Ireland may have to set up its own system to hold shares and bonds on behalf of investors for the purposes of settling trades, as the UK presses ahead with plans to exit the European Union within the next two years.
Up until now, the settlement of Irish share trades have been carried out by a UK-based Central Securities Depository (CSD) called Crest. This allows shareholders and bondholders to hold assets in electronic form rather than holding physical certificates.
Payment of dividends
Crest also assists companies in the payment of dividends and the Revenue Commissioners in collecting stamp duty, currently charged at a rate of 1 per cent on Irish share trading.
We have been looking at potential options for revised CSD and settlement arrangements for Irish securities
However, it is unlikely that Crest, which is operated by Euroclear UK & Ireland in London, will be able to continue to operate in Ireland post-Brexit, as the UK loses rights to passport financial goods and services.
"Since the UK decision to leave the EU, we have been looking at potential options for revised CSD and settlement arrangements for Irish securities, and we are engaging fully with all stakeholders to determine the preferred approach by the Irish market over the next two years and beyond," said a spokesman for the Irish Stock Exchange.
Domestic CSD
Ireland is alone in Europe in not having a domestic CSD, traditionally associated with national stock exchanges. Euroclear UK & Ireland is a subsidiary of Euroclear in Brussels.
"Ireland faces two options, really: either to set up a central securities depository or move to another CSD provider in the European Union," according to Sean Tuffy, the Dublin-based head of strategy for Europe and Asia at financial services firm Brown Brothers Harriman. "The Irish Stock Exchange could move in future to work directly with Euroclear in Brussels or, indeed, with Clearstream in Luxembourg."
Clearstream is owned by Deutsche Börse, the Frankfurt exchange operator, which currently operates the share trading system used by the Irish Stock Exchange. Deutsche Börse’s third attempt to merge with the London Stock Exchange in the past 18 years ended in failure last week as the European Commission’s competition arm blocked the deal.
‘Gateway’
While Ireland's future CSD and share settlement system has presented challenges for the Irish Stock Exchange, the company, where Deirdre Somers is chief executive, is promoting the bourse as a "European gateway for global issuers" post-Brexit.
The Irish Stock Exchange, which is owned by a number of brokerages, including Davy, Goodbody Stockbrokers, Investec, Cantor Fitzgerald and Campbell O'Connor, is known to be actively pitching Dublin as a location for a dual listing of overseas companies. The exchange bourse already is a leading international location for the listing of debt and investment funds.
