International Central Securities Depository (ICSD)

An international central securities depository (ICSD) is a securities depository whose main business is the settlement and safekeeping of securities that are issued and traded internationally, in many currencies, and not tied to one national market. The term refers in practice to two institutions: Euroclear Bank, based in Brussels, and Clearstream Banking, based in Luxembourg. Their core product is the Eurobond and other international debt, but both also hold domestic bonds, shares and funds from many countries.

An ICSD differs from a national central securities depository, which serves the issuers and investors of one country and usually settles in that country's central bank money. The two ICSDs hold banking licences, settle in commercial bank money on their own books in dozens of currencies, and give credit to their participants. They are among the most important infrastructures in the global bond and collateral markets.

Both were created to solve the settlement problems of the Eurobond market, which grew quickly in the 1960s. Bonds were bearer certificates, and each trade required paper to be shipped between banks in different countries, causing delays and losses. Euroclear was founded in Brussels in 1968 by the local office of a US bank, Morgan Guaranty. Cedel was founded in Luxembourg in 1970 by a group of European banks as a rival; it later merged with the German depository business and became Clearstream, which is now owned by Deutsche Börse. Both replaced physical delivery with book entries over certificates held in vaults, an early case of the immobilisation of securities.

An international bond is normally issued in global form. A single global note representing the whole issue is delivered at closing to a common depositary, a bank appointed jointly by the two ICSDs, or under the newer structure introduced in 2006 to a common safekeeper. Each ICSD credits its participants with their share of the issue, and investors hold through those participants. The international market's own identifier, a common code, is used alongside the ISIN.

A trade between two participants of the same ICSD is settled by book entry on its records, with securities and cash moving simultaneously on a delivery versus payment basis. A trade between a participant of one and a participant of the other settles across an electronic link known as the Bridge, which has operated since the early 1980s. For domestic securities, each ICSD is connected to national depositories, either directly or through local agent banks, so that a participant can hold securities from many markets in one account. This makes an ICSD a route into global custody for banks and brokers.

• Settlement and safekeeping. These are the core functions, with real-time and overnight processing cycles.
• Asset servicing. Coupons and redemptions are collected from the issuer's paying agent and credited to holders, corporate actions are processed and tax services provided.
• New issues. The ICSDs accept and distribute securities at closing in the primary market, working with lead managers and issuing agents.
• Collateral management. Both operate large tri-party collateral management services, selecting, valuing and substituting collateral for repo, securities lending and margin obligations.
• Securities lending and credit. Automated lending programmes help participants avoid failed deliveries, and intraday credit, secured on holdings, supports settlement.
• Funds processing. Order routing and settlement for cross-border investment fund units.

As depositories established in the European Union, both are authorised under the Central Securities Depositories Regulation, which sets organisational, conduct and prudential rules and includes a settlement discipline regime of penalties for late settlement. Because they provide banking services to participants, they are also subject to bank capital and liquidity rules and to additional limits on the credit and liquidity risk they may take. Their securities settlement systems are designated under settlement finality law, which protects completed transfers from being unwound in an insolvency, and they are overseen as systemically important infrastructures by their national central banks and the Eurosystem, in line with international principles for financial market infrastructures.

Securities held in the ICSDs are widely used as collateral. Central banks accept eligible international debt held there in their credit operations, a use that prompted the common safekeeper structure. In the repo market, tri-party services allow cash lenders to receive diversified baskets of collateral without handling individual securities. The ability to move collateral between the ICSDs and national systems affects how efficiently institutions can meet margin calls, a concern of collateral management.

The use of commercial bank money and the provision of credit give the ICSDs risks that national depositories do not have, which is the reason for their tighter prudential treatment. Their position between issuers, investors and many national systems also makes them a point at which sanctions and legal disputes are felt: after 2022, large amounts of Russian assets were immobilised in accounts at Euroclear, generating substantial cash balances and legal claims. Both ICSDs have built platforms for issuing and settling digitally native bonds on distributed ledgers, and they connect to the Eurosystem's settlement platform for transactions in central bank money. The second ICSD link in the chain adds a layer to the custody chain, so investors' rights depend on Belgian or Luxembourg law as well as on the law of the issue.

• Euroclear
• Clearstream
• International Capital Market Association