ISJ31 Cover ML 22/7/08 5:11 pm Page 1

VOLUME 5 No. 31 - 2008 ISJNEWS.COM

GBP 25 - UK, ROW
USD 45 - America
INVESTOR EUR 35 - EMEA

S ERVICES
JOURNAL

SPRUNG UPON
New regulation lands on
securities lenders and borrowers

CUSTODY FOCUS -SPAIN PLUS

US - PENSION FUNDS
ANALYSE THIS - REFERENCE DATA HEDGE FUNDS - CDS MARKET
PANEL - NORDIC CUSTODY EUROPE - CLEARANCE AND SETTLEMENT
AGMs - PROXY VOTING FUND ADMINISTRATION - SINGAPORE
SERVING THE GLOBAL SECURITIES SERVICES INDUSTRY
ISJ31 Cover ML 22/7/08 5:20 pm Page 2
ISJ31 p1-15 Final 21/7/08 9:54 am Page 1

HEADS UP

INVESTOR
S ERVICES
JOURNAL
VOL 5 No. 31 - 2008 Measure for measure
The University of Michigan has an
index charting consumer sentiment to
give a fair representation of the current
and future economic climate. Perhaps
another index should be devised to
measure levels of investor shock. The
UK's Financial Services Authority has
followed up its left jab of enforced
disclosure of short positions in rights
issue companies with a right hook of
disclosure of derivatives. The former
was the regulator’s own initiative; the
latter is part of a wider move towards
transparency for contract-based stakes.
Adjacent bodies - such as the
International Securities Lending
Association (ISLA) - and fund managers
of all varieties were up in arms at the
snap decision, as much about the lack
of consultation as the international
ripple effects it will have on trading of
the rights issue companies in question
that may be listed on stock markets
around the world. More on this issue on
page 16.
Fund managers of the hedge kind are
also discussed in an exploration of the
credit default swaps market on page 33.
This gigantic forum of exchange
(USD62 trillion at the last estimate) has
accrued significant attention due to the
ménage-a-trois of unacquainted traders
and counterparty risk. As hedge funds
slowly garner more market trust, they
will have to tread carefully.
On the subject of alternative
investments, US pension funds have
been diversifying into new asset classes.
Joe Corcos finds out where and why on
page 50.
Market-wide diversity has also been
apparent in Singapore, a country itching
to enter the club of major economies
with cogent regulation and booming
fund administration. Coverage of this
country begins on page 64.
Voting has dominated the news in the
last six weeks. First the 42-day
detention vote in Britain's House of
Commons; then the infamous
Zimbabwean election; then the unified
efforts by Senators Obama and Clinton
to secure coast-to-coast support for a
democratic White House in November
and the deputy leader of Thailand's
government being found guilty of
buying votes. It is therefore apt that we
cover the application of this democratic
process in business, specifically the
continued competitive rise of electronic
voting systems by proxy and the
intricate laws surrounding corporate
representation. This starts on page 20.
Ben Roberts

INVESTOR SERVICES JOURNAL

Deputy editor: Ben Roberts (Ben@2ipartners.com)
Reporters: Joe Corcos (Joseph@2ipartners.com), Catherine Kemp (Catherine@2ipartners.com)
MEMBER - PERIODICAL PUBLISHERS ASSOCIATION Contributors: Brian Bollen, Anthony Harrington
Group editor: Giles Turner (Giles@2ipartners.com)

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Oliver Blennerhassett (Oliver@2ipartners.com)
TOTAL NET CIRCULATION 12,133 Operations manager: Sue Whittle (Sue@2ipartners.com)
Analysis for the Audit Issue Vol 4, No 22 distributed June 2007.
Source: AUDIT BUREAU OF CIRCULATIONS, www.abc.org.uk CEO: Mark Latham (Mark@2ipartners.com)
Investor Intelligence partnership 16-17 Little Portland Street, London W1W 8BP
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ISSN 1744-151X. Printed in the UK by Pensord Press.

INVESTOR SERVICES JOURNAL 1

ISJ31 p1-15 Final 21/7/08 9:54 am Page 2

CONTENTS

VOL 5 No. 31 - 2008

16 ■ Custody 47
47 Spain
Who reigns in Spain?

40 Panel discussion
Nordic custody

■ Market infrastructure
33 Danger by default
Credit default swaps

■ Securities lending

Corporate governance 16 Sprung upon

What the new short selling rules Reference data
mean to the lending market
36 Interview: Richard Hooke of
■ Technology Latentzero
1 Heads up
The Editor’s letter 20 Electronic proxy voting ■ Funds
Analysis of a shareholder’s best
4 Letters friend
Readers’ points of view 50 Pension funds
New trends and strategies in
24 Analyse This
■ News the US

52 Global fund domiciles

6 Global snapshots Special extended feature
Round up of securities services
headlines from isjnews.com 64 Singapore
Land of the rising sums
8 Mandates / movers and shakers
80 Foresight
New deals, new positions Christopher Fawcett of Fauchier
Partners
10 News analysis

Reading between the lines

■ ISJ Directory

14 Executive profile 67 The directory of

Teresa Parker of Northern Trust securities services providers
50

2 INVESTOR SERVICES JOURNAL

ISJ31 p1-15 Final 21/7/08 9:54 am Page 3

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ISJ31 p1-15 Final 21/7/08 9:54 am Page 4
LETTERS TO THE EDITOR
The pen is mightier than the sword...If you are affected by,
or have an opinion on, any aspect of investor services please write
to ben@2ipartners.com for a chance to win an exclusive Cross pen.
Prize winner
Dear ISJ
A
t September’s Sibos conference the
European payments landscape will
once more be put under the
industry’s microscope and in particular
the initiatives that are under
consideration as a result of Sepa, the
pan-European payments infrastructure
initiative.
The way people operate
in their personal lives
towards technology is
increasingly spilling into
their working lives
Under this legislative move, European
banks stand to lose revenue through
more regulated cross-border payments
fee structures and are looking to offset
this loss with additional payments
services such as e-invoicing, whose
potential benefits and relevance to banks
will be debated at the conference.
Despite cost savings estimated at
approximately EUR 238bn in the
business-to-business marketplace and
EUR 30-40bn in the business-to-
consumer arena, according to European
Commission Expert Group on E-
invoicing, and the promise of
increasingly efficient payments networks
there are still factions within the
European financial world that are
sceptical about what they see as Sepa-
induced activities such as e-banking
services.
Dear ISJ
T
he cost of a mistake in a derivative
trade due to inconsistent data
across systems or even just a bad
identifier is very high. This possibility
gets the attention of the highest exec-
utive levels at asset management firms.
It can also impact a firm's reputation as
recent industry events have shown.
Today, derivatives trading is a major
source of incremental business risk which
4 INVESTOR SERVICES JOURNAL
It should be argued that while
products such as e-invoicing have been
brought to the fore through regulatory
change such as Sepa, they are not only a
by-product of regulatoion but a necessary
evolutionary development of the
payments space and something that all
banks should be focusing on irrespective
of legislative change.
The uptake in e-banking services in
the Nordics for example has been
profound over the past few years,
illustrating not only the speed at which
new tools and technologies are being
embedded in financial processes – a
phenomenon that is only going to
increase in the future – but also that e-
banking services are being adopted by
various sectors of the banking
community as a natural part of their
competitive development and enhanced
understanding of their customers needs.
The world is changing dramatically and
the way people operate in their personal
lives towards technology is increasingly
spilling into their working lives. This was
first seen when e-banking services were
in their embryonic stage and the same
will be true of e-invoicing. Today’s
digital-savvy youth, digital natives, once
perceived as the corporate banking users
of tomorrow are now the corporate
banking users of today and if banks don’t
fully embrace the idea of a more digit-
alised banking environment and utilise
technology around e-banking services,
and especially e-invoicing, they run the
very real risk of disenfranchising their
client base in three to five years’ time
Yours
Alister Hoad, director,
business development,
TietoEnator
is one of the primary drivers for reviewing
reference data management practices at
these firms. Many of them are
relying heavily on manual processes to
manage derivatives and excel
spreadsheets are the tool of choice for
maintaining the data - both trends can be
cited as decreasing operational efficiency
while increasing risk.
Even buyside firms with well
established data practices are
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experiencing uncertainty in how to
manage the business-driven take up of
complex instruments. The growing
acceptance of alternative investments is
playing havoc with existing data
management solutions particularly older
in-house systems forcing asset managers
Derivatives trading is a
major source of
incremental business
risk which is one of the
primary drivers for
reviewing reference data
management practices
to take a harder look at their data
practices. In a recent industry survey
sponsored by GoldenSource, 78% of
buyside respondents said they were re-
evaluating data management technology
because of derivatives and as one
respondent emphasized, “..OTC
derivatives and a sub-prime crisis have
heightened the need to evaluate data
practices.”
Spawned by the challenge of dealing
with data requirements for complex
traded instruments there is a definite
move within asset management firms to
re-evaluate data management practices
to facilitate operations, reduce and
manage risk and get consistent trusted
data to needed downstream systems.
Yours
Neil Edelstein, vice president,
product solutions, Golden Source
ISJ31 p1-15 Final 21/7/08 9:54 am Page 5

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ISJ31 p1-15 Final 21/7/08 9:55 am Page 6
NEWS
CUSTODY, CLEARING AND
SETTLEMENT
London - The London Stock
Exchange and Lehman Brothers
today announced plans to create
a pan-European MTF (multilateral
trading facility) for the
execution of non-display
orders. The MTF, to
be named Baikal,
will be the first
equity trading
service to
combine a dark
liquidity pool with
sophisticated
algorithmic
trading
functionality.
Baikal aims to address
the growing complexity of
order execution requirements
by allowing buy-side and sell-side
participants to trade larger orders
in a trusted environment, thereby
minimising market impact.
Baikal will be a neutral liquidity
venue led by the LSE and will
provide open, equal access to
securities across 14 European
countries with smart order
routing to liquidity in at least 22
trading venues, an extensive suite
of dynamic, liquidity seeking
algorithmic trading strategies,
anti-gaming controls and real-
time post trade reporting.
Brussels - Oxera, an independent
economics consultancy, and
Omgeo have announced the
results of research on the
automation of European trade
processing. Leading industry
figures discussed how increased
efficiencies in the middle office is
crucial role in making Europe a
more competitive financial
marketplace. The report shows
that automation of the trade
verification process improves
settlement performance for
securities firms in Europe and
reduces operational costs and
risks. Fittingly for Omgeo, the
firm secialises in spearheading
automated systems.
6 INVESTOR SERVICES JOURNAL
Dubai - The Bank of New York
Mellon (BNY Mellon) has
announced the expansion of its
business and the opening of an
office in the Dubai International
Financial Centre (DIFC).
The bank aims to the
development of its business in
the Middle East and Africa, and
follows the granting of a licence
from the Dubai Financial Services
Authority (DFSA) to operate from
the DIFC.
FUNDS AND ADMINISTRATION
London - JP Morgan announced
an agreement with Shell Asset
Management Company (SAMCo),
the asset management arm of
Royal Dutch Shell, enabling a
global provision to service Shell
corporate pension and insurance
plans with total assets in excess
of USD70 billion. The deal sees
the bank launch a range of
sophisticated services for SAMCo
and participating Shell pension
funds, including fund accounting,
fund administration and certain
securities lending services all
from segregated and/or pooled
accounts that will prove to be a
new market milestone.
Calgary - RBC Dexia Investor
Services has been selected by
Brickburn Asset Management to
provide a full range of investor
services including global custody,
fund valuations and unit holder
recordkeeping for the company's
newly-launched family of mutual
funds managed by its subsidiary,
Brickburn Funds Inc. "Our
management team determined
that RBC Dexia was the best
qualified company to handle
these services for our new family
of mutual funds," said William D.
Bonner, president of Brickburn
Asset Management.
LEGAL AND COMPLIANCE
London - At the CFA Netherlands
Conference "Opportunities and
Challenges for Pension Funds",
the CFA launched the Code of
FREE NEWS DAILY AT WWW.ISJNEWS.COM
Conduct for Members of a
Pension Scheme Governing Body.
It aims to address the challenges
to securing the financial future of
pension participants and
beneficiaries from longevity and
ageing populations.
MARKET INFRASTRUCTURE
London - Alternative assets
managed on behalf of pension
funds by the world's largest 99
investment managers grew by
40% to USD822 billion in 2007
from USD586 billion the year
before, according to the latest
Global Alternatives 99 research
produced by Watson Wyatt in
conjunction with Global Investor
magazine. More than half the top
99 managers are based in the US,
while over a third are based in
Europe. Real estate managers
lead the ranking, occupying the
top nine positions and
accounting for 62% of the assets.
Infrastructure managers were
included in the research for the
first time and all ten new entrants
were ranked in the top 99 and
account for 5% of the assets.
SECURITIES LENDING
Brussels - Euroclear Bank is
taking a regional approach in
helping clients to access local
counterparties and securities in
Central and Eastern Europe.
Clients active in these markets
with which Euroclear Bank has
created a link to the local central
securities depository will benefit
from having a single settlement
tariff to apply to all eligible
markets and securities.
Safekeeping fees will be
determined by the aggregated
holdings of all Central and
Eastern European domestic
securities. The model applies to
the Czech Republic, Hungary,
Poland, Slovakia and Slovenia,
and will be extended to other
countries in the region in the
future. The new structure results
in an average safekeeping fee
reduction of 62%.




 ISJ31 p1-15 Final 21/7/08 9:55 am Page 7

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ISJ31 p1-15 Final 21/7/08 9:55 am Page 8

NEWS/MANDATES

TECHNOLOGY
London - City Networks, a reconciliation and
exception management specialist, has
announced a partnership with XSP, a global
provider of Corporate Actions software,
providing an integrated Corporate Actions,
Reconciliation and Exception Management
solution. The system combines exception
management, business process management
and real time KPI and KRI functionality from
City Networks.
IFDS the international transfer agency and
hosted ACD joint venture between State Street
Corporation and DST Systems, Inc., announced
that Chartwell Fund Management has gone live
with the IFDS Managers hosted ACD service.
Chartwell represents the inaugural client for
IFDS Managers and the Chartwell funds will
benefit from the market leading administration
services and technology platforms of IFDS.
Misys, the application software and services
company, has announced an agreement with
ICBPI Group, one of the largest domestic
invoicing and payment processors in Italy, to
host an international trade finance solution for
banks in the country. Misys Trade Portal makes
it easier for them to complete their
international transactions while accessing the
additional trade services through the portal.
London -
Markit, a
provider of
independent
data, portfolio
valuations and
over-the-counter
(OTC)
derivatives trade
SCOTT STARK processing, has
appointed Scott
Stark as a director in its index division,
based in London. Stark will lead a new
bespoke index service within Markit
that will offer index administration,
calculation, and publication, to third
parties. Stephan Flagel, managing
director and head of indices at Markit,
said: “Scott is an excellent addition to
Markit's index team, and his expertise
in the US and European index markets
will be invaluable as we launch our
new bespoke index service.”
Markit also announced the
appointment of Marcus Schüler as
managing director in Sales and
Marketing, based in London. Schüler
will be responsible for Markit's
relationships with regulators, central
banks, trade associations and
accounting firms, a mandate that spans
all of the firm's products and services
as well as geographic regions.
Hong Kong BNY Mellon Asset Servicing
has appointed Rex Wong as a market
segmentation
specialist within
the global
product
management
team. Based in
Hong Kong,
Wong will be
responsible for
market and
REX WONG
sector analysis
as well as
coordinating the implementation of
future strategic growth opportunities
across Asia.
The bank has also appointed John Sin
as vice president. Also based in Hong
Kong, Sin will lead a newly created
team aimed at enhancing BNY Mellon
Asset Servicing's client experience
through improving the company's
operational infrastructure, including
new business conversions, with the
overall aim to deliver integrated and
efficient solutions to clients in Asia.

Mandates round up of awards

While the French were ousted embarrassingly early from Euro
2008, at least BNP Paribas has done well, picking up mandates
from D&O Group and Bestinvest. JP Morgan picked up a
sizable mandate from the Accident and Compensation Group
based in New Zealand and Northern Trust scored a coup by
picking up a massive mandate from Hermes, to the tune of
USD45 billion. The outfit was also chosen by Hargreaves
Landsdown in London to provide custody services. BNY Mellon
also impressed by winning a large mandate from Fortune out in
Shanghai as well as from Innovest. ■

Mandates awarded in May and June 2008

Month Winner Client Location Assignment Mandate size
June BNY Mellon Innovest Vienna Custody/cash managing USD4.4 billion
June BNP Paribas D&O Group Paris Custody/accounting undisclosed
June JP Morgan Accident Comp Corp New Zealand Custody/administration NZD1bn
June RBC Dexia ICICI Prudential India Fund accounting USD13.6 bn
June Northern Trust Impax London Custody services n/a
June BNY Mellon Nedgroup Isle of Man Administration services USD930 million
June BNP Paribas Best Invest Luxembourg Custody services EUR16 billion
May Northern Trust Canara Robeco India Administration services USD930 million

8 INVESTOR SERVICES JOURNAL NEWS DAILY AT WWW.ISJNEWS.COM

ISJ31 p1-15 Final 21/7/08 9:55 am Page 9

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ISJ31 p1-15 Final 21/7/08 9:55 am Page 10

NEWS ANALYSIS

Exchange Commission (SEC) is seen by some as inadequately

armed to do its job. Founded by Congress in 1934 as a result of
the Great Depression, its remit covered regulating stock markets
and investment advisers, and watching out for insider trading. But
unlike the Fed, the SEC cannot lend money, making it unable to
efficiently regulate the leviathan investment banks on Wall Street.
The poor showing by the chairman of the SEC, Christopher Cox,
during the Bear Stearns debacle has strengthened opinion that the
SEC is not cut out for regulation the US financial industry. This
means that it either needs to be given more power, or disbanded
altogether and a series of overlapping mini-regulators tackling
various areas of the industry needs to be founded. If it lobbies
intelligently, the SEC can see more power coming its way before

Shake on it this decade is up.

As Obama and McCain get hands on,
the SEC and the FED must hold hands
or some, the days of abandonment are over. After
While regulation often is associated with stifling business
practices, it is worth pointing out that recent problems have had a
direct link due to the Glass-Steagall Act's repeal in 1999. The law,
passed in 1933, one year before the founding of the SEC, defined
banks into commercial and investment categories. Investment
banks were banned from taking deposits and commercial banks
prohibited from underwriting securities. In 1999 this law was

F Sarbanes-Oxley rolled in laden with regulation in 2002, the

US regulators have been standoffish during the bull run
this decade. Now it's time for that buzzword of change, as
Republican John McCain and Democrat Barack Obama have both
pitched themselves as politicians for the people. That means
getting your hands dirty sorting out the recent mess in Wall
Street, and that means more regulation. Free trade and
globalisation are trends that have disappointed many Americans,
with 8 out of 10 people in a recent Bloomberg/Los Angeles
Times poll saying that the country is “on the wrong track”.
Both Obama and McCain have stated that Wall Street needs
more regulation, but what exactly this constitutes is undecided.
One area that will definitely change, however, is the amount of
collateral needed to take or make loans. “We saw not enough
capital backing loans that were made, not enough capital for
people who were involved in investments,” Douglas Holtz-Eakin,
McCain's top economic policy adviser told reporters in June.
This might work out well for some. The Securities and
repealed and commercial lenders began to underwrite mortgage-
backed securities. The Federal Reserve looks after commercial
banks, and the SEC looks after investment banks; no-one took into
account how the two would regulate the new hybrids post 1999.
It took a major financial disaster to get the Fed and the SEC to
start talking - holding a meeting at the beginning of July to
discuss transparency - but a stopgap approach will much akin to
putting your finger in a crumbling Hoover Dam. It may not be
long before the bottom of the market is accurately called and
market sentiment improves, with institutions forgetting that all
about the cracks in the dam until the next, perhaps irrevesable,
disaster.
While many may not be too pleased with the sight of Obama
and McCain marching down Wall Street, the politicians’ populist
drive may do much to find an effective way of combining the SEC
and the Fed to consistently produce good regulation, rather than
the flippant Sarbanes-Oxley or the now seeming naïve repealing
of the Glass-Stegall Act. ■

Hit for six countries - Japan and Italy - are to avoid a

market slowdown. More remarkable,
perhaps, comes the news that only two of
the much-vaunted BRIC countries will
OECD spots mid-term continue to expand in the coming months.
So while Russia and China can have great
iceberg for most of G8 expectations, Brazil and India can be
s the G8 leaders talked shop and justified in fearing hard times.
100); and recovery (CLI increasing but
below 100).
The United States was down to 98 in
May of this year, falling 0.4 points, down
4.9 points on the year before. The UK
looked similar, nearing 97 points having
fallen 0.5 points in May and down 3.8
points compared to last year.

A tut-tutted the state of the world's

climate at the beginning of July,
the latest research from the Organisation
for Economic Co-operation and
Development (OECD) issued a dire
outlook for their respective economies.
According to the composite leading
indicators (CLI) used to perceive turning
points in economies, only two of the eight
The CLI format is a component series
of around 224 economic indicators. It is a
qualitative measure of short-term
activity based around an average of 100
points. It shows different phases of an
economic cycle: expansion (CLI
increasing and above 100); downturn
(CLI decreasing but above 100);
slowdown (CLI decreasing and below
Japan saw a minor rise - 0.5 points -
which resulted in this slight edge over its
rivals, but was still 4.9 points lower than
last year. Brazil, however, was at almost
108 points at the start of 2008, though
has now fallen to 104 points. China had
the starkest incline, nearing 106 in May,
2.0 points up in May this year and 1.9
points up on twelve months before. ■

10 INVESTOR SERVICES JOURNAL

ISJ31 p1-15 Final 21/7/08 9:55 am Page 11

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NEWS ANALYSIS

Bundle of joy? New scapegoat

Survey shows investors torn between Regulators and research sink their
the rock & hard place of service styles talons into rating agencies
esearch from Vodia Group shows a distinct ambivalence

R among institutional
investors as to the pros
and cons of multiple services,
commonly referred to as
'bundled' services, provided by
custodians.
'Bundling' services - in this or that company? The credit ratings
receiving custody, securities
lending and cash management -
was once a convenient 'one-
stop shop' for many investors.
But tempted by the
specialisation and price
transparency offered by agent
lenders, those investors began
separating these services
between their custodian, an
agent lender, and occasionally a
third party to handle collateral. The research - which included
interviews with 40 institutional investors - found that lenders
using agents received a return of 0.48 bps, compared to 0.33 bps
using a custodian. Respondents also reported that custodians
often rolled the different service into one fee, with 56% admitting
they were unclear what exactly they were paying for. Using three
different parties for the different services was therefore simpler:
one separate bill for each service.
However, the sheer size of custodian banks gives them two
distinct advantages. Firstly, they have a degree of reliability,
particularly up against smaller agent lenders with uncertain
credit proof. Second, they often have the widest distribution,
which can be music to the ears of diversifying clients. But even
this point is moot: of the three big custodians, Northern Trust
garnered the least satisfaction from its clients because of its
extension into derivatives, private equity and real estate.
A bundled service has been found to charge more - 0.84 bps
- than the total amount of separate fees for custody and
securities lending involving an agent. Custodians were also
shown to charge more for custody to clients who used an agent.
Yet cost is the second moot point: although lower prices and
transparency caused many investors to 'unbundle' and seek an
agent (and, occasionally, multiple lenders) it is often a great
expense to reallocate services.
On the other hand, the survey also found that just under half
(48%) of clients who had unbundled would consider bundling
at the next request for proposals. Eleven per cent
considered seeking a 'bundle' service, leaving just 41% to
remain with a number of different service providers.
Further, there is an intriguing disparity of sentiment: 75% of
investors using custodian lenders expected their revenues
from securities lending to increase, compared to 38% of those
using agents. ■
O
ver the last three weeks attention has turned away from
investment banks to rating agencies. Though this may
appear the latest stage of buck-passing, every thumbnail
summary of the credit crunch has included these arbiters of risk
assessment: why trade mortgage backed securities? The credit
ratings said they were safe. Why bid for a stake
marked them as healthy.
The Securities and Exchange Commission
(SEC) undertook a reassessment of credit
ratings and it was one of many examples of
the US moving first. Last year the regulator
changed the law so many of the most
influential agencies - such as Moody's,
Standard and Poor's and Fitch - must register
and exist under the gaze of the SEC. On 8th
July a EU meeting attempted to agree on the
fine details of doing the same.
Institutional surveys all hint that the intensified focus on
rating agencies is timely, even a little late. Further, the systemic
problems of agencies have acted like English buses - arriving
three at once. The incompetence of staff has seen many high-
profile lay-offs. At the same time, Moody's admitted to a “coding
bug” failure in their computer systems that had the infernal habit
of rating constant proportion debt obligations (CPDOs - see
below) as AAA. The agency claims to be installing a standardised
monitoring system to improve corrections to its mathematical
infrastructure.
The third problem appears the most insidious. A survey by the
CFA Institute has found that 11% of respondents had seen a
rating agency change following pressure from an investor, issuer
or underwriter. Respondents also highlighted the potential bias
to issuers, as it is this group that pays the agencies.
Another 17% suspected that agencies were swayed to give top
marks to investors who promised future business. In a separate
survey conducted by KPMG, 86% of respondents believed a
conflict of interest lay at the heart of rating distortions.
Finally - just to push the transparency envelope for good - 88%
believed there was a lack of understanding in the products they
were rating. ■
Quick definition CPDOs
A credit derivative backed by a ‘rolling’ index of debt
securities. The special purpose vehicle backing a
CPDO must buy protection on the old index, and sell
protection on the new one. This incurs ‘rollover risk’
but allows for the adjustments of leverage to keep the
asset and liability spreads matched.

