www.ISJ.

tv

Volume 5 No. 32 - 2008

GDB 25 - UK, ROW
USD 45 - America
EUR 35 - EMEA

Fitter, Faster, SEPA The future of European payments

Regulation - UCITS IV
Panel - Corporate Actions
Analyse this - Custody
Risk - Technology
Plus

Markets Analysis - Spain

In Focus - Fee Billing
Europe - Target2-Securities
News Analysis - ARS

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 pp. 1 Editor’s Letter

Cruel summer

Investor Services Journal A brace of anniversaries in August saw the credit crunch pass its first year
and Investor Services Journal celebrate its fourth. Both time periods have
Group editor: Giles Turner
([email protected]),
initiated remarkable changes – with any luck all concerned will continue
Deputy editor: Ben Roberts to grow in wisdom. For private equity, however, the last tumultuous few
([email protected]), months must have felt more like Christmas. TPG Capital and Blackstone
Reporters: Joe Corcos among others have continually seized headlines with their moves to swoop
([email protected]),
Catherine Kemp
on ailing banks and mortgage lenders – all the time enhancing their
([email protected]), position in the chess game of market share. With an endorsement from
Contributors: Brian Bollen, Ben Bernanke, chairman of the US Federal Reserve, private equity looks set
Anthony Harrington to shape the fortunes of even more institutions.
Design: David Copsey
([email protected]) The last year has transformed the way many companies and their practices
are perceived. Even the subject matter has reversed: Teo Swee Lian,
Associate publisher:
managing director of MOS, asks why those who prescribed less regulation
Justin Lawson
([email protected]), are the first to question how everyone “could have missed the elephant in
Publishing manager: the room” and by not scrutinising the risk of mortgage-based trades. Read
Monique Labuschagne his comments in Giles Turner’s article on risk on page 58. On the subject of
([email protected]),
trading, Turquoise, a new stock exchange, went live – a further threat to the
Account managers:
Peter Lines traditional order.
([email protected]),
Craig McCartney Spain is sure to be one country that will be glad to see the back of the
([email protected]),
Mohammed Malik
last year. A real estate crash has contributed to a country on the brink of
([email protected]), recession. See Catherine Kemp’s analysis of its securities lending market on
Tarik Rekiouak page 72.
([email protected]),
Oliver Blennerhassett
([email protected]),
The world of finance is ever-shrinking. Many people who spoke to Investor
Operations manager: Services Journal have attested to this in their respective fields. In European
Sue Whittle payments the single Euro payments area (SEPA) legislation passed in
([email protected]) January sought to bring countries closer to a common understanding.
CEO: Mark Latham
Further, there has been a convergence of corporate client demand and
([email protected]) new systems developed to respond to that demand, says Paul Taylor of
VocaLink, where markets need faster, safer services. Turn to page 16 to
Investor Intelligence partnership
read how and why. Hannu Syrjala, CEO of TietoEnator, also sees that
16-17 Little Portland Street,
London W1W 8BP the business styles between the US, Europe and Asia now have “more
T: +44 (0) 20 7299 7700 similarities than dissimilarities”. His career and business goals are explored
F: +44 (0) 20 7636 6044 on page 111. In custody, too, the divide between Western, Central and
W: www.ISJtv.com
Eastern Europe is dissolving, with Austrian banks set to profit as the
© 2008 Investor Intelligence. gateway of business flows between these investment spaces. We start this
All rights reserved. coverage on page 30, following a special Analyse This on other custody
No part of this publication may markets undergoing change.
be reproduced, in whole or in
part, without prior written
permission from the publishers. Ben Roberts, deputy editor
Thanks to Juliette, Sophie,
Calypso and Electra.
ISSN 1744-151X.
Printed in the UK
by Pensord Press.

ISJ | Investor Services Journal

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 p. 2 Contents

NEWS
p. 4 Letters to the editor
p. 6 News
p. 8 News and mandates
p. 10 News analysis
p. 14 Executive profile: Goran Fors of SEB
p. 94 People moves
p. 96 Statistics
Goran Fors, p. 14 Payments, p. 16 p. 111 Running a company – Hannu Syrjala, CEO of TietoEnator

COVER STORY - Payments

p. 16 Fitter, faster, SEPA

CUSTODY
p. 22 ‘Analyse This’: Switzerland, Sweden, Netherlands,
Turkey, South Africa
van Houwelingen, p. 29 Austria, p30 p. 30 Austria
p. 33 Africa

LEGAL AND COMPLIANCE

p. 34 Assume the recovery position, by Goal Group
p. 38 Panel debate – corporate actions

TECHNOLOGY
Panel debate, p. 38 Dave Rietveld, p55 p. 53 The streamlined solution to Substantial Shareholder
Reporting, by Aquin
p. 55 E-invoicing, by Equens
p. 58 From the roots up – risk technology

MARKET
p. 63 Fee billing in focus - CheckFree
p. 66 Target driven – clearance and settlement

Geoff harries, p. 63 Eamonn Ryan, p. 80

SECURITIES LENDING
p. 72 Breaking the bottleneck – Spanish market
p. 78 Enhancing profitability through an integrated securities
lending solution, with Sungard’s Jane Milner
p. 80 The rise and sprawl of multi-listed securities, by
Euroclear’s Eamonn Ryan

DATA
Hannu Syrjala, p. 111 p. 82 Uncovering buried treasuries, by Business Control
Solutions’s Nigel Walder
p. 86 Reference data update: Standard Chartered
and Exchange Data
p. 90 Managed Accounts: An Industry Defined by Growth,
Complexity—and No Margin for Error, by Redi2’s Seth Johnson

ISJ | Investor Services Journal isj.tv

1-114-PDF FINAL NEW .indd 2 16/1/09 15:40:49 Caceis a

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 pp. 4 Letters to Editor

Asian securities lending Emerging markets

represents nothing optimise through STP
but opportunity
Dear ISJ, Dear ISJ,

State Street believes securities lending is Although September’s SIBOS conference will
important to markets in at least two ways. First, be held in Western Europe, the straight through
we believe it is a mechanism that provides processing (STP) community should pay close
essential liquidity to countries. Liquidity is a attention to lessons learned in emerging markets.
necessary ingredient for market efficiency and, Provisioning a front-to-back office that lowers
thus, is beneficial to the participants in those cost, mitigates risk, and supports a growing
markets. compliance spectrum is the oft stated nirvana of
STP. Emerging markets are now positioned to
Secondly, it is a way to provide risk-adjusted best achieve STP’s full promise for three reasons:
returns both to institutional investors within
those markets and to foreign institutions that Firstly, the silos that block cross-departmental
invest in them. To the extent investors from collaboration are less entrenched in many
the host countries can participate in securities emerging market organisations. Instead, they
lending, they will be able to use their portfolios of have a unique opportunity to implement
securities and earn incremental returns. systems unencumbered by aged organisational
boundaries.
Foreign investors entering the Asian markets
should not see the structure of working through Secondly, the traditional STP business process
a central exchange as a hindrance. State Street - including order entry, execution, clearance and
supports the markets that are opening to settlement - has now been extended to include
securities lending and sees the changes taking post-settlement account certification. This allows
place positively. The use of a central agency does emerging market players to incorporate improved
not pose barriers and it is a way some markets internal controls that better satisfy compliance
look to embark on securities lending while requirements.
gaining comfort with it.
Thirdly, emerging market entities are entering
Francesco Squillacioti, the game at a time when interoperability,
Senior managing director and Asia-Paific connectivity, and computing power are capable of
regional business director for securities finance, delivering high-volume solutions covering more
State Street asset classes with better risk management.

This convergence of technical and functional STP

maturity allows emerging market participants an
unprecedented advantage in “getting it right”.

Tom McEvilly
Sales director, UK
CheckFree

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ISJ_SE
 /PSEJD#BMUJD
&YDFMMFODF
SEB is the leading provider of custody and clearing services in the
Nordic/Baltic region.
Business is built on long standing partnerships with our clients.
Our commitments are efficiency, reliability and providing the highest
service quality.
For further information please contact: Global Head of Custody Services: Göran Fors,
[email protected]. Head of Sub-Custody Client Relations: Ulf Norén, [email protected].

1-114-PDF FINAL NEW .indd 5 16/1/09 15:40:54

ISJ_SEB_Eye_Map_203x267.indd 1 07-07-13 07.58.43
 p. 6 News

News

Custody, Clearing, Settlement Funds and administration services to clients investing in Nigeria. Lee
Zagreb - BNY Mellon Asset Servicing has London - iShares, the provider of Exchange Waite, Managing Director and Global Head of
been appointed to provide global custody Traded Funds (ETFs) has announced its Citi’s Direct Custody and Clearing/ Interme-
and related services by Privredna Banka iShares S&P 500 fund has gone through USD5 diaries business, said, “As the ninth open-
Zagreb (PBZ), Croatia’s second largest billion in assets under management. ing in two years, this is testament to Citi’s
bank, for assets valued at over USD200 unrivalled ability to support our clients as the
million. The fund, which is listed on seven local ex- globalization of capital markets continues. We
changes throughout Europe, provides a means are delighted to be extending our reach to the
PBZ’s Croatian client base has expanded for gaining exposure to a diversified basket of Nigerian market.”
heavily into emerging market assets and US equity securities.
BNY Mellon will provide global custody for Madrid - Société Générale has begun trad-
27 foreign markets. Moscow - At the end of June, KIT Fortis ing 199 warrants on the Spanish Exchange
Investments launched its first Russian equity today, bringing the total number of warrants
London - Northern Trust has been fund for Japanese retail clients in partnership on the market so far this year to 5,768, up
selected to provide fund accounting, trade with Sumitomo Mitsui Asset Management 31% from a year earlier. The new warrants are
execution and custody services for the Company, Limited (SMAM) and Toyo Securi- linked to domestic and foreign shares and
recently launched Legal & General Multi ties. indices as well as commodities and exchange
Manager Unit Trust range. rates. 129 warrants were issued on the fol-
The fund, which is legally managed by SMAM lowing Spanish shares: Abengoa, Abertis,
The trusts have assets totalling and advised by KIT Fortis Investments. Acciona, Acerinox, ACS, BBVA, Banco de
approximately GBP380 million (USD757 Sabadell, Banesto, Banco Pastor, Banco Popu-
million). London - The London Stock Exchange today lar, Bankinter, Bolsas y Mercados Españoles
welcomed nineteen new Exchange Traded (BME), Cintra, Enagás, FCC, Gas Natural, Te-
London - State Street Corporation has been Funds (ETFs) onto its Main Market, the busi- lecinco, Grifols, Catalana Occidente, Ferrovial,
reappointed to provide an integrated range est ever day for new ETF admissions on the Iberdrola, Iberia, Indra, Inditex, La Seda de
of investment services to the USD1 billion Exchange. Barcelona, NH Hoteles, REE, Repsol, Sacyr
London Borough of Enfield Superannuation Vallehermoso, Santander, Sol Meliá, Solaria,
Fund. The new funds, which cover a range of equity Telefónica and Zeltia.
and bond indices, take the total number of
In addition to global custody, investment ETFs on the Exchange to 166, from five dif- New York - MSCI Barra has announced that it
accounting, performance measurement ferent issuers. In addition, the Exchange also has launched the MSCI Global Currency Indi-
and foreign exchange services, State Street now offers access to trading in 122 Exchange ces, which may be licensed for use for portfo-
will also provide the fund with securities Traded Commodities (ETCs). lio management and benchmarking purposes,
lending services. The fund was advised by as well as to serve as the basis of structured
Hewitt Associates during a competitive Market infrastructure products and other index-linked investment
re-bid process. London - GL TRADE has signed a partnership vehicles such as ETFs. The MSCI Global Cur-
agreement with the Tokyo Financial Exchange rency Indices reflect the performance of both
London - Omgeo has announced that it has (TFX), which will allow remote members to the currency and interest rate returns of the
made functionality improvements to the execute orders on Japan’s largest financial developed and emerging market currencies in
settlement notification feature of its core futures exchange. TFX saw the volume for its regional or composite MSCI equity indices.
central matching platform, Omgeo Central main product, Euroyen Three Month Futures,
Trade Manager (Omgeo CTM). grow by 23.7% between 2006 and 2007 and Legal and Compliance
in September 2007, TFX transformed from New York - The US Securities and Exchange
The system now provides the ability to a financial futures exchange into a more Commission (the “SEC”) has recently proposed
send a copy of a settlement notification comprehensive exchange that can handle amendments (the “Proposed Amendments”)
to multiple third parties for informational various financial products. In January 2008, to Rule 15a-6, its rule under the Securities
purposes, in addition to the custodian TFX announced its intention to introduce a Exchange Act of 1934 (the “Exchange Act”)
notification for settlement. Remote Membership program and is therefore that exempts foreign broker-dealers who
the first Japanese exchange to implement solicit certain U.S. investors, or who engage
such a program. in certain other activities with U.S. contacts,
from the broker-dealer registration require-
Lagos - Citi Global Transactions Services will ments of the Exchange Act.[1] Comments
now be providing direct custody and clearing on the Proposed Amendments are due by
September 8, 2008.

ISJ | Investor Services Journal

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 p. 8 News and Mandates

Mandates
July saw BNY Mellon continue to pick up
mandates at a healthy rate. The Wall Street
bank won a mandate from Bangkok Bank, the
largest bank in Thailand, to be the outfit’s
overseas custodian. Bangkok Bank has
branches in China, Hong Kong, Japan and
Indonesia. Meanwhile, State Street did well by
snagging a sizable mandate from Lazard.

So far August has seen BNY Mellon

dominating once again, winning mandates
from Dubai-based Gulf Reinsurance and
expanding into central and Eastern Europe
by winning a mandate from Privredna Banka
Zagreb, Croatia’s second-largest bank.
Northern Trust also captured a valuable
custody mandate from Legal & General, to the
tune of USD757. Among the services provided
by Northern Trust will be fund accounting,
trade execution and custody services.
The company will be servicing L&G’s Multi
Manager Unit Trust range. This month also
saw State Street run away with a mandate
from Sun Life’s UK operation. State Street
will supply unit pricing, regulatory reporting,
global custody, compliance monitoring,
performance measurement, derivatives
pricing and processing and collateral
management. State Street was also buoyed
by the news that the USD1 billion London
Borough of Enfield Superannuation Fund has
reappointed the firm to provide investment
services.

Month Winner Client Location Assignment Mandate size

August BNY Mellon Gulf Reinsurance Dubai Custody USD400 million

August BNY Mellon Privredna Banka Zagreb Zagreb Custody USD200 million

August Northern Trust Legal & General London Custody USD757 million

August State Street Sun Life London Investment admin USD15 billion

July State Street Lazard Boston Trade settlement USD134.1 billion

July BNY Mellon Bangkok Bank Bangkok Custody undisclosed

July Nedgroup Attica Vermogensbeheer London Investment USD9 million

ISJ | Investor Services Journal

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 p. 10 News Analysis

Lapping at the shores of dry land

Why weren’t US public pension funds
more careful in the first place?

In a survey of 141 US public pension has burst, institutions are returning to the working closely with regulators to address
funds, endowments and foundations practical steps that should be part of basic these concerns,” she said.
conducted by Greenwich Associates, 45% due diligence.”
said that they are either planning to, or Similarly, David Rule chairman of
are in the process of, a review of their This is all well and good. However, there International Securities Lending
securities lending programs. This is after a is an extent to which one would question Association (ISLA), writing in Investor
significant number of participants reported why these organisations were ever allowed Services Journal’s 2009 Securities Lending
suffering either an unexpected interruption to have lending pools and short-term Market Guide expresses a similar concern
in liquidity or unanticipated risks and investment funds in this first place, if their that the value of securities lending was not
credit exposures in securities lending pools risk processes weren’t stringent enough? widely understood:
and short-term investment funds during
the credit crunch. And a relatively small Before the credit crunch, the market was “Raising the profile of securities lending is
number of institutions were even forced to highly liquid and it is believed people were one of our priorities for 2008, to ensure that
realise losses. more concerned with chasing alpha than policymakers, regulators and commentators
monitoring risk. Now that we have seen the understand its importance to the wider
The survey also found that some damage of not evaluating risk, it is a logical liquidity of modern financial markets, we
institutions had become lax in their process to implement more stringent rules need to do more to get that message across.”
oversight of investment practices within about the oversight of investment practices.
these funds prior to the start of the
global credit crisis in 2007, and that some And while the custodians were not Greenwich Associates survey of 141
master trusts and custodian banks were sufficiently proactive in terms of institutions: Unexpected Risk and
not being sufficiently proactive in terms communicating information about Liquidity Interruptions
of communicating information about portfolio composition and performance,
portfolio composition and performance to some say the pension funds should have · More than 47% say they experienced un-
clients. been more demanding about receiving that anticipated risk or credit exposure in their
information. But with or without overall securities lending collateral pools over the
Institutions were also, apparently, either market sentiment as bullish or bearish, past year - a proportion that increases to
considering or already implementing where the public’s hard earned cash is more than half among those with more than
changes in the internal policies related to concerned the basic steps of due diligence $5 billion in assets.
their securities lending programs or short- should have been fully implemented from
term investment programmes by: day one and these funds should be more · More than 20% say they experienced an
stringently regulated. unanticipated lack of liquidity in their
-Evaluating the costs and benefits of securities lending collateral pools in the last
the programmes and discontinuing or The potential reduction in the volumes of year. More than a quarter of public pension
modifying it if the risks seem to outweigh available liquidity in the market as a result funds report an unexpected interruption in
return potential. of these pension funds removing lending liquidity, as did almost the same proportion
programmes may concern securities of the country’s largest corporate pension
lending organisations. Securities lending funds.
-Stepping up their oversight of fund
investment practices, and increasing
the frequency of communications with
is an essential part of the financial system
some say, and the importance of securities
· Nearly one third say they experienced
unexpected risk or credit exposure in
“
managers and more carefully reviewing lending for the health of financial markets
short-term investment funds over the past
regular statements. has already been widely asserted by
12 months. More than 40% of corporate
securities lending bodies.
funds with more than $5 billion in assets
- Tightening investment guidelines by
say they experienced unanticipated risks
restricting investment in SIVs, CDOs and A report by the chairwoman of the
or exposures, as did nearly the same share
other structured or securitized product Australian Securities Lending Association
of endowments and foundations with more
or limiting investment to government (ASLA), Natalie Floate, stressed the
than $1 billion in assets.
securities. distinction between securities lending,
short selling and margin lending. · More than 45% say they are currently
Dev Clifford, a Greenwich Associates, reviewing internal policies related to their
consultant said: “ASLA is concerned that securities lending securities lending programs or short-term
is not well understood and its resulting investment programs.
“When markets were historically strong it benefits have been overlooked within
became easy for parties on both sides to the current market pessimism...ASLA
accept the status quo - and the incremental acknowledges there are concerns regarding
investment returns. Now that the bubble transparency of on loan positions and is

ISJ | Investor Services Journal

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 p. 11

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1-114-PDF FINAL NEW .indd 11 16/1/09 15:41:04

 p. 12 News Analysis

Pain in the ARS Financial firms forced to buy back

auction-rate securities

In the latest chapter of the credit crunch, several Now Citigroup and Merrill Lynch will be forced to
financial giants have been forced to buy back billions buy back at least USD20 billion worth of ARS between
in auction-rate securities (ARS) from investors, and them, while JP Morgan and Morgan Stanley are to buy
have been hit with a round of fines from regulators. back over USD10 billion combined. UBS will buy back
USD8.2 billion. Moreover, regulators are to fine the
ARS are not the more widely known of instruments. firms involved for misrepresenting ARS as more liquid
In essence an ARS is a debt security with a relatively than they actually were. Citigroup and UBS are to
long-term nominal maturity where the interest rate be fined USD250 million between them, while JP
is periodically reset through an auction. During the Morgan will be hit for USD25 million and Morgan
auction process, brokers and dealers submit bids for Stanley for USD35 million.
buyers and sellers, then the auction agent sets the
next interest rate based on the bids. The rate will be None of the entities that have been caught out have
the lowest rate to match supply and demand. ARS admitted their wrong doing, issued an apology, or
are attractive as they usually offer superior to money anything of the like. But nor have they denied any
market funds. wrong doing and all will pay their fines.

Traditionally the ARS market has been dominated The man who is going after the banks with the most
by institutional buyers. But as the liquidity crisis gusto on the matter of ARS is New York’s attorney
gathered steam, they stopped showing up. So the big general, Robert Cuomo. Such vigorous pursuit of
players started to unload the securities on individual justice usually smacks of political ambition, but it
investors, assuring them that they were virtually cash, cannot be denied that comeuppance is due. Cuomo
when they knew better. Most of those who invested has said that Merrill’s commitment to buy back USD10
in ARS thought they were purchasing safety and million of ARS from investors isn’t enough. He has left
liquidity. In order to keep the auctions from failing the the ball in Merrill’s court by not delineating precisely
banks themselves bought much of the debt, propping what will be enough – some may say he knows that
up the market. But in February the ARS market Merrill knows what the fair amount is.
virtually collapsed, leaving thousands of investors with
securities they could not sell. The criminal complaint that Cuomo has lodged against
UBS states: “UBS has committed a multi-billion dollar
It could be argued that the banks propped up the consumer and securities fraud on the investing public
market in the belief it would rebound, and the whole by falsely selling securities facing mounting liquidity
thing was a simple miscalculation. However this risk as cash equivalents. Customers typically invested
doesn’t explain a group of UBS executives getting rid in what they believed were cash equivalents because
of their own ARS before the market collapse. Indeed, they thought they would need the money in a near-
seven of the executives that sold their ARS were term basis. Individual investors planned to use what
members of the auction rate securities working group they believed was cash safely stored at a reputable bank
formed specifically to examine the gaps in the market. for health care costs, tax payments and tuition costs,
At the end of the day it is obvious the banks knew among others.”
what was coming.
Again naïve investors have been harshly reminded that
securities touted as being akin to cash are not, in fact,
cash. Some may argue this has again exposed banks as
lacking integrity and holding Joe Investor in disregard.

