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INVESTOR

S ERVICES £25 - UK, ROW

JOURNAL $43 - Americas


€35 - Europe, Mid-East, Africa

WWW.ISJFORUM.COM
VOLUME 2 No. 10 - Dec 2005

NEW HEIGHTS
CUSTODIANS IN CONTROL
DARE TO DOMICILE - SECURITIES LENDING PLUS:
FRENCH CUSTODY - VIVE LA DIFFERENCE STP & AUTOMATION - A FAIR PRICE?
NEW HORIZONS - AUSTRALIA FOCUS PANEL DEBATE - CENTRAL & EASTERN EUROPE
CAPITAL REIGNS - COLLATERAL MANAGEMENT PENSIONS - TIME TO HEDGE?
REGULATION- MIFED SPECIAL REPORT - RMA SECURITIES LENDING

THE GLOBAL SECURITIES SERVICES INDUSTRY JOURNAL


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Editorial

INVESTOR A Question of Scale?


S ERVICES December 2005 But a market of small to medium sized
JOURNAL brings near closure to a institutional investors, including £100m pension
range of mergers, funds and start up hedge fund managers, is
VOL 2 No.10 - Dec 2005 acquisitions and joint rapidly emerging. The potential of these clients
ventures, all of which should not be ignored, particularly in the event
are intended to plug a of consolidation. These clients have the
gap that is missing potential to double in size when merged with
among individual another company. Mergers involving corporate
consolidators. and governement pension schemes are two
Throughout 2005, examples of such potential.
medium to large Today’s small clients should be viewed as
securities services tomorrow’s giants and it would make sense for
providers regarded scale and physical presence as securities service providers to strike while the
the key to making it big. Scale is often iron is hot by creating relationships with them.
regarded as the driving force behind many The same principle should apply to emerging
partnerships occurring over the last few years. markets - while investments into these
Companies who were unable to justify a physical countries are steadily increasing, the
presence in Europe, for example, have approached opportunities for securities services providers
local providers to bridge the transatlantic gap. are becoming clearer. Further opportunities are
The European candidates for consolidation were made possible by regulation such as MiFID in
equally aware of the benefits presented by links Europe and Reg NMS in the US. These
with sizeable American providers. directives imply an increase in sell side
Apart from the geographic benefits, scale institutions’ data
expands the list of available resources for invest- responsibilities. While outsourcing was
ment in technology and IT infrastructures. The previously considered to be the domain of the
regulatory pressures on securities services buy side institution, we can expect further
providers implies more reporting and proof that outsourcing of data responsibilities by sell side
the sell side is acting in the best interests of the firms to specialist data services providers. The
end investor. This best interests campaign quest for core competencies continues...
requires continual investment in technology in
MEMBER - PERIODICAL order to appease the regulator. Not only does Editor Janet DuChenne
PUBLISHERS ASSOCIATION scale provide the tools for technology (Janet.DuChenne@ISJforum.com) Reporter Alan
investment but it can also meet regulators’ Duerden (Alan.Duerden@ISJforum.com) Contributors:
capital adequacy requirements, including those Stephanie Banks, Brian Bollen, Alison Ebbage, James
contained in Basel 2. The growth of the Reed, James Wallace, Christine Senior
European repo market implies that these trades
are supported by a variety of instruments, the Publishing Director Justin Lawson
complexity of which can only be managed by a (Justin.Lawson@ISJforum.com) Publishing Manager:
TOTAL NET CIRCULATION 10,343 provider with the necessary scale. Nicola Barker-Moseley (Nicola@ISJforum.com)
Analysis for the Audit Issue cover dated Apart from Basel 2, the opportunity presented Account Managers: Kenny Thomas
Volume 2, No 7 and distributed 14th July 2005. by the Markets in Financial Instruments (Kenny.Thomas@ISJforum.com) Stephen O’Sullivan
Source: AUDIT BUREAU OF CIRCULATIONS, (Stephen.OSullivan@ISJforum.com)
www.abc.org.uk
Directive (MiFID), for securities firms to trade
away from the local stock exchange also comes Directory Sales: Sabz Munawar
at a price. Firms with ‘system internalisers’ need (Sabz.Munawar@ISJforum.com) Subscriptions: Heba
TO RENEW YOUR SUBSCRIPTION scale in order to accommodate different types of Hassanatou (Heba@ISJforum.com)
TELEPHONE: data passing through their internalisers. This
Managing Editor Mark Latham
requirement compels providers to either acquire
+44 (0)20 7493 9966 the necessary scale to account for masses of
(Mark.Latham@ISJforum.com) Operations Manager
Tasha Fryer (Tasha.Fryer@ISJforum.com)
trade data passing through their system or to
outsource this function to an external data Investor Services Journal, WWW.ISJFORUM.COM
WWW.ISJFORUM.COM services provider. 37-38 Margaret Street, London W1G 0JF, UK
But is scale the be all and all of the securities
T: +44 (0) 20 7493 9966 F: +44 (0) 20 7493 3366
universe? Certain clients have contested whether
they receive the necessary attention from the © 2005 Investor Intelligence Limited. All rights reserved. No

investor large scale providers, whose appetite for scale part of this publication may be reproduced, in whole or in part,

intelligence has lead them towards the large institutional


investment firms.
without prior written permission from the publisher.
ISSN 1744-151X. Printed in the UK by Pensord Press.
INVESTOR VOL 2 No.10 -Jan 2005 INVESTOR
S ERVICES
JOURNAL
£25 - UK, ROW
$43 - Americas
€35 - Europe, Mid-East, Africa

S ERVICES
WWW.ISJFORUM.COM
VOLUME 2 No. 10 - Dec 2005

JOURNAL
NEW HEIGHTS
CUSTODIANS IN CONTROL
DARE TO DOMICILE - SECURITIES LENDING PLUS:
FRENCH CUSTODY - VIVE LA DIFFERENCE STP & AUTOMATION - A FAIR PRICE?
NEW HORIZONS - AUSTRALIA FOCUS PANEL DEBATE - CENTRAL & EASTERN EUROPE
CAPITAL REIGNS - COLLATERAL MANAGEMENT PENSIONS - TIME TO HEDGE?
REGULATION- MIFED SPECIAL REPORT - RMA SECURITIES LENDING

THE GLOBAL SECURITIES SERVICES INDUSTRY JOURNAL

CONTENTS WORLD NEWS 6 THE LATEST SECURITIES SERVICES NEWS

ANALYSE THIS - THE FUTURE? 22 PATTERNS & PREDIDITIONS FROM THE SELL SIDE

CUSTODY/ASSET SERVICING
PROFILE: MARKETS FOR TOMORROW 14 SOCGEN’S BRUNO PRIGENT
EN FRANCAIS 17 FRANCE
THE NEW OUTBACK 30 AUSTRALIA: SELL SIDE VIEWS ON BUY SIDE MOVES
ROUNDTABLE: CEE 44 CUSTODIANS ON THE NEW EUROPE

FUNDS/ALTERNATIVE INVESTMENT
ALL REIT 52 REAL ESTATE INVESTMRNT TRUSTS FOR PENSION FUNDS
HEDGE FUND PERFORMANCE 42 THE LATEST PERFORMANCE RESULTS OF HFRI

SECURITIES LENDING
ON LOAN - WHAT AND WHERE 36 PERFORMANCE ANALYSIS OF LOAN PRODUCTS
DARE TO DOMICILE 38 OFFSHORE DOMICILES FOR BENEFICIAL OWNERS

COLLATERAL MANAGEMENT
CAPITAL REIGNS 62 ARE BANKS BIG ENOUGH?
PENSIONS
FUND PROFILE: 54 INTERVIEW - GERRY DEGAUTE OF THE ROYAL MAIL PENSION PLAN

TECHNOLOGY & STP


FEE BILLING 56 AUTOMATE TO ACCUMULATE

INFRASTRUCTURE/REGULATION
A NEW DAWN 60 FINANCIAL INSTITUTIONS PREPARE FOR MIFID
PEOPLE PLACING
PERSONAL PROFILE: 69 JENNIFER OCAMPO-KING SPELLS GROWTH FOR TD SECURITIES
MOVERS AND SHAKERS 72 WHOSE MOVING WHERE?
PEOPLE MARKET 70 MCGREGOR BOYALL SHED’S LIGHT ON FINANCIAL RECRUITMENT
REGULARS
MANDATES 66 SERVICE PROVIDERS RETAINING MANDATES
CONFERENCE DIGEST 74 SECURITIES LENDING PROVIDERS JOIN FORCES IN FLORIDA, USA
DIRECTORY OF SERVICES 76 CUSTODY, FUND ADMINISTRATION, SECURITIES LENDING,
TECHNOLOGY, PRIME BROKERAGE, TRAINING & EDUCATION

WWW.ISJFORUM.COM
2 INVESTOR SERVICES JOURNAL
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the FSA for investment business in the U.K. JPMorgan is a marketing name for Worldwide Services businesses of JPMorgan Chase & Co. and its subsidiaries worldwide.
© 2005 JPMorgan Chase & Co. All rights reserved.
and other regulations that require effec- is why KAS BANK continues focussing on
Letters to the Editor tive information management. For exam- expanding its range with value added
ple, central to being compliant with both services such as order management, per-
Sarbanes Oxley and MiFID is the require- formance and risk analytics, and out-
ment to securely retain, store and man- sourcing solutions. The investor and
age an extensive variety of different docu- intermediary will therefore – also in a
ments. MiFID won’t be the last regulation truly European securities market – be the
that the industry faces and so savvy winner by having the choice to “go
organisations will need to start to put direct” for a commoditised service, or to
together compliance strategies for current select a specialist, added value provider.
and future regulatory requirements. By
taking a more considered and holistic Ryanne Cox, Director
approach to IT, the industry can make Financial Intermediaries, KAS BANK
significant cost savings on the EUR 1bil-
lion bill proposed earlier in the year. MiFID
Write to - ALTERNATIVE INVESTMENTS BEWARE
Janet.DuChenne@ISJforum.com Simon Forster, Director, Diagonal With sterner competition, more diverse
Solutions customer demands, and pervasive rising
MIFID BLOW costs, you are hopefully sustaining prof-
For a market so bombarded by regula- AGENT VIEW itability despite ever-reducing margins.
tions and guidelines, the prospect of the Representing a specialist provider of Then along comes MiFID, the largest
Markets in Financial Services Directive securities and investor services in Europe most comprehensive tract of legislation
(MiFID) is yet another blow, not least I cannot help noticing that “agent banks” designed to protect the customer since
because it is expected to be the most far are by many still considered to thrive on the dawn of the finance industry. The
reaching reform of any financial market market inefficiencies. I would like to costs to the industry will be significant,
ever undertaken. What currently makes address this point from two angles. Firstly and have been estimated at up to £2.2
MiFID so daunting is that nobody knows – providers such as KAS BANK have billion for the UK, mostly affecting the
just how far or extreme this reform will been instrumental in creating some of the front office. But, before back office oper-
be. Until January 2006 MiFID is ‘in the most substantial cost savings for buyers of
land of the unknown,’ commonly referred securities services over the past few years. Post-MiFID survivors
to as a consultation period. Over the past While market infrastructures do not have will be agile, automated,
few months many industry bodies have harmonised procedures and market prac-
voiced their displeasure about the direc- tices yet, KAS BANK offers an integrated international innovative
tive and analysts have predicted that access to multiple European markets, institutions, with STP-
such an overhaul of the EU market will using domestic terms and conditions.
leave investment firms looking at a EUR Take for example the Euronext markets, enabled, simplified,
1 billion bill. Such estimates do not make the UK and Germany: just three markets scalable processes.
for pretty reading. however operating a range of different
exchanges, clearing houses, and no less ations become complacent, remember
What currently makes MiFID than six depositories and cash clearing that this is an all-embracing initiative, and
systems. Connecting to these directly lightening-fast front-office dealing
so daunting is that nobody would be a costly and complex exercise processes will not be compromised by
knows just how far or for the investor or intermediary. traditionally lethargic settlement processes
in the back office.Whilst selective
extreme this reform will be. I cannot help noticing that regulation is coming to the fax and paper-
Although certain guidelines are up for “agent banks” are by many based hedge funds industry, it is the
debate, one thing for certain is that data mandated increased speed and extent of
management in this sector will never be still considered to thrive on trade reporting requirements, with
the same again. Firms will have to be market inefficiencies. consequential tightening margins and
consolidation which will have a dramatic
able to justify their decisions based on
competitor quotes and client correspon- A second factor is that also for effect on the competitive landscape.
dence – all of which will need to be providers of securities services them- Post-MiFID survivors will be agile,
stored and managed in a secure and selves, an integrated securities market is automated, international innovative
auditable repository. If their decisions are a good thing. From the point of view of its institutions, with STP-enabled, simplified,
questioned then firms will need to be 100 own back office organisation, a har- scalable processes. As a key provider of
per cent confident that the correspon- monised securities infrastructure will pro- cost-effective automated applications and
dence they put forward in order to vali- vide savings of costs and efforts, enabling connectivity today in this market space,
date their decision is authentic and has the agent bank to focus on its true chal- we are only too aware that without this
not been tampered with. Nothing can be lenge: insourcing securities services on type of technology, smaller less adept
left to chance, making MiFID a big, but the basis of quality and added value. It is institutions will feel this inevitable scythe of
not insurmountable, mountain to climb. therefore in agent banks’ interests, as legislation cutting through their processes
The key thing is not to panic and start much as in the interest of end-users of and profitability. Firms must conscientious-
investing in IT systems willy nilly. When securities services, that the securities ly take action to arm them for the financial
the final directive is announced in infrastructure be both harmonised and revolution that will change the dynamics of
January, companies will need to establish impartial. operations in the European arena. How
what it means for their organisation. To Providing securities services is only serious are MiFID implications? All
do this they will need to do a complete sustainable if we continue delivering encompassing, and failure to act will
review of their technology platforms and added value to investors and intermedi- jeopardise the very existence of
information solutions. Yet the result of aries. Whereas this added value may, in established players across the industry.
this review does not necessarily have to the short run, be in providing a single
lead to a huge IT investment. market access point for markets not yet Graham Bright, Head International Sales,
What organisations should be doing is harmonised on infrastructure level, this Financial Tradeware
finding commonalities between MiFID role will evidently change over time. That
(Continued on page 68)

4 INVESTOR SERVICES JOURNAL


A passion for results

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Over the last 12 months we have been delighted
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surveys by Global Investor, Global Custodian and
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+44 (0)20 7163 5210
barry.halpin@abnamromellon.com

www.abnamromellon.com
News - Europe Middle East Africa

in assets under measurement. financial markets, today announced its


Amsterdam - After the successful continued expansion in the UK through
transfer of its Belgian assets to Fortis the appointment by Killik & Co, the UK-
Bank one year ago, HSBC Group recently based stockbroking and financial plan-
decided to appoint Fortis Bank as sub- ning firm, of OMX Securities Services UK
custodian for its Dutch assets. “Fortis as their new settlement and custody
Bank have proved their capability and provider. The appointment includes the
competitiveness handling our Belgian transfer of Killik & Co's settlement and
assets and the Dutch custody for one of custody teams to OMX Securities
our subsidiaries, so we are confident that Services. The appointment of OMX will
they will prove to be an excellent agent help Killik & Co deliver its vision of
for HSBC. We look forward to a long and becoming a financial planning business
mutually beneficial relationship” says that has stockbroking and investment
Brian Pettitt, Head of Network management as core competencies.
Management for HSBC.
Brussels - FundSettle, the market infra-
Paris - Société Générale Global Securities structure for the processing of cross-bor-
Services for Investors, SG GSSI, has been der and domestic fund transactions, has
retained as the sole custodian to handle expanded its reach beyond third-party
Reunica’s cash portfolio which amounts funds to include clients’ in-house funds.
to close to 1 billion EURO in assets. SG This enhancement is intended to help
GSSI was retained at the outcome of a clients centralise all of their fund-pro-
public tender process that included sever- cessing business in a single location. A
Custody & Outsourcing al of the main local providers in the Paris low-cost, sliding-scale tariff has also
marketplace. SG GSSI currently ranks 4th been introduced in support of the new
Edinburgh - Scottish Widows Investment among securities custodians in Europe offering, representing a reduction of min-
Partnership (SWIP) has renewed its and 10th worldwide with 1,275 billion in imum 60 per cent on the servicing tariff
investment operations outsourcing assets under custody (end June 2005). for third-party funds. Ivan Nicora,
arrangement with State Street Director and head of Investment Fund
Corporation following five years of London - Citigroup Global Transaction Product Management at Euroclear Bank,
successful partnership. The original out- Services, has been appointed to be the said: “While third-party fund processing
sourcing mandate, announced in October preferred service provider for fund on FundSettle continues to grow - by
2000, was an industry first in Europe. administration, custody and related more than 140 per cent in the past year,
“The SWIP Business Operations team led services, with leading pensions and in fact - client demand to centralise all of
by Arun Sarwal, our COO, conducted a investments provider, Winterthur Life UK their fund-processing business, including
comprehensive evaluation process over a Ltd, part of Winterthur Group, which is their own in-house funds, has reinforced
12 month period. The rigorous process part of Credit Suisse Group. This strate- FundSettle’s role as the leading market
focused on service levels, functionality, gic agreement will see Winterthur Life UK infrastructure for fund-transaction pro-
commitment and costs,” said Archie Ltd transition its fund accounting and cessing. We are delighted to be able to
Kane, Chief Executive of Scottish Widows administration functions onto Citigroup’s serve the market’s needs for both third-
and Chairman of SWIP. Chris Phillips, Edinburgh funds platform. It is anticipat- party and in-house funds in this way.”
Chief Executive Officer at SWIP contin- ed that the transition to the new platform
ued: “Outsourcing has enabled SWIP to will take place in the third quarter of STP & Technology
have a robust, cost efficient and scaleable 2006. David Phillips, Global Transaction
operating platform.” Services, EMEA Head of Financial London - Xcitek, the global provider of
Institutions, said; "We greatly value our market data, corporate actions software,
London - Mellon Financial Corporation longstanding relationship with and staffing solutions, is working with the
and Russell Investment Group today Winterthur Life UK Ltd and are very London Stock Exchange to take delivery
announced that Mellon has acquired excited about taking this strategic and process its Corporate Actions data in
Russell’s 50 percent share of the firms’ partnership to the next level. There is the SWIFT ISO 15022 format in its
successful joint venture – Russell/Mellon exceptional synergy in our organisations' flagship product, XSP™. XSP further
– and that the business’ performance- focus on operational efficiency and top- enhances its offering by supplying the
related products and class client delivery, and we look forward Exchange’s Corporate Actions and
services will now be named Mellon to transferring their operation onto our Dividend data in this standard messaging
Analytical Solutions (MAS). In addition, recognised world-class funds administra- format to promote greater straight-
Russell will bring the management of all tion platform in Edinburgh. through processing (STP) whilst reducing
aspects of its Index business in-house. operational costs and risks.
Russell/Mellon, established in January London - OMX Securities Services (UK),
1999, has more than 650 employees in
five countries and more than $6 trillion
a provider of transaction technology, pro- FREE NEWS DAILY AT
cessing and outsourcing solutions for the
WWW.ISJFORUM.COM

6 INVESTOR SERVICES JOURNAL


Brokerage, clearing, custody, fund administration and other dedicated services.
Societe Generale Securities Services offers a complete range of value added securities services for all institutional investors: banks,
corporates, asset managers and hedge funds. Societe Generale Securities Services has a presence on more than 30 financial marketplaces
across Europe, the Americas and Asia Pacific. Ranked 4th securities custodian in Europe. Among the top 5 brokers worldwide on listed
derivatives, through Fimat. One of the principal European players in fund administration with Euro-VL and a leader in stock option
management. The quality of these services is acclaimed by the world’s leading agencies: Global custody – Paris: ‘CU2’ (Fitch Ratings),
Trustee – Paris: ‘TR2+’ (Fitch Ratings). www.sg-securities-services.com

This advertisement appears as a matter of record only and it should not be construed as an offer or solicitation to buy or sell any securities. These products may not be suitable for every
investor. Fimat and the Fimat Group refer to all companies or divisions of companies owned directly or indirectly by Societe Generale that include the "Fimat" name. Fimat USA, LLC,
Fimat Preferred, LLC and SG Securities Americas, LLC are members of the NASD and SIPC. Societe Generale entities in the UK referred to in this advertisement are authorised by Banque
de France and the Financial Services Authority and regulated by the Financial Services Authority for conduct of UK investment business. Fimat International Banque S.A. (UK Branch)
does not deal with, or for Private Customers (as defined by the Financial Services Authority). Fimat International Banque SA (Frankfurt Branch) only conducts business with market
professionals and institutional customers. Only Fimat Canada Inc. is a member of the CIPF. Not all services are available from all Fimat organizations. Consult your local office for details.
News - Americas

107bn to USD 136bn, as at June 2005, Bank, said: “While third-party fund pro-
according to research by Lipper cessing on FundSettle continues to
Fitzrovia. Royal Bank of Scotland grow - by more than 140 per cent in the
International (RBSI) currently leads the past year, in fact - client demand to cen-
way, with USD 18.4bn of assets under tralise all of their fund-processing busi-
custody in Jersey, ahead of Royal Bank ness, including their own in-house
of Canada (RBC) with USD 13.9bn and funds, has reinforced FundSettle’s role
BNP Paribas USD 13.3bn. Significant as the leading market infrastructure for
growth in both property/real estate and fund-transaction processing.”
private equity/venture capital funds
reflects Jersey’s continuing attraction as Market Infrastructure/Regulation
a centre for more specialised fund
products. London - The Financial Services
Authority (FSA) is encouraging senior
London – Global Transactions Services, management at regulated firms to begin
a business unit of Citigroup Corporate preparing for the implementation of the
and Investment Banking, has been European Union's Markets in Financial
appointed as the preferred fund admin- Instruments Directive (MiFID), which is
istration, custody and related services likely to come into force on 1 November
provider for Winterthur Life UK, part of 2007. The Directive will have a signifi-
the Credit Suisse Group. This transition cant impact on financial services regula-
underlines Citigroup’s strength in the tion and how firms operate and interact
Custody & Outsourcing funds administration business and with customers. The FSA has published
Winterthur will transfer its fund ‘Planning for MiFID', a factual docu-
Amsterdam - State Street has opened accounting and administration func- ment which provides a short guide high-
an office in Amsterdam. The new office, tions onto Citigroup’s Edinburgh funds lighting the key areas, such as conduct
located at Thomas R. Malthusstraat 1-3, platform in the third quarter of 2006. of business and systems and controls
will house more than 150 employees requirements, which will be affected by
providing a full range of solutions to the London - OMX Securities Services (UK), the Directive and the likely main practi-
Dutch market. State Street opened its a provider of transaction technology, cal implications for regulated firms. It
first investor services office in processing and outsourcing solutions has also published the International
Amsterdam in 1999 and has increasing- for the financial markets, today Regulatory Outlook (IRO) which analy-
ly built a strong foothold in the announced its continued expansion in ses regulatory change that is being driv-
region.“The Netherlands boasts some the UK through the appointment by en by European and other international
of the most highly developed pension Killik & Co, the UK-based stockbroking initiatives and its likely effects on UK
schemes that have been pioneers in the and financial planning firm, of OMX financial services.
financial marketplace,” said Rod Securities Services UK as their new set-
Ringrow, Senior Vice President and tlement and custody provider. The STP & Technology
Head of State Street’s investor services appointment includes the transfer of
Killik & Co's settlement and custody London - Xcitek, the global provider of
business in the Netherlands. market data, corporate actions software,
teams to OMX Securities Services. The
appointment of OMX will help Killik & and staffing solutions, is working with
Paris - Société Générale Global the London Stock Exchange to take
Securities Services for Investors (SG Co deliver its vision of becoming a
financial planning business that has delivery and process its Corporate
GSSI), have announced that ING Actions data in the SWIFT ISO 15022
Wholesale Banking has outsourced its stockbroking and investment manage-
ment as core competencies. format in its flagship product, XSP™.
London booked international cash equi- XSP further enhances its offering by
ties business to SG GSSI. ING supplying the Exchange’s Corporate
London’s equities trade-processing and Brussels - FundSettle, the market infra-
structure for the processing of cross- Actions and Dividend data in this stan-
settlement of cash equities will now be dard messaging format to promote
handled completely by SG GSSI. border and domestic fund transactions,
has expanded its reach beyond third- greater straight-through processing
Philippe Robeyns, Head of Investment (STP) whilst reducing operational costs
Banking Services at SG GSSI, said: “The party funds to include clients’ in-house
funds. This enhancement is intended to and risks. XSP is SWIFT ISO 15022 com-
transfer has been a great success. Other pliant and features comprehensive data
banks have been watching this imple- help clients centralise all of their fund-
processing business in a single location. scrubbing tools, workflow management
mentation very closely and we expect modules, web and ISO messaging for
much more interest in our service.” A low-cost, sliding-scale tariff has also
been introduced in support of the new client notification and response capture,
offering, representing a reduction of and complete entitlement processing.
Funds & Administration
minimum 60 per cent on the servicing
Jersey – The total net assets of funds tariff for third-party funds. Ivan Nicora,
serviced in Jersey have risen by 27 per Director and head of Investment Fund FREE NEWS DAILY AT
cent, with the total growing from USD Product Management at Euroclear WWW.ISJFORUM.COM

8 INVESTOR SERVICES JOURNAL


Single Integrated Platform
in Real Time.

Integrated Brokerage, external parties. Fortis Bank knows the importance


of putting customers first. That's why we developed
Clearing & Settlement Services
a real-time execution, clearing and settlement platform
Market access, order execution and transaction to help market professionals service their customers
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News - Asia Pacific

fund services clients in Singapore. employing over 100,000 people with a


Upon completion of the acquisition, AFS combined group capital of ¥996.9 bn.
will be 100 per cent held by HSBC
Institutional Trust Services and will be Hong Kong - Oria Capital has allowed
renamed HSBC Securities Services London-based HFR Asset Management
(Transfer Agency). to broaden its portfolio offering in a joint
HSBC says it will roll out AFS' share venture to launch a principle protected
registry software globally to all its fund note based on an Asia-focused fund of
administration clients. funds and the HFR index.
Nick Bryan, head, HSBC Securities 50 per cent of the HFR Oria Asia
Services, Asia Pacific, comments: "The Principal Protected Note will be invested
improved functionality, flexibility and in 20 Oria Asian based sub-funds and
efficiency of the system allow HSBC to 50% in 4 HFR sub-indices. Barclays
unify its shareholder services globally. Capital will provide eight year protection
Full ownership of Asia Fund Services will on the fund whose offer period extends
enable us to accelerate the transfer of from November 7, 2005 to January 9,
clients to the enhanced platform in a 2006.
seamless and efficient manner."
UOB says it will continue to use AFS Technology
services after it is transferred to full
HSBC ownership. Hong Kong – DST International (DSTi),
The transaction is subject to regulatory announced today that Bank of
approvals and is expected to be complet- Communications Trustee Limited
ed by 30 November 2005. (BCOMT) has now taken DSTi’s
Investment Accounting Solution, to
Aukland - Trident Trust Group, a lead- support its pension and trust business.
Custody & Outsourcing ing provider of corporate, trust and Nancy H. F. Chan, BCOMT’s CEO, said,
fund administration services "We choose HiPortfolio/3 because we
Dubai – HSBC announced to day that its announced it has opened an office in need to comply with the new
Custody and Clearing arm is to offer New Zealand. International Accounting Standards and
sub-custody services to institutional The formation of the New Zealand we want a fully integrated solution
investors wishing to invest on the Dubai office increases the global footprint of having investment and accounting
International Financial Exchange (DIFX). the Trident Trust Group to 20 offices in functionalities. Not only is HiPortfolio/3
The DIFX, which opened for trading on 16 Jurisdictions, offering clients a New state of the art, but we are also confi-
26 September 2005, granted HSBC Zealand based trustee company dent in DSTi’s commitment to the China
Custody and Clearing approval to offer serving as the trustee or co-trustee of markets. We appreciate that the
sub-custody services including settle- trusts governed by New Zealand law. Company has local support for its
ment, safekeeping, and corporate Current rules indicate that a New solutions and that it has invested man
actions. Zealand trust established by non-New hours enhancing the system to handle
Steffen Schubert, Chief Executive of the Zealand resident individuals, with no Chinese reporting requirements and
DIFX, said: “The arrival of HSBC as a New Zealand beneficiaries, and which Chinese characters." Rhonda Lepsch,
sub-custodian will facilitate thriving trad- does not earn New Zealand source DSTi’s CEO Asia, said, "With five offices
ing activity on the DIFX as it prepares to income, is not subject to any in the region including Hong Kong,
bring on many more products.” New Zealand tax. Shanghai, Singapore, Thailand and
Indonesia, DSTi has the broadest
Funds & Administration Market Infrastructure / Regulation geographical coverage of any investment
management solutions provider in Asia.
Singapore - HSBC is acquiring the 50 Tokyo - Japan’s Minister for Financial This in turn allows us to provide sales,
per cent stake it does not already own in Services has approved the merger of consulting and support services to each
Asia Fund Services (AFS), a shareholder The Bank of Tokyo-Mitsubishi, Ltd. and unique individual market in the local
services joint venture it established with UFJ Bank Limited with approval of the language with local resources. In
United Overseas Bank (UOB) of merger officially set as January 1, 2006. addition, because of our local presence,
Singapore, for US$2.6 million. The new company, Mitsubishi UFJ we are able to keep abreast of all
AFS, which offers shareholder services Financial Group, will seek to extend regulatory changes and new opportuni-
in Singapore, was established in their reach in both foreign markets and ties in each market so that DSTi
February 2004 as a joint venture new products as Japanese institutions products are the first to market with any
between HSBC and UOB. diversify their portfolio holdings. new functionality requirements.”
Under the agreement, the two banks Approved under Article 30, Clause 1, of
shared the cost of developing a new the Banking Law, Mitsubishi UFJ
share registry service and reporting sys- Financial Group will be the largest
FREE NEWS DAILY AT
tem designed specifically to institutional bank among Japanese institutions, WWW.ISJFORUM.COM

10 INVESTOR SERVICES JOURNAL


Wherever you settle should feel like

home

Demands for a single European


capital market have set
harmonisation in motion.

We are convinced of the benefits


of harmonised financial markets
in Europe and are committed to
removing barriers to cross-border
securities settlement.

DELIVERING A DOMESTIC
MARKET FOR EUROPE
Domiciles News

Dublin, Jersey and Luxembourg are developing their fund regimes


to attract more business. Our industry correspondents comment on
how these efforts are paying off.

Deirdre Norris Graeme McArthur Jean-Jacques Picard


The recent Lipper Fitzrovia Dublin Jersey had further opportunity to promote its Luxembourg set to become a centre of excellence
Encyclopaedia highlights the continued strong Specialist Fund Sector when it staged a hedge for microfinance investment funds
growth in the Irish industry, which it reports is
servicing over $950 bn in investment fund assets fund debate in London recently. The Grand Duchy of Luxembourg is keen to capi-
according to its findings. This represents a Organised by Jersey Finance and the Jersey talise on its expertise and reputation as a leading
growth rate of 23 per cent year on Funds Association, it was an opportunity to investment fund centre to develop into a centre of
year, up from $768.7 bn in June 2004. The figure invite leading professionals from the City to excellence for microfinance investment funds. Two
includes 2,334 Irish domiciled funds, including hear more about why the Island was of the world’s largest microfinance investment
subfunds, with a net asset value of successfully developing a niche for alternative funds are already based in Luxembourg.
$622.7 bn and 2,164 non-domiciled funds and investment funds business. The Capital Markets stream of the Luxembourg
subfunds with a net asset value of $327.4 bn. Jersey’s financial regulators were represented Round Table on Microfinance conference organised
The figures are very welcome but somewhat at the debate and during the course of the by the Luxembourg government in October
understate the size of the alternative investment event it was confirmed that the Island intends formulated five proposals to reach this goal.
funds sector in Ireland by perhaps over 40 per to overhaul the legal framework for funds func- These proposals have already been communicat-
cent, according to the findings of the DFIA's own tionaries by bringing them within the scope of ed to the Luxembourg Ministry of Finance.
recently conducted Alternative Investment Funds The Round Table suggests creating a quality label
(AIF) Survey, which recorded a total of 3,020 the Financial Services (Jersey) Law as part of a
continuing programme of enhancement to its for Luxembourg based microfinance investment
AIFs, including subfunds, with a net asset value funds aimed at regulating transparency and good
of $474 bn, being serviced by the Irish industry fund regulations.
governance and ensuring that an agreed portion of
as of June 2005. This represents an increase of The move would then permit Functionaries
the fund invested will go directly into microfinance.
138 per cent, on the previous figure of $199 bn in to conduct their activities on an ongoing basis
This label should boost investor confidence in
March 2003, when the last AIF survey was con- without needing to be approved each time they Luxembourg-based microfinance investment funds
ducted. The reason for the differing figures can acted for a different fund.
be explained as Fitzrovia compiles its statistics and be an outward indicator of the Grand Duchy’s
Such a measure would increase the speed commitment to microfinance.
from data on collective investment schemes reg- with which Functionaries could obtain
ulated by the Financial Regulator while also rely- The Association of the Luxembourg Fund
approval for Expert Funds, enhancing the Industry (ALFI) is currently working on a business
ing on the voluntary disclosure of information appeal of the Island as a centre for funds
from fund promoters and service providers and plan and looking for partners for a planned admin-
some of the larger AIF service providers may not business still further. istration agency.
disclose all of the information on non-domiciled There is general growth across all areas of At a tax level, the Round Table has proposed
assets, which can only be provided by the indi- Specialist Funds, particularly in hedge fund exempting microfinance investment funds from the
vidual companies. All in all the statistics look and fund of funds sector. subscription tax and offering tax stimulants to
good and the industry is delighted. Taking the Official figures show that prior to the Luxembourg taxpayers investing in microfinance
net asset value of AIF from the DFIA survey of introduction of the Expert Fund regime, the net investment funds. The latter would make
$474 bn along with the NAV of Irish domiciled asset value of funds in this specialist Hedge Luxembourg the second country in the world after
funds according to Fitzrovia's findings of $622.7 based category was US$ 25.7 bn, eighteen the Netherlands to offer a tax advantage to
bn puts the value of the Irish investment funds months since its introduction, the figure taxpayers investing in socially responsible prod-
industry at over $1 trillion - this is a very wel- stands at US$47.7 bn, an 86% rise during that ucts. The final proposals include a yearly microfi-
come and momentous achievement indeed and period. nance investment forum to allow the world’s top
encourages the industry to maintain this level of microfinance institutions to share information on
progress and momentum throughout the coming new product innovation, best practices, new
months and into 2006!
Some other news in brief includes the industry Graeme McArthur, representative of the Jersey opportunities and regulatory constraints.
hosting two very successful briefing seminars in Funds Association and Managing Director of Additional marketing efforts are also
the US in late September, with over 150 delegates Northern Trust in Jersey recommended to improve the visibility of the
attending in both New York and Boston. The Luxembourg microfinance sector.
feedback was very positive.
Jean-Jacques Picard, Director Public Relations
Deirdre Norris, Association of the Luxembourg Fund Industry -
Marketing and Communications, DFIA ALFI

12 INVESTOR SERVICES JOURNAL


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CEO Profile - SG GSSI

As one of France’s largest secu- Alain Closier is currently steering the worldwide effort of
France’s second largest securities services provider. When his key
rities services providers, SG concern, Société Générale Global Securities Services for
Investors was officially named two years ago, Closier seized the
GSSI’s worldwide goals are well opportunity to transition from his former post as Head of
Banking Services at Société Générale (where he controlled cash
within reach. management and retail securities services) to lead the new divi-
sion within the Group. Explaining the rationale behind the cre-
ation of SG GSSI, Closier says: “In 2003 we decided to create a
Alain Closier talks to ISJ about new division, combining all securities services expertise in order
to best serve retail investors, corporate entities and banks. We
his company’s key challenges reorganised Investment Banking, Retail Banking and Banking
and opportunities Services departments and created a new business model in the
securities services area.”
The SG GSSI business model, as it is known today, comprises
custody, fund administration, trustee services, brokerage out-
sourcing, lending and borrowing and issuer services. “The
model equips us with everything we need in order to provide

Markets for services to any type of client,” says Closier.


