National Settlement Depository’s Eddie Astanin highlights how global trends are changing Russia’s post-trade sector, from the technology used to the regulations being implemented.
How is NSD embracing the transformation of infrastructure in a time where technology in asset servicing is changing at such a speed?
National Settlement Depository (NSD) is Russia’s central securities depository, the custodian for all Russian stock market assets. We are part of the Moscow Exchange Group and provide post-trade services in our country. Initially, NSD was established as a central securities depository; however, today, NSD has six business lines, each providing unique infrastructure services: safekeeping services, corporate information centre services, multi-currency settlements, registration of over-the-counter (OTC) transactions (repository services), information services, collateral management, and IT (platform-based) services.
We are striving to become the infrastructural internet, an ecosystem that would enable our clients to develop their services and products for themselves and their customers. The value of the securities under custody reached RUB 49.1 trillion, the number of trades registered with NSD’s repository grew to 3.6 million.
NSD is the first and only company in Russia and the Commonwealth of Independent States countries that has received an accredited local operating unit (LOU) status. This is a permanent status which replaced the temporary one (pre-LOU). It confirms NSD’s compliance with Global Legal Entity Identifier Foundation (GLEIF)’s regulatory and technological requirements for an organisation which assigns and maintains legal entity identifiers (LEIs).
In Q2 2019, NSD assigned 17 new LEI and verified 116 LEIs. LEIs assigned by NSD is recognised by regulators, market participants, and LOUs of other countries. NSD continues to act as Russia’s Numbering Agency and as the substitute numbering agency for CIS countries, assigning international securities identification numbers (ISIN)s, financial Instrument codes (CFIs) and financial instrument short names (FISNs).
In Q2 2019, NSD assigned 405 ISINs, CFIs and FISNs to Russian financial instruments. The number of foreign securities qualified by NSD in Q2 2019 amounted to 1,962.
What trends is NSD seeing right now?
One of the main global trends which we see and feel is disintermediation, meaning that the existing client service model is transforming from a wholesale model to a flat retail model. This trend is being promoted by regulators and is also being contributed to by new digital technologies that enhance connections between end investors, including retail ones, and settlement organisations in the securities market, such as central securities depositories (CSDs).
As a result, the post-trade sector regulation is also changing. In addition, the accumulation of big data is taking place in the CSD industry, which is boosting the development of solutions for the market in conjunction with regulators, including in the regtech space.
Another trend we’re seeing is the transformation of business models for companies that operate in post-trade sectors, in particular, CSDs; they are moving from monoline services, such as safekeeping and settlements, to multi-services or veritable “financial supermarkets.” We also see the trend for building open platforms that may be integrated with clients and with each other.
One of the drivers of such transformation is new digital technologies and changes in consumer behaviour, especially for generations Y and Z. Their “click-done” motto requires appropriate technological solutions in the post-trade industry. That is why we are actively engaged in searching for and developing solutions with other fintech companies. We already have a broad base of knowledge and skills, for example, in blockchain, robotisation, and application programming interfaces (APIs).
Are automation, machine learning and/or AI causing challenges or providing opportunities within the industry in Russia? How are you utilising the technologies?
For us, all those digital trends are opportunities, of course. CSDs have a quite unique market position—they are rather neutral with regard to market players’ conflicts of interests, and regulators also trust them. We, therefore, think that CSDs can be solution providers, for example, in the regtech space.
At the moment, we are in discussions with the market and the regulator regarding the creation and implementation of a system to validate market participants’ XBRL reports to the regulator. If in the over-the-counter (OTC) market (for example, the repo market), blockchain platforms will be developed as systems for making transactions, we think that CSDs will be able to offer their clients customised smart contracts that provide for data interchange and generation of instructions between blockchain platforms and conventional systems for managing fiduciary collateral (cash, securities, precious metals and etc).
We see a growing demand for safekeeping and settlement services for tokenised securities and pay special attention to this market. In 2017, NSD initiated the establishment of an international working group to prepare and harmonise CSD requirements for handling digital assets stored in a blockchain system, as part of International Securities Services Association.
NSD, together with its partners in the Hyperledger consortium (Soramitsu and KDD, a Slovenian CSD), also developed an IT platform for D3Ledger, a global distributed digital depository; the platform performs such functions as the issuance, safekeeping, settlement, and servicing of tokenised assets based on the global distributed ledger. Market participants also demand standardisation of financial messaging formats and channels. Open API platforms could be a solution capable to meet this demand. Our company has launched such a project for banks and corporations in the Russian market. SWIFT could be such a provider globally.
Which NSD projects do you consider critical for integrating Russia’s infrastructure into the global financial system?
The law on CD, introduction of the concept of foreign nominal accounts and lines with foreign CD, implementation of ISO 20022 formats, as well as compliance of NSD with international standards and regulations on risk management and internal control, compliance, tax administration.
NSD has eight links with international CSDs and CSDs of the Commonwealth of Independent States countries, the status of the qualified intermediaries, Foreign Account Tax Compliance Act.
What are your predictions for asset servicing in Russia over the next five years?
There will be platforms, ecosystems that will provide users with access to various assets and services. For example, we have launched a project marketplace. The asset class will be enriched by digital assets such as tokens. Asset management will be enriched with robo-advisors, analytics with big data.