12 INVESTOR SERVICES JOURNAL

ISJ31 p1-15 Final 21/7/08 9:55 am Page 13
ISJ31 p1-15 Final 21/7/08 9:56 am Page 14
EXECUTIVE PROFILE - TERESA PARKER
Profile:Teresa Parker of
Northern Trust, EMEA
Northern Trust’s Teresa Parker, chief
operating officer for Europe, Middle East and
Asia, tells Ben Roberts of her journey from
‘the cage’ to Canary Wharf on the forefront of
the company’s asset servicing expansion
14 INVESTOR SERVICES JOURNAL
eresa Parker's rise in Northern
T Trust in many ways runs parallel
with the developments in the
bank itself. Joining the firm in 1982 in
their Chicago home in the operations
division, moving to London in 1994 and
eventually becoming chief operating
officer for Europe, Middle East and Asia
(EMEA) in 2007, she has been at the
forefront of the company's cross-
continental expansion. On the 'frontier'
of the bank's growth, it makes sense that
her focus for the last year has been on
'frontier' markets.
Her role was defined following a
breaking up of Northern Trust's central
control from its mid-west base to a
network of regional executives.
However, each of these regions remains
connected through a single platform. “It
was a good move to decentralise,” she
believes. “It allows a greater speed to
clients and we can develop our business
along local lines. One platform is better
than many platforms, because when we
develop a capability that is available for
all clients - such as derivatives - the
capability can be used all along.”
She believes the dichotomy of serving
local clients, yet still providing products
and services to be used globally, is
achievable due to the underlying
“We see a much greater
emphasis on risk, as well
as interest in the use
of derivatives - they are
more liquid, people are
using them more and
are interested in the
liability side”
similarities between investors. “Our key
is working with clients to understand
what they want. Some markets are
different, such as having weekend
trading, but investors are generally
asking the same things.” A single
platform used globally is a big part of
Northern Trust's ability to break new
markets. Parker gives the example of
Australia's super annuation fund, (the
Future Fund) an investment pool of all
the country's state pensions, which
approached the bank to help widen the
scope of their market activity. “The fund
ISJ31 p1-15 Final 21/7/08 9:56 am Page 15
wanted to have an international
investment program. As a commitment
to the new clients in Australia we opened
an office in Melbourne.”
Pension funds is just one area of the
“sophisticated investors” that the
company has developed relationships
with in matching investment aspirations
to services - other clients include asset
managers, foundations and occasionally
the office of wealthy families. “People
come to you as a trusted adviser and you
develop a partnership in the sense that
“People come to you as a
trusted adviser and you
develop a partnership with
them in the sense that you
are working with them”
you are working with them.”
Expanding the offering of the single
platform means the company is rarely
caught out by new demands made by
clients. “We integrate all new capabilities,
including contractural settlement. If
they want pricing services, they can have
it, along with global custody. If the
clients want to use specific local
custodians, we can work with that. This
includes making sure linkages exist so we
can move in and out of markets with sub-
custodians.”
These services also now include
transition management, a service area
that has risen in profile in the last year
and was explored in the reallocation of
pension fund in Investor Services
Journal, issue 30. Parker says there are
lots of advantages to adding this service
to the overall offering. “We can provide
good reporting, how we can cover costs,
risk, be operationally effective. You need a
holistic plan. You get repeat business if
people are happy, and you have a
continuity of staff and products.”
Teresa Parker came to Northern Trust
as a graduate having completed a BS in
finance and economics from Marquette
University in Milwaukee, Wisconsin,
followed by an MBA specialisation from
the University of Chicago in strategy
and developmental behaviour. She
explains that the latter encompassed
“how people make decisions, statistics,
economics and psychology”.
The spacious offices in Canary Wharf
EXECUTIVE PROFILE - TERESA PARKER
are a far cry from the room she worked in
when she joined the bank in Chicago,
which she says was commonly known as
'the cage'. “The cage was situated on the
lower ground floor, the floor above the
vault where the securities were kept.” But
within a year she took up a management
role, running a group for trade
processing. “If you got in and learned
you were able to do that, it was a huge
career opportunity.”
She was eventually asked to move to
the London office - then situated in
Bishopsgate - and remembers the
excitement of new challenges and
energy of the city that was growing as a
financial centre after the doldrums of the
previous decade.
“I arrived to take over global custody
operations, which has been an exciting
part of the bank as it has seen very high
growth. We make sure our products and
services suit our customers. We started
around pension funds and US
foundations, and grew to service UK and
other European pension funds and asset
managers .” Like a teenager in a growth
spurt the office quickly outgrew its four
walls, and after moving to a bigger space
near St Paul's Cathedral it soon had to
“We integrate all new
capabilities, including
contractural settlement. You
get repeat business if
people are happy and you
have a continuity of staff
and products”
move again, this time taking advantage of
the new offices springing up in London's
docklands. With Canary Wharf as a base
- conveniently near London City Airport
- Parker travels around and meets around
four to five clients a week. “A big part of
my work is speaking with clients, finding
out what is changing in their business.”
So how are clients' businesses changing
and what are they asking of you in
consultations? “We've see a much greater
emphasis on risk, as well as interest in the
use of derivatives - they are more liquid,
people are using them more, and are
interested in the liability side. They are
asking, how do I manage that exposure?
They are also asking about volatility, and
clients want good valuation of their
portfolios.
“Clients have more exposure to funds
of hedge funds, private equity,
commodities and socially responsible
investing: knowing what the carbon
dioxide level of the companies they're
dealing with, as well as the labour
practices.
"In some markets there was a danger
that investor's property right may not be
protected. So part of our job has been to
examine the market mechanics like
transfer agents and the regulators to
ensure that investor's property right will
be protected."
Northern Trust now has offices.
London, Dublin, Guernsey, Limerick,
Luxembourg, Jersey and now has a
presence in Abu Dhabi. Maintaining
relationships, she believes, is the centre of
everything in new financial markets such
as the Middle East - both for resident
investors and those coming in. “In
Middle East relationships it is very
important to establish a good servicing
record,” she says. “Clients here tend to be
financially more conservative and place a
high importance on financial prudence.
The emphasis on relationships has
extended to protecting clients entering
into markets of very different regulation.
She says countries in the Middle East
are particularly receptive to new
technology and the increased automation
of asset servicing, an increase she
describes as “phenomenal. It is so much
more efficient, allowing capital flows into
regions that wouldn't have been exposed
to foreign business. So clients in the
Middle East want to be a world class
system in what they provide.”
The north of Europe has also provided
useful models of professional standards
and partnerships. “The Nordic region is
culturally very good and has a strong
value for experience. Our presence in is
region is fairly large
Parker reveals that the firm already has
its eye on the next generation of talent
that can increase the firm's expansion.
“The labour pools in these new countries
are interesting to us due to the college
graduates coming out of India's
universities. We also make sure we're
hiring good, strong, local talent.”■
Next issue: Goran Fors, head of custody
services at SEB
INVESTOR SERVICES JOURNAL 15
ISJ31 p16-37 Final 21/7/08 6:36 pm Page 16
CORPORATE GOVERNANCE
Sprung upon
Ben Roberts explores how the
opposite approaches of the
FSA and the HFSB paint an
unusual picture for the
practitioners of securities lending
hort selling was dealt a surprise
S regulatory blow when the UK's
Financial Services Authority (FSA)
announced that any short position above
0.25% of the stock outstanding in
companies undergoing rights issues must
be disclosed. With just a week between the
announcement (13th June) and the
implementation (20th June), adjacent
regulators that were excluded from any
consultation were scrambling to produce a
response. The move said much about the
FSA's concerns over the success of rights
issues. But more significant aspects have
arisen: the international repercussions, the
arguable challenge to the free market
principle and the mooted restriction of
shares that can be lent and borrowed.
The International Securities Lending
Association (ISLA) hastily called a meeting
to draft a letter to the FSA in response to
the announcement. Harold Bimpong, head
of operations of securities finance at
Morley and an ISLA board member, was
present at the meeting. He says it was
impossible in such a short period of time to
get all ISLA members together, even on a
conference call, and adds: “Fast-moving
markets, from the FSA's point of view,
requires drastic or knee jerk reactions and
that's what it has probably gone for. I can
16 INVESTOR SERVICES JOURNAL
only guess that rather than being seen to
get caught napping the FSA would rather
get a reaction to it and see what the
response is.” In what Bimpong described as
a “uniform response” from the board
members, the letter - written by David
Rules - stated: “We remain unclear what
urgent need prompted the introduction of
this disclosure regime without
consultation or reasonable notice”.
“The FSA has an obligation
to follow a consultation
process with industry”
Andrew Baker,
AIMA
The lack of consultation was echoed
four days later when the US Commodities
Futures Trading Commodity (CFTC)
tried to introduce daily price limits on
some oil futures contracts along with the
amount of particular oil contracts that a
trader can hold. The aim was to limit the
ability of traders to monopolise specific
areas of the market. The FSA soon entered
into protracted talks with the CFTC and
City representatives have since spoken in
US Congress.
Andrew Baker, deputy chief executive of
Alternative Investments Management
Association, said: “The FSA has an
obligation to follow a consultation process
with industry when new measures of this
nature are set to be introduced. This
measure appears to be in response to the
need to recapitalise the banking system.
This seems to be a rushed measure to assist
a single sector and undoubtedly sets an
awkward precedent for the future.”
Bimpong admits that the FSA usually is
reliable with consultation and the quick
succession of its ruling and the imposition
of the CFTC could well be coincidental.
But it could be argued that the “fast
markets” that the regulator must govern
may hint at a decrease in consultation and
an increase in “kneejerk” legislation - a
supposed “urgent need” that ISLA's letter
questioned. With the narrowness of the
consultancy, Bimpong goes on to note that
the FSA may have a similarly limited view
when it comes to the prevalence of short
selling. “In ISLA's response some of the
comments didn't believe that it was
possible for a lender of shares to be sure
that for the purpose of what they were
being lent… So what we're saying here is
not necessarily just doing short sales. But
from the FSA point of view that's how
ISJ31 p16-37 Final 21/7/08 6:36 pm Page 17

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ISJ31 p16-37 Final 21/7/08 6:36 pm Page 18
CORPORATE GOVERNANCE
they see it. [But] lending is not just done
for short selling.”
Instead, he explains that deals and
positions are made to cover a number of
other purposes, such as for settlements.
“That is the normal understanding, the
layman's understanding - if you think of
short selling as simply driving down a
price then that is the only way they're
going to look at it. But lending is not only
done for that purpose.”
The FSA's ruling is sure to have
international ripple effects. Richard Frase
of law firm Dechert points out that the
global nature of some of the companies
undergoing rights issues will draw traders
in its shares around the world under the
legislation. “If you're sitting in the US
dealing with a counterparty in Tokyo and
you happen to be dealing in a security
which happens to be listed on a UK
exchange, then that short selling rule
applies to you. If I was a compliance officer
it wouldn't give me that much comfort,
because if you [as a trader] miss it because
you haven't spotted the fact that it is UK
listed, it doesn't mean that you are not in
breach.”
Frase points out that the non-disclosure
is now considered market abuse, and that
the FSA's ruling affects international
understanding of this area of legislation.
It is for this reason that Frase fears that
many innocent traders around the world
may be suspected of a serious offence.
“Market abuse is an area in which if the
FSA, if it had a genuine concern, would
need to address it in the Market Abuse
framework rather than by the industry
guidelines - but it doesn't stack up. Market
abuse is based on concepts that people
within the market would find relatively
easy to understand; complicated but well
known: insider dealing, misuse of
confidential information, market
manipulation through false rumours,
things like that.” In his view, the law should
have been classified as one of non-
disclosure, not abuse, and the FSA has
“redefined manipulation” and “created a
new offence at random”.
He explains that the FSA usually avoids
“cross territoriality” in legislation, and
hints that the regulator may not have
18 INVESTOR SERVICES JOURNAL
intended to do so this time: “The FSA
answer to that would be 'well, it's only the
UK issues that have rights issues, it's not
common practice elsewhere'.”
Frase adds that the ruling goes against
the principle of free markets, and that it
may even help to damage investor
confidence. He has heard it described as a
“panic reaction”.
The regulator, in their press release,
hinted that there might be further
legislation soon including that it would
consider restricting short sellers from
covering their positions by acquiring the
rights to the new shares. Is there a danger
the FSA could push through further
legislation without consultation? “Yes,
that's a concern. They've spent years
“I don’t think the FSA has
made it entirely clear why
the timing was as it was. I
think all of us can draw the
same conclusion - that it
cannot be unconnected
with the HBOS situation”
Martin Cornish,
Katten
building up people's confidence in this sort
of principles based regulation and people
making their own decisions as to what they
ought to be doing and this cuts right
across it.”
Principle-based regulation for arguably
the most prominent practitioners of short
selling, hedge funds, contrasts sharply with
the definitive FSA legislation - as well as
the issue of consultation. In January of
this year the Hedge Fund Working Group
finalised its principles of best practice, a
statement of intent up held by the Hedge
Fund Standards Board (HFSB). This
month it is hoping to change the board to
include investor representation. The
principles cover the areas of risk
management, valuation, disclosure, fund
governance (including the independence of
the board) and shareholder activism.
Fourteen of the UK's biggest hedge funds
signed up to the standards. The creation of
the guidelines was spurred by pressure by
Germany when it chaired the EU
Commission to put hedge fund activity in
the spotlight. Martin Cornish of law firm
Katten, which has been involved in
advising hedge fund clients, says the
consultation that went into formulating
the guidelines was “pretty far-ranging” in
its responses.
“Its gestation is through that mechanism
[of international consultation]. Where we
as lawyers come in is that we have a
number of clients who are not part of the
process and have not yet signed up. The
issues for them are: should they sign up,
and whether they do or don't sign up are
these de facto standards that regulators
will hold them to?”
Cornish says the 'comply or explain'
aspect to the guidelines has intrigued
many of the hedge funds he advises.
'Comply and explain' is the flexible
approach to the new legislation that posits
that a manager can either go along with
each point of the rules, or provide an
explanation why they will not follow
specific points. “You are agreeing
contractually that you will explain to the
HFSB why you're not in compliance.
They're not going to say 'that's not good
enough, you have to comply', they just
accept as part of the structure.” In his
discussions, he said clients “want to
understand how they're going to couch
those explanations and whether there is
risk attached to that, because once you sign
up formally to the industry standards then
say in the same breath 'I don't comply with
this one' it implies that you're not up to
industry standards”. Cornish admits that
“theoretically, you could sign up and not
comply with any of the standards” - which
some would argue devalues the notion of
trying to appear to be aiming for best
practice - but adds “the anticipation is
clearly is that the people who join will
substantially be in compliance with most of
the rules, otherwise the whole thing would
be farcical”.
He adds that the flexible approach
provided by the HFSB prevents the
guidelines from becoming legally firm. “It's
not clear how much teeth this standards
ISJ31 p16-37 Final 21/7/08 6:36 pm Page 19
board actually has in terms of
infrastructure, to actually monitor what
people are doing.” In the absence of a
legally binding document, Cornish says
signing up will have two key benefits for
hedge funds. Firstly, it can be a selling
point when attracting new clients,
stamping the fund with a superficial
verification that they agree with best
practice guidelines. This point may be
particularly pertinent as hedge funds,
according to Cornish, are not obliged to
explain to investors why they are not
complying with certain rules to the same
detail as to the HFSB.
Secondly, signing up may keep the more
vicious regulatory wolf from the door.
Cornish is adamant that this is “certainly
what kicked the best practice standards
into action”, describing that the offshore,
unregulated hedge funds were treated with
a similar suspicion as private equity as
apparently covert operations. Tom
McEvilly of Checkfree, a service provider
that looks to meet legislation for its front
to back office system, agrees that the
standards act as a badge of
professionalism. The best practice
guidelines appear to have appeased the
FSA, which Cornish says “is happy with
the rules it has got and the idea of having
industry standards with more principles-
based regulation rather than detailed
regulation” - unlike the hasty intervention
regarding short selling.
But will a financial crisis involving
hedge funds put this optional legislation in
stark perspective followed by calls for
'proper legislation'? “There's a possibility
of that, yes. If it then turns out that
someone was not in compliance with what
was said it would rather make the whole
thing look a bit daft, not to mention that
they've stuck their own head in the noose.”
He adds that the guidelines could be
further undermined if few or no more
hedge funds sign up.
Hugh Gibson of ISLA is dismissive of
independent groups devising best practice
rules, despite their best intentions. “In my
experience, when individuals get together
[the legislation] barely gets going. You
need an association behind it. ISLA relies
on its members to populate the sub-
CORPORATE GOVERNANCE
groups,” and adds that there are “so many
best practice guidelines”.
Cornish calls the FSA's latest ruling an
“administrative nuisance” and adds “I don't
think the FSA has made it entirely clear
why the timing was as it was. I think all of
us can draw the same conclusion - that it
cannot unconnected with the HBOS
situation in the trading of its shares in the
middle of a rights issue”.
“What's odd is that if it has specific
information about people who are
committing market abuse then it would
take specific action against those people. So
it's tough to know whether they just want
more information and that the current
“The FSA has spent years
threshold just did not catch what was building up people’s
going on.”
This point is echoed by Frase, who says: confidence in principles
“What the FSA has said in its press based regulation... this just
statement is that they suspect there are
abusive practices going on. So they're cuts across it ”
justifying it by saying that people are
deliberately manipulating the market but
Richard Frase,
they can't get at them.” Dechert
Two regulatory developments,
therefore, of opposite characteristics. The
FSA imposes a regulation without
consultation that is legally binding; HFSB
publishes best practice guidelines that
undertook some consultation but is no
more than an informal guideline. The
former seems to treat the investor lending
and borrowing stock with a degree of
suspicion; the latter gives the investor full
responsibility when investing with a hedge
fund as to its adherence to general best
practice. An FSA spokesperson confirmed
that further regulation concerning the
lending and borrowing of rights issues
shares was still under consideration. The
spokesperson added that new rules might
“If you think of short selling
also appear without consultation. For now, as simply driving down a
lenders and borrowers had better watch
their backs in eyeing up rights issue firms price then that is the only
- regardless of free market principles. As way the FSA is going to look
Cornish sighs: “The question arises: do
traders want public disclosure of their at it. But lending is not
position? They might feel this destroys
their edge and their position... I think the
only done for that purpose”
biggest issue has been the timeliness Harold Bimpong,
and whether they can physically put this
in place or amend systems to comply at Morley Fund Management
such short notice.” ■ and ISLA board member
INVESTOR SERVICES JOURNAL 19
ISJ31 p16-37 Final 21/7/08 6:37 pm Page 20
PROXY VOTING
Can we count
on your vote?
The competitive rise of electronic
proxy voting has brought technical
anomalies with regard corporate
representation. Ben Roberts
reports.
ompany transparency has been a
C key theme running through much
of today's post-credit crunch
discussion. One element of this drive for
greater openness has been companies
encouraging their shareholders to
participate in general meetings. With
participation comes a vote, whether the
shareholder can attend the meeting or
not. But despite globalised
communication in everyday life, electronic
proxy voting has had an uneven take-up
across different countries and the process
has not been in step with other areas of
technological innovation. Further,
regulatory loopholes have produced
interesting developments for corporate
representation.
David Gould, manager of investment
services at the National Association of
Pension Funds, believes that, first off,
there is more votes being lodged around
the world because the intention to vote
has increased. “Some would argue
perfectly rightly that it is part of your
duty as an owner of shares to cast a vote.”
He adds that the new electronic systems
that allow voting to happen run in tandem
with this increase, and that the explosion
in the number of UK shareholders with
holdings around the world has yet further
increased the need for a proxy system.
The NAPF's latest Shareholder
Engagement Survey found that “more
funds are exercising their voting rights
overseas. Big majorities vote in Europe,
the US and Japan, while almost half cast
20 INVESTOR SERVICES JOURNAL
votes attached to stocks listed on
emerging market exchanges”. At the
same time, Gould adds, foreign investors
are taking stakes in UK companies. Both
trends demand a fast and reliable service.
Providing the services for proxy voting
has always been more than just saving
paper. Speed, accuracy and security are
vital tests of any new system;
breakdowns in any of these areas can
have negative consequences. Popular
product providers such as Scytl also
emphasise benefits such as multiple
languages. Since 1996 Manifest, a proxy
voting service and researcher, has
operated a straight through electronic
system.
Electronic systems have long
dominated the voter process in the US
and are now becoming more prevalent in
the UK. Euroclear, the clearance and
settlement provider, moved into the
electronic voting space in 2002 when it
bought Crest, an interface on which to
lodge votes. Euroclear revealed to
Investor Services Journal that over the
past 18 months, shareholders of 100 of
the 105 securities issued by FTSE 100
issuers used Euroclear UK & Ireland's
electronic proxy voting service.
Shareholders of 189 of the 262 securities
issued by FTSE 250 issuers used the
service, along with 472 other securities.
Supporters of electronic voting argue
that the global reach of shareholders'
investments demand an established proxy
service to meet the criteria of security
and efficiency.
Electronic proxy voting is a simple
trade of data, like securities lending. The
listed company wishing to conduct a
meeting will employ a registrar as agents.
First, the registrar sends notice of the
meeting along with a proxy card on
behalf of the company, personalising the
forms, proxy cards and the addressee.
These shareholders will often vote
through the custodian who is holding
their shares, as it is usually the custodian
that is the registered Crest user.
Andy Cotter of registrar
ComputerShare explains: “A CREST
member would receive paper versions of
all communications dispatched by the
issuer, plus an electronic notification
through CREST, advising them of the
annual general meeting. A custodian will
be holding the shares on behalf of a third
party, such as a fund manager, perhaps
with a pension fund behind them. In these
cases, it is the custodian’s name which is
shown on the share register. Somtimes
custodians appoint third party providers to
lodge votes on their behalf. The votes are
often transmitted electronically using
CREST to the registrar, rather than a hard
copy sent through the post or by courier.’’
Manifest is a proxy voting service that
uses its own technology - not Crest. It
works directly with the institutional
investor, not the custodian holding the
investors' shares, and is the link to the
registrars. Paul Hewitt, manager of
business development, explains that this
ISJ31 p16-37 Final 21/7/08 6:37 pm Page 21

Proxy voting doesn’t have to be difficult

ProxyEdge is Broadridge's electronic voting solution that simplifies
the management of international proxy voting by providing:
• Multi-custodial view of holdings
• Meetings in all markets available in a single view
• Flexible screen views allow the system to accommodate your work flow
• Maker/Checker functionality allows for separation of duties
• Customisable reporting features allow for
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• Integrated vote recommendations from global and
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• Power of attorney management integrated into the voting platform
• User e-mail alerts to assist in the management of the process

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info@broadridge.com
© 2008 Broadridge Financial Solutions, Inc. Broadridge and the Broadridge logo are trademarks of Broadridge Financial Solutions, Inc. www.broadridge.com
ISJ31 p16-37 Final 21/7/08 6:37 pm
ELECTRONIC PROXY VOTING
“You have a strange
situation in the UK where
unless someone asks for a
poll [of proxy voters] the
votes may never get
counted”
Bruce Babcock,
President, Investor
Communications Solution
Broadridge
“Some would argue, per-
fectly rightly, that it is part
of your duty as a holder of
shares to cast a vote”
David Gould
NAPF
22 INVESTOR SERVICES JOURNAL
Page 22
direct access defines a 'straight-through'
electronic system.
Broadridge, by contrast, works directly
with the custodian, using its global reach
to be able to collect the votes of
shareholders dotted around the world to
put through the Crest system. Where
Manifest looks to cut out the custodian to
provide a more streamlined system,
Broadridge is now seeking to cut out the
registrar. Bruce Babcock, president of
Investor Communications Solutions at
Broadridge, explained from Japan that the
firm is further developing a relationship
with the Tokyo Stock Exchange under
the banner ICJ. ICJ was launched in
December 2005 when Broadridge, the
Tokyo Stock Exchange (TSE) and the
Japan Securities Dealers Association
(JSDA) created a platform that provided a
Japanese language voting platform with
Japanese content for Japanese investors,
enhancing timeliness for release of
meeting agendas in English. Companies
that sign up to ICJ can access an
electronic voting system that allows
shareholders to lodge and alter their
votes up until midnight before the
meeting after dispensing with the
registrar. Babcock explains the scheme is
a replica of the process in the US, adding,
“Broadridge has 309 companies using the
service in Japan that is about 65% of the
Tokyo Stock Exchange market cap. So the
big companies have all adopted it but
there are about 2,000 listed companies
here so we've a long way to go”.
Babcock says the firm has plans to
install this relationship in Holland as a
European pilot country. He says Holland
is fairly open as a market, making it a
viable target, and contrasts it with some
of the Asian markets that present
numerous regulatory obstacles, despite
the increasing interest. “There's been a
steady increase in the use of e-voting, but
the actual introduction has been almost
nil. There are other countries that are
saying, 'hold on, so we can plug in this
system and have real time active and
electronic voting in our markets' as well,
but it's taken years of legal and
regulatory changes to make it happen.”
He cites Malaysia and Singapore as two
countries interested in entering into an
agreement for electronic voting. He adds
that Taiwan is also interested,
particularly, he says, as the country was
embarrassed by a survey by the
International Corporate Governance
Network that “trashed” the country's
voting system. “In Taiwan the companies
issue an agenda fifteen days before the
meeting. But ten days before the meeting
they might change the agenda and
provide the names of the directors. These
late changes are common and often occur
after the foreign shareholders have
already voted. As a result, most
shareholders don't even try to vote and
end up being disenfranchised.”
Broadridge is privy to exclusive
information to provide a voting service,
says Babcock. “The registrar knows who
the registered shareholders are, but
Broadridge knows who the beneficial
shareholders are. For example, there will
be ten big institutions in one omnibus
account at one global custodian; the
registrar will only see, for example,
account number one of a bank, but
Broadridge has the ten underlying
shareholders' information. Most
institutions in the US at least are in
omnibus accounts at global custodians, so
the registrar will only know the name of
the large bank, they will not know who
the shareholders are behind the bank.”
In the US this information is
confidential. In the UK, a company can
write to brokers and banks demanding to
know the identity of the beneficial
shareholders in circumstances other than
voting. So when voting comes around, as
Babcock says, “they can guess who's
voting”. Once the votes are lodged the
registrar will collect them and apply them
to its records for that particular company.
Some votes may be rejected on the
grounds that a shareholder's stake in the
company has changed. Sometimes a
shareholder will want to appoint a proxy
voter to sit in the meeting in their
absence. If so, the registrar will confirm
this appointment along with the
instruction to that proxy.
Babcock explains that it is often in the
interest of absent shareholders to appoint
a proxy to be in the meeting because
proxy votes, though they reach the
meeting, are not always counted. He says
the chairman of a meeting rarely
discloses the voting results of proxy
voters - in the UK at least. “You have a
strange situation in the UK where unless
someone asks for a poll [of the proxy
ISJ31 p16-37 Final 21/7/08 6:37 pm Page 23

The Creative Factory

voters] the votes may never be counted.
So if the chairman says 'all in favour, say
aye' and everyone says 'aye' then nobody
counts the [proxy] votes and the people
at the meeting voted for everything.”
Why do the people present at the meeting
have precedence? “That is the custom and
practice in the UK. The institutions think
that it is completely against the principle
of shareholder democracy, and I think
they should count the votes.”.”
But appointing a proxy to sit in the
meetings has also been fraught with
debate. Until 2006, only two proxies
could sit in a company meeting to
represent the custodian that is holding
many different funds that contain shares
in the company, according to Babcock. “So
here's the bank with 800 clients in an
omnibus account; three want to go to the
meeting, 797 want to vote by proxy.
They're only allowed to send two people
and those two people have to represent all
spokesperson said the different legal
interpretations did not help. The body
also picked up that one representative
attending on behalf of a number of
shareholders can only vote one way.
David Paterson, head of corporate
governance at the NAPF, confirms that it
also has been active in clarifying the
matter of the two proxy maximum: “We
were involved in the discussion on the
flaws in the Companies Act. ICSA has
published guidance that has been
accepted by almost all companies on how
to deal with the confusion.”
This ICSA guidance also touches on the
“confusion” that multiple proxies will have
one vote between them in the company
meeting in point 3.2: “It appears that the
articles could therefore state that where a
registered shareholder (whether an
individual or a corporation) appoints
multiple proxies, they are only to have one
Our
,
vote on a show of hands between them.”