The idea for SG GSSI’s model also developed from the need to
optimise its various platforms and to leverage the same plat-

Tomorrow form for serving retail and institutional customers. “We need
the same platform to support the investment banking and cus-
tody business in Europe,” says Closier. “In creating SG GSSI, we
have assembled over 4,000 people within the SG Group.”

Key Business Areas


The key business areas of the SG GSSI group includes the well
known derivative brokerage arm known as FIMAT, which has
offices worldwide. “FIMAT is a key player in Europe and in the
Alain Closier US,” says Closier. “We are ranked 6th in the US market.
Our strategy is to sustain our core range of services, by offer-
ing cash on derivative products to our customers for execution
and clearing purposes. Our focus in Europe includes the provi-
sion of investor services for asset managers or institutional
investors, global custody, fund administration and trustee serv-
ices.”
Not content with its market share in France and Luxembourg,
SG GSSI is focussed on transforming its local offer to a pan
European offer. “We believe it is key for our clients to have a
European offer,” says Closier.

Outsourcing
The other main objective for SG GSSI is to expand its out-
sourcing business. “We regard outsourcing as a key development
within our market,” says Closier. “An increasing number of
financial companies are ready to outsource their non-core func-
tions. This is true for brokers, retail and investment banks. The
phenomenon is new and is a very important objective for us.”
SG GSSI’s first key outsourcing client was ING Bank in the
UK. The company provides support services to the equity
investment banking arm of the Dutch bank. “As a growing mar-
ket, outsourcing is very important to us,” says Closier. SG GSSI
is also developing value added services such as securities lending
and borrowing. The provider has three lending desks, in New
York, London and Paris. SG GSSI also considers pan-European
fund administration as another important business line.
Administration services include pricing and performance meas-
urement for complex products such as hedge funds. “Our busi-
ness model does not include the provision of specific services,
but rather a range of services in a one stop shop for our clients,

14 INVESTOR SERVICES JOURNAL


CEO Profile - SG GSSI

says Closier. “The idea is to provide clients with one entry point, from provider to provider depends on the provider’s portfolio
where they have access to execution and clearing services for any of clients. If clients include broker dealers there should be no
type of instrument, including cash or derivatives.” Beyond clear- problem with using SWIFT in your relationship with those
ing and execution, other services include settlement, back office clients. If your client portfolio tends more towards asset man-
outsourcing, lending and borrowing. agers or hedge funds, SWIFT may be more difficult to impose.”
“This is our vision and strategy,” says Closier. “Hedge fund
asset managers need a provider, which has evolved to provide a Post Trade
range of services, including back office outsourcing. These play- The European post trade environment is of equal importance
ers want to concentrate on core activities and outsource their to SG GSSI. Closier explains: “Even before post trade is consid-
back office to us.” ered, we face the prospect of consolidation between the London
Stock Exchange, Euronext and the Deutsche Borse.
Location Only after this consolidation can consolidation of the post
Back office outsourcing opportunities are case-specific trade environment, comprising Eurex, LCH.Clearnet, Euroclear
depending on the location of the institution. “The situation in and Clearstream be considered. The evolution of Euronext,
France is not the same as it is in the US, the UK, continental LCH, and Deutsche Borse will be a defining step for the organi-
Europe and Asia,” says Closier. “The US is a very different mar- sation of post trade activities within Europe. There are a lot of
ket, with bigger players and bigger potential clients. The US possibilities, depending on the outcome.”
comprises a specific model, called correspondent clearing. Not
only does the model involve outsourcing of the back office, but
the entire clearing account. The UK market, on the other hand,
“As a provider of securities services
comprises two models, a correspondent clearing model and a
model whereby only the back office is outsourced. The latter is
it is important to build a platform
fairly new and is the type of model we have in place with ING. based on low cost, critical mass
The back office outsourcing model recently emerged in the US
and is still regarded as a new market.” and sufficient automation”
The emerging model, to which Closier refers, involves out-
sourcing of the back office, but not the account or clearing The current settlement scenario, comprising Euroclear in the
functions. “We are very interested in the back office outsourcing Euronext zone and Clearstream in the Deutsche Borse zone,
model in the US,” says Closier. “We are also interested in two contributes to a fragment post trade environment. This frag-
prominent business lines in the UK, namely outsourcing for mentation extends to the regulation of capital markets. Closier
brokers and banks.” While the US and the UK present specific explains: “We are lacking a single European regulator. Each
areas of opportunity, Continental Europe is a different story. country has specific regulation in order to govern the function
“Europe is an interesting market with great potential, but it is of the trustee. As a consequence of country-specific regulation,
completely different to the UK, where the outsourcing market is trustees need different platforms. But in five or 10 years time,
growing,” says Closier. “In Europe outsourcing presents a mar- the situation in Europe will be different. We can expect frag-
ket for tomorrow. The maturity of the market on the Continent mentation to persist for the next two or three years. Beyond this
differs from region to region and, from a business point of view, we can expect further consolidation. It is already difficult to
it is important to have a clear view about development of new develop a securities services business in Europe. You need to
markets. If you don’t develop at the same pace as the market, continually develop IT systems and new platforms. If the future
you present a problem for your clients and your revenues. of the infrastructure in which you operate is unclear, it becomes
Timing is very important.” difficult to develop new projects.”

Automation Competition
Productivity and STP are other important concerns for Closier The prospect of further consolidation is not limited to the set-
and his team. “As a provider of securities services it is important tlement infrastructure and regulation. Service providers in
to build a platform based on low cost, critical mass and suffi- Europe are also affected as US providers continue to enter
cient automation,” he says. “While SWIFT is a very important
step in the quest for automation, it is not the only solution SG GSSI staff by geographical region (March 2005)
through which automation can be achieved. SWIFT cannot Oceania/Asia - 6%
solve all problems relating to automation. It is merely a step The Americas - 20%
towards automation.”
As a securities services provider, SG GSSI’s is eager to use
SWIFT in as many ways possible. Closier explains: “Even more
important is the extent to which SWIFT is used by the client. It
is important that our relationships with banks and institutional
investors involve the use of SWIFT by all parties in the chain.
Links with clients can be more easily established through the United Kingdom - 9%
use of SWIFT. However, if your client happens to be a hedge
fund or an asset manager, it becomes difficult to impose SWIFT
in this scenario. You can impose standards, but these depend on Continental Europe - 65%
the client’s usage of SWIFT. The differences in SWIFT usage Source: Société Générale

INVESTOR SERVICES JOURNAL 15


CEO Profile - SG GSSI

Europe through partnerships with local providers. According to


Closier partnerships are not the answer. “The key is to embrace Alain Closier
a European strategy and offering to more European clients,” he Alain Closier has been Global Head of Securities
says. “At the same time, you cannot hack it simply as a local Services for Investors, Société Générale since February
player. If you are committed to this business, you need a 2004. Closier began his career at Société Générale in
European strategy. Partnerships are not the most appropriate 1977 as an Economist. Between 1981 and 1987, he
worked for the International Division of Société
tools for developing this strategy. It may be easier to acquire
Générale taking responsibility for the Forex and
businesses if it is difficult to start from scratch in a country like Treasury Advisory Department. In 1988, he was named
Germany, for example, where there is intense competition from as Chairman and Chief Executive Officer of FIMAT
existing players. But a partnership with a US provider is not the Group. In 1997, he was appointed Deputy Head of the
answer.” Banking Services Division of Société Générale and sub-
sequently Head, in 2000. Closier is a member of the
“The race among service providers is Group Management Committee of Société Générale.
Closier is the Société Générale Group representative for
currently for profitability and the Euroclear Bank. He is also a Member of the Board of
Directors of EUROCLEAR BANK, FIMAT and PAREL.
provision of more value added services Born in 1952, Closier is a graduate of the École
for clients, not for assets under custody” Nationale de la Statistique et de l’Administration
Économique (ENSAE-1976) and holds a postgraduate
US securities service providers are opting for partnerships degree in Economics (1977).
with providers in a variety of European countries in order to
SG GSSI offers a full range of securities services including:
develop reciprocity between global custody and local access. i. Execution, clearing, delivery and settlement;
“But if they choose a local partner,” says Closier, “it is unlikely ii. Securities back-office outsourcing services;
that this partner will have a European strategy. For this reason iii. Custody, trustee, fund and portfolio administration;
consolidation in Europe will continue until, in 10 years time, iv. Employee Share Plan Management.
there will be fewer players than there are today. At the mini- SG GSSI currently ranks 4th among securities custodians in Europe,
mum, we will see the emergence of a handful of pan-European and 10th worldwide with more than USD 1,500 billion in assets
held(March 2005). SG GSSI provides custody & trustee services to
players. In the mean time we continue to read about the increas- around 2,300 funds and its subsidiary Euro-VL provides valuations for
ing dominance of US players in Europe.” nearly 3,700 funds representing assets of USD 348 billion (March
2005). Fimat, another GSSI subsidiary, acts as broker for 7% of the
Challenges clearing of international listed derivatives transactions on the major
For the next five years, the challenge for Closier and the team markets for which Fimat is a member. SG GSSI ranks among the
European leaders in stock option management, serving more than
at SG GSSI remains clear: “attract the big clients with our multi- 470,000 beneficiaries.
ple service offering. The bigger providers are offering a range of SG GSSI employs 3,500 people and is present on 25 financial markets
products,” says Closier. “By doing the same we intend to increase in Europe, the United States and Asia.
the profitability of our business. Since our birth within the SG GSSI is part of SG Global Investment Management and Services
Société Générale Group, our profitability has increased 20 per (GIMS), the third key business of the Société Générale Group, which also
cent per year, via organic growth. If we continue along this pat- includes asset management (SG Asset Management), private banking
(Société Générale Private Banking) and on-line brokerage (Boursorama).
tern, we will grow and be able to take advantage of all acquisi- Ratings:
tion opportunities. This is our strategy.” • Trustee and custody - Paris: Aa2 (MQ) (Moody’s);
With USD$ 1,500bn of assets under custody, Closier disre- • Global custody - Paris: 'CU2' (Fitch Ratings);
gards this figure as a measure of strength for SG GSSI. “Assets • Trustee - Paris: 'TR2+' (Fitch Ratings).
under custody are less and less relative to the profitability of the Some key figures:
business,” says Closier. “The strength of your business is evident i. More than 1,500 billion dollars of assets under custody:
ii. 7% of all globally listed derivatives transactions on the major
in the units of fund administration, lending and borrowing markets for which Fimat is a member;
and outsourcing. All of these businesses are very profitable and iii. Custody & trustee services for 2,300 funds and the administra-
their strength is not linked to assets under custody. The race tion of more than 3,600 funds;
among service iv. 28% market share in France in fund administration, 348 billion
16
Net Banking Income in EUR bn 16.4 providers is dollars Assets under Administration in Europe;
15.6 iv. #2 overall clearer on Euronext, #1 on Euronext Paris cash and #2
14 14.0 14.6 currently for on the Monep;
13.8 profitability and the v. Processes more than 81,000,000 trades annually on more than
12 provision of more
11.4 56 markets;
10 value added services vi. #1 in number of orders on French stocks, #3 in number of
for clients, not for accounts managed: 1,5 million in 2005;
8
assets under custody. vii. #3 in France on Employee Savings Plans, (a joint venture
6 between SG and AXA): Savings plans administered for 12,000 com-
The key is about panies and 1,980,00 employees (~15% market share), certified ISO
4 profitability and the 9001 version 2000;
2 quality of services viii. #1 in France for the administration of stock option plans
you provide to the (470,000 beneficiaries);
0 ix. 45% market share of AGMs for companies listed on the CAC 40.
1999At 2000 2005 2002 2003 2004 clients.”
Sibos 2001
Source: Société Générale ISJ

16 INVESTOR SERVICES JOURNAL


Custody Focus - France

With its Anglo-Saxon influence, France’s actions have had


wide-ranging impacts on other countries across the conti-
nent. Whether the result of Jacques Chirac’s determination
or Dominique de Villepin’s charm, the countries leaders
have ensured their country remains a superpower on the
worldwide stage. It comes as no surprise then that France’s
blue chip companies should immitate their country’s lead-
ers and ensure they are recognised the world over. For the
banks, this immitation is done with increasing rigour.
The French banking industry has consolidated and
providers with the required scale have thrived on business
from institutional investors and financial intermediaries.
BNP Paribas Securities Services, otherwise known as BP2S,
serves both types of client. “Specifically on the French
market, our strategy has always been the same,” says Jean-
Marc Pasquet, Head of Territory France. “We are a strong
player in the financial intermediaries sector, which
includes clearing related services for broker dealers and
Investment banks. This has always been our strength, but
in the last four or five years, we have developed a very

Vive La
strong institutional investor franchise. Our main activity is
now linked to the institutional investor client segment.
This may come as a surprise to those who perceive us
firstly as a clearing bank.”

Third Parties
According to Bernard Blaud, Head of Institutional
Investor Sales, The vast majority of BP2S’s business is con-
ducted through third parties, excluding clients of the wider
BNP Paribas group. “We intend to work with more asset
Difference
managers who have traditionally been locked in to their
wider banking group,” says Blaud. The business of securities
The market for outsourcing in France was impacted by the
West when State Street was appointed middle office out- services providers in France has
sourcing provider by AXA’s French operations. “In the
French market, we are seeing increased competition from
wide ranging impacts on the
the likes of State Street, Dexia and the Bank of New York rest of Europe.
(which has a joint venture agreement with Natexis Banque
Populaire)”, says Blaud. “But there is more to come in the
way of middle office outsourcing projects.”
BP2S regards its global custody and depot bank unit as ISJ speaks to providers to find
core securities services. “We have strongly increased the
number of external clients and have maintained a leader-
out why
ship position for the last five years,” says Pasquet. “More
recently, we have developed the outsourcing of middle
offices in France and have integrated the middle offices of
our Group's asset management and insurance businesses.
In addition we see a lot of medium-sized deals coming to
the fore.”
The landscape for middle office outsourcing in France is
very different to other markets. Blaud explains: “Most of
the captive companies here belong to the banks, prompting
the service provider to take a different approach when
marketing their services. Our market is driven by the asset
management mandate. We are following this mandate and
keep an eye on whether the mandate is alpha or beta
driven. This distinction is important to our strategy. Beta
strategies are pricing driven whereas alpha driven strategies
would comprise more complex range of services. We expect
that 50 per cent of the buyers in this market are going to
diversify their asset management mandate. This will help us

INVESTOR SERVICES JOURNAL 17


Custody Focus - France

acquire a majority of market share of non-client asset fund of funds and single hedge funds, which invest directly
managers in France.” in equities and shares. The fund of funds are generally
easier to serve. Hedge funds, which invest in equities and
Consolidation shares are more difficult to serve and most of the French
The shape of financial services in Europe is reflected by players encounter difficulties when accounting for these
the French market, particularly as far as consolidation is funds. In addition, the new international accounting
concerned. “Consolidation in our industry in France is by standards will make it difficult for French corporates to
no means complete,” says Pasquet. “We have developed a buy hedge funds, particularly those funds investing in cash,
strong and unique European franchise based on multi- due to the consolidation rules.”
domestic roots across Europe to serve our clients, while Going forward, the major market for BP2S lies among
having global capabilities. This strategy allows us to benefit asset managers and institutional investors who are not
from consolidation.” attached to a larger banking group. “The insurance market
Apart from France, BP2S has full service capabilities in all is also attractive due to the move towards unit-linked
major offshore and onshore European markets. This gives contracts,” says Blaud. “We’re looking at each of these mar-
us critical size, not only in the French market level but also ket segments closely.”
in the European market,” says Pasquet. In addition to asset managers, BP2S predicts further
Despite the growth of the hedge funds industry in growth within the financial intermediary segment. “We are
France, the ability to serve these funds is not everybody’s expecting demand for a more complex and more packaged
offer,” says Pasquet. “We have an equity,
“Hedge funds, which invest in equities and fixed income and derivatives clearing offer-
ing and provide execution, and financing.
shares are more difficult to serve and most of the The ability to combine a multi product
French players encounter difficulties when offering instead of being too specialised is
the future of the French market. We are
accounting for these funds” connected to all the major international
financial intermediaries, which are operat-
raison d’etre. “You need to invest in order to provide serv- ing in France, and international investors, including those
ices,” says Blaud. “You should analyse who is going to buy inside and outside of France. The challenge is to offer even
the hedge fund. There are hedge funds, which consist of more customised package to high demanding clients.”
Service providers in France agree that in order to survive
A Mature Market? on the French market, products should be packaged care-
fully. “What makes the difference between service providers
is the ability to deliver ad hoc services to the client,” says
Blaud. “The French market is at an advantage in that it
invested heavily in IT projects during the 1980s, whereas
the UK market only introduced Crest in the mid-1990s.
The French market is fully automated and the IT consult-
ing opportunities are luring small players who would like
to be involved in this market.”
Pasquet adds: “The closer, the better is not only a strap
line but a reality: without the local touch and a thorough
understanding of the way our clients are structured it
becomes difficult for providers to succeed”.

Investment
To become a scale provider in the French market requires
years of investment in technology and systems. Realising
this, Credit Agricole Group has partnered with Groupe
Caisse d'Epargne in order to leverage both providers'
investment in technology by combining their respective
investor services business lines. The unveiling of Credit
Agricole - Caisse d'Epargne Investor Services in July 2005
marked the creation of a force to be reckoned with in the
French market.
Guillaume Fromont, Member of the CACEIS management
board comments on the importance of the French market:
“The French securities services market is one of most
dynamic in Europe. The French fund management indus-
try has undergone strong growth, which is driven by the
success of cross-border distribution.”
Institutional and private investor clients in France cur-

18 INVESTOR SERVICES JOURNAL


Custody Focus - France

rently offer excellent growth prospects for foreign fund particularly abroad. “At the same time we will continue to
managers looking to expand their business. develop our product and service offer and will concentrate
“This international-focused business development can only on growth and expansion in Europe,” says Fromont.
take place with the aid of powerful global
service providers,” says Fromont.
“Drawing strength from the quality and the
“the entire fund management business,
commitment of its two renowned sharehold- confronted with competitive pressure and new
ers, Crédit Agricole and Caisse d'Epargne,
CACEIS offers a global service to fund man- legislation, is reconsidering its business model”
agers on the French market.”
Fund management companies are confronted with strong Service Driven
competitive pressure to create innovative and sophisticated In answer to recent changes in the French market, global
products, which will enable them to increase their market custody provider Citigroup has added a range of new serv-
share. CACEIS became the depository bank and valuation ices to its stable. “We became a general member of Clearnet
agent of the first hedge fund governed under French law. three years ago,” says Jean Jacques Panvert, Securities
“Fund managers are compelled to concentrate on financial Country Manager France, Citigroup Global Transaction
management and are engaged in progressive outsourcing of Services. “This enabled us to accommodate clients who are
back office functions, which are comprised of two types. trading on Euronext and provide clearing and settlement of
Firstly, the standard processes, such as valuation, middle- their on-exchange transactions. We provide the same
office services and performance calculation, which used to service for electronic fixed income platforms such as Euro
be an integral part of a fund management company in MTS, MTS and BrokerTec.. We have $66bn of assets under
France. The second type of outsourcing is related to the custody in the French market and as a settlement bank, we
development of open architecture distribution. CACEIS is rank third for OTC settlements in Euroclear France. In
a provider of this fund distribution support service.” addition to clearing and settlement, we provide asset
As the French funds industry increases in size and com- servicing tools such as corporate actions, dividend
plexity, a follow-up of the distribution figures and related payments and proxy services.”
commissions is essential. This follow up is at the heart of Providers who are present in multiple markets are affect-
CACEIS' European Transfer Agent offer, which includes ed by the harmonisation of the Euronext markets, which
multi-channel order collection and a multi-lingual call cen- includes France, the Netherlands and Belgium. “This har-
tre, calculation and payment of commissions and monitor- monisation will imply a lot of technology developments
ing tools for all of the distribution networks. for all providers,” says Panvert. “Providers need to develop
The need for scale also impacts a provider's ability to their IT systems in order to face the challenges of this har-
offer competitive pricing. “Only the monisation. Harmonisation also requires investments in
large, profitable players can finance terms of human resources. Several working groups have
the considerable investments required been created to discuss these harmonisation proposals.
to cover all the needs for clients, Citigroup is actively participating in these groups.”
which includes assistance with The upside of Euronext harmonisation is that it has cre-
international development projects,” ated outsourcing opportunities for custody providers who
says Fromont. “Scale also ensures treat technology investment as their core competence. “We
providers can lobby in a heavily are seeing several new requests in this regard,” says
regulated business, so that legislative Panvert. “We are providing these outsourcing services to
decisions taken by French governing some clients already. The trend is definitely there. Our
bodies are made with the interests of clients are mainly non-resident and need an expert in the
our customers' business development French market. Our aim is to unbundle services, to provide
in mind.” Guillaume an 'a la carte' service for foreign trading members in the
The CACEIS partnership is present Fromont French market. In the past, foreign members were chan-
in several European countries, includ- nelling all of their clearing and settlement through their
ing France, Luxembourg, Ireland, Spain, Belgium and custodian bank. Thanks to the harmonisation, the client
Holland. “This combination of business lines is just one could choose certain services from his correspondent bank
stage in the process of European growth which can be based in Paris. For example, we have certain clients who want to
on partnerships or acquisitions,” says Fromont. “We have become individual clearing members and continue to use
the full support of our shareholders, who are the major Citibank Paris as a settlement agent”.
players in European banking.” The requirement for scale will ultimately lead to further
The unavoidable factors of security and cost reduction consolidation in the French market. “You need a certain
drive large fund management companies to outsource, and critical mass in order to reduce your costs and maintain
consequently make a decision to focus on their core busi- your margins,” says Panvert. “In the last few years we have
ness. “Nowadays, the entire fund management business, seen a few mergers and acquisitions in the French market.
confronted with competitive pressure and new legislation, Today we are seeing more partnerships.”
is reconsidering its business model,” says Fromont. Partnerships are largely based on a sharing of IT systems
CACEIS is a supplier of complete services and is focused and platforms. Citigroup STP rate is at 99 per cent. “For
on accompanying clients in their development projects, the last seven years, we have automated our processes as

INVESTOR SERVICES JOURNAL 19


Custody Focus - France

much as possible,” says Panvert. “We have a fully automated Outsourcing


link to the CSD to send messages and deliver them back to Sharing the view of some of his competitors, Prigent
clients. All of this is done on an online real time basis. It is agrees that the market for outsourcing is less developed
important to have a high STP rate since we don't want any than the UK. “French outsourcing deals concern down-
manual intervention. The French market is quite sophisti- stream services such as back office, fund acounting and
cated in this regard. In the midst of Euronext harmonisa- fund administration functions, rather than middle office
tion, the French market is trying to preserve that high level activities,” he says. “For the time being, the demand for
of automation. Each time we meet with non resident insti- outsoucing stems from the asset management community.
tutional investors they are curious to know their STP rates This business mix covers pure lift-out and modular (per
and ask how these rates can be improved. Transactions activity) outsourcing deals. SG GSSI supports this market,
which are not STP and need some manual intervention for example, by proposing solutions for complex OTC
incur a surcharge. This matters a great deal when every- operations pricing.”
body is looking at costs! The level of STP is very important The market for outsourcing in France depends heavily on
not only for French players but also for non-resident play- scale. Prigent explains: “The securities industry requires
ers.” One of the key challenges facing providers such as important IT investments to cope with clients’ require-
ments, regulatory changes and market developments.
“The modernisation of the depository bank Not all existing players will be in a position to afford
this in the coming years. As a consequence, some of
role, and the recognition of transfer agency them will quit the game, which will lead to further
functions are key developments” consolidation. 15 per cent of French service
providers deliver depository functions for 70 per cent
Citigroup is the harmonisation of Euronext. “The work of French funds, and for 85 per cent of assets under cus-
being done with Euroclear group will require providers to tody. Other markets are even more concentrated than this.”
adapt their service model,” says Panvert. “The Single Among the hundred remaining players on the french
Application Platform of Euroclear will include the UK and market, only a few of them provide services to third par-
Irish market. Euronext's current bid for the London Stock ties, and the vast majority of them assume depository and
Exchange could have an impact depending on how it custody services for the asset management company of the
would work in practice. We are working with the UK group to which they belong. This provides an opportunity
market players on the specifics of the French market , that for further concentration.
is how it works and, for instance, why we prefer to have pre While consolidation among service providers makes for
matching facilities instead of the “hold & release” facilities interesting discussion in the securities industry, the trend
etc. For Citigroup, the acquisition of the LSE by Euronext looks set to continue unabated. “French players will defeni-
would be a positive step as it would allow us to rationalise tively take part in this trend, either in their local market or
our systems and provide a fully packaged service for all in major European markets,” says Prigent.
European countries.” SG GSSI’s client driven approach allows the company to
adapt to the STP process implemented by its large volume-
Regulation clients. “Mid-sized players who cannot afford to imple-
In the midst of increasing regulation, French securities ment STP solutions on their own, usually welcome the
services providers have been given a voice through AFTI (the standard STP solutions that we propose,” says Prigent.
French Depository and Custodian Banks Association) and “We provide an internet solution for mid-sized clients
AFG (French Asset Managers Association). These called GLASS (GLASS Custody and GLASS Liabilities).
Associations, according to Bruno Prigent, Head of Securities There is room for improvement in the area of funds sub-
Services at Société Générale Global Securities Services for scriptions/redemptions and OTC derivatives products. The
Investors, are directly involved in the development of the more commoditised a product is, the greater the interest in
on-shore alternative investment regulatory framework, STP processing for the buy-side community.”
including the introduction of the prime brokerage for SG GSSI and other providers face a host of challenges in
French alternative products (ARIA, ARIAEL and Contractual the coming years. “The internationalisation of regulation in
Funds). “The modernisation of the depository bank role, the funds and custody industries in Europe will continue
and the recognition of transfer agency functions are key to be a key driver in the forthcoming year,” says Prigent.
developments,” says Prigent. “Another development includes In response to industry challenges, custodians in the
the introduction of AMF (Autorité des Marchés Financiers) French market will continue to implement their pan-euro-
regulation, which imposes proxy voting obligations on asset pean platforms for global custody, depository and adminis-
management companies for securities held in their funds.” tration services. These custodians will also have to cope
The consultation process involving Euroclear’s Business with the pressure on margins for core custody services.
Model Implementation (BMI) follows 11 consultation “The ability to develop ancillary and value added services
papers on matters ranging from the harmonisation of such as complex products OTC pricing, risk attribution
corporate action processing, to the proposal of a new and performance measurement and trade cost analysis will
account structure. SG GSSI is actively involved in those be key to maintaining profitability,” says Prigent. “This
developments and contributes to the dialogue between challenge will become particularly complex for service
professional associations and the regulatory bodies providers who are only involved in local custody.”
concerning proposed regulations. ISJ

20 INVESTOR SERVICES JOURNAL


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Analyse this..Future Perfect?

ISJ invites service providers to comment on the past year and where they
see major opportunities going forward

Dai Bedford Chris Poikonen

Dai Bedford, Partner and co-Head of Eurasia, Capco Chris Poikonen, Senior Vice President Relationship
Management, eSecLending
Benjamin Franklin famously said ‘…there are only As we near the end of 2005, securities lending market par-
two things in this life that are certain…death and taxes’. ticipants can confidently state that it has been a good year
If Franklin had been around in the 21st century he may for the industry. Lenders, agents and borrowers alike have
well have added ‘regulation’ to this statement. benefited from hedge fund growth and demand, as well as
In fact, not only has enhanced regulation clearly been a robust proprietary trading activity. The end result will be an
feature of 2005 and will certainly still be for 2006; the overall increase in volumes, a healthy yield enhancement
nature of regulation has also seen an interesting trend trading season and a growing demand for asset classes
shift over the last year or so. such as corporate debt and emerging markets.
Whereas once, it was predominantly control-orientated Beneficial owners, now more than ever, are actively man-
and focused on a company’s ‘reporting’ and ‘compliance’ aging their securities lending programs. They are more
processes, take Sarbannes Oxley and IFRS for instance, closely examining the options and tools available to them
we are now seeing a substantial shift towards regulation and making better informed lending decisions. Many bene-
which goes right to the core of a business and in doing ficial owners are introducing competition and utilizing vari-
so aims to change the way a company operates. ous routes to market, which are allowing them to safely
At Capco, our role is to advise the financial services increase returns, mitigate risk and achieve greater control
industry on how they can be both efficient and effective over their programs.
With the growth of more actively managed multiple
in competitive markets. provider securities lending programs, third party lending
Over the last year, with the arrival of MiFID – the agents, technology providers and market data specialists
Market in Financial Instruments Directive – we have seen have realized continued momentum. Traditional custodial
how rapidly encroaching regulation is impacting how providers are also increasing their third party mandates as
clients go about achieving their goal of operational excel- they continually adapt to an ever changing marketplace. As
lence. a result, the lines that delineate custodial lending agents
We are therefore advising our clients that they should from third party lending agents have become increasingly
use the ‘burden’ of regulation to their advantage rather more blurred as all seek to compete in this evolving space.
than fight against it. 2006 and beyond should offer continued growth and
Likewise, SEPA - the Single European Payments Area opportunities for those well positioned in the marketplace.
and the related pricing directives, normalising Firms that seek to diversify their focus from strict yield
domestic and cross-border charges for payments, is enhancement trading and capitalize on new markets and
already having a substantial – in excess of EURO 5bn asset classes should be poised for future success. Collateral
annually - impact on payment revenues. flexibility will also become increasingly more important in
Compliance with the emerging endgame is the years to come. The short-term cash markets should
complicated and something the industry is likely to continue to provide yield opportunities with increased bal-
spend between EURO 6 bn to EURO 10 bn on between ances fueled by the borrowers’ relatively low cost of funding.
now and 2010. Non-cash pledges and receipts should also remain in favor
With MiFID’s emphasis on best execution and SEPA’s as borrowers seek off-balance sheet transactions.
focus on price control, regulation is now not only looking Regulators, auditors and boards of directors alike are also
to monitor business control but is intervening in core becoming increasingly interested in securities lending.
business activities under the guise of increased con- Trading practices and methodologies, as well as fee arrange-
sumer protection. ments, are being reviewed in greater detail. As such, trans-
This is a clear trend, bringing regulation into the parency is becoming more relevant to all practitioners.
drivers of business strategy and will have the affect of The outlook for the securities lending industry in the coming
further altering the balance between regulators and the years is decidedly positive. This value-added activity
regulated. remains a low risk alpha proposition for beneficial owners
and a solid source of market liquidity. The opportunity for
growth should continue for those attentive to supply and
demand forces, the ever changing regulatory environment
and an increasingly more competitive landscape.
22 INVESTOR SERVICES JOURNAL
Analyse this...Future Perfect?

