Study of international clearing and settlement Page: 43
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Study of International
Clearing and Settlement
The Clearing and Settlement Process
In North America
American Depository Receipts (ADR's)
American Depository Receipts (ADR's) provide US. market participants with another way of
purchasing foreign securities, other than trading in the actual home market of the traded security.
ADR's are receipts which represent ownership of shares in a foreign-based corporation, the actual
shares of which are on deposit in a bank vault in the home country of the issuer of the securities.
ADR's are traded in the U.S., rather than in the home market of the foreign company whose shares
they represent. The advantage, for the US. investor, is that not only the trading, but also the clearing
and settlement process, can be handled by U.S. clearing and settlement organizations.
ADR's for foreign securities are cleared and settled through the NSCC and the DTC, in the same
manner as U.S. securities. US. investors purchasing ADR's, therefore, would not use the ISCC as
part of the clearing and settlement process. For foreign market participants trading foreign securities
in the US. in ADR form, the ISCC serves as "the" link to the U.S. clearing and settlement process:
namely, the NSCC and the DTC.
Mutual Funds
For foreign brokers - ISCC also serves as "the" gateway to the United States' clearing and settlement
process for purchases of 30 international and global mutual funds.
"International" mutual funds are those in which the securities are invested completely in foreign
securities. "Global" mutual funds are those which maintain a combination of domestic and foreign
investments.
In both cases, the ISCC links the foreign market participant to the NSCC, which handles the actual
trade confirmation, settlement, and the registration of investors' purchases and redemptions.
Services Offered by ISCC only for US. Investors
The ISCC now has one service which is only for U.S. investors: netting. But it is planning to add
another domestic-only service: a clearing system for "PORTAL."
ISCC's Foreign Securities Comparison and Netting Service began in 1988. This service is solely for
trades which involve only U.S. market participants - trading foreign securities. Through this service,
US. investors who are participants in ISCC may settle in foreign markets on a net basis.
"PORTAL" (Private Offering Resales and Trading through Automated Linkages) is a trading system
that will be operated by the National Association of Securities Dealers (NASD). Mary Ann Callahan,
in her paper, describes PORTAL's planned operations:
"PORTAL will pr~r,-id m-" ' of supporting mding of certain private placements and
international traded foreign equities (which will not be registered with the SEC). The
market is designed as a segated "onshore-offshore" market to permit easier trading by
institutional investors in the U.S., while preventing the securities from entering the market
atlarge."
ISCC's clearing system for PORTAL is currently in the development stages, as is PORTAL itself.Page 43
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United States. Congress. Office of Technology Assessment. Study of international clearing and settlement, report, September 1990; (https://digital.library.unt.edu/ark:/67531/metadc97403/m1/64/: accessed April 19, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.