Chapter 6. Participants of the stock exchange: registrar, clearing company and depository

Along with the dealers and brokers discussed in the previous chapter, there are the following participants of the stock exchange: a registrar, a clearing company, and a depository that ensure its functioning. Their activities are also subject to licensing by the Federal Service for Stock Exchanges. Let’s see what the main functions of these institutions are and how they differ from each other.

 

Registrar (or registrar) is a participant of the stock exchange, whose activity is reduced to keeping a register of all securities owners. This activity is exclusive, which means that the registrar has no right to provide other services and combine its activities. Collection, storage and transmission of documents and information on personal accounts is the main function of the registrar. At the stock exchange, these accounts are used to keep records of securities. The registrar is obliged to:

provide information from the register;
open personal accounts and execute operations on them;
verify the authorization of the persons who signed the documents;
inform the registered persons of their rights and the procedure and methods of exercising them.

A clearing company is a participant of the stock exchange that performs non-cash settlements for sold and delivered goods and securities, as well as for rendered services, which are realized by mutual offsetting.

Clearing is the activity of collection, verification, correction of information on transactions being made and preparation of relevant accounting documents. Thus mutual obligations of the parties are determined. Clearing also performs offsetting and delivery of settlements.

Registrar and clearing company are formed and exist to protect the interests of exchange members and their clients, as well as to ensure the financial integrity of stock exchanges as a whole. The clearing company leaves the buyer and seller free and independent of each other, as if interrupting the direct link between them formed in the process of buying and selling. Thus, one buyer or seller can be replaced by another who also concluded a transaction on the exchange and had contacts only with the clearing company. This does not require any authorization from the original partner in the transaction. The clearing company acts as a guarantor of the trades and bears all responsibility.

Clearing companies prevent companies from defaulting in the event of various economic shocks or increased speculative transactions, which could lead to the termination of the stock exchange and bankruptcy of its members.
A depository is a legal entity, a member of a stock exchange, which, on the basis of a license of a professional participant, conducts depository activities. The depositary’s activity consists of:

in making settlements on transactions by conducting operations on the exchange and OTC market;
accrual and payment of dividends, payment of taxes on income;
in accounting and storage of securities, which can either be in the depository’s vault or exist in the form of records;
securities lending, and other services.

It is the duty of the depositary to safeguard securities or rights thereto and to act solely for the purposes of the depositor (a person who has entered into a contract with the depositary). The depositary has no right to conduct transactions with securities, dispose or manage them. Since the securities are not the property of the depositary, they cannot be presented for recovery under its obligations. At the moment, the largest depositories in our country are: Depository Clearing Company and National Depository Center.

Taking into account the possibility of combining some types of professional activities, the organizational structure of each stock exchange is unique and rather complex. For example, a depository may simultaneously carry out dealing, clearing and brokerage activities.

We have considered the activities of all professional participants of the stock exchange. We should not forget that legislation regulates all relations between them, and licensing of activities allows to allow only experienced, reliable and qualified participants to work on the exchange.