Central Securities Depository
The NPS Act (2021) and Regulations (2022) require the dematerialisation of Government and statutory corporation securities. These securities include debt and money market instruments issued by the Reserve Bank of Fiji (RBF), the Government and any other securities.
Dematerialisation of securities is the process of converting securities held in physical form into electronic book entry (digital) form i.e., the issue of traditional certificates would change to maintenance of electronic records. As part of this reform, the Regulations allows the RBF to operate a Central Securities Depository (CSD) system. Sub-regulation 34 (1) states, “the Reserve Bank is appointed as the central securities depository of Government and statutory corporation securities, as well as any other securities deemed appropriate to be processed through such central securities depository”.
What is a CSD and its Functions?
A CSD is an electronic register of securities that are held in a digitised form as well as a system for clearing and settlement. It provides a depository for the safekeeping of dematerialised financial instruments. The ownership of these financial instruments will be transferred electronically, and this will be done on a real time or delivery versus payment (DvP) basis. A CSD also supports market development by supporting script-less trading, capital formation and indirectly liquidity in the market.
A CSD is a systemically important infrastructure given its central role in a market which aligns to internationally accepted principles. Governments rely on markets for government securities to fund their budgets, manage their liquidity, and access information to develop their debt strategy. Central banks also rely on CSDs to carry out monetary policy through open market operations using government and other securities that are held within the CSD.
Key Features of the CSD
(1) Securities Accounts – issuers may deposit their securities for investors to hold and trade them.
(2) Securities Settlement System – enables securities to be transferred and settled as per the pre-determined multilateral rules.
(3) Central Safekeeping Services – on behalf of customers to ensure the integrity of records on securities.
(4) Asset services – includes administration of interest payments and redemption of securities in real time.
(5) Registrar services – maintenance of the record of legal ownership of securities and issuer services.
Fiji Securities Market
The local securities market comprises mainly of issues of government, government-guaranteed and statutory corporation securities. As at 30 September 2022, total outstanding public sector securities were $5,960.6 million.
|
|
$M |
|
Total Government |
5,832.0 |
|
o/w Fiji Development Loans bonds |
1,075.4 |
|
o/w Fiji Infrastructure bonds |
4,218.5 |
|
o/w Fiji Green bonds |
100.0 |
|
o/w Covid-19 Response bonds |
90.0 |
|
o/w Viti bonds |
64.6 |
|
o/w Treasury Bills |
283.5 |
| Total Statutory Corporations |
128.6 |
| Fiji Development Bank bonds |
108.6 |
| Housing Authority Bonds |
20.0 |
| Total Securities |
5,960.6 |
Source: RBF
Development of the Market
The CSD will provide securities issuers and investors in Fiji with a modern, fast and efficient way for investments through the electronic auction system, for settlements of transactions and interest payments as well as keeping track of their balances. Besides these benefits, the CSD is also a requirement for the listing of Fiji’s Sovereign Green Bonds on the London Stock Exchange in 2018, due in 2024.
Stakeholder Engagement
The RBF carried out consultations with major institutional investors, issuers and other major stakeholders to create awareness on the new NPS legislation, development of the new CSD system and its associated processes including cost implications. While the current processes related to investment in public sector securities will be maintained, the CSD will bring about automation in the functionalities of these processes, hence resulting in time and cost savings.
Access to the CSD
An institution that has authorised access to the CSD is referred to as a Participant. The RBF has the responsibility for designating institutions as Participants in the CSD. The initial Participants in the CSD include the Participants in the payment system, major institutional investors and the RBF. Retail investors who do not have direct access to the CSD will be able to invest in securities through a direct CSD Participant. All investors will be able to view and generate statements of their security holdings securely through an online portal.
Conclusion
The enactment of the new payment system law has paved the way for the modernisation of Fiji’s payment system infrastructure.
The efficiency gains expected from leveraging on technology through the development of a CSD, will contribute to further development and modernisation of the local securities market and the financial system as a whole.
- To view an educational video on the CSD, Please Click Here.
- NPS Infographic
Reserve Bank of Fiji
29 October 2022