Читать книгу The Sterling Bonds and Fixed Income Handbook - Mark Glowrey - Страница 22

Custody is not a subject that receives much attention in the financial press, but you might be surprised how often the subject arises amongst market professionals.

When an investor buys a bond, his broker will need to settle the transaction. Domestic bond markets, such as gilts, have settlement systems that were in many cases established before the dawn of time. However, the majority of corporate bonds, including sterling corporate bonds, are Eurobonds – a type of instrument that has a distinct structure and settlement systems.

The history of the development of the Eurobond market (in the late 1960s) is based on bearer bonds. As the market developed, it became clear that some form of centralised custody system would be needed to enable the speedy transfer of ownership without the need to physically move piles of bearer certificates from one vault to another.

To meet the custody and settlement needs of the growing Eurobond market, JP Morgan established Euroclear in Belgium in 1968. The system proved to be an enormous success and Euroclear remains the hub of the international bond markets and turned over a remarkable EUR451 trillion in 2006.

The Euroclear system has come a long way from its Eurobond roots in the sixties, and now provides a settlement system for numerous classes of securities. However, it is with Eurobonds that most people associate the system.

The system works on a delivery vs cash basis. All bonds are lodged centrally. Nowadays the bonds are typically represented by a single certificate and most investors and their brokers will never actually see or lay hands on a physical certificate.

Banks, brokers and custodians will then hold accounts with Euroclear. When a trade is to be settled (typically between one and three days after the trade), each counterparty will place his or her instructions, either to deliver the bonds or to pay the cash consideration. On the relevant settlement date, Euroclear will then debit the respective cash and custody accounts accordingly.

UK investors may also encounter their bonds being delivered into the UK’s Crest system. We will deal with this in more detail in chapter 15.

Tip

All bonds are held by professional custodians – in Euroclear, via Crest or in the US DTC system. If you are ever approached by anyone offering you bonds, or claiming to hold bonds, outside of these systems, give them a very wide berth.