ISJ | Investor Services Journal isj.tv

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 News Analysis p. 13

The young pretender Turquoise goes live

At long last Turquoise has gone live. Cue angelic choirs this to happen. Exchange technology has become
and general rejoicing (by some). The share-trading cheaper and at the same time more advanced. MiFID,
platform owned by nine investment banks including the directive passed last year in order to harmonise
Goldman Sachs, Deutsche Bank and Citigroup, has regulation across Europe has also aided the creation
successfully kicked off operations by offering trading in of the new exchanges. Part of the reason the European
five ultra liquid stocks in the UK and five in Germany. Commission pushed MiFID through was the belief
The project tried to tone down the launch, stressing that costs of clearing and settlement were too high.
that the full launch on 5 September will be much Now the name of the game is speed and being able to
more significant. However much as those behind the offer lower prices.
platform may want to divert undue judgment, beady
eyes around Europe will certainly be paying close Peter Randall, vice president at Chi-X, says: “Clearly
attention to the progress of the ambitious project. the market is embracing new alternatives. Not only
is there an appetite but also a demonstrable move
The purpose behind Turquoise is to offer less expensive towards faster, cheaper and smarter venues which offer
trading than current exchanges, and over the coming an alternative to training on the incumbent exchanges.”
weeks its will expand its offerings to include 1,300
stocks in 13 markets across Europe. The ultimate The London Stock Exchange (LSE) especially will be
success of the venture will certainly not be able to be keeping a wary eye on the progress of Turquoise.
judged until several months down the road, but hopes
are sky-high. The two trading platforms clashed at the end of July
over Turquoise’s trading of Italian equities. Turquoise
According to the project’s chief executive, Eli claimed that the Italian depository Monte Titoli, which
Lederman, 14 clients have so far put in couple of is owned by the LSE, will not link with EuroCCP, which
thousand buy and sell transactions and all has gone is the only way that Turquoise will be able to trade in
smoothly. Italian equities. The LSE has claimed that Monte Titoli
was never even approached by Turquoise.
Acting as the clearing house for Turquoise is the
European Central Counterparty Limited (EuroCCP), It is no wonder the LSE is perturbed. Already
a subsidiary of the Depository Trust & Clearing Turquoise’s contemporary, Chi-X has claimed a fair
Corporation. Soon EuroCCP will be providing clearing chunk of the LSE’s trading volume. Earlier this month
in up to 20 different markets in Europe, and currently 20% of all trades of FTSE 100 stocks were executed on
claims to offer the lowest clearing fees across the Chi-X’s system. Turquoise’s Lederman has predicted
continent. that over the next 12 to 18 months incumbent markets
could lose up to 50% of their market share to the
Turquoise was originally planned to go live almost newcomers.
one year ago, but was beset by a host of quandaries
such as selecting proper trading engines and a proper He says: “The gates have opened and people are
management structure. charging through. The invitation to competition
has been there for a while because you have these
With these problems accounted for, the platform organisations and incumbent exchanges that certainly
now joins Chi-X as the latest in new generation represent a ripe target.”
of upstart exchanges challenging the old order of
European incumbents. Several factors have allowed

ISJ | Investor Services Journal

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 pp. 14 CEO Goren Fors

A trans-national agenda
Giles Turner speaks to Goran Fors, head of
custody services at SEB, about the expanding
world of Scandinavian custody

T he mid 80s was an age of discovery. The wreak of

the Titanic was discovered, the hole in the ozone
was found, but for Goran Fors, it was coincidental
of the reporting and the frequency. I think there is
still a need for us to keep developing. We might team
up with someone else to build a reporting service,
move from tax advice that allowed him to discover the particularly for hedge funds.”
world of securities administration. Fors took over as The hedge fund industry has always been a big focus
head of securities administration at Gota Bank, now for SEB, both from the custody side and the bank
part of Nordea (but at the time an independent, mid in general. Hedge funds have been of significant
sized bank), after working in the banks tax advice importance in the Swedish market for a long time.
section. This was a period where securities lending This is a trend that Fors has seen coming, along
started to take off in the Swedish market. In 1994 with the need to develop a fund administration
he moved to Swed Bank where Fors became head of product. However real pressure is being exerted on
custody, then in 1997 he moved to SEB, his present the established exchange trade structure from MTFs
abode. and as a result the Nordic post-trade industry is being
threatened by alternative places to clear and settle.
SEB holds a special place within the Nordic custody According to Fors: “I think we’ll see continuous
market. Refusing to sell-off or consolidate has been fragmentation driven by MiFID and the MTFs
something of a constant evaluation for the bank, and CCPs that pop up everywhere making it more
and in the face of some tough competition from demanding for us to be able to support that. You have
incoming US custodians, SEB has managed to carve a to be able to connect to the infrastructure, especially in
role for itself within the Swedish market, and is also the post-trade area, particularly with the CCPs, which
growing healthily in Finland. Fors states that: “On makes it increasingly complicated. I think we will also
the sub-custody side there is even more of a growth see the environment in the Nordic area move more
scenario because you need to be a fairly big player in towards CCPs, which will be a novel situation. I think
sub-custody to be able to compete. We have therefore that will drive the development in the local market for
decided to grow on a regional basis.” the traditional exchanges to be able to compete. Only
time will tell. I don’t see the traditional exchanges
On the sub-custody side you need to be a multi- fading away, despite the new competition.”
country provider and be able to draw in significant
volumes to keep a sustainable profit level. It is The devil makes work for idle hands, but after
therefore becoming increasingly difficult for expanding into the Nordic/Baltic, SEB has stayed on
custodians to offer only one region to their customers. the good and narrow and is now entering the Russian
It is not surprising to hear Fors expounding his market in the autumn of this year. “A custodian today
firm belief in the multi-market product: “SEB is a needs to be in more and more markets, growing in
dominant player in the region and securities and volumes. As we have a presence in Russia as a bank
custody have always been an important part of the commercially, it’s a natural step to include custody as
bank; it’s something where senior management and an offering. We’ve done the same in the Ukraine, the
board level understand custody, which is not always Baltic’s and Germany,” explains Fors.
the case for other companies. But in SEB it’s a very
important business.” There is also nothing but enthusiasm from Fors,
perhaps a significant reason for his success. “In the last
Not only multi-markets products are increasingly twenty-five years there are always things changing and
important, but custodians are also moving towards developing,” he states. “It’s a fantastic business to be in.
derivatives through fund of funds. There has been an It’s a challenging in the need to develop your product,
explosion in markets and products in recent years. and at the same time it’s a challenge to work with all
For Fors: “The challenge is mainly to keep up with these clients across a variety of financial institutions.
demands on reporting and to have systems that can I think especially the trends of global expansion and
accommodate these types of asset classes that have cross border trading make it a fascinating industry to
more advanced reporting needs. It’s both the detail be in.”

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1-114-PDF FINAL NEW .indd 15 16/1/09 15:41:18
 pp. 16 Payments

Fitter, faster, SEPA Fierce services competition is defining European

payments and banks had better shape up, says Ben Roberts

The Single Euro Payments Area (SEPA) brought into line with those domestic. In neutral payment platform for banks that he
is arguably the most significant effort to the next few months it will be rolled out for sees are too big as institutions to outsource
harmonise European finance since the direct debits. The legal basis for the plan their payments. The system – Global
introduction of the Euro. The European is in the form of the Payments Services Pay Plus - can converge the multitude of
Community’s initiative to effectively Directive (PSD), developed by the European payment systems the bank may already
make all cross border payments domestic Community after protracted discussion. be using to create a single format for data
payments – cutting transaction costs and transfer. In effect this streamlines the
spurring the adjacent drive to speed up For banks, the build up to SEPA provoked payment process and reduces transfer
money transfers – has presented challenges a new way of seeing money transfer. This time – much as SEPA advocates would
and opportunities in equal measure. has been partly due to the revenue that wish. “Fundtech breaks down the barriers
The link between banks, corporates would be lost from charges for cross- between urgent and non urgent payments,
and the service providers that work as border payments no longer applying. This as they have to go through the same
intermediaries to the transference of funds would be on top of, some have argued, process anyway,” says Neyer. “I think from
between them will be forever altered. the revenue lost from closing down the Fundtech’s perspective we’ve done our little
‘float’ period between the payment and bit in converging the work.”
The objective of SEPA was to take out the settlement – another aspect that has varied
payments cost, advance communication greatly across Europe. Gene Neyer, global Neyer explains that a key strength of
and create a more level playing field product manager at Fundtech, explains: Global Pay Plus is that it is scaleable.
through equal processing times. Where “The PSD now requires that funds be made “GPP is suitable to run the entire payment
the market for payments had become immediately available to the consumer. In operation of even the largest bank. At the
increasingly fragmented – and banks the past, it was common practice to hold same time, GPP has been cost effectively
have certainly been challenged by the onto the funds for several days to gain the deployed at banks that only make several
multitude of payment forms from their benefit of extra interest income and the hundred payments a day. Thus, the bank
clients – the initiative sought to develop a stability of the asset base.” can start small and add capacity in small
united payment system. The result would (or large) increments, as needed to support
be a single set of payment instructions For the companies that provide payment the business growth.”
that could send cashless monies anywhere systems – whether installed in a bank,
within the area. It is the latest development outsourced or acting as the bridge between In June 2008 Fundtech conducted a survey
towards monetary harmonisation in a banks and corporates – these are interesting to gauge banks’ reaction to SEPA. Sixty-
decade that began with the European times. Providers such as Currencies Direct, three per cent of respondents believed SEPA
Services Action Plan – the Lisbon Agenda of Sterling Commerce, Fundtech and VocaLink pricing mandates and a reduced payment
2000 – through to the 2006 EC Regulation that have crafted a niche in the industry for times would have considerable impact on
2560 cap increase of transactions up to the last few years and have products in line company profits, with 44% predicting it
EUR50,000. On 28th January 2008 the with SEPA’s ethos of speed, reliability and would take longer than five years to replace
SEPA pan-European payment instruments accountability. Neyer describes SEPA as “a the lost revenue resulting from the SEPA
for cross border credit payments were grand experiment”. Fundtech provides a pricing mandates. Thirteen percent said

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1-114-PDF FINAL NEW .indd 17 16/1/09 15:41:30
 pp. 18 Payments

they will never be able to recover the lost among banks over SEPA, some firms are Taylor adds that banks are wary of the
revenue. This gloomy outlook was expected, seeing the upside. For example, he says, systems they adopt as there is no guarantee
says Fundtech’s George Ravich, but it allows the rise of automatic, cashless, STP money the corporate clients will take to them. “If
room for opportunity. “The results of transfers means that there is less manual these instruments are not taken up then
our survey were simple confirmation, the processing. This has two consequences: the there’s no business case for the banks,” he
answers were not surprising.” bank can reduce both staff numbers and says. However, he is confident that the value
risk. He agrees that although banks would added services of using a single channel to
Richard Spong, managing director of rue the loss of payment transfer revenue make transfers and view liquidity positions
Sterling Commerce, explains: “Banks are – particularly amid lean times in the will see a high take up. Further, SEPA may
losing out from SEPA due to the lack of banking sector – those that grasp the nettle also enhance the adoption of mobile phone
revenue their getting to charge for cross and update their systems in-line with SEPA payments, which Taylor believes has been
border payments. SEPA had the consumer will identify these longer term gains. underwhelming so far. However, he puts
in mind and immigrants, such as those forward a very different view to Richard
living in Switzerland and working in Reducing risk is a vital selling point Spong as to banks’ acceptance of SEPA. “I
Germany. Banks could justify charging in developing relationships with new struggle to see how the banks have failed to
for payment transaction because it was a corporate clients. Paul Taylor, managing respond to SEPA. On January 28th nearly
complex process using different systems. director for Europe for VocaLink, a software every bank I know was compliant and had
Now, if they comply with SEPA, everything provider that has a special range of SEPA- the service – whether or not they were
is treated as domestic in an effort for compliant products, explains that payment marketing the service I don’t know.”
European economic cohesion and they lose systems like VocaLink must enhance a
revenue, they have taken quite a hit.” bank’s standing in the eyes of the corporate There is certainly fierce competition for
client. “We can take the payments and corporate clients if banks do not refine
However, services providing neutral process them on behalf of the bank,” he their offerings. Currencies Direct is a
platforms, faster payments, open reporting says. “To do that our systems will have to foreign exchange specialist that competes
and straight through processing (STP) work with those of the banks, but that’s against banks for the most competitive
have all seen a steady increase in take-up. removing a huge amount of cost from the rates of currency conversion. Mark O’
The Fundtech survey found that 59% of bank and removing risk as well. If we can Sullivan, director of dealings, explains that
respondents have better than 70% STP modify our existing products to suit the the service can take quotes from clients,
rates, and 13% say they have a 90%- new schemes then obviously the banks can make and clear the trade and provide the
or-better rate. Like Fundtech, Sterling offer them more broadly. necessary currency to the client in the same
Commerce provides a solution to funnel day in the same place. “The big benefit
disparate payment systems into a single “We’ve been able to gather and interpret of using us is that we have the foreign
channel. But instead of combining the these different requirements and feed that exchange trade and the payment trade just a
payments solutions of a bank’s in-house back to the company to make sure our few metres apart from one another,” he says.
systems, it acts as a decoder of the different products are in line with what they are “A lot of banks are still very siloed and there
payment systems used by corporate clients asking for. That’s my concern – to make the is less direct connection between the foreign
transferring money into the bank. “Bank banks more valuable to their customers.” exchange side and the payment side. We can
clients are using their own systems for minimise the gap and we are in control of
payments that best suit them,” says Spong. VocaLink as a brand is effectively invisible, risk and can view any point of the payment
“Because of this, banks will be receiving explains Taylor, because the screen on cycle. We offer a tailored service - if one
data from these clients in different which the client would make a payment client wants a certain amount in a certain
forms. Sterling Commerce works as an takes the form of the bank’s online screen currency at the beginning of the day they
intermediary between the clients and banks – “a Barclays customer would simply think can have it at the end of the day.”
to translate the data that comes in into a they were using the Barclays system”. The
one-system form of data that can then be company’s faster payments software, he He explains that Currencies Direct can
used when the banks moves that money adds, is congruous with a growing need to develop contacts with clients of the bank
data on to other banks.” He adds that data literally keep up to speed with customer and make proposals to lock in future
communication is a key challenge in today’s demand. “There is the acknowledgement business. “For example, we can say ‘here’s
linked up markets – something SEPA, along among banks that the market has moved USD3 billion over the next year’ and they
with these payment intermediaries, seeks to on, that the channels that the customers can take it or leave it.” He says corporates
address. expect has advanced,” he says. “Customers are becoming more discerning about the
want channels that are more responsive. I take up of payment services – an echo of
Spong believes that although there has think faster payments is the banking world’s Paul Taylor’s point about the risk of banks
been a degree of “dragging of heels” response to the change in the customer offering services. “In this day and age clients
space.”

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1-114-PDF FINAL NEW .indd 18 16/1/09 15:41:30

 pp. 19

are more educated and are making more convergence, believes Taylor. “There is a Like Fundtech, Sterling Commerce provides
valued judgements,” says O’ Sullivan. coming together of the market expectations a solution to funnel disparate payment
in terms of what’s available online and systems into a single channel. But instead
Neyer and Ravich at Fundtech explain through mobile phones and through other of combining the payments solutions of a
that an additional technological offering a channels with the new technology to bank’s in-house systems, it acts as a decoder
– called STP@source - fits the SEPA support it. I think it will change the way we of the different payment systems used by
drive for transparency. STP@source is a think about payments in the future.” corporate clients transferring money into
checking device that enables users to see and straight through processing (STP) have the bank. “Bank clients are using their own
the status of a payment at any point in the all seen a steady increase in take-up. The systems for payments that best suit them,”
transaction. “STP focuses on the linkage Fundtech survey found that 59% of respon- says Spong. “Because of this, banks will be
between linkages to be able to check that dents have better than 70% STP rates, and receiving data from these clients in differ-
are being paid in are correct,” explains 13% say they have a 90%-or-better rate. ent forms. Sterling Commerce works as an
Neyer. Fundtech in particular are looking
beyond SEPA to what is termed e-SEPA. The numbers game – what European bankers told Fundtech
“Although e-SEPA is a next step, it will be
63% SEPA would have a considerable impact on company profits
taken before SEPA will be considered to
have achieved ‘critical mass’,” says Neyer, 44% It would take more than five years to recoup the loss
adding that this is scheduled for 2012, but
13% Banks will never recoup the loss
that date is currently very much in doubt.
“For example, e-mandates (one component 61% Electronic invoice presentment and payments (EIPP)
of e-SEPA) is a necessary ingredient in
is a cost-saving opportunity
achieving the critical mass of adoption and
removal of the national ACH instruments 38% customers will adopt EIPP
in geographies that currently do not require
34% it will take three to five years for mobile phone payments
paper mandates. A key step towards the
e-SEPA environment is the adoption of to be a significant addition to a company’s bottom line
electronic invoicing.”
22% mobile phone payments will never be significant
For now, the parallel forces of changing
demands and new services is creating a

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 p. 20

intermediary between the clients and banks they were using the Barclays system”. The currency at the beginning of the day they
to translate the data that comes in into a company’s faster payments software, he can have it at the end of the day.”
one-system form of data that can then be adds, is congruous with a growing need to
used when the banks moves that money literally keep up to speed with customer He explains that Currencies Direct can
data on to other banks.” He adds that data demand. “There is the acknowledgement develop contacts with clients of the bank
communication is a key challenge in today’s among banks that the market has moved and make proposals to lock in future
linked up markets – something SEPA, along on, that the channels that the customers business. “For example, we can say ‘here’s
with these payment intermediaries, seeks to expect has advanced,” he says. “Customers USD3 billion over the next year’ and they
address. want channels that are more responsive. I can take it or leave it.” He says corporates
think faster payments is the banking world’s are becoming more discerning about the
Spong believes that although there has response to the change in the customer take up of payment services – an echo of
been a degree of “dragging of heels” space.” Paul Taylor’s point about the risk of banks
among banks over SEPA, some firms are offering services. “In this day and age clients
seeing the upside. For example, he says, Taylor adds that banks are wary of the are more educated and are making more
the rise of automatic, cashless, STP money systems they adopt as there is no guarantee valued judgements,” says O’ Sullivan.
transfers means that there is less manual the corporate clients will take to them. “If
processing. This has two consequences: the these instruments are not taken up then Neyer and Ravich at Fundtech explain
bank can reduce both staff numbers and there’s no business case for the banks,” he that an additional technological offering
risk. He agrees that although banks would says. However, he is confident that the value – called STP@source - fits the SEPA
rue the loss of payment transfer revenue added services of using a single channel to drive for transparency. STP@source is a
– particularly amid lean times in the make transfers and view liquidity positions checking device that enables users to see
banking sector – those that grasp the nettle will see a high take up. Further, SEPA may the status of a payment at any point in the
and update their systems in-line with SEPA also enhance the adoption of mobile phone transaction. “STP focuses on the linkage
will identify these longer term gains. payments, which Taylor believes has been between linkages to be able to check that
underwhelming so far. However, he puts are being paid in are correct,” explains
Reducing risk is a vital selling point forward a very different view to Richard Neyer. Fundtech in particular are looking
in developing relationships with new Spong as to banks’ acceptance of SEPA. “I beyond SEPA to what is termed e-SEPA.
corporate clients. Paul Taylor, managing struggle to see how the banks have failed to “Although e-SEPA is a next step, it will be
director for Europe for VocaLink, a software respond to SEPA. On January 28th nearly taken before SEPA will be considered to
provider that has a special range of SEPA- every bank I know was compliant and had have achieved ‘critical mass’,” says Neyer,
compliant products, explains that payment the service – whether or not they were adding that this is scheduled for 2012, but
systems like VocaLink must enhance a marketing the service I don’t know.” that date is currently very much in doubt.
bank’s standing in the eyes of the corporate “For example, e-mandates (one component
client. “We can take the payments and There is certainly fierce competition for of e-SEPA) is a necessary ingredient in
process them on behalf of the bank,” he corporate clients if banks do not refine achieving the critical mass of adoption and
says. “To do that our systems will have to their offerings. Currencies Direct is a removal of the national ACH instruments
work with those of the banks, but that’s foreign exchange specialist that competes in geographies that currently do not require
removing a huge amount of cost from the against banks for the most competitive paper mandates. A key step towards the
bank and removing risk as well. If we can rates of currency conversion. Mark O’ e-SEPA environment is the adoption of
modify our existing products to suit the Sullivan, director of dealings, explains that electronic invoicing.”
new schemes then obviously the banks can the service can take quotes from clients, For now, the parallel forces of changing
offer them more broadly. make and clear the trade and provide the demands and new services is creating a
“We’ve been able to gather and interpret necessary currency to the client in the same convergence, believes Taylor. “There is a
these different requirements and feed that day in the same place. “The big benefit coming together of the market expectations
back to the company to make sure our of using us is that we have the foreign in terms of what’s available online and
products are in line with what they are exchange trade and the payment trade just a through mobile phones and through other
asking for. That’s my concern – to make the few metres apart from one another,” he says. a channels with the new technology to
banks more valuable to their customers.” “A lot of banks are still very siloed and there support it. I think it will change the way we
is less direct connection between the foreign think about payments in the future.”
VocaLink as a brand is effectively invisible, exchange side and the payment side. We can
explains Taylor, because the screen on minimise the gap and we are in control of
which the client would make a payment risk and can view any point of the payment
takes the form of the bank’s online screen cycle. We offer a tailored service - if one
– “a Barclays customer would simply think client wants a certain amount in a certain

ISJ | Investor Services Journal

1-114-PDF FINAL NEW .indd 20 16/1/09 15:41:32

 www.danskebank.com

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203x267 Nordic Custodian ALTO.in1 1 04/03/08 9:28:55

 p. 22 Analyse This Global Custody

What are the challenges in the African market? By Bennie van der Westhuizen
and services that match the clearing and settlement services. offers extensive opportunity to
increasingly sophisticated With technology changing, for integrate between Absa Capital
demands of the market, with the better, almost on a daily and the client, and purely
access to pioneering technology basis, the pioneering spirit focused on service delivery.
and product expertise. of ACIS drives the team to The project is anticipated to be
continually adapt and remain complete by the end of 2009.
In short, ACIS provides ahead of the game.
comprehensive custodial, There are also market
clearing, settlement and value Trustee Services forms a vital developments at play acting as
added services to clients. part of ACIS’s structure, both a catalyst for further change
from an operational and system at ACIS. South Africa’s multi-
Primary custodial services infrastructure perspective. ACIS billion rand a month money
offered by ACIS incorporates acts as trustee in accordance market is being switched from
trade settlement and safe with the provisions of the paper to electronic settlement.
custody of equities, bonds and Collective Investment Schemes It is anticipated that, from
fixed income products as well Control Act No. 45 of 2002 and the second quarter of 2009 a
In early August, Absa Bank Ltd
as money market instruments. associated notices, the trust large portion of money market
(Absa), a leading South African
These instruments may either deed and the classifications instruments would be issued,
financial services provider
be held electronically or in of the Association Collective cleared and settled electronically.
and member of the Barclays
physical form. The opening and Investment Schemes.
Group (Barclays), released
maintenance of cash accounts ACIS actively participated in
its interim results for the six
forms an integral part of the The trustee maintains promoting this change owing to
months to June 2008. At the
service. independent records from those the enhanced straight through
results presentation, John Vitalo,
of the fund manager, and is processing and reduction of
chief executive officer of Absa
Post trade services and/or asset able to independently verify operational risk.
Capital highlighted how Absa
administration includes income that the financial statements
Capital Investor Services (ACIS),
collection and distribution, and returns of the fund are a Other initiatives are also being
provider of custodial, clearing
administration of corporate fair representation of the assets, looked at where repository
and settlement services, had
events, proxy voting and liabilities, income and expenses and settlement processes are
delivered a solid performance
comprehensive reporting of the scheme. largely manually recorded
and continued to wintonew
A willingness embrace innovation
tailoredhastolong
meetbeen eacha client’s
hallmark of the Dutch and undertaken. ACIS is
mandates.
financial services market, but even by its own standards
individual needs. ACIS isoveralsothe pastACIS
year ithas
haspioneered the use participating in the bond
seen significant developments withinable tothe pension
offer fund and financial of
a comprehensive institutions
the Sungard InvestOne enhancement project which is
Following the These
sectors. acquisition
changes have clear implications forcompliance
asset servicing providers in thisproduct for Trustee
fund accounting, accounting looking to benchmark services
of a majority stake inmarket.
key European Absa
monitoring and performance Services in South Africa, as against international best
by Barclays in 2005, ACIS
measurement services. well as Charles River, the leader practice.
underwent
In thea pensions
completesphere, the trend certainly among smaller and medium sized plans
in international compliance
metamorphosis
is towards -greater
changing its
efficiencies, as many areasstruggling
ACIS acts trustee toina the
largeface of new rules around
systems. Ultimately the real challenge
focus to include international
asset/liability matching. Havingnumber
traditionally favoured a ‘principles based’ approach
of South African lies in the settlement of equities.
mandates.
to regulation, the Dutch Central Bank (DNB)companieshas been taking
management whichan increasingly
Likewise keenACIS will be upgrading The Financial Service Board
interest in public and private sector
have pension
establishedscheme solvency
schemes underto ensure
theindividual
current technological has mandated the JSE Ltd in
Since ACIS broadened
schemes maintainitsa focus
prudent coverage ratio [assets vs. liabilities] year-to-year.
the Collective Investment platformKey usedtoin its custody conjunction with Strate to look
beyondthisthewas
domestic South
the introduction in 2006 of the Financieel Toetsingskader (FTK) legislation,
Schemes Control Act. business. The new system, called into the feasibility of settling
African institutional client it
Megara and supplied by Vermeg, equities on ‘trade plus 3’ basis.
has, through Barclays Securities
Beyond expanding across the is one of the most sought-after Currently equities are settled on
Administration, expanded into
African continent, ACIS has software systems on the globe. a ‘trade plus 5’ basis. Ideally it
15 additional African countries
overhauled and continues should be changed.
including Egypt, Morocco and
to overhaul its information Essentially it will help ACIS
Nigeria.
technology systems to ensure it ensure superior service delivery, ACIS is up for the challenge, and
remains a pioneer in the market. but there are a host of other more, owing to its pioneering
ACIS, through Absa Capital
ACIS is constantly looking for benefits including the fact that spirit and client focus supported
and its affiliation with Barclays
sure-fire, innovative ways to it is: by a financial services provider
Capital, provides clients with
improve its services offering. an internationally recognised with deep South African roots
both local and international
Technology has become a system; and global reach.
expertise. Its business model
fundamental and inescapable offers cutting edge custody
is supported by products
part of every aspect of custodial, technology;

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Running Analyse This Global Custody

Title
Second Stand
How has consolidation and Target2-Securities altered Swedish custody?
Luciana Hygrell, head of Nordic custody services
The securities and custody is something that has also decide which provider a client
business in the Nordic region affected the implementation will choose. We have seen an
has seen several changes during of T2S. It has meant that the increased interest in areas such
2008 that have affect both the carrying out of T2S may well as securities borrowing and
individual providers and the differ throughout the region, as lending, compliance and trustee
market overall. Finland is the only one of the services and working with
four countries which is today more complicated instruments
Euroclear bought the NCSD (the a part of the Euro markets. such as derivatives and similar
CSD for Finland and Sweden), Currently Denmark and Sweden instruments. Handelsbanken
and the Norwegian and Danish are members of the EU, but are works with several of these issues
counterparts VPS and VP have not part of the EUM. and have recently completed
opted for Clearstream and development of a sophisticated
LinkUp. Nordea’s exit from the There are also infrastructural trustee service that covers the
global custody business has also differences between the different requirements set up by the
led to a new player, JP Morgan, countries. The CSD’s operate financial authorities and local
entering the market. This new with four different systems, there laws. For this purpose we have
competition will stimulate the are four central banks and four built a specially designed system
Nordic players to continue different regulatory bodies albeit that supports compliance
to develop and expand their with similar regulations, but they reporting throughout the Nordic
offerings. do still diverge in several areas. markets.