the shares - we have a problem,” he says.
This law has been repealed, and now any
number of proxies can represent
shareholders whose shares are held in a
custodian bank providing they do not
exceed the number of shares held.
However, at the end of 2007, hawk-eyed
lawyers in the field raised issues with the
new legislation, arguing that the wording
hinted that the first of the custodian
proxy to vote might end up having the
vote that represents the whole proxy
team representing that custodian.
The Companies Act 2006 states “so
long as the number of proxies relating to
a single registered holding is not more
than the number of shares held and the
proxies are appointed in respect of
different shares, the votes of multiple
proxies on a show of hands are
legitimate. However, should the chairman
consider that the number of proxies
appointed by a single registered
shareholder is affecting the outcome of a
show of hands, then, as a matter of law,
he should call a poll”. Babcock feels that
this is rarely done.
The Association of British Insurers
(ABI) has been vocal in clarifying this law.
It also picked up on another issue
whereby if a voter was going to attend
the meeting and changed their mind, the
meeting did not technically have to accept
a corporate representative. Although this
situation is not common, an ABI
However, making such a reduction to
the proxies' voting rights in the
company's articles is not recommended as
it could create difficulties in practice both
in terms of the multiple proxies agreeing
which one is to vote on a show of hands
and for the company controlling and
counting the votes at the meeting.
Therefore, if a company's articles already
contain such a provision reducing voting
rights, advice should be taken about
whether it should be removed.”
In the absence of clear legislation,
companies have had to work separately
from the exact (albeit opaque) letter of
the law in the form of recommendations
and general agreements. Some would
argue that this is not an ideal situation,
and firmer legislation may be sought in a
dispute. As Bruce Babcock says: “The
companies are not going to enforce the
rule. But when push comes to shove and
there's a proxy fight, anything's possible.”
Babcock is confident that Holland will
be a successful pilot for the
European market in establishing an ICJ
equivalent system. He says there will
always be naysayers who criticise the
security of a fully electronic platform, but
his response is bullish: “It's the
registrars to a certain degree but some of
the issuers who say 'oh electronic
voting isn't safe'. But tell me how faxing a
signature is safer than an electronic
handshake?” ■
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ISJ31 p16-37 Final 21/7/08 6:37 pm Page 24
ANALYSE THIS - REFERENCE DATA
OK Computers
STUART PLANE, DIRECTOR, CADIS
SOFTWARE
Why is it still so difficult
to achieve timely and
accurate data?
here are two fundamental
T elements to data - time and
quality. Consumers of data
value these elements differently. For
example, traders require data to be delivered to their systems
before the markets open, hence timeliness is crucial. Those using
risk, reporting or compliance systems usually require accurate
data and would prefer this an hour late rather than inaccurate
data on time.
Traditionally, the focus of reference data has been on its
quality. As a result many enterprise data management (EDM)
systems do not fully integrate (if at all) with front office systems.
The real challenge for EDM it to provide the most accurate
data available at a point in time. For example, when the trading
system requires its data to be up and running by 6am, the
prospect of perfect data is unrealistic as the data management
team will not have adequate time to validate it. Hence the EDM
system will have to supply the best possible version of the
reference data at 6am. When the data management team begins
“The people who understand the data
should be the ones to manage it. They
need to have visibility of all data, where it
has come from, what rules were applied
and full audit trails”
to cleanse, validate and approve the data, it can then be fed intra-
day to the systems that were fed potentially incorrect data at the
start of the day.
Reference data is still predominantly handled by the IT
department, with IT staff often being the only ones who can see
how data has been manipulated or moved. This adds to the
struggle in achieving timely and accurate data. This approach is
flawed. Instead, the people who understand the data should be
the ones to manage it. They need to have visibility of all data,
where it has come from, what rules were applied and full audit
trails.
Taking into account the complexities of instruments today
and increasing volumes of information, it is crucial that
significant effort goes into understanding different types of data.
However, this shouldn't be an arduous task. Firms must take into
account that all data is source and destination dependent - not
24 INVESTOR SERVICES JOURNAL
Top industry people
examine the definitions &
uses of reference data.
independent. Without accepting this, they cannot do anything
meaningful with the data, which is why business users need more
control. They should have visibility of the audit trail, validation
rules, arbitration rules and the matching rules in a way that is
easy to understand. Additionally, rather than a single gold copy
of the firm's reference data, multiple gold copies or an evolving
one are not only easier to manage, but ultimately more secure
and useable by downstream systems.
Without being both timely and accurate, reference data
initiatives cannot prove their value.
To achieve this, EDM must integrate with the front, middle
and back office - even legacy systems and cumbersome Excel
spreadsheets, while providing the necessary simplicity business
users require. If this can be ensured, the right data will always be
fed to the right systems. Furthermore, by attaining rich financial
data at high speeds, operational efficiencies will increase, while
operational risk will subsequently be reduced. ■
KEITH FORD, INDEPENDENT IT
CONSULTANT AND PROJECT
MANAGER
What actually constitutes
reference data?
ata in all organisations sits
D within layers to form the
whole information
architecture design. Each layer of
data is different, you should be able to identify each data layer
when you look at your organisations total data structure
Metadata. Here is the data describing your organisations
enterprise information architecture, for example definitions of
tables and columns in the system catalog of a database. You may
find that sometimes it is represented database tables you're your
business users work with.
Reference data. Tables in databases that are also called
"domains", or "lookup tables". These are used to hold
information about items that your company manages day to day
as Part of its business for example towns, counties or
currencies), reference data may also hold information that helps
categorise your companies information.
Organisation structure data. Data that describes the
structure of the organisation for example an organisation chart
or chart of accounts. This information is used to track business
activities by responsibility or group.
Transaction structure data. This describes the parties that
are part of the transactions of your organisation, such as
product and customer.
Transaction activity data. This is the traditional focus of IT
Systems. It is the day to day data that will form the transactions
processed by the operational systems of your organisation for
ISJ31 p16-37 Final 21/7/08 6:37 pm Page 25
ON THE
FINANCIAL
SCENE WITH
BIBA
BIBA Chief Executive
Cheryl Packwood
Hedge fund bosses who seek
‘no regulation’ are not welcome here
By Scott Neil | The Royal Gazette, Bermuda
A casual conversation at a hedge fund conference highlighted a telling
difference between Bermuda and some rival offshore jurisdictions and showed
why Bermuda continues to be held in higher regard than many competing
financial jurisdictions as an orderly and attractive place to do business.
A more intense spotlight has been shone on the regulation of hedge funds
following the collapse of the Connecticut-based hedge fund Amaranth
Advisors after it lost billions of dollars speculating on gas prices.
At a hedge fund conference in an unnamed “jurisdiction which frequently
identifies Bermuda as one of its major competitors” a hedge fund
compliance officer was asked by a Bermuda group why the fund had
chosen the rival domicile over Bermuda.
Cheryl Packwood, chief executive officer of the Bermuda International Business
Association (BIBA), who was amongst the group, said: “We pressed him as to
why he chose the particular jurisdiction he was domiciled in over Bermuda.
His response was simple, ‘no regulation’.
“We were delighted to point out that, in fact, Bermuda’s regulations were
less onerous and more efficient but he stopped us cold with a simple
statement. He said, ‘Sorry, I know all about the difference in regulations,
but I should have said, ‘There is no enforcement of regulation where
I am domiciled’.
“Guess what? We
“Getting the right balance is at the are delighted with
core of B E R M U DA’S continuing his choice of
REGU LATORY DEV E LOPM E NT.” domiciles. Those
who do business
in Bermuda are carefully chosen and of the calibre that we are comfortable
and secure having as part of our client-base. This legitimacy too, is why
many individuals and corporations choose Bermuda — jurisdictional comfort
is what we refer to.
“In fact, many countries have begun to approach us to tailor our
regulations to meet the more stringent regulatory needs that today’s
world is more actively seeking.”
Ms Packwood made the observation as she gave a speech to delegates
at the Bermuda Compliance Summit this week, which brought together
officers from compliance organisations around the world for a two-day
conference at the Fairmont Southampton Hotel.
She said striking the balance between regulation of financial institutions
and allowing them enough space to operate commercially was key to
Bermuda’s continued success as an alternative financial jurisdiction.
Ms Packwood told delegates the Island’s willingness to develop and enforce
regulations was paramount to preserving and enhancing Bermuda’s
The Bermuda International Business Association (BIBA) is a membership organization of nearly 100 companies in one of the world’s preeminent financial centres.
It provides access to world leading fund administrators, legal and accounting firms, and investment banking and trust service providers. Every month in Portfolio
International, members of this prized intellectual pool will provide their analysis and commentary on key financial issuses of the day.
T. 441.292.0632 | F. 441.292.1797 | www.biba.org
reputation as an orderly and attractive place for international businesses
to operate.
“From the onset our approach to business has been based on rigorous
up-front vetting of the individuals and the business propositions brought
to us. This is something that has stood us in very good stead in enabling
us to avoid many of the problems encountered by those who have taken a
less robust stance,” she said, addressing the topic of Bermuda’s reputation,
challenges and concerns.
On hedge funds specifically, she said: “There is no doubt that today we
operate in an environment characterised by increasing regulation within
the financial services industry, on both national and international levels.
“National and regional governments are consistently looking to enhance
their regulatory regimes to be even more responsive to evolving
international standards, dynamic business conditions and threats of
possible failures that exist within their markets. A very recent example of
such failures is the of the collapse of Amaranth Advisors. This event has
thrown into question the strength of the current system, and prompted
policymakers to rethink the regulation of hedge funds in the US.
“Although the financial system appears to have absorbed the Amaranth
losses without significant interruption, reportedly questions remain as to
whether or not the system could handle yet another hedge fund blow-up
that could possibly have a broader domino effect.”
Ms Packwood added: “It is clear there is a need for some level of oversight
for the hedge fund sector. However, we do believe it is important generally
for regulators to try and strike the right balance when maintaining
effective regulatory frameworks.
“Our frameworks should be aligned to international standards, while
avoiding requirements that stifle business growth and development. And
the development of common international standards does not diminish the
requirement for national supervisors to develop appropriate and practical
regulatory requirements that take into account the nature of particular
businesses in their markets and their related different levels of risk.
Getting the right balance is at the core of Bermuda’s continuing regulatory
development, said the BIBA chief.
“Growth in hedge funds in Bermuda, as elsewhere, has occurred against
a background of the continuing evolution of regulatory standards and
approaches occurring over recent years,” said Ms Packwood.
“As with our other regulated sectors, Bermuda has kept our regulatory
provisions for investment business and for collective investment schemes
under regular review, as international standards have developed and
been refined.”
ISJ31 p16-37 Final 21/7/08 6:38 pm Page 26
ANALYSE THIS - REFERENCE DATA
example sales.
Transaction audit data. Each transaction as it moves
through an organisation may pass through several stages and
business steps. At each step the state of that transaction may
change. Audit information will track these changes. Web logs
and database logs also track this kind of data.
Reference data as defined here as follows:
Reference data is any kind of data that is used solely to
catagorise other data found in a database, or solely for relating
data in a database to information beyond the boundaries of your
organisation. keith@keithford.co.uk. ■
NEIL EDELSTEIN, VP, PRODUCT
SOLUTIONS, GOLDEN SOURCE
How is the expanding
definition of reference data
affecting firm-wide data
operations strategies?
he label ‘reference data’ has
T been the subject of much
conjecture as to the exact data
attributes that should be assigned to it.
Many saw it synonymous with those attributes that remained
static through the life cycle of the security, such as security and
asset class identifiers, coupon rates, and maturity dates
maintained to support the firms' security master. Over time, the
security markets have expanded this definition to include
instrument related data, including non-static features such as
quality ratings, pricing and redemption provisions. Most
recently, customer, counterparty and security structure and
collateral details have been included in the evolving view of
enterprise (reference) data. This expansion has caused
organisations to revisit their data governance and repository
requirements.
Today, reference data is viewed as a highly valued asset whose
enterprise integration is essential to front and back office
operations, as well as downstream risk, portfolio and accounting
systems.
As such, senior executives within the organisation are
increasingly committed to creating robust data management
technology, processes and governance industry best practices.
Further, in order to mitigate operational, financial and
reputational risk, data marts are being consolidated and IT
project priorities have changed across the industry. Increased
regulatory requirements, as well as fundamental informational
breakdowns over the past years, have further increased the need
to revisit siloed, legacy data practices and technology.
Enhancing the reference data definition produced additional
requirements to scale data repositories, consolidate data systems
from across the enterprise and improve client access resulting in
a holistic view of the firms 'data culture customer.'
Firms have implemented enterprise data management
strategies for the last few years. To meet the needs of their
growing businesses, firms are consolidating, aggregating,
normalising and automating data at an enterprise level. Legacy
systems are being retired, data models expanded, and operations
streamlined to handle increasing data volumes (particularly
26 INVESTOR SERVICES JOURNAL
within the derivatives market). To keep ahead of the expanding
breadth and depth of the traditional ‘reference data’ curve the
definition of reference data is evolving to encompass the
expanding data needs of the organisation.
As data management continues to mature, and the need to pass
consistent referential data across the organization becomes
institutionalised, so the definition describing reference data has
to expand. Firms that adopt this expanded definition will have a
competitive edge. Using a revised data management strategy to
supply accurate, quality assured data, provides a layer of risk
mitigation, otherwise not present throughout the organisation. ■
FREDERIC PONZO, MANAGING
DIRECTOR, NET2S
What can reference data
deliver and what are the
challenges?
eference data can mean a
R number of different things to
different people, but in
essence it can be divided into five main categories:
1. Client data (contacts and entities obviously, but also
trading agreements, back-office accounts, existing and
historical positions, credit and client risk)
2. Counterparty data (identification, accounts, gross and
net trading exposure, credit worthiness and counterparty
risk)
3. Securities data (instruments description, hierarchy and
relationships, symbology and ID codes, listing(s)
information, sectorial information)
4. Corporate actions (dividend payouts, coupons
detachment, stock splits, rights issues, M&A activities,
share buy-backs)
5. Valuation and pricing (close prices when and where
available, other ways to value an instrument)
Some aspects are more challenging than others. Client and
counterparty data is fairly straightforward to handle, but has
been made even simpler since MiFID and Basel II came into
effect. Both regulations are very specific on what this data
should entail and are thus encouraging standards to emerge.
Securities have always been tricky to handle, and banks have
spent significant amounts of time, money and effort to
consolidate them into 'Golden Copies' or 'Securities Masters'.
Technology is available to manage such repositories at the
enterprise level. Enterprise Data Management is an industry
best practice which is becoming widespread across both the
buy- and the sell-sides. On the other end, the efficient
management of corporate actions, as well as valuation &
pricing data, still remains beyond the reach of most financial
institutions. This is the biggest challenge for reference data.
But what makes one type of data more difficult to handle
than another? This simply comes down to the three intrinsic
attributes of what constitutes 'good' data:
1. Completeness
2. Accuracy
ISJ31 p16-37 Final 21/7/08 6:38 pm Page 27

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ISJ31 p16-37 Final 21/7/08 6:38 pm Page 28

ANALYSE THIS - REFERENCE DATA

3. Timeliness
In other words, good data contains all the relevant DUNCAN ASH, EMEA BUSINESS
information, is 100% correct and is available as quickly as DEVELOPMENT MANAGER, SYBASE
possible. This is quite a task. It is laborious enough to achieve
this for the 'static' data categories (clients, counterparty and With the increased volume
securities), but it is incredibly difficult for the more 'dynamic' of reference data, how are
information such as market events and prices.
This is an industry-wide problem, and will likely require an
quantitative analysts using
industry-wide initiative, perhaps following this sequence: this information to make
1. Establishing standards in terms of data models, better and more profitable
presentation formats, communications and workflows
2. Adopting the standards for internally developed trades?
systems he volume of data in financial institutions is increasing
3. Vendors, both of software and the data itself, would
follow these standards, ultimately accelerating
innovation and enhancing competition. ■
T at an unprecedented rate. Reference data is being
collected in much larger quantities as a result of the
increase in instruments available. Also, market data is now
being stored in a way not considered a few years ago - at leaf
level, ie, every trade, and sometimes the full order book.
ALEXIS CALMON, SMARTCO This has come about from several competing pressures:

How can you offer value- 1) Regulatory pressure from MiFID and RegNMS to
added services using a keep a record of every trade for best-execution
2) Requirements from algorithmic trading to produce
centralised reference data more accurate models and improve the quality of
management? back-testing
3) Requirements from quantitative analysts who need
inancial markets are creating

F increasingly complex
instruments and packages.
Most in-house and trading systems cannot manage and store
to find new sources of profit
4) Pressure from risk managers who need to have
access to all the data to facilitate intra-day risk
reporting
all required characteristics. A central and customisable
reference data management system allows this, reducing the
Quantitative analysts have some of the highest demands on
time to market to implement any new asset class or instrument
their data. To refine their models they need access to market
and leverage the quality of services provided to customers.
data - both very recent (low latency) data and very long
Asset servicers must adapt to various regulatory
histories. Analysts also need access to reference data that is
environment, perform mark-to-market valuation and pricing
often stored in different and disparate systems. They also need
independently of asset manager counterparty price quotes.
to create their own derived data and sampled data. This is
They need to integrate multiple sources in their pricing model.
frequently not shared among teams, resulting in many missed
Moreover, they are required to compute and validate
opportunities and potentially losses in profits.
NAV and pricing in a very short time frame. A reference and
The window of opportunity for executing a trade can range
market data management that can integrate multiples
from a matter of seconds to about half an hour. Without the
variations of information and deliver multiple ‘golden copy’
vast amounts of instrument data being processed swiftly,
and to combine quickly several pricing policies is a key success
necessary analysis could take up to an hour, equating to some
factor for asset servicers.
key trades being missed.
Numerous participants in the value chain results in onerous
Sybase RAP - The Trading Edition enables a financial
processing costs. Asset servicers need to communicate and
institution to manage all its key data in a single place: Market
exchange reference data with an important number of third
Data at full market depth - both low latency real-time data and
parties such as asset managers, clearing houses, brokers,
long histories, reference data, derived and sampled data.
custodians, and counterparties. Hence, connectivity tools that
This unified approach makes peoples lives easier by having a
provide communication means to interconnect data
single version of the data specifically, risk managers, traders,
management system are mandatory.
quantitative analyst and other interested parties all have access
Asset servicers need to get closer to their client
to the same data. When an analyst produces some new derived
specific needs and combine the industrialisation of
data or set of results they can be shared among the team easily
new business lines while providing an individualised service to
enabling more efficient trades.
each customer. With a flexible, scalable open and
By analysing historic and live data within a matter of
centralised reference data management, asset servicer could
seconds, traders can operate more efficiently within the risk
focus on their primary mission: allowing their client to
margins. The result is a greater amunt of executed trades as
delegate, with complete confidence and provide value added
well as enabling trades that would have gone unnoticed.■
service to their clients. ■

28 INVESTOR SERVICES JOURNAL

ISJ31 p16-37 Final 21/7/08 6:38 pm Page 29
ISJ31 p16-37 Final 21/7/08 6:38 pm Page 30
CLEARANCE AND SETTLEMENT
s the pace of technological change
I sowing the seeds for future disasters in
international financial services? This
question was prompted after a recent
workshop hosted by Société Générale
Securities Services (SGSS) at SG House in
the City of London. ‘MTFs: Supporting
the Changing Market Evolution’, was the
second in a series of breakfast briefings
planned by SGSS to focus on the
developments affecting the short-,
medium- and long-term future for trading,
clearing and settlement in Europe.
Duncan Paterson of Cygnet Consulting
Ltd drew parallels between the explosion
of equity trading and associated
competition in Europe and the US. The
removal of barriers to new trading venues
in Europe has spurred clearing and
settlement services. He cites the 50 plus
venues for US equity trading, including
two national exchanges, various regional
exchanges, electronic communication
networks (ECNs), crossing networks, dark
pools and others. While floor execution at
the New York Stock Exchange (NYSE)
takes 15 seconds, typical electronic
execution takes less than 10 milliseconds,
he reminded his audience, and more than
60% of institutional trades are already
electronic.
This fierce competition has caused a
significant reduction in trading costs, and
a wave of consolidation which saw the
30 INVESTOR SERVICES JOURNAL
NYSE buy Arca (previously ArcaEx), the
second-largest ECN at the time, in
February 2006. Nasdaq, meanwhile,
bought the largest ECN, Island. “Arguably
these were as much about gaining
technology and achieving lower operating
costs as they were about eliminating
competition,” said Paterson. The dual
effects of a unified clearing and settlement
infrastructure and continued innovation
have produced a new generation of
systems.
BATS Trading, for example, which
claims to execute in microseconds, gained
a market share of more than 10% in less
than three years. In May this year the
company's president and CEO, Joe
Ratterman, spelt out its intentions
towards Europe. “Several recent events
have laid the foundation for true market
centre competition to thrive in Europe,
and BATS is on the ground floor ready to
be a part of the new landscape… The
biggest new opportunity we see is trading
cash equities in Europe,” he wrote in his
newsletter to subscribers.
“BATS is committed to entering the
European market, using many of the same
'secret sauce' ingredients that helped
propel our growth in the US,” he
continued, adding that these included
superior matching engine, order handling,
and routeing technology, a progressive
ownership group, executive leadership
Anything
but settled
Consolidation and
cross-continental
ambition are constantly
turning the tides for
trading, clearance and
settlement in Europe.
Brian Bollen analyses
the implications.
excellence, market structure expertise,
“A+ employees”, in-house software
development and network engineering
teams, world class service and support,
and “a constant focus on doing what's
right”.
“In the short time since we announced
our intentions to enter the European
equities market centre space, we have
secured a world class data centre location,
ordered all required hardware and
networking gear, hired and/or extended
offers for all local senior management
positions, located a permanent office site,
prepared our MTF application, and
negotiated CCP agreements.” He
anticipated 'going live' by the third quarter
this year.
Paterson highlighted the historical
fragmentation of Europe, with its highly
differing market, legal, fiscal and
regulatory regimes that are complicated
by vested corporate, individual and
national interests. Vertical ownership
structures allow cross-subsidy. Even the
London Stock Exchange is now vertical
through its purchase of Borsa Italia, he
added. “Rewards are substantial - around
45% of Spain's and 60% of Deutsche
Borse AG's revenues in 2007 came from
clearing and settlement fees,” he said.
Europe has opted for a clearing and
settlement model based on competition,
and now has two international central
ISJ31 p16-37 Final 21/7/08 6:38 pm Page 31
securities depositories (ICSDs), twenty-
three domestic CSDs, and six central
counterparties, all on varying platforms,
and all growing. However, co-operation is
uncertain given Europe's history of
vested interests, he believes. The much-
vaunted Code of Conduct, a second key
plank, is unlikely to be enough, he adds,
and the suggestion that Target2-
Securities (T2S), the EU-backed initiative,
will be operational by 2012 is optimistic.
Even if all Europe's CSDs have agreed in
principle at the end of the consultation
period on 4th July to join T2S, it will be
some time before they have to sign
contractually binding agreements. This
story should run and run.
What, then, is the outlook for European
clearing and settlement? In the short
term, Paterson sees little sign of
interoperability. In fact, he says, “things
could get worse with more entrants”. In
the medium term, he expects
rationalisation to meet demand, the code
of conduct might help if pushed by the
EU, and T2S might achieve the required
traction. Long term, the EU will probably
have to issue a clearing and settlement
directive. In summary, he says, the
explosion of equity trading competition
in Europe is comparable with that across
the pond. Trading patterns are changing
rapidly in Europe as barriers to entry fall,
but the lack of co-operation will be a
major impediment to development. Diana
Chan, the chief executive of Euro CCP,
the manifestation in Europe of the US's
Depository Trust and Clearing
Corporation, dismisses the viability of
inter-operability. There are certain flaws
in the design, she has said, referring to the
voluntary nature of the Code of Conduct
and the commercial interests involved.
Paterson, meanwhile, looks to
September when newcomers to the
multilateral trading facility scene are
scheduled to enter the market, including
Turquoise. “Liquidity is the key,” he said.
“We thought we had it with virt-x, but it
didn't work. Latency becomes very
important; in fact, latency will be the new
arms race, and there will be some very
aggressive tactics to get liquidity.”
He draws an analogy with the EU's
Common Agricultural Policy (CAP),
which remains resistant to change despite
occasional vague pledges of reform. The
fragmentation and vested interests of the
CAP look very familiar to the situation
CLEARANCE AND SETTLEMENT
with clearing and settlement in Europe, he
suggests. In such a context, we will
inevitably see mergers and acquisitions as
the industry eventually concedes that it
needs to consolidate. “The Code of
Conduct is not enough,” he says. “The
game has changed. We have to do
something. Cultural change is needed.”
On the settlement side, the Nordic CSD
(which the Norwegian CSD has stoutly
declined to join) announced at the start of
June that would become part of the
expanding Euroclear Group. This move
helps explain the cryptic remarks made by
Paul Symons, director and head of public
affairs at Euroclear, when talking to
Investor Services Journal earlier this year.
“The code of conduct
“Euroclear has moved on, and the Nordic is not enough.
CSDs are following a similar plan in terms
of CSD consolidation and market-practice Cultural change is needed”
harmonisation,” he said in March.
Euroclear, NCSD (Nordic Central
Duncan Paterson, Cygnet
Securities Depository) and the four Consulting Ltd
primary owners of NCSD - Nordea, SEB,
Svenska Handelsbanken and Swedbank -
holding more than 99% of NCSD's shares,
have signed a memorandum of
understanding whereby the shares in
NCSD are to be acquired by Euroclear. As
a result, the benefits of further post-trade
infrastructure consolidation are to be
shared among more users of CSDs in
Europe.
NCSD, which comprises the Finnish
and Swedish CSDs, Suomen
Arvopaperikeskus Oy (APK) and VPC AB
(VPC), is expected to merge with the
Euroclear group in the fourth quarter
2008, subject to regulatory approvals and
final agreement. NCSD intends to transfer
its Swedish and Finnish transaction-
processing activities to Euroclear's single
platform immediately after completion of
“Several recent events have
the new platform, planned for 2011. All laid the foundation for true
Euroclear group clients will settle trades
and process corporate actions and related market centre competition
transactions on a single, multi-currency,
multi-jurisdictional platform. Euroclear to thrive in Europe.
Bank will also use the same single
platform. The Euroclear group CSDs, The biggest new
serving seven European markets, will
represent approximately 65% of the
opportunity we see is
Eurotop 300 equity markets. When trading cash equities”
including Euroclear Bank, the
international CSD, thenew Euroclear
group will represent approximately 50% Joe Ratterman, CEO,
of all European domestic debt
outstanding.
BATS Trading
This move follows unsuccessful
INVESTOR SERVICES JOURNAL 31
ISJ31 p16-37 Final 21/7/08 6:38 pm Page 32
CLEARANCE AND SETTLEMENT
attempts by the Finnish and Swedish
CSDs to build a model that could be
exported to other markets, in the Baltics
and central and eastern Europe. Those
efforts were stymied largely by the non-
partcipation of the Norwegian and Danish
CSDs. “The business case for
consolidation of just the Finnish and
Swedish CSDs did not work,” Goran Fors,
global head of custody at SEB in
Stockholm, told Investor Services Journal.
“The costs were just too high. But the type
of system that Euroclear is rolling out is
more or less similar to ours, and it became
clear that we should become involved in
closer European co-ordination rather than
try to create our own, as we are part of the
European markets. Overall, this is good
for the Nordic market. Euroclear is
building a very strong infrastructure
which will create a more efficient unit than
Link Up Markets; the integrated,
consolidated model will achieve more
standardisation than the Link Up model.”
The new agreement sounds like the final
death knell for the Fair & Clear project,
the informal association of custodian
banks (including SEB) engaged in
providing post-trade securities services in
Europe. The purpose of Fair & Clear was
to create a consolidated securities
settlement infrastructure in Europe,
supported by an open banking model
covering three core principles: cost-
efficiency, risk avoidance and fair
competition on service and pricing. “We
achieved a number of our objectives by
working together on a lot of issues,
including persuading Euroclear to have a
more segregated structure between the
CSD and the Bank,” says Goran Fors.
Sir Nigel Wicks, chairman of Euroclear,
said at the formal announcement: “Our
shared goal is to reduce end-user costs for
domestic and cross-border transactions
based on harmonised market practices on
a single processing platform. The
agreement with NCSD demonstrates
continued user- and market-led
momentum for infrastructure reform that
aims to achieve a more efficient, low-cost
settlement environment in Europe.” Anso
Thiré, head of global capital markets at
Euroclear, relates how during discussions
that started with the Nordic CSD 18
months ago on a different form of co-
operation - sharing a platform and
processing technology - it also became
clear that market practice harmonisation
32 INVESTOR SERVICES JOURNAL
initiatives were at a similar stage for both
organisations. “It became clear that it
would make sense to go one step further,”
he told Investor Services Journal.
Euroclear calculates that clients of the
combined organisation can expect to save
more than EUR350 million per year in
back-office and operational costs - around
half of the estimated EUR700-800
million in annual savings achievable
through CSD platform consolidation and
market-practice harmonisation across
Europe. Diana Chan also cites a savings
figure of EUR350 million for trading
firms if EuroCCP were to clear all trades
in Europe. “With NCSD becoming part of
a group of like-minded CSDs that will
provide a seamless post-trade
environment between markets, we believe
that the Nordic market will become even
stronger,” said NCSD chairman Tom
Ruud. “Issuers and investors within, and
external to, our market will have access to
deeper pools of liquidity and broadened
counterparty reach with use of this new
single settlement infrastructure covering
more of Europe's market capitalisation
Euroclear
than any alternative.”
NCSD chief executive Kjell Arvidsson
added that “after extensive market
consultation for the Finnish and Swedish
markets to move onto a single platform for
settlement, corporate-action processing
and safekeeping”, they decided that
Euroclear's single platform is ideal for
their clients.
Euroclear's renewed appetite for
acquisitions followed hard on the heels of
the announcement of the Link Up
Markets Initiatives. This arrangement,
saw seven CSDs - Clearstream Banking
AG, Frankfurt (Germany), Hellenic
Exchanges S.A. (Greece), IBERCLEAR
(Spain), Oesterreichische Kontrollbank
AG (Austria), SIS SegaInterSettle AG
(Switzerland), VP Securities Services
(Denmark) and VPS (Norway) - sign an
agreement in early April to establish Link
Up Markets to improve efficiency and
reduce costs of post-trade and promote
simplified cross-border business as
requested by the Lisbon Agenda.
“For many years, customers have been
requesting a solution for easy access to
other markets,” said Jeffrey Tessler,
chairman of Clearstream Banking AG,
speaking for the joint venture. “The CSDs
participating in the initiative have
developed a unique solution geared at
reducing the complexity and the costs of
cross-border transactions. We establish an
environment that creates the potential to
reduce current cross-border settlement
costs by up to 80%.”
Link Up Markets is scheduled to be
launched in the first half of 2009. Long-
term observers of mergers and
acquisitions, including joint ventures, will
surely already be organising sweepstakes
on the likely state of play in three to five
years' time, the average time frame of any
joint venture in modern times.
But however hot the initial ardour
between the partners, and however well
intentioned the original plan, a two-way
joint venture typically has one partner
buying out the other in a kind of
corporate divorce. But Link Up Markets
affair, with its many partners may become
very messy. After similar ventures in the
1980s between large institutions, it may be
that smaller partners will eventually
succumb to bullying or just collapse with
exhaustion and fall into the arms of their
larger, stronger partners, until there is
only one left standing. ■
ISJ31 p16-37 Final 21/7/08 6:38 pm Page 33
Danger by
default
While prime brokers can
seem more uncertain than
their clients, counterparty
risk in the CDS market
shows there can be three
sides to every story.
Giles Turner reports.
n 1998 the hedge fund Long Term
I Capital Management (LTCM) lost
USD4.6 billion in less than four
months. It became the most quoted
example of a failure in hedge fund risk
management and supplied the financial
world with a decade's worth of
schadenfreude, giving hedge funds a
reputation as overconfident risk takers.
Counterparty risk - the chance of the
investor you are working with defaulting
- became hedge fund focused.
By the time of the credit crunch many
voices predicted the collapse of the hedge
fund industry, with one big bust to be
followed by many. This has not been the
case. Hedge funds have perhaps been the
most sensible form of investment within
the financial industry. The collapse of
Carlyle and Peloton funds were a long
way off the damage caused by LTCM.
But Bear Stearns, as a prime broker, was
abandoned by hedge funds as it collapsed
in January - a great reversal of fortunes,
with Bear Stearns having offered words
of warning to LTCM days before the
hedge fund’s collapse.
The appealing symmetry of
transferring counterparty risk from
prime broker to hedge fund has clouded
recent judgment. Counterparty risk only
really exists in the prime brokers you own
shares in. The collapse of Bear Stearns
began in last summer when two of its
hedge funds collapsed. Its positions from
fixed income asset backed securities were
the root of the problem, when lenders
CDS
decided the company was too risky.
But a bank’s prime brokerage arm is
perhaps its safest aspect as it conducts
business with an independent,
successful hedge fund industry.
Multi-prime strategies - in which
hedge funds seek a number of prime
brokers for services - are not a sign
that funds see their prime-brokers as a
major source of counterparty risk
either. The rational behind multi-
priming is that it increases the
opaqueness of your investment
strategy. If arbitraging, a degree of
sleight-of-hand in your activities is of
the utmost importance. It also creates
“Counterparty risk is
becoming more complex
as trading instruments
take the strain of a
changing market.”
some competition between your prime
brokers, who are decreasingly perceived
as a ‘one-stop shop’.
This is not to say that counterparty
risk stemming from your prime broker is
negligible enough to be ignored. This
hard truth was demonstrated by the
quarter of Bear Stearns clients who
withdrew their accounts during the last
few days of its demise. Stuart Calder,
product director, Linedata Services
HEDGE FUNDS
Northern Europe, explains: "Bear
Stearns was in effect a watershed in
terms of how funds considered their
counterparty risk. A year ago if you
were priming with Goldman, UBS and
Morgan Stanley, the question probably
only came up as a box tick, but as we
have seen Bear Stearns got itself into
trouble. As a result we are talking to
our funds clients about beefing up the
reporting that we provide as part of
our package which gives them insight
into their counterparty risk to a far
greater level than last year."
Today, major counterparty risk lies
with credit default swaps (CDS), credit
derivatives between two
counterparties. One party makes
periodic payments to the other and
receives the promise of a payoff if a
third party defaults. There are USD62
trillion of CDS contracts outstanding.
This becomes a problem because the
CDS, in essence an insurance contract,
can be reassigned ad nauseam. If the
third party defaults, the buyer of the
CDS will not know if it can track
down the final counterparty of the
contract, nor whether this counterparty
will be able to pay the contract's full
value.
It is not surprising, therefore, that
many may wish to get out of the CDS
market, or at least hedge itself against
default. But what is the common method
to retract your position in the CDS
market? Do you hedge your position by
INVESTOR SERVICES JOURNAL 33
ISJ31 p16-37 Final 21/7/08 6:39 pm Page 34
HEDGE FUNDS
taking out a new opposite contract, or
just sell the CDS to someone else?
Simply hedging your position doesn't
solve your problems, according to
Frédéric Ponzo, managing director of
NET2S, a capital-markets technology
consultancy: "By taking an opposite
position it eliminates your market risk on
the value of that CDS contract. The
credit risk has now gone anyway, but you
still have a counterparty risk. You now
have two contracts, with two
counterparties, and if one of those is
going bust, then you are not hedged
anymore." If anything, this has increased
your counterparty risk.
Taking an opposite position means that
hedge funds have to change the way they
assess risk. Before, many funds looked
only at net exposure, and having two
opposite contacts simply meant taking
them out of the hedge funds risk report.
Now hedge funds have been forced to look
at gross exposure, taking into account
their exposure with each counterparty.
If you terminate your CDS position by
reassigning it to someone else, the credit
risk has just been transferred. This
version of pass the parcel has made risk
uncertain to measure, and theoretically
not worth taking on.
Today, the question for hedge funds is,
'where would it leave me if that
counterparty disappeared tomorrow?'
Calder continues: "Hedge funds invest
synthetically to a very large degree, so it's
not like a traditional custodian
relationship where they are holding the
real assets for you and you would at least
expect the asset to still be there in the
event of a major default by the custodian.
When you are in a swap contract with
that custodian and you are in the money
in that contract the question is, are you
going to get paid or not?"
The problem with assessing risk in the
CDS market often starts with the
formation of a CDS contract. Philippe
Carrel, EVP Reuters Trade and Risk
Management, says: “A typical CDS ticket,
called a trading ticket, has perhaps 10
pages, and it refers to underlying
securities, sometimes a basket of
securities, a lot of terms and conditions
and static data with regards to the CDS
itself and each underlier inside the
basket.
“Now you have a connectivity problem:
how do you know that your custodian has
34 INVESTOR SERVICES JOURNAL
the same definitions and cash flow
schedule? How do you make sure that
your fund administrator, your prime
broker and your executing broker are in
sync? Are we really talking about the
same bond and can anybody check that we
have the same static data, cash flow
schedule, streaming data, cut off time and
cut off prices? Plus, I need to know if the
bond is callable or putable and if all these
terms are defined somewhere. I also need
to know that when I send you this xml file
from my computer to yours: are we
receiving the same data? This is where
the complexity is and you have a new type
of settlement risk that includes legal risk
because the legal frameworks from broker
to broker, from administrator to
administrator, and from market to market
may actually be very different.”
Since 2005, regulators have insisted
that the buyers and sellers of CDS
contracts clear the backlog as quickly as
possible to give the market a clearer
indication of the risks involved. This is
easier said than done, although recent
steps have been made to create a CDS
clearing house.
Donald Kohn, vice chairman of the
Federal Reserve, recently weighed up the
pros and cons of a central clearing house
for CDS stating that although it would
reduce risk, it would also concentrate it.
And last month, a meeting by the
Federal Bank of New York discussed the
systemic risk of the CDS marker,
bringing together representatives from
17 financial firms, including - for the first
time - institutional investors who deal
heavily in the CDS market:
AllianceBernstein LP, Blue Mountain
Capital Management LLC, and Citadel
Investment Group LLC. Thirteen US
regulators plus their counterparts from
France, Switzerland and the UK, also
attended the Economic Club of New York
to discuss the problem.
The clearing house in question is
Clearing Corp (CCorp) based in Chicago.
CCorp aims to bundle all the swaps from
a bank and process them as one exposure
to the clearinghouse, diminishing
counterparty risk. It aims to launch in
September. If this date is not met, an
already jittery market may suddenly take
flight. According to Carrel: “If you still
don't have a clearing house 12 months
after you've announced its formation, and
if I were a hedge fund holding positions,
I would think they were not capable of
providing the service. I would liquidate
everything and get out of the market.”
One bubble bursting after another does
not look good for the financial industry.
However, this time it is not a case of
complicated structured products
defaulting. Instead, investors are
uncomfortable about a back log of
unsettled CDS contracts that add up to
four times the gross domestic product of
the US. As a result, hedge funds are
looking to employ better risk
management systems. Mark Palmer,
president and chief operating officer at
StreamBase Systems, says: “Hedge funds
are always asking us for more
connectivity. It is not just a function of
prime broker independence but also just
reacting to having multiple venues that
become opportunistic to trade on.”
Risk is on people’s minds. Ramius, a
US-based fund of funds, has recently
hired a risk manager, and UK-based Polar
Capital has created a new position of
chief risk officer.
The pitfalls of counterparty risk were
highlighted in a legal battle between
UBS, the Swiss investment bank, and
Paramax Capital, a group of hedge funds
in the US. The swap was arranged so that
UBS would pay Paramax 0.155% of
USD1.31 billion (the figure that reflected
performance of subprime mortgages in a
collateralised debt obligation
underwritten by UBS) in notes annually.
In return, Paramax would deposit
collateral to back the swap, increasing in
value if the value of the underlying notes
fell. Due to a disagreement in the details
of the CDS, the swap failed: UBS asked
for increasing sums of cash, and Paramax
eventually refused to pay, resulting in a
crossfire of claims and a court case.
The question then arose: who will cover
the cost of the Paramax loss? The
clearing house, using the taxpayer's or
Federal Reserve's money, or the
investment banks behind the new clearing
house (which includes UBS)?
It seems a centralised clearing house
will not become a panacea for legal
disputes. If anything, counterparty risk
may increase, as costly court cases
become an inevitability. What is certain is
that counterparty risk is becoming more
complex as trading instruments take the
strain of a changing market. At least the
lawyers will be happy. ■
ISJ31 p16-37 Final 21/7/08 6:39 pm Page 35
ISJ31 p16-37 Final 21/7/08 6:39 pm Page 36
HEDGE FUND TECHNOLOGY
Is latency more important for asset
managers than hedge funds?
Latency is certainly an issue for
statistical arbitrage funds. In general,
however, it is not a major issue for some
hedge funds and typical asset managers
because their strategies are more macro,
rather than based on short-term market
dynamics.
Some say that you have some intraday
delta neutral hedge funds that want to
put their trading software into and onto
the Investment Banks platforms to
increase speed of execution. Is this
true?
The closer you can get your execution
platforms to the point of execution the
better statistical arbitrage strategies will
perform, because latency is critical for
those types of strategies. There was a lot
in the press about three of four years ago
about some hedge funds in California
relocating their servers to New York to
be closer to the market because the
latency across the US was a big
determinate in their success rate.
36 INVESTOR SERVICES JOURNAL
Hedge funds
The technological
answer
Richard Hooke, global product director,
talks to Giles Turner about hedge fund
services and Fidessa LatentZero’s products
for the buy-side.
Are you focusing on helping people use
algorithms?
We provide a range of solutions. The
most obvious are around order and
execution management systems - they are
all about controlling the work flow and
providing access to different means of
execution. For most of our traditional
asset managers, the process control is
probably more important than that of raw
latency because the trading decision is still
a very human process and decision-
making time is greater than the execution
latency. Our customers use algorithms
provided by brokers. Latency is important
in algorithms but this latency is internal
to the algorithm logic. All these
algorithms run on the banks' hardware.
For most of our customers the actual
trading piece is still very much a user-led
process. They understand what the
various algorithms provide and they
might determine that they want to apply a
particular algorithm to a particular order.
So for our customers, we support ease of
access to a wide variety of broker-proved
algorithms and provide the infrastructure
to send orders to those algorithms
electronically. But the latency of the order
submission (as opposed to the algorithm
internals) isn't the biggest issue.
Have your clients become more
focused on process control in 2008?
I I wouldn't say they have become more
focused. I think as hedge funds get larger
you see a number of them investing more
in the order management piece, because
they want some of that discipline in place,
whereas the smaller hedge funds don't see
the need to have that in place. So it
depends on the scale of the fund.
Do smaller hedge funds even have an
opportunity to purchase these systems
or do they have to rely on bespoke
services?
Many of the brokers provide execution
platforms; you can buy commercial,
broker neutral, execution platforms like
our stand alone EMS offering, or you can
buy an integrated OEMS like Minerva, so
there is a whole range depending on size,
complexity and investment strategies of
the hedge fund. So I don't think the choice
is necessarily limiting for the hedge funds.
Hedge funds are increasingly seeing the
benefit of an order management system
as well as an execution piece. You will see
a move in this direction over time as more
and more hedge funds take some of this
standard technology to better support
their business. ■
Quick CV Richard Hooke
Richard Hooke is responsible for the
development of all of Fidessa
LatentZero's products in the
Capstone suite of solutions for the
buy-side. He has nearly twenty years
experience having spent ten years at
energy trading and risk management
software specialists KWI as chief
technology officer and eight years
working as a management
consultant for Coopers Lybrand.
ISJ31 p16-37 Final 21/7/08 6:39 pm Page 37

