Calastone, which provides a cross-border transaction network for mutual funds, is to develop a rival to CREST, the automated securities settlement system from Euroclear.

Investors use CREST to transfer cash and securities to one another in dollars, euros and sterling. Settlement is carried out on an investor-investor basis - known as many-to-many - and legal title is recorded with the fund manager.

Following consultation, Calastone has announced it will develop an alternative to the Euroclear’s system which will allow investors to deal directly with the issuer of the asset and which will record title on a central securities depository.

“The CREST model, although still live, is now quite unused. Mutual fund trades are made on a bilateral basis. Presently, there is no central mechanism for settlements that would reduce settlement risk. Calastone’s solution is for the ‘primary market’, which means the end-investor deal with the asset-issuer…The world has moved on and the market tells us they now need an alternative,” Dan Llewellyn, head of market standards at Calastone, told WealthBriefing.

Calastone says its new offering will calculate counterparty net-settlement positions and provide automatic notification of legal title in fund unit positions. 

“The Calastone settlement solution will promote open architecture and therefore counterparties will not be required to be participants of Calastone’s transaction network,” said Mr Llewellyn.