Clearstream headquarters, Luxembourg (Deutsche Börse AG, Public domain)
The ICSD connected local Romanian central securities depository to its network, making it easier for international investors to access the Romanian securities market. Clearstream’s international financial infrastructure will now be responsible for the settlement and safekeeping of all equities denominated in the RON. Although Clearstream has been present in the country since 2010, the latest step brings Romania much closer to a more complete integration with global financial markets.
According to the Romanian Press Agency, BRD Groupe Société Générale will act as a local custodian partner for Clearstream, connecting in turn to the Central Depository of Securities in Romania.
Clearstream, owned by Deutsche Börse AG, is a post-trade services provider headquartered in Luxembourg. It provides settlement and custody along with other related services for securities across all asset classes. It currently provides financial infrastructure for the Eurobond market and securities services in 58 markets worldwide and has customers in 110 countries. According to its website, Clearstream currently manages assets worth around EUR14 trillion.
A decade-long journey
Romania first embarked on the journey of financial cooperation with Clearstream a decade ago, three years after joining the European Union. In 2010, Clearstream opened two direct links with Bulgaria and Romania in an attempt to make it easier for international investors to access these two markets.
The first link allowed settlement of government securities via the National Bank of Romania. More specifically, the establishment of cooperation between Romania and Clearstream made it possible for foreign investors to gain access to a number of settlement services, such as International transactions within Clearstream Banking against payment in any eligible settlement currency and free of payment in the Romanian market; settlement with the National Bank of Romania (transactions free of payment and against payment in RON for RON-denominated securities or transactions free of payment for EUR-denominated securities, according to Clearstream.
Half a decade later, in 2015, Clearstream expanded its cooperation with Romanian financial institutions after a change in Romanian legislation enabled a further integration. Clearstream started offering settlement and custody for municipal bonds in Romania. Clearstream supplemented its direct link to the National Bank of Romania by an indirect link to the Depozitarul Central, the Romanian Central Securities Depository (CSD), bit its custodian Bancpost, Mondovisione reported at the time.
After the first municipal bond was issued in 2015 by the city of Bucharest, listed on the Bucharest Stock Exchange, several tranches with different maturities worth EUR500m followed. Romanian financial professionals welcomed the move as it opened the door to a new capital for the domestic market, Romanian press reported.
Granting access to international investors to the Romanian securities market through deeper cooperation with Clearstream is the latest step on the country’s journey to further integration with western financial institutions.
Everyone wants to join
Providing international investors access to domestic financial markets via Clearstream, or other similar platforms for that matter, is the goal of many developing countries hungry for foreign capital. In recent years, a number of countries in the post-soviet space have embarked on the journey.
For example, the war-torn Ukraine put one foot in the door last year. In May 2019, Clearstrem connected the Ukrainian market to its network, making Ukrainian securities eligible in its system. An important first step for Ukraine enabled settlement of all government bonds denominated in the UAH through the international system of Clearstream, “improving efficiency at international standards while reducing costs for investors,” a Clearstream press release from the time said. The joint initiative was intended to encourage an increase in demand for Ukrainian government bonds, “boosting liquidity and their attractiveness in the international market.” And it seems to have worked.
According to Bloomberg, the share of foreign investors holding the UAH-denominated bonds has gone up from zero to more than 12 per cent in just half a year, since Ukraine reached the deal with Clearstream, “making the currency’s rally the biggest in the world in 2019.”
Similar trend has been observed in Russia, after the country’s financial market has been made accessible to foreign investors, foreign capital flooded the Russian market, making the Russian Ruble a darling of global investors.
However, enabling access to local markets by establishing a partnership with platforms such as Clearstream doesn’t always lead to a market boom. A case in point is another post-soviet Republic – Kazakhstan. The central Asian country became Clearstream’s 57th market link in July 2018. The cooperation enabled international investors to access Kazakhstan government bonds and National Bank notes through a local custodian and cash correspondent bank, Citibank Kazakstah JSC, a subsidiary bank of Citibank, N.A., Clearstream reported at the time. But instead of becoming a hit overnight, the Kazakh bonds rather underperformed. According to Bloomberg figures, in 2019, Kazakhstan handed investors a loss of 2 per cent.
Only time will tell whether Romania’s latest move to partner with Clearstream on offering local securities to global market players will bring the desired results.
Filip Brokeš is an analyst and a journalist specializing in international relations.