It is not only within the CSD that The recent launch of several In order to ensure that
there has been consolidation. MTFs has also challenged the Handelsbanken can offer a
As OMX and Nasdaq build on established market place and complete range of services
their common future we see changed the entire infrastructure we have chosen to develop
the Nordic market adjusting to of how securities are traded. a strategic partnership with
a European and international Handelsbanken has together Northern Trust where we can
market place. Where local with group of ten leading utilise the strengths of a global
ownership was once a primary Nordic banks and broker/dealers custodian and the expertise
issue in the Nordics we now launched an MTF for mid- of a local player. We feel that
have to build on the closer cap Nordic listed securities, this partnership is an optimal
cooperation with the security Burgundy. Burgundy’s purpose solution in order to ensure that
markets in Europe and the US. is to provide high liquidity, low our Tier 1 clients receive the
transaction costs, short response highest and broadest quality of
Despite consolidation, we must time and best execution together service available in the market.
not forget that the Nordic market with an aim to reach a leading
remains four different markets position on the Nordic securities In this evolving custody
and that differences between the market and also to strengthen landscape lies an enormous
four do exist. Although a global the Nordic region as a financial opportunity and potential for
provider brings strengths and market place. our future custody business.
advantages, there are times when
the knowledge of a local provider We have also seen increased
is important and significant in demand from both domestic
ensuring that our end-client and international clients for
receives the best service. more sophisticated products and
services. There is currently too
The most apparent of these little to differentiate the different
differences is the fact that the custody service providers, clients
four countries still have four want tailor-made services and
separate currencies, which value added products that

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Running Analyse This Global Custody

Title
What are the challenges of those entering the Swiss custody space?
Second Stand
Paul Bodart, executive vice president, Brussels office, BNY Mellon

Switzerland’s financial reputation next few years. “Our competitors investing outside Switzerland,
has been built around its status are active in the market particularly the biggest ones
as one of the world’s biggest and we are facing up to this such as Nestle, so that’s why we
private banking destinations. competition.” need exposure to this market.
The multilingual nation is ideally Some plans are looking to Asia,
placed for close relations with On the custody side it has been a too, so that leaves us well placed
many European countries, and challenge, even for global banks, to service them as we have a
regulation is strict but stable. to enter the Swiss the market. presence in Asia.”
Often international banks will
For the custody and clearing of provide services to the SIS Switzerland was however caught
securities it has been a self- Group, and only occasionally the in the credit crunch, and the
serviced market, particularly major Swiss banks. Paul Bodart, country’s famous secrecy is
since the establishment of executive vice president of BNY coming under international
the Swiss Securities Clearing Mellon Asset Servicing, says: scrutiny following the collective
Corporation (SEGA) in 1970 “Switzerland is very interesting. demand for greater banking
that developed a central It’s servicing is dominated by transparency. Recently, the Union
clearing system. In 1999 a SIS which provides custody and Bank of Switzerland surprised
merger between SEGA and security services. But we provide many with the extent of its
INTERSETTLE created SIS an option for them, for example, net outflows in for the second
SegaInterSettle, and in 2003 SIS for Swiss banks that want custody quarter of 2008.
x-clear went live as the country’s for US assets.” He explains
central counterparty. Now, that SIS has a link with the US Bodart says there has been a
the SIS Group contains four market, and that BNY Mellon is change in the overall investment
organisations: SIS SegaInterSettle looking to open a small office in approach in the country, in
AG, SIS x-clear AG, SAG SIS the country soon, often working particular a shift from equities to
Aktienregister AG, SIS Systems in tandem with other banks. bonds. Cash portfolios are also
AG. “Linking with other custodians higher than historically as more
A willingness to embrace innovation has long been a hallmark of the Dutch
using the same technology and plans are looking for the market
financial services market, but even by its own standards over the past year it has
On 4th August 2008 SIS Group service structure means that to stabilise. Seeburger adds that
seen significant developments within the pension fund and financial institutions
extended its services to provide you can drive down the cost of qualitative service demands are
sectors. These changes have clear implications for asset servicing providers in this
clearing for SWX Swiss Block, service,” he says. “One client may also changing. “There is a trend
key European market.
the non-displayed liquidity use different custodians and it is towards more transparency
service from SWX Europe. Marco convenient for them that their and high-quality services at
In the pensions sphere, the trend certainly among smaller and medium sized plans
Strimer, CEO of SIS x-clear servers operate in a similar way.” competitive prices. By signing
is towards greater efficiencies, as many are struggling in the face of new rules around
AG, said: “In an increasingly the European Code of Conduct
asset/liability matching. Having traditionally favoured a ‘principles based’ approach
competitive market the demand Ursula Seeburger of SIS says: on clearing and settlement, we
to regulation, the Dutch Central Bank (DNB) has been taking an increasingly keen
for alternative execution venues is “In foreign markets we work committed ourselves not to offer
interest in public and private sector pension scheme solvency to ensure individual
rising steadily. As a user-owned, either via direct links or with any cross-subsidised services and
schemes maintain a prudent coverage ratio [assets vs. liabilities] year-to-year. Key to
user-governed organisation we renowned custodian banks, such products.” She says SIS offers
this was the introduction in 2006 of the Financieel Toetsingskader (FTK) legislation,
develop the services our clients as Citibank, OeKB, Hong Kong an unbundled (asset custody,
want us to and are seeing huge and Shanghai Banking Corp., securities lending and cash
interest in this burgeoning arena. BNP Paribas Securities Services, management, for example, are
Brown Brothers Harriman and separate) service to clients.
“Clients executing trades through ANZ Custodian Services.”
the new SWX Swiss Block service Bodart says the prospective BNY
will be able to clear and settle Bodart adds that a presence in Mellon office will be small, with
as they would through our Switzerland will be significant a focused group of sales people
traditional channels, with the for the bank given the numerous and relationship management to
benefit of post-trade anonymity business opportunities. “There win new business and maintain
and robust risk management are lots of opportunities as contacts. “It is seen as a closed
naturally provided by our Switzerland is one of the biggest market but we are looking
services countries for private banking and forward to the entrance.”
for vehicles such as Oeics. BNY
Despite the challenge in Mellon can provide accounting,
entering the market, Seeburger net asset valuation and can
is nevertheless anticipating the monitor performance. Further,
ISJ | Investor Services Journal additional competition in the there are more pension plans

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Running Analyse This Global Custody

Title
How has Bank adapted to change and driven the development of Turkish custody?
Second
By Stand
Nilufer Basarir, assistant manager of the bank capital markets department in the custody division

the shares are listed on the

Istanbul (ISE) and London bank is the Turkish sub-custodian
Stock Exchanges. for the Bank of New York Mellon
and has been a Clearstream
bank is a multi-branch partner for nearly 15 years. We
Turkish bank and retail focus on maintaining strong
banking products and services partnerships with the bank’s
lie among its core activities. current clients, but the are
In this frame, bank provides growing as the Turkish expands.
full custody and settlement
services. Prior to the bank has also recently been
establishment of a separate granted a license to operate as
central securities depository a custody institution regarding
in turkey, the bank acted as the custody of assets subject to
the central depositary and retail portfolio management
settlement agency; therefore, of portfolio management
custody and settlement is companies, within the framework
considered to be one of of the article nr.18 of the
bank’s core services. Since the ‘Communiqué on Principles
modernisation of Istanbul’s Regarding Portfolio Management
stock exchange, bank has been Activities and Institutions
widely selected as custodian Which are Authorized to Provide
for hundreds of thousands of Portfolio Management Services.’ İ
individual and institutional
investors. Today, nearly 40% bank believes that “if you are
of equity investors’ custody providing a quality product, your
Türkiye Bankası (bank) was accounts are opened at bank. clients will not go away”. As the
established by the founder of the Turkish economy is getting bigger
republic, M. Kemal Atatürk, in Custodial services fall under and attracting more new clients,
1924 with a mission to develop the capital markets department then it means new clients for us.
the Republic’s banking system of the bank. This department As we always say, “We take care of
and provide financial sources for offers services for local and Turkey’s assets thoroughly but we
the industry, both as a creditor international customers and still have much space for yours”.
and through direct equity separate sub-divisions are
investments. The bank tops the established for these customer
list of Turkey’s most respected groups.
and trusted enterprises, while
carving itself a place among the As an SEC qualified bank, bank
world’s largest corporations. is one of the main providers of
custodial services to non-resident
bank, a publicly traded firm since investors. Securities settlement
its inception enjoys a peerless and clearing, safekeeping,
stakeholder base. To this day the extensive SWIFT reporting,
employees’ pension fund has prudent cash management,
brokered the offering of stock foreign exchange transactions,
options to employees and retired corporate action processing/
staff in the company which has income collection, proxy voting,
reached 41.5%. As of July 2008 assistance on tax issues and
41.5% of bank shares are held by providing up-to-date market
bank’s own private Pension Fund, information are offered to non-
28.1% are Atatürk’s shares that resident institutional investors.
are represented by Republican
People’s Party and 30.4% are free Being an indigenous sub-
float. In May 1998, 12.3% of the custodian bank, bank closely
Bank’s total shares previously follows the market and provides
held by the Turkish Treasury all necessary market information
have been sold to national and (tax regulations, market
international investors in a highly operation regulations, etc.) to
successful public offering. Today international investors.
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Running
Analyse header
Global Custody
Austrian custodians pp. 29

Title
What have been the pension fund developments in the Netherlands?
Second Stand van Houwelingen, head of relationship management, continental Europe, at BNY Mellon Asset Servicing
By Leonique

type capacity. Pension funds in 24/7, ‘follow the sun’ operational

the Netherlands are making wider capabilities will be at a clear
use of derivatives to help facilitate advantage.
changes in the risk profile and
the duration of their portfolios as While fund processing is
well as to take advantage of their principally about volume,
liquidity. for larger Dutch insurance
companies in particular it is
This has prompted the DNB to also about efficiencies, not
focus on the management of risk least those companies that
in respect of these investments have been involved in merger
and stipulate more detailed and acquisition activity and
reporting and stress testing of who now have transition
portfolios. The administration and integration projects to
and particularly the valuation undertake, they will be looking to
of these complex off-balance rationalise a fragmented business
instruments is challenging, and infrastructure into a more
accordingly pension funds stand streamlined and cohesive whole
to benefit from partnering with an combining multiple smaller funds
asset service provider that can take into a reduced subset of larger
on the role of an administrator vehicles – again, this favours the
and offer independent valuation larger providers who have scale, a
of derivatives and provide large geographic footprint and a
Where once the focus was on The regulators also favour a collateral management solutions broad product set. There is also a
creating alpha and ensuring segregation of functions, with as well as servicing their more shift among financial institutions
the pension fund could meet a splitting of the pension fund mainstream assets. to become reconfigure disparate
its liabilities after 30 years, on the one hand and a separate businesses within a ‘one stop
today liabilities are measured execution company on the BNY Mellon, for instance, was shop’ structure, which is further
on an annual basis and risk other. Our Heerlen-based client last month appointed to provide speeding market shrinkage, and
management is more of a priority. ABP is a good example, having OTC derivatives processing and these larger consolidated entities
Asset/liability matching is used in established APG Investments as fund administration services for will favour bigger asset servicing
a more dynamic way than in the a standalone entity tasked with APG’s managed Global Tactical providers, who can partner with
past, and as such it drills down handling investment management Asset Allocation portfolios. them in a consultative capacity.
far deeper into how controls are and administration duties. This The demand for both greater
implemented, where risks lie, separate execution company is transparency and a more accurate Looking at the trends within
how they are covered, and what also free to sell its services to asset/liability matching picture both segments, it is clear there
worst-case scenario contingencies external third party plans. To means custodians must be able to is a dovetailing of service
are in place. Given the extra onus ensure that administration of offer the robust, transparent and requirements between the
on meeting liabilities, a more assets within the various plans sophisticated solutions required to two. Pension funds segregate
conservative approach to asset is as transparent as possible, it is handle and present the supporting execution companies, which pitch
classes is the order of the day most likely that entities like APG data and services. for other pension funds’ assets
with a concomitant shift towards will set up a Fonds voor Gemene and set up FvGRs meanwhile,
fixed income instruments, which Rekening (FvGR) structure. In the financial institutions space, financial institutions are also
typically offer a long-term, stable meanwhile, consolidation is the adopting FvGR structures.
and predictable option. This encroachment by pension order of the day: These developments present a
funds into the asset management SNS, Axa and Zwitserleven, major opportunity for those
Those plans are taking the realm, and in particular the Postbank/ING, ABN AMRO asset servicers that can offer
fiduciary manager (manager of establishment of FvGRs, is Bank and Fortis are some an integrated package of fund
managers) route. A fiduciary putting the onus on custodians to notable examples. As a result administration, fund accounting,
manager will take charge of provide asset pooling solutions, of this ongoing merger and transfer agency and asset pooling
defining strategic asset allocation fund administration, fund acquisition activity, competition engines, and – crucially – who
in conjunction with the plans’ accounting and transfer agency between custodians is ramping can show their commitment to
Board and will execute the services. We expect to see a big up as they seek to be retained the market through sustained and
strategy accordingly – for split within the custodial world, as the incumbent provider post significant reinvestment in their
instance, via the selection and with some providers maintaining merger/acquisition. The victors business.
monitoring of specialised asset the status quo and continuing to in that tussle will be those
managers. It will also liaise with offer traditional services, while providers that can offer daily NAV
the custodian and offer ancillary others – ourselves included – will before exchange opening, which
services such as performance broaden their asset servicing remit demands flexibility on the part of
measurement and analytics. to encompass an administrator the provider, so those that possess

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 p. 30 Austrian custodians

Gatekeepers in the tale of two Europes

Austrian custodians have transformed their small market into a vital link
between western, central and eastern Europe

Austria occupies a unique position in European of industry affairs and clearing services of custody in
custody. By the admittance of its local banks a small central and Eastern Europe for Bank Austria – they
market, it acts as a vital sub custody gateway for then start to look further east to the increasingly
Western developed markets to enter central and eastern liquid markets of Romania, Croatia, Czech, Serbia and
Europe (CEE) due to its well-established connections Poland. Austrian banks’ presence in these countries
developed from gradually buying up regional banks. makes them the first port of call for Western interest.
And according to Alexander Schleifer, head of custody Gerald Noltsch has been impressed by this strategic
at Erste Bank, the traffic is now coming the other way. forward-thinking: “In the last years Austria has been
Many pension and insurance funds from Romania, very pro-active in positioning itself as the entry point
Czech and surrounding countries are looking to to Central and Eastern Europe. This set-up will be
diversify and enter into Western markets. He revealed successful in the minor markets.” Schleifer explains that
that 70% of the bank’s entire revenue comes from CEE the success in servicing domestic and foreign investors
markets. But whichever sides the clients are coming in their home markets means that the bank can now
from – not to mention the domestic business – Austria base its future growth on them. “Clients are using the

The market is limbering up to fulfil its potential, combining sound

regulation with business opportunism.
banks we acquired for several securities services, we
developed the custody services in these new countries,
we see interest and demands from our existing clients.”
is small but Though more globalised banks are entering Austria’s
custody space, many are still requesting the services He adds that Austrian banks had been so swift ten
growing of the three main players: Erste Bank, Creditanstalte years ago in capitalising on the opportunities in CEE
and Bank Austria - the latter operating as part of that even Germany, its neighbour and dominant
the Unicredit group. Schleifer explains that Erste rival in all other aspects of finance, is using Austrian
Group AG has a strong position in asset servicing for banks to access these countries. In a recent letter
international and domestic corporate custody clients, to shareholders on the back of Q2 results, Ertse
with competitors currently ahead in the volumes of Bank CEO Andreas Treichl wrote: “Operating profit
transactions overseen. “Our market share based on reached a record EUR1.5 billion in the first half of
asset under custody is near to 50% because we do 2008, while net income came in at EUR637 million,
have large clients, but the other two have 60% based equally an all-time high. Continued strong economic
on transactions because they do have clients from the growth across Central and Eastern Europe as well as
broker-dealer community – there is no official source a favourable interest rate environment, most notably
about such figures available in the market.” Bank in the key Czech and Romanian markets, were the key
Austria’s Schnaitt says: “Bank Austria is the biggest contributors.”
custodian for international brokers such as State Street
and HSBC – particularly for remote clearing.” Michelle One service that is being offered is brokerage. Erste
Grundmann of BNY Mellon says: “BNY Mellon uses Bank uses its own brokers whenever possible in
Bank Austria among others and acts as a global custody markets such as Hungary and Romania. The system
for them. The market is still small but it’s growing.” for trading securities is electronic, which Schleifer
She adds that the regulation in the country is similar to explains is vital in providing competitive settlement
Germany – another plus point in increasing Austria’s fees to clients. He says these services are often the first
revenue to woo foreign business. Gerald Noltsch, on offer; it is only later that a full custody service can
head of location, Germany, BNP Paribas agrees that be developed in the CEE. “The CEE banks we bought
this legislative similarity – among others – has been up were more or less retail banks, so we have a strong
beneficial to Austria’s growth. Speaking on the bank’s retail base of domestic clients investing in the home
relationship with Austria, he says: “We had to naturally market but also abroad and using the Erste Group
adapt our own internal systems and operation flows to for securities services. This is currently one of the big
the Austrian specificities, but in general we did benefit projects, to further develop the custody service they
from cultural, language, legal and system infrastructure offer to domestic clients and to foreign clients and this
proximity.” is how we as an Austrian based company expanded
our regional approach.” He adds that the mountainous
Austrian banks have gradually increased their market bureaucracy is often difficult when moving into
share in CEE by buying up regional banks in the markets such as the Ukraine.
countries. Erste Bank, for example, purchased ten
banks in the last ten years across the region. When Schnaitt of Unicredit, as a direct rival, offers two
Western banks enter the Austrian market – due in the services to foreign clients entering CEE. In the ‘hub’
last few years to undervalued assets on the Vienna service, clients can access CEE markets via their
Stock Exchange, according to Gunter Schnaitt, director account with Bank Austria. There is a single point of

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 Austrian custodians p. 31

contact for settlements corporate actions. The client reporting, quick STP performance reporting, quick
may instead seek direct access with the CEE markets. settlement info near cut off times,” as Schleifer defines
“The contacts for Bank Austria is then with the local it. Schnaitt claims that this is possible for Bank Austria,
custody, such as Hungary, and agreements have to be and adds that the bank also offers the full bundle
signed locally. Bank Austria also offers relationship service, if desired – securities lending, collateral
management for clients which use the banks in more management and stock coverage.
than one market out of Vienna.”
BNP Paribas’s Noltsch says the interest among the
Schnaitt explains that, for all the apparent initiative biggest banks to enter CEE (through the Austrian
shown by Austrian banks to develop a custody network market) and the parallel growth in these countries
in the further reaches of Europe, much of the time it has created a kind of trade off. The Western banks
is the demand that spurs progress. He believes that see decent returns in undervalued stocks, and the
As Target niche providers serving a single market with a limited
range of services will find the near future difficult if
emerging markets develop their wider contacts. “This
is significant for both parties, the foreign participants

2 has the they do not expand into new markets, although adds:
“You have a good chance as a sub-custodian as there
have a main interest in having a direct presence, as well
as the internal market players and institutions having
are not many global players in sub-custody.” Schleifer an interest in positioning themselves as independent
green light takes a stronger stance, and cites the advancement and developed markets.”
of the Target2-Securities legislation as an ominous
I think it warning for custodians that are not quick to expand. He goes on to explain that there will be infrastructure
“As Target2-Securities has the green light I think it and legislative changes in the CEE countries. Erste
will lead will lead to further consolidation. It will be hard for
pure local custodians to survive. In the future there
Bank’s Schleifer reveals that the bank often has to
bolster the resources of the CEE banks it takes over,
to further will be regional custodians and the global custodians,
then there will be the central securities depositories
including improving IT, risk management and
reporting. He believes that this will pay dividends for
(CSD) because of their central role as supplier of servicing CEE clients looking east in the mid to long
infrastructure and supported by Target2-Securities term. “There is a big market there which is not that
and projects like Link-up markets. It depends for developed and people will come to reach a similar level
the niche players as to whether they can develop to other countries in the west and invest a lot of money
new and interesting products, if they have other in equities Erste Bank will be there to serve these
areas of business. If not, the pure local custodians clients and that makes it a fantastic position for us.”
might disappear.” Mark Kerns, managing director for
Standard Bank’s corporate and investment banking Domestically, Austria can arguably serve as an
investor services division, believes that the future of appropriate model for any emerging economy.
niche providers of custody is uncertain, and is in some Michelle Grundmann says the long-standing special
ways “horses for courses” depending on the service. purpose vehicles for Austrian investors allow them to
However, he adds that in the long run consolidation make a saving in capital gains tax (CGT) whereby a
will continue, particularly as more of the global banks CGT payment is only made upon the distribution of
develop specialist areas within their setup to rival the the fund, so capital can be built up over time. It is a
tailored offering of niche providers. system set up between the KAG, an investor setting up
the vehicle and a licensed bank. The system beneficial
Many believe the emergence of low-cost trading for pension funds including private plans, insurance
platforms such as Chi-X and project Turquoise that funds. Any external bank wanting to set up an SPV
boast faster trade execution will be a critical stress- they would need to be licensed, something few global
test for the flexibility of Austrian custodians. Rather banks entering the market have. This gives an added
than using the Vienna Stock Exchange as a central monopoly to the Austrian banks. Schleifer claims
clearing agent, trades on Turquoise are cleared on that Austria has one of the most technologically
Euro CCP. Normally, trading on the Vienna Stock advanced CSDs in the world, and cites the low market
Exchange, a client (perhaps a US bank) would instruct risks and high settlement rate as key elements of its
their Austrian custodian as to the settlement. With growing reputation. “The big banks in the market do
Turquoise, Euro CCP will send settlement instruction have electronic matching, there is very little phone
to the Austrian bank for the trade of the bank’s client. matching, it’s just exception handling, everything
The trade will be settled on the account of the client that is important for a modern market.” And, as with
even though the clients did not instruct the settlement. much of the custody world, local knowledge and direct
This process takes a swift and streamlined service relationships further enhance the banks in maintaining
from the custodian, “quick response time, very good market share despite the entrance of global banks.

