central securities depositories like Clearstream is to facilitate money movements around the world, particularly by handling the resolution of sales of European stocks and bonds, in which market Clearstream is a major player, with an estimated 40% market share until May 2008 – together with its competitor, the two firms settle 70% of European transactions. Furthermore, in January 2009, Clearstream was the 11th largest employer in Luxembourg.
Clearstream does not hold a monopoly in this market: owned by the market, and custodian banks (Bank of New York-Mellon..] are competitors. ; Clearstream’s quasi-monopoly is demonstrated by this European Union statement declaring that “Clearstream Banking AG is an unavoidable trader partner.”[
Clearstream’s dominant position
On June 2, 2004, the European Commission found that “Clearstream Banking AG and its parent company Clearstream International SA (“Clearstream“) infringed competition rules by refusing to supply cross-border securities clearing and settlement services, and by applying discriminatory prices. Clearstream has appealed in front of the European Court of Justice. The case was pleaded in July 2008 and the decision is pending.
The Commission defined clearing and settlement as follows:
- “Securities clearing and settlement are necessary steps for a securities trade to be completed.
Clearing is the process by which the contractual obligations of the buyer and the seller are established.
Settlement is the transfer of securities from the seller to the buyer and the transfer of funds from the buyer to the seller. (…)
Clearstream Banking AG is Germany’s only Wertpapiersammelbank (Central Securities Depository).
“The Commission considered that during the reference period concerned, 1997 through 2001, Clearstream held a dominant position for providing cross-border clearing and settlement services to intermediaries situated in other Member States. The investigation therefore focused on a specific cross-border market and the decision does not set out findings that go beyond that relevant market.”
The Commission underlined in a note that, “Central Securities Depositories hold securities and enable securities transactions to be processed through book entry. In its home country, the Central Securities Depository provides processing services for trades of those securities that it holds in final custody. It can also offer processing services as an intermediary in cross-border clearing and settlement, where the primary deposit of securities is in another country.”
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