What Is a Central Securities Depository?

Mary McMahon
Mary McMahon

A central securities depository (CSD) is a facility that holds securities and processes some securities transactions on behalf of their participants. The organization acts as an agent to represent the interests of securities buyers and sellers as well as institutions that are involved in the securities industry within a given nation. A central securities depository usually handles a specific type of security, and a nation might have several to deal with different kinds of securities that are available on the open market.

Man climbing a rope
Man climbing a rope

Historically, holders of securities needed to hold certificates, which could hinder transactions by adding another layer of complexity to them. With a central securities depository, buyers and sellers can engage in book-entry transactions, in which the transaction is recorded but the parties do not receive certificates. At the central securities depository, personnel can record transactions and transfer securities, performing clearance tasks to assure both parties that the sale is valid and complete.

Some organizations participate in regulatory activities and might represent the government as well as securities traders. Although they hold securities for transfer, they also monitor suspicious transactions, make sure transactions comply with regulations and report activities that appear to fall outside the law. These agencies also can register securities that have unique identifying numbers for trackability, and they can monitor the securities markets for potential causes of concerns, such as a flood of securities releases that might interfere with market performance.

When financial companies develop new securities and other financial products, they might also create a central securities depository to handle them. The organization will assist with the development of new products and create a stable base for the market. Traders who might be reluctant to try out a new security product might feel more comfortable with the backing of a CSD, a trusted authority, behind their transactions.

This also can be useful for transactions involving new companies that have not yet established themselves but still want to be able to engage in the securities market. These companies can place funds and securities on deposit with the CSD and register with the government to have access to the market. Prospective trading partners can be assured that their deals will be valid.

Workers at a central securities depository can include accountants, finance experts, and people who have experience in the securities industry. This work can be highly variable and sometimes fast-paced. Some organizations have rolling recruitment campaigns to attract new employees who have valuable skill sets, and others might simply advertise open positions when they become available. People who have an interest in this kind of work usually need educational qualifications and industry experience.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a wiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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