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 CUS p. 33

Africa’s golden year

The investment attractions of Africa come under Vodia describes frontier Africa as first and foremost
the microscope in a recent research report from a story of growth: these nations and now their equity
Massachusetts-based Vodia Group LLC (Trading and markets are developing rapidly based on local trends
Custody in Frontier Markets: The Case of Africa). and are gaining international interest. They have
Highlights from the report include the statistic expanding GDPs and stock exchange capitalisations,
showing that Africa increased 24% for the last 12 both with strong upswings in the last five years. “The
months, compared to a drop of 23% for developed 13 investable markets referred to earlier cover much of
markets and a drop of 10% for emerging markets. sub-Saharan Africa and West Africa, the report notes.
“Frontier Africa exchanges have been growing rapidly Five years ago it was considered hard to even get a
driven primarily by local investor interest, with total local broker on the phone; today, though challenges
market cap expanding 480% between 2000 and 2006,” exist, access is improving. Exchanges are becoming
calculates Vodia. “Trading turnover in frontier Africa more liquid and custody and settlement systems are
rose from USD653 million in 2000 to USD5.3 billion developing rapidly.
in 2006. We estimate the frontier markets will reach
the current level of development of emerging markets “On 9th June of this year, the world saw the first
in 15 years, with electronic access, developed securities major frontier African IPO: Safaricom, the Kenyan
servicing and full prime brokerage coverage,” adds state-owned mobile telephone service provider, went
Vodia. “Custody and central securities depositories are public on the Nairobi Stock Exchange amid great
growing.” fanfare. Investors applied for four times the quantity
of shares offered by the government. The new listing
In spite of its limitations, Africa in particular is seeing gained 47% in its first day of trading as international
unprecedented levels of new investor interest. Nigeria, fund managers as well as Kenyan investors snapped
with its energy reserves, growing economy and large up shares. The IPO was a world-class affair, handled
population, is commonly identified as one of the next locally by the Dyer & Blain Investment Bank based
BRICs, continues Vodia. “By our count there are 13 in Nairobi and internationally by Morgan Stanley.
investable frontier African equity markets, difficult to Deloitte and Touche was the accountant firm for the
access and still largely undeveloped, but with strong IPO and PricewaterhouseCoopers the independent
returns and high potential. Some push the border auditor. It appears to have been the first time that a
of an investable market: they are paper-based, cash frontier African company broke into the consciousness
settled, and have floor access exchanges with limited of the global investment community, and it brought
liquidity. Even so, with investors worldwide looking the world’s attention to the Nairobi Stock Exchange;
for alpha-generating opportunities, global attention is trading volume on the exchange tripled in the wake of
shifting to these outposts of equity investment.” the IPO.”

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 Dorem

p. 34 Goal

Assume the recovery position

Stephen Everard, managing director of GOAL Group, investigates class actions participation and
withholding tax reclamation – two prime opportunities to boost investor returns in the credit crunch

Call to action
Let us first take a closer look at the area of class
actions. In the US, class action litigation has been used
by groups of shareholders to recover losses stemming
from fraud and misgovernance for decades. But in
the absence of a class action mechanism in most
other legislatures (with the exception of Australia),
the turn of the millennium saw European (US-listed)
companies being called to account in the US courts;
and subsequently foreign investors began to file lead
plaintiff motions in cases against both European and
US firms. Well-known European firms that have come

W itholding tax reclamation and class action

participation are two areas of investor services
that are increasingly brought into the spotlight as
before the US courts include Parmalat, Royal Dutch
Shell, Vivendi and Daimler Chrysler. RiskMetrics
(formerly Institutional Shareholder Services -
fund managers realise the extent of the opportunity “Accountability Goes Global”, May 2007) notes that
to boost returns in turbulent times. GOAL Group’s in each year since 2002, international institutional
calculations, based on extensive third-party research investors have filed lead plaintiff motions in over 5%
and our historical records of reclaims and filings, of all US class actions, with investors from Germany
shows that between 2000 and 2007 institutional and Austria submitting the most filings. Last year,
investors’ failing to participate in US securities class the first UK local authority pension fund (Avon) was
actions resulted in nearly USD12 billion being left appointed in the case against GlaxoSmithKline. These
on the table. Some USD3.6 billion of this can be precedents are surely a wake-up call for foreign firms
attributed to European investors. and investors to ensure they are not foregoing their
legal right to claim damages through the US courts.

Between 2000 and 2007 institutional investors’ failing to participate in US securities class
actions resulted in nearly USD12 billion being left on the tableinstitutional investors’
failing to participate in US securities class actions resulted in nearly USD12 billion being
left on the table

Around the millennium, corporate governance The staggering losses for defendant firms in class
scandals such as Enron were the main instigator of action lawsuits are enough to make any fund manager
class actions, but the mantle has since passed to the sit up and take notice. If we include the so-called
subprime mortgage market crisis. Similarly, the latest ‘mega’ settlements into our calculations, then the
figures (2006) show that USD10.5 billion of global average class action securities settlement up to end
investors’ rightful returns from their foreign shares 2007 sits at some USD54 million. Furthermore,
and bonds were wasted, because withholding tax on average settlements are on the rise - Cornerstone
dividends and income is not being properly reclaimed. Research notes in their 2008 Mid-Year Assessment:
This represents around a quarter of all withheld tax “Market capitalisation losses [...] in the first half
on foreign securities. On average, lost returns through of 2008 were higher than the average semiannual
unreclaimed tax have escalated by more than 80% losses in the eleven preceding years”. A downturn in
since 2003. filings between mid-2005 and mid-2007 prompted
many commentators to speculate on the demise of
US class actions. But from mid-2007, there has been
a significant rebound, with the main data sources in
this area showing lawsuits filed in 2007 to be up by

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 p. 36 Goal

43%-58% (definitions vary) on 2006. Figures from information about the relative merits and procedural
Cornerstone Research also show that this upturn has processes of the actions. It also requires the time and
continued into 2008, with 110 filings compared to 107 resources to review and evaluate relevant settlement
during the last half of 2007. They note that around provisions. Investors must then cross-reference these
half of these filings so far in 2008 has been driven by outputs against extensive individual trading activity
the subprime mortgage crisis, which is likely to remain data and then compile and submit the often complex
the catalyst for class action lawsuits over the coming paperwork necessary to make a valid claim.
years. So not only is the volume of lawsuits increasing,
but the average filing loss is also on the rise. The demand for efficient and affordable means of
participating in securities class actions and recoveries
A taxing challenge has inspired the development of outsourced services
The second area that presents huge opportunity for that overcome the claim processing complexities.
fund managers and custodian banks is that of tax These services combine legal and procedural expertise,
reclamation. Income earned on foreign securities with a shared knowledge bank and alert facility. The
attracts a withholding tax in the country of origin. key processes comprise: pinpointing and informing
However, some of that may be reclaimed by custodians investors of portfolio losses suffered allegedly due to
for their clients. Investor losses due to non- corporate fraud or malfeasance; delivering accurate
reclamation have increased substantially since GOAL’s and appropriate legal advice concerning US law,
second market analysis in 2003. There are numerous investors’ legal rights and their legal options; tracking
reasons for this; for instance, the proportion of and monitoring securities class actions in the US legal
cross-border shares holdings is increasingly globally, system; and putting strategies and procedures into
and dividend yields have become a highly scrutinised action for investors’ to submit valid claims and recover
element of investors’ portfolios, with consequent settled funds.
pressure on fund managers to maximise this element
of return. The real impact of non-reclamation in Similarly, when it comes to recouping withholding tax,
today’s investment environment is that a significant technology is now widely available to automatically
proportion of investors’ rightful returns are perform the highly complex task of submitting
languishing in foreign tax systems. claims, a process which has to incorporate varying
data, formats and procedures from many different
Furthermore, it is now estimated that the global legislatures around the globe.
market for withholding tax reclamation services by
custodian banks is worth around USD860 million. It has never been more pressing for institutional
Many leading custodians have already recognised investors find ways of accelerating their returns.
the market opening represented by effective tax Thanks to the latest recovery technology and
reclamation services, both for their fund management services, the financial rewards gained by reclaiming
clients, and as an interbank services opportunity. But withholding tax from cross-border securities returns
with around 25% of reclaimable withholding tax still and by participating in US securities class actions far
unreclaimed every year, there is a clear opportunity outweigh the time and cost involved in submitting
for custodians to increase the scope and efficiency of the required claims. The continued growth of mega-
reclamation services. settlements in class actions, as well as the upward
trend in filings, is leading more and more investors
Technology to enable the task to consider playing an active role in US litigation. In
Increasingly savvy investors, in markets where high the early millennium, corporate fraud was the main
yield investments are harder to come by, are putting instigator of class actions; the mantle now seems to be
the fund management community under growing passing to cases born out of the recent international
pressure to maximise their investment returns. But credit crisis. In both areas, there is an urgent need
fund managers and service providers still have a (indeed, legal obligation) for institutional investors to
long way to go in both the areas discussed above. make claims on behalf of their clients and to ensure
Many seem to believe that the cost and time taken to that they are maximising their potential returns.
undertake these tasks is likely to outweigh the benefits
from potential settlement recoveries or tax reclaims A copy of GOAL’s most recent report into Class
– a myth that we have exposed by putting figures on Actions, “A Class Act?” can be obtained by emailing
the potential financial rewards. [email protected]

When it comes to class actions, keeping track of the

opportunities to make a claim, and the processes
required to do so successfully, can be a complicated
and daunting task, particularly for European investors.
Such an undertaking requires timely and accurate

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 Don’t Get Burnt
By Bad Corporate Actions Data
Clearance and Having to validate thousands of corporate actions each week
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1-114-PDF FINAL NEW .indd 37 16/1/09 15:41:52

 p. 38 Panel Debate

Corporate Actions Discussion

BRETT LANCASTER, Vice President, Global Asset Solutions, LLC The Depository Trust & Clearing
Corporation. Brett Lancaster is the Business Manager of Global Asset Solutions, LLC, a wholly
owned subsidiary of DTCC, which was created to deliver specialized business-processing
outsourcing solutions to financial intermediaries globally. The major product offering of
Global Asset Solutions is DTCC’s Global Corporate Action Validation Service.

Christopher Madigan is the vice president and head of global sales and marketing for Fidelity
ActionsXchange, a leading provider of global corporate action solutions for many of the
world’s top asset managers, hedge funds and broker dealers. He has more than 15 years of
financial services experience in sales, marketing, client management and the administration
of global retail/institutional assets.

John Byrne has over 20 years experience in the IT industry, co-founding one of Ireland’s first
university campus companies in 1985 directly after graduating as an electronic engineer. He
helped build-up this Company to be a European leader in its field in the power automation
sector and successfully sold out of this business in 1995. He founded Information Mosaic in
1997 to develop Internet applications in the Capital Markets sector.

Nat Sey is reference data business manager, Interactive Data (Europe). Nat is a member of
ISITC Europe, the Reference Data User Group (RDUG) and its corporate actions working group.
He is also Interactive Data’s representative and co-chair of the Market Data Provider User
Group (MDPUG), as well as one of the representatives on the MiFID Joint Working Group.

Mr. Jan Jørgensen, Nordic Head of Corporate Actions, Nordea ́s Securities Services
Jan Jørgensen has over 14 years of experience from financial services and banking. He
has worked in different positions within Nordea. His latest position has been working with
process development in relation to settlement and corporate actions in Nordea. Currently
he is responsible for managing corporate actions services in Sub- custody and Clearing in
Nordea.

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 Nordea Bank AB (publ)
Spot-on custody services.
Do you need custody services in the Nordic region? voting, securities lending and borrowing services,
Or are you looking to take advantage of market issuer services and market information covering the
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We are the leading financial services group in these manager supported by a Nordic team of specialists.
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and custody services in each market as well as the as large as our nearest competitor. If you want to
entire region. capitalise on our experience, please contact
Our comprehensive services include extensive Ms. Anne-Lise Kristiansen tel +47 2248 6238,
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Making it possible

1-114-PDF FINAL NEW .indd 39 16/1/09 15:42:06

 p. 40 Panel Debate

1. Positions in corporate actions now Jan Jørgensen: Is there a shortage of Brett Lancaster: Yes, there is a shortage of
require an increasingly complex and qualified people to take up positions in qualified people with the right skills. For
esoteric set of skills – is there a shortage of corporate actions? The answer to this securities organisations, the management
qualified people for these roles? What can depends on two main factors. First it of corporate actions through their lifecycle
be done to mitigate this shortage? depends on how you define the required is still complex, risky and highly manual.
skills and competencies to take up positions Simply getting hold of good, “clean” data
Nat Sey: Those working in corporate actions to handle corporate actions and secondly on that is comprehensive is very challenging.
processing roles are often unsung heroes. the capabilities in the financial institutions The skill set needed to manage the data is
The difficulty is that these roles require to develop and educate new staff to work very specific, and very deep.
people who understand the markets – and if with corporate actions. To illustrate, we find that it takes us 20 times
those markets are to be covered adequately If skills and competencies are defined as the effort to clean-up a voluntary corporate
(and who is not global these days?) one also number of years of experience working with action than it does to clean up a cash
needs to throw a healthy dose of language corporate actions and the institutions do dividend announcement. Also, as portfolios
skills into the mix. There might always be not have resources or capabilities to develop become more geographically diverse, we find
a shortage of such skills as it’s a difficult and educate new staff, yes, then I think we that it takes us five times the effort to clean-
balance to achieve. Some firms have see a shortage of people to take up positions up an corporate action event from outside
experimented with placing staff in lower cost in the Nordic markets. But to mitigate this the US than it does to clean up a US-based
locations and offshoring, but that doesn’t shortage requires that organisations are announcement. For the emerging markets,
always solve the problem. You need people aware of this risk and have the capacity to that factor jumps to 25 times. The extra
who understand the local markets and their handle this. The shortage should not be effort is needed because these events are
nuances, so hiring people thousands of miles a big surprise for anyone being working complex, the market practice rules are less
away may not be helpful in the long run. in corporate actions or in any kind of mature and the data is less readily available.
John Byrne: As in all industries the best operations that require specialist staff. In addition, we see cyclic peaks and troughs
qualified individuals are always at a premium Staff turnover, new technology and changes reflecting the swings in volumes of events
– they are scarce and costly. As corporate in the complexity in corporate actions being announced by the market. Volumes
action activity gets more complex, so and volumes - just to mention some of can easily double, and sometimes treble,
does the need to support the process in a the challenges and changes we are facing between quiet and busy periods, especially
more structured, automated and efficient – require that the organisation and the during “European dividend season,” which
manner; while providing the decision maker management have the focus and resources runs from February through May.
the correct information and maximum as well as updated and defined procedures in All of these factors need to be managed,
time to make a fully informed decision. place to handle these challenges. and firms only have two choices. Either,
By increasing the level of systemic and they manage the complexity and effort
automated processes a firm should be able Christopher Madigan: Operations groups themselves, or they outsource the effort to
to free up its key resources to focus on the today find themselves having to do more an experienced third party.
implications of the corporate actions and its work with less people. As a result, many If they do the work themselves, then
key risk areas. These needs and challenges organizations are taking a second look independent studies, for example those
have been recognised by software vendors, at resource draining functions such carried out by CityIQ, have shown that across
such as Information Mosaic (IM) and we as corporate actions processing which a sample of hundreds of firms, both large
are actively working with clients to identify continues to be a highly manual and costly and small, the average number of resources
standards and automation capabilities to activity. needed is between 15 and 20 FTEs (full time
process these complex corporate actions, Firms are looking for cost-effective options equivalents). For every firm to get hold of
produce accurate and informed data, while such as working with external providers who this number of qualified people is, to say the
mitigating the risks of mistakes. Systems can handle a piece or all of the corporate least, challenging.
will never fully replace the abilities of an actions function. Alternatively, firms can mitigate this
experienced corporate actions person, but Fidelity ActionsXchange has experienced issue by engaging with a third-party
they already help them to ensure corporate this first-hand with a record increase in our expert that acts as a centralized “data
actions details and calculations are correct. client base over the past few years. Firms scrubbing” outsourcing provider. As
They have also added a great deal of value to turn to us to for cleansed and validated well as helping firms manage the risk,
the election process and to automating the corporate actions information as well outsourcing also enables firms to reassign
transfer of data and decisions. These systems as exception processing solutions. This operations staff to other duties. There are
have reduced the need to review every allows our clients to receive and utilize two prominent outsourcing candidates,
standard corporate actions and given the key comprehensive and accurate global corporate Fidelity’ ActionsXchange and DTCC’s GCA
and scares resource the time to focus on the action information in a timely manner Validation Service, both of which provide
more complex ones. without adding staff or technology to their “scrubbed” corporate action announcement
front and back office operations. information, on a range of global securities.

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 Intelligence in Action
Corporate Action Solutions for the Global Economy

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1-114-PDF FINAL NEW .indd 41 16/1/09 15:42:07

 p. 42 Panel Debate

2. The volume of corporate actions has to ensure the right decision is made for the John Byrne: The transparency of information
continued to increase over the last few good of the beneficial owner. between different areas within an
years, and this summer’s business news has organizations trading and corporate finance
been dominated with stake-buying, rights Jan Jørgensen: Being a regional custodian division is well managed and defined by the
issues and underwriting. What implication implicates that the capability to handle FSA. The fact that these firms went short on
does this have for the financial industry? new types of corporate actions is in place. HBOS were, I’m sure, based on standard and
The automation of the existing corporate fully informed trading decisions. The ability
Christopher Madigan: Increasing global action flow and the flexibility of the systems to track and support these types of positions
corporate action volumes combined with certainly will and has implicated, that we as part of the corporate action process is
growing complexity are causing financial have a higher operational risk. But again this vital to maintain this transparency. The
services firms to re-evaluate their internal is a part of the sub-custody challenges we use of an automated corporate action
processes and systems. As a result, we have to handle. processing applications such as IM’s camaTM
are seeing more organizations move from application ensures this transparency is
using in-house systems and resources to Brett Lancaster: The volumes of unique maintained and reconciliation issues are
implementing third-party corporate actions corporate action announcements (i.e., those reduced. This is through the continuous
solutions. that are actively announced to the market tracking of all associated transactions, be
Firms are looking to partner with providers as a press release, a prospectus or a filing by they selling short, borrowing, lending etc;
who can deliver robust corporate action the issuer or agent) rather than scheduled then maintaining that transaction link
solutions to gain efficiencies, save money, payments (i.e., those that are systematically with the corporate action and overall firm
reduce risk and add value to the trading and generated from a Security Master File) have position. This link maintenance eliminates
investment process. been growing steadily for a number of years. any associated reconciliation breaks and
Whilst volumes fluctuate from month to maintains the transparency to the user of
Nat Sey: A simple analysis of the situation month, the background growth rate since the overall position. Changes are tracked
might suggest that unless the capacity of 2003 is about 5% across the globe across all and updated immediately and further
corporate actions processing departments event types. In 2007, the volume of unique automation is maintained.
has grown by a similar margin, then the risk announcements, disregarding updates to
associated with either processing a corporate existing announcements, was almost 1.1 4. How can companies cut down on the risks
actions event incorrectly – or missing million. associated with some corporate actions?
it altogether – has also risen over that In terms of the impact on corporate actions,
time. It is unlikely that the not-so-widely the uncertainty in the current marketplace Christopher Madigan: Because of their
acknowledged ‘contingency funds’ that exist manifests itself in a number of ways. Firstly, manually-intensive nature, corporate actions
to rectify the ramifications of processing a weak economy caused by weak results from represent a significant area of risk. The first
errors have increased in size over that time. individual firms means that more companies step toward mitigating this risk is having
The net result is a potential for even greater are looking to bolster their financial a clean corporate actions data set that can
risk – and less means to deal with it if that backbone from their existing shareholders interface with key internal applications.
risk is realised. using a rights offering corporate action Many firms have an over-reliance on a single
event. Secondly, weak results from individual source of information despite the fact that
John Byrne: More volume or more complex firms may make the firm vulnerable to a no one data vendor has a monopoly on
Corporate action activity simply increases the takeover or merger event. Thirdly, weak accuracy and global coverage.
risk and cost to all those involved. This is an results, in their extreme, will result in a Firms looking to alleviate many of the
area where throwing bodies at the problem liquidation or bankruptcy event. On the flip risk factors inherent in corporate actions
doesn’t work. Systems need to be enhanced side, in a weak economy, firms often decide should take a multi-vendor approach. That
or replaced to control that risk and cost. The not to pursue effort consuming and costly being said, they can either use their own
systems today need to have more features takeovers or mergers, but decide to ride the resources to compare multiple sources and
than previously and must cover the entire uncertain times sitting on their money. manually cleanse the data for exceptions or
spectrum of Corporate Action processing. source their data from a provider who offers
The complexity, risk and market impact of a 3. Why were Morgan Stanley and Dresdner cleansed corporate actions information.
number of the more recent and high profile Kleinwort able to short sell the stock This will ensure the most accurate
corporate actions has only highlighted the in HBOS given that they were acting as and comprehensive gathering of data
need for corporate action management underwriters and were privy to exclusive significantly cutting down the risk involved.
applications to not only process the event information that usually cannot be used for
but to aid the company in monitoring and financial gain? Is more transparency needed Jan Jørgensen: Depending on the
mitigating the risk. Together with analysing in this area? complexity and the frequency of each
and reviewing market impact as it happens corporate action type, one obvious action
would be to ensure a higher automation in

