International Central Securities Depositaries (ICSDs) are clearing and settlement systems for internationally traded securities. They provide cross-border securities services to banks, broker-dealers, custodians, agents and other institutions.
Companies, governments and municipalities issue bonds to finance their operations and fund projects. The bond market offers a very efficient way to borrow capital. Although many companies are legally entitled to borrow from a bank, the process is often costly and time consuming. Issuing bonds is generally viewed as easier, less restrictive and a cheaper way than borrowing money directly from a bank. For more information, see Practice Notes: Introduction to the debt capital markets and Bonds and notes.For information on the key documentation and parties to an issue of debt securities, see Practice Notes: Issuing debt securities—key documentation and Parties in an issue of debt securities.Why keep in touch with bondholders?In the past, not a lot of interest was shown by issuers in communicating with their bondholders unless there was an absolute need, and even then the communication simply consisted of a notice sent through the trustee and would eventually not necessarily reach all the beneficial owners.The trustee is a financial institution with trust powers, such as a commercial bank or trust company that is given fiduciary powers by a bond issuer to enforce the terms of a bond indenture. Bond indenture is a document that constitutes a contract between a bond issuer and a bondholder and includes the terms and
What is financial custody?Systems and services for safekeeping or custody of debt securities are part of the infrastructure that helps to create an efficient, secure and liquid market for debt securities—see Practice Note: Debt securities market infrastructure.Debt securities are usually held through an extended chain of intermediaries. The end investor has rights which amount to a form of ownership, but which do not fit into the categories of legal or beneficial ownership under English law. Credit, operational and legal risks can potentially arise at each link in the chain and the rights of end investors are dependent on a chain of legal arrangements between the intermediaries and on accurate record keeping by the computer systems operated by each of the intermediaries, over which the end investor has no control.EU and UK regulation of custodial services focuses on minimising credit, operational and legal risk by requiring custodians to carry out continual due diligence on their own systems and operations and those of the other intermediaries in the chain of ownership.Role of a custodianThe primary role of a custodian is to provide the following services:•holding debt securities (customer assets) on behalf of its clients•settlement processing•receiving interest and principal payments and passing these on to the client, and•processing corporate actions, such as passing on notices from
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