• COBS 10. COBS 10. CORE RULES — OPERATING A CENTRAL SECURITIES DEPOSITORY

    • COBS 10.1 COBS 10.1 Application and interpretation

      • COBS 10.1.1

        This chapter applies to an Authorised Person which operates a Central Securities Depository ("CSD").

      • COBS 10.1.2

        Such an Authorised Person is referred to in this chapter as a CSD.

      • COBS 10.1.3

        An Authorised Person that is permitted to carry on the Regulated Activity of Providing Custody may apply in addition for permission to perform the activity of operating a CSD.

    • COBS 10.2 COBS 10.2 Rules applicable to CSDs

      • COBS 10.2.1

        A CSD must comply with, and is subject to, the general requirements applicable to Authorised Persons in COBS, GEN and elsewhere in the Rules, except for the following:

        (a) Rule 14.2.14 (Segregation and portability);
        (b) Rules 14.2.15(b)(i)(B), (c) and (d) (Statutory Trust);
        (c) Rules 14.4.3 (b), (e) and (h)-(n) (Pooling and Distribution);
        (d) Rule 14.4.6 (Failure of third parties: pooling and distribution); and
        (e) Rule 14.4.7 (Client Money received after the Failure of a third party).

    • COBS 10.3 COBS 10.3 Additional requirements for CSDs

      • COBS 10.3.1

        A CSD must have rules and procedures, including robust accounting practices and controls that:

        (a) ensure the integrity of the securities issues;
        (b) ensure it has a definitive record of title to relevant securities at all times; and
        (c) minimise and manage risks associated with the safekeeping and transfer of securities.

      • COBS 10.3.2

        A CSD must ensure that securities are recorded in book-entry form prior to the trade date.

      • COBS 10.3.3

        A CSD's systems and controls must ensure that:

        (a) the unauthorised creation or deletion of records relating to securities is prevented;
        (b) appropriate intraday reconciliation is conducted to verify that the number of securities making up a securities issue or part of a securities issue submitted to the CSD is equal to the sum of securities recorded on the securities accounts of the members and other participants of the CSD;
        (c) where entities other than the CSD are involved in the reconciliation process for a securities issue, such as the issuer, registrars, issuance agents, transfer agents or other CSDs, the CSD has adequate arrangements for cooperation and information exchange between all involved parties so that the integrity of the issue is maintained; and
        (d) there are no securities overdrafts or debit balances in securities accounts.
        Amended on (3 February, 2020).

    • COBS 10.4 COBS 10.4 CSD links

      • COBS 10.4.1

        A CSD must not establish any link with another CSD (a "CSD link") unless it:

        (a) has, prior to establishing the CSD link, identified and assessed potential risks, for itself and its members and other participants using its facilities, arising from establishing such a link;
        (b) has adequate systems and controls effectively to monitor and manage, on an on-going basis, the following risks:
        (i) the link arrangement between the CSD and all linked CSDs adequately mitigates against possible risks taken by the relevant CSDs, including credit, concentration and liquidity risks, as a result of the link arrangement;
        (ii) each linked CSD has robust daily reconciliation procedures to ensure that its records are accurate;
        (iii) if it or another linked CSD uses an intermediary to operate a link with another CSD, the CSD or the linked CSD has adequate systems and controls to measure, monitor, and manage the risks arising from the use of the intermediary;
        (iv) to the extent practicable and feasible, linked CSDs provide for Delivery Versus Payment (DVP) settlement of transactions between participants in linked CSDs and, where such settlement is not practicable or feasible, reasons for non-DVP settlement are notified to the Regulator; and
        (v) where interoperable securities settlement systems and CSDs use a common settlement infrastructure, there are times specified for the entry, irrevocability, finality and settlement of transfer orders into the system; and
        (c) is able to demonstrate to the Regulator, prior to the establishment of the CSD link, that the CSD link satisfies the requirements referred to in Rule 10.4.1(b).

      • COBS 10.4.2

        A CSD must include in its notification to the Regulator relating to the establishment of CSD links the results of due diligence undertaken in respect of the matters specified in Rule 10.4.1(b) to demonstrate that those requirements are met. Where a CSD changes any existing CSD arrangements, a further notification relating to such changes, along with details of its due diligence relating to the new CSD link, must be provided to the Regulator in advance of the proposed change.