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1-114-PDF FINAL NEW .indd 43 16/1/09 15:42:16
 p. 44 Panel Debate

the process. This will also give the possibility Build in systemic monitoring and reporting message types MT-564 and MT-568 covering
to differentiate between diverse positions to to independently verify coverage, timeliness the “announcement.” Arguably, ISO 15022 in
handle corporate actions. and accuracy its present form is a good start, but does not
Depending on the level of automation, it will cover all corporate action event types and
give the operations an opportunity to work John Byrne: Risks are always a factor does not cover all necessary data elements
more efficiently, by giving them more time when processing and tracking complex to be considered complete. We believe ISO
to certain corporate actions types that need corporate actions. To mitigate these risk 15022 does, perhaps, 70% of the job needed.
special attention due to the complexity or companies need to be able to proactively For the standard to be complete, and,
lower frequency. track and analyse the corporate actions as importantly, for the standard to be used,
Another major risk is the capability to its happening. IT’s vital for them to be able sweeping changes will have to take place
interpret each type of corporate action. to view issues and resolve them as easily within the industry. These changes can only
This is especially the case if the market does and quickly as possible. The use of the be addressed by big and bold, industry-wide
not have any kind of standardisation (eg MT56X message range has in no doubt aided initiatives. This is a challenging objective,
format, communications form, time of the companies in managing this risk. Corporate but the tide is turning.
announcement) of the announcement or actions systems have also continued this Firstly, industry organisations such
a data supplier. Therefore standardisation through the introduction of automated as the DTCC, SWIFT Standards, Market
would also be something that would corporate action data management and Practice Group ISITC, SIFMA and key
minimise the risk. processing applications that track the global custodians and broker/dealers are
issues and highlight the risks and problems actively working with the ISO organization
Brett Lancaster: Companies can reduce to a user immediately. This ensures the to enhance ISO 15022. Collectively, across
their risk associated with corporate actions decision maker is accurately informed of all stakeholders, there are about 200 data
by following some best practices that we the corporate action data in a much faster elements that will need to be added to the
observe in the market: manner. This alone will not fully reduce risk. existing standard over the next few releases
Either select multiple reputable data sources We at IM are also researching the capabilities of the standard. Once it is complete, ISO
from specialized corporate actions vendors to analyse and track other risk associated 15022 will be replaced with ISO 20022. ISO
and then employ sufficient skilled staff to with the corporate action including price 20022 will be the holistic, global, standard
validate and scrub the data. Overlay this fluctuation risk, Election management that will be entirely based on ISO 15022
data stream with announcements from analysis and risk alerts. These functions fields and structure, but will use XML
the firms’ custodians and sub-custodian will all help to ensure the corporate action messaging rather than a file-based format.
network. If the firm elects to ‘buy’ rather is tracked and managed correctly and risk We understand that the first release of
than ‘build,’ use a tried and tested off-the- reduced. ISO20022 is targeted for November 2010, and
shelf corporate action system that will allow there will be a coexistence period with ISO
staff to scrub the incoming data. The firm Nat Sey: Unfortunately, there is no magic 15022 of at least three years.
needs to re-align its processes around the bullet. The simple answer is to spend more Secondly, DTCC is undertaking its Corporate
off-the-shelf tool, not the other way round, time and more skilled resource concentrating Actions Re-engineering Initiative. This is
as making sizable changes to the tool may on the types of events that are more likely a major, multi-year, project to rewrite all
not be realistic. to cause the pain. How does one stretch DTCC’s corporate action systems, covering
Alternatively, outsource the announcement an already ‘at capacity’ corporate actions announcements, elections and payments.
validation function to an experienced third processing department further? Automating Initially, the new system will create
party. Before selecting the provider, ensure the events that are more straightforward corporate action announcements in both
adequacy of the portfolio coverage, physical – mandatory income events spring to mind ISO 15022 and XML formats, with the aim
office presence and language skills for the – can provide the headroom to be able to of migrating to ISO 20022. This change
markets in question and, ensure service deal with the more challenging periods, such is important, because it ensures that all
delivery against contractual Service Level as regional income seasons, and enable extra of DTCC’s participant clients, which are
Agreements scrutiny of the more esoteric events that can essentially all of the North American market,
Ensure that the validated data, once inside be an increasing cause for concern. will actively use industry standards. The first
the firm, is centralized, accessible to all release is scheduled for 2010.
users and integrated to all necessary internal 5. Is standardisation of communication These initiatives ensure that standardization
systems. This is easy to say, but much harder – particularly in the form of data – possible is global and holistic, and, at least
to achieve in reality, as our experience shows in a global network? in the North American market, that
that most (but not all) firms have multiple standardization is actively used, rather than
systems and multiple teams across multiple Brett Lancaster: Data standardisation on a ignored.
business lines, due to physical geography or global basis is not only ‘possible’, it is also a
acquisition. To manage this risk, plan big, ‘must have’. Currently, the global standard Christopher Madigan: SWIFT has made great
start small and only scale once it works. for corporate actions is ISO 15022, with strides in the development of its ISO format.

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 p. 45 Panel Debate

The problem, therefore, is not necessarily their recommendations into new releases of
with standardization, but rather adoption. the ISO 15022 format which have allowed their SWIFTReady accreditation. A similar
Universal adoption without regulation is it to improve every year. Still concerns accreditation for the senders of these
highly unlikely because there is no incentive remain over the lack of granularity. Data in messages i.e. custodians, data vendors
for firms to build or purchase new systems or the current ISO format is available only at etc would also go a long way toward a
retrofit existing systems in order to accept a a high level and it is difficult to drill down standardised SMPG Compliant output and
global data standard. into more specific areas. Providing greater interpretation. The more the custodians
detail by incorporating more fields and event and other senders of messages comply with
Nat Sey: The short answer is yes. The types can certainly help to make data more SMPG guidelines and are measured based
qualified answer is only if all the parties are meaningful and useful to end-users. on their compliance, the greater the level of
willing to do so, and importantly, are willing automation clearer communication.
to compromise. One industry working Brett Lancaster: In its current form, ISO
group member once explained to me how 15022 is both incomplete, as discussed Nat Sey: One might assert that it is a little
everyone in this space was thinking: “Global above, and open to abuse. In a simple unfair to blame a standard’s designers for
standardisation [of corporate actions] illustration, our experience shows that many making that standard too flexible, when the
requires a great deal of compromise, but custodians transmit corporate action events various eventual consumers of that standard
if I am negotiating with a competitor in a in a message structure that is ISO 15022- originally encouraged the designers to build
working group I don’t want to be the one to compliant. However, rather than enhancing in flexibility so as to be able to accommodate
compromise – I want the other guy to!”. We STP rates, we find that custodians use the all the various nuances of regional market
all carry our regional, technical and political flexible nature of the current standard practices. ISO 15022 is what it is: a flexible,
baggage. What standardisation asks us to do by tagging events as ‘OTHE’ (for ‘other’), comprehensive standard. But standards
is to check that baggage in at the door and rather than tagging the event with its are never enough by themselves. Market
proceed with an open mind. correct event type. OTHE simply forces the practice is always required to document the
event to go through a manual exception nuances. I would be more inclined to blame
John Byrne: The globalisation of markets process so that it can correctly assigned. Of the lack of across the board adoption of the
and communications is continuing to all the scores and scores of different event Global Market Practice guidelines than the
accelerate within the financial services types in use, OTHE is ranked number three standard on which they were built.
sector. It can be seen with the take up of in terms of volumes. As described above,
the ISO 15022 MT56X message that the industry organizations such as the DTCC, Jan Jørgensen: As a sub custodian covering
standardisation of communication has SWIFT Standards, Market Practice Group the Nordic markets, we can and will improve
been, and continues to be, embraced across ISITC, SIFMA and key global custodians and it by ensuring that we are supporting the ISO
multiple markets. This can be seen with the broker/dealers are actively working with the standard not only in one market but in all
decision by the DTCC and other CSD’s to use ISO organization to enhance ISO 15022, as Nordic markets.
these communications methods and message necessary. But working with an “over-flexible” system
formats to announce corporate actions. also requires that all custodians ensure
More and more sectors including Investment John Byrne: The market practice groups correct interpretations of eg each corporate
Banking, Brokerage and Asset Management work continuously to address the issues action type is being done in a similar way not
have seen the benefits of using standard with the over flexibility of ISO 15022 only in one but all markets.
methods of communication in automating messages and try to create specific market But then who does the interpretations? Staff
the process and reducing the risk associated practice guidelines for each Corporate working with corporate actions! Does the
with corporate actions. IM believe this will Action Type. There are 65 as at (SR2008) financial industry support with the same or
continue and the introduction of ISO 20022 listed by SWIFT/ISO and clearly this means enough possibilities to ensure that it is being
messages will continue to increase the levels enormous flexibility must exist to support done in a similar way? My impression is that
of standardisation. all the nuances. A template based approach we could benefit from the system on a higher
is what everyone strives for but with market level just by ensuring that the staff has the
6. ISO 1522 is a respected system with differences it is unlikely that all Markets skills to use it and that each operation has
increasing integration in the US – a vital will agree to a more rigid structure entirely. their system designed to support the ISO
market. Some say, however, that it is over- As with everything though, the 80/20 rule standard.
flexible, and some data content can have should apply. Extremely good automation
different interpretations. What alterations rates can be achieved by automating 80%
could improve it? of Corporate Actions and that has to be an
attractive option for most firms. SWIFT are
Christopher Madigan: SWIFT’s Securities also working to ensure SMPG guidelines are
Market Practice Group continually solicits complied with; particularly with regard to
feedback from end-users and incorporates the software vendor community through

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 pp. 46 UCITS

UCITS on the block Joe Corcos gauges the progress of Ucits IV, the latest step
in the journey towards a pan-European funds marketplace

P erhaps one day there will be a genuine

common European marketplace for
the fund sector, where regulation and
The Ucits directive is certainly one of
Europe’s success stories. Since it was first
devised in 1985, the uptake of the Ucits
Ucits IV proposals
• Remove administrative barriers to
cross-border distribution of Ucits funds
the bureaucracy involved will run ultra fund structure has grown rapidly. There
smoothly and everything will resemble is now over EUR6.4 trillion of assets in • Create framework for mergers between
Ucits funds that allows the user of
tea-time at Lollipop Junction. But until Ucits funds in Europe – the equivalent of master-feeder structures
this happens, there is still much work to be about half the EU’s GDP. And Ireland has
done. The recent progress of the Ucits IV grown to be one of Europe’s premier fund
• Harmonise authorisation procedure

• Harmonise required level of information

proposals is the latest building block in the centres on the back of the directive, with available to investors
hoped for edifice of a pan-European fund over 80% of NAV of funds in the country • Replace Simplified Prospectus with new concept
marketplace. To an observer, the proposals, using the Ucits structure. In order for of Key Investor Information (KII), a short
which contain genuinely needed reforms Europe to remain competitive with the US, document conveying key facts to retail investors.

to the fund structure, are proceeding on a where the average fund is three times the • Improve cooperation mechanisms between
national supervisors.
tortuous path slowed up by various political size of its European counterpart with half
and industry-related wrangles. But in fact the management fees, the continuation and
progress has been relatively smooth so evolution of the Ucits brand is essential leveraging than under Ucits I. However, the
far, when one takes into consideration the - this much is obvious. process of their construction is so long and
arcane, intricate path an EU directive must The latest incarnation of the arduous, they can often become obsolescent
tread before it is ratified. But the clock is directive, Ucits III, has proven to be almost as soon as they are released.
ticking on Ucits IV and there are still issues generally well constructed, useful, and Peter O’Dwyer, director at Trinity Fund
to be resolved. For the sake of the health of popular across the board. It allows the free Administration in Dublin, says: “Given
the industry this directive must be approved marketing of funds across Europe, and the speed with which the investment
on time. more freedom for long/short strategies and management industry evolves and the

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 UCITS pp.
p. 47

resulting product obsolescence, the UCITS they were. Some have suggested McCreevy Luxembourg regulator, CSSF, agrees:
product inevitably often seems to be purposefully delayed the proposals, so that “What will be the nationality of these
facilitating what the industry wanted to had they included the passport, (which legal constructions? So far they have the
do five years ago. Having said that, there’s would in some eyes undermine Dublin as a nationality of their management company.
no doubt that UCITS as a brand has fund centre), they could not have been used With the passport the nationality could
been incredibly successful and not just in as ammunition by those against the Lisbon change from one day to another.”
Europe.” Treaty. Of course this argument is now Greischer goes on to point out
But the continuing prosperity academic. As it turns out the Irish rejected that should the passport be implemented,
of the Ucits brand depends largely upon it the treaty anyway, and when the proposals it would be a reversal of what was decided
advancing through its evolutionary cycle. did come out on July 16th the company under Ucits III, which was that investment
Successful though it was, most will agree passport was omitted and the matter sent funds should have a certain substance in the
that it is past time to retire Ucits III and to the Committee of European Securities member state they are set up in.
usher in the age of Ucits IV post haste. Regulators (CESR) to mull over. CESR There is the feeling among
This is of course more easily has until November to come up with a the regulators, which is valid, that not
said than done. Because Ucits IV is an EU solution. The formal proposals for the new enough has been done to nail down the
directive, it is subject to more squabbling, directive are due in May 2009. It is almost specifications of how the passport will
tears and tantrums than a favoured toy unthinkable that some form of the passport function.
in a pre-school playground. The sheer will not to be included. Greischer adds: “Its not that
amount of agendas and opinions at play is Sending the passport to CESR was we are against it [company management
enough to make Job himself throw up his the correct decision by McCreevy. Though passport], it’s just happening too quickly. A
hands and call it a day. Luckily the man in the company management passport is change from substance to passport with no
charge is Charlie McCreevy, a hard-nosed a good idea in theory and will go some discussion or cooperation is not as easy as
Irishman who has forged a reputation for ways to furthering the free operation that.
outspokenness since assuming the post of collective investment schemes across “There are mixed views in Ireland
of the EU’s top financial regulator. This Europe, the practicalities of implementing because some people in the jurisdiction
is the pro-enterprise commissioner on a it have clearly not been thought through would actually say that the management
commission largely made up of socialists, sufficiently. One issue that concerns passport is good because the management
who told the EU Parliament last year that regulators is that of the status of funds can all be done from here anyway.”
hedge funds were in no further need of that are set up contractually, such as unit Jean-Baptiste de Franssu, the
regulation, despite the fact that a baying trusts, and have no legal identity separate CEO of Invesco Europe, agrees that more
mob of EU politicians were calling for just from their management company. Were the time should have been devoted to the issue
that. In July the leader of the EU’s socialists, management company passport to pass, of the passport.
Martin Shultz, called for McCreevy’s the question would arise as to who would “I think one of the reasons
resignation after the commissioner be responsible for the supervision of these why we are where we are today is because
commented that “no sane person” would funds. probably we did not spend enough
read the Lisbon Treaty. Technically it is only the unit time earlier discussing the company
Already Ucits IV has presented trusts that require a management company. management passport”, he says.
McCreevy with a headache over the Ucits that are variable capital investment “We have not spent enough time
question of whether to include the companies function their own manager, on the company management passport
controversial company management though of course some Ucits funds of this during the last two or three years and a lot
passport, a proposal which if ratified would type do enlist management companies. of the conversation is now taking place,
allow a fund management company to be Martina Kelly of the Irish which has led to a number of uncertainties
authorised and regulated in a different EU financial regulator, says: “There are mixed being raised in the last six months because
country than where its funds are domiciled. views in Ireland because some people in there was still some misunderstanding on
Essentially this would leave the regulators in the jurisdiction would actually say that the where the company management passport
that country rather circumvented. The fund management passport is good because the starts and stops, and so forth.”
sector is almost unanimously behind the management can all be done from here
passport, but unsurprisingly regulators in anyway.” Like most in the funds industry, de Franssu
Dublin and Luxembourg are leery. Her colleague in Luxembourg, believes that any problems concerning
Many in the EU and Europe’s Irmine Greischer, head of the Department the passport can be solved in time for the
fund sector had expected the Ucits IV of Supervision of Undertakings for formal proposal in May.
draft proposals to be released earlier than Collective Investment (UCI) at the

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 p. 48 UCITS

Mona Patel, a spokesperson for the “It is probably not a coincidence that the
Investment Management Association, countries who came down in favour of a
says: “We’re fully in support of having a full passport regime are primarily where
management company passport, and we the asset managers are located and those
definitely wouldn’t support something that countries which favoured partial passport
would reduce consumer protection. Some are the asset servicing/fund administration
of the countries are against it because they centres”, says BNY Mellon’s head of offshore
think there are some regulatory issues in management,
terms of introducing the passport. But Ross Whitehill.
these issues are not insurmountable and
they’re not major barriers to introducing “Both Luxembourg and Ireland have been
the passport.” lobbying hard to oppose the concept of an
Jean Baptiste de Franssu, A partial passport has been EU-wide fund management passport. Some
Chief executive officer, Invesco Europe proposed in order to mollify Dublin and believe that both Ireland and Luxembourg
Luxembourg, and others who are no doubt are worried that a full passport could erode
opposed to the passport that haven’t raised their dominance.”
their heads above the parapet yet. The Whether the management
partial passport would require just some of company passport genuinely would
the management functions, such as NAV, to undermine Dublin or Luxembourg is
be based in the country where the fund is perhaps doubtful. Both locations, with
located. their strong infrastructure, are viable
Dublin and Luxembourg are management locales.
behind the partial passport option, and O’Dwyer says: “There are
it is probable that it is some form of this mixed views in Ireland because people
anaemic version of the passport that will be in the jurisdiction may actually say the
recommended by CESR. management passport is good because we
MEP Dr Wolf Klinz, a member can manage all these things from here
of the committee on economic and anyway.”
monetary affairs, says: “My guess right now Amid the conflict surrounding
is that we will not have a full management the passport it is important not to ignore
passport. All functions being performed the fact that Ucits IV includes several other
with a management passport outside crucial proposals that make its ratification
the jurisdiction I think will prove to be desirable, irrespective of the passport.
impossible.
“We will probably see a first step Among the proposals is one that
that will open a door into this direction, would cut down on the amount of
then once the regulators and supervisors red-tape involved in the cross-border
have developed a way to work closely distribution of Ucits funds by making the
together constructively and productively, notification procedure a simple electronic
maybe we can shift more of those functions communication between regulators. The
to other areas”. European Commission has estimated this
Opposition from Ireland and will save approximately EUR45 billion.
Luxembourg does not simply stem from Additionally, the prospectus would be
regulation concerns. Both fund centres slimmed down from its current bulky
could theoretically have much to lose if incarnation, which differs from country to
the full passport was agreed, and various country, into a document of two pages.
national agendas play into the issue.
The UK, France and Germany Perhaps most importantly, the new
are siding with the industry in favour of Ucits would allow for cross-border
the passport, and the fact that the French mergers between funds, including the
currently hold the presidency of the EU harmonization of their authorisation
could lend influence to the passport’s procedure, and the use of a Ucits fund as
progress.

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 UCITS

a feeder, investing its assets into another passport will help in the road towards a
Because Ucits IV is such fund, a master. The authorization completely open European market, but if
procedure for these funds will also be it is devised in a hurry or without proper
an EU directive, it harmonised. It has been estimated that discussions and consultations, it will not be
these measures will save up to EUR6 billion, ratified. And the clock is ticking.
is subject to more possibly translating into lower costs for
investors. De Franssu says: “The calendar is very tight.
squabbling, tears Meanwhile, the wrangles over This is why the industry is already working
Ucits IV and of course the ubiquitous on potential solutions, a day is a day in the
and tantrums than a credit crunch have all highlighted the need process we have ahead of us, it’s a question
for Europe’s regulatory agencies to work of running, not of walking.
favoured toy in a pre- in increasing harmony with one another “But I think its doable, but it’s
and the industry itself. While it is obvious a tight window that we have to work with
school playground that the agencies are communicating here. Given where we are today I don’t look
and cooperating, this needs to speed up at it as being a possibility that there will be
significantly. no reference to the passport.”
Klinz says: “In the future I see Of course the overall concern
a college of supervisors working closely with the passport is that Ucits’ successful
together. I see the exchange of information brand of consumer protection not
becoming a more normal activity. be damaged. Hopefully CESR will be
Increasingly they will consider themselves able to devise a version of the passport
colleagues working for the same cause. And which allows for gradual migration of
even though legally they will be still be management functions inside a structure
independent, de facto there will be much where regulatory responsibility is clearly
closer cooperation than there is today.” delineated. What cannot happen is that
Come May it is important that Ucits IV go the way of Ucits II, which got so
the formal proposal for the new directive bogged down in EU bureaucracy that it was
is delivered on time, includes the passport, enveloped into Ucits III.
and has no major weaknesses. The company The industry needs Ucits IV and
can’t afford to wait for Ucits V.

