UK book entry depository Crest has gone live with two new risk reduction initiatives, entailing the introduction of electronic transfer of title, and delivery versus payment.
The introduction of ETT required HM Treasury to draft new regulations which were passed by Parliament last week. Under these regulations, at the point of transfer within Crest the transferee (buyer) will receive immediate and irrevocable legal title to the dematerialised securities. This change removes the remote risk that a buyer of stock might discover that his interest in the stock could not be registered after settlement.
The introduction of real-time payment in central bank money removes the theoretical risk to an investor arising from the failure of his counterparty's settlement bank. This project was a collaborative venture between CrestCo and the Bank of England.
Iain Saville, the chief executive of Crest, comments: "We believe that it is vital for major securities markets to drive for the highest possible standards of risk management. The UK market settles £200 billion each day, and needs to lead the process. There have been no losses resulting from the risks now eliminated, in the 5 years of CREST operation; but fire insurance is still worthwhile! After these two important initiatives, the UK has the safest settlement of any market of comparable size."