Joyce St Clair Bob Cumberbatch

Joyce St Clair, Executive Vice President, Northern Trust Bob Cumberbatch, European Business Lines Director, Interactive
Data (Europe) Ltd
Asset servicing, in common with any service industry, will
always be driven by customer requirements. In today's tough During the past year the financial industry has dealt with
and crowded market place, providers are not only under pres- more and more regulation, such as the EU Savings Directive
sure to deliver low cost, high quality services but also to pos- and the Market Abuse Directive. This looks set to increase
sess the capabilities to support their clients' growth. This with the Financial Services Action Plan (FSAP), which identi-
involves providing a 'high-touch', integrated service to a fied 42 measures designed to abolish ‘national’ obstacles to
diverse client base, from pension funds to fund manager the integration of European financial markets by 2008.
clients. Despite the recent announcements regarding F&C and These include the Capital Adequacy Directive (Basel II),
Mellon and Schroders and JP Morgan, the current appetite for UCITS III, the Transparency Directive and, of course MiFID.
investment operations outsourcing is at unprecedented levels. For the market data vendor community, such regulations
We expect to see a steady stream of major deals announced introduce changes to existing datasets or require new data
over the coming months and years. We believe there will be an to be collected, processed and distributed. Some require the
increase in component outsourcing alongside a consistent flow complex relationships between issues and issuers to be
of large deals in the foreseeable future. established and maintained. However, regulations – and
The spectacular growth in the alternative fund sector and the standards – can bring new opportunities. The adoption of
continued importance of Jersey and Guernsey as offshore fund the Unique Issue Identification (UII), the ISIN, Ticker and
administration centres will remain important drivers of new Market Identifier Code, suggested by the MiFID sub-group
business for asset servicers, who will need to focus on technol- for Reference Data, will open up the European market to
ogy and client service innovation to stay ahead of the game. financial information vendors. And MiFID will make it even
Those providers with their sights set on continuing to succeed more imperative that institutions have access to several
in the future will have to be prepared to step up to the plate sources of timely and reliable pricing information to achieve
and demonstrate rigorous process, procedures and corporate 'best execution'. Institutional customers will also need good
governance in a risk managed framework. Offshore capability quality reference data to help enable STP – especially for cor-
has also become an important factor in the battle for market porate actions processing.
share. The phenomenal growth in the Irish funds industry over With Basel II and UCITS 111, high quality reference data is
the last decade has been remarkable and competition remains vital to link securities data (issues) to their respective issu-
healthy. The shift in asset ownership from bond and money ing entities and their ultimate parent entities, whilst depend-
market funds to equity holdings and alternative investments able mergers and acquisitions data will be especially impor-
has led the fund industry to focus on ethics and place investors tant post MiFID. Interactive Data has been steadfast in
centre-stage. It is incumbent on regulators and asset servicing addressing these issues. Take, for example, FT Interactive
providers to have the right infrastructure and risk management Data’s service of ISO 15022 formatted corporate action files
processes in place to service all types of funds and protect the – including rights issues, bonus issues, mergers and acqui-
rights of investors. Further pressure will be placed on the finan- sitions, and redemptions – delivered directly via the internet
cial services industry going forward. The growth in demand for or via the SWIFTNet network. And FT Interactive Data has
tax transparent, cross border, pension pooling solutions will again been awarded the B.I.S.S.* gold award for its corpo-
also be an important driver of new business and innovation in rate actions and reference data. MiFID Unique Issue
2006. The continued emphasis on transparency, managing Identification (UII) - ISIN, Ticker & Market Identifier Code:
costs and enhancing administrative efficiencies will fuel this adoption of this opens up Europe to our products and serv-
trend. Northern Trust is widely recognised as being a leader in ices; may impact our UK revenues but could do very well in.
the market in this field. We are the first global custodian to Aside from. regulatory impact, the growing hedge fund
have launched a pooling solution for a multinational client that industry brings opportunities for real-time data vendors like
is able to support multiple country plans, multiple countries of Interactive Data’s ComStock business. And in the fixed
investment and multiple asset classes. At Northern Trust, we income markets, asset and mortgage-backed securities, and
are reaching the end of an exciting year in our continued devel- credit default swaps, have become increasingly popular. In
opment. 2005 saw our acquisition of Baring's Financial Europe FT Interactive Data now evaluates around 1,100 indi-
Services Group ("FSG"), our entrance into the UK outsourcing vidual tranches of this type of structure and plans to extend
market as a major player via our outsourcing arrangement with coverage to include pre-payment sensitive security types.
Insight Investment, the launch of our tax transparent pooling Market timing and time zone arbitrage have been
solution and some landmark mandate wins in the global cus- prominent in the financial news, representing another
tody arena, including the recently announced win of AP4. New opportunity. FT Interactive Data’s Fair Value Information
opportunities are constantly for the taking in a fast moving Service was recently made available to European domiciled
marketplace. Those providers best placed to capitalise will be funds, following the success of its groundbreaking service in
leading product innovators offering a high-touch, high-tech North America.
integrated service.

INVESTOR SERVICES JOURNAL 23


Analyse this..Future Perfect?

Richard Warne Paul Stillabower

Richard Warne, head of client management for JPMorgan Paul Stillabower, Global Head of Business Development,
Worldwide Securities Services in EMEA HSBC Securities Services

Outsourcing was the topic everyone was talking 2005 was a very exciting year in the securities services
about in 2005, with fund managers increasingly accept- business and HSBC expect this trend to continue. Key
ing it as the norm. macroeconomic and socio-cultural factors continue to
JPMorgan expects to see the current level of out- provide opportunities and challenges for our clients.
sourcing to continue into next year. These include:
The industry may start to see a move towards more i. pension reform, due to corporate and state level deficits and
component-based offerings, but single-component increasing pensioner-to-worker ratios, leading to higher sav-
deals are likely to be less common due to the intrinsic ings ratios, especially in Europe and Asia;
linkages that exist between many areas of processing. ii. increased regulation and corporate governance, with
While buyers may be reviewing their suppliers and associated compliance costs rising;
suppliers may, in turn, be reviewing their platforms, the iii. discerning clients sensitive to price, quality and risk across
outsourcing trend is here to stay. the whole value chain;
Looking forward to 2006, the two key themes on iv. infrastructure and markets continuing to integrate, but more
which JPMorgan sees continued focus are regulation slowly than hoped; and
and the use of alternative asset classes. v. increased use of alternative instruments across all product
On the regulation side, clients will continue to need structures and client segments, which provide new
help, whether it is with Sarbanes-Oxley, Proxy Voting challenges in internal operational efficiency and the external
Reporting or Chief Compliance Officer requirements. market infrastructure.
Basel II will continue to be an issue and with the As a result, our clients will focus on cost efficiency,
impending deadline for more disclosure, operational compliance, product development, distribution and
risk will increasingly be a big area of focus with invest- improving the investment process. Technology dollars
ment managers looking to their providers for help in will be directed towards front office activities and the
addressing these issues. Basel II has also meant an cumulative effect will be an increasing emphasis on out-
increased desire for secured lending, which will put the sourcing to providers with the necessary focus, industrial
pool of acceptable collateral under strain, prompting strength breadth of capabilities and reach to underpin
instruments such as Asset Backed Securities (ABS) and changes to operating models. This should lead to fewer
Mortgage Backed Securities (MBS) to become more outsourcing relationships per client, as each looks to
acceptable. gain from advantages in pricing and service quality
The tremendous growth in alternative asset classes through bundled arrangements.
also represents new challenges. At HSBC, we will differentiate from our competitors by
These markets are now so large and influential that continuing to:
they can no longer be overlooked by many investors. i. invest in the people who support our relationship-driven
We are increasingly being asked by our clients for philosophy and high-touch, top quality service model
solutions spanning a growing range of product and across all client and geographic segments;
asset classes, such as OTC derivatives, hedge funds, ii. provide access to our broad array of market-leading servic-
leveraged loans and structured products. es, which leverage our global banking capabilities in areas
Pension funds, for example, are frequently turning to such as payments and cash management, execution,
alternative assets as they look for new ways to meet research, advisory, lending, structured products, transition
their liabilities. management, consulting and risk management;
Processing and valuing these instruments is complex, iii. focus on our unique multi-domestic capability to grow in
and we are seeing a growing demand for services that Europe’s largest markets, in Asia, the Middle East, and
help to ease the operational burden of investing in and large emerging economies such as China, Brazil and India;
accessing these disparate markets. take advantage of HSBC’s superior coverage of alternative
Investors may find the accounting and regulatory instruments and emerging markets, where our clients often
rules for these instruments to be a challenge, but they need the most assistance; and,
can expect an upsurge in the services available todeliver iv. provide competitive and transparent, relationship-based
support. pricing, which is driven by our scale efficiencies.

24 INVESTOR SERVICES JOURNAL


Analyse this...Future Perfect?

Peter Baker Brian Traquair

Peter Baker, Managing Director, Brian Traquair, President,


Investor Services UK, State Street Securities Finance, SunGard

There are a number of core areas that will drive our busi- While there is much debate about transparency, the trends
ness and the industry in general in the future. Here I have toward single global book trading systems, integration of
identified some of the main ones... equity finance and repo, and inter-firm connectivity, is
Markets - the slower growth market environment shows no unmistakable.
sign of significantly accelerating in the coming year. As a
result, service providers with the ability to adapt to a single- One Good Book?
digit-growth environment will be best positioned for the Having explored new markets and new instruments, many
future. securities finance organizations are investing in consolidat-
Customers - The demand for full service, integrated offer- ing securities finance trading and reinvestment into a sin-
ings - beyond just traditional custody - continues to grow. gle global book. A single global book system gives securi-
Capabilities such as fund administration, fund accounting, ties finance traders worldwide the ability to see all long and
transition management, securities lending and transfer short positions by instrument, currency and location, and
agency are now viewed as key value added servicing require- all outstanding contracts and current deals in negotiation.
ments. In the past, the major barriers were scalability and speed
Many of State Street’s recently announced UK pension regardless of location, in the face of increasing numbers of
fund mandates span a broad spectrum of services. positions and open contracts.
Recent examples of such mandate wins include State Street’s Today, technology is up to the task. The most effective
appointment by Lloyds TSB Group Pension Schemes to pro- global book systems are those that are fully integrated into
vide investment services for the Schemes' assets, which are operations and settlement.
currently valued at £11 billion.
Under the terms of the five-year agreement, State Street The Marriage of Equity and Repo
will provide custody, fund accounting, securities lending and Historically, the equity and repo desks have been distinct
bespoke reporting services to the Lloyds TSB Group Pension and often competitive with each other. As securities
Schemes. WM Performance Services, the European perform- finance (lending and repo) becomes more central to prime
ance measurement division of State Street, will also continue brokerage and more driven by hedge fund requirements,
to provide performance measurement services. the need for firms to provide clients with one point of con-
The terms of the initial mandate, signed in 2000, covered tact and an integrated set of offerings is more crucial.
only custody, with the other services having been added grad- As hedge funds implement trading strategies requiring
ually over the course of the relationship. borrowing equities, repo financing, and tri-party or swap
Regulatory - In a post-Myners environment, customers support, they anticipate these activities coming through
focus on the need for transparency, along with comprehen- one set of relationships within each prime broker relation-
sive analytics and timely evaluation services. ship. Hedge funds will increasingly seek an independent
No longer will monthly reports suffice. Asset owners want link that provides consolidated connectivity to multiple
daily, even hourly (!) updates on their investment perform- prime brokers.
ance, coupled with insightful analysis on how to interpret
this data. Growing Faster
Lastly, the investment operations outsourcing arena also In most countries, high volume has been a mainstay in
continues to evolve. domestic stock loan, with international stock loan following
- Mistakes within the outsourcing space can have an the same trend. The general collateral (GC) business (easy
enormous impact on business. More than ever, investment stocks) is the first step in automation for most firms, using
managers are looking for a proven provider with experience. systems and communications technology.
- Many of the providers have secured their initial “launch” client, Most cost savings come from straight-through process-
so now the market will progress to another level, as each service ing between firms. A growing percentage of GC business is
provider seeks to prove their value proposition among the now conducted over inter-firm networks, in which orders
competition. are routed and filled automatically.
- Even with the current state of the markets, fund managers At least one U.S. securities finance network processes
will still look to the benefits of outsourcing to provide a business 100,000 orders and executes 20,000 GC borrows and
advantage. loans per day in a completely automated fashion.

INVESTOR SERVICES JOURNAL 25


Analyse this..Future Perfect?

John Mayr Neil Vernon

John Mayr, head of marketing and business Neil Vernon, Senior Product Manager,
development at SimCorp SmartStream Technologies

1) Exception Management
Announcements of new outsourcing deals for back A client recently disclosed that between October ’04 to July
office asset management have been relatively thin on the ’05 they were subject to a 40 per cent increase in transac-
ground in Europe over the last twelve months. tion volumes.
There have been at least two major project failures This type of increase is not unusual, many firms are experi-
and several other projects are rumoured to be in trouble. encing similar or greater growth fuelled by improving eco-
This suggests that the industry is in a period of transition. nomic conditions and new trading methodologies.
Among the reasons for this is that outsourcing service The opportunity for exceptions to occur between point of
providers are finding it more difficult than they imagined execution and settlement is all too frequent and the associ-
to move new clients onto common platforms. ated costs all too high – typically firms can lose between 15-
This should not really be a surprise – after all, the range 20% of their profits in any given year.
of alternative systems suppliers available in this market, This risk increases as transaction volumes rise and as such
with which service providers compete, would indicate that one of the challenges we believe institutions will seek to
there are diverse requirements in the client community. address in 2006 is how to keep control over operational
Arguably, many unusual requirements of any given risk and cost with expanding volumes.
client are at the periphery of core processing or originate Proactive Exception Management is one area that offers
in processes upstream from the outsourced functions and firms a tangible ROI – by creating an audit and control
so should not be the concern of the service provider. architecture over the entire transaction lifecycle companies
Frequently though, the asset manager will feel that these are able to identify failing transactions before they fail.
special requirements differentiate them from their com- Real-time management leads to faster resolution
petitors, so the service provider cannot just override or and prevents the error from propagating to down-stream
ignore them. systems.
So if service providers are to crack this puzzle, which Errors are automatically routed for resolution and fixed
they must to achieve sustainable profitability, then it is before they get to the counterparty. Ultimately, client service
likely that only those with the most flexible of platforms, is improved and operational cost and risk reduced.
that will accommodate such diversity, will flourish.
This will be difficult for many service providers that 2) Insourcing and Outsourcing
have outmoded platforms made up of a patchwork of Although Outsourcing has recently been in the headlines
incompatible applications, strung together with hard-to- with several high profile contract terminations there is still
maintain interfaces and human intervention. a great deal of interest in the area.
Either they will have to invest in new platforms that Firms, especially custodians, are still interested in turning
reduce complexity or they will eventually have to bow out their cost centres into profit centres.
of the race. Those who believe they excel at specific processes will
The most flexible platform is one based on seamless look to insource work from others in their value chain.
processing with a single database. This allows new busi- A good example in 2005 was Citigroup Global
ness functions to be turned on or off within the system Transaction Services’ creation of a flexible Middle Office
without having to build or change complex interfaces Trade Operations platform to service their asset manager
between applications. clients.
It makes the system both scaleable and able to support The firms likely to succeed with their Insourcing strate-
strategic changes in the business mix. gies will look to invest in scalable technology, capable of
Unless service providers realistically reassess the way supporting multiple instruments, all major industry stan-
they provide their service, they can expect to see erosion dards
of business through their inability to support the true and providing full connectivity to central and local match-
needs of their individual clients. ing facilities.
By harnessing this technology they will be able to create
outsourcing platforms that allow them to benefit from
economies of scale and yet still deliver customisable servic-
es for their clients.

26 INVESTOR SERVICES JOURNAL


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EUROPEAN CUSTODY DATA SERVICES


MARKET GUIDE MARKET GUIDE

investor
intelligence WWW.ISJFORUM.COM 2006 investor
intelligence WWW.ISJFORUM.COM 2006
"Life is what happens to you while
you're busy making other plans" John Lennon
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intelligence
Analyse this..Future Perfect?

Nadine Chakar Frank La Salla

Nadine Chakar, CEO of ABN AMRO Mellon Frank La Salla, Managing Director, Pershing

The stringent regulatory environment the industry has been The world may be getting smaller with each passing year,
experiencing in recent years with the advent of Basel II and but investor demand for access to global markets continues
Sarbanes-Oxley will continue unabated. Clearly their require- to grow. Increasingly, investors are turning to their invest-
ments will have a major impact not only for ourselves as ment professionals for access to a broader array of product
providers, but for our institutional investor clients as well. choices that extend beyond global currency transactions to
We can expect to see an increased demand for sophisticated include managed accounts, mutual funds, and portfolio eval-
reporting tools - especially on the multinational front and, in uation services. The interest in—and investor demand for—
particular, for pension funds and large-scale financial institu- these global financial products and services will continue to
tions. As a provider it's therefore incumbent upon us - and gain traction throughout 2005 and financial services organi-
imperative - to ensure that we establish greater clarity for clients zations will be challenged to keep pace.
with regard to their meeting the obligations set by European Further accelerating this trend is the drive to meet the com-
directives, and to provide them with cost- and resource-efficient plex needs of the rising number of high-net-worth investors
solutions. The directives will also be expensive to incorporate, globally. CapGemini’s World Wealth Report, published this
and this is a burden all industry players need to recognise. Fee year, predicts that global high-net-worth wealth will increase
pressures will continue. I appreciate that I'm far from alone in at a compound annual rate of 6.5% during the next five years,
predicting further consolidation among providers, but I'm cer- and by 2009 could total $42.2 trillion.
tain the trend is inevitable; it's just unclear at this stage whether Adding to the challenges of meeting investor demand for
we'll see this occur in 2006, '07 or beyond. Over the last year more global products and services and delivering solutions
every major player in the industry has come to recognise more tailored to the needs of emerging high-net-worth investors
profoundly the complexities inherent in major outsourcing worldwide, is the drive to keep pace with advances in tech-
deals. Looking ahead, the issue of cost, pricing and even the nology. In today’s environment, investors have come to
economic model itself may witness a degree of evolution expect access to their account information and a wealth of
and/or change. Certainly, in addition to full-blown outsourcing, market data—as well as well as the ability to conduct trans-
you are likely to see an increase in a modular approach to this actions—at the touch of a button. And this means providing
service, whereby providers are delivering on very specific areas investment professionals and their clients with anytime, any-
for their clients' business needs. Increasingly I expect providers where information access.
will break away from competing in the commodity service busi- These developments, combined with the need to meet the
ness and will make efforts to find new ways of providing more unique regulatory requirements across the globe, are among
value to clients by carefully targeting their more niche require- the growing number of factors that are spurring the need
ments. I'm talking about an emphasis on partnership, and on among financial services firms to establish outsourcing rela-
providing the client with a premium value-added service. tionships with leading solution providers that have global
There's likely to be further debate about the changing role of the reach. The move toward establishing outsourcing relationships
global custodians, in which ABN AMRO Mellon for one will be provides financial services firms with the scalability they need
working in partnership - in a consultative manner - with both to efficiently manage their business and meet client demand
the client and their consultant. You'll see consultants remain- for access to a broad array of products and services. And this
ing focused on plan sponsors, ensuring that the sponsors meet is a shift that will continue to gain momentum. In its 2005
their legal, regulatory and financial requirements - kicking the report on outsourcing trends, Cerulli Associates observed a
tires of the providers, as it were - to ensure we have good asset trend in the U.S. that is beginning to cross over into the global
safety, and are provisioning a high-quality diverse product set financial community too. The report showed that the most
that can deliver tailored solutions. important characteristics prospective U.S. customers consider
Nowadays institutions rightly expect that their provider can when aligning with a provider are the need to achieve scalabili-
take off-the-shelf products and be able to customise them to ty and the capabilities an outsourcer can deliver to help them
maintain client relationships.
achieve an exact fit to their own unique needs. Also, and of equal
The Age of the Global Investor has arrived, and in 2006
importance to the client, I believe, is the need for us to provide
financial services firms will continue to face the challenges of
the necessary intellectual capital as a core part of the service
meeting the investing needs of a diverse client base.
solution and its delivery, in order to best handle the increased
Unquestionably, those that will achieve the greatest level of
complexities of our clients' business - for example, in the scope success in growing their businesses will be organizations
of structured products and derivatives processing. In all, I antici- that leverage a deep pool of resources and access not only to
pate an exciting and challenging year ahead, in which we at ABN international markets, but to a comprehensive array of finan-
AMRO Mellon look forward to delivering, and exceeding upon, cial products and services that are more global in nature than
the expectations of our clients and other stakeholders, and to ever before.
vigorous participation in the industry's key debates.

28 INVESTOR SERVICES JOURNAL


Analyse this...Future Perfect?

Pascal Scatozza Glen Good

Pascal Scatozza, Fund Administration and Middle Office Glen Good, ADP Investor, Communication Services
Outsourcing Product Manager at BNP Paribas Securities
Services in Luxembourg. Over the last twelve months, there has been increasing
activity in the areas surrounding shareholders’ rights and
Within the funds of hedge funds arena, we predict that the mechanics of proxy voting voting. The increasingly suc-
trade processing, valuation and reporting will become key cessful bedding down of Paul Myners’ recommendations
packages of a hedge fund offering. from his UK proxy voting review of January 2004 has been
During meetings with clients interested in creating funds of reflected through the past year by improvements to the
hedge funds, the question of hedge funds shares execution institutional investors’ voting response rates and the huge
often becomes a key discussion point; this is easily under- rise in volumes, from a FTSE 100 and 250 perspective, of
standable when looking at the peculiarities of the alternative institutional votes returned, alongside increased numbers
funds industry that is today worth 2,200 billion US$. of meeting announcements made, through CREST’s proxy
Even though worldwide hedge funds assets are mainly voting functionality. On the European front, there have been
composed of single manager hedge funds (it is estimated two market consultations, over the last eighteen months,
that 70 per cent of the alternative investment funds are single relating to shareholders’ rights by the EU’s Internal Market
manager hedge funds), it is important to note that the Directorate with the intention of publishing either guide-
European hedge funds market is very FoHF oriented. This is lines or directives sometime between November 05 and
mainly due to the fact that for the time being, the industry January 06. In Germany, the UMAG regulations have
including regulators, asset managers, custodians and prime recently been implemented, most noticeably for overseas
brokers favour the risk diversification offered by this type of investors by bringing about a vote entitlement record date
product. of twenty one days, and in the UK the publication at the
Even if these vehicles are usually easier to manage from an beginning of November of the Company Law Reform Bill,
investment manager perspective, the custodian banks of which contains a number of improved references to share-
such schemes have to cope with the unautomated and illiq- holder communication and proxy voting, including the dis-
uid characteristics of the underlying positions. Once a FoHF closure of voting activity. I believe the biggest impact will
allocation manager has determined the investment horizon evolve from the EU Internal Market Directorate’s considera-
and performed proper due diligence on the target hedge tions which may result in, amongst other things, the recog-
funds, the first role of the custodian bank is to support the nition of beneficial shareowners’ voting rights; promotion
Management Company in the execution of the purchases of of electronic delivery for meeting notifications and associat-
shares. The experience of the staff and the appropriateness of ed documentation to all shareholders; an end to share
the system are of the utmost importance when dealing with blocking and the introduction of record date entitlement;
offshore investment vehicles execution. Actually, since appli- enabling of electronic voting; and publication of meeting
cation forms are usually defined fund by fund, the paperwork results – in effect, and dare I use this phrase, universal
handled by the custodian is problematic for someone that enfranchisement. In addition, the use of electronic media
has never dealt with hedge funds execution. The custodian will improve the efficiency of the current proxy voting
has to make sure that cut-off times, payment instructions, processes and should offset any increased costs which may
sub-administrator details and all the other required informa- result from recognising beneficial owners’ rights. With
tion are properly indicated in the application or redemption regard to the very recent activity in Germany and the UK,
documents. one can assume that greater numbers of overseas investors
The depth of relationship between the custodian bank and may now look to vote at German meetings as the introduc-
local administrators is also key in the tracking of transactions tion of record dates should remove the lingering blocking
and confirmations. Without a robust order management sys- market perception which can be found amongst many non-
tem and skilled staff, the trade monitoring process becomes resident shareholders. The disclosure of voting activity
a nightmare since settlement cycles in this industry may requirements to be found within the UK’s Company Law
sometimes amount to several months. In the interim it is Reform Bill may prove to be a springboard for those who
essential to report pending positions to the investment man- support such a process to be implemented on a global
ager who needs to closely monitor his funds allocation. The scale. Finally, the introduction of ICJ’s service should work
custodian also needs to provide the asset manager with up towards relieving the pressure felt by many overseas
to date valuation reports that include both estimated and investors in turning round their vote instructions within, on
final Net Asset Values. perhaps too many occasions, a very short period of time as
The custodian bank of a FoHF must relieve the asset they attempt to participate in many of the two and a half
manager of the administrative burden and provide online thousand meetings that normally take place over two days
reporting of trade status and portfolio valuations. at the end of June. It is believed that ICJ’s services can
improve the vote solicitation period for foreign shareowners
by up to eight days.

INVESTOR SERVICES JOURNAL 29


Country Focus - Australia

In addition to regulation changes, some of the other key


The market for custody services challenges are geared around custody itself. With value added
in Australia is showing positive services such as those provided by master custodians, like fund
accounting or unit pricing are not currently regulated. That
signs of growth. Stephanie said there is a lot of interest from regulators in the area of unit
pricing. APRA (The Australian Prudential Regulation
Banks reports Authority, Australia’s prudential regulator of the Australian
financial service industry) and ASIC (Australian Securities
The Australian custody industry continues to sustain contin- Investment Commission; enforcing company and financial
ued solid growth year-over-year even against devaluation in services laws to protect consumers and investors) have recently
other overseas capital markets. In the six months to June 2005, released unit pricing guidelines, specifically relating to the obli-
Australian domestic custody assets grew 14.5 per cent to AU gations related to responsible entities (RE’s). Increasingly, those
$1.04 trillion. Total master custody assets (assets under adminis- organizations are outsourcing to master custodians, the likes of
tration for Australian institutional investors), also grew by more National Australia Banks’ National Custodians (AU $269 billion
than 10 percent to AU $908.1 billion during the same period. assets under administration in master custody) JP Morgan (AU
Globally, assets held under custody is a staggering AU $237.4 $240 billion) and State Street Global Custody ( AU $195 billion)
trillion, a 12.4 per cent growth year-over-year to June 2005. and World Bank of Canada, to name a few of the larger global
Driving this unprecedented growth is Australias' superannua- brand names. Regulation changes have also created additional
tion industry, underpinned by the country’s compulsory super- cost burdens on super funds, and now having choice of funds
annuation contribution scheme (currently 9 per cent of an also means that the funds have to be competently staffed to
employee’s gross salary), recent legislation allowing employee compete with the investment managers. But still, master cus-
choice of fund, and employee contribution co-schemes. tody, or “outsourcing” offers value-added to existing core servic-
David Travers, Managing Director of State Street Corporation es effectively providing consolidated custody, accounting report-
and recently appointed Chairman of the Australian Custodial ing, administration and pricing valuation. .
Services Association, says, “a lot of changes in the superannua- Sydney based JP Morgan Chases’ Vice President of Global
tion scheme have created more opportunities for players like Custody, Graeme Arnott says, “superannuation schemes tradi-
State Street to get back into the market.” In l999, State Street tionally engage custodians in the provisions of a range of master
entered into a strategic alliance with the Commonwealth Bank custody services,” representing a shift in Australia’s custodial
of Australia, essentially transferring State Street’s super fund marketplace from core custodial services. The spike in superan-
client servicing responsibilities to CBA, with State Street retain- nuation asset accumulation is driving Australia’s custodians and
ing provision of global custody services. asset administrators to play an increasingly important role in
the safekeeping of Australian’s investment and superannuation
monies. Moreover, they are expected to provide ever-broader

The New Outback administration support to fund managers and other institution-
al investors. Arnott also said, “master custody, however, is not
the panacea to solve all custody or administration issues, but it
can be the solution for some clients. It perhaps works best
Industry Challenges where a client has lack of scale. In order to be profitable, custo-
At the time State Street’s operating model was not consistent dians need to have scale meaning, they need a large client base
with those of its customers. “Then super funds were priced over which to spread the ever-increasing costs of technology.
monthly, requiring a lot of customized reporting,” said Travers. Clients face significant investment costs in technology such as
He acknowledged that, “a key challenge was the absence of ade- when systems have reached their use-by-date.”
quate mechanisms for customizing and at the same time, the Master custodians are held accountable to the duties, respon-
models that were in place simply didn’t meet standards and it sibilities and information provided in the investment managers’
was therefore financially not feasible to continue in that direc- compliance with their contracts, and monitor how efficient the
tion.” investment managers are in undertaking their investments.
There are a lot of changes in superannuation that have created
more opportunities for institutions like State Street to get back Consolidation
into the business of servicing Australian superannuation funds. Nevertheless, despite this growth the trend towards consolida-
Some of those changes are Australia’s new choice of fund tion has gripped the industry over the past few years and shows
regime, changes in regulations such as requiring that trustees be no signs of abating. If the consolidation of the corporate super-
licensed and, adds Travers, “those two things are important annuation arena had been the primary driver for change among
because the superannuation funds are looking at how appropri- the major custodians, then the advent of choice of fund is seen
ate their operating models are for the future of the schemes that as likely to accelerate the pace of that change.
the trustees manage.” Travers also said, “that is critical because With consolidation, one of the key challenges facing custodi-
regulation changes are creating additional cost burdens on the ans is that a smaller “boutique” fund or client, is acquired by a
superannuation funds and the choice of funds. This then sug- master trust or a larger fund. Dealings by the custodian with
gests that those funds have to be staffed to compete with the previous management are no longer current and chances are
investment managers who manage unit trust funds, mutual new management has an arrangement with another custodian
funds or managed product.” or something altogether different. It again comes down to a
Because of the regulatory burden and the competition facing question of scale: risk losing a fund when folding into a master
fund managers, superannuation funds are looking at what their trust, unless the firm is actually the custodian for the master
operating models need to look like in the future. “There is sug- trust as well. Travers added, “changes brought to the industry by
gestion that current operating models may shift to a daily pric- both consolidation and choice of fund have been forcing us to
ing regime resembling investment managers which is what State look seriously at the super industry once again.”
Street does well,” he added. In terms of how the custody market is evolving in Australia, a

30 INVESTOR SERVICES JOURNAL


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Country Focus - Australia

consensus seems to be difficult to find. Consolidation has been influenced by what the funds focus is. FRM’s senior vice-presi-
occurring within the custody industry to parallel with growth in dent Derek Goodyer says, “there is no doubt, however, that ben-
the superannuation industry. But according to a report by efits of hedge funds need to be balanced against the risks of
Angelo Calvitto, Director Relationships and Sales at ANZ including them in a portfolio because they are complex prod-
Custodial Services, he says he sees no evidence of consolidation ucts and their success is often dependent on the skill of the
at present but to the future sees technology as a key factor. manager.” From a custody standpoint, investment managers
JP Morgan Chase’s Arnott agrees: “Custodians need to treat must understand the complex nature of hedge funds when it
technology as a priority largely to keep up with advances in comes down to global clearance and custody network.
automation,” adding “Australia has one of the highest levels of Australian regulators provide clear policy guidelines regarding
automation when compared to global peers. In the case of the appointment of a custodian, largely necessitated by the com-
equities trades executed by investment managers, greater than plexities of automation required, pivotal to their custodial role
90 per cent of those trades are in STP (straight through in the trade cycle.
processing) electronic form. Contrast that with an investment
in unlisted unit trusts where, due to a lack of market Health of Australia’s Super Fund Industry
standardisation, all such transactions are subsequently subject The rapid net asset growth of Australia’s superannuation
to manual processing.” funds’ industry equates to close to AU $150 billion that will
need to be invested over the next five years, according to
Technology and Automation Executive Chair of Industry Fund Services, Garry Weaven.
Modern front-office systems generally do not require any Weaven recently spoke to Australia’s Committee for Economic
manual intervention in the processing of securities transactions. Development saying, “while there was no shortage of retail or
This is the concept referred to as “straight through processing” wholesale investor support into traditional sector investments
(STP). It ensures that once the deal is booked, subsequent set- (such as banks, or resources)” otherwise known as “sleep-well”
tlements and trade confirmation messages are transferred, and stocks, that he “perceives listed infrastructure investments may
statutory reports are generated without any manual interven- well be the next recipient of approximately AU $15 billion, into
tion. J.P. Morgan found that 85 per cent of transactions could be infrastructure where there is a high degree of concentration in
processed using STP. The remaining 15 per cent required some the Australian market.” Major industry super funds have been
element of manual intervention. Software suppliers have long averaging in excess of 20 percent per annum net asset growth
recognized the benefits of STP in the banking world and conse- over recent years.
quently developed integrated front-to back-office solutions in “Unless super funds want to spend their time buying and sell-
order to facilitate STP. The concept is not restricted to the con- ing BHP shares to each other, they are going to have to access
fines of banks, and extends to depositories and custodians. new investments either in new Australian assets or go much
From a custodian’s viewpoint, another key challenge they face is more heavily off-shore,” he said. Australia has created a world-
when the settlement function is outsourced to a specialist. leading system of savings and wealth creation to finance the
These institutions often use sub-custodians to deal with local retirement needs of future generations, as well as a healthy rate
settlements where, at the end of the trading, the responsible per- of economic growth and a sound public sector balance sheet.
son receives a list of failed and settled transactions, which may State Street’s Traver’s said, “Australia’s custodians and asset
occur when there are insufficient funds or stock in the client’s administrators play an increasingly important role in the safe-
portfolio. Because there are a host of manual intervention keeping of Australians’ investments and superannuation assets,
requirements between trading positions in the systems and as well as providing ever-broader administration support to
actual trades performed, the facilitation of settlements can be fund managers and other institutional investors.”
interrupted by a highly complex communication process that is
meant to ensure all deals are settled on time. Traditional solu- Stephanie Banks is a freelance writer, based in Sydney
tions fall short in supporting wholesale investors, especially
those utilising managed funds. The challenge is to benefit trade
efficiency, settlement and reporting information to and from a
variety of fund managers. Facsimile instructions, manual data Assets under custody and administration as at 30 June 2005 ($A Billion)
entry, lack of transparency, inconsistent processes, and opera- Assets
Domestic
Domestic Total Under
tional risk and investment delays, are common issues. Name Custody
Custody Domestic
Global
Admin
Custody
Domestic (AUD) Custody Transactions
Hedging Risk in Super Funds (Offshore) Assets (Master
Custody)
#
Hedge funds, along with credit default swap funds and deriva-
ANZ 27.20 48.30 75.50 0.00 5.50 330,000
tives, is an asset class fast growing in Australia. According to
ASTERON 5.90 0.00 5.90 0.00 5.90 3,960
Australia’s Financial Risk Management (FRM) group, various
BNY 0.00 0.00 0.00 48.50 0.00 0
hedge fund strategies have a relatively low correlation with tra-
BNP Paribas 125.40 0.00 125.40 0.00 147.70 298,167
ditional asset classes but are gradually evolving the same way Bond Street 27.00 0.00 27.00 0.00 0.00 #NP
private equity evolved years ago. The inclusion of hedge funds Citigroup 66.70 28.00 94.70 45.50 0.00 399,509
into a portfolio has notched up exposure as investors became HSBC 1.30 10.00 11.30 0.00 0.00 #NP
more comfortable with the concept. While information on the INVIA 9.10 0.00 9.10 0.00 0.00 #NP
Australian hedge funds’ market remains fairly limited, it is esti- JPMorgan 141.60 68.00 209.60 66.10 240.10 265,271
mated that, as at June 2004, there was at least $15 bn invested in National 166.80 58.00 224.80 43.70 269.60 482,138
these funds, in increase of AU $6 bn, or 65 per cent, year-over- *Other 0.00 0.00 0.00 1.80 0.00 0
year. At an aggregate level, the amount invested in still relatively RBC 56.20 0.00 56.20 4.40 43.80 445,392
small, representing approximately only 2 percent of Australian State Street 0.00 0.00 0.00 71.10 195.40 0
funds under management. Super funds have also taken the State 0.30 0.00 0.30 0.00 0.00 #NP
plunge and now invest on average between three and five per- UBS 4.00 0.20 4.20 0.00 0.00 104,486
cent of their portfolio’s assets. Mercer Investment Consulting Westpac 91.80 107.80 199.50 0.00 0.00 712,000

Group predicts that funds allocated into hedge funds will be Total 723.20 320.30 1,043.4 281.10 908.10 3,040,923
Source: ACSA

32 INVESTOR SERVICES JOURNAL


ANZ’s strengths in Custody and Clearing
can help you gain global advantages
ANZ has a strong reputation as a provider of innovative custody and clearing solutions to global investors
in Australian and New Zealand securities. Our service offering is enhanced by providing access to a global
Financial Institution relationship team and custody experts, both in Australia and New Zealand.