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 p. 50 Sibos

Accuity will showcase a range of offerings at Sibos 2008 including its AT&T is the world largest telecommunications company by revenue
Compliance Suite, Strategic Services and Payments Solutions. Accu- with extensive experience in managing the design, implementation
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Sibos Attendants: SIBOS stand: C611

United Kingdom
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

Stand: B524
CB.Net is a payments reference data provider dedicated to the deliv-
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[email protected] ing: efficiency, cost savings and to meet compliance requirements.
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Contact details is address below

CB.Net
Market House
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Standard Bank is the largest custodian in South Africa by market +44(0)20 7522 6094
share, with around R2 trillion in assets under custody. It offers a Sibos Stand: B725
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SIBOS Stand 315, Hall B

An expansive network strategically positions Standard Bank to Mark Kerns Fiona Green
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+44 20 7815 5518 [email protected]
+27 11 636 0531

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 Sibos p. 51

Information Mosaic is a global provider of advanced custody, corpo- Over 21 years experience of close collaboration with the Capital
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Sibos Stand A709

peterevans is a leading independent provider of front to back office

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Website: www.sma.co.uk

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 Sibos

SmartCo provides Smart Financial Data Hub, a leading global

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RBC Dexia Investor Services offers a complete range of investor

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SIBOS stand: A108

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 p. 53
Aquin International

The streamlined solution to Substantial Shareholding Reporting

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LawCard can make it easier.
which can vary from the same a much smaller investment than
day (e.g. in Denmark), to four in larger multi-nationals. For
working days, as stated in the this reason the emerging markets
EU Directive, to anything up to funds are finding they are
seven days (e.g. in Bulgaria). suddenly buying up large chunks
of shares and having to report
The regulatory requirement their shareholding to unfamiliar
to disclose substantial stock exchanges like Malaysia,
shareholdings, and any Vietnam and Indonesia.
incremental changes to those
holdings, stems from the need But even investors who stick to
for transparency for shares more traditional markets may
traded on regulated markets, to find it difficult to keep track of
which voting rights are attached. shareholding limits. Large asset
These disclosures ensure that managers, for instance, might
investors and issuers can focus on more conservative
accurately determine the voting investments but tend to hold
structure of an issuer’s capital, stakes in hundreds of funds and
enhancing transparency of usually buy in large quantities.
important capital movements. They have to monitor limits on a
company level, making sure they
The biggest driver that is making don’t exceed allowed thresholds.
SSR much more complex is the

K eeping up with the

requirements for substantial
shareholding reporting (SSR)
States, when the shareholding
proportion reaches, exceeds or
falls below the thresholds of 5 %,
fact that fund managers need to
invest further afield to get the
same kind of returns on their
Aquin has developed a system
that automates SSR and helps
compliance officers cover
can be a complex, time- 10 %, 15 %, 20 %, 25 %, 30 %, funds as they once did from compliance regimes of new
consuming task for fund 50 % and 75 %. domestic markets. Emerging jurisdictions quicker. Aquin’s
managers due to the variety markets are increasingly SSR LawCard® service provides
of national thresholds and However, the global shareholder appealing to fund managers and a predefined set of rules that
reporting rules. limits, before regulatory investors but it is inevitable that monitors when SSR limits are
reporting is required, still vary the regulatory environments in reached on a per country basis,
In the US, reporting of from country to country, starting the various emerging markets at fund level or aggregated at
substantial shareholding from as a little as two per cent. constantly change and update as company level, across Europe
regulations have been part of The reporting thresholds and these markets develop. and most financial jurisdictions
the Securities Industry Act since posting requirements, laid down around the world.
1998 and since the EU Directive by different countries are subject Fund managers operating in
2004/109/EU shareholders to change from time to time. these markets must keep abreast Aquin identified the gap in the
have been required to report To add greater complexity to of these changes and ensure their market for a comprehensive SSR
to the relevant regulatory the task, some countries require systems are flexible enough to solution and customised and
authority or stock exchange, shareholder reporting when adapt to regulators’ demands or extended its compliance and
and the respective company, holdings have increased, or they run the risk of incurring monitoring solution, MIG21,
whenever upper or lower limits decreased, by just a percentage, additional costs and reputation to develop the SSR LawCard
of substantial shareholding are while others by ten or fifteen per damage from public reprimands as a standalone product.
exceeded. cent. and fines from the regulators. MIG21 has an adaptable
rules engine that is designed
The directive replaced and The SSR requirements can also Another issue when investing to function in a changing
standardised the various differ by country from an email, in emerging markets is that regulatory environment with
national guidelines in Europe a specific report, to a full set of companies tend to be much comprehensive oversight for all
and attempted to put a more documentation that needs to be smaller and this inevitably makes new and existing asset classes.
robust framework in place for filled in and approved. Another it easier to take a larger share It checks legal, contractual and
reporting. It states that reporting variable, that is country-specific, of the company, and reach the internal investment guidelines,
is mandatory, across the Member is the reporting timeframe, reporting thresholds faster, with post-trade, in a single system

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 Aquin International

to reduce the cost and time right up to the reporting limits, manually. By using Aquin’s a review of its literature on
associated with investment to maximise the information SSR LawCard and MIG21, it Major Shareholding Notification
process controls they have access to. could enhance the efficiency (MSN) disclosure and the
and reliability of its regulatory theoretical impact on price
The new SSR LawCard for Launched in June this year, the reporting processes and greatly formation. The regulator has
MIG21 automates SSR and new SSR LawCard has already minimise the risk of incorrect or found that, in relation to voting
protects fund managers from the three users, two hedge funds missing reports. rights, evidence suggests that
consequences of not reporting in the UK and a German asset MSN disclosures are of value to
substantial shareholding manager. At present, there is no However, more changes to the market, and are particularly
thresholds in a timely manner. real competing product to the disclosure requirements are important in the context of
It tracks any changes in share Aquin SSR LawCard, and so fund afoot, in order to include other takeover situations, where lack of
voting rights automatically managers have to employ staff instruments. In January 2007, disclosure of significant holdings
ensuring alterations are in line to track limits and requirements responsibility for the major can discourage other potential
with laws and regulations. It internally. shareholding notification bidders from entering a contest.
also covers country-specific regime in the UK passed from
requirements, such as whether It can be extremely difficult and the Department of Trade As a result, in July 2008, the
equity rights or derivatives on time consuming to keep track & Industry to the Financial FSA published an update for
securities need to be included. of every issuer’s percentage, Services Authority (FSA). This disclosure for CfDs referenced
A major move in a shareholding especially if a hedge fund is meant that the Companies Bill to UK shares, implementing a
will automatically generate a investing in 20 or 30 different gave the FSA powers to extend general disclosure regime for
PDF report to the compliance countries. Investors can the regime beyond the disclosure long CfD positions to address
interrogate their compliance of ‘ownership’ of substantial concerns in relation to voting
database manually to find equity positions to require rights and corporate influence.
It is inevitable out about the voting share. the disclosure of substantial Existing share and CfD holdings,
that the regulation However, they would also have to
incorporate and update country-
‘economic interests’ in shares
held through derivatives, such
in the same company, should
now be aggregated for disclosure
in emerging markets specific regulations referring to as Contracts for Difference purposes. The disclosure
derivatives or other asset classes,
changes constantly which is a labour-intensive task
(CfDs). CfDs are the instrument
most widely used for holding
threshold will be at 3%, in line
with the existing disclosure rules.
as these markets and prone to miscalculations. an economic interest but The FSA will publish a Policy
until now they have usually Statement in September 2008
develop. A small hedge fund does not remained outside the regulatory and final rules will be issued in
tend to have this expertise framework for disclosure. February 2009.
officer so the fund can see which in-house, to be able to
issuer, which limits, and in which circumnavigate the reporting Since November 2005 the All these ever changing
country the limits have been requirements worldwide, Takeover Panel has required regulations make it all the more
breached. The alert will also especially in Asian countries disclosure during an offer period important to have a flexible
present the compliance officer where language barriers and lack of long interests, including compliance monitoring solution
with the relevant regulatory of local expertise can hinder the economic interest (such as CfDs in place. Any system must be
filing forms, such as TR-1. This information gathering process and other interests arising from adaptable enough to cope with
means that acquiring local as these limits are not always derivatives) of 1% or more in the the situation that is settled
knowledge of the regulatory published or made available securities of a target company. upon, with provision for further
frameworks of the emerging online. change to occur in the near
markets they are investing in is CfD writers and holders future. Aquin’s MIG21 and its
not necessary for fund managers. Large asset managers, on the have been concerned that unique LawCard service provide
other hand, buy in such large increased disclosure could a highly flexible investment
Aquin does this research instead volumes that they are in constant make the market less efficient compliance solution. Aquin’s
and maintains contacts with danger of exceeding the allowed by introducing excessive or LawCards are constantly updated
the regulators to continuously threshold on company level contradictory information. This and revised by a team of experts
monitor and revise the LawCards without knowing it. Without could also damage liquidity in to ensure that changes in law or
so that changes in law or market a tool like MIG21 and the SSR CfDs and therefore ultimately market practice are incorporated
practice are incorporated LawCard, keeping on top of the in the underlying equities as immediately. Thus, investors can
immediately. For more company’s limit is an almost holders might seek to limit their always be on top of the latest
comprehensive documentation impossible task. holdings to avoid disclosure. regulatory requirements.
and news feeds, LawCard users One recent customer of Aquin’s,
are offered access to Aquin’s a London-based hedge fund, These concerns led to FSA
LawCard Portal. had two staff working full time, conducting an evaluation of
Another benefit of using the with Excel spreadsheets, to keep the market efficiency case for
Aquin SSR LawCard service is on top of the limits and fill-in requiring disclosure of the pure
that funds can purchase shares the reporting requirements economic interest of CfDs and

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 E-invoicing in Europe pp. 55

A world to be won
Although the financial world has been abuzz with the Single Euro Payments Area (SEPA) for some
time, it will take non-insiders a little longer to realise the benefits and potential offered by this
system. But there are also trends and developments that provide substantial benefits that are
immediately visible. One field in which banks – and particularly their clients – have their work cut out
for them is e-invoicing, and European payment processor Equens intends to play a facilitating, leading
role in this market in Europe. What makes e-invoicing ‘hot’, what are the benefits involved, and what
exactly is this European initiative in which Equens is participating?

A recent survey conducted by the Banks &

Future Innovation Forum and initiated by the
Fraunhofer IAO in Stuttgart, Germany revealed that
At a national level, they act as a ‘central invoicing
facility’ for companies and their business and private
customers.
the market is ready for e-invoicing. In co-operation
with several international banks and IT partners, B2B: Generic or individual site
this forum investigates interests and research issues There are several different solutions for e-invoicing:
regarding the current and future needs of banks. a business-to-business (B2B) solution is a generic
Equens has extended this survey with a number of solution provided by the billing service provider. This
specific questions to find out which services will fulfil is where companies store their invoices. Business
the future needs of both clients – ie, banks – and their debtors receive an e-mail – sometimes containing a
respective customers. The results are clear. for 75% hyperlink to the website – to alert them. They can
of the respondents, e-invoicing is the most welcome use the service to retrieve the invoices, download
innovation. them to their own accounting or ERP system and then
Dave Rietveld - Equens continue to process in accordance with their own
Debtors pay their bills sooner creditor procedures. Large companies that do not have
And indeed, e-invoicing or electronic billing is a field the resources to invest in the system can also choose a
e-invoicing that potentially offers great opportunities. More than solution on their own corporate site as an e-invoicing
90 percent of all invoicing worldwide is still performed alternative. One advantage of this method is that the
is an on paper. This usually involves an extremely inefficient invoice function can then be provided entirely in the
process of photocopying, distributing, and archiving company’s look and feel.
extremely paper and re-entering data. This can sometimes drive
up the cost of an invoice (from sending to processing) B2C: Link to online banking
welcome tool to several tens of euros apiece. E-invoicing makes this The business-to-business consumer segment can
process a lot cheaper and simpler through portal- choose between a number of digital solutions, whereby
for effective based digital communication, e-mail and – particularly the invoice may be sent directly to the consumer’s
for the B2C market – with the help of online banking. online banking environment. This is effectively the
debt Other benefits include easy archiving and the option to digitised version of the paper giro slip, though unlike
link the system to management information systems. that somewhat antiquated payment method, the
management Users are also able to add options to e-invoicing, recipient does not actually have to copy the details on
such as dispute reports and enclosing electronic the invoice. This facilitates the payment process, rules
appendices. An added bonus is that debtors, thanks out the possibility of errors and immediately provides
to the greater convenience offered by the system, the creditor with a reconciliation score of 100 per cent.
actually pay their invoices sooner. In other words,
e-invoicing is an extremely welcome tool for effective European Commission:
debt management. And by providing this service, looking for a European solution
financial services providers can distinguish themselves All the e-invoicing initiatives launched so far
in the market. have been at the national level, because, until the
introduction of SEPA, all payment systems were
A variety of initiatives essentially established by the countries individually.
A number of different e-invoicing initiatives have been For cross-border e-invoicing, the national payment
launched in Europe varying in size and sophistication processors (i.e. the hubs between the payers’ and
and focusing on across the business and consumer the recipients’ banks) need to make substantial
market. The companies providing these services investments, as invoicing processes vary significantly
are called ‘billing service providers’. Some of them from country to country. There are also differences
are banks, while others may be major IT companies. in tax treatment. The European Commission is aware

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pp. 56 E-invoicing in Europe

of these limitations and committed to finding a companies. The company’s scale allows it to provide a
solution. At the end of 2007, it requested to assemble range of service at highly competitive prices, while at
a small group of international experts, with the goal the same time investing in further innovation at these
of identifying a European e-invoicing Framework that competitive prices.
addresses the legal, operational and standardisation
issues. Furthermore, Equens is an active participant International potential
in the EC Expert Group on e-invoicing. So in addition In addition to e-invoicing the organisation is pursuing
to being involved in developing rules, standards and a two-track innovation policy that incorporates
protocols related to e-invoicing, we are very active innovation of the core business, payments and cards,
in gaining experience in how to put into practice the with the systems and infrastructure SEPA compliant
theory of the European e-invoicing Framework. and SEPA-ready in time. Thanks to its broad knowledge
of needs and requirements in the payment market,
International e�invoicing pilot the company can afford to initiate or cooperate in
Equens and three leading national billing service innovations related to pure payment processing.
providers in three European countries recently These may be initiatives in line with Equens’ European
announced they will set up a cross-border pilot strategy, such as the e-invoicing initiative, but
project for these three countries. In this pilot, the they may also be national innovations that have the
internationally active customers of the three billing potential to be applied internationally.
service providers will gain international reach in
e-invoicing – and all they have to do to achieve that Specific examples
is sign an e-voicing contract with a single provider. As We provide all telecom providers in the Netherlands
with the international (SEPA) payment system, Equens with a service with which consumers can easily and
serves as a switch between the three parties. Going safely recharge their prepaid balance on their mobile
by the maxim ‘Billing should be as easy as paying’, it phone. Prepaid gift cards are another example: paper
established the Equens Billing Grid, which companies vouchers are increasingly being replaced by electronic
from other European countries are also welcome prepaid solutions. Equens has so far issued over 2.5
to join. million prepaid gift cards. Both mobile payments and
prepaid gift cards are business areas which will be
European scale further built out and developed in the future. A third
Thanks to its size and its status in Europe, Equens example is the pilot Tip2Pay – pay with your fingertip
is ideally positioned to participate in these types of – which is conducted in co-operation with Albert
initiatives. As a pan-European full service payment Heijn (Dutch Ahold’s largest supermarket chain).
processor, it offers a complete service portfolio with For a period of six months, customers of Albert Heijn
future-proof and SEPA compliant processing solutions will be able to pay for their shopping using their
for both payments and cards. The company has fingertips. The objective of the pilot is to investigate
locations in the Netherlands, Germany and Finland, the potential of this technology as a new payment
and already provides services to leading banks and method and establish whether it is received positively
large corporates in several European countries. Equens by consumers. This is the first pilot of its kind in the
intends to expand its scale by establishing Equens Netherlands.
Italia. With a market share of more than 15%, Equens
is one of the largest payment processors in Europe and Co-operation with partners and clients
with 7.3 billion payments and 2.1 billion POS and ATM Equens strongly believes that staying ahead in the
transactions per year. European payments processing market requires
looking beyond the payments discipline. It requires
Growth through innovation awareness of the future needs of banks and their
Scale is a crucial element in the European payment customers, of technology and of applications. It also
processing market, and we pursue a clear growth requires endurance and financial solidity to guarantee
strategy. It is generally believed that an annual continuity. We think the true source of innovations
transaction volume of EUR10 billion is necessary to is a willingness to co-operate with partners,
survive. The number of transactions in the euro zone is international organisations and governing bodies and
approximately 50 billion per year. This means that, in – last but not least – clients.”
the long term, three to five players will remain in this
market, and Equens is determined to be one of these
Dave Rietveld,
General Manager New Business at Equens

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 p. 58 Risk technology

From the roots up

Giles Turner explains why STP and automation are at the root of risk management

The word ‘risk’ has almost become an indefinite missed the elephant in the room, why did financial
article in the financial industry. From the securities authorities not act more quickly to curb risky lending
industry to the hedge fund world, all have become practices and why did they not have better oversight of
morbidly fascinated. Hedge funds, the group some the CDO markets.”
see having escaped the worst of the credit crunch,
have become rapacious in their demand for risk What to blame and who to blame for it has been much
managers and technology. In recent weeks, Rogers discussed in recent months, and many feel a more
Investment Advisors, a Tokyo-based fund of hedge hard hitting approach is needed to curb such problems
funds, has hired Eric Chong as risk manager, and happening again. Luckily, a timely piece of regulation
hedge funds shop EIM has also added Paulo Peres. is at hand. Basel II aims to improve regulatory capital
London-based Polar Capital has hired Karim Vellani measures by requiring banks to distinguish among
to fill the newly created role of chief risk officer and the credit quality of individual borrowers. In other
Ramius, which manages about USD12 billion in assets words, those wanting to pursue more risk investment
across multi-strategy and single strategy hedge funds options have to hold more capital. While this seems
and funds of hedge funds portfolios, has hired Vikas like a good thing a little too late, any new regulation
Kapoor as risk manager. The list could go on, but most comes up against the same problem, that for risks to be
importantly both the large and the small are taking successfully managed, they must first be identified and
risk management ever more seriously. From Rogers measured. As Ben Bernanke so eloquently understated
Investment Advisors, who stated after their recent hire at the Federal Reserve Bank of Chicago’s annual
that their full time employees have now increased to conference in May: “Recent events have revealed
five, to EIM that employs over 210 people. significant deficiencies in these areas.”

The securities finance industry also expects to The question seems to be not what you measure, but
increase spending in trade and risk management how you measure it. A report published in March
technology over the next 12 months, according to 2008 by a group of supervisory agencies from France,
research conducted by Sophis at a recent Lepus Germany, Switzerland, the United Kingdom and the
business seminar. 69% of the respondents from United States, called the Senior Supervisors Group
the aforementioned mentioned survey stated that (SSG), stated that some institutions took an excessively
their trading and risk management requirements narrow perspective on risk without significant enough
had changed due to current market volatility, and a appreciation of the need for a range of risk measures.
significant 63% stated that their firms had increased The reliance on models to analyse risk undid many
spending on trading and risk management technology in the financial industry, and while quantitative tools
over the past year. This spending is set to rise, with and models can and must play an important part in
57% expecting to increase spending over the next 12 effective risk management no model, regardless of
months. its cost, sophistication and size, can possibly hope to
capture all the risks an institution might face.
This shift in the spending of budgets towards risk
management has come about after the purple run Key to effective risk management is stress testing and
of spectacular quarterly profits almost evaporated valuation. Stress testing is an exemplary method for
overnight. Much of the terminology used when highlighting possible events that may fall outside
discussing legal and regulatory challenges facing the those typically measured by statistical models, or
financial industry has also disappeared. Teo Swee rather results outside the bell curve. However as recent
Lian, managing director, MOS, speaking at the Risk events have shown events falling outside the bell curve
Minds Asia Conference earlier this year, succinctly are happening with greater probability than can be
highlighted: “It is interesting that not that long ago, expected. The ‘fat tails’ are often called ‘nine standard
before the sub-prime crisis, the buzzwords in the deviation events’. One such event was the Amaranth
financial industry were ‘principles-based regulation’, hedge fund collapse. Hilary Till of Premia Capital
‘less prescription’, ‘more room for innovation’, ‘cost- Management said that the hedge fund collapse was
benefit analysis of regulation’ and ‘proportionality’. a nine standard deviation event. In other words it is
What a difference a year makes. Now the same unlikely to happen again in the near future, statistically
commentators are asking how everyone could have speaking. That was in September 2006.

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ISJ | Investers Services Journal

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 pp. 60 Risk technology

Nearly a year later, in August 2007, Goldman Sachs Some might say it is a tenuous leap, to jump from
In the flagship global equity fund had lost over 30% of its cataclysmic standard deviation leaps and the credit
value due to ‘hiccups’ with its computer model driven crunch to SDA and automation, yet according to
current trading strategies. These computers had failed to Marianne C. Brown, president and CEO of Omgeo:
predict the beginning of the credit crunch. Failed to “If the turmoil experienced by the global financial
markets predict is something of a euphemism. The models markets this year has taught us anything, it’s that

choppy
labelled the credit crunch a ‘25 standard deviation
event’, or rather something that only happens every
industry efforts towards market stability and reliability
should be paramount.” Market, position, counterparty T
100,000 years. Not only did this happen once, but at and liquidity risk all arise from failed or slow trading
waters, the time David Viniar, Goldman Sach’s chief financial ability (see box out). Everything, from credit default
officer, stated that “We are seeing things that were 25- swaps, plain vanilla equities to esoteric derivatives;
it seems standard deviation events, several days in a row”. That if you cannot be certain that the processes for trade
‘hiccup’ forced Goldman Sachs to funnel USD2 billion settlement are efficient and timely, then all other
that many of its own capital into the fund. platforms and foundations for good business will be
made redundant if another event occurs that falls
firms risk outside the hallowed bell curve, an occurrence that
However stress testing can only go so far, and it should be measured in months, not eons.
management goes against human nature to continually expect
the unexpected, especially in the recent bull market.
teams are These situations breed complacency as well as over- Market risk, position risk. Market risk arises from
reliance on mathematical models based on standard fluctuations (volatility) in the market prices of
sailing deviation, and eventually leads to a breakdown in the securities from the time of trade execution to eventual
understanding of risk. For stress testing to be of any settlement. Where the trade is in a foreign currency,
dinghies use, they have to have an impact on the management the risk may be exacerbated by exchange rate
decision making. It is unlikely that the phrase ‘stress- fluctuations. Market risk corresponds to position risk
rather than testing’ ventured into the board-rooms of the large to the extent that it relates to uncertainties in the
financial institutions in 2006, apart from perhaps long or short position in the securities that constitute
destroyers. assessing the accountants ability to compute the the trade, which remain until the trade is settled and
management’s Christmas bonus. the securities delivered. For example, a seller may
incur a loss if the price of the security has fallen and
Before you can effectively stress test your business the seller has to find a replacement buyer at a lower
or portfolio, your ability to value the assets under price. Conversely, a buyer may incur a loss if the price
management is perhaps the most intrinsic cornerstone of the security has risen and the buyer has to find a
to future success, especially in such a volatile market. replacement seller at a higher price.
In the past, the success of some companies relied on Counterparty risk. At the most general level, any delays
the valuations of in-house and third parties to test the in settlement expose a trading party to the risk of non-
price of assets, a factor that the Hedge Fund Standards fulfilment of the trade contract by the counterparty.
Board (the custodian of the best practice standards The risk takes the form of market or position risk as
published by the Hedge Fund Working Group) is well as liquidity risk (see below), which in turn could
aiming to become standard practice within the hedge contribute to credit risk in the event of insolvency of
fund industry. the counterparty.
Liquidity risk. Delayed settlement creates liquidity
With efficient valuation comes the effective ability risk. For example, if the seller of a security does not
to measure position risk. It is here where reduced receive payment when it is due, the seller may have to
operational risk and improved settlement will lead borrow or liquidate assets to complete other payments.
to a more efficient marketplace. Key to this is same There may also be a risk that the buyer does not
date affirmation (SDA) – the ability of the investment receive delivery when it is due and may have to borrow
manager and broker-dealer to match the details of a the security in order to complete its own delivery
trade on the day the trade is executed. According to obligation.
Simon Haggerty, managing director, UBS: “Same day Source: Building efficiencies in post-trade processing:
Th
affirmation is arguably the single most important The benefits of same-day affirmation, the Oxera report
Ne
initiative to process cross boarder securities’ commissioned by Omgeo
are
productivity and risk management.”
sta
op
are
Eq
ISJ | Investor Services Journal
ex

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EQ804
 The payments market is rapidly envolving.

So are we.

The European payments market is rapidly evolving.