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ISJ31 p38-49 Final 21/7/08 6:32 pm Page 38

PANEL DEBATE - NORDIC CUSTODY

ISJ SAFE AND SECURE

Our panel of experts
PANEL DEBATE debate the competitive
world of fund custody in
NORDIC CUSTODY Scandinavia

Christel Leonhard, head of sales, Securities Services, Danske Bank. Leonhard has been head of sales since November
2005, but has been with the bank since 1984. Before joining the securities services area she held various
positions in Danske Markets, including sales of FX/derivatives and marketing of Danske e-Markets.

Robert Mattsson, product development manager, Nordea. Mattsson has over 19 years of experience from the
financial services. He has worked in demanding positions in product development and client relations for
banks, broker dealers and services providers. In his latest position prior to joining Nordea, he was responsible
for OMX Front Office products and offerings worldwide.

Ulf Noren, global head of sub-custody client relations, SEB. Ulf holds a BSc degree from the University of Örebro.
He has been working in the custody industry for the last 23 years, mainly in various Client Relationship
Management roles but he has also had Network Management responsibilities. He has held his current position
since the beginning of 2004.

Luciana Hygrell, head of Nordic custody, Handelsbanken. Luciana Hygrell has been the head of Nordic custody for
four years. She has previously held diverse positions within both Handelsbanken Markets and the Central
Treasury. She has a degree in international business from Uppsala University.

38 INVESTOR SERVICES JOURNAL

ISJ31 p38-49 Final 21/7/08 6:32 pm Page 39

www.danskebank.com

Designing custody solutions

– for the Nordic region
Take advantage of Danske Bank's special brand of expertise
and commitment. We offer streamlined solutions with simple
and efficient functionalities meeting today’s custody needs.

The leading Danish custodian can open the door to the entire
Nordic region.

One region • One custodian • One point of entry

For further information, please e-mail us at

nordic.custody@danskebank.com

Issued by Danske Bank, Copenhagen and approved by Danske Bank, London Branch, 75 King William Street, London EC4N 7DT, which is regulated by the Securities
and Futures Authority for the conduct of investment business in the UK, and is a member of the London Stock Exchange. The rules and regulations made under the
Financial Services Act 1986 for the protection of investors may not apply to investment business carried out from offices outside the UK.
ISJ31 p38-49 Final 21/7/08 6:32 pm Page 40
PANEL DEBATE - NORDIC CUSTODY
ell off or grow swiftly - are these the
S only two options open to Nordic
custody businesses given we have
seen this duality dominate the rest of
Europe and in June have seen Nordic CSD
(Sweden and Finland) purchased by
Euroclear following the VP/VPS
(Denmark and Norway) move to join the
Clearstream lead LinkUp markets
initiative and Nordea exiting the Global
Custody business by selling to JP Morgan?
Leonhard: Sell off or growth by
acquisition are two ways of handling the
pressure on costs and investments in
systems and organisations, which are
required to cope with more complex and
additional services at competitive prices.
However, other routes are available, and
with the significant changes in all parts of
the value chain uncertainties are high.
Harmonisation, standardisation and
market practises are challenges for post
trading and the front end is challenged by
the new trading patterns coming from
programme trading and all the new
MTFs.
Mattsson: We believe so. With the major
changes and with the competitive pressure
that we see in the Nordics, there are on-
going investment costs that need to be
covered. Size will definitely help in that
equation. On the global custody side, it
would have required substantial
investments to keep up with our clients'
requirements and the competition of large
global custodians. On the sub-custody side,
on the other hand, we are the leading
Nordic provider and we see that we can
offer our clients the service that is
required.
Noren: Ultimately, I guess you could
answer 'Yes' on this question but there are
many scenarios that could play out and it is
really a matter on how long you make the
timeline. In the near future it will be
increasingly difficult for individual market
players to play any significant role in the
sub-custody field. This is mainly due to
volume, finance and strategy dynamics.
The margin squeeze is here to stay, the
established infrastructures, especially on
the trading side but increasingly so also on
40 INVESTOR SERVICES JOURNAL
the post-trade scene, are challenged by
other providers and solutions. Without
having a diversified business in product
and geographical terms that provides
sufficient flows, I fail to see how it a single
market approach can be financially
defended. For global custody, the picture is
more scattered but we think that both
growth, as is and sell off strategies will be
displayed. It very much depends on how
you look at the prospects of mid- and
small size global custody clients potential
to continue growing, what products they
will invest in, how their geographical
investment picture will look like and the
potential of the Global Custodian
competition having the appeitite to attack
also lower Tiered client segments.
Hygrell: Nobody can deny that the
securities businesses in the Nordic region
have seen several changes during this
spring, changes that affect individual
providers as well as the whole market.
However, we do not see this chain of
events in black or white; there are always
grey zones. Handelsbanken has instead
chosen to develop a partnership with
Northern Trust where we can use the
strengths of a global custodian and the
expertise of a local player. We feel that this
partnership is an optimal solution in order
to ensure that our clients receive the
highest and broadest quality of service
available in the market. In this evolving
custody landscape lie an enormous
opportunity and potential for our future
custody business. We are dedicated to
deliver custody services to our clients-
domestic as well as international-
including all possible value added services.
What are the potential pitfalls of
consolidation?
Leonhard: Differences in the infrastructure
are the main barrier to creating benefits by
consolidations and if the timeframe for
changes and adjustments are far-reaching
it may loose momentum.
Mattsson: Our view of consolidation on
CSD level is positive when the result is
bringing down costs. Then again
consolidation could lead to less
competition and on a long term basis
actually increase expenses.
Noren: First, we would like to express our
full support of market lead infrastructure
consolidation, something we have been
advocates of for a decade or so. We have
seen this as a pre-requisite in order to
deliver all industry objectives of greater
operational and financial efficiency. The
agent banks have delivered a lot in this
field already and although we have seen
some efforts being made by the
infrastructure, more must be done. Seeing
the map being drawn now with market led
initiatives like the Euroclear Group's
acquisition of several important CSD's
and the Link Up markets initiative the
game leading in a positive direction has
started.
Nevertheless, there are a number of
pitfalls to consider. These are mainly in the
following areas: Time to market - will the
Link Up Markets prognosis to issue a
common platform by first half of 2009
really come through? Will Euroclear
launch the new platform in 2011 in order
to absorb the NCSD processing activity?
Cost - any consolidation must deliver
financial results that are better than single
market processors can do today.
Political - how well can the market
initiatives navigate in the political
minefield Europe has become and how will
t he models co-exist with
potential creations like T2S?
Ground contact - Europe is, despite what
many seems to believe, not one single
nation. For the foreseeable future, the
individual nations will have peculiarities
that must be adhered to. As one example,
the individual investor account structure
in existence f ex in Finland, Norway and
Sweden simply can not be ignored in a
consolidated structure.
Hygrell: In a consolidation two players
must work together to find a way where
the sum of the separate parts create a
stronger whole. On paper this may look
like a simple equation and which routines,
systems and people to invest in may seem
clear cut. However in reality there are
always unknown factors in play and the
final decisions are seldom as straight
ISJ31 p38-49 Final 21/7/08 6:32 pm Page 41

PANEL DEBATE - NORDIC CUSTODY

forward or easy as one may first have
thought. The integrating of separate
company cultures may also lead to
unexpected challenges and if the end
result is to be successful, communication
and strong leadership is important.
In regards to the current consolidation we
see in the market place, with OMX and
Nasdaq as well as NCSD and Euroclear we
see the Nordic market adjusting to a
European and international market place.
Where earlier local ownership was a prime
issue in the Nordics we now have to build
on the positive aspects of a closer
cooperation with the security markets in
Europe and the USA
Do you think there will always be a place
for niche providers offering services for a
limited number of markets and products?
Leonhard: Yes, I believe so, particularly if
the sales and marketing organisation is well
implemented and the provider has a service
package with a competitive edge to offer.
Mattsson: Yes. At least, if you see a Nordic
provider as a niche player. As long as a
provider can deliver added value it can
survive and play a major role in the Nordic
region as well as a niche player in other
regions. We are confident that with
continuous service development as well as
our local presence and in-depth local
expertise, Nordea will continue to add
value to our customers and be able to
differentiate from other service providers.
Nordea has a clear focus on the Nordic
region and I believe our clients appreciate
our broad local knowledge and influence in
each of the Nordic countries.
Noren: Yes, but it will but it depends on
how you write up the definition of a ‘niche
provider’. In the Nordic region, the term is
often used by the single market providers
in an attempt to marginalise the regional
providers according to the doctrine of
repeating something enough times it
might become an established fact.
In real life, all providers of sub-custody
services are on the ground with the
possible exception of two players of less
regional impact. Therefore anyone looking
for individual markets and searching for
best of breed will find it and all published
client surveys shows that it is to be found
among the two regional suppliers, SEB
and Nordea. This is also the direction most
Tier 1 investment banks and global
custodians are going.
Looking at an expanded geographical
basis, there certainly will be room for niche
players that develop stronger than any
peers in certain product areas and
segments. There are a limited number
Pan-European providers that would be
hard to beat for anyone with Pan-
European ambitions and there are others
that develop very strong specific product
lines that for a medium term perspective
contributes to control of large market
shares - the tri-party exchange
membership admin space is an example of
that. On the Global Custody side, our 'Yes'
is stronger. Here, the local presence on the
clients home ground makes even more
sense from a multitude of reasons and for
most clients. The sophisticated client
segment of Larger Public and Private
pension funds will to a very large extent
continue to use and look for Global
Custodian relationships but we see a

Spot-on custody services.

Nordea Bank AB (publ)

Do you need custody services in the Nordic region?

Or are you looking to take advantage of market conditions
in Denmark, Finland, Sweden or Norway individually?
Then it pays to talk to Nordea.
We are the leading financial services group in these
countries and provide you with in-depth knowledge and
custody services in each market as well as the entire region.
We offer comprehensive services and a single point of entry
to the Nordic region through a dedicated relationship
manager supported by a Nordic team of specialists.
If you want to capitalise on our experience, please contact
Ms. Anne-Lise Kristiansen
tel +47 2248 6238
email: anne-lise.kristiansen@nordea.com

Making it possible
ISJ31 p38-49 Final 21/7/08 6:33 pm Page 42
PANEL DEBATE - NORDIC CUSTODY
growing tendency of also Tier 1 clients asking for more local
expertise on the proportionally large share of domestic securities
in their holdings. Here, 'local' Global Custody providers have a
part to play either stand-alone or in partnership with Global
Custodians. The long term survival rate for local banks in its
Global Custody capacity is much higher and we believe that this
segment will continue to remain with local and regional players
much longer. Being quicker to adjust to local reporting, tax and
supervisory requirements, in the local language and normally just
a short walk away from the client will continue to remain decisive
factors here.
Hygrell: Despite MiFid and increased consolidation in the way
the markets operate we still see differences in the local markets. As
long as this holds true their will be clients who want and expect
a local presence and a local expertise, however in choosing to
cooperate with a large provider, Northern Trust, we believe we
have found the optimal way of providing a local expertise while
offering the clients the strength of a global provider. When
looking over our own network we find that although a global
provider brings strengths and advantages there are also markets
where the knowledge of a local provider is important and
significant in ensuring that our end-client receives the best
service.
Post-credit crunch have you seen a greater client demand for
value added services - eg, risk analytics, compliance, securities
lending?
Leonhard: The turmoil in the financial markets not only increases
demand for risk related services, it also increases the pressure on
prices as the focus on costs grows as business will probably not
grow with the same speed as in the previous years.
Mattsson: The greater client demand of value added services is
certainly something we have seen, but that was a trend that
started already before the credit-crunch. In addition I believe that
this is also something that all vendors are working hard with in
order to stand out in the competitive environment.
Noren: Strangely enough, not that much on the client demand
side. We naturally see a need for tighter liquidity control from
primarily investment banks and Global Custodians servicing the
broker dealer community. Slightly increased demands to update
and understand any local risk mitigation or protection schemes
has been noticed but it is far from as intense as could have been
expected. FSA's are turning more alert though and we believe
that many clients are experiencing much tougher internal
regimes so it will probably increase over time, no matter if we are
in the post-credit crunch or in the middle of it all.
Hygrell: Yes, although we do not necessarily attribute this to the
post-credit crunch, we have seen an increased demand for
sophisticated value added services. For example in the Nordic
markets Handelsbanken offers an advanced Trustee service that
42 INVESTOR SERVICES JOURNAL
more than covers the requirements set up by the financial
authorities and local laws. For this purpose we have built a
specially designed system that supports compliance reporting
throughout the Nordic markets. A system solution and a superior
product, that I believe we are only one in the region able to
provide.
What are the challenges to looking after portfolios with more
esoteric asset classes such as derivatives?
Leonhard: Automation, reporting, valuation and regulations are
the major issues, as these products are much more fragmented
than the standard products and manual procedures are
dominating.
Mattsson: In many aspects most of these asset classes are less
mature than their more common peers. That applies to not only to
the legal framework that sees more frequent changes and
developments than for example equities, but also to the
technological solutions available around these more exotic assets.
They are more challenging and require special expertise, which
could be cost drivers if the critical volumes cannot be achieved. I
believe this is an area where most service providers monitor the
developments.
Noren: For sub-custody, it is not very challenging. The issues that
do surface is that these products are frequently handled by
different infrastructures than those you are normally connected to
and if not, are covered under different contractual and static
arrangements. This leads to a strain on the product development
and legal/compliance sectors that normally are designed to
develop and refine more streamlined, predictable and less
fragmented frameworks.
For global custody, it is a completely different story and one that
requires the break-up of many banks’ product silos. When we
look at Tier 1 global custody segments we would supply a very
fragmented service if we only included what traditionally can be
supplied by the global custody unit. However, when penetrating
all product areas of the bank, we find that combining services
from trading and capital markets, securities financing, risk and
wealth management, many asset reporting functionalities are
already in place, the prime brokerage and prime pensions areas
already have a global edge in what they supply in 'their silo' etc.
The challenge thus becomes more manageable and involves IT
and development resource combination and allocation and team
construction. Though the products might be in place and
deliverable but the sales and operational staff need to understand
them as well. Combining expertise across the bank that
understands the complexity of hedge funds arrangements and
being able to support the demands emanating from those
arrangements is therefore crucial.
Hygrell: Many fund companies today choose to specialise their
funds and what they offer to their end clients. To handle these
ISJ31 p38-49 Final 21/7/08 7:16 pm Page 43

PANEL DEBATE - NORDIC CUSTODY

instruments custodians need to ensure that they can offer the
products and services demanded by the fund managers. The
challenges are often ensuring that our systems are flexible enough
to quickly adapt to the needs of our clients. This applies not only
our custody systems but also in regards to value-added services
such as trustee and web-based reporting systems.
The Nordic custody market is one of the most competitive and
over-supplied areas in the world. When it comes to RFP, how do
you differentiate yourself ?
through having the size, commitment, presence and connections
with key players needed to succeed also in the future in the
evolving Nordic securities market.
Noren: SEB is top rated in all four Nordic markets. SEB is using
one system all across the four markets which deliver consistency
to clients in addition to simultaneous functionality introduction in
the region. In addition, SEB is providing a similiar high quality
service in the three Baltic markets under one and the same legal
contract.

Leonhard: All financial services are hard to differentiate, at least
for more than a short while; however in the Nordic region Danske
Bank has a unique business concept, which includes both
technology and organisation: One bank - one platform. Our
custody services are from an operational point executed in the
same manner in all markets and the same counts for relationship
and additional services. However as the local markets have
different currencies, legislations, tax laws and market practices
our services both have the regional efficiency combined with the
local touch.
Mattsson: Nordea is the only truly Nordic provider with four
well-established banks, best-fit systems and harmonised reporting
layer for all Nordic countries. We are the sustainable provider
Hygrell: We believe Handelsbanken is the best regional and local
provider because of our willingness to listen, our ability to
develop and ultimately our capacity to deliver what clients are
asking for. Our concept includes close cooperation and individual
responsibility for the services provided. With Handelsbanken, our
clients have a solid long term business partner
Now that the Nordic markets are so saturated, which markets -
either developed or emerging - will Nordic custodians move into?
Mattsson: Since the Global business has been sold off, I can only
comment on behalf of sub-custody business. The obvious choices
for a Nordic custodian are the countries in the near surroundings.
But we in Nordea's sub-custody strongly believe that we need to

Flexibility on a solid ground

Handelsbanken Nordic Custody Services are
present in all the Nordic markets, and offer a
wide product spectra to a diverse client base.

:HSULGHRXUVHOYHVRQEHLQJWKHPRVWÀH[LEOH
provider of custody and clearing services in
the region and we are known for our
willingness to develop new and creative
solutions to support our clients.

