A tale of irish settlement
The trading of shares on a stock exchange creates a contract between buyer and seller to deliver and pay for the shares being transacted. The contractual obligations are met through a process known as Settlement.
Frequently, settlement is done outside the stock exchange through a separate firm, referred to as a Central Securities Depositary (CSD).
Ireland does not have a CSD, so the Irish Stock Exchange traders have relied upon the UK CSD to handle their business – until Brexit. Brexit builds a gap in this arrangement that EU regulation will not permit to be continued beyond 2021. So Irish market trades need to find an alternative settlement provider and soon.
A White Paper was published last week that described a solution to the problem. The suggestion is that the settlement of Irish trades will be done in Belgium and under Belgian Law. There is logic to the approach: The provider of the service is the same one that handles Irish Government Securities, which are bonds and bonds work differently to shares. But Belgium is of course in the EU, unlike the future UK, so that is alright!
There are concessions that will be required which include changes to Irish Company Law and a different approach to investor rights - Belgium’s legal heritage is very different to that of the UK and Ireland. And the cost of doing the business is forecast to double.
Which makes it ironic that just four years ago the Irish Authorities commissioned a feasibility study into building an Irish CSD. This study found that there were a number of advantages to having a national service and that it was neither a hugely expensive nor burdensome undertaking with a pay-back of the cost in a few short years. This national CSD would also link the Irish market to the new pan-Europe settlement platform recently built by the European Central Bank which was partially paid for by Ireland as a member of the EU.
The study was accepted and a formation company set up called “EirCSD”, which neatly laid out its national market heritage. A board was established which presided over a project to set up the business. This attracted some interest from the market and potential funders.
Throughout 2016 the plans developed, contracts and commitments were made and received.
Then, at the point of starting the launch phase, the two local project owners backed out and the initiative collapsed, leaving unpaid bills and confused supporters.
But, as the saying goes: “Timing is everything, if it is meant to happen, it will at the right time for the right reasons.”