New markets are opening up. Market needs
nothing to discover the full potential of new transaction
types in several markets. This has resulted in an
are shifting. And new technologies are con- ever-growing product line of innovative payment
stantly being developed. Obviously, this presents
opportunities. But it also requires solutions that equals solutions for a variety of industries including mobile
payments, e-invoicing and prepaid cards. That’s
are suitable for future market needs. That’s why at why we’re now working on innovative payment
Equens, we think ahead. We build on our extensive solutions that will enhace your business in the future.
experience in the payments industry. And aim www.equens.com

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EQ8041 Corp_203x267+3mm.indd 1 25-07-2008 09:25:41
 p. 62 Risk technology

If you cannot be confident about your own ability Unfortunately the problems with risk management run
“Technology to trade your portfolio, then the problems will run. deep. A recent report from Gartner (2008) highlighted
During the recent bull market, liquidity was abundant, that those responsible for different areas of risk
is a great so problems regarding risk management and trade management within a firm specialise to such a degree
settlement were not as important as obtaining ‘alpha’ that the language and definitions they use operate
enabler, but and topping the league tables. A fraction of a percent independently from other areas of risk management
of failed trades when the going is good factors little within the same firm. These specialised fragments of
not the be- in the quarterly report. Efficient settlement became various risk departments fail to share information or
an important footnote, but a footnote none the less, record information using a standardised methodology.
all and end- shown by the slimming of departments and the These aren’t trading desks aiming to be the top earner,
decreasing amount of column inches dedicated to STP but risk management teams, who should theoretically
all panacea in the business press. However when liquidity dries up, all be in the same boat. In the current markets choppy
the percentage of failed trades increases in importance waters, it seems that many firms risk management
to risk as the companies profit margin decreases. With teams are sailing dinghies rather than destroyers.
confidence at fragile levels, investors will be looking
mitigation. at the structure of the organisation and its middle Like all other areas of finance, modern risk architecture
and back office in greater detail, rather than trying will be decidedly different compared to pre-August
The human to jump onto the bandwagon of the latest star trader. 2007. Management culture, as well as improved
One major failed trade may end up being the last straw technology, will lead to the development of new
factor on the camels back in regards to wooing a potential systems. The financial industry’s use of technology is
investor. surprisingly underdeveloped in comparison to cars,
must be computer games and even Hollywood. According
This is not to say that the importance of STP wasn’t to Gerard Rafie, vice president, marketing, Calypso
considered” recognised (see graph), but rather if a survey was technology: “A global, real-time system needs to able
done today, operational cost and risk could well be to accept trades, underlying assets and VaR vectors
- Gerard included in the same graph, as many seek to decrease from various systems in order to calculate risk. The
costs and increase operational efficient in hard times. best systems can integrate risk measures from different
Rafie, vice One of the benefits of efficient automation stated applications or calculate their own.”
in the report Building efficiencies in post-trade
president, processing: The benefits of same-day affirmation, But what about the human element? Rafie continues:
by Oxera – commissioned by Omgeo – is that: “Technology is a great enabler, but not the be-all and
Marketing, “Automation allows firms to keep the number of staff end-all panacea to risk mitigation. The human factor
working on trade verification within the middle office must be considered. In many financial organisations
Calypso largely the same, despite significantly higher trade the risk management department does not have
volumes, or to reallocate resources previously focused sufficient clout in the organisation to question the
on repetitive manual tasks to more value-added strategies of a trader or a portfolio manger. There are
activities, such as exception processing, reporting on far more examples of warnings from risk management
internal performance or monitoring counterparty being ignored than there are of risk management
performance.” departments falling asleep.”

A good risk management system must take into The cynics among you may say that no matter what
account the ability to settle the trades in question. precautions you take, the elephant is probably already
With increasing trade volumes in derivatives, exotic in the room, be it budgetary or not. You may be right,
instruments and structured products, the ability to but many do not want the past year’s difficult times
value and settle is of utmost importance. This is not to come back and haunt them through repeated
to say that good automation and STP will solve all carelessness. After all, Brutus did not die by someone
problems, or that getting settlement time down to else’s sword, but from his own. It is more than
T1 will keep investors happy, or settling outstanding likely that those in the financial world wish to take
credit default swaps and decreasing counterparty risk responsibility for their own actions and be judged on
will avoid another financial Armageddon, but it can’t future performance, rather than past mistakes. A good
not help. risk management system, coupled with a healthy office
culture, should help avoid any such mistakes.

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 Fee billing

Fee billing in focus – CheckFree

Brian Bollen meets Geoff Harries, vice president for product strategy
Fee billing is crucial but often
ignored topic during economic
downturns. Cash is king – as
the phrase goes - for financial
institutions to maintain
liquidity. Companies need
to prevent revenue leakage;
one way of accomplishing
this is faster fee collection
and reducing billing cycles to
expedite and maintain cash
flows. In this interview, Brian
Bollen discusses the importance
of efficient billing and revenue
management processes for
coping with compliance issues,
complex fee structures and the
growing trend for performance-
based fee calculations with Geoff
Harries, vice president product
strategy at the London offices
of CheckFree Corporation, part
of the Wisconsin-based Fiserv
business technology provider
group.

Briawn Bollen: Can you tell me

a bit about your background,
and CheckFree?

Geoff Harries: We are

predominantly focused on
delivering solutions to the
middle and back office in
the investment management
industry, including asset
managers and asset services
providers. In the USA, we run a
platform for separately managed
accounts, and are a leader in that
space. My role is to add product
management supervision to
each product and to set strategy.
Check Free has offices in the US
and Asia, as well as in London.

BB: Can you name some of

your clients in the asset services
space?

GH: Only names that are already

in the public domain. Those
include HSBC Securities Services
and BNP Paribas Securities
Services. In all, we supply six of
the top 10 asset services firms. It
is a core competence for us.

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 pp. 64 Clearence and Settlement

BB: What would you identify process, then overlay schedules GH: I wouldn’t describe it as billing cycle, with kickers for
as the big issues regarding fee and hierarchies on that a windfall, no, but there is no over-performance, under-
billing in asset services? information. The presentation doubt that we are benefitting performance and for benchmark
layer on the invoicing side gives from the new focus on performance. We are seeing
GH: One issue over the years transparency of fee and accrual improving cash flow and other more demand for our solutions
has been that because clients calculations. If the person you business processes. We are seeing as more investment mandates
individually negotiate contracts are billing doesn’t understand our solutions set building in the are written to include a
mandate by mandate, there the bill it will take longer to pipeline as activity increases. performance-related element.
hasn’t been a commonality collect the money, especially People recognise that it adds
in terms of billing structures, with multi-layer nested value, and we have a significant BB: I’m personally surprised
fee schedules and account calculations. installed client base. In our field, that asset servicers outsource
hierarchies. That increases we’re the street standard, as it these tasks. I would have
the complexity of billing. The BB: Pardon? were. Existing clients always tend thought the work would
biggest current issue is in GH: You might have a to extend implementation; they represent a fundamental part of
revenue management, to ensure calculation passed on to might start with appointing us their own business model.
you don’t have over-billing, or another as input for a further to their custody business, then
under-billing, or billing errors calculation; an asset might sit extend us to securities lending, GH: I look at asset servicers
if you’re using spreadsheets for in a fund or a single stock line, and then to other areas of asset and the ability we deliver
revenue billings. To streamline and you need to be sure you’re services. Sometimes they have to them. These are things
the process, we developed a not double counting or double internal funds they are running, that are fundamental to the
solution based on data capture billing. The key point is that or other clients not tied to way we operate. They offer
when the billing event occurs, you need transparency to enable institutions. That might be the the scale of operations to
and tracking through to the the client to understand quickly initial business driver behind investment managers; that is
receipt of payment. what the invoice is for. They taking our system; once they’ve their competence. Developing
want to receive their bill on a seen it, it tends to be rolled the solutions is what we do,
BB: Have the industry’s main timely basis, and to know when out across different products not what the asset servicers do.
concerns changed recently? they should be making payment. and fees: custody fees, client The software we deliver might
monitoring fees, charging costs be core to their business but
GH: In this pessimistic BB: What impact is the incurred on behalf of clients they don’t want to tie up time,
economic climate, everyone has prevailing economic situation back to clients. money and IT people on it; we
to make sure they maximise having on this part of the BB: What are you seeing in the can do it better and get them
cash flow. That is certainly more financial services industry? area of performance-based fees to market quicker. Think about
in vogue today than 15 to 18 Won’t the financial problems on the investment manager side it from their perspective; you
months ago as people look for being faced militate against of the industry rather than the don’t want to delay offering
every opportunity to generate unbudgeted expenditure? asset servicer side? a new service to a client just
better cash flow. GH: What we are seeing with because you can’t bill them for
asset servicers is the number GH: People are wary of paying a it. We help them add new clients,
BB: Could you give an example? of operational challenges they management fee charged purely new services, new mandates,
have, with corporate actions on the basis of the value of without their having to go into
GH: The billing cycle might processing and over the counter the assets under management, a development cycle. Clients can
be too long, because the asset derivatives automation as two especially in the current climate. take our technology and quickly
services provider sends out its high profile examples. We are They increasingly want to see implement it and customise it.
invoices later than it should. delivering solutions to our active performance-based That leaves them free to focus
We streamline the process to clients that solve those problems. measurement. People are a on other IT projects to deliver
bring payment closer to when One very strong factor acting lot more attuned as investors enhanced client services.
it should be made. That money in our favour is that when a to looking at the underlying
can be redeployed to other uses. company of any kind is looking performance. BB: So how would you briefly
to improve its cash flow it can be describe the role you play?
BB: Surely that’s a very fairly easily to obtain approval BB: What implications does this
straightforward process? for capital expenditure on have? GH: We underpin their core
software solutions that has a net business.
GH: It’s not as simple as it positive demonstrable return on GH: It adds to the complexity.
might sound. At the front end investment. You have a hybrid billing BB: Revenue analysis is
we have to capture, enrich and structure with a base line becoming increasingly
aggregate date from multiple BB: Are you, then, enjoying management fee and a fashionable, I believe?
internal systems; we need to gain something of a windfall because performance-related fee, giving
access to those systems to form of the current climate? you several phase steps in the
the basic building blocks of the

ISJ | Investor Services Journal

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 Clearence and Settlement pp. 65

GH: Asset services want high grows of their importance in

value functionality under the running a successful business? Fiserv completed its USD4.4 More than 3,000 financial
umbrella term of revenue GH: Sometimes it’s an billion cash acquisition of services web sites are claimed
analysis. They need to look educational sale. We have to go CheckFre Corporation in
at historic data, and slice and and visit heads of finance, and as user of the electronic billing
December 2007. Combining the and payment services provided
dice it to identify trends in accounting departments, and
two companies’ broad ranges of by CheckFree, and growth will
revenue billing data. This is show them the value of boosting
market leading capabilities will continue, it says, as consumers
particularly important for sales cash flow by reducing billing
teams who need to identify the cycles. It seems extraordinary provide a platform to deliver and businesses move from
best-selling services from which in this day and age, but people unprecedented innovation in paper to electronic processes.
they can increase revenue over don’t necessarily know what financial services technology, Additionally, CheckFree claims to
time. Forecasting, modelling they’re missing. But until you said Jeffery Yabuki, president have the market-leading online
and business intelligence to start looking at inefficiencies and CEO of Fiserv, at the time. banking platform for financial
understand historic revenue in processes you can’t highlight He identified CheckFree’s institutions and its investment
trends will all become more solutions. It comes from the key strengths as world-class services platform processes
important in driving future top down; inefficiencies are products and a culture of
revenues. If you set up a fee being seen today that require portfolios.
dynamic innovation.
structure model for a product to be improved. Once we set
for a particular client, revenue out the benefits of streamlining
management and revenue and automating processes it is
analysis are just as important a very compelling argument.
as the day to day activities of They soon understand the
client billing to support business issue, and the net benefits of
growth and profitability. our value proposition to better
support clients in terms of
BB: Are the services you provide improving client service as well
moving up the corporate as improving cash flow.
hierarchy as the realisation

The leading provider of Custody and Clearing Services in Norway

DnB NOR your Nordic Partner

Offering: Commitment, Knowledge, Experience and Excellent Service

For further information please contact:
Head of Securities Services - Jan B. Penne: [email protected]
Head of Global Relations and Network - Bente Hoem: [email protected]
e-mail:CUSTODY DNBNORNOsWWWDNBNORNOCUSTODY

DnBNOR_nordicpartner.indd
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16/1/09 10:30:15
15:42:56
 p. 66 Clearance and Settlement

TARGET DRIVEN
The ECB’s initiative for the pan-European
Target 2 Securities settlement project is a
bold move hampered by uncertainty,
writes Anthony Harrington

When it comes to the efficiency of its

securities settlement capabilities, it is vital
that Europe is competitive with the US.
Securities investment is a global game and
a plethora of local, national settlement
systems and markets, all with their own
quirks, drives up cross border transaction
costs that are today around five times the
cost of internal domestic transactions in any
single European country. That is bad for
everyone.

So when the European Central Bank

decided to throw its weight and muscle
behind a pan European securities
settlement project, universally known as
Target2-Securities, to go live in 2013, the
ECB received approval in principle, with
varying degrees of enthusiasm, from all the
stakeholders, including the various central
securities depositories (CSDs) currently
running national settlement systems.

Writing the editorial for the ECB’s Target2-

Securities Newsletter, ECB Board member

ISJ | Investor Services Journal

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 I]ZgZ

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VcYeVgicZgh]^e!idiV`ZndjgWjh^cZhhidi]Zide#>ccdkVi^kZegdYjXih
VcYhdaji^dchÄid^begdkZndjgWdiidba^cZ#8aZVghigZVb#I]ZgZ[dgndj#

HZiiaZbZciVcY8jhidYn"<adWVaHZXjg^i^Zh;^cVcX^c\">ckZhibZci;jcYHZgk^XZh \ZibdgZ

1-114-PDF FINAL NEW .indd 67 16/1/09 15:43:00

 p. 68 Title

Title
Stand

Gertrude Tumpel-Gugerell argues that at the same time. Right now, that is by
It is not clear yet if without Target2-Securities the European no means a done deal. One of the larger
Single Market “will be hampered – at challenges the ECB faces, without doubt, is
the ECB sees itself as best postponed”. This claim gives a good getting Euroclear to sign up on terms that
indication of how important the ECB and both it and the ECB find acceptable.
an “outsourcer” the Governing Council of the Eurosystem
believe this project to be. Euroclear provides a settlement system for
or the relationship five European countries (Belgium, France,
Tumpel-Gugerell’s editorial also provides Ireland, the Netherlands and the United
as that between out- a response to the question of just why the Kingdom) and recently signed an agreement
ECB has seen fit to launch Target2-Securities to acquire NCSD (Nordic Central Securities
sourcer and client at this moment in time, without being Depository), comprising the Finnish and
pushed by any discernable new external Swedish central securities depositories. Paul
driver. After all, this is a huge and risky Symons, head of public affairs at Euroclear,
project. The risk element comes not just says the ECB assumes that once its new, pan
from the scale of the project. That risk could European settlement system is built, all the
be viewed as manageable; the ECB has some CSDs will be able to decommission their
big projects under its belt already. Instead, systems and take the ECB’s super efficient
the risk element is from the fact that T2S system at a price that is probably roughly
cuts across a revenue earning service that comparable to (or at best much cheaper
the CSDs enjoy at the same time as the ECB than) their existing system (though the
requires their participation for T2S to work. exact charging mechanism, still a grey area,
remains a source of unease to many CSDs).
Bruno Rossignol, Clearstream spokesman,
says the ECB needs all the major securities However, with two countries outside the
settlement providers in Europe to sign up Eurozone to support, Euroclear does not
in order to achieve the goal of reducing intend to decommission its securities
costs for cross border transactions while not settlement infrastructure, he says. It will
increasing costs for domestic transactions be needed to support Sterling and Swedish

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1-114-PDF FINAL NEW .indd 69 16/1/09 15:43:05
 p. 70
Clearence and Settlement Title

Title
Stand

Kronor settlement at least. This gives for example, is either in or out. This is not However, it is not clear yet if the ECB sees
Euroclear a fundamentally different stance the way we would envisage the model to itself as an “outsourcer” or the relationship
on Target2-Securities than most other CSDs, function. We believe that each customer as that between outsourcer and client - in
and since Euroclear is also the biggest single should be able to choose when and how to any event, it is a strange outsource service
regional settlement provider, if it ends up connect,” Symons says. that has no other possible provider in
deciding that it is not in its interests to sign Euroclear sees T2S working as an outsource the frame.
up for Target2-Securities, the project may be service, with the operator of Target2-
gutted at birth. Securities being the infrastructure supplier Another problem, not confined to Euroclear,
to each of the current European settlement is that it is still not clear to many CSDs as to
Symons emphasises that this is not the providers. In principle, Symons says, who exactly the counterparty will be to any
outcome that Euroclear is seeking. It has Euroclear does not have any problems legal agreement the CSDs sign. “We really
no more love for a fragmented European with the ECB’s position that taking away need the ECB to clarify as soon as possible
settlement system than anyone else. settlement will leave the CSDs free to who or what the legal entity will be that we
Euroclear recently confirmed its support for concentrate on other, more lucrative value would be signing a binding contract with.
the continuation and finalisation of Target2- added services. But, he says, “right now Is it the ECB? Is it some new legal entity? Is
Securities subject to conditions. If it can get settlement fees (and the ECB is only offering it the Euro System in some form or other?”
the terms it is seeking from the ECB, it will a settlement service through Target2- Symons says.
be happy to sign up and (rather importantly Securities) accounts for no more than five
for the other CSDs) will be willing to bear to 10% of the post trade costs in Europe. So Others are disconcerted that the ECB should
its share of the costs. although we would expect clients to choose have left such a fog of confusion over so
As it set out in its letter to the ECB, to use Target2-Securities going forward if fundamental an area, particularly when it
Euroclear says it is in favour of Target2- the ECB provides an efficient, pan European is urging CSDs to sign binding agreements
Securities in principle subject to the system at a competitive cost, just reducing with all possible dispatch. Even Clearstream,
following conditions: an appropriate legal settlement costs (while a very worthwhile which says that it is enthusiastically in
and contractual framework for Target2- goal in itself) may not make a significant favour of T2S, finds the confusion over the
Securities and a governance structure difference to the overall costs of the post identity of the legal entity behind Target2-
that safeguards the interests of CSDs as trade landscape.” Securities, baffling. Nor is it the only area
outsourcers. Moreover, Euroclear wants a that is foggy and undefined. “The answer
model in which customers will be able to to some fundamental questions is still
decide whether to settle their transactions missing,” says Rossignol. “For example,
using the Target2-Securities platform or the the governance and regulation of T2S has
Euroclear Single Platform. “Right now the yet to be defined. Who will be empowered
ECB wants and assumes that the decision to oversee the ECB and how will the ECB
to opt in to Target2-Securities will be taken ensure a strict separation between its
on a country by country basis. So Spain,

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 Clearence and Settlement

different roles as system provider and its regulatory harmonisation created by one big support and feedback from participating
own oversight functions? The budget for settlement engine for all of Europe will drive CSDs that Target2-Securities has become
the project and in consequences the pricing down the costs of cross border trading and more rational as a project,” says Rossignol.
toward the CSDs, too, remains undefined. settlement.” “In its early days it was presented as a
No matter how much we want to, we cannot system with a very wide scope and masses of
sign until we know what we are committing He points out that it is quite clear that there proposed functionalities. However, because
ourselves to, and we cannot sign until we is political will and muscle behind Target2- it worked with market participants, the ECB
know who the other party is,” Securities and that the project will happen. realised that it needed to narrow the scope
Rossignol says. “Because of this and the potential for of the project and to sharpen and constrain
both Europe and Clearstream we are fully its functional specifications. We now have
Clearstream also wants clear milestones to committed to the initiative,” he says. much greater clarity around transaction
be set out and it wants to know what it is lifecycle management, trade matching
committed to. “What will the contractual Clearstream wants to see all participating requirements and the like.”
framework be for the build and operations CSDs signing a binding agreement as
phase that the CSDs are going to be soon as possible. Rossignol points out Euroclear’s Symons sums up Target2-
expected to sign?” he asks. that achieving critical mass is absolutely Securities as “a highly important
fundamental and necessary, otherwise development with a whole range of
These are fundamental issues, not mere “Target2-Securities will not achieve the challenges and advantages associated with
quibbles being used to punt Target2- economies of scale that it needs. For the it”. He says that Euroclear has formally
Securities into the long grass. “The big economic business case to work Target2- agreed to begin contractual negotiations
picture is that Europe needs to have Securities needs to attract all the CSDs, with the ECB provided its conditions
financial markets that are as efficient as the and certainly those that process sizeable are met.
US,” says Rossignol. “Today, settlement in transaction volumes definitely need to be in.
Europe works fine on a country by country Otherwise it will be much more costly for all
basis, where it is as efficient, if not more the other CSDs in the project,” he says.
efficient, than the US, but as soon as you
trade cross border, the discrepancies are However, Symons and Rossignol emphasise
huge. However, the comparison is not a that their criticisms of areas where the ECB
fair one. The US is one country with one has not yet provided clarity should not be
fiscal regime, one regulation, rule of law. We taken to mean that they do not appreciate
have 20 different languages and 27 different the huge amount of work that has already
tax systems and every difference creates gone in to Target2-Securities, or the degree
frictions and costs for every process. There of user involvement the ECB has sought in
is no doubt that the necessary legal and specifying the project. “It is because of the

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 Alfi_

p. 7272
pp. Title
Spain

Title

Breaking the bottleneck Stand

Catherine Kemp discovers whether high stock lending demand for shares in property construction and real estate in
Spain, has continued after the crash in the real estate market

In its 2007 Securities Lending Yearbook, buying all together, Spain’s economy, advantage of the European Central Bank’s
Spitalfields Advisors’ presents a divided which is heavily reliant on other countries (ECB) programme of swapping assets for
market opinion on the Spanish economy. investment in their real estate and service cash to ease their capital issues. Banks in
Some saw the crash in the property sector industries, is falling apart. There has been a the Euro region can raise cash by handing
coming; others thought that, despite massive depletion in the value of property over assets, including mortgage-backed
unsustainable property prices - the most in Spain, and at least one large property securities, to the ECB, either agreeing to
likely scenario was a ‘soft landing with developer, Martinessa Fidessa, has had to buy them back later or pledging them as
limited impact on the economy.’ file for chapter 11 protection because local collateral. Bonds from Banco Santander SA
banks refused to give them a bridging loan are on the ECB’S list of eligible securities
According to the analysis, speculation on of EUR150 million. The company already that can be exchanged for loans. The bonds
the crash of Spanish real estate prices led owed the banks EUR5.4 billion in cash; are currently backed by mortgages that
to high stock lending demand for shares however, at the time of taking out these exceed property values by as much as 24%.
in the property, construction and banking cash borrowings they had assets of EUR9 As a result Spanish lenders have increased
sectors, which in turn brought an increase billion, made up of land and property. Now their use of these three- and six-month
in margin and volume to the securities that the land and property has devalued the ECB loans to EUR 27.5 billion as of 30th
finance business, as well as an increase in company is in an unsustainable position. June, from EUR 2.4 billion a year earlier,
the volatility of stock lending fees. Mortgage arrears in Spain are at the highest according to the country’s central bank.
in six years, according to Standard & Poor’s, But the situation has more than halved
Since then the Spanish property boom has and Morgan Stanley has issued a major alert economic growth in Spain to 1.8 % in 2008,
ballooned into a bubble, and then burst, on the health of Spanish banks, saying that according to the International Monetary
and the credit crunch has infected Spain’s a replay of the exchange rate mechanism Fund, and the Spanish finance Minister
property market causing massive problems (ERM) crisis is on the way as small lenders Pedro Solbes has announced that there is a
for the economy. exposed to the property crisis run out of high chance of zero growth in the future.
capital.
As cash strapped UK homeowners, sell So, after much speculation is over, what
their Spanish vacation homes and stop Spanish banks have so far been taking is the impact on the securities lending

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Alfi_Nicsa_2008.qxp 22.08.2008 15:21 Page 1

A LFI
&
The National Investment

A s s o c i a t i o n o f t h e Company Service Association

nicsa
Luxembourg Fund Industry

ENUE!
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NEW

23 & 24 September 2008

Centre de conférences
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For a conference programme with registration details please refer to the following website:
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THE 17TH ANNUAL