:HRIIHUÀH[LELOLW\RQDVROLGJURXQG

Nordic Custody Services

www.handelsbanken.se/nordic_custody_services
Tel. +46-8-701 2988
custodyservices@handelsbanken.se
ISJ31 p38-49 Final 21/7/08 6:33 pm Page 44
PANEL DEBATE - NORDIC CUSTODY
have the focus where our strengths are, and moving into other
markets could lead to a more fragmented product, with the result
of a wider product when it comes to markets, but with less
substance.
Noren: Firstly, we believe that it is not as easy as just deciding to
add a market or a region. We are now active in four of the five
Nordic markets with substantial markets shares. We are the leading
sub-custodian in the three Baltic markets and have a top five
position in the Ukraine. In addition we are supplying sub-custody
services in Germany and will open up Russia in August of 2008.
Our strategy has so far be to evaluate any market where SEB as a
bank has a presence and that has lead to fairly rapid entries into
Ukraine and Russia as the two markets build-up was supported by
a substantial client base on our global custody side - rapid in this
case is defined as a 24-36 month period. Performing a sub-custodian
role without the support of a minimum of bank services within
your own legacy system environment is a very difficult task, not to
say impossible. Our experience is that it also requires substantial
management attention in order not to go wrong from the outset. If
a market is running an established, stable and connectable
infrastructure and where volume is limited, alternative solutions
will be explored. Iceland might be such a market.
For SEB, we believe that the bank will continue to seek
opportunities in CEE and market by market will be evaluated on
a running basis so that is part of the answer. Looking at the
competitive situation, we also see opportunities in a consolidated
European infrastructure framework that will give us the choice to
enter or not enter developed markets in the rest of the EU where
we have a presence.
Hygrell: In the past few years we have see that the Nordic
custodians moving towards the Baltics and expand their offering
from four markets to seven. I believe the trend of looking towards
the Eastern markets will continue
Following MiFID, the established exchange structure is under
severe pressure from MTFs and some claim that the Nordic post-
trade structure will be particularly challenged by the possibility of
processing bulk volumes in a netted environment by using
alternative trading venues. What is your take on this?
Leonhard: With Chi-X, as the only active platform for Nordic
equities at the moment, we are only in the start-up phase. The
deciding factors for the success of the MTFs will be the pool of
liquidity and the total costs of trading. The possibility to net
transactions and use the functionality of a CCP will without no
doubt push the MTFs ahead, however it is still very vague how
much volume that will move and towards which platforms.
Mattsson: MiFID is without doubt making the world more
challenging from a custody perspective. But I'm not sure that the
Nordics are any different from other markets in this respect. I
believe all the Nordic sub-custodians are carefully viewing the
development and evaluating their current business models in
44 INVESTOR SERVICES JOURNAL
relation to MiFID, especially the creation of new MTFs and their
use of CCPs
Noren: We fully agree on this. There are a number of reasons for
this but the strongest one is that Nordic markets, although
deemed to be very efficient in most aspects, are interpreted as
expensive due to the lack of CCP. In our opinion there is, no
option to turn a blind eye to the need for netting functionality in
our markets. The fairly naïve lobbying to introduce a kind of
netting functionality at CSD level will hopefully lose the debate as
it can deliver some isolated cost efficiencies but will make
unwinding in case of a participant failure an absolute nightmare.
For the first time since the early 1990s we are also experiencing
financial market unrest to an extent where it is very difficult to
foresee the potential risk consequences. Thereby, the safety aspect
of the risk mitigation of a CCP has come more in focus. For the
moment, there is a project ongoing in the Swedish market to look
at CCP for the cash equities market. All local banks and brokers
have been involved at a fairly high level phase and a broader
market awareness session is planned for the end of August. The
main issue is the fact that a local member of the stock exchange
who is also a direct participant in VPC will get a more expensive
environment if the market turns from a 1:1 settlement market in
comparison to a clearing environment. This will inevitably change
over time.
Other areas needs to be straightened out: pro and con analysis;
the scope of the CCP, bluechip securities or all listed; geographical
coverage; build or hire; collateral demands and cross-margining
opportunities; capital requirements; fees; GCM, DCM and NCM
aspects; buy-in rules and other penalties; time to market. But, in
order to have full local market acceptance, the CCP to be must
deliver a better financial outcome to the local market participant.
Speaking from the sub-custodian space, I would be worried if,
unexpectedly, the CCP functionality for at least bluechips do not
succeed in being introduced. It is a competitive post-trade
disadvantage against most of the MTF alternatives - but not all -
for the international investment bank client base. The challenges
that follow from this must also be dealt with and, again, sufficient
core volume and geographical spread of services is a necessity
Hygrell: The evolution we have seen in the trading area has been
driven by Mifid and the requirement of best execution. As a
custodian we follow this development and upgrade our services
accordingly, both regarding our core business and in developing
our value added services. This includes developing our SWIFT
netting services, a product which has been very well received by
our clients. As a bank, Handelsbanken has also ensured that we are
part of the development. Together with group of ten leading
Nordic banks and security firms we plan to launch a MTF for
listed Nordic securities, Burgundy. Burgundy's purpose is to
provide high liquidity, low transaction costs, short response time
and best execution with an aim to reach a leading position on the
Nordic securities market and also to strengthen the Nordic region
as a financial market place..■
ISJ31 p38-49 Final 21/7/08 6:33 pm Page 45

Custom House Offers 24/7 Service

Custom House Adminsitration & Corporate Services Limited now offers its clients
a full “round the world” and “round the clock” hedge fund adminsitration service through
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For more information on Custom House, the only hedge fund administrator awarded
a Moodys Management Quality Rating, please review our website
(www.customhousegroup.com)
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Custom House Administration & Corporate Services Limited is authorised by the Irish Financial Regulator under Section 10 of the Investment Intermediaries Act 1995,
which authorisation does not extend to the Chicago or Singapore representative offices.
ISJ31 p38-49 Final 21/7/08 6:33 pm Page 46
SIBOS - VENDOR PROFILES
CONFERENCE
CALLS
Sibos Stand No.
B524
Accuity will showcase a range of offerings at Sibos 2008
including its Compliance Suite, Strategic Services and
Payments Solutions. Accuity's Compliance Suite offers a
range of caution lists and screening tools that defend
against participation in illicit financial activities. The
Strategic Services Group provides businesses with
consulting and services to help optimise operational goals
and meet AML compliance and payments objectives.
Of its Payment Solutions, Accuity will highlight two data
files. Global Payment File includes contact information as
well as SWIFT/BICs and national clearing codes for
financial institutions worldwide. The IBAN File provides
information needed to comply with SWIFT’s MT103+
messaging standards. All of Accuity's Payment Solutions
are designed to deliver the critical payment information
necessary to improve payment straight through processing
rates saving you time and money.
Sibos Attendants:
1. Malcolm Taylor
– Managing Director, EMEA and Asia Pacific
2. Robert McKay
– Managing Director of Business Development
3. Edward Lloyd
– Sales Director, EMEA and Asia Pacific
4. Victoria Lumb – Business Development Manager
5. Adrien Lolly – Business Development Manager
6. Greg Leech – Business Development Manager
Contact & Address: Susan McGregor,
Accuity, 1 Quality Court, Chancery Lane,
London WC2A 1HR UK
t: +44 20 7014 3480 f: +44 20 7061 6478
46 INVESTOR SERVICES JOURNAL
Accuity and peterevans will be
showcasing their services at this year’s
SIBOS conference in Vienna. Leaders in
payment routing and front-to-back
solutions respectively, the two firms
have continued to develop and adapt to
changing markets. It has been a busy
year for both. Accuity has enhanced its
presence in China with a link-up with
Jade Bird and launched its transaction
monitoring system and online
compliance tool – all in June.
Congratulations to peterevans,
recently voted Best Retail Settlement
Systems at this year’s Systems in the
City by an independent panel. The firm
will be exhibiting at the SWIFT CCI
awareness seminar.
Sibos Stand No.
B528
peterevans
peterevans is a leading independent provider of front to
back office solutions for the financial services sector.
Clearly focused on the securities and investment market,
and building on over 24 years experience of providing
award winning solutions, peterevans presents its new
suite of applications – xanite.
xanite offers a comprehensive, configurable, fully
integrated, browser based, front to back solution that
can be either deployed as a single application or
integrated as components into your existing platform.
xanite provides multi-entity, multi- currency, and multi-
language support.
Each module can de delivered via an ASP or self-hosted.
Covering wealth management, custody, corporate
actions, clearing and settlement, private client and on-
line stock broking with full operational and
administrative support, the suite gives full but controlled
access – on line anywhere and everywhere
Sibos Stand Number B528
www.peterevans.com
ISJ31 p38-49 Final 21/7/08 6:33 pm Page 47
The
Spanish
acquisition
lobal custody is a big numbers
G business. Fees may only be 20
basis points or so on the assets in
custody for big clients, but considering
that the world's biggest global custody
player, BNY Mellon Asset Servicing, has
USD23 trillion of assets in custody, that
represents a very tidy annualised revenue.
But the industry is not a level playing
field. Regions and countries have different
regulations, appetites and circumstances -
some flourish, some don’t.
Restrictions play a part in the Spanish
custody marketin particular, as Penny
Biggs, head of EMEA institutional
business development at Northern Trust,
explains. “Unless you are a Spanish bank
or have more than a certain number of
people in the market, or a developed retail
branch structure, you cannot do business
there, for example, for Spanish pension
fund clients,” she says.
It is not a problem for global custodians
when a client is domiciled elsewhere and is
simply trading Spanish assets. As Biggs
points out, “Virtually all our 1,200
institutional investor clients would have at
least some investments in Spain and we
can provide custody services for them
there as readily as anywhere else in the
market. But we could not act for a Spanish
pension fund domiciled in Spain.”
In that respect, she says, the cross-
border “passport” still has some way to go.
Biggs reckons that it is not surprising to
find country differences within Europe
given the fact that there are still huge
differences between regions. “The Asia
Pacific, US and European
markets for custody services are all vastly
different from each other,” Biggs says.
The US market is the most established
in the world but is not as dynamic or
vibrant, Biggs reckons, as the European or
Asian markets. “The mandates are huge
when they happen, but all in all it is a
much more sedate market.”
By contrast, the Asian market is both
more complex and, paradoxically, simpler.
There is a strong demand for core services,
but the continent overall is not yet
particularly interested in buying into the
full range of services that global custody
providers offer.
If you put Asia at one end of the
spectrum and the US at the other, Europe
sits squarely in the middle. For Biggs, the
market leaders in Europe are the
Netherlands and the Nordic countries.
“You do not go in to these countries and
talk to clients about basic custody services.
They already have that picture in detail
and what they want is now a lot more
complex, with very strong demand for
what we call component or add on
outsourced services,” she says.
But for Alvaro Camunas, head of BNP
Paribas Securities Services in Spain, what
is important is that the Spanish market is
booming. BNP Paribas entered the
Spanish market in dramatic fashion in
1995 when it acquired the local custody
businesses of JP Morgan along with that
of four other countries, France, Germany,
Belgium and Italy. “Originally, when we
acquired the JP Morgan operations, our
SPANISH CUSTODY
Even before its
triumph in Euro
2008, Spain has
been making its
mark on the
continent with
impressive
additions in
custody
services.
Anthony
Harrington reports
business in Spain and the other four
countries was the traditional multi-direct
custody and clearing business provided to
the main broker dealers and broker
custodians,” he explains.
This was a local Spanish service for
foreign clients with investments in
Spanish instruments, usually equities and
bonds. Since 1995, however, the Spanish
market has grown quickly in its assets in
custody and its complexity. “Our business
has multiplied by more than 10, which
shows the level of efficiency we have had
to develop, year on year.”
BNP Paribas is one of the four major
custody players in Spain along with
Citibank and the two major Spanish banks,
Banco Santander and BBVA. Camunas
says his team provides a suite of four
products to custody clients. The first
involves a combined clearing, settlement
and custody suite of services. The bank's
clients are all institutional. Every custody
contract is on a bespoke basis, depending
on the detail and extent of the client's
portfolio and requirements, and it will be
worked out in basis points on the value of
the portfolio. There is a flat settlement per
transaction - again, linked to the
relationship the bank has with the client.
The pricing of a contract, he
emphasises, is not simply on the basis of
the work done for the client in Spain, but
for all the multiple locations that the client
uses BNP Paribas's custodial services. “We
add all the activities up and come up with
a pricing set for that particular client, so
each deal is unique,” he says. Settlement is
INVESTOR SERVICES JOURNAL 47
ISJ31 p38-49 Final 21/7/08 6:33 pm Page 48
SPANISH CUSTODY
usually on a T+3 basis, which Camunas
regards as “extremely efficient”. “We see
no need at all to go to a T+1 arrangement.
That was a fad whose time has come and
gone. We have clients across the US and
Asia and it is almost impossible in many
instances to conceive of a T+1 settlement
goal. If the industry wants to get even
more efficient, there are better ways of
doing things than trying to shorten the
settlement cycle.”
Secondly, the bank offers global fund
services. Camunas says clients are largely
looking for a depot banking/depository
function for mutual and pension funds,
including fund administration and
calculating the net asset value of funds.
Thirdly, BNP provides liquidity services
that are linked to facilitating settlement.
Fourthly, it offers what Camunas calls
“issuers services”, where the bank acts as
agent for a whole range of corporate
events, including IPOs.
There has also been a huge increase in
hedge fund activity over the last 18
months, Camunas adds. “We have
managed to win around 50% of the
custody and fund management services
business of the new hedge funds entering
the Spanish market. It has been
tremendous business for us and has been a
great source of growth,” he says. Further,
clients are often looking for the full suite
of services. “At the end of the day, if you
do the depot banking for a fund, then you
really have to do custody services and
settlement as well. If you are not
providing the full suite of services you are
not in the game,” he says.
“During the last six to eight months we
have seen a real upsurge of outsourcing
requests, including the demand for private
labelling services, where organisations
that offered custody services now contract
out that part to us, but still retain the
client relationship.”
This increase in demand for badged
services in global custody is directly
linked, he says to the huge scale of the
investment required to offer the full suite
of products. “This is a people and IT-
intensive business, so to make it profitable,
you have to have a substantial critical
mass,” he concludes.
Nick Clayton, Citibank director of
global custody head for EMEA, agrees.
“The investment spend in this business is
enormous so you need economies of scale
to justify the huge technical capability that
48 INVESTOR SERVICES JOURNAL
you need to build up,” he says.
Citibank does well in Spain because its
developed sub custody network complies
exactly with the requirements of Spanish
custody law. “We have a large number of
legal vehicles and local presences across
the world, including in Spain, and
depending on the client type, they would
contract with our local Spanish vehicle
and we can then provide full strength
global custody services to that vehicle
from one of our global custody hubs. You
need scale and you need to build up a large
client base to justify a presence like this in
key sites and locations,” he says.
Citibank's sub-custody network in Spain
services intermediaries, banks and broker
dealers buying local clearing services. It
also provides sub-custody services for
other global custody providers who do not
have the same presence in Spain.
“Ironically, our competitors in this
situation also form a major part of our
customer base,” he says.
Clayton says pension pooling, one of
the biggest drivers of new global custody
“If you are not providing the
full suite of services, you
are not in the game”
Alvaro Camunas,
head of BNP Paribas
Securities Services
business across Europe and the US, is not
yet big business in Spain. This is where a
large multi-national, for example, puts all
its various individual country and regional
pensions within a single fund. But it is a
complicated procedure. Each country will
have its own pensions laws and regulatory
framework. Further, creating a single
pooled vehicle that is also tax transparent
and efficient for recovering withholding
tax is a challenge.
Two of the key drivers pushing
companies and institutions in this
direction are the benefits of economies of
scale and access to world class fund
management services. A small country
fund will not enjoy the keenest pricing
from fund managers and will probably not
be big enough to gain access to top
performing hedge funds and other
specialist vehicles. For a multinational, a
pooled vehicle that gives all the group's
pensions access to the same top quality
fund management resources is good news.
It also makes for much better oversight for
the group to ensure it is fulfilling all its
regulatory obligations across borders.
Why is this important to global custody
specialists? As Clayton notes, having the
book of record is absolutely critical to
setting up and managing the operations of
a pooled pension vehicle. So everything
starts with custody.
“With cross jurisdictional pooling, you
have to be very efficient at feeding the
custodial book of record into your fund
accounting book, so that you can do quick
reclaims processing for withholding tax,
or to generate the blended tax rate. You
need to understand the relative
composition of the beneficial owners
within a pool to calculate the tax rate, and
you derive this directly from the book of
record,” he says.
Aaron Overy leads the cross-border
pooling product for Northern Trust, says
across Europe and the US demand for
pooled products has been brisk. “If you
don't succeed in making the pooled fund
tax transparent you get 30% or 15%
withholding tax in a number of
jurisdictions. So the clever thing is to make
the fund tax transparent, so that the
authorities are prepared to look through
the fund to the pooled pension fund that it
is in reality,” he says. The global custody
provider can thus give the client the
advantages of scale with none of the
negatives associated with withholding tax
that cannot be reclaimed.
Overy points out that the provider has a
great deal of work to do to design
software that will link the book of record
and the funds accounting side coherently.
“Right now we think that we are the
only people with multiple investors from
multiple countries investing into multiple
mandates, with a number of investment
managers across a range of countries.
This is not easy to do, but if you can do it,
it really does generate some very
significant custody mandates,” Clayton
says.
Expect to see many more pan-European
pooled pension vehicles, with
global custody providers in the thick of
things. There will still be plenty of local
country specific custody business, but we
can expect the current trend to keep
getting bigger. ■
ISJ31 p38-49 Final 21/7/08 6:53 pm Page 49
ISJ31 p50-66 Final 21/7/08 8:16 pm Page 50
US PENSION FUNDS
Branching
US pension funds traditionally heavy on
equities are considering new options while
keeping an eye on risk. Joe Corcos reports
ohn Gotti once said: “Always be nice
J to bankers. Always be nice to pension
fund managers. Always be nice to the
media. In that order.” The quote
illustrates the all-encompassing
importance of pension funds and those
that manage them in the American mind.
They are literally the custodians of much
of the population’s future prosperity, and
as such are not allowed mistakes.
Thus for US pension funds, change is
usually gradual, if at all. But the
confluence of a struggling equities
market, increased willingness to explore
alternative asset classes, and an
inclination towards liability driven
investment (LDI) rather than
benchmarks, has seen many public and
corporate funds diversifying their
portfolios.
It’s not shaping up to be a good year for
US pension funds overall. Recent research
by Northern Trust Universe found that
corporate and public funds posted average
median returns of –5.7% and –5.1% for
the quarter which ended in March. These
are the worst results since the third
quarter of 2002. And given the
performance of markets during the last
few months, returns for the latest quarter
are not looking like being much better.
US pension funds have had it relatively
easy for the last five years or so, steadily
50 INVESTOR SERVICES JOURNAL
out
posting positive returns in a bullish
equities market. But the markets are
nothing if not cyclical, and those with a
larger percentage of assets in equity have
suffered more than others.
Craig Tome, product manager for
Northern Trusts Investment Risk and
Analytical Services, says: “It is pretty
much across the board that we’re seeing
the impact of the economic downturn,
and the reason being is the higher
allocations to equity which is what we
tend to see here. So when the economic
downturn hit the equity market in most
cases we’ll see public funds getting hit a
little bit harder than corporation and
foundation funds.”
Pension funds are creatures of habit
and are not generally capricious, so poor
results in equities have not sparked a
mass exodus. However, many pension
funds have reduced their positions in both
global and US equities, and many are
looking at alternative asset classes.
Denise Valentine, an analyst with Aite,
says: “Diversification has always been the
dogma for pension funds. If anything,
what they've done over the last couple of
years is dip a little further into
alternatives, and those in the mid size
category that were not are in fact getting
their toes into the water.
“I think the current market just
solidifies that idea of diversification,
which is really a proven financial
concept.”
Recently, Merrill Lynch forecast that
US corporate pension schemes are to pull
USD115 billion out of equities, and
reinvest USD65 billion in bonds and
USD50 billion in alternative investments.
CalPERS, the largest pension fund in
the US, with approximately USD245
billion under management, recently
trimmed its global equity target to 56%
from 60%, and increased both private
equity and real estate to 10%.
Clark McKinley, CalPERS spokesman,
says: “Last fall we started
underweighting stocks and putting more
of that into private equity and real estate,
and both have done quite well for us. We
also created a new inflation-linked asset
class. It has got commodities,
infrastructure, forced lend and inflation-
linked bonds, and that's still getting off
the ground. We actually started with
commodities about a year ago as a pilot
programme.”
But it is not simply the volatile equity
markets that are prompting pension
funds in the US to look even more closely
at alternative asset classes. Endowments
have always had a much larger
percentage of their assets in alternatives.
In January of this year Merrill Lynch
conducted an asset class breakdown of
the USD7 trillion in assets held by US
institutional investors. This found that on
average public pension funds had 13% of
their portfolios in alternatives, and their
corporate counterparts averaged 13.1%
in alternatives. By contrast, endowments
averaged 36.8% of their assets in
alternatives, and foundations 16.4%.
Public pension funds are under political
pressure and of course everyone can see
the investments that are being made and
which are doing well and which are not.
Therefore, a certain hesitancy is to be
expected. Diversification is important,
but the larger pension funds have, as rule,
been careful - which means slow.
Steven Pines, a senior investment
consultant at Northern Trust, says: “I
would say that certainly alternatives are
on pensions funds’ radar screens far more
ISJ31 p50-66 Final 21/7/08 8:16 pm Page 51
today than they were a number of years
ago. The idea that people are starting to
get their head around is that if you can
invest in asset classes which will not
highly correlate with traditional markets,
like traditional equity and traditional
fixed income markets, then you can
weather some of the volatility that we’ve
been seeing in the last year or so.”
Pension funds have been active with
hedge funds for some time. But for those
pondering more investment in hedge
funds, recent performances have not been
encouraging.
Daniel Farley, State Street’s head of US
investment allocation, says: “Some are
really questioning the ability of these
asset classes to deliver, and questioning
the ability for them specifically to get to
the best managers. If you look at the last
year or so, hedge funds, in aggregate, have
struggled. So here this is supposed to be
the great diversifier, what people rightly
or wrongly expect to be the source of
positive returns, and while there are many
funds last year that did phenomenally, on
average last year they disappointed. I
think people are [asking]: when you need
them to be your diversifier, will they in
fact deliver? The second is, if I can’t get
into the best, is it going to really deliver
what I want it to?”
A more volatile market is sure to
separate the best fund managers from the
pack. At times there is a perception that
being a fund manager is a relatively
straightforward (and lucrative) job,
especially during a bull market, where a
rising tide can lift all boats. Surviving and
posting positive returns in more bearish ,
turbulent markets is a different prospect.
Recently, CalPERs took out more than
USD 7 billion from external managers
and moved the management of the funds
in-house. Valentine observes: “Pressures
around the selection [of assets] are
greater when you have a market that’s
volatile, you have greater separation of
the wheat from the chaff, so skills become
so much more important. In a good
positive market, a lot of people, even
mediocre managers can do well. But now
the scrutiny is around investment
performance.”
Private equity is one investment class
that, when managed correctly, can be
highly lucrative. Another Watson Wyatt
survey of 99 alternative asset firms in
December of last year, found that the
money they run for pension schemes
increased by 40% during 2007. Assets
managed by those surveyed included real
estate, private equity and hedge funds.
But not all pension funds are large
enough to invest in private equity safely.
McKinley says: “We invest in private
equity, and partnerships with real estate,
and those are not available generally to
people out there in private carriers. They
can’t do private equity in the same way we
can, as flexible, so returns can’t be as high
as what we get. This kind of asset class is
really quite productive for us. We’ve been
getting terrific returns with private
equity, like 20 percentiles.”
Infrastructure is another asset class
that is increasing in popularity. With
steady returns, infrastructure can provide
a good long-term hedge against inflation.
CalPERS recently announced that it is to
implement a new infrastructure portfolio
of USD1 billion, which could grow into
“tens of billions” if it does well,
according to McKinley. Joint ventures are
also becoming apparent - recently the
Ontario Teachers’ Pension allied with
Morgan Stanley Infrastructure to buy a
Chilean subsidiary of the Public Service
Enterprise Group power company.
The switch from an investment strategy
based on benchmarks to one driven by
liability has been prevalent among
corporate funds, though public funds
could be next. A recent survey from
Putnam and Pensions & Investments
found that more than two-fifths of
defined benefit plans are planning to use
liability driven investment (LDI); 22%
were already using it, and a further 20%
were considering it - with almost half
saying they will implement a new
strategy in the next 12 months.
John Haugh, a strategist at Merrill
Lynch, says: “LDIs are really taking off. A
lot of the larger plans are getting into an
LDI-type framework. That means taking
down their equity, using swaps and
extending the duration of their fixed
income to really start to have more of a
mind set of not just the asset side of the
US PENSION FUNDS
equation, but the liability side as well, to
minimise that surplus volatility.”
LDI is attractive since risk management
became a central consideration in the
wake of opaque products and turbulent
market indices. The Pensions &
Investments survey found that corporate
plans were more likely to use LDI, with
85% of the pension executives who
responded working for corporate plans,
and 10% with public plans.
Farley adds: “I think clearly what you’re
seeing is that people are reassessing risk
again, whether in their broad stock bond
allocation or the type of strategy they’re
looking to implement.”
However, many funds are hampered by
corporate governance issues, which can
make up a large part of the functioning of
investment strategy.
“What will limit the ability to truly do
that [reduce assets] is that in many cases
company’s are really not set up to deal
with lower expected return”, Farley says.
“There may be an investment case to
reduce your asset allocation and thereby
reduce your risk, but with that your
expected rate of return goes down and
your pension cost goes up. So while you
might want to reduce risk in your
portfolio and might want to lower your
overall equity rating, the result is that
reduction in risk but it is also going to
spill over to other areas which is
ultimately going to cost you in today’s
dollars to put it to the plan to fund it.”
Implementing LDI does not mean
abandoning equities. And just because
equities have been hit hard recently is by
no means a precursor to a large-scale pull
out by funds.
Northern Trust’s Pines says: “If you
look at the long term capital market
assumption model, equity has always
maintained a compelling risk/return
trade-off. Short term volatility aside I
don’t think we’re seeing a sea change
where people are concluding that equities
cannot continue to provide evidence of
strong risk-adjusted returns.”
There may not be a sea change, or at
least not right away. But change of a
more subtle nature is certainly occuring,
and those adept at sniffing the wind will
smell it and react accordingly. ■
INVESTOR SERVICES JOURNAL 51
ISJ31 p50-66 Final 21/7/08 8:16 pm Page 52
GLOBAL FUND DOMICILES
BERMUDA
Cross-continental gateway
ermuda is home to a thriving and dynamic offshore
B financial services industry, creating and implementing
the business and regulatory models that have become the
standard for other jurisdictions to follow.
Within two hours flying time from most US East Coast hubs
and a short flight to Canada and with daily air service to the
Europe, Bermuda is the gateway between the two continents.
Proximity to the world's largest capital markets and global
business centres has been a key ingredient in Bermuda's
success.
A collaborative effort between the private and public sectors
of the jurisdiction has created an operational, technical and
regulatory infrastructure focused on clients' needs. This model
ensures jurisdictional policies remain in line with or ahead of
market developments and keeps Bermuda's regulatory
oversight at prudent levels, while maintaining support and
appreciation for the entrepreneurial spirit that drives
innovation. This approach has driven the development and
success of Bermuda's insurance and global financial services
industries.
The country has been transformed from a tourist destination
in the 1950s to the enviable position as being one of the most
significant insurance and reinsurance centres in the world. At
the end of 2006, the Bermuda Monetary Authority reported
over 1,400 insurance and reinsurance companies on its register,
with over USD100 billion in assets and capital and surplus of
over USD110 billion (for the year ending 2005).
Over the last 15 years Bermuda has evolved to become a
global leader in reinsurance and is supplying 40% of the US
and European market property catastrophe coverage. Bermuda
reinsurers rank 13 out of the top 40 in the Standard and Poor's
rankings and 15 out of the top 35 AM Best reinsurer rankings.
Support for capital markets, a centre of excellence with a
diverse and talented underwriting pool and an effective and
appropriate regulatory regime have formed the foundation of
its success.
Household names such as Citigroup, the Bank of New York,
Nomura Securities, HSBC, Ace and XL Capital have established
a presence in Bermuda.
Bermuda's leadership as a pioneer in the offshore financial
services industry can be traced to the jurisdiction's longevity in
the business. Bermuda has developed a commercially sensible
level of regulation with products that meet the needs of its
sophisticated client base. Its infrastructure extends to services
provided by global fund administrators, attorneys, banks,
auditors and the Bermuda Stock Exchange, evolving to offer a
sophisticated product to sophisticated and selective clients.
The 'Launch 'n' List' product, made available to the global
52 INVESTOR SERVICES JOURNAL
hedge fund industry, is a recent example of this innovation.
Launch 'n' List is the result of collaboration between the
Bermuda International Business Association (BIBA), the
Bermuda Monetary Authority (BMA) and the Bermuda Stock
Exchange (BSX). It was developed based on industry feedback
that indicated a growing frustration among practitioners with
the length of time it took to create, domicile and list a
structure. The Launch 'n' List procedure seeks to reduce and
eliminate duplicate effort, which in turn reduces the amount of
time to market.
The Bermuda Stock Exchange (BSX) has been in existence
since 1971 and has nearly 550 listed issuers with a combined
market capitalisation of around USD330 billion. It offers a
complete stock exchange solution trading and settling stock
and cash transactions daily through its electronic trading,
settlement and depository systems.
The development and success of the BSX has helped the
growth of Bermuda's capital market and has provided
opportunities for international clients. The BSX's
commercially sensible regulation dovetails with that of the
jurisdiction, and is based upon currently accepted international
standards. It seeks to achieve an appropriate balance between
providing issuers with access to the market at the earliest
opportunity, and investors with certain safeguards and timely
information for the purpose of enabling them to make informed
decisions on the value, risk and merit of listed securities.
Its regulatory approach has been embraced by the global
fund industry. Of the nearly 550 BSX listed vehicles, over 100
are hedge funds or have hedge fund attributes. Recently, the
BSX has seen interest growing in the listing of fixed income
products and derivative warrants, with over 100 derivative
warrant structures listing in 2007 alone.
The BSX's international regulatory recognitions and
longevity has resulted in it becoming the location of choice in
the offshore world for those wanting a superior level of
support and distinction for their listing. In fact, over half of
the funds listed on the BSX originate from other jurisdictions.
Bermuda will continue to drive innovation in its core
financial services industries. Its stakeholders have always
embraced change in anticipation of the potential opportunities
that may follow.
We see huge opportunity in the global stock exchange
industry for the Bermuda Stock Exchange. Our unique
approach in respect of our regulatory infrastructure coupled
with our strategic geographical location and internationally
recognised electronic platform places the BSX in a good
position to take advantage of rapidly changing and expanding
global capital markets.■
ISJ31 p50-66 Final 22/7/08 9:53 am Page 53
ISJ31 p50-66 Final 21/7/08 8:17 pm Page 54
GLOBAL FUND DOMICILES
Luxembourg
Extending its lead in Europe
uxembourg continues to be the leading fund domicile in
L Europe and is the second largest fund centre in the world
after the US. It was the first EU member state to adapt its
legislation to the European Directive governing Undertakings
for Collective Investment in Transferable Securities (UCITS) in
1988 and created an immediate competitive advantage for itself,
attracting fund promotors from all over the world to offer
investment funds with a European passport for cross-border
distribution. Luxembourg has since recorded positive growth
figures each year. Assets under management in Luxembourg
rose by an all-time monthly record of EUR68.6 billion in April
2008 due to a combination of strong net sales and market
performance, pushing net assets to EUR1,964.076 billion, in a
total of over 3,000 investment funds.
Luxembourg positions itself as an ideal location both to retail
and institutional investors, fund promoters and related service
providers alike.
Thanks to its political, economic and social stability, as well as
its central location in Europe and a high standard of living,
Luxembourg attracts a highly talented, multi-lingual workforce,
with a strong international spirit.
The flexible and active authorities always welcome new
structures and initiatives. A direct consequence of this open-
mindedness to change and modernisation is the attractive array
of investment fund structures and products now available. Also,
companies based in Luxembourg benefit from the advantages of
a small community with close working relationships between
service providers, law-firms, auditors, and industry bodies (in
particular the Association for Luxembourg Investment Funds -
ALFI) in a combined effort to better service investors and fund
promoters, leading to quicker and more flexible fund launches.
Recent developments in the local regulatory and legal
framework - including the SICAR (Société d'Investissement en
Capital à Risque) and the SIF (Specialised Investment Fund) -
were created to promote increased investment options
demonstrate the regulator's flexibility.
The SICAR law allows for a dedicated private equity and
venture capital investment company, with also growing
potential for investments in renewable energies and
technologies. The law is almost 4 years old now, and the
Luxembourg community is awaiting a new SICAR law that
should further modernize the existing regime, notably to allow
multiple compartments, hence multiple investment policies,
within the same legal entity.
The 13th February 2007 law on Specialized Investment Funds
(SIF), provided investors with greater flexibility in terms of
54 INVESTOR SERVICES JOURNAL
investment policy, lighter disclosure requirements and
simplified rules of functioning and no requirement for a
promoter. The SIF law recognizes that individuals may also
have a level of sophistication equal to certain institutional
investors.
The Commission de Surveillance du Secteur Financier’s
(CSSF) most recent Circulars on Eligible Assets and
Sophisticated UCITS, respectively, are opening new horizons
once again, and allowing for additional products to be created.
One area where Luxembourg has been striving to be more
competitive is on the annual subscription tax or “taxe
d'abonnement”. Typically this stands at 0.05% of the net asset
value, although this has been reduced to 0.01% in the case of
certain cash funds and institutional funds and even to zero for
some. However, this does not seem to overly discourage fund
promoters as the number of newly created funds continues to
increase. Indeed, between January 2007 and March 2008, the
number of new funds launched grew by more than 34%.
The Luxembourg UCITS product is widely perceived as a
global brand, and has excellent recognition in Europe and
beyond. It is hence no surprise that Luxembourg is the
worldwide leader in cross-border fund distribution and that
Luxembourg funds are distributed in more than 50 countries,
with 76 % of authorisation agreements for distribution granted
to worldwide funds allocated to Luxembourg. While sales in
Europe continue to be high, Luxembourg UCITS have seen a
substantial growth recently in the Middle East (Bahrain in
particular), Asia and Latin America, where there is a large
demand from pension funds in Chile and Peru, and increasing
interest from Brazil and Colombia.
The ever-growing distribution of Luxembourg funds by fund
promoters, invested in increasingly complex instruments,
requires flexible and sophisticated service providers. Custodians,
fund administrators and transfer agents have to be
knowledgeable and innovative. They need to be able to
communicate with the investment managers, shareholders and
any other related parties in their relevant time-zones. Those
challenges imply that the service providers continuously need to
re-think their operations, processes and technologies to support
their clients' requirements and to provide them with the most
efficient solutions. ■
Authors: Eef Verachtert, a vice president and head of the Benelux
Relationship Management team in the Investor Services and Markets
division of Brown Brothers Harriman, and Karima Hinoune, who
supports the team from a marketing perspective. For more info:
eef.verachtert@bbh.com.
ISJ31 p50-66 Final 21/7/08 8:17 pm Page 55
ISJ31 p50-66 Final 21/7/08 8:17 pm Page 56
GLOBAL FUND DOMICILES
Guernsey
Jersey
Steady spectacular
t has been a dramatic last few years for Guernsey and Jersey
I as domiciles. It could be described as a steady increase, but a
spectacular steady increase. Guernsey in particular -
Capita's office has been open there since October 2007 - has seen
a recent boom, with a GBR20 billion growth in assets under
management in the last quarter alone. We don't know why
exactly, but the jurisdiction is on the international radar; there
is more awareness, the marketing has been better.
There are nuances in the differences between the offerings of
Capita Financial for the two islands. Jersey covers retail centres
and is principally fund administration, including services for
transfer agency, fund accounting and company secretarial
services. It also provides services for open and closed-ended
corporate funds, unit trusts and limited partnerships. Guernsey
focuses on hedge funds but also other alternative asset classes,
including private equity and property. The office offers
outsourcing capability and bespoke services to funds. The
service is reliable.
Capita Financial assigns a senior manager to each client, as
well as providing director services to each individual fund board.
The standardised process for taking on a developing new
business, common to all our offshore businesses, will also ensure
a seamless launch of new funds it administers.
Both islands benefit from a stable commercial environment
and have increased their standings as multi-billion pound
international finance centres. Their geographical position is also
enviable: almost equidistant between their country of
regulation, the UK, and the rest of the continent. Howat adds
that part of the Guernsey office's new revenue can be attributed
to the fact that it has been branching out to include more
esoteric funds, such as art, fine wine and forestry.
Guernsey also has the approval process of making a new fund
onto its shores a “qualified investment fund”. These QIFs were
set up to attract professional investors that will speed up the
approval process. The funds must confirm to a certain criteria.
The company passes on the approval process to our
administrators, who do the due diligence on the fund. The
administration has to make sure the funds are fulfilling
regulatory duties, checking information, who the directors are
behind the scheme. But it is not too onerous.
Guernsey has a competitive tax regime and a flexible
regulatory environment and offers a mature legal structure.
Financial services, such as banking, fund management, and
insurance, account for about 32% of total income. Capita
56 INVESTOR SERVICES JOURNAL
Andrew Howat,
Managing director,
Guernsey office
Capital Financial
Trevor Hunt,
Director,
Jersey office
Capital Financial
Financial’s accounting for administered funds is outsourced to
Exeter. The opening of the Guernsey office was timely, as it
quickly saw a great influx of business as international traders
widen their outlook in the wake of the credit crunch. It has seen
a lot of business from investors in the City since October.
Guernsey opened up at the right time for new business, and has
had good headline figures.
At the time of the official opening of the office, Peter Niven,
chief executive finance said: “The fact that it is part of the
larger Capita network means there is potential for the operation
to bring in new streams of business from clients within the
wider group.” Expanding on this point, Capita Financial has
GBP30 billion of assets onshore and some of that business
could feed into Guernsey. Guernsey's fund administration sector
has now topped GBP200 billion.
Jersey's regulatory infrastructure has been recognised by a
number of international bodies. Today it not only meets
international regulatory standards for funds regulation, but also
is active in setting these standards. Its international standing -
and growth of business - was bolstered by the introduction of
the Expert Funds Guide three years ago for new investors to
learn about its regulations and internal workings. The regime
continues to be a success, with hedge funds attracted to its
“lighter touch” of regulation. The new 0/10 tax exempts all
businesses except those in financial services from having to pay
any corporation tax, while leaving the financial services to pay a
low tax rate of 10%.
The key challenges for the two domiciles is to remain as
flexible as possible with new trends and laws. They must
maintain close communication and stay flexible to change. You
must also maintain a flexible infrastructure. That will stand the
two in good stead. ■
Authors: Andrew has joined Capital Financial as Managing Director
of CFA (Guernsey). He has a wealth of knowledge in the Channel
Island offshore arena having previously been Managing Director of
Investec Fund Services in Guernsey. Prior to this Andrew was based
in Hong Kong for a decade as head of ING Financial Markets
Operations for the Asia Pacific region..Trevor Hunt is an associate of
the Chartered Institute of Bankers and holds the Chartered Institute of
Bankers Trustee Diploma. He is a director of Capita Financial
Administrators (Jersey) Limited and several other Capita plc offshore
companies. Before Capita, Trevor worked for HSBC for over 30 years
in various senior managerial posts.
ISJ31 p50-66 Final 21/7/08 8:17 pm Page 57
ISJ31 p50-66 Final 21/7/08 8:17 pm Page 58
GLOBAL FUND DOMICILES
alta's emergence as one of Europe's financial centres
M has been ten years in the making. EU membership
provided the crucial catalyst and with it comes the
EU stamp of approval to Malta's financial legislation along
with numerous advantages.
Location
Malta is a meeting point of cultures and languages at the heart
of the Mediterranean. Malta has excellent flight connections
to numerous European cities and a number of North African
destinations and is one hour ahead of Greenwich mean time.
Regulation and tax
Malta has a strong, yet flexible, single regulatory body in the
Malta Financial Services Authority (MFSA). The MFSA is
responsible for all licensed financial services activity on the
Islands. The regulator allows for streamlined procedures with
good speed to market delivery, leading to lower fees and
compliance costs and a more consistent interpretation of the
rules and legislation. This approach has the flexibility and
accessibility to ensure the ilegal framework is consistent across
the board.
The Malta Stock Exchange encourages the primary and
secondary listing of funds. Procedures for listing require a
fund to be registered and regulated by the MFSA. Secondary
listing requirements are very flexible provided the fund is
listed on a recognised foreign stock exchange.
Malta operates a full imputation system of taxation and has
been deemed by European Commission to be compliant with
EU non discrimination principals.
Maltese companies are subject to the normal corporate tax
rate applicable to all companies registered in Malta (35%) on
their worldwide income. Under Malta's full imputation system
when dividends are paid by trading companies to the
shareholders, these shareholders become entitled to claim
refunds of 6/7ths of the Malta tax paid by the company.
A Malta domiciled fund enjoys an exemption from income
tax and capital gains tax at both the fund level and at a non-
resident investor level. Malta has 45 tax treaties.
Business costs
As a benchmark operational costs in Malta are generally two-
thirds of those prevailing in more established centres this
applies to salaries as well as general business costs such as
office space, services and utilities.
58 INVESTOR SERVICES JOURNAL
Malta
Mediterranean
money matters
Professional services
Malta has long standing culture of excellence in professional
services and a multilingual educated workforce .
Legal structures of collective investment schemes
The law provides that a scheme may be set up as either:
a) collective investment company with variable share capital
(SICAV);
b) collective investment company with fixed share capital
(INVCO); or
c) unit trust
d) mutual fund
e) limited partnership.
Professional investor funds (PIFs)
PPIFs target either extraordinary investors or qualifying
investors or experienced investors, in accordance with their
minimum investment threshold. These types of funds are
classified as non-retail and are therefore not subject to any
restrictions on their investment or borrowing powers with the
exception of experienced investors who borrowings are
limited to 100% of NAV.
PIFs may be sold solely to investors who satisfy the
minimum investment threshold: 'experienced investors' are
subject to a minimum threshold of €EUR15,000; 'qualifying
investors' are subject to a minimum investment threshold of
EUR75,000; while 'extraordinary investors' are subject to a
minimum investment threshold of EUR750,000
The special purpose vehicle
The use of special purpose vehicles by PIF is allowed under the
laws. The PIF must be the beneficial owner and retain full
control of the SPV at all times, ie, it shall retain the majority
of directors in the SPV. The PIF must ensure that the
investments effected through any SPV are in accordance with
the investment objectives and policies of the PIF as disclosed
in the offering document. The SPV can take advantage of the
tax treaties in force and does not trigger any form of local tax.
UCITS funds licensed in Malta
The promoters of a fund are able to submit an application with
the MFSA for their fund to be licensed in Malta as a UCITS
fund (Maltese UCITS.) in which case such a fund would be able
to benefit from the passporting provisions of the UCITS
Directive. ■
ISJ31 p50-66 Final 21/7/08 8:17 pm Page 59