Some of ANZ’s strengths include:


• Over AUD $85bn in Assets Under Custody.
• Rated AA- by Standard and Poor’s, long term outlook: stable.
• Commended for excellence in the Industry: ‘Best Agent Bank in New Zealand’
in Global Custodian magazine’s 2004 Major Market Survey.

We have developed a genuinely customer focussed approach to delivering the Custody services you want.
To find out how ANZ’s custody capabilities can help your business gain global advantages, contact us on:

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Head of Custodian Services Director Relationships & Sales Director Relationships & Sales
Direct Line: (61 3) 9273 1699 Direct Line: (61 3) 9273 2515 Direct Line: (61 3) 9273 1907
E-mail: rashlea1@anz.com E-mail: beaurepk@anz.com E-mail: calvitta@anz.com

www.anz.com
Australia and New Zealand Banking Group Limited ABN 11 005 357 522 Item No. 53590 11.2005 W82909
Country Focus - Australia

The unit registry industry Rollovers


in Australia is booming. Most Australian fund managers provide
rollovers of superannuation related unit
Alex Muto describes the trust investment into post-retirement
driving forces behind the schemes. This is the fund manager’s way
of fulfilling the retirement objective of
industry the initial investment as well as retaining
share of investor wallet. These post retire-
ment plans require the unit registry serv-
ice to manage the rollover reporting, cal-
culation of benefits, and the payment of
an annuity income stream owed to the
investor as a result of the rollover.
Due to the nature of the links between
the pre-retirement savings and post-
With funds under management
Units of
retirement rollovers inherent in fund
totalling in excess of AU $800 bn, the products, these annuity services are bun-
Australian unit registry business shares dled currently in the unit registry propo-
similar traits with the institutional invest- sition in the Australian market. Although

Trust ment services markets in both the UK


and Canada. At the same time it is also
unique, in that the legislation around
Australia’s AU $630 bn superannuation
in product terms, these are post retire-
ment annuity benefit payments, fund
managers expect to outsource them as
part of a bundled service. This is some-
(mandatory pension) market requires what similar to Canada, where Registered
investment managers, and by extension Retirement Savings Plan (RRSP) rollovers
their third-party service providers, to stay into Registered Retirement Income Funds
on top of onerous tax and reporting (RRIF) requires the record keeping busi-
requirements. ness to make annuity calculations and
Encompassing execute annuity benefits payments. In the
the recording, UK market, by contrast, this is unbun-
reporting and dled.
monitoring of
movements in Outsourcing
the overall At this time, however, while corporate
investor base of a institutional clients are more likely to
manager’s unit outsource unit registry as a non-core
trust/fund prod- competency, there is little outsourcing of
ucts, the unit retail unit registry in the Australian mar-
registry solutions ket. It is predominately administered in-
offered by house due to its complexity and sensitivi-
third-party ty – as unit registry is a direct client fac-
Alex Muto administrators ing activity, managers see it as being inex-
extends from interfacing with the market tricably bound up with their wider client
distributors of the funds to ascertain service and distribution programmes.
purchases and sales of units in the funds, Moreover, the largest five fund managers
through to providing copies of reports to – which between them account for 50 per
investors, fund managers and appointed cent of the retail/superannuation market
– also possess suffi-
“post retirement plans require the unit registry service cient critical mass to
generate economies
to manage the rollover reporting, calculation of benefits, of scale around unit
registry, and hence
and the payment of an annuity income stream owed to are not faced with the
the investor as a result of the rollover” cost and/or efficiency
imperatives that typi-
approved third parties, including tax cally push managers to outsource. Indeed,
authorities. The administrator will also the last large retail outsource was by
provide the fund accountant and unit Rothschild Australia Asset Management
trust pricing agent with information on to Perpetual Funds Services (now RBC
unitholder numbers in order to strike Global Services Australia) back in 1998,
fund unit prices. but that business was subsequently taken

34 INVESTOR SERVICES JOURNAL


Country Focus - Australia

back in-house when Rothschilds was pur- investment administration, then costs can checking accuracy of data received before
chased by Westpac. be significantly and adversely impacted input to the unit registry system, future
That said, a large number of retail fund due to the circular nature of the relation- product development must ensure maxi-
managers find themselves under mount- ship between fund valuations, unitholder mum automation of dealing interfaces to
ing pressure as dominant adviser distri- recordkeeping and striking unit prices. enable unitholder activity to be accurately
bution generates increased pressure for In many instances where there are two reported.
desk top data and analytical tools; at the different entities – client and administra-
same time, mature platforms and master tor or two different administrators – pro- Challenges
trusts are putting pressure on fund man- viding these services, if errors or omis- Last but by no means least, there are the
ager turnaround times for processing and sions arise requiring revaluations and challenges associated with the fund man-
unit prices. recalculations of unit pricing, then the ager’s call center and client relationship
Equally, over 70 per cent of the top 40 time and effort required to rectify errors management (CRM) structure. Many
wholesale managers (by funds under can be exponential compared to a bun- managers see unit registry being irrevoca-
management) have retail offerings in the dled proposition. bly wedded to call centre management,
market. The Australian regulatory and Recent anecdotes regarding year-end and so the administrator needs to allay
legislative environment is complex, with adjustments and recalculations confirm client fears of loss of control over client
changing requirements making demands this. relationship management. However, by
on systems capability, incurring costs and In addition, given the complexities ensuring automated STP feeds from the
increased levels of unit registry system
reporting, with a “there will be further pressure on retail fund to CRM systems, and
renewed focus on trans- ASP or remote real
parency and disclosure managers to review their internal unit registry time access to their
to the investors.
Therefore, there will
administration operations and technology” client’s records and
images, the client can
be further pressure on retail fund man- involved, there are many efficiencies that continue to control its investor base and
agers to review their internal unit registry can be gained from having one adminis- develop marketing tools around that.
administration operations and technolo- trator provide both investment adminis- To address the challenges inherent in
gy – prompting them to consider out- tration and unit registry in Australia. The providing accurate and cost-efficient unit
sourcing solutions. same is not necessarily the case in the UK registry services, administrators must be
However, for the moment unit registry and Canada, where it is far less unusual able to offer a solution that addresses a
outsourcing is the domain of boutique to find different entities providing unit fund manager’s strategic and technical
managers and start-ups, specialist whole- registry and investment administration needs. RBC’s own unit registry service
sale managers, and those small to medi- services to a fund manager. In these two model is driven by a robust and scaleable
um sized managers who have run into markets, the nature of the unit registry administration platform.
problems with their legacy retail unit reg- services provided means these services It is critical that our current technology
istry systems that are unable to support can be provided independently. That said, – InfoComp’s Composer platform –
increasingly sophisticated products, web the trend for fund managers is now to interfaces with our other core systems to
enablement and STP. This is down to the look for bundled solutions, as it enables enable full service management for unit
availability of solutions within the market them to obtain greater economies of scale holders by fund managers, and which is
as much as it is due to the complexity of and some efficiencies, as well as manage flexible enough to support activities rang-
products and the risks associated with only one outsource provider. ing from a simple wholesale unit registry
outsourcing this activity. Secondly, there are significant manual to complex product launches and mainte-
input challenges arising from the fund nance.
Interfaces manager’s distribution/dealer network or Freeing up resources through outsourc-
The unit registry business is inextrica- the investment planning market structure ing of unit registry will allow a manager
bly linked to three key interfaces, all of as a whole, particularly if the fund is a to focus on strengthening their business
which provide critical data flows market leader and widely sold. Trading in through deeper client relationships and
upstream and downstream of the unit funds today in most cases involves manu- enhanced performance.
registry product; these have an impact on al inputting, due to the lack of a single Middle and back office infrastructure
the wider product proposition, the func- market structure – such as FundServ in costs are minimised and overheads
tional specifications of any unit registry Canada – that standardizes messaging reduced; the investment required in inter-
system, STP, profitability and the overall conventions, protocols and so creates an nal systems implementation, licensing
service performance and scope of deliv- automated market dealing infrastructure. and maintenance is decreased while miti-
ery. This shortcoming is now being gating operational, financial and reputa-
The first relates to fund accounting, addressed, both at the fund manager level tional risk. Capital can thus be reallocated
valuations and unit pricing systems and via their own internet-based dealer net- to strategic priorities and the focus shift-
providers. work interface initiatives, as well as ed to innovative product development
If a fund manager does not use its unit through wider industry efforts connected and performance enhancement.
registry outsource partner for investment to the Australian Stock Exchange. As
administration, or does not have com- much of the time spent by unit registry Alexander Muto is Managing Director,
plete control over both unit registry and administration staff is focused on double RBC Global Services Australia

INVESTOR SERVICES JOURNAL 35


Securities Lending - Performance Analysis

Securities Lending Group Results at 26 October 2005 - Values presented in USD$ million

SL Return to

On the
Lendable Total Balance SL Tenure
Security Type Utilisation (%) SL Fee (Bp) Lendable
Assets (M) (M) (days)
Assets (Bp)

All Securities 6,525,827 1,483,361 18.01 26.24 3.45 110


All Bonds 2,843,311 849,198 27.17 10.79 2.75 118

Corp. Bonds 1,483,201 192,707 11.35 13.24 1.11 138

Rise
Govt. Bonds 1,357,995 656,123 44.48 10.07 4.54 111

All Equities 3,682,515 634,163 10.94 46.92 4.00 99

Americas 1,958,284 257,152 9.01 44.08 2.98 81


Equities

Asian Equities 356,492 58,337 10.13 72.07 6.05 112

European 1,244,897 273,666 13.99 42.21 4.77 120


Equities
Depos. Receipts 53,187 17,183 19.48 74.17 9.77 78

ETFs 13,029 25,620 37.04 46.78 13.43 54

A summary of the Top 10 Equity by Fee > 10 Top 10 Equity by Fee > 100
Source: Data Explorers

securities financing industry, < 100mln


Rank Stock description
Mln
Rank Stock description
including top performing secu- 1 CHR HANSEN HLDG 1 NOVASTAR

rities, at 26 October 2005. 2

3
MEDIS TECH LTD.

MARTHA STEWART
2

3
FAIRFAX FINANCIAL

ARCHIPELAGO
LIVING
4 PREPAID LEGAL SERV.
4 IONATRON
The securities lending analysis focuses primarily on 5 DELTA AIR LINES
5 CALPINE CORP
the state of the securities lending industry at 26 6 FIRST MARBLEHEAD
6 EUROTUNNEL
October 2005. 7 LEVEL 3 COMMS
7 OVERSTOCK.COM
8 ODYSSEY RE
The total balance of assets on loan at this date was 8 ANTIGENICS
9 SNAM RETE GAS
$1,483 bn (in Table 1). Out of the total amount of secu- 9 TASER INTERNATIONAL
10 NETFLIX
rities available for lending ($6,526 bn), about 18.01 per 10 TURBOCHEF TECH.
cent of those securities were utilised in a securities Source: Data Explorers
Source: Data Explorers

lending program. Government bonds were clearly the Top 10 Corp by Fee > 10 < Top 10 Corp by Fee > 100
100Mln Mln
most active participants. Out of the total $1,357 bn
Rank Stock description Rank Stock description
available for lending, 44.48 per cent of that amount
1 CALPINE CORP 1 FED REP. BRAZIL
was utilised in a securities lending programme.
2 CALPINE CANADA 2 JEAN COUTU GROUP

At 26 October 2005, the most lendable equity by fee 3 CALPINE CORP 3 REP. OF TURKEY

was CHR Hansen HLDG (in Table 2), for equities that 4 RITE AID CORP 4 REP. OF ARGENTINA
are greater than USD $ 10 million but smaller than $ 5 DELPHI CORP 5 GENL MOTORS
100 million. 6 FRIENDLY ICE CREAM 6 REP. OF VENEZUELA
7 DELPHI CORP 7 GENERAL MOTORS
Novostar (in Table 3) was the top performing equity at 8 CHARTER COMM 8 FORD MOTOR CREDIT
26 October 2005 for equities that are greater than USD
9 INTER-AMERICAN 9 FED REP OF BRAZIL
$100 million.
10 CHRTR COMM HLDS RESEAU FERRE DE
10
FRANCE
Calpine Corporation (in Table 4) was the top perform- Source: Data Explorers
Source: Data Explorers
ing corporate stock at 26 October 2005 for corporate Securities Lending & Reinvestment Return to
stocks that are greater than USD $ 10 million but Lendable Assets (Bp)
4
smaller than USD $100 million.
3.5
The Federal Republic of Brazil (in Table 5) was the top 3
performing corporate stock at 26 October 2005 for cor- SL Return
to Lendable
porates that are greater than USD $ 100 million. 2.5 Assets (Bp)
2 RI Return
to Lendable
Securities lending return to lendable assets (in Table 6) 1.5 Assets (Bp)
peaked at 10 August 2005, with a total of 14.80 basis
points delivered for all securities. Reinvestment return, 1
on the other hand, peaked at 26 October 2005. At 26 0.5
October 2005 securities lending return was 3.45 basis
0
points. At the same time, the reinvestment return for all
10/12/2005
9/28/2005

10/19/2005
8/31/2005
8/10/2005

9/14/2005
8/24/2005

10/5/2005
9/7/2005
8/17/2005

9/21/2005

10/26/2005

securities was 1.26 basis points.

(Performance data is provided by Data Explorers)


Source: Data Explorers

36 INVESTOR SERVICES JOURNAL


RMA Securities Lending Analysis

North American Treasuries/Bonds - Q3 2005 $ M


Canadian Bonds - $2,435
US Corporate Bonds - $64,377

Rent Book US Mortg. Bckd Secur. - $31,191

Analysis of the latest securities US Agencies - $68,733


lending industry results from the
Risk Management Association. Source: RMA
US Treasuries/UST Strips - $323,183

A comparison of securities on loan in European Equities on Loan Q3 2005 in $ M


the third quarter of 2005 against the All Other - $24,728 French Equities - $27,429

third quarter of 2004


Comparing the third quarter of 2005, US treasuries
were the most active asset class during the year.
About USD $323,183 m worth of US treasury securi-
ties were on loan during the third quarter of 2005, com-
pared to USD$ 256,051 m for the third quarter of Scandinavian Equities - $7,276
2004. US Corporate bonds also enjoyed a good third
German Equities - $10,153
quarter, with the value of securities on loan worth USD$ UK Equities - $8,313 Italian Equities - $7,344
64,377 m, compared to USD $79,450 m for the third
quarter of 2004. Source: RMA

French equities outweighed their European neigh- Pac-Rim Equities on Loan Q3 2005 $ M
bours, with a total on loan worth USD $27,429 m for All Other - $2,645
the third quarter of 2005, compared to USD $22,838
m for the third quarter of 2004. Australia - $7,720

German equities were also very active, increasing their


involvement in securities lending from USD $6,302 m
in the third quarter of 2004 to USD $10,153 m in the
third quarter of 2005. UK equities decreased their
involvement this year, from USD $12,452 m in the third
Hong Kong Equities - $2,917
quarter of 2004 to just USD $8,313 m in the third
quarter of 2005.
Within the Asia Pacific region, Japanese equities were Japanese Equities - $24,029
by far the most active asset class. These equities Source: RMA
increased their involvement in securities lending from
USD $21,053 m in the third quarter of 2004 to USD EURO Denominated Sovereign Bonds on Loan Q3 2005 $ M
French Sovereign Bonds $2,191
$24,029 m in the third quarter of 2005. Australian
equities were also fairly active in securities lending pro-
grams, increasing their involvement from USD $4,488 All Other - $4,303
m in the third quarter of 2004 to USD $7,720 m in the
third quarter of 2005. Hong Kong equities were the
least active. During the third quarter of 2005, the total
amount of Hong Kong equities on loan was US $2,917
m, compared to USD $2,499 m for the third quarter of
2005. Spanish Sovereign Bonds - $308
German denominated sovereign bonds are the most
active EURO bonds asset class, with assets on loan Italian Sovereign Bonds - $896
increasing from USD $2,620 m in the third quarter of German Sovereign Bonds - $5,884
2004 to USD $5,884 m in the third quarter of 2005. Source: RMA

INVESTOR SERVICES JOURNAL 37


Securities Lending - Domicile Review

investors achieve hitherto undreamt of economies of scale


and other operational efficiencies, the same process might
make the lending of assets more difficult and problematic as
assets that are subject to different tax treatments find them-
selves in the same pool. What you save on the tax-efficiency
swings, you could potentially lose on the securities lending
roundabouts.

Dare to “This is an impediment that the pooling gods may not have
fully considered,” says Ed O'Brien, Executive Vice President
and Global Head of Securities Finance at State Street. “For

Domicile pooling to become effective for both lenders and borrowers, it


is incumbent to have the technological means to disaggregate
any multi-jurisdictional equity securities that have been
pooled. The challenge here is that only a handful of
institutions globally may be equipped to satisfactorily do this.
The question of what to do in respect of securities lending
could slow down the execution and rollout of pooling. If it
was simple, given the brainpower that exists in the investment
world, that code would have been cracked many years ago.”

Growth
Ignoring these considerations for a moment State Street
Luxembourg and Dublin have suggests that a fairly large percentage increase will take place
lured investors by offering tax out of these offshore locations, but immediately places future
growth firmly in the context of starting from a comparatively
neutral incentives. How do low base. According to Ed O'Brien, the amount of State
Street's global lending activity originating out of Dublin and
these incentives impact on Luxembourg as a percentage of its global lending book, is
currently less than 10 per cent. He estimates, however, that
securities lending? Brian Bollen the figure could rise to approximately 15 per cent over the
investigates next five years, as offshore business comes to represent the
fastest growing segment within State Street's equities lending
business. Measured to solid growth, as he encapsulates it, or
significant and meaningful, rather than dramatic. “To the
The prospect of continued growth in assets under extent that investors continue to move assets into offshore
management in Dublin and Luxembourg will inevitably
vehicles, our programme will benefit from that,” he says.
lead to further growth in securities lending activity. And
This mustn’t, though, be seen as some kind of new dawn of
that activity will be further fuelled by the opportunities
incremental growth.
created by accompanying growth in the pooling of pension
assets and the creation of the Common Contractual Fund
Complexity
(CCF) in Dublin, and the reinterpretation of (Fonds
The sheer, staggering complexity of the challenge involved
Communs de Placement) FCPs in Luxembourg, to create
in the process means that several years of groundwork have
tax-transparent investment vehicles.
already taken place, probably most notably at Northern Trust,
Industry experts will surely forgive us for concluding that
recognised as a pioneer in the field. Years of preparatory
the answer to the question is both a resounding ‘no’, and a
effort finally paid off on September 1 2005 when it launched
timid ‘maybe’, possibly evolving into a hesitant ‘yes’. On the
one of the small handful of CCFs to have been seen so far.
one hand, it is almost a truism that growth in the volume of
Slightly disappointingly, but understandably given its confi-
assets is always followed by a growth in lending and borrow-
dentiality agreement with its client, Northern Trust refuses to
ing. On the other hand, despite the best missionary efforts
say anything about its new baby, other than that yes, it was
undertaken by sales and marketing teams over the past few
launched on September 1, and that it was for a multinational
years, some underlying investors (or their domestic lawmak-
client. Even a vague indication of its size was not divulged,
ers and regulators) remain implacably imposed to the idea of
again as a result of client confidentiality.
lending securities in any way, shape or form, whatever the
It’s not just a case of assets moving from one jurisdiction to
location of the assets in question.
another, with the lendable base staying the same, commented
This is a multi-faceted technically challenging subject, with
Jacqueline Waller, Director of Securities Lending Sales at
more twists and turns and culs-de-sac than an ancient
Northern Trust Global Investments. “More lendable assets
labyrinth. The uninitiated enter at their peril. “A colleague of
will become available because of CCFs and FCPs. If we can
mine recently commented that multinational pooling is the
lend for those clients from a larger pool of assets comprising
most complex thing he's seen in his 30 years in the business,”
pools that were previously too small individually to lend, or
says Ed Oliver, Securities Lending Product Manager at
were held in a jurisdiction that didn't allow lending, there will
Northern Trust Global Investments. “Adding securities lend-
be an increase in lendable assets. That will be good for us and
ing to the mix does not make it any less complex.”
for clients, for the market and for us,” says Waller.
One of the key problems thrown up is that in the excite-
Rob Coxon, Head of International Securities Lending at
ment of realising that the pooling of assets could help

38 INVESTOR SERVICES JOURNAL


Securities Lending - Domicile Review

ABN AMRO Mellon GSS, believes pension fund pooling will UCITS. That's attractive in itself, as are the volume and the
be of consequence to the larger plans (e.g. those of multina- diversity of assets available. The drivers for lending are the
tional companies) that have pension funds in many different same as elsewhere: arbitrage, yield enhancement and fails
jurisdictions. “Typically, I believe that many of these pension coverage. We also see that funds have a better awareness that
funds are already participating in securities lending, therefore, securities lending is a low-risk tool to increase alpha. A num-
I do not envisage any great amounts of new supply entering ber of these fund groups are brand new to securities lending,
the market. Secondly, if the Pension Pooling Vehicle (PPV) is at least in terms of their Dublin and Luxembourg funds.”
able to benefit from “look through” tax treatment to the Richard Steele, Securities Lending Product Manager at
underlying domicile of the pension fund's then there will be JPMorgan, adds, “One of the drivers in securities lending is
no securities lending economic impact. asset growth, and this will create more lending opportunities.
“However, I do believe that pension fund pooling could Asset growth will be a positive for the sector, and any
benefit all participants in the securities lending value chain. A individual pension fund will have attractive assets, lendable at
move away from segregated multidomiciled lending location a premium.” David Claus, Vice President, European Investor
to a PPV situated in one domicile will bring economies of Services, Bank of New York in Luxembourg, points out that
scale. Securities lending has become an incredibly large “$1bn of assets in a CCF is worth less for securities lending
volume business where scale of operation is becoming than the same amount in an old SICAV. What will guide the
increasingly important to all those involved. opportunities is the tax status of the underlying investor.
“And I can see that smaller players will present interesting
Benefits packages that we might not have seen before”.
There are a number of possible benefits, he goes
on. “By pooling their pension assets, the underlying
lender (beneficial owner) will be able to attract “The holy grail is to have a fully tax-efficient
higher securities lending fee splits from their
Custodian Agent Lender compared to those they are structure that is totally tax neutral”
able to attract from smaller pension funds that they
may have with various custodians. The Custodian Agent
Lenders are able to satisfy Borrower demand from one single Changes
lending location with fewer trade tickets thus reducing trans- The tax and legal changes are now in place for a new wave
action and servicing costs. Borrowers may be able to reduce of CCFs, notes Deloitte, another pension pooling pioneer, in
their onerous credit oversight work that they are required to a paper it published on the subject. “Multinationals have been
have in place for all the underlying lenders. In many instances lobbying for many years for investment fund structures that
they may be eliminating exposure to some of the smaller allow assets to be pooled in an efficient manner,” it says. “The
under-funded pension funds.” holy grail is to have a fully tax-efficient structure that is totally
“The CCF does not create new opportunities for securities tax neutral with no drag on performance. Essentially, the
lending” says Bernard Hanratty, Director, Securities and Fund structure and its investors must be exempt from tax in the
services, EMEA, Citigroup Global Transaction Services. “In location in which the fund is domiciled for tax purposes. In
fact, you may hinder the capacity of a participating pension addition, a pooling fund vehicle should be considered tax
fund to lend if other pension funds in the same CCF either transparent by the tax authorities of the investor location,
do not want to, or cannot lend. investment location and fund location.”
“By way of example, if the CCF has a German pension Deloitte was one of the key players in the industry initiative
investor and a Dutch pension investor each subject to 15 per that resulted in the introduction of the new CCF structure in
cent and 0 per cent withholding tax on US dividends respec- 2003, enabling pension funds and now institutional investors
tively. The assets beneficially owned by the German pension to pool their investments in a tax efficient manner. “Pension
are attractive to lend while those owned by the Dutch fund pooling allows companies operating pension funds in several
are not. It may not be possible for the German fund to firstly countries to pool assets into a single pension pooling vehicle.
isolate and then lend its assets within the CCF and therefore The pension pooling vehicle then invests in assets, such as
it may suffer an opportunity cost with regard to lending rev- global equities, bonds and cash, on behalf of the investing
enues by participating in the CCF.” pension funds.”
Karol Hamel, Managing Director, Operations & Product Deloitte cautions that it is important not to confuse pen-
Development at eSecLending, believes that the very fact that sion pooling with a pan-European pension scheme. “A pan-
pooling is in its infancy there is undoubted scope to grow. European pension scheme is some years away but the ulti-
“We see a lot of growth taking place in Dublin and mate objective is that pension contributors in one location
Luxembourg, both in terms of new business and further should be able to participate tax-efficiently in a pension
development of existing business. Dublin has created a scheme located in another territory. Pension pooling on the
regulatory environment that makes it very attractive to set up other hand is where the pension funds in the various loca-

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its affiliates. This advertisement is issued and approved in the U.K. by Royal Trust Corporation of Canada, London Branch, which is authorised by the FSA.
Securities Lending - Domicile Review

tions operate as normal but pool their assets in a specially Dutch and British investors, all with different percentage
designed funds structure. holdings in the underlying assets of the CCF. There may be a
different withholding tax treatment for each of these investors
Advantages in respect of a holding in a US security and the system must
One of the main advantages of pooling is that instead of be able to deal with these variations. Solutions such as using
having a number of pension funds in various locations and different classes of units can assist in managing these compli-
having different investment managers, administrators and cations.
custodians, a more streamlined approach is adopted so that “As the name suggests, a CCF is a contractual arrangement
the assets are managed centrally in the pooling vehicle, con- established under a deed which provides that investors partic-
tinues Deloitte. As a result, pooling offers considerable ipate as co-owners of the assets of the fund. A CCF is not a
economies of scale, particularly for smaller pension funds, separate legal entity and is transparent for Irish legal and tax
and this in turn leads to cost savings and enhanced returns. It purposes. As a result, the investors in a CCF are treated as if
also provides greater consistency in asset management and they own a proportionate share of the underlying invest-
enhances control over investment risks. In some cases, the ments of a CCF rather than shares or units in an entity which
pooled fund can employ the services of asset managers who itself owns the underlying investments.” Non-lending clients,
would not otherwise accept their business. of course, if any of them have read this far, can blissfully
“Asset pooling is the same concept as pension pooling, ignore all the above, as none of what we have said affects or
except that the investors are not pension funds but rather concerns them in the slightest.
institutions or other structures pooling their assets into a
single fund vehicle,” explains Deloitte. The Perils of Pooling
Collective investment schemes or uni-
The main challenge in the Irish funds industry has tised vehicles are designed to help
investors benefit from economies of
been to create the administrative infrastructure to scale, diversification of risk and exposure
to specialised investment manager
accommodate pooling structures knowledge, summarises State Street.
However, any resulting income earned
The CCF has many advantages, it says, including: may incur withholding tax, which may often discourage pen-
• It is a fund domiciled in Ireland where the standard of sion funds from investing through collective investment
service provided by managers, custodians, schemes. When pension schemes invest directly into securi-
administrators, legal and tax professionals is high. ties, they typically are entitled to favourable withholding tax
• The transparency of the CCF is supported by specific treatment on investment income. In a bid to preserve the tax
Irish tax legislation and statutory regulations. advantage of pension fund status, while enjoying the benefits
• Investors should benefit from home country treaty of investment in unitised vehicles, pension schemes may want
benefits as a result of the transparent status of the CCF. to consider an intermediary fund structure with an optimal
• The CCF is available in a UCITS or a non-UCITS tax status. Examples of these funds include the Common
structure. Contractual Fund (CCF) in Ireland, the Fonds Communs de
• Investors in the CCF can be pension funds and/or Placement (FCP) in Luxembourg and the Pension Fund
institutional investors. Pooling Vehicle (PFPV) in the United Kingdom. Each is
• Multiple unit classes can be issued. designed so that taxes apply to the underlying investor and
• No subscription tax applies to the issue of units. not the investment vehicle, which preserves any tax advantage
• VAT is generally not applicable to the CCF. enjoyed by pension scheme investors.
• No withholding tax on distributions made by the CCF. From an operational standpoint, these types of funds carry
• No net asset value tax applies. complex reporting requirements. Dual reporting at the fund
level for asset valuation purposes and the participant level for
The Finance Act, 2005 enhanced the CCF structure to per- income and taxation purposes is needed.
mit both a UCITS and non-UCITS vehicle. In addition, State Street conducted an examination of the impact with-
changes made now permit institutions as well as pension holding taxes have on pension schemes that invest in a variety
funds to invest in a CCF. The only restriction on investors is of fund vehicles in different jurisdictions, and on those
that the beneficial owner of the units cannot be an individual. investing directly in securities. Withholding tax is generally
Deloitte says it has worked with a number of promoters not a material issue for bond investments, as aside from a
structuring CCFs either as single-manager pension pooling small group of select sovereign issues, bond lending is not
funds or multinational pension pooling funds. that significant by comparison. However for the equity mar-
kets, it is a significant issue as the volumes of equities on loan
Infrastructure (and the trades that revolve around their dividend plays are
One of the main challenges in the Irish funds industry has far more numerous) dwarfs that of non-US bond lending,
been to create the administrative infrastructure to accommo- where most lending is done only for short term portfolio
date pooling structures, notes Deloitte. The infrastructure has financings and the occasional short covering trade. Pension
to be able to accommodate different investors receiving dif- funds investing solely in U.S. equities through a CCF-type
ferent returns from assets in different locations. The systems structure have the potential to save about 60 basis points a
must be able to track and reconcile the various holdings to year as opposed to investing through a regular offshore
the investor. “For example, the CCF may have German, collective investment scheme. ISJ

40 INVESTOR SERVICES JOURNAL


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Hedge Fund Performance

Wheels of Fortune
September 2005 revealed positive results for the hedge
fund industry, according to findings from Hedge Fund
Research Incorporated. ISJ presents the latest data

Hedge Funds performed favourably during September 2005. The Hedge Fund Research Incorporated Fund Weighted Composite Index
managed to deliver a return of 2.06. Total performance for the year to September 2005 was 7.36.
The HFRI Emerging Markets Index recorded the best performance, with a return of 4.51 for September 2005. Year to date performance for this
index was also favourable: 15.99 for the year to September 2005.
Market Benchmarks Monthly Rate of Return September 2005
The HFRI Market Timing Index delivered a return of 2.95 for September 2005. HFRI Fund Weighted Composite
Year to date performance for this asset class was 11.14.
S&P 500 w/ dividends
The HFRI Equity Hedge Index had an extremely good year, with a year to date
performance rate of 2.32. This index delivered a return of 7.92 for September NASDAQ Composite

2005. MSCI Indices US$ World Index

The worst performer in the HFRI Hedge Funds Index was the HFRI Regulation D Lehman Aggregate Corp. Bond
Index, with a return of -0.57 for September 2005.
Lehman Agg. US Govt. Bond
The HFRI Equity Market Neutral Index: Statistical Arbitrage Index delivered a
return of 0.46 during September 2005. On a more positive note, the same index -2 -1.5 -1 -0.5 0 0.5 1 1.5 2 2.5
Source: HFR
delivered a return of 3.27 for the year to September 2005.
The HFRI Fund of Funds: Strategic index performed well, with a return of 1.99 for Market Benchmarks Rate of Return - Year to
September 2005
September 2005. Year to date performance for this index was 7.26.
HFRI Fund Weighted Composite
The HFRI Fund of Funds Composite also performed well, with a return of 1.42 for
S&P 500 w/ dividends
September 2005. Year to date performance was 5.05.
NASDAQ Composite
At the bottom of the table, the HFRI Fund of Funds: Market Defensive delivered a return of
0.78. Year to date performance was 1.73. MSCI Indices US$ World Index

The HFRI Fund Weighted Composite index performed well against the main market bench- Lehman Aggregate Corp. Bond
marks. The top performer was the MSCI Indices US$ World Index, with a return of 2.47 for Lehman Agg. US Govt. Bond
September 2005. Year to Date performance for this index was 4.71 .
-2 -1 0 1 2 3 4 5 6 7 8
Source: Data Explorers

HFR Hedge Funds Index Rate of Return September 2005


SEP 2005 YTD 2005 The worst performer was the Lehman Brothers Aggregate
HFRI Fund Weighted Composite 2.06 7.36 Corporate Bond index, with a negative return of -1.60 for
HFRI Convertible Arbitrage 1.23 -2.67 September 2005.
HFRI Distressed Securities 1.25 7
HFRI Emerging Markets 4.51 15.99
Over the year to September 2005, the HFRI Fund Weighted
HFRI Equity Hedge 2.32 7.92
Composite managed to beat all other indices, with a
return of 7.36.
HFRI Equity Market Neutral 1.01 5.58
HFRI Equity Market Neutral Index: 0.46 3.27 HFR Fund of Hedge Funds Indices Rate of Return September 2005
Stat Arb
SEP 2005 YTD 2005
HFRI Equity Non-Hedge 2.31 8.16
HFRI Fund of Funds 1.42 5.05
HFRI Event-Driven 0.95 6.19 Composite
HFRI Fixed Income (Total) 1.35 5.49 HFRI Fund of Funds: 1.03 3.6
Conservative
HFRI Macro 2.15 4.53
HFRI Fund of Funds: 1.4 5.07
HFRI Market Timing 2.95 11.14
Diversified
HFRI Merger Arbitrage 0.69 4.76 HFRI Fund of Funds: 0.78 1.73
HFRI Regulation D -0.57 12.84 Market Defensive

