Table Of Contents
What Is Clearstream?
Clearstream is a European firm that provides trade settlement and post-trading services to clients at the global level. The company offers its clients financial services under two broad categories - Securities Services and Fund Services. Specific services are also offered under a category titled Strategy and Initiatives.
Clearstream International was formed by the merger of Cedel International SA and Deutsche Börse Group. Later, the newly formed firm began offering various services. It also established subsidiaries. It has a customer base in over 110 countries and caters to 60 domestic markets. Owned by Deutsche Börse AG, Clearstream is set to acquire many other firms.
Key Takeaways
- Clearstream is one of the largest European providers of post-trading services. It allows the fast delivery and settlement of securities in the stock market.
- The Cedel International S.A. and Frankfurt-based Deutsche Börse merged to create "Clearstream" in 2000.
- The major business divisions of the firm include Clearstream Holding AG and Clearstream International.
- The firm also provides financial, banking, settlement, and global securities financial services, in addition to investment funds, communication, media, and custodian services.
How Does Clearstream Work?
Clearstream is one of the largest European firms to offer post-trading services to its clients. Post-trading services refer to activities undertaken after a trade has been executed. It comprises clearing, settlement, custody, and asset servicing. Hence, if a client buys shares, Clearstream ensures securities are transferred to the rightful owner and the other party receives the payment on time. In short, they help clients close trade transactions.
As every trade involves purchase and sale, there is an exchange of funds and transfer of ownership between the parties. Even though the buyer initiates the trade, a mediator is needed to ensure processing at the stock market level. At this point, Clearstream banking and other services come into play. The firm processes the clearance and settlement of the trade executed. It specializes in providing post-trading services, which are important tasks executed in the latter half of the trade.
Clearstream’s responsibilities include managing, maintaining, and safeguarding securities. It holds 300,000 domestic and internationally traded bonds. According to statistics on the website, the firm settles over 250,000 transactions every day. Annually, it settles 170 million transactions. They hold assets amounting to 14 trillion EUR ($15.1 trillion) under custody.
Clearstream typically receives a high credit rating from reputable firms every year. It works per the regulations of the International Central Securities Depository (ICSD) and a Securities Settlement System (SSS). However, after the 2008 financial crisis, the firm adopted the European Central Securities Depositories Regulation (CSDR).
History
Located in Luxembourg, Clearstream is currently owned by Deutsche Börse Clearing AG. However, its history dates back to 1949. The Frankfurt-based firm (Deutsche Borse), founded on July 12, 1949, was established for the clearing and settlement of securities faster and more effectively after the war.
The firm evolved over the years and saw several significant changes that shaped it into becoming the reliable entity it is today. During the merger with Cedel International SA in 2000 that resulted in the formation of Clearstream International, Deutsche Börse held only a 50% stake. However, in 2021, Deutsche Börse acquired the remaining stake in Clearstream.
Divisions
Clearstream plays a vital role in facilitating trades in international financial markets. Let us look at the divisions that make this possible.
#1 - Clearstream Holding AG
There are three major divisions under Clearstream Holding AG - Clearstream Banking S.A. (CBL), Clearstream Banking AG (CBF), and Clearstream Global Securities Services:
- Clearstream Banking S.A. (CBL): The CBL was originally known as "Cedel." Its objective is to reduce risks involved in the settlement of securities transactions. CBL has a subsidiary in Japan that provides clients with educational and financial resources. Another subsidiary of CBL is Clearstream Banking Australia. It manages funds and term deposits for wrap platforms (platforms that facilitate listed securities buying) and wealth managers. Clearstream administers a subsidiary in Prague and another operational center outside Luxembourg.
- Clearstream Banking AG (CBF): CBF is a stock corporation that handles the clients' assets on the online platform (CASCADE). These banking service providers operate out of Frankfurt and Luxembourg.
- Clearstream Global Securities Services Limited: As a non-banking subsidiary, it provides data processing services to trading and custody firms associated with Clearstream banks in Europe and the Americas. It facilitates the clearing of trade/investment transactions in the investment fund sector.