Capita Financial Group

Fund Managers who
just want to manage funds

With more than 35 years industry experience, Capita Financial Group offers
a comprehensive fund administration service over a range of asset classes.
We operate from a range of international jurisdictions and our services can be tailored to meet your
requirements, so you can free up your day to focus on growing your funds and your business.

To find out more about how you could benefit from working with Capita Financial Group contact:

Andrew Howat Trevor Hunt

Capita Financial Group Capita Financial Group
PO Box 279 12 Castle Street
St Peter Port St Helier
Guernsey Jersey
GY1 4HN JE2 3RT

Tel: 01481 750700 Tel: 01534 847276

Email: Andrew.howat@capitafinancial.com Email: Trevor.hunt@capita.je
Capita Financial Administrators (Guernsey) Limited, Registered office: 22 Smith Street, St Peter Port, Guernsey, GY1 4NH is licensed and regulated by the
Guernsey Financial Services Commission for the conduct of Fund Services Business.

Capita Financial Administrators (Jersey) Limited, Registered office: 12 Castle Street, St Helier, Jersey JE2 3RT is licensed and regulated by the Jersey Financial
Services Commission for the conduct of Fund Services Business.
ISJ31 p50-66 Final 21/7/08 8:17 pm Page 60
GLOBAL FUND DOMICILES
Isle of Man Spreading the word
omebody once asked me where in the Bay of Biscay the
S Isle of Man was located. Another thought it to be
somewhere between the Orkneys and Iceland. Upon
informing them that it’s in the middle of the Irish Sea, I’m
usually then asked does it rain much?
It always surprises me what people’s perceptions of the Island
are, and often how far off the mark they can be. These
perceptions are at odds with the generally held views of those
who regularly visit the Isle of Man and who deal with its varied
financial services industry. These people, I’ve found, are happy
to speak highly of the Island’s commitment to quality and
affordability in financial services, founded on strong foundations
of world class regulation and healthy AAA rated government
finances. This position was very ably demonstrated by the Isle of
Man’s recent recognition among its peers by the City of London
in their Global Financial Centres Index (GFCI).
Perception and reality
In emphasising these differences between perception and
reality, I turn to the Isle of Man’s offering in the alternative and
closed ended fund markets, where commonly held perceptions
and realities are again divergent.
The Isle of Man has a compelling proposition for fund
managers founded upon regulations designed to encourage fund
management groups to establish a physical presence in the Isle
of Man. Industry leading fund managers including
Charlemagne Capital have sizable operations here and more
recently niche managers such as Bridge Asset Management have
established themselves in the Isle of Man.
The benefits to a group establishing such a presence include:
■ significantly lower overheads than in major centre’s (both
staff costs and rental levels),
■ a zero rate of corporate tax on profits earned in the Isle of
Man combined with no capital taxes on gains or inheritance,
■ a cap of GBP100,000 per annum on income tax for Manx
resident tax payers,
■ a robust yet considered regulatory infrastructure which has
recently been updated with the alternative asset
management industry in mind,
■ a flexible approach to immigration which balances the
interests of local workers with the legitimate interests of
businesses who wish to relocate key staff to the Island
combined with a single property market meaning that staff
60 INVESTOR SERVICES JOURNAL
relocating may buy property,
■ the ability to benefit from VAT grouping as the Isle of Man
is in a VAT group with the UK,
■ the ability to host key systems using the world class IT
hosting facilities that have been developed on the Island,
which are complemented by the Island’s substantial fibre
optic connections to England and Ireland,
■ the ability to access a capable professional infrastructure of
lawyers and accountants to gain any support or advice
required,
■ a convenient location for the UK and Europe with excellent
air links to the UK, Channel Islands and Irish airports.
Legal eagles
The Isle of Man also recently updated its company law to
provide a company vehicle which offers greater flexibility and is
particularly well suited to the closed ended private equity and
AIM market. It also recently introduced a new fund vehicle, the
specialist fund, which was benchmarked against the offerings of
certain more well known fund jurisdictions. This specialist fund
offers fund managers the flexibility and speed to market they
demand, while at the same time incorporating necessary
investor safeguards.
These facets to the island’s offering often surprise those who
are not familiar and amount to a compelling proposition which
should not be lightly disregarded. The Isle of Man government
and its financial services industry are committed to further
developing the Island’s alternative asset management industry
and we are very much open to business. ■
The above represents the personal views of Gordon Wilson and not necessarily the
views of Caledonian Fund Services (Europe) Limited or the Caledonian Group.
None of the above constitutes advice and no reliance should be placed on any of
the content of this article. Any and all liability is specifically excluded.
Author: Gordon Wilson, managing director – Caledonian Fund
Services (Europe) Limited.Wilson was appointed as Managing
Director of Caledonian Fund Services (Europe) Limited in August
2005. Caledonian Fund Services (Europe) Limited is part of the
Cayman Islands based Caledonian Group of companies and is a
specialist hedge fund administrator based in the Isle of Man serving
clients primarily in the European time zones.
ISJ31 p50-66 Final 21/7/08 8:17 pm Page 61

www.gibraltarlawyers.com

The game is changing

As the global economy responds to a growing number of
challenges, Gibraltar offers the innovative funds solutions
you need to weather the storm.

For further information contact: joey.garcia@isolas.gi

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Tel +350 200 78363 www.gibraltarlawyers.com
ISJ31 p50-66 Final 21/7/08 8:17 pm Page 62
GLOBAL FUND DOMICILE
Ireland
Consolidation & competition
reland has been focusing hard on competitive strength,
I product differentiation and furthering critical mass within the
industry. The level of government commitment to maintain
the development of our regulatory and service industry is evident
and reaffirms the belief that good regulation is key to ensuring
success within the industry.
On the up
Ireland’s funds industry is progressing well, with the growth in
Irish registered collective investment schemes more than doubling
from 2003 to 2007. UCITS funds make up 80% of the total value
of Irish registered funds with UCITS becoming a recognised pre-
requisite to doing business in Europe.
There have also been an unprecedented number of listings on
the Irish stock exchange in 2007. The proportion of Irish
domiciled non-UCITS assets have increased from 27% to 63%
over the last four years following greater diversification in
alternative product offerings by the Irish Financial Regulator.
As emerging markets grow, EU jurisdictions that offer the
greatest competition for the UCITS brand are best poised to
benefit. Regulation, the cost of doing business and the service
quality of providers are what global investment managers
consider when choosing a jurisdiction.
Eyeing up the competition
The Irish funds industry will need to keep a close eye on its
neighbours within the EU that are also adapting legislation to
meet the needs of the industry. Increasing regulation and costs of
regulatory compliance, labour force, rents and rising inflation are
being monitored carefully, particularly given the poor growth
funds and change in economic climate.
When Apex Fund Services Ltd chose Ireland for
establishing another fund administration office, it was a natural
choice to de-centralise away from Dublin and reduce the costs of
doing business. An alternative such as Cork is also attractive to
employees. Controlling costs allows Apex Fund Services (Ireland)
to offer a more competitive fee scale to clients.
As a recent entrant to the Irish market, it is interesting for Apex
Fund Services (Ireland) to observe the positive changes that have
come about and the latest initiatives taken to ensure that the Irish
market remains competitive globally.
Hedge fund administration is maturing and there is full market
knowledge as to the best technology available. Web
reporting, analytical portfolio services, SAS 70 audit, are all
further armoury that are becoming more commonplace
competitive weapons in the marketplace all of which Apex Fund
Services (Ireland) Ltd offers.
Ultimately, as with any business, it is the human resource
element and the training and development and application of
those resources that will ensure that high services standards are
consistently maintained. ■
62 INVESTOR SERVICES JOURNAL 62
Gibraltar
Experience & regulation
ibraltar's recent development as a jurisdiction has had
G two main driving factors. Firstly, the sophisticated,
dynamic and exacting standards of regulation in
Gibraltar which comply with all EU directives and are recognised
internationally by entities like the IMF (IMF Report on the
Gibraltar, May 2007), which is comforting for managers and
investors. Secondly, the introduction of the experienced investor
fund (EIF) through legislation introduced at the end of 2005, has
brought to the jurisdiction an innovation which is helping
Gibraltar to further enhance its reputation as a genuine
alternative to established and traditional funds centres.
The EIF is designed for professional, high net worth (more
than EUR1,000,000) or experienced investors, with a minimum
investment of EUR100,000 qualifying the investor as
'experienced' for the purposes of the legislation. The advantages
of the Gibraltar EIF is the speed and ease of set-up, as well as
the flexibility of the vehicle, which allows for the EIF to be used
for alternative investments, or smaller sized funds, hedge funds,
real estate, private equity or fund of funds.
To license the fund, the Gibraltar regulator must be notified
within 14 days of launch and provided with the relevant
documentation. Accompanying the notification must be an
opinion from counsel stating that the fund complies with the EIF
regulations. Similarly, the fund is required to have a Gibraltar-
based administrator (itself licensed and regulated in Gibraltar)
and auditor, two 'authorised EIF directors' who have been
approved by the regulator, and a custodian or prime broker
(located anywhere in the world).
Although the EIF is itself not unique in the funds industry, the
advantages that the Gibraltar solution offers as a domicile for
funds are. As an EU member, Gibraltar companies are entitled to
benefit from the European Parent Subsidiary Directive (PSD).
This allows Gibraltar funds, when structured correctly, to enjoy
receipt of profits from European subsidiary companies without
withholding tax implications or the parent Gibraltar company
incurring double taxation on its subsidiaries profits.
Once the funds have been remitted to Gibraltar, the dividends
from the fund can be distributed to non-Gibraltar investors
without withholding tax. There is no capital gains tax, wealth,
VAT or or inheritance tax. Gibraltar licensed companies also have
the right to passport investment services throughout Europe.
This allows managers who set up operations in Gibraltar to have
access to the European market and increase the scope for the
promotion of their products. The Protected Cell Company
legislation in Gibraltar can offer further value for fund managers
looking to implement multiple strategies without any cross
liability between the cells or sub-funds.
The has been an undeniable growth in Gibralter’s fund industry,
from service providers to investment managers and fund
promoters looking for solutions for their clients. In particular for
those who wish to launch smaller boutique or start up funds that
are unable to raise the capital required to employ the services, or
indeed receive the services from larger providers with sometimes
prohibitively high thresholds and requirements. ■
ISJ31 p50-66 Final 21/7/08 8:17 pm Page 63

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Isle of Man, Malta, Mauritius and Singapore
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ISJ31 p50-66 Final 21/7/08 8:17 pm Page 64
FUND ADMINISTRATION - SINGAPORE
Land of the rising sums
ike many countries in South East
L Asia, Singapore's economy is
booming. The buoyant expansion of
China, India and the recovery of Japan has
driven economic growth in the region.
Singapore has seen double-digit growth in
assets under management for the past six
years, with USD581 billion in assets under
management at the end of 2006. Though
2007 figures are not yet available, many
commentators have said that they think
there will be similar levels of growth this
year despite volatility and recession fears in
the US.
Strong market fundamentals - robust and
increasingly specialised manufacturing and
export industries, steady GDP growth, a
highly educated work force and convenient
time zone - have contributed to this
growth. Singapore's infrastructure is very
attractive for investors compared to other
Asian countries, which in turn is
encouraging growth. It has a substantial
regulatory infrastructure, with a high
standard of supervision and enforcement.
The Monetary Authority of Singapore
(MAS) puts strong emphasis on corporate
governance and transparency. Its laws are
easy for private or institutional wealth
managers to do business in a predictable
manner. It also has a lot of strength in
wealth management and private banking.
One of the biggest areas of growth in
the last 4-5 years is in the alternative funds
market and related fund administration
services. In a global survey by Ernst and
64 INVESTOR SERVICES JOURNAL
Young last year Singapore was named the
world's number one growing real estate
investment trust (REIT) market. Total
market capitalisation increased nearly
three-fold over the year, from USD8 billion
to USD22 billion. The number of
Singapore REITs (SREITs) rose from 11 to
16 from June 2006 to the end of June 2007.
According to Scott McLaren, managing
director of RBC Dexia Investor Services in
Hong Kong, the hedge fund industry is also
growing fast. It is now apparently one of
the top developing markets and is
“The Singapore equity market
is a very mature market in
Asia with the least fluctuation
and limited intra-day move-
ments among big-cap names”
Anuj Rathi,
Senior vice president,
Global Product Management
HSBC Securities Services
estimated by Marcel Weicker, head of
location for BNP Paribas Securities
Services in Singapore, to have over 200
hedge fund managers. According to Yow
Fee Lee, senior vice president of State
Street Investor Services in Singapore,
Singapore is now also one of the top four
foreign exchange centres in the world out
Investors looking
to Asia cannot
ignore Singapore.
A flexible,
ambitious
economy shows
great promise,
writes Catherine
Kemp
side London, Tokyo and New York and is
also a leading trading hub for over-the-
counter (OTC) commodity derivatives
,particularly in energy sectors. There are
also increasing numbers of offshore funds
from Luxemburg and Dublin starting up in
the market.
According to McLaren: “The number of
funds that are being registered in Asia by
fund managers that have a Luxembourg,
Dublin or sometimes other UCITs domicile
is growing very fast and is a large part of
RBC Dexia's activity. It's more of a recent
phenomenon in Singapore than in Hong
Kong, but in Singapore there are now more
offshore funds available for sale than local
funds.”
There is also a growth in Shariah-
compliant finance, and while Malaysia
remains the main centre for Islamic finance
in Asia - as one of the main issuers of
Sukuk - Singapore is trying to catch up and
has recently announced that they will be
issuing the first sovereign rated Sukuk,
fixed income instrument.
One of the drivers for the growth of
Singapore's alternatives funds market is
competition. Singapore is competing
against various financial centres in Asia to
ensure the growth of its capital markets,
and its financial authorities are proactive in
establishing incentives and regulations to
open up and develop the market.
“Singapore competes head-to-head with
Hong Kong in becoming the number one
 )3*
financial centre in Asia ex-Japan,” says
ISJ31 p50-66 Final 21/7/08 8:18 pm Page 65
Marcel Weicker. “From my point of view,
the Singapore authorities are incredibly
business-minded and have done everything
they can to make Singapore as competitive
as possible.”
The MAS has created a lot of initiatives
which are attractive to fund managers and
this has fostered the growth of the
alternatives market. In the Ernst & Young
report the growth of SREITs was
attributed to the appealing investment
environment in Singapore and the MAS's
promotion of the REIT structure. Tax and
financial perks for fund managers and
financial services to operate in Singapore
have made it an attractive home for
alternative fund managers and
administrators. Rule changes have made it
easier to register offshore funds in
Singapore, meaning fund managers no
longer need to set up feeder funds in the
Singapore market. This has resulted in a
growth in the numbers of offshore funds.
The types of investors entering the
Singhapore market - along with the
products they are looking to invest in - are
also diversifying. More high net worth
individuals, such as entrepreneurs from the
bigger funds houses setting up their own
funds, and other wealthy individuals are
growing the alternative funds market.
Yow Fee Lee, senior vice president of
State Street Investor Services in Singapore,
says: “Funds under management in
Singapore fall into two categories. One is
the more traditional institutional investor
source: Singaporean sovereign funds,
0ENSIONS \ ,IFE )NSURANCE \ )NVESTMENT \ 0ORTFOLIO !DMINISTRATION \ 4RANSFER !GENCY \ 340 &INANCIAL -ESSAGING
&INANCIALSOFTWARESOLUTIONS
THATSTANDOUTFROMTHECROWD
 )3*
!USTRALIA \ .EW :EALAND \ (ONG +ONG \ 4HAILAND \ )NDIA \ ,UXEMBOURG \ 5NITED +INGDOM \ 3OUTH !FRICA
FUND ADMINISTRATION - SINGAPORE
insurance companies, financial institutions
and pension funds. The other is the mutual
funds business, which gets its fund sources
from financial institutions, and high net
worth individuals.
“The wealth management and private
banking industries in Singapore contribute
to a significant proportion of the funds
under management in Singapore. The
demands of these high net worth
individuals, who are not necessarily
Singaporean but can be from Europe,
North America, North Asia or the
surrounding region, for greater diversity in
products like REITs, derivatives, FX, and
the more topical things like commodity
funds are making the fund industry more
complex.”
However, as the market has grown the
increasing success of alternative fund
managers getting high returns even in
difficult markets has attracted traditional
fund managers who want similar rewards.
“There are alternative fund managers who
are getting returns of up to 20-30% even
in volatile markets, which is attractive for
investors across the region and globally,”
says McLaren. “Some strategies are
centred on commodity investments, oil
prices have gone up, there are food
shortages and shortages of raw materials.
Traditional fund managers want a piece of
the action. The more established
alternative fund managers with a better
track record are providing the type of
diversification and strategy that the more
traditional fund managers are now looking
for. Rather than learning how to do the
strategies themselves and getting the
intellectual capital, they are simply taking
part of their allocation and moving it into
the alternative funds that have got a better
track record.”
Traditional fund administration is an
established part of Singapore's financial
services industry and there are various
large fund administration service providers
already present in Singapore along side,
State Street and RBC Dexia, such as HSBC,
Citi Bank, JP Morgan Chase and Northern
Trust. State Street alone has more than 170
professionals based in Singapore, of which
between 120 and 130 are fund accountants.
But in the last few years the proliferation of
the alternatives market and absolute
returns of the investment manger have
created the demand for more specialist
providers.
“The Singapore authorities have been
very successful in attracting specialised
hedge fund services providers into
Singapore,” says Weicker. “In the last year
there have been several hedge fund service
providers setting up offices in Singapore;
Mourant, LaCrosse, Custom House, Citco,
because there was a lack of expertise in
this area before.”
According to Scott McLaren there are
also a number of larger alternative fund
administration services providers moving
into the market, which is a sign of the
increasing growth expected in the future,
however as with many emerging markets
there are concerns with resources.
WWWBRAVURASOLUTIONSCOM
ISJ31 p50-66 Final 21/7/08 8:18 pm Page 66