HFRI Relative Value Arb. 1.58 4.48 HFRI Fund of Funds: 1.99 7.26
Strategic
HFRI Sector (Total) 2.2 7.95
HFRI Fund Weighted 2.06 7.36
HFRI Short Selling 1.96 9.21 Composite
Source: HFR Source: HFR

42 INVESTOR SERVICES JOURNAL


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Panel Discussion - Central & Eastern Europe

Emerging Realities
Securities services providers
debate the key challenges and
prospects in the Central and
Eastern European Region
Harry J. Devroe is currently Director Securities Services, CEE with Harry Devroe
ING Bank N.V., Amsterdam, The Netherlands. ING Bank has four
branches and four subsidiaries offering Securities Services, in addi-
tion to other banking and brokerage products and services, in Central
and Eastern Europe. Devroe first joined ING Bank N.V. in 1994 as the
Operations Manager in Prague, Czech Republic before moving to
Amsterdam in 1997 to his current position.
Prior to joining ING Bank N.V., Devroe worked for Security Pacific
National Bank for 21 years in such diverse places as New York,
Bahrain,Texas, Japan and Hong Kong. Devroe developed Securities
Services as a new product for Security Pacific in Japan in 1983 and
when he moved toHong Kong in 1986 as Regional Operations
Manager in Asia, he brought the product to offices in Hong Kong, Pawel Muszalski
Malaysia, Singapore and Thailand.
Pawel Muszalski, Director, Head of International Banking & Custody,
Bank Pekao S.A. Joined the brokerage house of Bank Pekao S.A. in
1991, when a capital market in Poland was recreated. He was respon-
sible for developing relations with international clients. Muszalski
participated in the creation of custody services at Bank Pekao S.A.
He was Head of Custody from 1998-2001 and a Member of the
Management Board at OFI sp. z o.o., one of Poland’s leading Fund
administration companies. In 2001, Muszalski rejoined Bank Pekao
S.A. as Director of the Custody Department, which later emerged
into the International Banking & Custody Department, delivering
services to financial institutions. Muszalski is a Member of the Board Jürgen Sattler
of Custodian Banks Committee at the Polish Banking Association.
Jürgen Sattler, Head of Sales and RM. Sattler joined RZB in January
2005 and is responsible for regional sales and relationship activities
of the entire Raiffeisen Group in CEE and Austria. Before that time,
he spent nine years in the custody group at BA-CA, starting his career
as Relationship Manager for the Austrian sub-custody business. He
headed the Austrian client relationship team at BA-CA from 1998 to
2000, and in 2001 became Global Head of Sales and Relationship
Management for the entire central and eastern European region.
Normunds Vigulis, Head of Treasury, Head of Custody of Parex
Banka and Member of the Board of Parex Asset Management Normunds Vigulis
He obtained a Bachelors of Science degree at the University of
Latvia. His professional experience in Parex banka commenced with
the role of internal auditor, followed by Asset Liability manager. He
currently heads the Treasury and Custody businesses of Parex and
also maintains the bank’s liquidity. As a member of the Board of
Parex Asset Management he organises the financial management of
the company.
Filip Zahorik, Securities Country Manager, Czech Republic, Global
Transaction Services, Citigroup Filip Zahorik joined Citigroup in June
2004 and is currently responsible for Global Securities Services in
the Czech Republic. His major responsibility includes product
development, relationship management of direct custody and Filip Zahorik
clearing clients and formulating of local strategy in this area. From
1999-2004 he worked as the head of Public Markets and Settlement
Systems Department of the Czech Securities Commission where he
participated on changes to the local legal and technical framework
for securities trading and settlement.
44 INVESTOR SERVICES JOURNAL
Panel Discussion - Central & Eastern Europe

Comment on the latest developments to affect securities was triggered a couple of years ago when clients started to think
services providers with interest in the CEE region. What about creating regional networks around the globe. At the begin-
makes the region the current favourite among global ning of the trend small and medium sized clients were searching
providers of securities services? for a cost effective solution. The new trend includes clients with
substantially higher asset levels in their books.
Devroe: New and revised regulations continue to move towards The driving force for providers is about creating rock solid prod-
European Union standards and are attracting foreign investors into uct solutions with reliable partners that focus on the CEE region
the CEE region. region from a strategic and long-term view. This is the basis from
Local market legislation is aligning itself toward the European which to steer the product effectively and to be in a position to mit-
Union and directives now apply to capital markets, thereby reduc- igate the risks arising from the inefficiencies of those markets.
ing some of the onerous paperwork required of financial institu- What makes the CEE region a current favourite? The story is
tions. The full nominee concept was introduced in Hungary this quite simple - the majority of countries in the region are aggres-
year. sively interested in becoming part of the European Union.
This follows the introduction of the nominee status and the That means the entire market infrastructure needs to catch up
Capital Market (CXX) Act in 2001. These steps did not fully cover with international standards, laws have to be adjusted and pension
the international investor’s needs, for example the tax legislation systems are going to change. The bottom line is that we are wit-
did not address tax reclamation. In Poland, a new Securities Law nessing a tremendous investment story in our part of the world i.e.
has come into force. the economies of the CEE region countries will grow much faster
Three new acts have replaced the Law on Public Trading in than the old economies in Western Europe.
Securities. The new Securities Law has considerably modified the Dynamic growth of the markets that guarantee constantly grow-
framework of the securities market and has adjusted Polish legisla- ing revenue streams is attractive for securities service providers.
tion to meet with European Union standards.
Generally, a more friendly investment environment,
market transparency and a progressing maturity have “Following European Union enlargement,
convinced foreign investors to invest more into these
markets. the majority of CEE countries are now
Muszalski: After the recent European Union enlarge-
perceived as more favourable and stable in
ment, market regulators have concentrated on two political and economic terms”
things - the adjustment of the local laws to to meet with
European Union directives and the creation of a more
favourable environment for market participants. Markets in the
CEE region are more open to co-operation with other markets. Vigulis: CEE region countries that joined the Western political and
Central depositories have created settlement links with other economic community as European Union members, helped to fur-
depositories, thereby enabling cross-border settlement. In Poland ther Westernise these countries and their populations, including
for example, recent changes in the law have done away with the their money management preferences.
obligation to execute equity transactions on a regulated, official This Westernisation implies a shift from traditional bank deposits
market. towards investment in financial markets, both directly through bro-
Such developments create new opportunities and challenges for kerage companies and indirectly through mutual funds. According
market participants. These participants will have to carefully to the Investment Company Institute data, mutual fund assets in
analyse how to take advantage of the opportunities that have aris- the 15 EU countries total 50 per cent of GDP, whereas in Czech
en and how to cope with the challenges of globalisation. Republic, for example, this indicator stands at 5 per cent, Estonia at
A combination of stability and potential make the region a cur- 8 per cent and Latvia at 1 per cent The numbers point to limitless
rent favourite. Following European Union enlargement, the majori- growth possibilities.
ty of CEE countries are now perceived as more favourable and sta-
ble in political and economic terms. Companies in the CEE coun- Zahorik: Local and foreign investors’ interest in this region contin-
tries have performed well after they joined the EU. ues. In most countries the pension reforms are in progress or
They have improved their businesses after 1 May 2005. The preparation. This can have a positive effect on the demand for local
economies of the CEE countries are performing better and political investments and prompts securities services providers and market
risk has been reduced, thereby enabling these countries to become infrastructures to improve and develop their services.
attractive places for investment. The continuous growth of equity markets in the region over the
These factors have attracted more and more portfolio investors, last few years and the harmonisation of the European Union legal
who are looking for good investment opportunities. On the other framework has attracted many institutional investors and related
hand, securities markets in the region are still half way there com- securities services providers. The markets predominantly offer
pared to the markets of the “old” European Union members states. plain vanilla securities services and a relatively high potential for
The interest from global providers in these markets has also growth in the area of more sophisticated products such as securi-
increased. ties lending/ borrowing or multilateral repos exists.
Work is still required in order to fine-tune the local legal frame-
Sattler: Firstly, we need to accept that a bold consolidation process work to allow the safe and efficient provision of more complicated
is in progress among custody providers in CEE region. This trend products, but the increasing demand will speed up the process.

INVESTOR SERVICES JOURNAL 45


Panel Discussion - Central & Eastern Europe

Comment on the market for outsourcing services in this


region. Is outsourcing on the increase and whiich func-
tions of an institutional investor's back and middle office
are likely to be outsourced?
Devroe: In general, outsourcing is not a common practice in the
CEE region. A few Russian investment companies have outsourced
some back office functions.
However, the banking sector has not outsourced any work, as
they prefer to keep certain functions in house. It is currently not
legal to outsource in Poland.

Muszalski: Outsourcing has become more popular, although it is


still limited to investment and pension funds. Due to technical and
“know-how” reasons, these institutions outsource their transfer
agency, accountancy and assets management services.
Financial groups tend to base a particular type of service in one
place, for the whole group. Outsourcing of other services such
proxy voting is not popular yet.

Sattler: The trends we are seeing in the major


“Outsourcing has become more popular, markets, namely the outsourcing of various
although it is still limited to investment functions in the value chain, is currently not yet
mirrored in CEE region. Basic market develop-
and pension funds” ments need more time to settle before
outsourcing models become attractive.

Vigulis: Although several components may be handled under out-


sourcing, including the management of technical reserves of insur-
ance companies and the administration of a company’s own invest-
ment portfolio and integrated custody services, various legislative
restrictions are observed.

Zahorik: Market consolidation places more emphasis on the


efficient operations of securities services providers and
institutional investors.
The market in the region is dominated by strong banking groups,
which are consolidating similar processes inside the group and
outsourcing outside the group. Generally, outsourcing in the region
is on the increase, as evident in the increasing attention of local
regulators in this topic. The greatest potential is in the area of col-
lective investment vehicles and pension funds.

Comment on the level of STP and automation in the


Central & Eastern European region. Are securities pro-
cessing and settlement functions becoming more auto-
mated or is this activity still largely paaper-based?
Devroe: The level of STP continues to improve in most CEE coun-
tries. Prior to April 2005, manually signed payment orders were
delivered to the Central Bank for executing the cash segment of a
transaction.
Thanks to three steps, commencing in April 2005 and ending
September 2005, cash payments are now done electronically. In
the Ukraine, all securities processing is manual. In the Czech
Republic, the matching of trade instructions is performed manually
and the rest of the process is automated. With the vast amount of
the securities in dematerialised form, book entry has replaced
physical paper.

46 INVESTOR SERVICES JOURNAL


Panel Discussion - Central & Eastern Europe

Muszalski: STP and the automation of operational processes were internal clients, local depositories and stock exchanges.
vastly improved over the last couple of years. The core securities However, external settlements with other counterparties are still
companies invested in software solutions and analysed their busi- processed manually. Apart from brokerage companies, banks have
ness processes. rarely secured automated confirmation and instruction distribu-
The majority of large players are technically well prepared for tion, reception and processing of OTC deals. This approach,
STP, but due to external factors such settlement and payment sys- excluding the savings on IT systems, presents a positive sign - the
tems and operational regulations, they are unable to progress to substantial percentage of timely, unsettled deals in the securities
the next step. settlement practice, means that manual processing is faster and
Any further development, at a country level, will be driven by more effective in cases of unmatched instructions.
market participants who lobby for the improvement of the settle-
ment system.

Sattler: The more liquid the markets in the CEE The extent of STP in the market is dependent
region, the higher the level of automation. We can
confirm a clear variation in the levels of STP,
on the automation of processes among securi-
depending on the size of the institution. ties providers and also on the technology used
The smaller markets still work on a semi-automat-
ed basis, whereas larger markets need to be fully by the market infrastructure
automated for the processing of settlements, recon-
ciliation and corporate actions. Zahorik: The extent of STP in the market is dependent on the
automation of processes among securities providers and also on
Vigulis: CEE banks have automated a range of internal processes, the technology used by the market infrastructure. The level of
which are connected to securities processing and settlement, for automation among particular service providers is relatively high.

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Panel Discussion - Central & Eastern Europe

On the other hand, interaction between market participants is


not automated (e.g. pre-matching on these markets is done pre-
dominantly via phone or fax). The current level of automation is
increasing hand in hand with rising volumes. These volumes can
justify the costs of automation.

What opportunities does the prospect of further European


Union enlargement present to securities serrvices
providers in the CEE region?
Devroe: Following the Russian debt crisis of August 1998, foreign
investments in CEE region decreased dramatically. But from 2001,
foreign investments began to increase and towards the run-up of
EU enlargement, interest from foreign investors in those markets
has increased.
The prospects of these countries joining the European Union,
coupled with rising indices, has sparked the investments. Equal
potential is evident among countries such as Bulgaria and
Romania, which are set to join the EU in 2007.
“Legal frameworks will fall in line with There is a pan-European trend towards unifi-
cation and integration of financial services.
international frameworks and the current Securities services are no exception. Further
restrictions in certain markets will be lifted” enlargement of the European Union will have
a positive impact on harmonisation and will
eventually create one European Union financial market.

Muszalski: Key players who are present in the CEE countries that
are part of the EU will have to build or strengthen their position in
countries that are going to join EU.
Even if business is not profitable, the custodian banks must show
their clients that they cover whole region. Setting-up businesses
after these countries have joined the EU will be too late. Securities
services providers have gained easy access to the markets of “new”
Europe.
Prior to EU enlargement, these providers had to create a sub-
sidiary or branch in countries they wanted to do business in. This
step is no longer necessary.
All in all, the stability and potential of the region, and free access
to its markets, create good opportunities for securities services
providers.

Sattler: New markets in the European Union allow providers to


speed up the process of adding new markets and harmonising their
product range accordingly.
Legal frameworks will fall in line with international frameworks
and the current restrictions in certain markets will be lifted.

Vigulis: The enlargement of the European Union has breathed new


life into equity and bond markets of the new member countries.
International investors have begun to look at the region through
new risk tolerance lenses, and foreign inflows have also sparked
the interest of local investors. As a result, spreads on the CEE
region bond markets are almost non-existent and equity valuations
have skyrocketed. The next wave of European Union expansion is
expected to produce similar results and it is no surprise that pri-
vate investors (including Parex Asset Management clients) and
institutional players are engaged in active convergence within in
the Balkan region and in the Ukraine and Turkey.

Zahorik: The current regional providers can more easily extend


their services to prospective new European Union members within

48 INVESTOR SERVICES JOURNAL


Panel Discussion - Central & Eastern Europe

the region, compared to providers who are not present here. On banks, which are willing to provide financial services without open-
the other hand, a local market presence is still very important for ing a branch, we don’t have any reasons to forecast any immediate
clients. changes in the competitive landscape yet.
Therefore, the ability to serve several countries from one place, in
the area of custody services, for example, is not likely to become a Zahorik: The consolidation process in the Czech Republic, Poland
successful scenario in upcoming years. and Hungary is almost complete.
We can expect some ad hoc mergers and acquisitions within cer-
A substantial number of mergers and acquisitions have tain countries, but the mergers and acquisitions on the regional,
occurred among banks in the Central & Eastern European European Union or global level are more important. The issue of
region. Do you expect this to continue and how important scale is important, but not crucial.
is the issue of scale among providders in the region? Foreign investors and intermediaries usually look for the best
provider of securities services in a particular country.
Devroe: Over the last several years, numerous indigenous banks A relatively narrow scope of specialised services are sought by
have been sold to foreign financial institutions, either through the clients. The size of the bank in a country or the number of markets
privatisation of state owned assets or through strategic invest- covered can help, but if you are behind the competition in terms of
ments. technology or the quality of services, you can hardly expect many
This process has been extended through Unicredito Italiano’s mandates.
acquisition of HVB Bank. Unicredito Italiano is the owner of Bank
Pekao in Poland and Bulgaria’s Bulbank. In Romania, the Which types of regulatory developments in the securities
Romanian Savings bank is currently undergoing a restructuring industry, both internal and external, are likely to affect
process and is up for sale. About nine foreign banks are bidding securities services providers in the years ahead?
for the Romanian Savings bank, three of which already have a
strong position in Romania. Devroe: The regulatory environment is changing in order to align
The Romanian Commercial Bank is also up for sale. Foreign itself with European Union directives.
banks already dominate the Romanian banking system, owning New products and services will be added to the standard custody
over 68 per cent of the share capital of all authorised banks. offering, including securities lending and borrowing, collateral
Foreign investors, global custodians, broker/dealers, hedge funds management and derivatives trading. Securities providers need to
and other investment funds prefer to keep their assets with a keep up with the new developments or they risk losing clients to
Western bank rather than with a local bank. the competition.
Conversely, in several other CEE countries, local investment Growing pension funds are assisting in the development of capital
funds and pension funds usually prefer to keep their assets with markets.
their primary, indigenous banks. One can anticipate the easing of foreign investment restrictions
for pension funds, which will help local providers evolved into
Muszalski: This process will continue. It will originate outside of global custodians.
the CEE region and, in some cases, its results will affect banks in
our region. Banking groups, which entered the CEE
region over 10 years ago, can now benefit.
The securities business in CEE region is divided “Although some of the smaller international
among ING, Deutsche Bank, Citigroup, KBC,
UCI/HVB and domestic providers in certain markets.
players are gaining on the basis of price, their
The merger between UCI/HVB will have big impact distribution network remains a key factor”
on the region, not only in terms of securities services
but also in other banking areas. Other groups will have to redefine Muszalski: The development of the CEE regulatory environment is
their strategy in the CEE region. mainly driven by the development of the local securities infrastruc-
ture and the introduction of new financial products.
Sattler: The consolidation process has not yet come to an end. This type of development became evident from the creation of
Depending on the market, the existing environments seem over- capital markets in CEE region. Markets “emerge” and, as a result,
banked. A good example is Slovenia. regulations “emerge” too. Countries which joined the European
The market is too small for the number of banks, which are active Union last year have to face common European Union regulations,
in this market. Clients will keep searching for synergies and region- which generally focus on standardisation and free competition
al providers are the only ones that will be in a position to deliver across the European securities industry.
the solutions for the clients' needs. The problem is that capital market tracks in the “old” European
Union countries extend too long to allow entities from the CEE
Vigulis: Increased retail customer segmentation in the large banks region to compete. A number of the local players are part of big
is driven by major investments. Although some of the smaller financial group. Local independent players will probably not be able
international players are gaining on the basis of price, their distri- to compete.
bution network remains a key factor. (Banks) are expected to con-
solidate even more, as the level of demand from customers Sattler: The market will opt for European Union regulations. How
increases, and factors like advanced online banking begin to play a this process will impact the new European Union member states is
more important role. not easy to predict as certain initiatives are still pending in western
Despite the substantial increase in the number of EU-based Europe.

INVESTOR SERVICES JOURNAL 49


Panel Discussion - Central & Eastern Europe

Vigulis: Recent requests directed to the Baltic securities industry by


external regulators have become more specific, in order to comply
with internationally used practice.
The regulators have recalled several claims, namely the licensing of
brokers as physical entities and unified forms of orders register,
while ensuring robust and professional control over the securities
service providers and their internal regulations.
Hence, qualitative administration of brokerage, custody, asset
management and other services are ensured by major service
providers, while other market participants have solemn and costly
processes ahead of them in order to comply with all regulatory
claims.
These claims have been frequently “unnoticed” due to the scale of
the business and the insignificance of the deals.
All market participants are influenced by compliance with
AML/KYC procedures. However, Baltic banks have proceeded with
Anti-Money Laundering and Combating Terrorist Financing
(AML/CFT) Programs in their account maintenance and mortgage
projects. Major efforts are required in the
“The region will be affected by the development sphere of securities services, especially in
terms of relations with custodians.
of regulation at a the European Union level, Zahorik: There are no significant legal or regu-
especially in the area of securities settlement latory loopholes, which differentiate the regu-
latory environment in the region from other
and investment services” "traditional" European Union member coun-
tries. There is also no usual ambition among
local regulators to develop their own regulatory ways and patterns
and they tend to follow other successful European Union examples.
The region will be affected by the development of regulation at a
the European Union level, especially in the area of securities settle-
ment and investment services.

Comment on current developments within the pensions


industry and whether this industry presents any opportu-
nities for service providers in the industry.
Devroe: The pensions industry is in the early stage of development
in CEE region. However, it is growing and presents excellent
opportunities for service providers in region.
There are limitations on investing outside of the home country
such in countries such as Poland, where only 5 per cent can be
invested abroad. In Hungary pension funds can invest up to 30 per
cent in foreign investments and 20 per cent in non OECD invest-
ments.
In Bulgaria, Voluntary Pension Funds can invest up to 20 per cent
of their assets abroad and Mandatory Pension Funds can invest up
to 15 per cent abroad.

Muszalski: The pensions industry is very important for capital mar-


kets. Countries which implemented obligatory private pension
funds created a number of large, stable clients for local custodian
banks.
Private pension schemes are another important client set. The
share of the pensions industry, in terms of assets under custody, is
growing and will continue into the future. The increasing wealthi-
ness of the society in CEE region countries will result in boosting
private pension schemes in the future that will have positive
impact for securities environment.
Pension schemes are being created by private companies.
Although it is not yet developed, the sector is perceived as

50 INVESTOR SERVICES JOURNAL


Panel Discussion - Central & Eastern Europe

“emerging” and is likely to develop quickly in the coming years. In reach full STP. There is great pressure from competitors resulting
order to boost this segment, governments will implement regula- in downward pressure on fees.
tions, thereby encouraging more investment from future pensioners. There is a tremendous need to reduce the manual work in order to
keep costs to a minimum. More clients are requesting STP reports
Sattler: Pensions industry reform in the CEE region has begun. The which can then be used to negotiate lower fees.
legislation is changing in order to begin work on the new pension
models. Muszalski: Countries that generate interest among institutional
The trend for service providers is clear: leave the wholly owned investors are also interesting for custody providers.
state pension schemes aside and focus on the private and corpo- Opportunities are still present in countries such as Romania and
rate contributions. Bulgaria, which will become part of European Union in the future.
The new model guarantees a growing pension and mutual fund Owing to its size, Romania is very attractive from a long term
industry that will feed worldwide markets with fresh assets and perspective. The other countries may be less attractive due to polit-
capital. ical reasons and by virtue of their size. However, they present the
However, CEE region investors pay a lot attention to their home- only way in which to expand into the CEE region.
markets. Providing services in these countries is a must for players who are
We expect that the markets in this region will benefit dispropor- seriously thinking of staying in the business for the long term. At
tionately from this fact. the same time these markets are becoming more and more com-
petitive, including for securities services providers.
Vigulis : The Baltic pension system reform began
about five years ago. Since then, both pension plan
assets and consumer understanding of investment “The regulators have consulted more frequently
products has increased significantly.
The pension money management became one of with market participants who have helped shape
the industry cornerstones for domestic securities
service providers. This is especially relevant for the
the new regulations to be more favourable to
second level or so-called state-funded pension seg- foreign investors”
ment. Take the example of Latvia: currently the sec-
ond level pension fund assets stand at EURO 110m.
This is only the beginning. According to Parex estimates, rising Sattler: The complexity of the CEE markets will consolidate and
contributions to pension plans (from 2 per cent to 10 per cent of more emphasis will be placed on value added services such as
salaries), the increase in salaries and insignificant pension payouts securities lending.
over the next five years will result in second level assets rising to IT infrastructures, as a way of managing the rising volumes and
EURO 1 billion by 2010. higher levels of automation will move further into the spotlight .
This is not much in absolute terms, but nevertheless represents a One of our core objectives in the years ahead will be to take an
significant amount for the domestic industry. active lobbying position vis-á-vis the authorities, in order to sup-
port the transformation process and to make our clients' voices
Zahorik: This local industry has a huge potential for growth, as heard in the various markets.
pension reforms in the region get under way. Securities services
providers can expect more opportunities in this field, especially in Vigulis : Rapid growth in the pension and mutual fund industry in
the area of fund services. the CEE region and further pending European Union expansion are
likely to attract new securities services providers, leading to higher
What are the key challenges and opportunities for competition in this segment. Local asset managers will have to
providers with interests in the Central & Eastern devote increasingly more attention to the quality of services.
European region in the years ahead? Sooner or later, the convergence of asset price is expected to end.
Even now, some market segments (Baltic equities, for example)
Devroe: The regulatory environment is in a state of change and seem to be fairly priced.
development. Generally, the changes come into effect when they This means a shift in investment styles, for example, from growth
are officially published in the local Gazette or other official to value investing. Companies’ interest in securities financing (tak-
publications. ing into account the number of IPOs and bond issues) will
They are then translated into English, verified among various continue to increase, which bodes well for the securities
authorities and then communicated to clients and prospects. origination business.
There are frequently various interpretations of the new regulations
or these regulations may compare with other regulations. This vari- Zahorik: The key challenge for current providers will be to keep
ance leads to a barrage of questions from clients and prospects. pace with investments into more developed technologies, which
Over the past few years, the regulators have consulted more fre- will become a standard in the European Union. Within securities
quently with market participants who have helped shape the new services, opportunities exist in the area of more sophisticated
regulations to be more favourable to foreign investors. The local products and fund services, where the level of external services
market requires a local custodian in order to effectively provide a provider usage is relatively low in comparison to Western Europe.
service and to represent foreign clients. This characteristic of the
CEE region will remain key in the coming years. ISJ: Thank you
Another challenge is to make continual improvements in order to ISJ

INVESTOR SERVICES JOURNAL 51


Pensions

For all the press coverage of hedge funds and pension


funds anyone could be forgiven for thinking that pension
funds are feverishly dashing into the asset class, eagerly
pumping in vast quantities of cash. But beneath all the
froth a rather different picture emerges.
Certain factors have favoured the expanding of invest-
ment horizons – the Myners report of 2001 urged trustees
to investigate a wider range of investment options, while
the poor equity returns of a couple of years ago forced
investors to set their sights beyond the usual menu of
equities and bonds. However other factors are pulling in
the other direction – recently equity markets seem to have
shaken off their sluggishness and begun to move ahead
and funding deficits have focussed trustees’ attention on
plugging holes rather than pursuing returns.
With most analysts of the opinion that equity returns are
unlikely to reach the dizzy double digit heights of the
1990s, pension funds have to cast the net wider to garner
better performance. Nigel Taylorson, Head of Relationship

Time to
Management UK & Ireland at ABN AMRO Mellon, com-
mented: “If as a pension fund you need a long-term
growth rate of say 8-9 per cent and the market is paying a
lot less than that, while interest rates are 3-4 per cent, then

Hedge?
you're going to have to achieve that somewhere else - and
that is why hedge funds are growing. Hedge funds offer
the prospect of a higher growth rate than has been avail-
able in the market in the last few years.”
Various research studies are providing mixed messages
about just what is happening on the ground. In February
Watson Wyatt reported an increased appetite for alternative
investments among its clients. Over 2004 clients increased
their allocation to alternative investments by 40 per cent
over the previous year, with £1bn going to hedge funds.

Research
Recent research from Russell Investment Group shows
the percentage of institutional investors using hedge funds
growing from 21% to 35 per cent in Europe. Hedge fund
use in Europe, in particular, has put on a remarkable surge
over the last couple of years, with a doubling of usage
among those who replied to the survey, from 24 per cent
to 48 per cent of respondents between 2003 and 2005. But
it appears to be in continental Europe where hedge funds
have really taken off.
A much more cautious picture emerges from research
from Greenwich Associates in the US. In a report which
focussed on the effects of new European accounting stan-
dards on pension fund investment strategies, it concluded
that European pension funds’ appetite for risk was being
curtailed by the effects of IFRS/IAS accounting rules, and
as a result allocations to hedge funds and private equity
remained static at around 1 per cent of assets for each of
the last three years. With recent disappointing hedge fund
Pension fund trustees’ attention returns, the report found that the proportion of pension
funds planning to venture into the asset class dropped
has shifted to plugging deficits, from 19 per cent in 2004 to 8% in 2005, with the propor-
thereby affecting their taste for tion expecting to hire a hedge fund manager plummeting
from 23 per cent to 8 per cent.
hedge funds It is fund of hedge funds that are taking in the lion’s
share of investments in Europe, according to Russell. Some
Christine Senior investigates 86 per cent of users opted for funds of funds, while the

52 INVESTOR SERVICES JOURNAL


Pensions

percentage investing in single and internally management pension funds wary, I really do,” said Doherty.
funds actually decreased in 2005. Another disincentive is the issue
So has it been all talk over the last couple of years or of fees. Hedge funds typically
have UK pension funds begun to sit up, take notice and charge an asset management fee of
act to invest in hedge funds? There has been some action, perhaps 1 per cent of assets plus an
particularly among bigger funds. The BT pension fund is additional performance related fee
committing around 2 per cent of its portfolio to hedge of 20 per cent of any gains.
funds via its investment manager Hermes, itself a hedge “The fees are definitely higher
fund manager able to construct a suitable hedge fund but in theory the returns are sup-
portfolio. Railpen, the railway pension fund, has also made posed to be higher too,” said Fergus
the leap, but its strategy has been to appoint three US Healy, global product head of alter-
based managers, Blackstone Alternative Asset native fund services at Citigroup’s
Management, Grosvenor Capital Management and The Global Transaction Services. “To
Rock Creek Group to run a £600m portfolio on its behalf. Fergus Healy get the returns you have to pay the
Each manager has selected around 30 hedge funds for a price. It is an issue but the per-
diversified portfolio. formance fee is based on absolute returns – fees are not
Still these seem to be the exception rather than the rule. paid when the funds are down.”
One well placed industry source commented: “Over last Where pension funds have taken the step into hedge
couple of years there has been a lot of noise about UK funds, the preferred route has been funds of hedge funds.
pension plans investing in hedge funds but from every- This is the easiest to implement for funds who wish to
thing we can see there has been very little action. Some of test drive the asset class. On the downside it is the strategy
the larger more active schemes have made an allocation to that costs them the most in fees, with two-tier fee struc-
hedge funds and have funded it, usually via fund of hedge ture for the fund of fund and for the underlying hedge
funds. However the vast majority have not done that.” funds.

Priorities
A lack of knowledge among trustees about
“To get the returns you have to pay the price. It
hedge funds and also the fact they have other is an issue but the performance fee is based on
more pressing matters to address are behind
this lack of action, according to Bill absolute returns – fees are not paid when the
Maldonado, CEO, HSBC Alternative
Investments at Halbis Partners. “I think there
funds are down.”
are several reasons,” he said. “One is the old chestnut of Changes
trustee understanding of these investment strategies - Changes in the structure of the hedge fund market are
there are lots of things that are difficult to explain to likely going forward, according to Healy: “We see more
trustees like private equity, hedge funds, TAA overlays. institutions setting up their own hedge funds. We see con-
And secondly there have been a lot of changes to legisla- tinued convergence between hedge funds and traditional
tion in the way schemes have to be run. funds - UCITS now trade some esoteric instruments, cred-
That has occupied trustee boards quite a lot and hasn’t it default swaps etc.”
given them the time they need to assess new strategies like Our anonymous industry source is convinced that cur-
hedge funds.” rent trends in pension fund hedge fund activity are unlike-
Currently the top priority issue occupying the minds of ly to change, mainly because the turnaround in equity
trustees is funding deficits. Though the recent revival in market performance has reduced the pressure to act.
equity markets has at least reduced funding gaps, deficits “I don’t think things will change much. In the last couple
are still very much a feature of the pension fund land- of years pension funds have been bailed out by roaring
scape. The effect has been to put a brake on pension equity markets so the trustees are sitting there thinking
funds’ appetite for riskier assets like hedge funds to add ‘what was all the fuss over the bear market – it’s mainly
alpha. come back now . With a couple of really good years run-
“My view is it’s a matter of focus and priority,” said Ann ning high equity weightings worked really well.’ The
Doherty, Client Management Executive at JPMorgan imperative to do something hasn’t been there.”
Worldwide Securities Services. “A pension fund in deficit is Any growth is likely to be more of the same - slow and
concentrating more on making sure the deficit doesn’t get steady rather than a sudden rush. Doherty summed up: “I
any bigger and trying to close that gap. They are far more do not believe there will be a headlong rush by pension
likely to be using hedging and derivatives to support the funds into single strategy hedge funds. There will continue
asset position rather than making alpha bets within a to be an upward tick, but it will not be that dramatic. I
hedge fund strategy.” think things like private equity with longer time horizons
Press reports about hot money cascading into hedge in terms of returns is something that would more natural-
funds has also served to scare off naturally cautious pen- ly suit the culture of a pension fund – private equity, prop-
sion fund trustees. erty, commodities and to an extent derivatives – long term
“Because of all the newspaper reports about so much hot derivatives with 20 year durations as well as hedge funds.”
money going into hedge funds, I think it’s making some ISJ

INVESTOR SERVICES JOURNAL 53


The Pensions Interview - Royal Mail Pension Plan

Does the fund participate in a securities lending program?

You’ve Yes.

How much of the fund's assets are allocated towards alterna-

Got Mail tive investment instruments?


The Fund allocates 3 per cent in alternative investments,
which is primarily in private equity, 70 per cent in listed
equities, 15 per cent in bonds and 12 per cent in property.
SCHEME: THE ROYAL MAIL
PENSION PLAN What is the investment strategy?
CUSTODIAN: J P MORGAN. The strategy is set by the Board of the Royal Mail
SIZE OF FUND: £17.2 BN Pension Trustees on the advice from consultants and
external investment managers invited to pick stock.
The investment strategy of RMPP aims to safeguard the
assets and to provide the financial resource from which
members’ and pensioners’ benefits are paid.
Gerry Degaute speaks to James Investment is inevitably exposed to risks. These risks can
be broadly classified as those inherent in the physical hold-
Wallace about the strategy of one ing and record keeping of assets and those inherent in the
investment markets.
of the largest occupational The assets of the Plan are kept totally separate from the
pension schemes in the UK. finances of the Employer. In order to control their title and
security, the Trustee holds the assets in designated custodian
accounts and uses the safekeeping services of our custodian.
The risks inherent in the investment markets are man-
aged by pursuing a widely diversified approach across asset
classes and investment managers.
The pattern of investment of the Plan’s assets, with spe-
Who are the fund managers? cific target allocations for each asset class and portfolio is
There are 16 investment managers including Hermes shown on the chart on pages 9 and 10.
Investment Management Limited, Merrill Lynch The Plan recently transferred the passively managed
Investment Managers and Schroders Investment assets from Hermes Investment Management Limited into
Management. a unit-linked insurance policy managed by Hermes
Assured Limited to achieve greater efficiencies.
What are the Trustee arrangements? Hermes Assured Limited is an insurance company which
The Trustee Board has an equal number of member and manages pooled pension fund investments.
Employer nominated Trustee Directors, together with an
independent Chairman. The Board meets monthly with How important is corporate governance and socially respon-
the exception of August. sible investment?
The Board has three standing subcommittees: Cases sub- The Pensions Act 1995 requires the Trustee Board to
committee, Investment sub-committee, Audit and prepare a Statement of Investment Principles. The
Accounts sub-committee. All Board members are appoint- Statement of Investment Principles contains the Plan’s
ed and removed by Royal Mail, with the agreement of the policy on Socially Responsible Investment. Compliance by
Royal Mail Unions and the eligible pensioner membership the investment managers is monitored by the Executive.
where appropriate. The Board has adopted the following Corporate
Five of the Board members are nominated by Royal Governance policy: Corporate governance monitoring is
Mail, four by the Royal Mail Unions and one is selected an integral part of the investment process and is best car-
by a pensioner ballot. The Chairman is appointed by ried out by the investment managers in their day to day
Royal Mail. management of the Plan’s investments.
The Plan’s investment managers are advised by way of
Is the pension fund compliant with Myners principles? general guidance that the Trustee Board supports the pub-
The Government issued a review of progress of the lished Codes of Practice.
Myners principles for institutional decision-making in However, they are at the same time reminded of the
December 2004. The Board responded to the report wel- overriding duty of the Trustee Board to act in the best
coming the proposals. financial interests of the beneficiaries.
The Plan is broadly compliant with the principles and With this guidance, decisions in relation to individual
the Executive will continue to monitor any further devel- cases are delegated by the Trustee Board to the investment
opments to ensure the Plan remains broadly compliant. managers.
The Chief Executive of RMPTL is a member of the The investment managers are instructed to exercise
NAPF and HM Treasury Myners Working Party. voting rights whenever this is practical.

