Despite widespread dematerialization, many countries around the world continue to have significant certificated holdings for both equities and bonds. While there is a constant regulatory push to encourage transition to electronic holdings such as the recent CSD-R regulations mandating compulsory dematerialization by 2023, Issuers and Central Securities Depositories (CSDs) continue to face challenges in efficiently handling electronic and certificated holdings for equities and bonds.
The co-existence of electronic and certificated holdings pose significant operational challenges to the capital markets, notably, in terms of complexity and delays in settlement, corporate actions processing; delays in moving from one form to another for trading or safe keeping. Investors who have such dual holdings suffer from the inability to have a single view of their portfolios.
Issuers on the other hand are faced with the complexity of reconciliation between the certificated holdings managed by the Registrar/Transfer Agent and the electronic holdings managed by the CSD. These and many related challenges, with the presence of both electronic and certificated holdings in a market, are leading to market players seeking a more efficient way of management. CSDs are keen to play a more central role here while also helping make the markets more efficient.
In many markets, there is an increasing trend of CSDs also taking up the role of being the Registrar/Transfer Agent, thereby, creating a central repository of all holdings for the security. While the role of CSDs in making the markets more efficient with dematerialization and safekeeping is well established, there now presents a unique opportunity for CSDs in some markets to take on a wider role and create such efficiencies for certificated holdings.