FUND ADMINISTRATION - SINGAPORE

matter of time until these structures are

“We have leveraged our
expertise in the
alternatives/OTC derivatives
space, and are training
people locally in complex
structures that to date
haven’t existed in Singapore”
Scott McLaren
Managing director
RBC Dexia Investor Services
Hong Kong
McLaren explains: “The players that
have established a presence in Singapore
recently are now looking for skilled
resources and I think there is a danger of a
bottleneck situation. Certainly at RBC
Dexia we are reinforcing our team in
Singapore. We have leveraged our
expertise in the alternatives/OTC
derivatives space, and are training people
locally in complex structures that haven’t
to date existed in Singapore, but its just a
approved and enter the local market.”
Although there has been a regulatory
infrastructure in place for securities lending
in Singapore for almost seven years, and is
comparatively one of the most liberal of
the emerging securities lending markets
with no restrictions on naked short selling
or uptick rules in short selling, it is still a
small area of the overall market.
According to Anuj Rathi, senior vice
president at Global Product Management,
HSBC Securities Services , securities
lending is not a stand alone product; it is
driven by market activities and stock price
and so while the market may be
comparatively amenable to a securities
lending in terms of regulation there needs
to be more activity.
“The Singapore equity market is a very
mature market in Asia with the least
fluctuation and limited intra-day
movements among big cap names,” says
Rathi. “Such limited market activities and
stable prices are the cause of the lack of
significant demand in securities lending.”
However, the growth of the hedge fund
industry and the increased complexity of
investment products may necessitate a
growth in securities lending.
Yow Fee Lee at State Street says the
increased use of structured products may
well drive growth in securities lending and
borrowing for the industry overall: “Over
the last severalyears we have seen an
increased growth in some of the financial
products people are investing in, such as
structured products like equity linked
notes, credit linked notes, and other
derivatives products like contract for
differences (CFDs). These fuel demand for
securities because a lot of issuers will
borrow securities or purchase securities to
meet their product development needs.”
Assets under management in
Singapore - 2001-2006
2001 2002 2003 2004 2005 2006
Anuj Rathi concurs, and explains that
structured products have to be hedged by
either buying or selling securities,
depending on the product structure.
Therefore the long positions from the
buying of securities will be available to
lend in the market and the sale of securities
will create short selling opportunities, thus
increasing the volume of securities lending
in the market.
Anuj Rathi highlights seven key benefits
of securities lending in the market. “It is
used for fail coverage to improve settlement
efficiency, it increases liquidity, allows for
price discovery and the arbitrage of pricing
inefficiencies, facilitates investment and
trading strategies, encourages the growth
of alternative investment funds in the
market and is a source of additional
revenue for investors and of secured
financing for investors - in other words,
capital raising.”
The significant development of
securities lending in Singapore is
dependent on many factors. However, given
Sigpore’s recent ascension overall, the
expectation of further growth of large
alternative investment houses, and the
training of fund administrators in more
complex investment products, this may
well be the near future.

ISJ Directory of Services

T: +44 (0) 844 499 6388
C: Saghar Bigwood or Stephen
Everard
A: 7th Floor, 69 Park Lane,
Croydon, CR9 1BG
E: sbigwood@goalgroup.com or
severard@goalgroup.com or
info@goalgroup.com
Asset Servicing
GOAL is the widely-acknowledged industry leader in providing creative products,
services and solutions to automate and optimise the global reclamation of
withholding tax and class action compensation. Our research has shown that in
excess of US$6 billion of withholding tax remains unclaimed each year by the
rightful owners and beneficiaries and the amounts for class actions is even larger.
To establish your potential ability to reclaim over-withheld taxes and/or class action
compensation GOAL provides a free proof of concept analysis. We simply require details
of the income entitlement(s) and/or trade details together with the type and domicile of
the underlying beneficiaries. We do not need the name(s) of the beneficiaries.
Our Products include GTRS, Class Actions, GQI, e-Reclaim, GOAL TaxBack, DMS
and Bespoke Software Development.

66 INVESTOR SERVICES JOURNAL

ISJ31 Cover ML 22/7/08 5:12 pm Page 3

When you know

the right places
to fish, you take
away the margin
of uncertainty

In Northern Ireland the right people are always in

plentiful supply. Here a skilled and exceptionally well
educated workforce is concentrated in a region with
operating costs that are among the lowest in Europe.
Over 15,000 talented, young individuals graduate
from our colleges and universities every year,
creating a sustainable, dynamic resource to
support your business growth. It’s no wonder
then that global financial services companies
including Citi, Liberty Mutual, Danske Bank
and The Allstate Corporation have already
established successful operations here.
When looking to further your business look
no further than Northern Ireland.
For more information contact the
Invest NI London Office
T: +44 (0)207 222 0599
E: london@investni.com
www.investni.com/invest

Look no further
ISJ31 pp67-80 Final 23/7/08
C: Cornelia Keth
T: +49 69 718 3738
F: +49 69 718 6050
E: cornelia.keth@bhf-bank.com
C: Moritz Ostwald
T: +49 69 718 6838
E: moritz.ostwald@bhf-bank.com
A: Strahlenbergerstraße 45,
63067 Offenbach a.Main
Germany
W: www.bhf-bank.com
International - Europe
Olivier Storme
T: +352 4767 2847
olivier.storme@caceis.com
International - North America
Barbara Lewnowski
blewnowski@olympiacapital.com
France
Partick Lemuet
T: +33 (0)1 57 78 03 34
E: patrick.lemuet@caceis.com
T: +47 22 94 92 95
F: +47 22 48 28 46
Contact: Bente I. Hoem
E: bente.hoem@dnbnor.no
W: www.dnbnor.com
W: www.handelsbanken.com
/nordic_custody_services
T: +46 8 701 2988
F: +46 8 701 2990
C: Annika Larsson
E:custodyservices@handelsbanken.se
A: Blasieholmstorg 12,
SE - 106 70,
Stockholm, Sweden
For further information please
contact
Lilla Juranyi, Global Head
Custody
at + 31 20 7979 435
or contact her by email:
Lilla.Juranyi@mail.ing.nl
12:28 pm Page 67
Custody & Clearing
BHF-BANK is one of Germany's most prestigious private banks. Its roots date back to the
year 1854. As an advisory, service and sales & trading bank, we offer our discerning clientele
a comprehensive array of customised solutions. BHF-BANK combines the strengths of a
private bank with a long track record of capital market competence.
Trust, an individual approach and impartiality - these qualities are at the very heart of the
long-term guidance and advice we provide for our clients. Our bank's activities are grouped
within the divisions Asset Management & Financial Services, Financial Markets & Corporates
and Private Banking.
The bank's longstanding experience in the German securities services market goes hand
in hand with a corporate culture that values prompt acknowledgements and short
decision-making channels.
BHF-Bank offers tailor-made custody services to meet its clients' particular requirements.
It's reporting services include a comprehensive SWIFT reporting matrix as well as its
Internet-based reporting tool cds@web. Assets under Custody: EUR309 bn No of funds: 409
CACEIS, with EUR2.3tr under custody and EUR950bn under administration is
one of the world's leading asset servicing providers, dedicated to institutional and
corporate clients and the premier provider in the sizeable French market. We are
rated AA- by S&P, which reflects the significant financial support of our share-
holders, Crédit Agricole S.A. and Natixis. Our services combine powerful IT sys-
tems and expert staff to help clients reduce their costs, improve service quality to
their investors and focus on their core business.
Through offices across Europe and North America, CACEIS delivers a compre-
hensive set of high quality services, covering custody and depositary/trustee, fund
administration, transfer agency and corporate trust.
Designing custody solutions
– for the Nordic region
One region • One custodian • One point of entry
DnB NOR is the largest and leading provider of Custody, Clearing and
Remote Member Service in Norway. In addition, DnB NOR provides a wide
range of value added services to both Foreign and Domestic clients.
Through an Alliance solution with banks in Sweden, Finland and Denmark,
DnB NOR can offer seamless regional products, which can be customized to
our client's needs.
The cornerstone of Handelsbanken’s philosophy is to put the client and the
client’s needs in focus. Nordic Custody Services are locally present in all the
Nordic markets and offer a wide product spectre to a diverse client base.
Each client is allocated an account manager in each market, fully
responsible for the day-to-day activities, as well as a regional relationship
manager. Handelsbanken provides specialised and tailor-made custody services
including complete corporate action services, securities borrowing and lending
for all Nordic countries, as well as settlement and clearing services to clients
that are remote members of the Nordic stock exchanges.
ING Wholesale Banking Securities Services provides award winning local and region-
al custody services for investment professionals. We are proud to be the largest cus-
todian provider in terms of assets and number of foreign clients in Central & Eastern
Europe. ING has been providing Securities Services in CEE since 1994 and we will
continue our ongoing pursuit of excellence through new technology. Innovation and
client focus are the key drivers to service our clients the best way.
Other activities of ING Wholesale Banking Securities Services are Paying Agency
Services and web-based management of employee stock option & share plans.
ING is your local partner in: Belgium, Bulgaria, Czech Republic, Hungary, Poland,
Romania, Russia, Slovak Republic and Ukraine.
INVESTOR SERVICES JOURNAL 67
ISJ31 pp67-80 Final 23/7/08 12:28 pm Page 68

Intesa Sanpaolo’s Transaction Services include : INTESA SANPAOLO S.P.A.

Financial Institutions Transaction
• Sub Custody, Derivatives and Remote Membership Clearing Services
P.zza della Scala 6
• Global Custody and Depository Bank for mutual funds, pension
20121 Milan
funds, real estate funds, private equity funds and hedge funds Italy
• Fund Administration for mutual funds, pension funds, real estate T: +39 02 8794 2466
funds, private equity funds and hedge funds F: +39 02 8794 1519
W: intesasanpaolo.com
• Paying Agent for foreign funds and sicavs
C: Riccardo Lamanna
• Cash and Payment services like swift to checks, mass payments, E: riccardo.lamanna@intesasan-
checks and cash letters paolo.com

Business Development –
Investment Fund & Global
KBL, leading service provider in the Luxembourg fund industry, offers one-stop shop Custody Services
facilities to international fund promoters. 43, boulevard Royal
Product structuring (of SICAV, FCP, SIF, SICAR, SEPCAV, …), global custody L-2955 Luxembourg
services as well as an efficient fund administration and transfer agency infrastructure Stéphane Ries e-mail :
are some of our fields of expertise that will bring added value to the management of stephane.ries@kbl-bank.com
your assets. Sandra Cortese e-mail :
For all kinds of Undertakings for Collective Investment going from plain vanilla sandra.cortese@kbl-bank.com
cash, money-market, equity and bond funds to sophisticated alternative, venture Stéphane Pesch e-mail :
capital/private equity, pension pooling and funds of hedge funds, KBL offers expert stephane.pesch@kbl-bank.com
legal, fiscal and technical advice as well as access to the global markets. Tel. : (352)4797 3512
Fax : (352)4797 73910
www.kbl.lu

Nordea is the largest financial services group in the Nordic and Baltic Sea region
with leading positions within corporate merchant banking as well as retail banking
and private banking. Nordea is also the largest Nordic custodian with a prominent
presence in all the four Nordic markets: Denmark, Finland, Norway and Sweden. T: + 45 3333 2075
Nordea provides high quality, tailor-made custody services for local and foreign Contact: Linette Emborg
investors dealing with Nordic and Baltic securities. Head of Client Relations and
- The leading financial services group in the Nordic and Baltic Sea region Sales
- A world-leading Internet banking and e-commerce operation E: linette.emborg@nordea.com
- The largest customer base of any financial services group in the region
- A leading asset manager in the Nordic financial market
- The most comprehensive distribution network in the region

RBC Dexia Investor Services offers a complete range of investor services to

T: +44 (0) 20 7653 4096
institutions worldwide. Established in January 2006, we are equally owned by Royal F: +44 (0) 20 7248 3946
Bank of Canada (RBC) and Dexia. We rank among the world's top 10 global Contact: Tony Johnson
custodians, with approximately USD 2.0 trillion in client assets under custody, Head, Sales & Relationship
including in-house assets of RBC and Dexia. Our innovative products and services Management
help clients maximise operational efficiency, minimise risk and enhance portfolio E: antony.johnson@rbcdexia-is.com
Address: 71 Queen Victoria Street,
returns. And our 3,800 professionals in 15 markets offer proven expertise to
London, EC4V 4DE, UK
enhance clients’ business performance.

aSantander is Spain’s leading financial institution and the largest bank in the euro
zone by market capitalization. Our commitment and contribution to the securities
industry is well established after more than a century of providing services in this field. T: Europe: (34) 91 2893932 / 28
T: USA: (1212) 350 39 02
W: santanderglobal.com
Santander’s cutting edge technology enables it to offer a comprehensive array of inno- E: globalsecurities@
vative services in a broad range of markets. Santander currently has full local capabili- gruposantander.com
ties in Iberian and Latin American markets along with a franchised presence in many
others. Santander`s experience and product range ensures that every aspect of the
securities business is fully contemplated.

SEB is the leading provider of securities services in the Nordic and Baltic area. We
are committed to custody and clearing processes for the wholesale market. We hold
securities worth over 560 bn EUR and provide services in more that 75 markets, 10 T: +46 8 763 53 04
of them under the SEB name (Sweden, Norway, Finland, Denmark, Luxembourg,
F: +46 8 763 69 30
Germany, Estonia, Latvia, Lithuania and Ukraine).
C: Goran Fors, Global Head of
We offer a full range of securities services including corporate action and informa- Custody Services
tion services, securities lending and services to remote members of the Nordic and
Baltic stock exchanges. We continuously develop new products in connection with E: goran.fors@seb.se
clients and partners to ensure we deliver the high-quality products our clients W: www.seb.se
demand. We always strive to make the processes more efficient. With a history of
over 150 years in the securities industry; we know the market and our clients well.

68 INVESTOR SERVICES JOURNAL

ISJ31 pp67-80 Final 23/7/08 1:26 pm Page 69

Société Générale Securities Services offers institutional investors, asset

Sébastien Danloy
Global Head of Sales
Société Générale Securities
Services
T: +33 (0)1 41 42 98 65
E: sebastien.danloy@socgen.com
W: www.sg-securities-services.com
managers and financial intermediaries a comprehensive range of financial
securities services: Clearing, Liquidity Management, Custody and Trustee,
Fund Administration, Asset Servicing, Fund Distribution Services and Issuer
Services. SGSS currently ranks 3rd European custodian and 7th worldwide
custodian (Source: Globalcustody.net) with EUR 2,731* billion in assets
held and valuates 5,158* funds representing assets of EUR 499* billion
(at end March 2008).

Financial Asset Services is the custody and investments-servicing division of

A:Standard Bank Standard Bank, providing a unique suite of services to sophisticated investors in
Financial Asset Services South Africa and eight sub-Saharan markets.
3rd Floor
25 Sauer Street Standard Bank has assets under custody to the value of ZAR1.56 trillion and an
Johannesburg 2107 overall market share of approximately 40%.
T: +2711 636 6615
E: adam.bateman@standard- Standard Bank's unique selling point lies in its consultative approach to
bank.co.za relationships combined with the bank's commitment to custody and investment
W: www.standardbank.co.za administration services.

C: Neil Daswani,
Global Head, Securities Services
T: +65 6517 0022
E: Neil.Daswani@sg.standard-
chartered.com
W: www.standardchartered.com
Standard Chartered leading the way in Asia, Africa and the Middle East.
Standard Chartered has a history of over 150 years in banking and is in many of the
world's fastest-growing markets with an extensive global network of over 1,200
branches (including subsidiaries, associates and joint ventures) in over 50 countries
in the Asia Pacific Region, South Asia, the Middle East, Africa, the United Kingdom
and the Americas.
As one of Asia's leading custodians, Standard Chartered has an impressive track
record across the 16 Asian markets in which it provides securities services. It serves
global, regional and local custodians and broker-dealers, as well as local and regional
fund managers. The Bank plays a key role in promoting the development of these
markets and keeping the international investor community informed of industry
developments across the region.

Swedbank provides client-focused custody services to domestic and international secu-

rities lending (including auto-borrow facilities), derivative clearing services, proxy vot-
ing, full corporate actions and income service. Flexibility is an important aspect of
T: +46 8 5859 1800 Swedbanks products and services. Our dedicated Client Relations Managers and
F: +46 8 7237 147 Account Managers are focused on personalized processing and reporting solutions.
C: Neal Meacham, Head of Other Features:
Custody - ISO9001:2000 quality certification.
E: neal.meacham@swedbank.com - Swedbank Markets Online (SMO) internet information and reporting toolfor
A: Stockholm SE 105 34 Custody and Securities Lending.
Sweden - Nordic Custody alliance with DnB NOR (Norway), OKO Bank (Finland) and
Amagerbanken (Denmark) to offer regional custody product.
Institutional Assets under Custody: USD 70 billion
No. of Institutional Clients: 110

T: +43 50505-58510
F: +43 50505-58579
C: Andreas Petzl , Head of Sales
and Relationship Management
E: Andreas.petzl@ba-ca.com
W: www.hvb-custody.com/
Unicredit Markets & Investment Banking (MIB) serves as UniCredit Group's global
product and competence center for global financial markets and investment banking
services, including Custody throughout Central and Eastern Europe, including Austria.
Brand diversitiy under which the group operates (Bank Austria Creditanstalt, HVB,
Bank BPH, Bank Pekao, Zagrebacka Banka and International Moscow Bank), has its
roots in local market presence and knowledge, contributing into a single unified
product across the region. In 2006 the group was recognised by no less than 3
independent surveys as being the best region custodian
The group's ability to deliver service excellence across 13 markets is the cornerstone
of our success. From participation in local market associations to our inter group
training sessions, to a client consultative approach, the group continues to work
towards making a single impression - excellence.

Data Services .
Avox
Redwither Tower Market Data & Analytics provides high-value real-time market data, indices and back
Redwither Business Park office services. Information from diverse sources are provided to its customers,
Wrexham, LL13 9XT tailored to their specific information needs. Accuracy and reliability are ensured by
United Kingdom collecting the data from the Group’s own trading platforms, such as Xetra® and
Eurex® and cooperation partners like STOXX Ltd. and the Irish Stock Exchange.
T: +44 (1978) 661 813 Avox®, a majority-owned subsidiary, validates, corrects, enriches and maintains
business entity data. With an operational model, unique in the industry, Avox®
F: +44 (1978) 661 668
enables clients to comply with regulatory requirements and to achieve a holistic view
W: www.avox.info of the risk exposure towards a client.

INVESTOR SERVICES JOURNAL 69

ISJ31 pp67-80 Final 23/7/08 12:29 pm Page 70

Data Services
Interactive Data Corporation (NYSE: IDC) is a leading global provider of financial
market data, analytics and related services to financial institutions, active traders
www.interactivedata.com
and individual investors. The Company's businesses supply real-time market data,
time-sensitive pricing, evaluations and reference data for millions of securities trad- T: 020 7825 7800
ed around the world, including hard-to-value instruments. Many of the world's best- F: 020 7608 3514
known financial service and software companies subscribe to the Company's services Brendan Beith
in support of their trading, analysis, portfolio management and valuation activities.
European Sales Director
Through its businesses, Interactive Data Pricing and Reference Data, Interactive
Data Real-Time Services, Interactive Data Fixed Income Analytics, and eSignal, the eu-info@interactivedata.com
Company has approximately 2,300 employees in offices located throughout North Fitzroy House
America, Europe, Asia and Australia. The Company is headquartered in Bedford, 13-17 Epworth Street
Mass. Pearson plc (NYSE: PSO; LSE: PSON), an international media company,
London EC2A 4DL UK
whose businesses include the Financial Times Group, Pearson Education, and the
Penguin Group, is Interactive Data Corporation's majority stockholder.

SmartCo is a leading provider of data management solutions for the financial industry.
SmartCo’s software, Smart Financial Data Hub, covers all the data area, including SmartCo
financial instruments, market data, third parties, funds, transactions, and provides 37 rue de Liège
full connectivity, a powerful and user friendly front-end, traceability, quality control, 75008 Paris
data enrichment and customisable workflow. France
Our solutions are based on SmartPlanet, an innovative technology focused on data
management, and able to meet evolving business requirements. T: + 33 1 58 22 29 60
SmartCo offers to its customers the ability to respond in the fastest way to regulatory E: info@smartco.fr
and business changes. W: www.smartco.fr
For further information: www.smartco.fr or info@smartco.fr

Telekurs (UK) Ltd

Telekurs Financial specialises in the procurement, processing and distribution 15 Appold Street
of international financial information. Financial market specialists at Telekurs London
Financial gather information from all the world’s major trading venues – directly EC2A 2NE
and in real time. The Telekurs Financial database with its structured, coded
securities management data is unique in terms of its depth of information and T: +44 (0) 20 7550 5000
data coverage. With offices in 22 countries, Telekurs Financial combines the F: +44 (0) 20 7550 5001
advantages of global presence and local know-how. E: info@telekurs.co.uk
W: www.telekurs.co.uk

Fund Administration
Apex Fund Services Ltd is a global hedge fund administration solution for hedge C: Peter Hughes
funds and private equity clients located in 9 separate jurisdictions across the globe. Group Managing Director
The company uses the software solution, PFS PAXUS, which is a fully integrated T: +1 441-292-2739
hedge fund accounting system combined with web-based reporting to allow clients F:+1 441-292-1884
and investors to access their information 24/7 securely online. We will tailor all
E: info@apex.bm
solutions to meet your needs and our continuing focus on the quality of service and
the relationship with each and individual client ensures that we retain our ethos of A: 31 Reid Street,
providing a personalized service rather than a generic solution. Hamilton,HM11
Highly qualified and experienced staff, mirrored with top tier technology and Bermuda
competitive fee structures make Apex Fund Services Ltd the clear choice for your
fund administration needs. WWW.APEX.BM

CACEIS is an Investor Services company with six offices across Europe. Owned in International: Olivier Storme
equal parts by Crédit Agricole and Natixis, CACEIS provides Custody, Fund T: +352 4767 2847
Administration and Corporate Trust services to demanding Corporate and E: olivier.storme@caceis.com
Institutional clients. We have considerable expertise in Cross-Border Fund
Distribution Support as well as Alternative Investment and Private Equity servic-
ing. France: Patrick Lemuet
Our staff have the language skills and industry knowledge to develop business T: +33 (0)1 57 78 03 34
relationships into strong partnerships and our powerful IT systems are constantly
updated to ensure high levels of process automation. E: patrick.lemuet@caceis.com
CACEIS is responsible for over EUR1.75 trillion held under custody, and over W: www.caceis.com
EUR850 billion under administration.