54 INVESTOR SERVICES JOURNAL


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Fee Billing

One of the most manually inten- everything, one can expect to see the
fee billing function being manually
sive functions of a financial insti- intensive,” states Thomas Dackow,
president of Interactive Technologies,
tution’s back office is about to the leading vendor in this space with
over sixty cus-tomers.
become a primary candidate for He says that in
outsourcing, writes Rekha recent years the
fee billing func-
Menon tion or revenue
management as it
is often referred
to these days, had
become highly
complex.
“It has gone
much beyond
mere debiting or
Thomas Dackow producing invoic-
es to include the
analysis and control of revenues.
“Firms now require a revenue manage-
ment system that handles the entire
process from import of data to the analy-
sis and forecasting of fees.”
“In order to calculate client fees, the fee

A Fair Price? billing system needs to get data feeds


from various systems, (such as portfolio
management and performance manage-
ment systems), keep in view the account-
ing structure and VAT regulations in dif-
ferent jurisdictions and manage multi-
To outsource or not, is a question currency requirements”, explains Dackow.
that has been the focus of much debate in “Further, along with billing accurately
the financial services world of late as fund and quickly, the billing system needs
managers and banks weigh the potential to bill and provide statements on any
benefits and disadvantages of outsourcing schedule a client prefers, for any number
their middle and back-office functions of related accounts”.
while retaining their bread and butter
Automation
Firms now require a revenue management system Indeed, fee
billing
that handles the entire process from import of data to automation is
a back-office
the analysis and forecasting of fees function and
will never be
activity of making investment decisions a glamorous task, however without
on behalf of their clients. At the heart of appropriate automation, settling an indi-
this debate lies the crucial distinction vidual bill can sometimes turn into a full
between core and non-core activities, research project.
activities that generate revenues and Catherine Doherty, principal at invest-
therefore receive the maximum attention ment management consultancy, Investit,
versus those that sustain a business, and remarks that the most complex aspect of
do not. It is therefore not surprising that fee billing was the performance fee calcu-
a critical function like fee-billing, the lation. “There are several different
process of calculating client fees and methodologies to calculate performance
managing invoices, is often relegated to fees that might be standard or cus-
the background. tomized according to client agreements.
“Fee billing is, more often than not, a To complicate matters, performance
neglected corner of the organisation. fees are becoming increasingly popular
Even in companies that have automated and need to be accurately computed,” she

56 INVESTOR SERVICES JOURNAL


Fee Billing

says. “From the that rather than cost reduction, regula- billing solutions for banks, Kumar adds:
outside, fee tion or increasing volumes, the key driv- “Financial services firms today are look-
billing appears a ers for firms beginning to focus on fee ing at improving overall operational effi-
very simple task, billing was the growing need to minimise ciency though a centralised administra-
but is in actuality errors, reduce cycle times and move per- tion platform. This improves their cross-
a very complex sonnel on to more value added tasks. selling ability by offering cost-effective
process. There is Dackow gives the example of an and customer-specific product bundles.
a lot of workflow Interactive Technologies' client which Relationship-based pricing across the
involved. drastically cut down the number of enterprise allows financial firms to intro-
Managing com- billing clerks from 90 to 12 after duce customer-specific product bundles,
plicated fee automating the fee-billing process. which forms an effective way of main-
structures and “When faced with the increasing level taining and retaining the customer base.”
Catherine Doherty the timing of dis- of complexity of the billing process, often
count structures it is very tempting for firms to add anoth- Niche Market
requires sophisticated automation.” er clerk. While that might work in the Despite the numerous benefits of fee
short term, it doesn't in the longer term billing automation and the interest from
Increase because firms soon realise that they gain financial institutions, fee billing remains a
Industry participants report an increase much more if they automate the process very niche market and there are very few
in interest among dedicated fee
fund managers in
recent years in fee
“Auditors are coming down strongly on finance billing vendors.
Instead firms
billing and revenue departments and the realisation is dawning that often go with fee-
administration. billing modules
Recently, Excel spreadsheets are just not good enough for from portfolio
Newton
Investment
calculating fees and getting good audit trails” management sys-
tem vendors or
Management, a even with ERP
UK-based asset management subsidiary and their personnel get involved in a vendors like Peoplesoft and Oracle
of Mellon Financial Corporation, decided more value added task.” Financials.
to license California based fee billing ven- Along with improved cash flows and These solutions are not very compre-
dor, Redi2 Technologies’ solution to auto- better reporting, Dackow says that they hensive or if they are adequately cus-
mate its revenue management processes. have found that by automating the fee tomised, then the overall cost becomes
In addition, Mellon’s Investment billing process, their customers can too high. Giving the example of a New
Manager Solutions business has decided often gain through an increase in revenue York based institutional investment man-
to integrate Redi2 Technologies’ solution generation by 3 to 7 per cent per ager which conducted a gap analysis
into its outsourcing platform to provide year. between their installation of Redi2’s solu-
billing and revenue accounting services to This is a result of corrections made to tion and a PeopleSoft-built billing solu-
its clients. Seth Johnson, CEO of Redi2 billing practices, which over time, have tion used by a company they had previ-
Technologies suggests that regulatory failed to fully charge for services ren- ously acquired, Johnson says that Redi2
changes have been the key driver for rev- dered. won the comparison and the customer
enue management becoming a priority at SunTec, a fee billing solutions provider migrated its customer accounts from
firms. “In the US especially, with SOX whose clients include HSBC, ING Bank, PeopleSoft to Redi2’s solution.
regulations, auditors are coming down Lloyds TSB, SEI Investments and ICICI “Firms realise that often, the customisa-
strongly on finance departments and the Bank, emphasises the importance of fee tion cost of general purpose solutions
realisation is dawning that Excel spread- income to end user. CEO Nanda Kumar way exceeds the cost of the original prod-
sheets are just not good enough for cal- says: “The fee income diversifies a bank's uct itself. In addition, in terms of cost
culating fees and getting good audit revenue stream. In the long run, expan- and complexity, these solutions are much
trails. sion for non interest activities has peaked more difficult to sustain,” comments
“Audit trails are also very much in and those intermediation based products Dackow.
demand in the UK due to the changes in and services will remain the central busi- The biggest competition for dedicated
VAT rules,” he says. ness activity of a bank. Moreover, today, vendors such as Redi2 and Interactive
However, Doherty of Investit believes banks are moving towards becoming still remains the in-house IT team.
that more than regulation, it is a focus on financial supermarkets and therefore However, Dackow suggests that the
risk reduction that is driving attention on require more customer touch points. The realisation is slowly dawning that the
this arena. earnings are more sensitive to sales and cost benefits offered by off-the-shelf
Investit did a survey of the state of fee- technological advancements are required solutions firms are much better. “Inhouse
billing at UK investment management to enable this change in the revenue development can cost a firm up to a few
firms at the beginning of the year. streams. Therefore it is significant that million dollars, while off the shelf solu-
The study, which found that nearly 60 financial institutions want to adopt the tions such as ours with similar or much
percent of UK fund managers had auto- fee management approach.” better functionality are available at a
mated their fee billing process, concluded Highlighting the key advantages of fee fraction of the cost.”

58 INVESTOR SERVICES JOURNAL


Regulation - MiFID

For sell side institutions, trade order handling is one of


the first areas to be affected by MiFID. “A number of obli-
gations govern an investment firm’s handling of orders,”
says Webb. “These include order amalgamation, particu-
larly where retail client orders are amalgamated with pro-
prietary orders . There are also additional obligations
around limit orders. If a limit order cannot be filled
immediately, sell side firms have to make this public or
pass the trade through a recognised market system, which
operates an order book trading system.”
Under MiFID, it appears that any firm operating in a
quote driven market and managing a limit order on behalf
of a retail investor has an obligation to make the order
The Markets in Financial Instruments Directive will public if they cannot execute it.
have a profound effect on the European capital markets “This requires that firms understand which exchanges
landscape. Whether companies within this landscape are are order driven, which are quote driven and which are
ready for its implications remains to be seen. Thankfully, hybrid,” says Simon Bennett, a Managing Principal at
unlike other more onerous pieces of legislation, MiFID has Capco. “Firms must also understand how their internal
systems and processes work and how they interact with
other systems and venues in order to comply with regula-

A New Dawn tory demands.”

Objective
One of MiFID’s main objectives is to increase trans-
parency and efficiency in the European Union market
With a new Directive on the place. “There is a greater obligation on pre- and post-
trade publication of data for quotes and limit orders,” says
horizon, financial services Webb. “The timeliness of publication is also important.”
The role of the systematic internaliser is highlighted
providers in European are under MiFID. A systematic internaliser is a firm which
unsure of the impact of MiFID crosses orders internally, off-exchange and outside of a
recognised market. “Firms which are internalisers have
on their business certain obligations to fulfil and have to make their quotes
public, not just to their clients but to the market under
its pros and cons for sell side and buy side institutions. reasonable commercial terms,” says Webb. “There is cur-
Introduced by the European Union in April 2004, the rently no clear mechanism for doing this.”
publicity surrounding MiFID is gaining momentum. While the European Union has made clear to firms what
“The amount of conversations we’re having with clients is it wants from the introduction of MiFID, it has not
evidence of the fact that people have suddenly woken up expressed how these aims should be achieved.
to the Directive,” says Steve Webb, a Partner at Capco. The sell side will be affected by the quest for best execu-
“Firms need to set aside budget now for project work that tion and will have to consider greater pools of liquidity for
they will need to perform in 2006 and 2007” . price discovery and ensure it is achieving best execution.
MiFID is being introduced following the four stage “MiFID does away with concentration rules, and recog-
Lamfulussy Process, which is currently at the stage of nises MTS and the role of systematic internaliser,” says
“Level Two” text. “The level of certainty with which you Webb. “In future sell side firms cannot merely check the
can determine the impacts of MiFID is difficult to achieve local market prices for a best execution benchmark
at this time” says Webb. “Until the Level Two text is trans- because a systematic internaliser could be publishing a
lated into national law, one can only determine what the better price than what is published on the local exchange.”
lawmakers are aiming for.”
Liquidity
Impact The implementation of MiFID also implies a fragmenta-
The likely impact of MiFID on capital markets is cur- tion of liquidity in Europe. “Liquidity is currently concen-
rently based on a set of industry predictions. “The direc- trated on a country by country basis in the form of
tive brings into scope a wide variety of products and national stock exchanges,” says Bennet. “When liquidity
instruments, which weren’t previously covered by reconcentrates it may not do so around those same ven-
European regulation, including derivatives and commodi- ues. There will be new venues, some of them may be
ties,” says Webb. multi-market or multi-country venues. Firms must
“The Directive seeks to clarify distinctions between accommodate the fact that the market will fragment and
home market regulation and host market regulation. If reconsolidate in a different shape. This presents a variety
your services are permitted by the home market regulator, of connectivity challenges for the IT specialist in terms of
under MiFID you can passport them into other countries.” ‘what instructions do I need to send where?”

60 INVESTOR SERVICES JOURNAL


Regulation - MiFID

Data opportunity, including quotes, and a post trade opportu-


In many istances, MiFID presents a driver for clean data. nity, which is transaction reporting.”
“MiFID impacts data in terms of the way it should be Support
stored and handled,” says Webb. Within the context of As a provider of technology solutions to the buy side of
MiFID, firms must be aware of trading venues and must the securities industry, DSTi is currently taking its clients
have a thorough understanding of the security and its through the MiFID motions.
trade value. “Firms have to report where they have trans- For this service provider, the Directive impacts mostly
acted the deal,” says Webb. “The MiFID joint working on a firm’s best execution, pre-trade and post trade report-
group is giving thought to how reference data will be ing requirements. “Buy side firms need to ensure they have
impacted and is making suggestions on how to address the additional data items for reporting purposes,” says Dennis
requirements” Unitt, Head of STP Messaging Products.
MiFID will be a catalyst for refining, improving and con- “The Level Two, or draft document is still subject
solidating reference data, including instrument data, mar- to change, making it difficult to fully analyse the impact
ket data and client data, says Bennett. “It will be an accel- on firms.”
erator for improvement,” he adds. The general perception is that MiFID will add extra costs.
“The sell side will be impacted by systematic internalisation
Opportunities rules, where trades have to be reported and prices pub-
Apart from the obligations,
MiFID also presents a range of
opportunities. “Considering the “MiFID will encourage some data management
objectives, its clear that the regu-
lator has good intentions, includ-
initiatives that the industry has been talking about
ing the creation of a market
which is transparent, where there
implementing but has been struggling to put into place.”
are no synthetic boundaries and
where the most efficient players in Europe can compete lished,” says Unitt. “This has an impact on buy side firms. As
with each other on a level playing field,” says Webb. part of their best execution policy these firms should access
The retail investor also receives greater degrees of protec- all pools of liquidity, in this case the systematic internalisers.
tion. It’s difficult to ignore the costs of complying with the Any brokers who cross trade have to ensure their prices are
regulation, given the time scales. But if you’re regulated in made public to the buy side firms.”
one area in Europe, you can carry out business in another. DSTi is heavily involved in the MiFID joint working
Your cross border business case therefore increases.” group, analysing how existing standards can be integrated
According to Bennett, MiFID also implies less compli- into the data management area. “It is difficult to complete
ance costs and administration work. “The fact that one that work until the Level Two text is finalised and all addi-
driving license is applicable in 20 different countries pres- tional data items are accounted for,” says Unitt. “MiFID
ents a genuine cost price reduction for firms with a pan- will encourage some data management initiatives that the
European remit,” he says. “It makes having a single industry has been talking about implementing but has
European hub easier. MiFiD makes the pay back higher been struggling to put into place.”
and it expands the number of entrants in countries. The MiFID's intention is to create a European capital market
Directive makes your hub look bigger and better. If bor- to compete with the US and to provide additional pools of
ders are crossed by big investment banks, that could be a liquidity. “This common regulation will enable firms to
cost win to the bank with a system internaliser, but a loss passport their services across Europe,” says Unitt. “Some
to the exchange provider in terms of exchange fees and companies who are affected may benefit from the
liquidity. For every winner. There will be a loser.” Directive, while others may decide that the cost of doing
The requirement for firms to publish information also business is too expensive and may consolidate.”
presents opportunities around managing and distributing Bookmarked for implementation in April 2007, industry
data. “Investment firms need to publish their information murmurs speculate that MiFID may be delayed until
to a data aggregator, who will take the data from them and October 2007. “The UK is already highly regulated in most
supply it to the data providers,” explains Webb. “These of the MiFID areas and is preparing for the increased
aggregators are likely to include the stock exchanges, but scope of the directive,” says Unitt. “Parts of the European
could also include new services from existing data Union have very little legislation and some European
providers and other technology savvy organisations”. Union countries have no concept of best execution. That
In addition to the pre-trade phase, a post trade, transac- could mean UK companies are well placed to passport
tional reporting opportunity will also become apparent across Europe and increase their business opportunities.
under MiFID. “At the end of a trading day, investment The challenges involve determining the cost of the legis-
banks report their data to the regulators,” explains lation and putting accurate budgets in place. The small to
Bennett. “MiFID implies that it will become acceptable to medium companies must also decide whether they can
send an aggregated tape, which contains all the necessary compete within
data, to a home regulator,” says Bennett. “A third party the pan-European operating model. MiFID is likely to cre-
might also be able to send information on behalf of the ate a market of fewer but larger financial organisations in
investment firm. MiFID presents a pre-trade aggregation Europe going forward.” ISJ

INVESTOR SERVICES JOURNAL 61


Collateral Management

The collateral management


landscape is challenging service
providers to have the necessary
scale in order to support the
diversity of its clients’ trades
Despite its claim to fame, collateral management is only
considered a core competence by a handful of banks. the
service has piggybacked on the increasing popularity of repo
and stock lending, two activities which involve the use of
collateral. “To the extent that banks are active in these two
traded products, they need to manage collateral,” says
Shravan Sood, Head of Business Development and
Marketing, Global Collateral Management at the Bank of

Capital New York, london.


According to Sood, triparty providers of collateral man-
agement have a 15 per cent share of the european repo mar-
ket, an increase of 6 per cent from two years ago. “This is
still fairly modest compared to the circa 50 per cent share

Reigns triparty trades have in the us repo industry,” he says.


Lending activity is mostly collateralised by either cash,
which is reinvested directly by the lenders, or by G5 sover-
eign debt. these forms of collateral are usually managed by
principal counterparts in a bilateral environment.
But external factors such as Basel 2 and the maturation of
the repo and stock lending markets have led to the erosion
of historic cash and G5 government bonds as collateral
norms.
“Trading counterparts are now moving along the collateral
curve, by accepting a wider range of collateral to secure
stock lending and repo transactions,” says Sood.
“To the extent that counterparts have begun to stretch the
collateral envelope, more diverse forms of collateral have
appeared. Trading counterparts frequently elect to outsource
the management of these more exotic forms of collateral to
independent specialists like ourselves because the internal
collateral management infrastructures of principal trading
counterparts were developed to manage cash and govern-
ment bonds only. The moment you move away from highly
liquid, less volatile and highly rated asset classes, principal
counterparts require more sophisticated tools and tech-
niques to manage these diverse books of collateral. They are
ultimately compelled to outsource this activity to a specialist
provider.”

Technology
The cost of technology has raised the bar vis-à-vis the
scale required to offer collateral management as a specialised
service to trading counterparts. There are currently only a
handful of institutions with the critical mass to provide col-
lateral management as an outsourced service. “The techno-
logical barriers to entry are continuously rising as users
become ever more sophisticated in their trading structures,”
says Sood. “This is a scale business, requiring the maximisa-
tion of operating leverage.”
The Bank of New York has created an infrastructure which
transcends its $9.7 trillion global custody franchise and its

62 INVESTOR SERVICES JOURNAL


Collateral Management

$1 trillion collateral management franchise. “There are many aim to provide a global outsourcing service, to help banks to
commonalities between these businesses, e.g. they both comply with Basel 2,” says Sood.
require securities data warehousing to value securities and The repo buyer has unsecured intra-day counterparty
report to clients on what asset classes are being held in their exposure in a bilateral repo during the pre-settlement phase.
collateral accounts. “We have created a common data ware- In a triparty environment, book entry, delivery versus pay-
house or securities market database, using multiple securi- ment effectively eliminates unsecured exposure.
ties information vendors which can be utilised by multiple “Fails free, real time movements reduce operational risk,”
business franchises across the bank,” says Sood. says Sood. “by outsourcing this post trade, pre-settlement
“Ordinarily this would require separate subscriptions from function to an independent specialist, credit and opera-
our custody, lending, ADR and collateral management tional risks can be reduced.”
teams. By achieving minimum efficient scale, we are able to A $1bn government repo might consist of between 10 and
subscribe to additional specialist data feeds . The unit cost of 20 individual lines of bonds, whereas an equity repo of the
our service decreases as you amortise these fixed overhead same value could consist of several hundred lines of stock.
costs across a large customer base.” “The settlement and valuation infrastructure required to
manage equities drawn from 30 different markets is very dif-
Regulation ferent to the infrastructure required to manage very liquid
The financial services industry continues to be inundated and highly rated government bonds from the same 30 mar-
with regulatory compliance requirements such as Sarbanes kets,” says Sood. “The processing power, staff training and
Oxley, the Patriot Act and the
International Accounting Standards
(IAS39). “But it is Basel 2, and Europe’s “It is incumbent upon collateral managers, who
capital adequacy directive, which is likely
to have the greatest impact on the collat-
aim to provide a global outsourcing service, to
eral management industry,” says Sood.
“Basel recognises the collateralisation
help banks to comply with Basel 2”
of credit exposures more broadly than
before. Under the old credit exposure regime of the first data management required to perform the collateral man-
basel accord, the range of collateral required to confer regu- agement function increases exponentially .
latory capital relief was essentially limited to government “As a general rule, the collateral provider pays for this
debt and supranational issued paper domiciled in OECD service in its entirety, thereby enabling the investor to get
countries. 17 years on, Basel 2 attempts to account for the comfortable with moving down the collateral curve and
ways in which the banking industry and risk management accepting a wider range of securities as collateral. Tri-party
best practice have evolved.” agents act as gatekeepers and facilitate the automatic “dvd”
The increased volatility of financial markets, particularly (delivery versus delivery) substitution of any ineligible col-
following the rise of hedge funds, and the greater use of lateral, or collateral which the broker dealer has sold, auto-
derivatives, have changed the industry’s perception of collat- matically replacing it with assets of equivalent quality and
eral. “The more widespread use of leverage and investment value so that the investor is confident that he is always fully
in complex off-balance sheet instruments, together with collateralised. In a bilateral environment, securities are
some high profile corporate failures have been a catalyst for immobilised when delivered to an external counterpart. A
the creation of enhanced risk management tools and tech- dealer’s unfettered ability to buy and sell collateral on an as
niques, such as VAR analysis and loss-given-default proba- needed basis could be of infinite value.”
bilities,” says Sood.
For the first time, Basel 2 recognises the importance of Tri-parties
operational risk in the banking system and proposes JPMorgan kick-started its European tri-party collateral
advanced methodologies for measuring, controlling, report- management service in 1992, when it performed a third
ing and mitigating these risks. Basel 2 also recognises the party equity financing deal. Commenting on the growth
importance of specified forms of collateral, which may be since then, Rajen Shah, Head of Clearance and Collateral
used to offset or mitigate counterparty credit exposure. Management at JPMorgan Worldwide Securities Services,
“Basel 2 acknowledges that a collateralised credit is less says: “The main trigger for growth
risky than unsecured credit and permits such marked-to- in 1992 was securities lending. The
market collateral as prime index equities, secondary index securities lending market has grown
equities, convertible non-investment grade debt and publicly and the repo market started to see
quoted UCITS and mutual funds to qualify for regulatory substantial growth as well. There is
capital relief,” says Sood. no significant difference between
the financing requirements of these
Services markets.”
Attempts to reap the regulatory rewards of these diverse Collateral is all about mitigating
forms of collateral practically requires the deployment of credit risk, says Shah. “However,
more sophisticated VAR risk management techniques for taking collateral generates other
banks employing Basel’s advanced internal ratings based risks, such as legal and operational
approach. “It is incumbent upon collateral managers, who Rajen Shah risks,” he says. “The taking of collat-

INVESTOR SERVICES JOURNAL 63


Collateral Management

eral presents certain challenges for banks who keep this Head of Product Management SIS SegaInterSettle, is the
function in house - it is not a core competence, but a neces- opportunity for them to increase the number of counter-
sary evil in their process. Banks either invest great amounts parts they do business with. “There are no restrictions on
or they don't invest enough, thereby running the risk of the number of banks they can do business with,” he says.
something going wrong. Basel 2 makes the situation more Hartmann adds: “We can offer a framework whereby
acute in that if you don't have the infrastructure for collater- lenders and borrowers can connect with a variety of coun-
al management, you are now financially penalised with capi- terparties. Lenders and borrowers don't have to deal sepa-
tal charges.” rately with each counterpart and they don't have to have
A handful of solutions are available to ensure collateral is bilateral agreements with each and every counterpart. We
duly managed. “There are fewer systems in the securities offer multilateral agreements with all counterparties and
lending and repo markets than those which are managed provide lenders with one agreement for an entire market
inhouse,” says Shah. “JPMorgan provides Comet 2, in order place. The benefit is that everybody is treated the same way
to address banks' risk and to ensure they can optimise their and banks can utilise one agreement for the whole market.
collateral. This is our core business - we can provide the This makes a lot of sense from a risk management point of
advice and the solution.” view and reduces a bank's connection costs. The benefits of our
Scale is extremely important for collateral management Eurex connection to the wider financial marketplace is that it
providers. “The chance of default is rare, but the risks are involves more counterparts in a more secure environment.”
quite high,” says Shah. “As a provider we can share the costs SIS is currently rolling out its securities lending service for
Eurex trades. The key
challenge is to generate
“We will see a strong demand for automated solutions” sufficient client interest.
“As soon as we have
among a wider client base. The market is realising it is better enough clients on board, we can concentrate on volumes,”
to put collateral in tri-party arrangements. Broker dealers says Eberhard.
have traditionally managed equity silos but these silos are “We have enough flexibility to offer individual and bilat-
consolidating. eral solutions.”
“There are economies of scale benefits to consolidating To facilitate the development of the repo and securities
these instruments with one provider. Many of our clients lending service, Eurex and SIS have created a market advi-
have different silos for equity and fixed income trades, but sory group.
they can benefit from optimising these programmes at a “Our delivery versus delivery mechanism in the SecLend
global level.” service also enables us to connect the security to the collat-
As unsecured trading passes out of eral behind it and meet the implications of Basel 2, in a sim-
fashion, the finite pool of collateral ilar way that the Swiss franc repo market will be handled
taken is directly impacted. Shah under Basel 2,” says Eberhard.
explains: “European ABS issuance SIS is working towards a degree of standardisation for
has grown by 30 to 40 per cent. clients' differing views on acceptable forms of collateral. “We
People feel these instruments are also enable participants to re-use collateral in order to cover
not as secure as others but they are their exposures,” says Eberhard.
of very high quality as collateral and As repo and SecLend trading increases, banks and broker
will be used in the future. The chal- dealers are faced with the challenge of creating a collateral
lenge here is about pricing. We're overview availability. Companies are also challenged to opti-
working with data providers to cre- mise their collateral usage and to reuse collateral received
ate standardisation as we believe from counterparties.
René Eberhard ABS will be the next big form of These organisations need centralised and standardised
collateral.” reporting, they need to keep costs low and automate
processes. They also need to achieve a state of zero intraday
Partnerships risk exposure. According to SIS, corporate actions handling
The international service provider SIS SegaInterSettle - for equity trades will become increasingly more challenging
based in Switzerland - is currently strengthening its partner- and the need for automated collateral substitution will
ship with the Eurex Zurich trading platform to provide tri- become more apparent.
party repo and new securities lending and borrowing serv- The key challenges for collateral management providers
ices to trades executed on the Eurex market. René Eberhard, include the ability to pool collateral without losing trading
Head of Repo & SecLend Products at SIS SegaInterSettle, opportunities, to mobilise as much collateral value as possi-
explains: “Eurex is seen as the trading platform or 'market- ble and to use collateral to the best extent possible. This is a
place', which has been enhanced by our SecLend products. market where we will see a strong demand for automated
We provide settlement, loan administration and collateral solutions,” says Eberhard.
management services to all Eurex Repo and SecLend trades.”
The status afforded by a link with Eurex enables SIS to Cross Product Offering
deliver back office services as well as fee calculations for Tri-party agent Euroclear Bank also provides collateral
trades executed on the platform. The benefits of the link to management services to counterparties involved in bilateral
securities lenders and borrowers, explains Daniel Hartmann, transactions.

64 INVESTOR SERVICES JOURNAL


Collateral Management

“By outsourcing their collateral management, these coun-


terparties benefit from our highly efficient tool, which has
been developed over the last 13 years,” says Cedric Gillerot,
Director, Collateral Management Services, at Euroclear
Bank.
“The triparty service we provide has evolved to become a
cross-product offering. Beginning with tri-party repo, the
service now allows counterparties to collateralise their repo
securities lending, secured loan and derivatives transactions.
“Improvements to our tri-party service has helped our
clients to collateralise any type of underlying exposure in an
efficient and risk-controlled environment.”
Describing the impact of regulation on collateral manage-
ment, Gillerot says: “The Basel 2 accord, that will be imple-
mented by international banks in 2007, will certainly impact
their landscape. Institutions that are active in the collateral
management market, will, in 2006, have to show their super-
visory authorities they can provide the required regulatory
capital on their bal-
ance sheet following
the Basel II methodol-
Pending the implementation of Basel 2, it is expect-
ogy they have chosen. ed that the amount of collateral in circulation to
“They will have to
provide extra report- cover a wider range of an exposures will increase
ing, which is Basel 2
compliant. By the end of January 2007, clients will have to
be fully compliant with Basel 2.
“The Basel 2 accord will promote the use of collateral as a
means of mitigating credit risk and it will also increase the
use of collateral to optimise balance-sheet management and
meet regulatory capital requirements.
“Pending the implementation of Basel 2, it is expected that
the amount of collateral in circulation to cover a wider
range of an exposures will increase. All the indicators show
that in underlying trading markets, collateral usage is
increasing consistently.
“Institutions will have to optimise the usage of this pool of
collateral to cover more types of exposures. As the supply of
collateral is not without limits, efficient collateral manage-
ment presents a challenge to our clients.”
Apart from promoting collateral in order to mitigate credit
risks, Basel 2 broadens the range of acceptable collateral.
This not only highlights the amount of collateral to be
managed by institutions, but also the type of collateral to be
managed.
“With the increasing variety of collateral available, a tri-
party agent like Euroclear Bank can add true value by man-
aging the increased volumes and diversity of collateral in an
automated manner, thereby increasing the efficiency of the
management process. Basel 2 also requires the provision of
capital for operational risks,” says Gillerot.
“In the near future, our clients will have new reportinging
requirements, internally to their credit risk management
teams and externally to the regulators.
“The capacity we have to manage collateral for cross
exposures and to provide clear reporting on the type of col-
lateral that is received and used, with the appropriate level of
information, will become key in the years ahead. With the
advent of Basel 2, this type of reporting will be improved
substantially.”
ISJ

INVESTOR SERVICES JOURNAL 65


Stay Tuned For Keeps?
Find the facts,follow the Service providers have
trends and connect the
networking. Securities succeeded in retaining
services events, forums March 6 2006, 2 days
Information and Reference Data Management
previously awarded mandates
and seminars. in Financial Services
Sydney, NSW
Tel: +44 (0) 20 7368 9300 Global custodians have stood the test of time
Fax: + 44 (0) 20 7368 9301 and proved their worth to pension funds and other
December 4 2005, 3 days Web: http://www.iqpc.co.uk institutional investors. Following rigourous reviews by
Alternative Investing Summit trustees, who seek to find the best value for money,
Ritz Carlton, Laguna Niguel-California - United the existing providers have managed to stay on board
States of America March 13 2006, 5 days and enjoy another period of partnership. State Street
Opal Group FIMA USA 2006 was reappointed by Lloyds TSB Group Pension
Tel: +1 212 532 9898 Embassy Suites, New York, NY Schemes to provide investment services for the
Fax: +1 212 532 7151 WBR Schemes' assets, which are currently valued at £11
Web: www.opalgroup.net Tel: +1 (212) 885-2794 billion. Under the terms of the five-year agreement,
+1 (212) 885-2752 State Street will provide custody, fund accounting,
December 6 2005, 4 days +1 (212) 885-2796
12th Annual Risk Management
securities lending and bespoke reporting services to
Web: the Lloyds TSB Group Pension Schemes. WM
Geneva, Switzerland http://www.wbresearch.com/fimausa/related.a
ICBI Performance Services, the European performance
sp measurement division of State Street, will also contin-
Tel: +44 (0) 207 915 5103
Web: http://www.icbi.co.uk ue to provide performance measurement services. The
March 28 2006, 3 days
terms of the initial mandate, signed in 2000, covered
Hedge Funds World Espana 2006
February 1 2006, 2 days Hotel Ritz, Madrid, - Spain
only custody, with the other services having been
European Transfer Agency Forum Terrapinn Ltd added gradually over the course of the relationship.
Luxembourg Tel: +44 (0) 20 7827 5940 “We are very happy to reappoint State Street as our
IIR Fax: +44 (0) 20 7242 1508 investment services provider,” said Colin Grindle, head
Tel: +44 (0) 207 915 5000 Web: of Pensions at Lloyds TSB. “The level of support has
Fax: +44 (0) 207 915 5001 www.hedgefundsworld.com/2006/esp/conf- been first-class, and we have been particularly pleased
Web: www.iir-conferences.com prog.stm with their levels of interaction and willingness to part-
ner with us. In particular, the bespoke reporting State
February 8 2006, 4 days April 25 2006, 4 days Street provides has helped us significantly streamline
5th Annual Institutional Fund Management TradeTech Europe 2006 our back office operations.”State Street scored another
Geneva, Switzerland Paris billion dollar deal with mutual fund manager Charles
ICBI WBR Schwab. The custodian was selected by Charles
Tel: +44 (0) 207 915 5103 Tel: +44 (0)20 7368 9465
Web: http://www.icbi.co.uk
Schwab Investment Management (CSIM) to provide a
http://www.wbresearch.com/TradeTechEurope broad range of investment services including account-
/index.html ing, custody and securities lending to the Schwab
February 16, 2 days
6th Annual Optimising Back Office Efficiency Funds and Laudus funds. The fund complexes repre-
April 25 2006, 2 days sent more than 67 funds in total and $140 billion in
London, UK Hedge Funds for Pension Funds 2006
Marcus Evans assets.“Our goal is to move from a complex structure
Amsterdam, The Netherlands
Tel: 44 (0) 207 499 0900 IQPC
of several outside vendor relationships to a simpler
Fax: 44 (0) 207 409 0990 Tel: +44 (0) 20 7368 9300 one, consolidating to gain efficiency,” said George
http://www.marcusevans.com Fax: + 44 (0) 20 7368 9301 Pereira, chief financial officer of CSIM. “The new fund
Web: http://www.iqpc.co.uk accounting and custody structure we have implement-
February 27 2006, 3 days ed will offer numerous benefits, including a simpler
Hedge Funds World Middle East 2006 June 2006 and more scalable operating structure, a more efficient
Jumeirah Beach Hotel, Dubai - U.A.E 12th Annual GAIM (Global Alternative shareholder reporting process and tighter risk manage-
Terrapinn Ltd Investment Management) ment. State Street excelled in all aspects of the com-
Tel: +44 (0) 20 7827 4165 Venue to be announced petitive bid process and is the best choice to serve
Fax: +44 (0) 20 7242 1508 ICBI CSIM’s needs going forward.” In the UK, Phoenix
Web: Tel: +44 (0) 207 915 5103 Administration Services Limited (Phoenix) has been
http://www.hedgefundsworld.com/2006/hfw%5FA Web: http://www.icbi.co.uk chosen by Governance for Owners LLP (GO) to provide
E/
outsourced investment administration services to their
February 27 2006, 2 days newly launched Governance for Owners European
July 4 2006, 3 days Focus Fund LP.
TradeTech MiFID 2006 Fund Forum 2006
Millennium Mayfair Hotel, London G0 is an independent investment management
The Grimaldi Forum, Monaco group, which announced this week that Railpen, one of
WBR ICBI
Tel: +44 (0)20 7368 9465 the largest pension funds in the UK is its first major
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Web: http://www.wbresearch.com/tradetechmi- Fax: +44 20 7915 5101
investor, putting EUR200 million into the GO
fideurope/index.html Web: www.icbi-fundforum.com European Focus Fund. JPMorgan Worldwide Securities
Services has been selected by Kiewit Investment Fund
LLLP ("the Fund") for a full range of fund services.
Mandates Table