#2 - Clearstream Vestima
Clearstream Vestima is an order routing and management portal available only to registered users trading in the international investment fund industry. The web platform makes a variety of funds available to traders/users/industry participants. The custody and settlement of various fund types, including mutual funds, hedge funds, and ETFs, is carried out through a centralized system for transactions executed worldwide.
#3 - Clearstream LuxCSD
Banque Centrale du Luxembourg and Clearstream International co-founded LuxCSD. It is a securities depository service that works at both domestic and international levels. It reduces risks faced while transacting and dealing in financial markets. Clearstream International does not hold or control LuxCSD directly.
Services
Let us study the various services provided by Clearstream on a global scale.
#1 - Banking Services
Clearstream's CBF offers settlement, custody, and processing services to ensure the swift handling of international securities transactions across global financial markets. Its sister company CBL has an array of services under categories titled cash management & financing, global securities financing securities, asset servicing, and investment fund services, among others.
#2 - Financial Services
Clearstream offers financial services to users/clients trading and investing in international financial markets. Market participants can access different kinds of funds and ETFs. A fund program called "Fund Desk" provides customers with fund distribution services and support, including information about compliance and Know-Your-Customer (KYC) norms.
#3 - Settlement Services
A wide range of settlement services are available to clients, such as
- Matching
- Processing bridge transactions
- Settlement procedures
- Interest claims or arrears
- Hold/Release mechanism
- Delivery and ownership transfer, and others
#4 - Global Securities Financing (GSF) Services
Clearstream provides Automated Securities Lending and Borrowing services, collateral management, and Securities Financing Transactions Reporting (SFTR) services, among others, globally.
#5 - Investment Fund Services
Clearstream Vestima primarily offers investment funds services, covering comprehensive order routing and management tasks. It ensures compliance with regulatory requirements, enables risk management, and facilitates the overall integrity of financial transactions.
#6 - Communication and Media
With the launch of ClearstreamXact, clients can access connectivity products across depositories, activating dematerialization options and enabling online documentation, file transfers, etc. Users can also view the web portal, initiate file transfers, and use SWIFT messages defining payment guidelines.
#7 - Custodian Services
Clearstream's custodian services make settlement swift and easy, where trading and investment activities are handled for various financial instruments. These services also cover international money market instruments.
#8 - Others
Other facilities include client documentation, monthly billing reports, reconciliation, and financial statements.
Clearstream vs Euroclear
Although Clearstream and Euroclear offer similar services, their customer base differs. Therefore, it becomes vital to look at the differences in their methods of operation:
| Basis | Clearstream | Euroclear |
|---|---|---|
| Meaning | It is a European financial services provider operating on domestic and global levels. | Euroclear is a clearance and settlement firm operating out of the Eurozone. |
| Origin | It was formed by the merger of Cedel International S.A. and Deutsche Börse Group in 2000. | In 1968, Euroclear was established by the Brussels Office, Morgan Guaranty Trust Company of New York. |
| Overdraft facility | Depending on the market, intraday technical overdraft facilities are made available. | Overnight overdraft facilities may be made available at times. |
| Assets held | $15.1 trillion (EUR 14 trillion) | $40.75 trillion (EUR 37.6 trillion) |
| Transactions settled | There are 175 million transactions on an annual basis. | Euroclear settles 295 million transactions every year. |
Frequently Asked Questions (FAQs)
The erstwhile Clearstream Energy is called Flint today. It is owned by Clearstream and offers services to companies operating in the energy, industrial, oil & gas, petrochemical, mining, and other sectors. In 2022, the energy firm changed its name to Flint Corporation.
Clearstream is associated with renowned fund providers. Hence, clients/users find easy access to fund distributors offering international funds. This helps clients enlarge and strengthen their investment portfolios.
Yes, it acts as a custodian for clients. Clearstream provides custodian services to financial market participants, streamlining trade settlement on domestic and international levels.
Banking regulatory bodies based in Germany and Luxembourg control Clearstream’s banking services. They are subject to banking regulations enforced by the countries in which they operate.
