4.5.1. Central securities depositories

An Authorised Clearing House acting as a Central Securities Depository must:

(1) have appropriate rules, procedures, and controls, including robust accounting practices, to safeguard the rights of issuers and holders of Securities, Units in a Listed Fund, Commodity Derivatives, or Environmental Instruments, prevent the unauthorised creation or deletion of Securities, Units in a Listed Fund, Commodity Derivatives, or Environmental Instruments, and conduct periodic and at least daily reconciliation of its records of assets it maintains;

(2) prohibit overdrafts and debit balances in accounts of Securities, Units in a Listed Fund, Commodity Derivatives, or Environmental Instruments;

(3) maintain Securities, Units in a Listed Fund, Commodity Derivatives, or Environmental Instruments in an immobilised or dematerialised form for their transfer by book entry;

(4) protect assets against custody risk through appropriate rules and procedures consistent with its legal framework;

(5) ensure segregation between the Central Securities Depository’s own assets and the securities of its participants and segregation among the securities of participants; and

(6) identify, measure, monitor, and manage its risks from other activities that it may erform.

4.5.2. Central security depository links

(1) A CSD must not establish any link with another CSD (CSD link) unless:

• (a) it has:
• (i) prior to establishing the CSD link, identified and assessed potential risks, for itself and its Members and other participants using its facilities, arising from establishing such a link;
• (ii) adequate systems and controls to effectively monitor and manage, on an on-going basis, risks identified under (a) above; and
• (iii) complied with the requirement in (2); and
• (b) it is satisfied, on reasonable grounds, that the contractual arrangement establishing the CSD link:
• (i) provides to the CSD and its Members and other participants using its facilities adequate protection relating to possible risks arising from using the other CSDs to which it is linked (linked CSDs);
• (ii) in the case of a provisional transfer of securities between the CSD and linked CSDs, ensure intra-day finality by prohibiting the retransfer of securities before the first transfer of securities becomes final;
• (iii) sets out the respective rights and obligations of the CSD and linked CSDs and their respective Members and other participants using their facilities; and
• (iv) in the case of a linked CSD outside the AIFC, sets out clearly the applicable laws that govern each aspect of the CSD’s and the linked CSD’s operations.

(2) The CSD must be able to demonstrate to the AFSA, prior to the establishment of any CSD link, that:

• (a) the link arrangement between the CSD and all linked CSDs, contains adequate mitigants against possible risks taken by the relevant CSDs, including credit, concentration and liquidity risks, as a result of the link arrangement;
• (b) each linked CSD has robust daily reconciliation procedures to ensure that its records are accurate;
• (c) if it or another linked CSD uses an intermediary to operate a link with another CSD, the CSD or the linked CSD has adequate systems and controls to measure, monitor, and manage the additional risks arising from the use of the intermediary;
• (d) to the extent practicable and feasible, linked CSDs provide for Delivery Versus Payment (DVP) settlement of transactions between participants in linked CSDs, and where such settlement is not practicable or feasible, reasons for non-DVP settlement are notified to the AFSA before the link is approved ; and
• (e) where interoperable securities settlement systems and CSDs use a common settlement infrastructure, there are:
• (i) identical moments established for the entry of transfer orders into the system;
• (ii) irrevocable transfer orders; and
• (iii) finality of transfers of securities and cash.

4.5.3. Exchange-of-value settlement systems

An Authorised Clearing House operating an exchange-of-value settlement system must eliminate principal risk by ensuring that the final settlement of one obligation occurs if and only if the final settlement of the linked obligation also occurs, regardless of whether the Authorised Clearing House settles on a gross or net basis and when finality occurs