Month Winner Client Location Assignment Mandate Size

November SG GSSI Weinberg France Trustee Services EUR 400 m


November Citigroup Lothian fund UK Global Custodian £2bn
November UBS Bantleon Bank Switzerland Fund Administrator EUR 2.6bn
October State Street C. Schwab US Investor Services $140bn
October Phoenix Admin GO UK Investment Admin. EUR200m
October State Street Lloyds TSB UK Investor Services £11bn
October JPMorgan Kiewit UK Fund Services -
September State Street Connecticut US Investor Services $21bn
September FIMAT Priam Fund France Prime Broker New Fund
September JPMorgan NYPF UK Transition Manager £880 million
September JPMorgan NBGF Norway Custody / SecLending $2.25 bn
September Mellon LASERS US Master Custody $7bn
September N. Trust Commerce BankUS Custody & Accounting $825 million
September State Street Rhondda Cynon UK Global Custody £850 million
August JPMorgan ICI UK Global Custody £6.5bn
July State StreetGA StaffordshireC. UK Passive Equity Investment £340m
July Northern Trust HOOPP US Global Custody CAD22 bn
July Northern Trust Weingart F. US Custody $700m
July BNY ICI Spec Chem UK Global Custody £230 million
July BNP Paribas Money Portal UK Distribution Platform -
June State Street PPF UK Custody New Fund
May State Street West Sussex UK Custody £740 m
May Bank of NY Suncorp-Met. US Clearing Services -
May State Street AMEC UK Investor Services £950 m
May State Street Oregon US Investor Services $60bn
May PFPC Superfund CM US Investor Services
May RBC GS Mavrix US Fund Valuation 25 funds
May JPMorgan Aviva Funds Luxembourg Fund Accounting EUR3bn
May IFDS F&C AM UK Transfer Agency UK Funds
April BNP Paribas F&C AM UK Custody & Inv. Services -
April JPMorgan Old Mutual New York Global Custody $14bn
April SimCorp Kas Bank UK Technology/Software EUR300bn
April ABN / Mellon Institutions Asia Pac Global Custody EUR16bn
April BNP Paribas AberdeenAM London Fund Admin -
March ADP Wilco Lupus alpha Germany Technology/Software -
March ABN / Mellon Derbyshire EnglandGlobal Custody £1.45bn
March Kas Bank TNOPension Netherlands Asset Admin. EUR1.5bn
March Mellon Golden Leaf US Custody & Inv. Services $400m
March State Street BofAmerica US Investor Services $224bn
February Bisys JO Hambro London Administration Services $4bn
January BNP Paribas B. Sabadell Spain Global Custody EUR5.8bn
January N. Trust Insight IM UK Outsourcing -
January N. Trust KBL UK Fund Accounting £325m
January State Street ChevronTex. UK Investor Services $2 bn
January BNY ING IM UK Outsourcing EUR 67bn
January BNY NBP France Global Custody EUR 80bn
January BNY Abbey UK Global Custody £30bn
December Fidelity TextronInc. US Investor Services -
December CIBC Mellon Manulife Toronto Custody $60 bn
December BNY New Smith London Custody New Fund

INVESTOR SERVICES JOURNAL 67


Letters (continued from page 4)

Clearing the Complexities exchanges. mation, without bearing the burden of


The world of securities transactions is a This means a lot of management atten- maintaining operational relationships with
very complex one. Getting trades settled tion will need to be invested in setting up each party involved.
into a client’s custody account requires a these memberships, coping with rules Geert VanderBeke, Head of Fortis
chain of intermediaries that need to tune and compliance issues, attracting trained Brokerage Services
their instructions properly. It starts in the staff (from the sell side), developing new
local market environment, where the tools and systems, etc. Is this a core Anything but the Best
transaction is contracted with a local bro- business? Best market practices are the corner-
ker and usually settled through a clearing These fragmented solutions are trying stone to bring about straight-through pro-
house. The resulting position at the CSD to cope with each individual problem. cessing in the corporate actions busi-
then needs be transferred to the local Why not opt for a more all encompass- ness. STP translates into improved cus-
custodian of the end client that may be ing approach, and first define the goals to tomer service, lower operational costs
acting on behalf of a designated global achieve rather than the means for getting and reduced financial risks.
custodian. Ultimately, the latter will get there? For example: And yet today’s practices are anything
instructions from the investor to accept i. direct access to exchanges at the but the best. They can often be redun-
delivery or receipt of the instruments. lowest possible operating cost, turn- dant, inefficient, overly complicated,
This seems a fairly simple process. ing fixed costs ‘up front’ into variable expensive and risk-prone. In the mean-
But it is only at first impression. An costs ‘as you trade’
investor usually wants to use a number of ii. single standard for order routing, Mishandling a single,
Recent developments, like the
using an introducing broker that
organises the entire ‘street side’ for
complex event can cost a
Markets in Financial order execution and settlements securities firm tens of
Instruments Directive, not
iii. having access to efficient middle
office tools and service (including
millions of euros in losses
only create new possibilities, ETC and block order allocation),
without having to invest in building
time, corporate actions are becoming
increasingly complex – and this complex-
but also additional complexity and paying variable costs ‘as you ity means greater chance of making a
pass’ mistake.
brokers, in order to get access to their iv. single standard for back office opera- Mishandling a single, complex event
sales, research and execution servicing. tions, allowing significant automation can cost a securities firm tens of millions
In order to automate the order routing of not only the settlement process of euros in losses, according to Oxera, an
and settlement process, a number of but also corporate actions, position independent European economics con-
specific solutions were introduced to reconciliation sultancy.
mend specific problems individually : These goals can be achieved by out- Corporate actions present an industry-
The FIX protocol has changed the world sourcing the business process to a party wide challenge that requires an industry-
of order routing over the last decade, allow- like Fortis, which has developed relevant wide approach locally, regionally and
ing for significant reduction in front and applications over the last five years. globally.
middle office staff and improved efficiency The result is a suite of tools that are To help create industry standards
down the value chain. made available to investors for achieving among issuers and financial firms that
This messaging can be organised a higher STP-rate in processing their process global corporate actions, most
‘point to point’ or through the use of a order and deal flow. Of course this may countries have established National
routing hub like SWIFTNet or ROR. require adjustments to the existing busi- Market Practice Groups (NMPGs). In the
The setting up of central settlement ness model, but the reward can be signif- U.S., ISITC-IOA acts as the U.S. NMPG
instructions repositories, where sell side icant. Not only will overall operational for global corporate actions. DTCC
adherents to the system could log on to costs drop, the result is that the process serves as both co-chair of ISITC-IOA’s
retrieve the most recent information for can be automated to an extent not possi- Corporate Action Working Group and the
the buy side accounts, was not a free ble when doing this individually. U.S. representative to the Global
show, and still needed a lot of updating. Securities Market Practice Group
Nevertheless ‘Electronic Trade This set up can cope with (SMPG), which oversees standards for a
Confirmation’ has become an industry significantly mounting variety of industry issues, including cor-
standard. The development of the SWIFT porate actions.
messages suite, offers effective standard- volumes without requiring These groups are making steady
isation in the custody domain. additional investments in progress to resolve issues and promote
These formats have been re-used in STP for corporate actions, but they still
the electronic tools that are made avail- people and tools have a long way to go.
able over the internet. More industry participants need to get
Recent developments, like the Markets This set up can cope with significantly involved. By joining in, you can have a
in Financial Instruments Directive, not mounting volumes without requiring addi- direct impact on evolving standards, and
only create new possibilities, but also tional investments in people and tools. through participation, you can network
additional complexity. In this model Fortis would not only act with industry experts to gain better insight
In a drive to manage the information as a global broker, but also as a catalyst and understanding of best practices.
flow on their orders, as well as the actual for achieving street side standardisation James Femia, Managing Director, The
execution in the market, buy side by acting as a kind of ‘prime broker’. Depository Trust & Clearing Corporation
investors are giving thought to becoming This means that you could still get Letters to
members of a number of relevant access to your preferred ‘sell side’ infor-
Janet.duChenne@isjforum.com

68 INVESTOR SERVICES JOURNAL


Meet the Future

responsible for such large transactions, I listener and people person, he believes in
was proud to be involved. your ideas and goals and helps you to
reach them, he inspires me to be a suc-

The People How did you end up at TD Securities?


The next transitions in my career came
when Lionel deMercado Global Head,
cessful and respected leader like he is.

What changes have you seen throughout


Equity Finance, TD Securities was inter- your career in the industry?
ested in me for a position as Business Throughout my time in the industry
ISJ speaks to Jennifer Analyst in Technology Solutions to sup- the biggest drivers for change have mainly
port his Equity Finance Business. been technology related. Having superior
Ocampo-King, Relationship Technology solutions pushed me to move technology solutions has become
Manager with TD Securities from a clerical level to a professional role. extremely important in separating your-
in the first of our new Here, I was given the chance to provide self from your competitors. At TD
input, develop and enhance processes. Securities it has been exciting to witness
‘Meet the Future’ profiles This led to my next move, the trading the development and implementation of
floor. Once again, Lionel offered me this technology to our business and how it
Ocampo-King’s interest in the financial opportunity. I joined his team as a rela- affects us on a day-to-day level.
dates back to when she was 14 years old. tionship manager in Prime Brokerage and
During a ninth grade school trip to the Securities Lending. This has been my Where will you be in five years time?
Bank of Nova Scotia's head office, most exciting role yet. The team dynam- I see more opportunity, more responsi-
Ocampo-King was impressed by the ics, the hectic pace, and the sense of bility, more results. I see myself in a sen-
energy and magnitude of the day to day accomplishment only fuels the passion I ior role contributing to the growth and
operations of the bank's securities deal- have for the job. I have learned more here development of the team. I am extremely
ers. Ocampo-King says: “I decided then than I ever thought driven and dedicated to being a successful
and there that this was where I would possible. I have also part of the big picture at TD Securities. I
work one day.” In 1998, when the chance been afforded the am going to utilize this opportunity I
came up to work as a Co-op student at opportunity to show- have been given to it's full potential.
the Bank of Nova Scotia, Ocampo-King case my skills and
did not hesitate. She worked in ideas. This reciprocal Outside of work, what are your vices?
Marketing, where her main responsibili- support has me look- This is an interesting question, I would
ties included proof reading, writing copy ing forward to the have to say chocolate. Although choco-
for in-house monthly newsletters and future where I believe late is also during the work day.
advertising literature and tracking and I will continue to take Additionally I am also very found of a
balancing invoices. Here efforts were Jennifer my career to new and certain reality TV show, The Apprentice.
soon recognised and Ocampo-King was Ocampo-King exciting levels.
offered a paid position in the summer If you were not working in the financial
student program. After noting her deter- What are you goals for the future? industry what job would you be doing?
mination and work ethic in global equity My main goal is to help mentor young One of my passions is Art, designing
settlement operations, Ocampo-King’s people. So many young people out there and creating, I would be working at an
employers was offered full time employ- have incredible potential but do not have advertising firm probably in the graphic
ment within the Bank... access to guidance. I would like to be in arts department. During my co-op term
the position to help them realize their in Marketing, my boss at the time sent
...so what came next? dreams and goals just as I was given the me to an advertising firm to work for a
“I took what could be seen by some as a chance at a young age. For my own few days it was an incredible experience
brave step, I accepted the role and fin- career goal it would be to go into execu- that I will never forget. It was exciting to
ished high school via night courses. I tive management and be successful. learn about the development of different
thrived in global settlements. I learned a types of media and the tools to sell cer-
great deal about the workings of settle- Who are your role models? tain products, the lessons I learned are
ments and operations as a whole, which The first which springs to mind is something that you can apply to any
lead me to the next step of my career in Esmeralda Azevado who first took a industry.
the fast paced environment of securities chance on me when she hired me at such
lending. In Securities Lending, I was a young age and took me under her wing Name: Jennifer Ocampo-King, 24
exposed to several different areas of the at Scotia Capital Markets. Nora Rainboth, Title: Relationship Manager, TD Securities
bank and given responsibility for hun- Education: Lorette Abby - OSSD
has been so influential, in my eyes she is Canadian Securities Institute – Canadian Securities
dreds of millions of dollars in transac- an extraordinary businesswomen who
tions. This unique setting enhanced my Course (In progress)
instilled in me that I can accomplish any- Employment: 1998 – 2003 Scotia Capital Markets,
skills and helped me develop important thing and to just be myself. Additionally Trade Settlement, Securities Lending, Collateral
relationships with counterparties on the my husband Philip King who I met in the Management. 2003 to date TD Securities, 1 yr in
street. industry, he exudes confidence and Technology solutions as a business analyst before
Did handling such large transactions at integrity and taught me to be a very becoming relationship manager in Prime Brokerage
such a young age frighten you? strong person. Lastly my mentor is my and Securities Lending, Equity Finance
Not at all, it was very exciting to be boss Lionel deMercado. Lionel is a great

INVESTOR SERVICES JOURNAL 69


People Moves

Moving & Shaking


Robert Binney, Managing Director and Head of the company to return to the United States. and his team.”
Global Client Development for Global Murphy, who is currently employed as a Senior
Transaction Services at Citigroup retired from his Legal Advisor at Fortis Bank, Brussels, will also Northern Trust has named Nirup
post on October 21, 2005. become a member of the Euroclear Group Krishnamurthy as its Executive Vice President
The date marks a decade of service to Global Management Team. and Chief Technology Officer. Krishnamurthy is
Transaction Services, joining Citigroup in 1996 to based in Chicago and reports to Timothy J.
lead the development of new securities business JPMorgan has also announced a number of Theriault, President of Worldwide Operations
in the region. Senior Management changes. and Technology.
Dave Phillips, Managing Director and Head of With 27 years experience at the firm, Conrad
Financial Institutions for Citigroup’s Global Kozak will replace Neil Henderson as Senior Vice Before joining Northern Trust, Krishnamurthy
Transaction Services, said: "Robert has played a President of the Securities company of JPMorgan was Vice President and Chief Information Officer
significant role. Under his leadership, we have Worldwide Securities Services. He will report of UAL Corperation, and previously served as
had considerable success in the market and seen directly to Mike Clark, Executive Vice President Vice President of United’s Information Services
much growth. " and Head of JPMWSS. division, beginning his career in their finance
Also, Liz Nolan, Global Clearance Executive division in 1990.
Deutsche Bank has appointed Robert Mann as and Co-Head of WSS in Europe, the Middle East "Nirup's appointment as Chief Technology
Managing Director in Technology M&A. and Africa (EMEA), will assume full regional Officer is an important step in our continuous
Mann is based in Boston and reports to leadership of JPMorgan WSS EMEA, previously efforts to strengthen and advance our competi-
Michael Murray, Co-Head of Technology shared with Ramy Bourgi, Senior Vice President. tive position,” said Theriault.
Investment Banking in the Americas with Tor
Braham, and to James Stynes, Head of M&A in Citigroup Global SEI, the Dublin-based asset management serv-
the Americas. Trannsaction Services ices and investment technology solutions
With more than 15 years investment banking has expanded its provider, has appointed Barry O’Rourke as
experience he joins Deutsche Bank from Securities business Managing Director of their fund accounting, fund
Revolution Partners, where he was Managing throughout Western administration and shareholder services busi-
Director. Prior to Revolution Partners he spent Europe and has ness.
seven years at Credit Suisse First Boston, where appointed Ken Back Prior to joining SEI, O’Rourke was Director and
he was Managing Director and Co-Head of as Managing Director Head of Alternative Fund Administration for the
Technology M&A. of Strategic Irish-based Securities Services business of HSBC
Solutions, EMEA, Alternative Fund Services.
Euroclear SA/NV has announced a series of with immediate “We are delighted to welcome Barry to our
Senior Management changes taking effect on effect. Global Fund Services business in Dublin,” said
March 1, 2006. Reporting to Tom Steve Meyer, Head of SEI’s Investment Manager
Current Chief
Ken Back Abraham, Managing Services business. “Barry’s considerable experi-
Executive Officer of Director and Global Head of Strategic Solutions ence within the Irish Fund Administration indus-
Euroclear France, in Global Transaction Services, Back will have try will prove invaluable in his new role as
Joël Mérère, is to responsibility for structuring and managing out- Managing Director.”
become Executive sourcing transactions, and developing its prod-
Director in charge of uct offering to the asset management sector. Societe General Global Securiities Services for
International Public Prior to joining Citigroup, Back was Chief Investors have announced the appointment of
Policy, reporting to Operating Officer and Executive Director of ISIS Walter Koller as Head of their Investment
Pierre Francotte, Asset Management Plc from 1999 to 2004. Banking Services in the United States.
Chief Executive He will be responsible for developing the
Officer of Euroclear Mark J P Anson will Securities Back Office outsourcing business, tar-
SA/NV. He will also succeed Tony geting banks and brokers dealers in the United
become Vice Watson as Chief States.
Joël Mérere Chairman of the Executive of Hermes Having spent the last 17 years as an associate
Euroclear France Pensions with Fiserv Securities Inc, Koller served as the
Board of Directors. Management Chief Executive Officer and formerly as the Chief
Pierre Slechen, Managing Director and Head of Limitedd, when Mr Operating Officer and Chief Investing Officer.
Product Management at Euroclear SA/NV, will Watson retires at the
become the new Chief Executive Officer of end of January 2006. Steve Miller has joined the Product
Euroclear France. Anson previously Management team at SmartStream as Senior
And, Pierre Yves Goemans, Director of worked for the Product Manager.
Marketing and Sales Support in Euroclear’s California Public With initial responsibility to TRM Corporate
Commercial Division, will replace Mr Slechten as Employees’ Actions, Miller’s appointment is further evidence
Managing Director and head of Product Mark Anson Retirement System of Smartstream’s to this attractive and growing
Management. (CalPers) as the market sector.
Additionally, Euroclear has named Ambrose Chief Investment Officer. Miller brings with him 20 years experience of
Murphy as General Council and Head of the Richard Bernays, Chairman of Hermes, said: solution design, engineering and delivery of STP
Legal Division, effective January 1, 2006. “I’m delighted that Mark is joining us. He is a solutions to the wholesale banking and securities
As General Counsel, Murphy will oversee a well-known and highly respected figure. He will IT market. Most recently he was Product Director
team of lawyers and compliance officers support- bring a different perspective to Hermes, to for Century 24 Solutions and has spent time with
ing each of the legal entities within the Euroclear build on the excellent work undertaken by Tony Braid, BIS Banking Systems and ACT Financial
group. He succeeds Kristen N. Geyner who leave
70 INVESTOR SERVICES JOURNAL
People Moves

Systems. with WM, which he has held since January 2004. Prior to joining Standard & Poor’s, Price
State Street acquired WM in January 2003 in con- worked at Thomson Financial in Asia for three
State Street junction with a substantial portion of Deutsche years in business development and product man-
Corporation has Bank’s Global Securities Services business. agement, launching products across the region.
appointed Peter Steve Wisson has been appointed to a new role Before that, he was with Coleman Bennett
Baker as head of as senior vice president responsible for client International for five years as a market data con-
State Street’s integration within State Street’s investment oper- sultant, working for global financial institutions.
Investor Services ations outsourcing group. Wisson joins State “We welcome James aboard. We look forward
business in the UK, Street having served for three years as the global to working with him to identify new opportuni-
Middle East and head of operations for AXA Investment Managers ties as well as enhance our strategic approach to
South Africa. Baker (AXA IM), a role in which he worked very closely content distribution,’ says Biltoo. “His appoint-
assumes the role with State Street in forming their landmark out- ment further supports our strategy of working
from Jeff Conway, sourcing partnership. with financial-sector clients to provide high quali-
Peter Baker who will return to ty information and analytical tools that are
Boston at the end of Mellon Transition Management Services embedded in their internal systems.”
the year to take on a new role as head of State announced today that John P. Egar has been
Street’s Executive Operations and Strategy (EOS) appointed to the position of vice president, mar- The Bank of New
and Investor Relations. keting, Canada. “John brings extensive business York has appointed
“Our Investor Services business in Northern development and sales experience to Mellon Robert Darmanin as
Europe couldn’t be stronger, and I am pleased to Transition Management Services (MTMS),” said Head of European
hand over the reigns to Peter,” said Conway. Mark A. Keleher, president. “Based in Toronto, Custody and
“Although I will miss working with my col- John will be focused on further developing our Pensions. Based in
leagues, we have a deep and talented manage- presence in Canada. With his wide-ranging expe- London, he reports to
ment team in place which will continue to lead riences in the Canadian investment industry, he Stephen Richardson,
our business. Peter has been a crucial part of is a strong addition to the company.” Executive Vice
that team and I am confident in his ability to Egar, a Fellow of the Canadian Securities President, and Head
build on our strong growth.” Institute, will have overall responsibility for of Investor Services
State Street has achieved notable successes in building a strong sales team and developing Europe.
Northern Europe thus far in 2005. Full-service strategies to support the investment and transi- Darmanin’s previous
middle- and back- tion management needs of CIBC Mellon and Robert Darmanin role was in the
office investment Mellon clients based in Canada. bank’s investment
operations outsourc- Prior to joining MTMS, Mr. Egar held executive managing division based in New York where he
ing partnerships management positions at a number of large, headed up corporate finance activities, business
have been formed nationally renowned investment dealers, includ- development and the overall relationship with
with AXA Investment ing Wood Gundy and CIBC World Markets. investment management clients. Prior to that, he
Managers and MTMS, which provides premier global transition was Head of worldwide sales, service and prod-
extended with management services to institutional clients, uct management at Bank of America.
Scottish Widows focuses on reducing transition costs by minimiz-
Investment ing market impact and maximizing market liquid- News Flash: Sir John Bond, 64, Group
Partnership. State ity in a risk-controlled environment. Chairman of HSBC Holdings plc since 1998, will
Street also continues Supported by state-of-the art trading and ana- retire at the Annual General Meeting on 26 May
to build its market lytical systems, a dedicated portfolio 2006, after 45 years service. Sir Bond will be suc-
Jeff Conway share with prominent management team oversees the transition ceeded as Group Chairman by Stephen Green,
mandates to service process from pre-trade planning to post-trade 57, who joined HSBC in 1982, and is currently
asset owners and asset managers such as the analysis. Group Chief Executive.
UK’s Pension Protection Fund (PPF), Merseyside Stephen Green will be succeeded as Group
Pension Fund and Liontrust Asset Management. Standard & Poor’s Chief Executive by Michael Geoghegan, 52, who
“I am very excited to assume this role,” said has appointed Jamees joined HSBC in 1973 and is currently Chief
Baker. “We have achieved tremendous growth Price as Director of Executive of HSBC Bank plc, the Group’s princi-
and success during Jeff’s tenure and I look for- Market Development pal subsidiary in the UK.
ward to building on this foundation.” for its European data These appointments have the unanimous sup-
Baker, age 44, has served as managing director and information serv- port of the Directors and have been made after
of State Street’s Investor Services business in ices business. consultation with representatives of major insti-
London for the past 18 months. Prior to this role, Based in London, he tutional investors and explanation of the succes-
he served as the managing director of State will report to Krishna sion planning and independent external search
Street Australia for three years. Biltoo, Managing process.
State Street Corporation has also enhanced its Director of European Michael Geeoghegan will be succeeded as Chief
UK presence with two appointments within its Data and Executive of HSBC Bank plc, subject to necessary
Investor Services business in Northern Europe. Information. approvals, by Dyfrig John, 55, who joined HSBC
Michaael Walsh, currently head of WM James Price One of Price’s main in 1971 and is currently the bank’s Deputy Chief
Performance Services, has been named manag- roles will be to Executive.
ing director and head of State Street’s business strengthen the recognition of Standard & Poor’s
in Scotland. Walsh assumes the role from John as a critical provider of financial information and
Corcoran, who is returning to Boston to take up analytical tools as well as to increase the firm’s A selection of the appointments
a role in State Street’s mutual fund administra- outreach to credit markets. He will head a team updated daily at WWW.ISJFORUM.COM
tion group. Walsh will continue to retain his role of five professionals based in London.

INVESTOR SERVICES JOURNAL 71


Recruit & Retain

structure roles due to outsourcing agree- 'preferred suppliers', accurately relaying

Good ments reaching their end and infrastruc-


ture recruitment being brought back in
house. Credit derivatives are extremely
the timeframe and needs of the hire.

How does regulation affect the

Condition topical in hiring circles, however there is


healthy demand across all derivatives
business areas and we have had just as
much trouble finding good equity deriva-
recruitment arena?
Generally regulation is seen as a posi-
tive development in the market but there
is the concern that it will lead to more
tives and fixed income derivatives people automation of systems and processes
Maggie Berry talks to as those in the Credit realm. Within fund
management operations there is a high
which in turn will lead to the industry
requiring fewer staff. However, it will also
ISJ about the health of demand for qualified fund accountants mean that for any new project or new
and accountants with investment man- business, regulation will need to be taken
the financial services agement experience. Credit risk is a high into account, possibly leading to there
recruitment market growth area and institutions are looking
to hire individuals from the large players.
being more consultants working in this
field. So we think that regulation could
bring some initial downsizing in the front
Where will the top jobs come from? office but the impact of more automation
It is always difficult to predict which in the trading area is liable to lead to
areas of recruitment will be key over the more technology recruitment - so very
next 12 months but we anticipate that all much a "swings and roundabouts" sce-
Is the recruitment market healthy? of the following areas will be busy: nario. In terms of risk, regulation is a
2005 has been a busy year for recruit- Technology - front office development, very positive move - it is important that
ment and hiring has remained steady project management, project governance, organisations have a regulatory guidelines
across all areas within financial services. relationship management. Voice/data and to follow to ensure that a firms' risk
Banks are investing again in new IT proj- data centre technologies, connectivity and exposures are kept to a minimum. To
ects (primarily front office) increasing the algorithmic trading. Derivatives and fixed date compliance recruitment has benefit-
demand for IT professionals especially as income, interest rate/credit derivatives, ed universally by the increased regulation
newer technologies have been adopted commodities, asset management and - but at this stage we can't quantify the
over the past 12 months. However as prime brokerage as well as SOX, Basel effect that increasing levels of regulation
banks promise to pay good bonuses, and MiFID. Finance – commodities, busi- will have on future compliance employ-
more top-level candidates are deciding to ness analysts to work on outsourcing and ment.
stay with their current employers. Fund offshoring projects. Risk – counter-party
managers have been recruiting heavily credit risk. Compliance –Basel II, risk and Do training organisations offer rel-
within their operations departments but prudential policy. Hedge funds/private evant courses?
demand has outstripped supply of candi- equity firms – regulation, Basel II, SOX, As most firms operate their own gradu-
dates with relevant professional qualifica- operational and credit risk. ate recruitment programmes we don't get
tions. We have seen roles requiring highly involved too much with hiring for entry-
specific experience (e.g. OTC derivatives What advice would you give to level positions. However we do often get
or fund accounting experience) staying companies in their search for asked by candidates whether they should
unfilled for three to four months. The skilled people? embark on post-graduate study to
risk market has become increasingly spe- We feel there are various approaches enhance their career prospects.
cialised with a growing demand on the firms within the financial markets could Educational background and the
credit side for professionals with corpo- take to have more success in hiring candi- undertaking of additional courses often
rate/financial markets experience - these dates: i. Increase hiring through network- only strengthens a candidate's credibility
skill sets are rare and recruiters have ing and referrals ii. Operate a quicker rather than equipping them with the spe-
faced a challenge in finding these people recruitment lifecycle – many firms lose cific skills they'll need to do the job. In IT,
which has pushed compensation pack- out as competitors have shorter interview people tend to gain their experience in
ages up. Compliance, which is always a processes. iii. Be prepared to train the work environment – and most
fairly consistent area of recruitment, has unskilled candidates who have the poten- employers see this on-the-job experience
experienced a very positive year to date. tial to do the job iv. Be more open to can- as key. Our perception is that many busi-
didates from abroad – look into sponsor- ness and finance degree courses give peo-
Where is the highest calling for ship for candidates from outside the EU. ple the theoretical knowledge of financial
new recruits? Be more open to candidates from sec- products and what different companies
Within technology there has been an tors outside of banking – candidates from do (e.g. hedge funds, investment banks,
increased demand for candidates with blue-chip technology firms and consul- fund managers) but the practical side of
circa two years' post-graduate experience tancies are easier to find, are technically every day operations isn't taught.
however these are in short supply as very well trained and often have lower
graduate hiring had not yet gained trac- salary expectations From a recruitment Maggie Berry is Sales Support Manager for
tion in early 2003. We have also seen a point of view, companies need to build McGregor Boyall Associates, a recruitment
rise in recruitment for technology infra- stronger/closer relationships with their firm.

