Foreign securities related settlement service
For the management of foreign securities and related cross-border settlement KELER concludes an account agreement with selected foreign custodians. Securities held by clients and securities in the portfolio of their clients are registered in a non-segregated manner at the foreign custodian of KELER.
In addition to prevailing regulations the rules defined by the foreign custodian set the scope of foreign securities that KELER can accept. If foreign securities are issued in Hungary KELER undertakes the registration of the foreign securities based on the individual agreement concluded with the foreign custodian or clearing house. If the issuer lists foreign securities on the BSE that can be accepted by KELER, at the written request of the issuer KELER issues the statement of acceptance on stock exchange settlement based on the data held by the foreign custodian. Securities credited through the foreign custodian are shown as account receivables only on the account of the client, such securities cannot be physically delivered in or out.
For cross-border settlements KELER provides both free of payment (FOP) and against payment (A/P) transaction settlement for clients. Securities issued in individual countries can be traded in several other stock exchanges and markets, among them on the Budapest Stock Exchange also. Accordingly such “multi-market” securities can be settled in the settlement systems of several central depositories serving domestic and remote markets. Securities movements among various markets can be concluded as cross-border settlements depending upon the links established between the settlement systems.
As a result of the cooperation between the Budapest Stock Exchange (BSE) and the Deutsche Börse AG, the members of the BSE have the opportunity to obtain membership at the Deutsche Börse at preferential terms, at the same time to conclude deals directly in the XETRA trading system. Related to this KELER established a direct account with Clearstream Banking Frankfurt that undertakes the settlement of transactions as central depository and with Citibank Frankfurt that provides clearing and settlement services to KELER as an intermediary custodian and clearing service provider. Through cooperation with its partners in Germany KELER provides direct clearing and settlement services to its clients for securities transactions concluded in the XETRA system. Opening the securities accounts required for the service is a simultaneous process closely related to the acquisition of membership at XETRA, as a result of which multilateral agreements are concluded. KELER registers securities in dedicated sub-accounts in its system, while securities in the system of the foreign intermediary are kept in segregated client accounts. Related foreign exchange transactions are completed in the foreign currency account management system of KELER. Collateral is to be provided as a condition of using this system, therefore the service can be used if the initial margin required in prevailing regulations is available. The management of corporate actions of securities registered obviously forms part of the service. With XETRA membership not only German securities but a large number of international securities listed there also become directly available. Euro dominated German securities are cleared and settled on a net basis, with the central guarantee (CCP) of EUREX. All other transactions both at the German market and in the system of KELER are completed on a gross basis. Settlement of stock exchange transactions is automated, case by case client settlement order is not required. In the morning of the day after trading (T+1) KELER sends and electronic letter to the client containing the list of deals made on the trade day and resulting securities and financial settlement obligations for settlement day (T+2). Thereafter in the afternoon of settlement day KELER repeatedly sends an electronic letter including the list of settled and pending transactions. In case of default there are mechanisms to support transaction settlement in the German market. Securities transfers and OTC transactions can also be settled, however, stock exchange transactions have priority in collateral verification. KELER paid attention to client requirements when setting the fees of the service, accordingly preferential rates and fee structure is offered to clients. Additionally, if services offered by KELER are used there is no need to establish direct account and communication with a German service provider, only a new dedicated sub-account is opened under the main securities account kept in KELER. Then securities purchased and registered in the framework of this service can be freely transferred.