Daniel Cann, Director

Folio Administrators Limited, part of the Folio Group of Companies supplying Daniel@folioadmin.com
fund administration, company management, director services and insurance
William Harris, Director
management, is the leading fund administration company in the British Virgin
William@folioadmin.com
Islands.
We specialize in servicing the needs of start-up to medium sized hedge funds, Folio Administrators Limited
covering all aspects of fund formation, structuring and on-going operations. Folio House, Road Town
We work closely with an extensive number of banks, brokers, custodians, British Virgin Islands
auditors and lawyers to ensure that our clients receive the best independent www.folioadmin.com
advice and structures. T: 284 494 7065
F: 284 494 8356

70 INVESTOR SERVICES JOURNAL

ISJ31 pp67-80 Final 23/7/08
www.imfcfundservices.com
t +31.20.644.4558
f +31.20.644.2735
Mrs. Consuelo Nardon
e: consuelo.nardon@imfc.nl
Rivierstaete Building,
Amsteldijk 166, 1079 LH
Amsterdam, Netherlands
C: William J. Salus
A: PFPC, 301 Bellevue Parkway
Wilmington, DE 19809 USA
T: 302.791.2000
E: information@pfpc.com
C: Fergus McKeon
A: PFPC Riverside Two
Sir John Rogerson’s Quay
Dublin 2, Ireland
T: +353-1-790-3500
E: Information@pfpc.com
Sébastien Danloy
Global Head of Sales
Société Générale Securities
Services
T: +33 (0)1 41 42 98 65
E: sebastien.danloy@socgen.com
W: www.sg-securities-services.com
Swiss Financial Services
(Ireland) Ltd.
Block 4B,Cleaboy Business Park, Drawing upon an extensive track record of proficiency, dependability and
Old Kilmeaden Road,
Waterford, Ireland
T: +353 51 351180
F: +353 51 871595
Adrian Maher
E: amaher@swiss-financial.ie
W: www.ubs.com/fundservices
C: Mr Gerhard Fusenig
T: +41 44 235 4992
E: gerhard.fusenig@ubs.com
A: UBS Global Asset
Management, Fund Services,
Stauffacherstrasse 41, PO Box,
CH-8098, Zurich, Switzerland
Custom House Administration &
Corporate Services Limited
A: 25 Eden Quay, Dublin 1,
Ireland
T: +(353) 1 878 0807
F: +(353) 1 878 0827
C: dermot.butler@
customhousegroup.com
C: david.blair@
customhousegroup.com
ww.customhousegroup.com
12:29 pm Page 71
Established in 2002, IMFC Fund Services B.V. is a boutique hedge fund
administrator and a trustee with its offices in Amsterdam and Sydney. IMFC
offers third parties administration and related services to all type of onshore and
offshore funds combining high quality, independency, technology, timely
calculation with flexibility, experience, custom-made solutions and competitive
rates. Our services include: fund set-up and corporate services, NAV calculation
and other accounting services, R&T agent and other investors and compliance
services. For more information visit our website: www.imfcfundservices.com
PFPC is a premier provider of processing, technology and business solutions to the
global investment industry. Our core offering includes accounting, administration,
investor services, middle-office services and regulatory administration services.
Whether your products are U.S. or non-U.S. domiciled funds, trust
vehicles, limited partnerships or commingled investment products, PFPC's
multi-jurisdictional, multi-fund capability allows us to process your complex fund
structures from hedge funds, fund of funds and private equity funds to
master/feeder and multi-managed funds.
As one of the world's leading third-party fund administrators, PFPC has over 30
years of experience delivering personalised solutions to the global marketplace. PFPC
services an international client base from the United States, Luxembourg, Ireland
and Poland, and from a presence in the Cayman Islands and London.
Société Générale Securities Services offers institutional investors, asset
managers and financial intermediaries a comprehensive range of financial
securities services: Clearing, Liquidity Management, Custody and Trustee,
Fund Administration, Asset Servicing, Fund Distribution Services and Issuer
Services. SGSS currently ranks 3rd European custodian and 7th worldwide
custodian (Source: Globalcustody.net) with EUR 2,731* billion in assets
held and valuates 5,158* funds representing assets of EUR 499* billion
(at end March 2008).
responsiveness, Swiss Financial Services acts as administrator as well as registrar
and transfer agent of funds investing in a broad range of financial instruments.
These include futures, foreign exchange, equities, options, bonds and other funds.
We perform accounting and administration services for diverse fund types
domiciled in, but not limited to, the United States, Bahamas, Cayman Islands, B.V.I.
and Ireland.
Fund Services offers comprehensive fund administration services including fund
set-up, registration and support around the world (currently 28 countries), fund
accounting, NAV calculation, compliance management, risk control and reporting.
We provide a flexible offering from the full range of services, including Private
Labelling, to selected functions. Services are based on leading fund administration
architecture, multi-source pricing and powerful compliance tools.
Capabilities also extend to services for hedge funds through our teams in Cayman,
Ireland and Canada.
In times when management attention is increasingly focused on value creation, it
may be rewarding to re-evaluate whether asset administration remains a strategic
core business to you.
Luxembourg: Jean-Paul Gennari, tel. +352-44-1010 1
Switzerland: Markus Steiner, tel. +41-61-288 4910
UK: Mark Porter, tel. +44-20-7901 5000
Hedge Fund Administration .
Custom House, which is one of the world's largest independent alternative
investment and hedge fund administrators, was awarded a SAS 70 Type I in
May 2007 and a SAS 70 Type II in December 2007.
Custom House offers a round-the-world, round-the-clock service from its
office in Dublin and representative offices in Chicago and Singapore, enabling
it to provide, not only complete global administration services, but also the
ability to produce daily dealing NAVs.
Custom House is authorised by the Irish Financial Regulator under Section 10 of
the Investment Intermediaries Act, 1995, which authorisation does not extend to the
Chicago and Singapore representative offices.
INVESTOR SERVICES JOURNAL 71
ISJ31 pp67-80 Final 23/7/08 12:29 pm Page 72

Hedge Fund Services, based in the Cayman Islands, Ireland and Canada holds a
leading position in the area of hedge fund administration, offering a complete range
of services including accounting, NAV computation, share holder services, banking W: www.ubs.com/fundservices
and credit facilities. With the dedication and experience of a professional team of C: Mr Gerhard Fusenig
200 and our state-of-the-art web reporting, accounting and shareholder systems, we T: +41 44 235 4992
are well positioned to provide clients with a first class service. E: gerhard.fusenig@ubs.com
With specialist expertise in both single manager and fund of hedge fund adminis-
tration, we provide facilities for both onshore and offshore funds. A: UBS Global Asset
Capabilities also extend to services for investment funds through our teams in Management, Fund Services,
Luxembourg, Switzerland and the UK. Stauffacherstrasse 41, PO Box,
Cayman Islands: Darren Stainrod, tel. +1-345-914 1076 CH-8098, Zurich, Switzerland
Ireland: Don McClean, tel. +353-1-436 3636
Canada: Pearse Griffith, tel. +1-416-971 4702

International Finance Centres

The British Virgin Islands has created a progressive and transparent environment for
the establishment and regulation of mutual/hedge funds and their functionaries. By
the end of Q3 2006 the BVI had recognised or registered more than 4,000 funds, British Virgin Islands
and licensed some 700 managers and administrators, making the BVI a leading International Finance Centre
domicile of choice for investment business. Haycraft Building
Benefits of conducting investment business in the BVI include: 1 Pasea Estate
-Fast-track registration and licensing system - funds can be registered in a few days. Road Town
-Presence of qualified, experienced legal, accounting & administration practitioners. Tortola
-A well-developed corporate professional infrastructure. British Virgin Islands
-Modern, robust and cost-effective regulatory and corporate regimes. T: +1 284 494 1509
-BVI private and professional funds fall outside the scope of the EU Savings F: +1 284 494 1260
taxation Directive. W: www.bviifc.gov.vg
-Segregated Portfolio Companies - also known as Protected Cell Companies - can now
be formed as mutual funds under the BVI Business Companies Act 2004.

Prime Brokerage
Newedge Global Prime Brokerage Group is a global, multi-disciplinary, solution-
providing team dedicated to delivering superior services to alternative investment Philippe Teilhard de Chardin,
industry participants including hedge funds, commodity trading advisors (CTAs), fund Global Head of Prime Brokerage
of hedge funds, family offices, and institutional investors (insurance T +44 20 7676 8536
companies, banks and pension funds). Vincent Tournant,
The Newedge prime brokerage team offers a global range of brokerage services Head of Business Development
covering a wide range of asset classes including equities, bonds, currencies, T +44 20 7676 8171
commodities, and their related listed and OTC derivative products. We also offer an
innovative portfolio-based cross-margining solution, a dedicated account management Duncan Crawford,
desk, hedge fund start up services, quantitative information on the hedge fund Head of Capital Introductions
industry, capital introductions services, and recently prime brokerage services to T +44 20 7676 8504
Sharia compliant hedge funds. E: pbinfo@newedgegroup.com
Newedge is a major new force in finance, resulting from the merger of the two broker- www.newedgegroup.com/
age firms - Calyon Financial and Fimat - on January 2nd, 2008. Newedge is wholly primebrokerage
owned by Calyon and Société Générale, with both companies having 50% ownership.

Payments & Settlements .

VocaLink is the payment transaction specialist. Trusted by the world's top banks our VocaLink
automated payment system processes over 90 million transactions per day. The Drake House
VocaLink switching platform powers the world’s busiest ATM network and provides Homestead Road
end-to-end management of Europe's largest ATM estate, while the Real-Time Rickmansworth
Payments platform provides the central infrastructure for the UK Faster Payments Hertfordshire
service. The VocaLink EuroCSM delivers reach for our clients throughout the SEPA WD3 1FX
and beyond with a range of value-added services that leverage our know-how and
technical capabilities. VocaLink is the partner of choice internationally, working with T: +44(0)870 1650019
BGC to process Sweden's automated payments. F: info@vocalink.com
Find out how we can help your business at www.vocalink.com W: www.vocalink.com

Securities Lending .
Data Explorers Limited, a specialist and independent company, offers impartial
W: www.dataexplorers.com
quantitative measurement of securities lending performance services to the global T: +44 (20) 7392 4000
securities financing industry. We help our clients monitor and understand the F: +44 (20) 7392 4004
relative performance of their lending activity and risk, and turn raw lending, borrow- A: 155 Commercial Street,
ing and collateral data into useful, actionable information. We also provide proxies London E1 6BJ United Kingdom
for short selling information.
London: Julian Pittam
Working with the industry we ensure information flows are appropriate and peer T: +44 (20) 7392 5018
groups relevant. We are not involved in transactions. E: jp@dataexplorers.com
All of our services: Performance Explorer, Transaction Explorer, Risk Explorer, Boston: Tim Smith
Index Explorer and Report Explorer are web based and available to clients T: + 1 (617) 973 5099
over the internet. E: tim.smith@dataexplorers.com

EquiLend Holdings LLC was formed by a group of leading financial institutions to T: +1 212 901 2224
develop a global platform for the automation of securities finance transactions. C: Michelle Lindenberger
The EquiLend platform is designed to increase efficiency by standardizing, cen- E: Michelle.lindenberger@equi-
tralizing and automating front and back office processes, while delivering global lend.com/info@equilend.com
access to liquidity, reduced risk and scalability. The EquiLend platform is
A: 17 State Street, 9th Floor
designed to process equity and fixed income securities finance transactions on a
New York NY 10004
global basis.
Investors include: Barclays Global Investors; Bear, Stearns & Co. Inc.; Credit T: +44 20 7743 9510
Suisse; The Goldman Sachs Group, Inc.; J.P. Morgan Chase & Co.; Lehman A: 54 Lombard Street
Brothers; Merrill Lynch; Morgan Stanley; Northern Trust Corporation; State Street London EC3V 9EX
Corporation; and UBS. W: www.equilend.com

72 INVESTOR SERVICES JOURNAL

ISJ31 pp67-80 Final 23/7/08
T: US- +1 617 204 4500
T: UK- +44 (0)20 7469 6000
C: Christopher Jaynes
E: info@eseclending.com
W: www.eseclending.com
A: 175 Federal Street, 11th FL,
Boston, MA 02110, US
A: 1st Floor, 10 King William
Street, London EC4N 7TW, UK
W: www.eurexseclend.com
T: +41 58 854 2066
F: +41 58 854 2455
E: info@eurexseclend.com
Eurex Zurich Ltd., Selnaustrasse
30, 8021 Zurich, Switzerland
T: +41 (0)44 218 14 14
F: +41 (0)44 218 14 18
E: info@finace.ch
A: COMIT AG, Buckhauserstrasse
11, CH-8048 Zurich, Switzerland
W: www.finacesolution.com
New York: William Smith
T: 212-623-5664
E: william.z.smith@jpmorgan.com
London: Michael Fox
T: 44 207 742 0256
E: michael.uk.fox@jpmorgan.com
Australia/Japan: Stewart Cowan
T: (61-2)92504647
E: stewart.t.cowan@jpmorgan.com
Asia: Andrew Cheng
T: (85-2)28001809
E: andrew.cheng@jpmorgan.com
Sydney: David Brown
T: (61-2)92504606
E: david.ldn.brown@jpmorgan.com
T: +44 20 7220 0961
F: +44 20 7220 0977
C: Rupert Perry
E: rupert.perry@pirum.com
A: Pirum Systems Limited
37-39 Lime Street
London, EC3M 7AY
W: www.pirum.com
W: www.gruposantander.com
T: (3491) 289 39 42/54
E: securitieslending@
gruposantander.com
12:29 pm Page 73
eSecLending is a leading global provider and administrator of customized securities
lending programs and they have grown to become one of the largest lending agents
in the marketplace. Their program has been adopted by some of the world’s largest
and most sophisticated asset gatherers including pension funds, mutual funds,
investment mangers and insurance companies. eSecLending’s approach has
introduced investment management practices to the securities lending industry,
offering beneficial owners an alternative to the custodial lending model. Through
eSecLending, beneficial owners have achieved optimal returns, greater transparency
and increased control over their program as compared to traditional lending models.
eSecLending maintains offices in Boston, London and Burlington, Vermont.
Securities Finance Trust Company, an eSecLending company, performs all regulated
business activities. Additional information about eSecLending is available on the
company’s website, www.eseclending.com.
Eurex is one of the largest derivatives exchanges and the leading clearing house in
Europe. Wherever you are located, we provide you with access to the benchmark
futures and options market for European derivatives. Eurex also offers short term fund-
ing products, such as Eurex Repo. Eurex Repo is among the forerunners in providing
integrated trading and clearing for repo transactions. Eurex’s latest innovative market-
place is called Eurex SecLend.
Eurex SecLend. Europe’s leading investment banks participate as borrowers in the
Eurex SecLend marketplace, acting as principal brokers, dealers and intermediaries.
They all benefit from Eurex’s leading state-of-the-art trading and processing services.
For Eurex, service and technology innovation is not just a buzzword. New trends are
being transformed into inventions through the adoption of advanced trading practices.
Find out more on www.eurexseclend.com.
FINACE® is the only fully integrated solution today which supports the future busi-
ness model within the area of Securities Finance and Collateral Management. The
architecture of FINACE® is based on a stable, leading edge technology platform,
which was developed with performance and robustness as the focus of design. With
flexibility at its core, customer-driven extensions and modifications can be quickly
and easily applied to the standard component set.
JPMorgan is a leading global financial services firm and a world-class securities
lending provider, delivering superior results for our clients. As a premier agent
lender, we offer full-service capabilities: discretionary, principal, directed, auctions
and exclusives, designed to meet the risk and reward needs of our sophisticated
client base. The scale and scope of our franchise includes a strong capital base and
access to our firmwide resources, including disciplined risk management, product
innovation, operational excellence, global processing capabilities and top-tier service
professionals.
Information about our programs and capabilities is available at
jpmorgan.com/securitieslending.
Contact: www.jpmorgan.com/wss
Pirum provides a full suite of automated reconciliation and straight through process-
ing (STP) services supporting Operations within the global securities finance
industry. The company's on-line SBLREX service encompasses daily contract
compare, monthly billing comparison, mark-to-market & exposure processing,
pending trade comparison, income claims processing and custody reconciliation.
Subscribers to Pirum’s services significantly increase their operational efficiency
and reduce their risk by using Pirum’s solutions, as staff are able to focus on fixing
the exceptions instead of using their time to check and process routine business.
These automated processes are more scalable and risk controlled too, allowing
significantly higher volumes to be managed without corresponding increases in
operations headcount.
Santander is the only Spanish financial institution with a team exclusively dedicated
to securities finance & with the purchase of Abbey in 2004 has expanded its
capacity on a Global basis with trading teams in London (UK) & Connecticut (USA).
Santander's leading local capabilities in Spain, Portugal, UK, USA & Latin America,
along with its solid balance sheet & combined with the state-of-the-art technology,
provides its clients with the broadest range of solutions in securities lending &
financing, including availability across all assets classes, as well as access to
uncommon emerging markets.
INVESTOR SERVICES JOURNAL 73
ISJ31 pp67-80 Final 23/7/08 12:29 pm Page 74

Securities Lending .
Email: securities.finance@sun-
gard.com
Around the world, USD9 trillion in securities financing is managed on SunGard’s
proven solutions for international and U.S. domestic securities lending and repo for Contact: Switch board: +44 (0)
over 250 clients. Through our Loanet, Global One, Martini and Astec Analytics prod-
208 081 2000 Marketing: +44
ucts and services, we provide comprehensive business solutions and information with
(0)208 081 2853
worldwide reach for equities or fixed income securities financing. These solutions –
all in an integrated, exception-based processing architecture – includes order rout-
ing, pre-trade analytics, trading, position management, operations, accounting, set- Visit: www.sungard.com/loanet
tlement and reconciliation. www.sungard.com/globalone
www.sungard.com/martini
www.astecgroup.com

Technology .
Accuity is the leading provider of data, software and services that enables banks and
corporations to maximise payment efficiency and AML compliance for financial Susan McGregor
transactions.
Our Payment Solutions are designed to deliver the critical payment information Accuity
necessary to improve payment straight through processing rates. Our Compliance 1 Quality Court
Suite offers a complete range of caution lists and screening tools that defend against Chancery Lane
participation in illicit financial activities. Accuity’s Strategic Services Group provides London WC2A 1HR
businesses with consulting, training and services. United Kingdom
Since 1836 we have helped businesses around the world and our role as the
Official Registrar of the American Bankers Association (ABA) Routing Numbers since t: +44 20 7014 3480
1911 has enabled us to compile and maintain the most authoritative and compre- f: +44 20 7061 6478
hensive database of global bank information available.

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
accounting platform, to the investment management community throughout Europe, T: +44 (0)20 7631 9240
Middle East and Africa. Advent has an established network of offices across the F: +44 (0)20 7631 9256
region serving a growing client base of asset managers, hedge fund managers, prime E: emea@advent.com
brokers, fund administrators, wealth managers, private banks and family offices who A: One Bedford Avenue,
continue to improve their businesses using Advent’s suite of integrated investment London WC1B 3AU, UK
management solutions. Advent Software EMEA is part of Advent Software Inc. W: www.advent.com
(Nasdaq: 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.

Aquin are the market leader in investment compliance software with MIG21® pow-
ered by Aquin LawCards® for global compliance including UCITS III and SEC 1940. Annette Lindinger
The company has built its reputation on solid compliance and IT experience in long press@aquin.com
term relationships with its clients. T: +49 69 21 93 66 600
Aquin services a blue-chip client base of the world’s leading investment F: +49 69 21 93 66 650
Mainzer Landstr. 199
management companies, hedge funds, fund administrators and custodians. These 60326
include Citi, State Street, BNP Paribas, Credit Suisse, CACEIS Investor Services, Frankfurt am Main
Allianz Global Investors, Pioneer Investments and Commerzbank. The company has Germany
its headquarters in Frankfurt, Germany with subsidiaries in Boston, London, Paris, W: www.aquin.com
Dublin, Luxembourg and Zurich.

BI-SAM is a leading provider of analytics software, client reporting and data manage-
ment solutions to the investment management community.
Our integrated and innovative solutions have already been adopted by many
renowned asset managers in France, Belgium, Luxembourg, UK, Hong Kong and A: BI-SAM Ltd
Singapore who have assets under management ranging from 10 to 450 billion Euros. 1 Cornhill
The B-One suite of products covers: performance measurement, performance attri- London EC3V 3ND
T: +44 (0)20 3008 5834
bution (equities, balanced and fixed income), risk attribution (ex-post and ex-ante), F: + 44 (0)20 3008 5831
as well as multi-lingual client reporting and factsheets. This suite of products can be E: marketing@bi-sam.com
used either as stand-alone applications or ASP hosted solutions. W: www.bi-sam.com
The Company has approximately 45 employees in offices located in Europe (Paris,
London, Luxembourg). Offices in Asia and North America are under consideration.
The Company is headquartered in Paris.

Broadridge Financial Solutions, Inc., with over $2.0 billion in revenues and more than
40 years of experience, is a leading global provider of technology-based outsourcing
solutions to the financial services industry. Broadridge Financial Solutions
Our systems and services include investor communication, securities processing, and The ISIS Building
clearing and outsourcing solutions. We offer advanced, integrated systems and services 193 Marsh Wall
that are dependable, scalable and cost-efficient. Our systems help reduce the need for
London E14 9SG UK
clients to make significant capital investments in operations infrastructure, thereby
allowing them to increase their focus on core business activities. T: +44 (0) 20 7551 3000
The product listings will still stay the same apart from Securities Data Management E: info@broadridge.com
needs to be replaced by the following: W: www.broadridge.com
SWIFT Service Bureau - provides fast-track access to the SWIFT network for full range
of SWIFT messages including securities, treasury, derivatives, payments and corporate
actions, all in a complete service environment.

74 INVESTOR SERVICES JOURNAL

ISJ31 pp67-80 Final 23/7/08
T: UK +44 (0)20 8390 5000
Boston +1 617 482 8800
Hong Kong +85 225 812 880
F: +44 (0)20 8390 7000
E: info@dstintl.com
A: DST House, St Mark’s Hill,
Surbiton, Surrey, KT6 4QD
W: www.dstinternational.com
W: www.eagleinvsys.com
T: +44 (0) 20 7163 5700
F: +44 (0) 20 7163 5701
A: Mellon Financial Centre
160 Queen Victoria Street
London, EC4V 4LA
W: www.f-tradeware.com
T: +44 (0)20 7493 2773
F: +44 (0)20 7495 4858
C: GrahamBright
E: info@f-tradeware.com
A: 31 Dover Street
London W1S 4ND UK
Fingertip Developments Ltd
Curtain Court
7 Curtain Road
London EC2A 3LT
UK
T: +44 (0)20 7100 9280 Unrivalled extensibility allows you to develop your own functionality with your in-
enquiries@fingertip- house development team.
developments.com
www.gltrade.com
GL TRADE
Cheapside House
134-147 Cheapside
EC2V 6BJ London UK
Tel: +44 207 665 6200
Email: marketing@gltrade.com
A:IGEFI Group Sàrl - 7, Rue des IGEFI is the foremost provider of software solutions for international fund promoters,
Primeurs, L-2361 Strassen
T: +352 26 44 211
F: +352 26 44 21 44
E: marketing@igefi.com
W: www.igefi.com
C: Mr. Jesper Steiness - Head of
Business Development, Europe & "one system-one database" philosophy and provide significant advantages including
Asia
E: jesper.steiness@igefi.com
12:29 pm Page 75
DST International is the world’s premier vendor of technology solutions to the global
investment management community with over 700 clients in 55 countries, and
1500 employees in 19 of the world’s leading financial centres. Our wide range of
asset management solutions meet the needs of fund managers, dealers, settlement
staff, custodians and record keepers operating as international asset managers; from
front office simulation, opinion management and modelling functions, through data
management, dealing and settlement to custody and corporate actions. The suite of
products can be used either as stand-alone applications or brought together in flexi-
ble combinations according to specific needs.
Eagle Investment Systems LLC is a global provider of financial services technology,
serving the world's leading financial institutions. Eagle's Web-based systems support
the complex requirements of firms of any size including institutional investment
managers, mutual funds, hedge funds, brokers, public funds, plan sponsors, and
insurance companies. Eagle is committed to providing enterprise-wide, leading-edge
technology and professional services for investment accounting, data management,
and performance measurement. Eagle’s product suite is offered as an installed
application or can be hosted via Eagle ACCESS, Eagle’s application service provider.
Eagle Investment Systems LLC is a division of The Bank of New York Mellon
Corporation. To learn more about Eagle's solutions, contact sales@eagleinvsys.com
or visit www.eagleinvsys.com.
Financial Tradeware provides integrated solutions for medium to small sized
Investment Management firms, Fund Managers and Hedge Funds, covering the full
trade life cycle. It is part of the Dharma Group of companies and benefits from the
joint contributions and experiences within the group of market traders, business ana-
lysts, financial services professionals and skilled Microsoft Certified programmers.
The company has developed a suite of applications that integrate and Straight
Through Process (STP) real-time trading, back office administration, accounting and
compliance. Ultra.net®, S-Messenger® and H-Fund® are the company's flagship
products all based on Microsoft.NET infrastructure. The company also offers a
Member Concentrator for hosted SWIFT connectivity and Member Administered
Closed User Group (MA-CUG) services for Corporates and Hedge funds. For more
information see: www.f-tradeware.com
Elemes NM is your partner in global agent bank custodian network management pro-
viding a global view of your relationship network in a powerful and easy to use pack-
age. It includes diary, invoice verification, document management, multi-entity
views, reporting, account information incorporating fee and rate structures, contacts,
notes and supports eFee – electronic fee invoicing technology.
Flexibility does not stop with the software, our commercial terms offer adaptable
pricing to suit present and future requirements for all sizes of organisation.
GL TRADE is your global financial software solutions company, operating in over 50
countries and serving 1,600 clients. We are the leading provider of multi asset front
to back solutions, connectivity and information services. We deliver trading solutions
that ensure our clients success on securities, listed derivatives, commodities, fixed
income and foreign exchange.
Dedicated to post trade securities operations, GL RIMS is your comprehensive real
time securities post execution processing solution, covering middle office, settlement
and accounting requirements. Its wide use of automation enables global capital mar-
kets organisation to achieve maximum STP. It is a flexible, highly scalable and easy
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MultiFonds Fund Accounting and MultiFonds Transfer Agency are developed on a
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INVESTOR SERVICES JOURNAL 75
ISJ31 pp67-80 Final 23/7/08 12:29 pm Page 76

For more than a decade, administrators, managers, and advisors have relied
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software needs of the fund industry. KOGER USA
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With so many new challenges presented to buy-side managers when integrating
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Odyssey Financial Technologies is an industry leader in the global provision of wealth

and asset management solutions and services to the Private Banking, Mass Affluent London Office:
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76 INVESTOR SERVICES JOURNAL

ISJ31 pp67-80 Final 23/7/08
T: +1 609-987-2400
F: +1 609-514-4794
C: Lorne Whitmore, Vice
President, Global Sales &
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A: 600 College Road East,
Princeton, NJ 08540, USA
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Redi2 Technologies, Inc.
1771 Broadway St.
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E: info@redi2.com
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C: Elizabeth Gee, sales director
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A: SimCorp, 100 Wood Street,
London EC2V 7AN
T: +44 (0)20 7826 4470
F: +44 (0)20 7826 4480
C: Nick Stevens
E: sales@singularity.co.uk
A: Singularity
4th Floor, 101 Moorgate
London EC2M 6SL UK
Further Contacts:
US T: +1 212 946 2685
Singapore T: +65 9616 7732
Visit SunGard at
www.sungard.com
T UK: +44 (0) 8452 303 065
T US: 1-888-650-1831
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E: info@fintuition.com
A: FinTuition Ltd
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London W1J 8DJ
United Kingdom
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12:29 pm Page 77
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 systems provide comprehensive STP-
ready functionality that can be licensed for in-house use or accessed via the
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hedge funds, endowments, banks and corporation, which manage combined total
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Princeton Financial has offices located throughout the United States, United
Kingdom, Belgium, Australia, Singapore, Amsterdam and Canada. Form more
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Founded in 2002, Redi2 Technologies is a leading provider of fee billing solutions to
the global financial services industry. Redi2 offers flexible, feature-rich solutions
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Redi2’s flagship fee billing and revenue management solution Redi2 Revenue
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including client setup, multi-currency fee and accrual calculations, invoice and
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Our open APIs and support for industry-standard relational databases ease integra-
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SimCorp Dimension is a powerful, comprehensive and truly seamless investment
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Over 100 Capital Markets firms worldwide rely on Singularity to achieve step-change improve-
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-By cutting latency in securities processing, our clients are recognising new
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With annual revenue of USD5 billion, SunGard is a global leader in software and
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Training and Education .
FinTuition is an international training company based in London specialising in the
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INVESTOR SERVICES JOURNAL 77
ISJ31 pp67-80 Final 23/7/08 12:29 pm Page 80

FORESIGHT

FORESIGHT
Christopher Fawcett, co-founder of
Fauchier Partners, chairman of the
Council of the Alternative Investment
Management Association and a
Hedge Fund Standards Board
director, discusses with Catherine
Kemp an alternative future.

Can alternative managers learn from traditional

managers, for example, following the adoption
of 130/30?
I don't think the division is necessarily that clear cut and 130/30
is a good example of this. Both hedge fund groups and some tra-
ditional managers have launched 130/30 products. To the
extent that the 30 is a short then it is a hedge fund strategy; but
as 130/30 has some other benchmark rather than absolute
returns target then it is not a hedge fund. So I would suggest
that 130/30 is an interesting example of something which is the actions of the US authorities - which will probably be fol-
neither traditional nor typical hedge fund. lowed by others - then the risks are actually much lower because
deleveraging has taken place. Risks are often highest when they
look lowest. When volatility is low and leverage is high that is
How will emerging markets and particularly actually a very risky environment. If you look at the hedge fund
China affect the hedge fund space? industry it's done remarkably well compared to the banking
First, what is an emerging market? Not everybody has the same industry. So the risk management of hedge funds has so far come
definition. I believe that in some definitions and some indices through the crisis extremely well.
countries such as Hong Kong and Singapore might still be
viewed as emerging. In fact, they've got a GDP per capita that How will the commodities boom affect the fund
is as high as a lot of developed countries and capital markets. arena?
Emerging markets are particularly attractive to hedge funds
Hedge funds by and large got in to the area quite early, particu-
when the capital markets are liquid and there are derivative
larly the equities of commodity-producing companies and the
instruments available but still have underlying inefficiencies.
capital markets of commodity countries such as Brazil. Clearly
That's an attractive stage, in the fixed income and currency mar-
they are also active in the futures markets. So if you were to look
kets as well as equities. It means that one can put on positions
at why hedge funds have done relatively well over the last 12-18
that profit from those inefficiencies. In a highly efficient market
months, one reason is that they have correctly felt that this com-
it's harder to make money.
modity cycle was longer than most.

Have you seen risk growing over the past 12
months and what is the biggest risk you face in
the future?
I think the risks are lower today than they were 12 months ago.
The biggest risk would have been the failure of a major finan-
cial intermediary as a result of the credit crunch, eg, Bear
Sterns. If one takes the view that it is unlikely to happen given
What stage are we in the commodities boom?
I wish I knew. The last big commodities boom was in the late
70s, early 80s, and it was surprising how it spread to nearly all
commodities - even though it couldn't always be justified on fun-
damentals. Agricultural commodities have gone up later than
metals, the chronology has been energy, metals and then agri-
cultural commodities, similar to the late 1970s. ■

80 INVESTOR SERVICES JOURNAL

ISJ31 Cover ML 22/7/08 5:12 pm Page 4

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