72 INVESTOR SERVICES JOURNAL


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Conference Digest - RMA in Florida

and lenders have tapped into more sup-


An update on the Agency Lender
Disclosure Initiative opened the RMA
Carol McGinn reports ply, which “is not where it’s needed to be,
Conference on Securities Lending on
Tuesday, October 18, in Boca Raton,
from the RMA given the demand that’s out there.” They
said that prime brokers need to be “more
Florida. The roundtable discussion, led by Securities Lending aggressive” in obtaining supply. Although
spreads have compressed significantly
Industry Taskforce members Les Nelson,
Managing Director, Goldman Sachs & Conference in Florida over the past few years, panelists did not
Co.; RMA Committee on Securities think hedge funds were looking to
Lending Chairman Eugene Picone, Senior “squeeze prime brokers so there’s no

Trading
Vice President, JP Morgan Chase; Bradly spread left at all,” as prime brokers offer a
Smith, Managing Principal, Capco; and service for hedge funds.
Mariana Kind, Capco Project
Market Focus

Thoughts
Management Office of the Industry
Taskforce, was attended by more than 100 Wednesday’s Industry Leaders’ Panel
conference participants, with many more featured discussions on the size and
in attendance via teleconferencing. growth of the lending market, possible
Nelson opened by noting that the num- merger and acquisition activity,
ber of Taskforce members has substan- exchange-traded funds, and thoughts for
tially increased in just one year, from 110 dentiality agreements, which both agent 2006. Moderator Mark Faulkner, Chief
in May 2004 to 415 in October 2005. lenders and broker-dealers are reviewing. Executive, Data Explorers Limited, led the
During that same time period, the num- According to one panelist, “What made panelists in an interesting question and
ber of firms increased from 24 to 88, with agent lenders satisfied was a record-keep- answer forum. Panelists were Paul Adolf,
the number of participants in each work- ing nightmare for the broker-dealers, as Manager, Securities Lending, Vanguard
ing group (Capital, Credit, Infrastructure, they had to have agreements with each Group; Timothy Douglas, Managing
Legal, and Testing) growing as well. party.” Panelists and participants agreed, Director, Citigroup Global Transaction
Significant progress has been made since however, that confidentiality agreements Services; Peter Economou, Senior Vice
the inception of this initiative in 2003, are a “critical path” in this initiative. President, State Street Corporation; and
when the SEC raised concerns about the On Wednesday, the conference resumed Christopher Hagstrom, Managing
level of information disclosure in agency with opening remarks from Picone as Director, UBS Investment Bank.
lending transactions. Incremental well as from Conference Co-Chairs Louis Faulkner opened the session by present-
add/delete files, borrower’s response, and Molinari, President, Metropolitan West ing some estimates of the size of the lend-
master file layouts have been finalized. Securities LLC, and Anthony Schiavo, ing market. Generally, panelists agreed
Among other accomplishments in the Managing Director, Morgan Stanley & with these estimates, saying that they
credit prequalification work stream, local Co. Picone then presented the 2005 “mirrored the global repo market.” They
legal identification fields have been added Bargerhuff Award to Andrew Sears, Vice agreed that the equities market and glob-
for foreign entities, and principals’ President, Boston Global Advisors, for his al equity capital market are gaining
address field have been redefined. More outstanding service and contribution to momentum in the marketplace. One pan-
than 70 per cent of Taskforce participants the Committee. Sears has been instru- elist said he believed heavy cash flow into
have tested or are currently testing incre- mental in assisting with several mutual funds was feeding the market-
mental add/delete files. Also, 25 firms are Committee initiatives, including the place. Hagstrom, representing the bor-
in “live” mode for transmission of the Agent Lender Disclosure project. rower side on the panel, believed there is
incremental add/delete file. A panel on hedge fund issues and devel- “huge growth” on the demand side, and
In addition, the Taskforce is still waiting opments followed, led by Moderator John that the lending market definitely has
for responses to three proposals it pre- Stracquadanio, Director, Barclays Capital. room for more growth. In addressing
sented for approval to the regulators. Panelists were Arthur Dirocco, Treasurer, merger and acquisition activity, one pan-
These proposals included (1) the cre- Amaranth Advisors LLC; Brian Keogh, elists said M&A activity this year was bet-
ation of a new daily loan file to accom- Vice President/Securities Lending, ter than in 2004, but it is “just one driver
modate the transmission by agents of Deephaven Funds; Paul Lynch, Vice of the lending. The more balanced
noncash collateral allocations, (2) recon- President, State Street Corporation; approach you take to your lending port-
ciliation processes for broker-dealers that Michael Kelleher, Executive Director, UBS folio without relying on mergers or
are applicable to daily loan data, and (3) Investment Bank; and George O’Connor, acquisitions can position your program
elimination of the “open date” at the Securities Lending Product Manager, well.”
principal loan level. Barclays Global Investors. Panelists point-
ed to the growing number of hedge funds Regulation
Confidentiality in the U.S., managing more than $1 tril- Thursday started with a session on
Participants expressed concern over lion in assets. Large funds are attracting Regulatory Developments, including
several issues, most notably confidentiali- most of this growth, which has had an Regulation SHO and Basel II. Moderator
ty agreements. An industry-wide confi- impact on the securities lending business. Leslie Nelson, Managing Director,
dentiality agreement seems unlikely, Panelists discussed supply and demand Goldman Sachs & Co., started by saying
according to the panelists. RMA has pro- in the hedge fund industry. In the past that the past three to four years have seen
posed the bilateral negotiation of confi- several years, panelists said, prime broker heightened regulatory scrutiny of the

74 INVESTOR SERVICES JOURNAL


Conference Digest - RMA in Florida

securities lending industry. Each panelist Basel 2 Risks


then addressed some of those regulatory Gregory Lyons, Partner, Goodwin Wednesday’s keynote speaker, Robert
hurdles. Procter LLP, and Angi Meyers, Senior Hormats, Vice Chairman, Goldman Sachs
Kevin Campion, an attorney with Vice President, Northern Trust Company, International and Managing Director,
Sidley Austin Brown & Wood LLP, pro- provided background and an update on Goldman Sachs & Co., talked about inter-
vided an overview of Regulation SHO, Basel 2. Basel 2 is meant to rely more on national finance risks. Much of his pres-
which, since becoming effective in the concept of economic capital, Lyons entation was spent on the pressing energy
January 2005, has imposed major changes said, and is a more sophisticated measure crisis and the role of oil in our economy.
in the area of short sale regulation and, in of risks. It will apply to European banks He said that in the 1990s, there was an
turn, securities lending activities. Some of and securities firms as well. In the U.S., underinvestment in energy because of the
the major initiatives of Regulation SHO however, the advanced approach is the overcapacity of the 1980s, a time when
include: (1) a "Pilot" that relaxes restric- only option available, and only the largest investors looked at energy as a low-return
tions on short sales, namely by suspend- banks, about 10, will be forced to adopt industry, resulting in an underinvestment
ing the applicable "tick" or "bid" tests for it. However, Lyons and Meyers noted that in capacity. There is little new investment
certain actively-traded securities; (2) a the Federal Reserve Board has provided in crude oil, and we are running out of
uniform requirement to "locate" securi- Basel 2-like significant capital relief on a cheap, easily available oil. There is oil to
ties available for borrowing prior to case-by-case basis to certain agent banks. be found worldwide, he said, but it is in
effecting short sales; (3) a "close-out" Panelists expressed concern, however, areas of the world where there are politi-
requirement cal risks, and
for designated Panelists expressed concern over the regulators’ the oil is “hard
"threshold to get out.”
securities" that agreement to postpone full implementation of Basel 2 Over time, he
have settle-
ment failures
until 2012, versus the original date of 2010. added, there
will be a
exceeding a designated threshold; (4) over the regulators agreement to post- decrease in the U.S.’s dependency on for-
amendments to Rule 105 of Regulation pone full implementation of Basel 2 until eign energy. However, in the meantime,
M (which generally prohibits covering 2012, versus the original date of 2010. For we are in a vulnerable situation, a prob-
short sales effected immediately prior to agent lenders that have spent significant lem that will affect the financial markets.
pricing with securities received in an resources working toward Basel 2, this He believes the US Fed will continue to
offering) to remove the prior exception was disappointing. In contrast, Europe raise rates to ensure there are no infla-
for shelf offerings, and provide interpre- has adopted a capital requirements direc- tionary expectations. Near term, he
tive guidance on certain transactions that tive for banks and investment firms, expects slower growth, especially among
may be structured to give the appearance based on Basel 2. If adopted by the EU low- and middle-income consumers.
of covering pre-pricing short sales with member states, the directive will be
shares purchased in the open market. implemented beginning in 2007. Keynote
Campion also provided some observa- Dr. William Freund, Chief Economist
tions on the impact of Regulation SHO Collateral Emeritus of the New York Stock
thus far. It was noted that preliminary A panel on cash collateral reviewed the Exchange and best-selling author, deliv-
data appears to indicate that Regulation current operating environment and dis- ered the keynote address on Thursday.
SHO is having the intended effect of cussed a neutral federal funds rate. Panel With humorous anecdotes punctuating
reducing extended settlement failures in members were Moderator Steven Meier, his speech, Dr. Freund offered his eco-
the designated "threshold securities." Senior Principal, State Street Global nomic outlook for the American econo-
At the same time, however, there has Advisors; Jeffrey Clapp, Principal, my. He said that “in the face of huge
been a great deal of activity from the reg- Barclays Global Investors; Terry Crow, shocks to our economy, our system has
ulators, namely SRO inquiries and sweep Chief Investment Officer, Metropolitan been extremely resilient, and that neither
examinations, as well as the submission West Securities LLC; Don Duncan, Vice hurricanes nor higher oil prices will
of "Wells Notices" from the SROs alleging President-Fixed Income, GE Asset derail the U.S. locomotive.”
that firms did not have proper written Management; and Tim Wilson, Director, Real GDP rose 4 per cent in 2004, and
supervisory procedures in place to Credit Suisse. Panelists said the Federal Freund expects it to grow 4 per cent in
achieve compliance with Regulation SHO Reserve has never been more transparent the first half of this year, with slightly
(even during January 2005, the first than it is today, a positive for financial lesser growth in second-half 2005. As
month that the rule was effective). firms. They were concerned, however, consumer spend more on gas and other
Campion also discussed the fact that about transition at the Fed, as any necessities, they will have less to spend on
there have been a number of recent changeover could have implications for discretionary purchases. In 2006, he
reported Securities and Exchange Fed policy and confidence. Panelists believes growth will continue at a modest
Commission enforcement actions con- added that the investment environment rate of 3 per cent, “respectable but not
cerning Rule 105 of Regulation M, as well has been favorable so far this year, citing exciting.” He added that he also expects
as enforcement actions related to the an increase in corporate and structured some slowdown in the housing market, as
effecting of short sales prior to the public debt issues and the continued growth in interest rates rise. Also, he foresees a slow
announcement of PIPEs. derivatives. but steady global recovery in the
European Union and Japan.

INVESTOR SERVICES JOURNAL 75


ISJ Directory of Services Custody, Clearing & Settlement
Australia and New Zealand Banking Group Limited (ANZ) is one of the leading finan-
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range of Retail, Corporate, Institutional and Private Banking services in addition to a
range of specialised functions including Custody Services through ANZ Custodian
F: +61 03 92732650
Services. ANZ Custodian Services is committed to our home markets and continu- Contact: Philip Dowman
ously seeks to provide our clients with highly competitive service through our cus- E: dowmanp@anz.com
tomer-focused and experienced teams, extended business hours and ongoing invest- Address: Level 25, 530 Collins
ment in technology. Our capabilities incorporate core Custody and Clearing of securi- Street Melbourne Victoria VIC
ties, Investment Administration Services, Cash, Foreign Exchange and Securities
Lending.
3000 Australia
W: www.anz.com
Assets under Custody: AUD$90 billion

BHF-BANK is one of the leading German commercial banks which operates as an Contact: Cornelia Keth
advisory, service and commercial bank on the areas of Asset Management & T: +49 69 718 3738
Financial Services, Financial Markets & Corporates and Private Banking. Financial F: +49 69 718 6050
Services comprises the bank’s custody services, investment company (depotbank) E: cornelia.keth@bhf-bank.com
services and its securities and derivatives clearing business. Contact: Moritz Ostwald
Through the combination of its local market know-how with an in-depth product T: +49 69 718 6838
expertise it aims to serve its clients in an individual and flexible way. The bank’s E: moritz.ostwald@bhf-
longstanding experience in the German securities services market goes hand bank.com
in hand with a corporate culture that values prompt acknowledgements and short Address: Strahlenbergerstraße
decision-making channels. 45, 63067 Offenbach a.Main
Assets under Custody: EUR 180 bn Germany
No of funds: 244 W: www.bhf-bank.com

T: +33 1 43 23 89 75
The CACEIS Group is a partnership between the Investor Services business lines
of Crédit Agricole S.A. and Groupe Caisse d'Epargne. We rank among the top 10
Contact: Patrick Lemuet
custodians worldwide, with 1,435 billion in assets under custody (30/6/2005). (France)
CACEIS provides a full range of services to institutional clients in France, E: france@caceis.com
Luxembourg, Spain and Ireland. These services include, global and local custody T: +352 4767 2567
(safekeeping of listed and OTC assets) depositary/trustee services, STP transac-
tions (SWIFT), corporate actions and income collection, proxy voting, tax services, Contact: José-Benamin Longrée
compliance and performance monitoring, flexible online reporting, securities (International)
lending, matching, processing and settlement. We also have links to 200+ UCITS E: international@caceis.com
registrars. Our network of sub-custodians provides a secure environment for your
W: www.caceis.com
assets in over 70 markets worldwide.

DBS offers a full range of custodial services including securities safekeeping, settlement of
trades, corporate actions and market information updates. These services are available in T: 65 6878-1830
Singapore, Hong Kong and other selected markets. DBS offers short-term, highly liquid F: 65 6878-4166
overnight facilities for its clients’ accounts to earn daily interest on any excess funds. DBS also Contact: Ms Low Swee Fun
provides the value added service of tax reclamation without holding tax reductions (where local
E: investorsvs@dbs.com
regulations permit) on income arising from securities safekept with it. Proxy voting services for
Address: DBS Bank Ltd
clients’ holdings at Annual General Meetings and Extraordinary General Meetings are also
Global Transaction Services
available on request.
Securities services is an integral part of Global Transaction Services within DBS bank. With Securities Services, 6 Shenton
more than 20 years of experience in the custody business, DBS’ strengths lie in its ability to Way, 36-02, DBS Building Tower
provide quality services, in depth knowledge and expertise of the Asian markets. Its clientele 1, Singapore 068809
compromise the major global custodians, investment banks, private banks, insurance compa- W: www.dbs.com
nies and investment manages etc.

DnB NOR is the largest and leading provider of Custody, Clearing and
T: +47 22 94 92 95
Remote Member Service in Norway In addition, DnB NOR provides a wide
F: +47 22 48 28 46
range of value added services to both Foreign and Domestic clients.
Contact: Bente I. Hoem
Through an Alliance solution with banks in Sweden, Finland and Denmark,
E: bente.hoem@dnbnor.no
DnB NOR can offer seamless regional products, which can be customized to
our indiviual client's needs.
W: www.dnbnor.com

Handelsbanken was the first Nordic bank to provide complete custody services in the T: +46 8 701 2988
entire Nordic region. We conduct in-house processing in each Nordic country, with F: +46 8 701 2990
well-experienced staff with in-depth market knowledge and access to market infor- Contact: Johan Wennerberg
mation. Each client is allocated an account manager fully responsible for the day-to- E: custodyservices@handels-
day activities, as well as a regional relationship manager. Handelsbanken provides banken.se
specialised and tailor-made custody services including complete corporate action Address: Blasieholmstorg 12,
services, securities borrowing and lending for all Nordic countries, as well as settle- SE-106 70 Stockholm, Sweden
ment and clearing services to clients that are remote members of the Nordic stock www.handelsbanken.com/nordic_
exchanges. _custody_services

76 INVESTOR SERVICES JOURNAL


T:44 207 7420102
Contact: Dick Feehan
E: dick.j.feehan@jpmorgan.com JPMorgan Worldwide Securities Services, a division of JPMorgan Chase Bank, N.A.,
T: +1 718-242-7555 is a global leader in providing innovative products and services to the world's largest
Contact: Chris E. Lynch institutional investors and debt and equity issuers. JPMorgan Worldwide Securities
E: chris.e.lynch@jpmorgan.com Services leverages its scale and capabilities in more than 80 markets to help clients
T: (61-2) 9250-4833 optimize efficiency, mitigate risk and enhance revenue through custody and investor
C: Laurence A. Bailey services as well as securities clearance and trust services.
E:laurence.bailey@jpmorgan.com
W:www.jpmorgan.com/wss

Nordea is the leading financial services group in the Nordic and Baltic Sea region
and operates through three business areas: Retail Banking, Corporate and
T. +47 2248 4544
Institutional Banking and Asset Management & Life.
F: +47 2248 4444
- The leading financial services group
C: Oda M Myklebust,
- A world-leading Internet banking and e-commerce operation
Head of Client Relations,
- The largest customer base of any financial services group in the region
Custody Services
- A leading asset manager in the Nordic financial market
E: custody.cr.no@nordea.com
- The most comprehensive distribution network in the region
A: Postboks 1166 Sentrum,
Nordea is the leading custody services provider in the region. Nordea provides high
0107 Oslo, Norway
quality, tailor-made custody services for local and foreign investors dealing with
Nordic, Baltic or global securities.

T: +44 (0) 20 7653 4096 RBC Global Services is the corporate and institutional custody arm of RBC Financial
Group. We are the largest custodian in Canada and rank among the world's leading
F: +44 (0) 20 7248 3946
providers. We have been serving institutional investors for more than 100 years,
Contact: Tony Johnson
including 23 years in the global custody business. RBC Global Services, along with
Global Head, Sales &
RBC Global Private Banking, provides a broad range of value-added services and
Relationship Management
tailored solutions to institutional investors internationally. RBC provides the full
E: antony.johnson@rbc.com
range of fund administration and global custody services.
Address: 71 Queen Victoria Assets under Administration: US$1.4 trillion
Street, London, EC4V 4DE, UK Number of sub-custodians: 78

T: +33 1 53 05 45 09
SG GSSI offers a complete range of value added securities services for all institutional
C: Etienne Deniau, Mathieu
investors: clearing, custody and trustee, fund administration, transfer agent and registrar
Maurier, Marion
services. Societe Generale ranks 4th securities custodian in Europe and 10th worldwide
Hovhannessian, Eude
with USD 1,500 billion in assets held. SG GSSI provides custody & trustee services to
Nitoumbi, Marilyne Stiegler,
2,175 funds and its subsidiary Euro-VL provides valuations for over 3,460 funds
Pierre Pointet, Jean-François
representing assets of USD 346 bn. The quality of these services is acclaimed by the
Marchand, Gwennael Leblanc
world’s leading agencies: - Trustee and custody – Paris: Aa2 (MQ) (Moody’s); CU2 rating
A: 50, boulevard Haussmann
by Fitch Ratings: Global Custody Paris and TR2+ rating by Fitch Ratings: Trustee Paris.
75431 Paris Cedex 09, France
SG GSSI also provides collateral management and securities lending services.
W: www.sg-gssi.com

Fund Administration
The CACEIS Group is a partnership between the Investor Services business lines of
T: +33 1 43 23 89 75 Crédit Agricole S.A. and Groupe Caisse d'Epargne. With a total of EUR 681 billion in
C: Patrick Lemuet (France) assets under administration (30/6/2005), we are Europe’s premier third party fund
E: france@caceis.com administrator. CACEIS provides a full range of services in France, Luxembourg,
Ireland, Belgium and The Netherlands. These services include portfolio valuation
T: +352 4767 2567 with multiple and automated pricing sources, NAV calculation, product structuring,
Contact: José-Benamin Longrée tax relevant data calculation, fees and commissions calculation, on-line client
(International) reporting, legal and statutory investment guideline monitoring, performance
measurement and globalisation techniques such as Cloning. Our transfer agency
E: international@caceis.com services include retail and institutional account management, Europe-wide
W: www.caceis.com transaction processing, distribution network management, third party distribution
and shareholder services. The Fastnet Network, operated by CACEIS, undertakes
some of the above services and is a partnership venture with the Fortis Group.

Derivatives Portfolio Management provides onshore and offshore alternative asset fund
T: +1 732-667-1441 administration, back and middle office outsourcing, portfolio valuation, daily NAVs, risk
Contact: Diane Cassidy administration and portfolio transparency solutions for fund managers, asset allocators,
E: cassidy.d@dpmmellon.com institutional investors and proprietary traders. DPM Mellon’s services are designed to
Address: 400 Atrium Drive, solve complex administrative needs and improve operational efficiency. DPM Mellon has
Somerset, New Jersey, the systems, infrastructure and experience to handle your toughest administrative
NJ08873, USA challenges. DPM Mellonhas a world-wide staff of 200 employees. DPM’s HQ is in
W: www.dpmmellon.com Somerset, New Jersey with offices in London, the Bahamas, and the Cayman Islands.

A Mellon Financial Company.

INVESTOR SERVICES JOURNAL 77


Phoenix Administration Services is a leading third party administration group of compa-
nies targeted at the investment industry. Within the Phoenix group of companies, there T: +44 (0) 127720 1222
are two sperate organisations: F: +44 (0) 127720 0975
Phoenix Administration Services Limited A: 77a High Street, Brentwood,
Phoenix Financial Services Limited Essex, CM14 4RR, UK
The Phoenix offering is comprehensive. If you are looking to: C: Adam Hodgkins
Outsource your back and middle office administration E: adam@phoenixadmin.co.uk
Purchase or lease a systems solution W: www.phoenixadmin.co.uk
Get advice and guidance on fund administration

T: +33 1 53 05 45 09
SG GSSI offers a complete range of value added securities services for all institutional
C: Etienne Deniau, Mathieu
investors: clearing, custody and trustee, fund administration, transfer agent and registrar
Maurier, Marion
services. Societe Generale ranks 4th securities custodian in Europe and 10th worldwide
Hovhannessian, Eude
with USD 1,500 billion in assets held. SG GSSI provides custody & trustee services to
Nitoumbi, Marilyne Stiegler,
2,175 funds and its subsidiary Euro-VL provides valuations for over 3,460 funds
Pierre Pointet, Jean-François
representing assets of USD 346 bn. The quality of these services is acclaimed by the
Marchand, Gwennael Leblanc
world’s leading agencies: - Trustee and custody – Paris: Aa2 (MQ) (Moody’s); CU2 rating
A: 50, boulevard Haussmann
by Fitch Ratings: Global Custody Paris and TR2+ rating by Fitch Ratings: Trustee Paris.
75431 Paris Cedex 09, France
SG GSSI also provides collateral management and securities lending services.
W: www.sg-gssi.com

UBS Fund Services offers comprehensive fund administration services including fund
set-up, registration and support around the world (currently 28 countries), fund account- Jean-Paul Gennari,Luxembourg
ing, NAV calculation, compliance management, risk control and reporting. T: +352-44-1010 1
We provide a flexible offering from the full range of services, including Private Labelling, Markus Steiner, Switzerland
to selected functions. Services are based on leading fund administration architecture, T: +41-61-288 4910
multi-source pricing and powerful compliance tools. Mike Marsh, UK
Capabilities also extend to services for hedge funds through our teams in Cayman and T: +44-20-7901 5000
Ireland. In times when management attention is increasingly focused on value creation, W: www.ubs.com/fundservices
it may be rewarding to re-evaluate whether asset administration remains a strategic core
business to you.

Securities Lending
eSecLending is a global securities lending manager servicing large institutional T: US- +1 617 204 4500
lenders, including pension funds, mutual funds, insurance companies and T: UK- +44 (0)207 002 7600
investment managers. eSecLending's model is based on the premise that Contact: Dan Ahern
exclusive principal relationships generally offer greater value and significantly E: info@eseclending.com
higher returns to a lender than traditional custodial or third-party agency lending W: www.eseclending.com
programs. The firm, which has auctioned over $450 billion since inception, Addresses: 175 Federal Street,
awards principal business through an auction process to ensure greater 11th FL, Boston, MA 02110, US
competition and price transparency. eSecLending is majority-owned by Old Old Mutual Place, 2 Lambeth
Mutual plc and maintains offices in Boston, London and Burlington, Vermont. Hill, London EC4V 4GG, UK

T: +41 (0)44 218 14 14


IFBS offers the financial industry a wide range of consulting services as well as
F: +41 (0)44 218 14 18
individual and standard software solutions. The firm supports clients along the entire E: info@ifbs.com
security value chain - from business modelling to change management processes. Address: IFBS AG,
IFBS’s IT solutions range from FINACE®, a Securities Finance and Collateral Buckhauserstrasse 11,
Management Platform, to the development of tailor-made IT applications. CH-8048 Zurich, Switzerland
W: www.ifbs.com

Nomura Group is a global investment bank dedicated to providing a broad range of


financial services for individual, institutional, corporate and government clients. T: +44 (0) 20 7521 5672
The Group’s business activities include investment consultation and brokerage serv- F: +44 (0) 20 7521 2683
ices for retail investors in Japan, and, on a global basis, brokerage services, securi- Contact: Jonathan Cossey,
Head of Equity Finance
ties underwriting, investment banking advisory services, merchant banking, and asset
Address: Nomura House, 1 St
management. Martin's-le Grand, London,
Nomura’s Global Equity Finance team has professionals located in Japan, Hong EC1A 4NP United Kingdom
Kong, the United Kingdom and the USA who are dedicated to providing a value W: www.nomura.com
added approach to all Equity Finance needs.

78 INVESTOR SERVICES JOURNAL


Technology
ADP Brokerage Services Group is an industry leading outsourcing vendor for global
transaction processing systems, desktop productivity applications and investor
T: +44 (0) 207 551 3000
E: info@bsg.adp.com communication services to banks and brokerages worldwide.
Address: The ISIS Building, -Proxy Edge – comprehensive solution for institutional global proxy voting management.
193 Marsh Wall, London, -Gloss – leading international STP system which automates the trade processing
E14 9SG, UK lifecycle from trade capture through confirmation, clearing agency
W: www.bsg.adp.com reporting and settlement.
-Tarot - a UK retail and private client stockbroking, custody and fund management solution.
-Securities Data Management – outsourced data services for securities operations.

Advent Software EMEA, established in 1998, provides trusted solutions for the front
through to back office operations, based on a true real-time fund/portfolio account-
T: +44 (0)20 7631 9240 ing platform, to the investment management community throughout Europe, Middle
F: +44 (0)20 7631 9256 East and Africa. Advent has an established network of offices across the region serv-
ing a growing client base of asset managers, hedge fund managers, prime brokers,
E: emea@advent.com
fund administrators, wealth managers, private banks and family offices who continue
Address: One Bedford Avenue, to improve their businesses using Advent’s suite of integrated investment manage-
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W: www.advent.com ADVS), a global organisation that has been providing solutions to the world's leading
financial professionals since 1983. Firms in more than 50 countries using Advent
technology manage investments totaling more than US $8 trillion.

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London, EC3V 9EA, UK
delivery dates. These ready-to-work solutions eliminate development time and risk.
E: pascalg@asset-control.com
bhamer@asset-control.com As a future-proof technology investment, Asset Control has been certified by a
W: www.asset-control.com unique track record of long-standing customer implementations in leading financial
firms around the world.

CMA's mission is to help its clients from the financial services industry increase their
P: +46 8 566 30 800 competitiveness through the supply and integration of value-creating IT-solutions and
F: +46 8 34 15 44 infrastructure. Each solution and implementation is individually tailored to a cus-
tomer's specific requirement in order to ensure maximum system effectiveness for
A: CMA Small Systems AB financial institutions such as national banks, depositories, clearing and settlement
P.O. Box 6463, Gävlegatan 22 centers, retail banks, stock exchanges and brokerage houses. CMA Small Systems is
S-113 82 Stockholm, Sweden represented with offices in Sweden, Russia and France. Market activities focus on
W: www.smallsystems.cma.se Europe (Nordic, Baltic, Central/Eastern Europe and CIS countries), Middle East and
Africa.

Headquartered in Windsor, CT and with offices throughout North America, Europe,


Asia, and Australia, SS&C provides the global financial services industry with a broad
T: +44 20 7614 9696
range of highly specialized software, business process outsourcing (BPO) services
F: +44 20 7614 9697
and application service provider (ASP) solutions. We deliver mission-critical process-
A: SS&C Technologies
ing for information management, analysis, trading, accounting, reporting and compli-
6th Floor, Mercury House
ance. SS&C is a global provider of software and outsourcing services to
Triton Court, 14 Finsbury Square
institutional asset managers and wealth management professionals. SS&C's invest-
London, EC2A 1BR
ment management solutions are designed to maximize efficiency and produce mean-
Contact: Sue Hillwood
ingful cost savings. SS&C has a comprehensive suite of products and services that
W: www.ssctech.com
can be scaled to meet your existing business needs, your growth strategy, your global
reach and the complexity of your investment strategies.

For more information visit FUNDsoft: With offices in London, Glasgow, Jersey and Luxembourg; FUNDsoft
www.fundsoft.co.uk or call provides one of the most technically advanced Fund Administration platforms
T: 0870 2000443 available. The COBAS range of solutions are designed exclusively for Fund and
F: 020 7959 3030 Investment Managers, BPO providers and TPA’s. Various acquisition models are
Contact: Mark Culham
offered covering the following areas;
E: mark@fundsoft.co.uk
Mobile: 07980 912649
Address: 288 Bishopsgate, European Unit Trusts; Offshore Funds; PEP, ISA, OEIC & SIPP's; Pooled
London, EC2M 4QP, UK Pensions; Property Funds; Fund of Funds; Multi Manager Funds; Wrappers;
W: www.fundsoft.co.uk Fiduciary portal; Funds Automation; Funds Supermarkets; Reporting ; Hedge
Funds; Investment Trusts.

79 INVESTOR SERVICES JOURNAL


Technology
GOAL is the widely-acknowledged industry leader in providing creative products,
services and solutions to automate and optimise the reclamation of withholding T: +44 (0) 207 247 3094
tax on cross-border securities dividend income and royalties. Our research has C: Stephen Everard or Saghar
shown that in excess of US$6 billion of withholding tax remains unclaimed each Bigwood
year by the rightful owners and beneficiaries. A: 10, Earl Street, London,
To establish your potential ability to reclaim over-withheld taxes GOAL provides a EC2A 2AL, UK
free analysis of income entitlements. We simply require details of the income E: severard@goalgroup.com /
entitlement(s) together with the type and domicile of the underlying beneficiar- sbigwood@goalgroup.com /
ies. We do not need the name(s) of the beneficiaries. info@goalgroup.com
Our Products include GTRS, GQI, e-Reclaim, GOAL TaxBack, DMS and Bespoke W: www.goalgroup.com
Software Development.

Interactive Technologies is a leader in developing and delivering software solutions


that support current and emerging Financial Industry needs for enterprise-level T: +1 908 273 1116
billing and revenue management. Founded in 1993, Interactive Technologies was Contact: Mike Donoghue
acquired by Fiserv, Inc (Nasdaq: FISV) in June 2005 and is based in Summit, N.J., E: Mike.Donoghue@itadv.com
with additional offices in Los Angeles, London and Toronto. The company's sole Address: 482 Springfield Avenue
product - Advantage Fee System - provides banking and financial service institutions Summit New Jersey NJ 07901
with a comprehensive solution for streamlining, automating and managing fee-based USA
billing operations. Over 60 organizations benefit from the Advantage Fee System, W: www.itadv.com
ranging in assets managed from 5 billion to well above 1 trillion US$.

peterevans is a leading independent provider of front to back office systems to the


financial services sector, providing both global solutions to major institutions and
T: +44 (0)29 20402200
highly-focused technology to smaller organizations.
F: +44 (0)29 20402213
The Company's creative, high-end solutions integrate seamlessly with existing infra-
A: New Broad Street House, 35
structures to ensure business performance is optimised.
New Broad Street, London
peterevans’ flagship products TRACS and Axim support end-to-end straight through
EC2M 1NH
processing for the full range of back office automation and transaction requirements,
E: info@peterevans.com
including SWIFT messaging. Tira, the company’s front to middle office system, links
W: www.petervans.com
effortlessly with the back office, providing fund and investment managers with one
of the most comprehensive tools on the market.

Princeton Financial“ Systems, a wholly owned subsidiary of State Street Corporation,


is a leading provider of investment management and accounting systems and ASP
services for global institutional investors. Its flagship PAM® investment management T: +1 609-987-2400
systems provide comprehensive STP-ready functionality that can be licensed for in- F: +1 609-514-4794
house use or accessed via the Internet. PAM systems are currently used worldwide Contact: Kelly O’Neill
E: info@pfs.com
by over 350 leading investment managers, insurance companies, mutual funds and
Address: 600 College Road East,
unit trusts, pension funds, hedge funds, endowments, banks, and corporations, Princeton, New Jersey,
which manage combined total assets over US $3 trillion. Princeton Financial has 08540 USA
offices located in the United States, United Kingdom, Belgium, Australia, Singapore, W: www.pfs.com
and Canada. For more information, visit Princeton Financial’s website at
www.pfs.com.

Redi2 Technologies is an investment management software products and services


company headquartered in Oakland, Calif., Redi2 Technologies, Inc. is a premier
provider of fee billing and revenue management solutions to institutional investment, T: +1 510 5507334 ext 1
private wealth, custody and general asset management firms. A: 1904 Franklin Street, Suite
Asset management firms implement Redi2 Revenue Manager to improve cash flow, 203 Oakland, California, CA
reduce global operating costs, improve client service and advance compliance initia- 94612, USA
tives. C: Seth Johnson, CEO
Redi2 Revenue Manager 4.0 can be deployed on Oracle, Sybase, MS-SQL Server, E: seth.johnson@redi2.com
and IBM DB2 relational database platforms, and Sun Solaris, IBM AIX, HP-UX, MS W: www.redi2.com
Windows Server, and Linux operating systems.
News and other information about Redi2 is available at www.redi2.com

SimCorp Dimension is a powerful, comprehensive and truly seamless investment


management system. It can handle NAV and other calculations, with complete
related accounting, for a huge variety of fund structures and product types, including T: +44 (0) 20 7651 8800
regional specialities. Support for broader functions, such as performance attribution F: +44 (0) 20 7651 8811
and risk management, are particular strengths of the system. Contact: Ian Crompton, sales
director, SimCorp Dimension
E: ian.crompton@simcorp.co.uk
SimCorp Dimension has been designed from scratch as a total straight through pro- London EC4N 8DQ, UK
cessing system, handling all aspects of the investment management process, consis- W: www.simcorp.com
tently. Data is recorded into a single database so that reporting is made easy, there
is no reconciliation of data and no duplication of procedures.

80 INVESTOR SERVICES JOURNAL


GLOBAL ORGANIZERS OF INSTITUTIONAL
FINANCE & INVESTMENT CONFERENCES

The Twelfth Annual


BENEFICIAL OWNERS’ SUMMIT ON
D O M E S T I C A N D I N T E R N AT I O N A L

SECURITIES LENDING
& REPO
F E B R UA RY 5 - 8 , 2 0 0 6
THE WESTIN KIERLAND RESORT & SPA
SCOTTSDALE, AZ
Additional Information: www.imn.org/eej823/isjm
BENEFICIAL OWNERS WHO ATTENDED IN 2005 INCLUDE: 2006 CONFIRMED SPONSORS INCLUDE:

ABP Investments Deutsche Bank Asset Management North Track FundsOhio Public Employees
ADIA Federated Investors, Inc. Retirement System
Advantus Capital Management First Community Bank & Trust Pacific Life Insurance Company
AIG Global Investment Group Florida State Board of Administration PGGM
Alaska USA Federal Credit Union Frank Russell Investment Group Phoenix
Allstate Investments, LLC Fresno Fire & Police Retirement System Principal Financial Group
Arch Capital Services, Inc. GE Asset Management Prudential Investment Management
Arizona State Retirement System General Motors Asset Management Retirement Systems of the City of Detroit
Arizona State Treasurer's Office Hartford Investment Management Company Russell Investment Group
Assurant Hospitals of Ontario Pension Plan SEI Investments
AT&T Investment Management Corporation Huntington National Bank St. Paul Travelers
AXA Rosenberg Investment Management LLC Idaho State Treasurer's Office St. Luke's Health Initiatives
BIMCOR Independent Bankers' Bank State Compensation Fund of Arizona
BlackRock Industrial Commission of Arizona Sun Life Financial Canada
Blue Cross/Blue Shield of Michigan Jacksonville Police & Fire Pension Fund T. Rowe Price
Boca Raton Police & Firefighters Retirement John Hancock Advisors LLC Teachers Retirement System of Texas
System Kentucky Commonwealth Texas Employees Retirement System
CalPERS LACERA Texas Municipal Retirement System
CalSTRS MD State Retirement Agency The Travelers Insurance Company
Canada Pension Plan Metropolitan Life Insurance Company The Vanguard Group
CDP Capital MFC Global Investment Management Thomas Edison State College
CDP Global Asset Management Microsoft Corporation Thrivent Financial for Lutherans
Charles Schwab Investment Management Morgan Stanley Investment Management Travelers Life & Annuity
City of Montreal Nationwide Insurance UMWA Health & Retirement Funds
City of Phoenix Retirees Association New Harbor Capital, Inc. USAA
Colorado Public Employees Retirement Association New Mexico Educational Retirement Board Verizon Investment Management
Creighton University New Mexico State Treasurer's Office West Virginia Investment Management Board
Deseret Trust Co. N.O. Municipal Employees' Retirement System Westfield Group
Detroit General Retirement System New York State Teachers' Retirement System Woodmen of the World Life Insurance Society
Detroit Policeman & Fireman Retirement System Nicholas-Applegate Capital Management Workers' Compensation Reinsurance Association

IMN • Te l : (212) 768-2800 Ext.1 • F a x : (212) 768-2484 • E m a i l : isl@imn.org


How can we help you navigate
the challenges of custody business?

www.bhf-bank.com

Your expectations are high. We meet them.


BHF-BANK – your sub-custodian for German securities.

For further information please contact Cornelia Keth on


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