Global Investment Funds Forum

1-114-PDF FINAL NEW .indd 73 16/1/09 15:43:20

 p. 74 Spain

other markets is that domestic supply has The result should increase the market or succeed they are not significant enough
been absent from the market. Lenders in liquidity by bringing new supply into the compared with the other elements of the ,
Spain have tended to be offshore holders market from domestic holders of stock now trade like whether stocks go up. But it is
of stock, like international funds. What’s able to lend, and generally make it much true that at the margin, higher borrowing
happening is that domestic holders of stock, more attractive for borrowers to enter the costs may deter some trades, and so adding
who are quite significant, have not been market. The number of specials on the liquidity will make the Spanish market
allowed to lend stock.” Spanish stock exchange may also decrease more efficient.”
as a result. The special’s market is huge in
This affects the securities lending market contrast with the US, UK or other leading One of the things that concerns O’Donnell
dramatically and not least for the hedge economies in Europe, as a result of the is whether the local asset managers are
funds market, that is frustrated by the lack lack of domestic supply. O’Donnell thinks equipped to open securities lending desks
of liquidity in Spain. this will change with the new regulation, and develop the infrastructure and systems.
although it will not fundamentally correct “I think what will probably happen is that
“One hedge fund will speak to three prime the difference. some of the bigger ones will set up there up
brokers asking to borrow stock to run a their own stock lending desks, and some
short position, and so we’ll have three “I don’t think everything will go GC, there of the mid-sized to smaller ones will look
prime brokers come along to us as a bank will still be special names,” he says. “If you to use a global custodian.” He adds that,
looking for stock, within 30 seconds of look at the IBEX 35 right now, there are there are also asset managers waiting in the
each other,” O’Donnell says. “They are also probably half a dozen names trading at wings, to move into the Spanish market.
asking other Spanish banks who come on 1000 bases points or above, which is sort “There are certainly people eagerly awaiting
to us as well. The whole thing mushrooms, of unheard for a country’s main index. Six the change in regulation. But in all fairness,”
so that you’ve gone one hedge fund looking names out of an index of 35, so you are he adds, “some of the local managers, are
to do one order, and 15 people looking for talking like 16% of the market’s trading at much more aggressive than others. Some of
the stock. And because there is no depth 10,000 – you wouldn’t get that in the FTSE them will have done a bit of stock lending
of liquidity it just pushes the price up.” 100, or the S&P 500. So I think you will already, all be it through derivatives,
This means that whatever strategy they still have special names, but I think the vast because although they are not allowed to
wish to put on their books, long, short or majority will find a lower level at which to lend stocks they are allowed to sell and buy
otherwise, the cost of borrowing is always trade.” derivatives to hedge their performance. It is
more expensive. The cost of borrowing these managers who will probably be more
may make it much less attractive for hedge David Rule agrees that it is very likely geared up to do securities lending.”
funds to borrow in Spain than elsewhere in that there will still be quite a high level of
Europe. specials, but that most things will go down According to O’Donnell, one of the
to a lower level in price. He says: “it will issues that came up in the discussions
However, this situation will soon change as become a more developed market, like the surrounding the new regulation was
the Spanish regulators are in a consultation UK or the US. Broadly something goes whether securities lending drives down
process about a change in the rules. They special if there’s high demand to borrow the price of shares because it allows people
are on the second draft of a document, it. If there is an increase in supply the to sell short. This is an interesting parallel
which when passed through parliament, price adjusts and less things will tend to with the fears of regulators and/ or market
will allow Spanish UCITs funds to lend go special. But you are always going to get participants of other developing securities
securities. The first draft has been sent out specials in markets in cases where there are lending markets around the world. In this
to market participants globally, including special situations, such as take-overs.” case, the Spanish regulator, the Comisión
ISLA. They are now waiting for queries Nacional del Mercado de Valores (CNMV)
on the second draft and are hoping it will Specials may make the market more has a very positive view of developing
be approved by parliament in September
2008, or at least before the end of the year.
attractive for hedge funds who, may have
been deterred from borrowing in the
the securities lending market, and David
Rule who has been working with the
C
And according to David Rule this should Spanish market because of the high cost Spanish authorities describes them as very
be followed up with further regulations to and lack of liquidity. Although according “motivated to make those changes, it’s a E
allow Spanish pension funds and insurance to David Rule, “generally borrowing costs good news story I think.”
companies to more easily lend securities. do not determine what makes a trade fail
M
ISJ | Investor Services Journal M

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 GSL|
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 KOGER

p. 76 Spain

The bureaucratic complexities of its is not straightforward because the legal It is difficult to determine, whether it is
settlement system is a peculiarity of the borrower is Morgan Stanley, and so people the underlying structure of the securities
market and may arguably be affecting its think that the register creates misleading lending market, that has ensured the
development. information. Secondly, it adds a manual continuation of high stock lending demand
element to the process of settlement, which for shares in Spain’s property, construction
Spain has a requirement that borrowed makes trading in Spain more costly for and banking sectors, and the high cost of
shares must be registered with IBERCLEAR, prime brokers.” stock lending fees, or whether it is hedge
which is the settlement system. CNMV then funds wanting to borrow stocks that is
publishes a list of what it regards as the This all creates overheads for market maintaining demand. In light of this, it
outstanding short positions in the market. participants because of the additional will be interesting to see what happens to
IBERCLEAR then penalise people for late manual processes involved, which broadly prices of shares when the new regulation
settlement. speaking, means that settlement processes is promulgated, and whether the current
in Spain are not in-line with other major bottleneck relationship between supply
David Rule describes two problems with markets, and can mean that market and demand in securities lending and
this system; “Firstly, market participants participants are driven away. Although the borrowing in Spain will disperse and
don’t believe that the register is a fair system of putting all instructions through the market will develop. As to the failing
reflection of outstanding short positions in IBERCLEAR, does mean that at any one property market, borrowing from the ECB
the market. They believe it’s very difficult time, IBERCLEAR can tell you exactly the has eased liquidity problems in the short
to maintain an up-to-date list, when you’ve volumes that are on loan, or how much of term. However as more and more securities
got situations where, for example Morgan the free float’s available, which means that pile into the ECB’s coffers, in exchange for
Stanley has one client with a short position as a centralised clearing house it is one of cash, it is not surprising that regulators are
who then closes it out, and another client the most efficient. starting to grumble. Time will tell what
who enters into a short position. Morgan effect it will have long term.
Stanley doesn’t close-out the borrow, but
shifts it from one client to another. That
happens quite often in securities lending.
How that gets picked up on the register

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 p. 78 Sungard Milner

Enhancing profitability through an integrated securities lending solution

By Jane Milner, global product marketing manager, SunGard Securities Finance

There are a number of potential efficiencies

that can be driven from the functionality
incorporated within a securities lending
solution. Close integration between
disparate systems is needed to fully reap the
benefits of improved efficiency of process
and support scalability, while helping to
control risk and cost.

There are numerous ways in which

integration between different systems
The securities lending market is expected The danger with automation of isolated can reduce inefficiencies and errors, these
to grow by 5% in the US and 10% in parts of the process is that a bottleneck include:
Europe, according to a recent report by is simply moved further down in the
Towergroup, and the need to improve processing cycle, or even worse, a new • When a trade has been agreed in an order
efficiency and reduce costs is never far bottleneck is introduced. A solution needs routing system, trades can be created
from the mind of the business manager. to cater for straight-through processing automatically in the core record keeping
International securities lending is an area (STP) from order entry, through each stage and lifecycle management system
in which there is still considerable scope for of the trade lifecycle, to maintenance of a • For trade reconciliation, any corrections
efficiency improvement as it is one of the firm’s core books and records. carried out on the contract comparison
last areas to have fully embraced automated In today’s international markets, STP has component can automatically be updated
processing. This has been largely due to been focused on electronic settlement, in the record keeping system, thereby
the variable trades and the lack of market but there is still great scope for further eliminating the need to manually post the
standards in the operational lifecycle. integration to improve efficiency in changes in two places
many more of the front, middle and • Centrally generating marks to the trades
While securities lending volumes and values back office processes. Technology can of both participants ensures the trade
continue to grow, there is the danger that deliver automation of manual, time remains in step, while at the same time the
revenue increases can be outstripped by consuming and error prone processes mark values can automatically update the
cost increases that will compress overall avoiding duplication of effort and allowing recorded loan values
profitability. Evidence suggests that there practitioners to get on with the more • Recalls can be centrally routed and recalls
are still countless efficiencies that could be interesting, added value tasks. and return activities can be booked to the
realised to hold down costs. This involves trades automatically
two distinct areas for improvement: Automation is appreciated by both the
enhanced processing and integration of back and front offices. Securities financing Integration is commonly one of the most
IT solutions within an organisation, and is no longer a ‘service’ to other trading costly, and least predictable elements of
increased efficiency of communication functions, and securities finance traders cost in a project’s budget, often eating up
between counterparties. A securities lending need to become more proactive and what can seem to be a disproportionate
trade duration can range from one day to opportunistic in their approach. Greater percentage of the overall budgeted cost.
weeks, months or years before completion, efficiency requires more sophisticated
so maximising efficiency is vital. decision support tools for price discovery, An integrated front-to-back office solution
visibility of market volumes and trends, and sourced through one vendor relationship
Technology has already assisted with a clear awareness of consolidated borrow can deliver many advantages with less
innovations in order routing and contract requirements and securities availability. of the complexity of multiple system
compare. But closer integration will integration. A single source solution can
be the key to real transformation and With the front office equipped with more also best leverage the processing workflow
greater profitability. This will reduce costs sophisticated tools to gain efficiencies and and synergies between individual specialist
and increase efficiency, and develop the increase business, the back office must keep components.
scalability required to support increasing pace and maintain high levels of service.
volumes. Integration is commonly one Back office automation required to manage Until now, securities lending has often
of the most costly, and least predictable this activity as efficiently and cheaply as existed in isolation. However, institutions
elements of cost in a project’s budget, possible. High volumes present significant are increasingly realising the benefits of
often eating up what can seem to be a challenges in manually intensive processes. technology, and the more integration there
disproportionate percentage of the overall is between systems, the greater the benefits
budgeted cost. these systems can offer.

ISJ | Investor Services Journal

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 Get out of the queue.

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 p. 80 Sec Lending

The rise and sprawl of multi-listed securities

Eamonn Ryan, director of Equities Product Management at Euroclear, describes
how the difficulties of multi-deposited securities is prompting their decline

The meaning of “multi-listed securities” continue to be listed on the exchanges of have listed and deposited their shares in
may depend on whether you are working others. one or more remote markets in this way.
in the front or back office. Traders will To accommodate this front-office diversity, Despite its popularity, there are a number
refer to multi-listed securities as those that the multi-listed security is deposited in of disadvantages to multi-depositing
are listed and traded on more than one “remote” CSDs – ie, those outside the securities.
stock exchange; back-office professionals issuer’s home market CSD. This makes Settlement Efficiency: For an international
will refer to them as securities that are sense because most domestic capital investor, having the same securities held in
deposited in more than one central markets are organised operationally two or more locations reduces settlement
securities depository (CSD). Both according to a vertical silo model (even if efficiency because the securities may not
meanings are correct: securities listed in terms of ownership, some markets are be where they are needed, when they are
on several exchanges are deposited in organised horizontally). The trade would needed.
several CSDs. However, the relationship be executed on an exchange, would be Asset Servicing: In terms of processing
between “multi-listed” securities, and what passed down to a central counterparty deadlines, services offered (e.g. tax
should rightly be called “multi-deposited” (CCP) to be cleared, and then passed along reclaims, proxy voting) and corporate-
securities, may now be breaking down in to the CSD of the local market of the action choices (e.g. the possibility to choose
Europe. exchange for settlement. cash versus stock), the remote CSD may
Multi-listed securities will not disappear Bringing a foreign security into a local not offer as comprehensive a service as the
as long as issuing companies wish to market’s CSD enables members of the issuer’s home market CSD.
gain access to larger pools of capital and CSD to settle trades in that foreign security Cost: In terms of both safekeeping and
exchanges wish to have the most popular without having to change their CSD service settlement fees, the services offered by
stocks listed on their order books. So, provider or network relationships. Over the the remote CSD are typically more costly
equities from one domestic market will years, many of Europe’s issuing companies than the home market CSD for the same
security.
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 Sec Lending p. 81

To alleviate these difficulties, many also link with CSDs outside of their home
investors systematically realign multi-listed markets. The upshot is that it will soon be
securities positions from the remote CSD possible to trade securities in a choice of
to the home market CSD, a process that venues without these multi-listed securities
can become more urgent around important having to be deposited in several CSDs.
deadlines such as for corporate actions. These changes follow the increased
Securities may also be realigned in the consolidation among CSDs. For example,
opposite direction in order for the investor the Euroclear group will soon comprise
to settle a securities delivery instruction CSDs of seven European markets, all
in the remote CSD. For this reason, some of which ultimately will process client
service providers, such as Euroclear Bank, transactions on a single platform. The
offer services to automate the realignment Belgian, Dutch and French CSD platforms
process. are scheduled to operate on a single
But will such a service always be necessary? platform from November 2008. This
Perhaps not - the one-to-one relationship will eliminate the need to multi-deposit
between multi-listing and multi-depositing securities issued and/or traded within It can be expected that many of
securities is starting to dissipate. these three markets among the three CSDs. the existing CCPs in Europe
So what has changed? For a start, MiFID Settlement efficiency will increase and will also link with CSDs
has pulled apart the vertical silo model: back-office costs will decline.
new multi-lateral trading facilities (MTFs) The number of multi-deposited securities
outside of their home markets
such as Chi-X, Turquoise, BATS, Equiduct, will fall for the first time. There will
Smartpool, and NASDAQ OMX PEM are be more choice, settlement efficiency
being or have been set up. While some, will improve, costs will decrease and all
such as Equiduct, will use the existing CCP shareholders will have access to the same
of each listed security’s domestic market, asset servicing possibilities, no matter
others will use new CCPs like EMCF and where they traded the security.
EuroCCP. These new CCPs are linking with So, if multi-deposited securities meant
multiple CSDs and it can be expected that nothing to you before, it will mean even
many of the existing CCPs in Europe will less in the future.

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 p. 82 Euroclear Article

UNCOVERING BURIED TREASURIES

Changing market conditions demand balance sheet
integrity By Nigel Walder, CEO of Business Control Solutions

There are a number of concerns that Is any of this situation similar to your
could be raised: how do you maintain working life? As treasurer of Global Plc,
the control environment that you what should your role be?
established by supervising directly and
ensuring segregation of duties through In a survey conducted in February 2008
a standard workflow, with timely, secure commissioned by Business Control
communication of issues as they arose? The Solutions, the greatest issue facing finance
integrity of the balance sheet is key in that departments was found to be managing
assessment. the data and information. 94% of
respondents found departmental workflow
Imagine a senior manager within Global very challenging. A further 79% found
Plc is charged with the responsibility of difficulties in achieving visibility and
account sign-off and it is becoming the control efficiency; 76% of respondents
bane of his life. are hampered by a multitude of manual
processes, and 58% are troubled by
The balance sheet of Global Plc comprises disparate systems.
thousands of accounts hit by millions
Treasurers have always been in the business of transactions resulting in assets and Given these findings, it’s no wonder
of managing financial risk. Recently the liabilities which run into the billions. account sign-off is tricky and time-
focus has expanded to cover holistic risk Some of the assets under review are highly consuming. Further survey results revealed:
management across the organisation, customised transactions with clients and
including liquidity, operational and it is difficult to agree a mark-to-market * 69% ranked making improvements
country risk – all of which have a bearing because... there is no market. to control and reporting processes their
on the modern treasury department. highest priority remedial activity for 2008;
To further complicate the matter, the * 55% said a lack of clear
Market conditions are giving the wider senior manager has been told that the communication and its impact on visibility
finance team a renewed impetus in cost cut-off data is incomplete because there are and control are the greatest risks when
management and the treasury is a vital part some cancellations that have not fed their off-shoring;
of this. In a geographically diverse business, way through yet. This job is hard enough * 28% cited the resources and skills of
centralising operational and technical without having inaccurate data. offshore staff as high risk.
specialist processes can clearly deliver on
that objective. But suppose the finance The CEO is breathing down the manager’s An over-arching control framework
director is discussing the intended change neck because last month the trading is needed for finance departments to
with you and suggests taking the treasury statement told the City that prospects are overcome these challenges. Seeing the
operations team offshore with the finance looking good. uncertainties around cash positions and
“production” team. a clear business line split gives direct
The senior manager is concerned. understanding of the organisation’s
He’s suspicious of the business people liquidity.
responsible for the transactions that pass
through these accounts. How can people During the recent years of expansion and
get paid annual bonus on estimated P/L growth the principal focus for treasurers
for transactions that stretch out 10 years or has been on external opportunity. The
more? current environment may be an opportune
time to demonstrate value more widely
The only thing the manager can do is rely across finance and ensure that control
on his people, which was fine when he requirements specific to the treasury do not
could talk to them face to face but this is get overlooked in the drive to contain costs.
more difficult and unnerving now that
50% of his department is offshore.

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 p. 84 Data

Is reference
data essential
to investment
banking?
By Jonathan Bloch, founder and CEO of Exchange Data International.

Spontaneously, you would probably answer Accurate reference data helps reduce According to Mr Rafah Hanna, executive
yes to this question - how could investment operational costs and risks by trimming director and head of MTS Data at Euro
banks do without Security Reference Data? down manual processes, and also has a MTS: “Many people are only now coming
But the reality is that they do not allocate considerable impact on the quality of query to the conclusion that maintaining accurate
a significant portion of the budget to their handling and settlement operations. High and complete reference data is critical
Reference databases, so could reference quality reference data enables prompt and to efficiency and profitability. This data
data not be as important to them as accurate identification of securities that can and does directly affect your bottom
vendors and others assert? is critical to investment banks upholding line. At MTS we have seen a growing
their reputation and minimising their demand for reference data; it is no longer
For the past few years, the global security liability. the domain of the back office but must be
industry has worked on straight-through To understand why investment banks do considered in its own right as part of any
processing (STP) projects and there has not necessarily invest in their reference professional market data strategy.”
been a growing recognition of the benefits data, we need to consider the fact that often
of this method in the trade processing Investment Banks have grown by mergers It seems advantageous in the short term for
routine. For optimal results, straight- and acquisitions. They therefore have to major investment banks to be inefficient
through processing solutions require a deal with a multiplication of databases; one as they do not need to spend time and
clean database of high quality security CIO admitted to the author that following money on the standardisation of their
reference data. The budgets respectively several acquisitions he was responsible for multiple databases. But in the longer term,
assigned to STP solutions and the using more than 200 different databases. the expenses linked to this standardisation
provision of reference data should reflect Merging and cleaning these databases will be justified by the large return on
this fundamental link. Spending millions cannot be done solely by software: investment. Small investment banks, on
in either outsourcing trade operations therefore human resources are required, the other hand, would rapidly benefit from
or creating a STP architecture without adding costs and time. We would argue quality reference data.
considering increasing the reference data that dealing with several databases must
budget is akin to buying a Ferrari without generate duplication of work data errors,
being able to insure it. causing the service quality to suffer.

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 p. 86 Data

Turn up
the volume
By Neil Daswani, Global Head of Securities Services, Standard Chartered

R
eference data has exploded in terms asset servicing industry has spent millions of data, making the processing of intra-company
of both volume and complexity in dollars on automating processes but continues counterparty data, or third party data, a
recent years. This has created new to grapple with inaccurate, untimely and tangled affair, especially around allocation.
challenges for back office systems across the inconsistent reference data, arising mainly These factors change the nature of the
asset servicing industry, from trade capture to from inconsistent data definitions across back office accounting systems. Standard
clearing and settlement. Market volumes of multiple disparate systems. Chartered is in the middle of a programme
securities transactions in Asia, as measured by to draw together the reference data needs for
SWIFT traffic, have increased by an average Standard Chartered provide services across all our securities services businesses across
of 22%. 17 markets, including Asia. The different various activities from corporate actions
jurisdictions involved, from SOX and Basel to clearing and settlement. The goal is to
The need for greater, more timely and more II, down to minute data differences between create standardisation across a disparate
accurate reference data capture has been Shanghai and Beijing, breeds complexity. The market place, a standard platform with a
driven by a number of underlying themes: bank adapts to frequent regulatory changes, reference data solution designed around a
capital market growth; the surge of initial meaning that the back office system is capable central data repository and a golden copy
public offerings; more clients investing into of multi-market compliance. That comes of our critical enterprise data. The reference
Asia (requiring asset servicers to be able down to getting the reference data right. data solution aims to eliminate application
to identify clients via standardised codes); Further, Standard Chartered’s clients are coupled, inconsistent and duplicate data. The
and a wider range of asset holdings today growing in both number and activity - this new architecture will provide end-to-end
then before requiring reference data capture includes trading in more complex products data management through aggregation of
beyond just security and index name. The that require more data. The reduction of data accepted, followed by a scrubbing and
portfolio investment flows of Asian domestic settlement cycles and hedge funds’ propensity cleansing process in line with business rules.
funds are also crossing borders, meaning data to send instruction close to market cut-off
capture of overseas companies and securities has put further pressure on the asset servicing The aim is to exploit the synergies between
in addition to maintaining local (legacy) data industry to get it right first time. cash and securities. The next intra-day
records. interfaces to be built are for cash and foreign
The bank is also attracting larger and larger exchange, where all underlying client data
Business volumes grew by as much as 60% mandates from financial institutions – this can be referenced from a single source. How
last year. This transaction volume growth has also complicates reference data. Essentially, easy is that to achieve? We’re still at the design
brought a greater responsibility to process, when you deal with a large client, it’s not stage, but this is our ambition and while
clear and ultimately settle these trades. really one client you’re dealing with but many there’s no silver bullet it is an achievable
Others have grown too, but not as fast. The underlying clients. Each department might aspiration.
have its own way of dealing with reference

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 p. 88 Redi2

Managed Accounts:
An Industry Defined by
Growth, Complexity—
and No Margin for Error
When it comes to fee billing, there’s no margin for error—especially in managed accounts. Seth Johnson, CEO of Redi2 technologies
discusses how effective fee billing management can mean the difference between maximised revenues and costly fee leakage.

Matt Bienfang, senior research director Growth of the MA industry has “To process increasing managed accounts
with TowerGroup, the financial services significantly outpaced the mutual fund volumes on regular cycles as well as daily
research and advisory firm, estimates that markets in recent years. According to to address compliance, cost management
fee slippage among managed account industry estimates, MA assets, which now controls, and improve cash flow, firms
sponsors within the industry can account stands at USD700 billion, up from USD400 will need to turn to vendor solutions,”
for as much as 1.7% of gross fees, billion six years ago. Managed account adds Bienfang, author of the June 2008
representing as much as USD306 million in assets are expected to continue to grow—a TowerGroup report: “Managed Account Fee
under or over payments annually. trend fueled in part by the demographic Management: Everybody Must Get Paid!”
shift of “baby-boomers” funding retirement “These solutions must not only offer the
Managed accounts offer investors vehicles. required throughput but also manage the
customised professional portfolio extreme complexities that will continue to
management for a fee. The supply chain With the advent of multiple style portfolios, emerge in the highly competitive managed
from manager, overlay manager, custodian, unified managed accounts, and unified accounts industry.”
sponsor, financial adviser to buyer managed household programs, managed
(investor) lends itself to extraordinary account fee billing demands have outgrown Fee billing software helps buy-side and sell-
complexity in the fee billing process. legacy manual-intensive processing. The side firms more easily manage the fee billing
characteristics that define today’s MA process, from client account setup and
Investors have incorporated an ever- markets, including supply chain and fee termination, multi-currency fee and accrual
widening spectrum of instruments into calculation complexity as well as rising calculations and revenue reconciliation
their portfolios, making accounting and account volumes—make abundantly clear to invoice and advise generation, special
fee management all the more challenging. why demand for automated fee billing billing adjustments and reversals.
At the same time, account minimums solutions is strong and growing.
have dropped from USD1 million to Advanced fee billing functionality
USD100,000 and lower at many firms, Indeed, this combination of factors has simplifies the processing of a wide array
driving processing volumes to challenging placed new pressure on account sponsors, of fee and payable calculations based on
levels for even the largest and most full-service broker/dealers, asset managers master agreements that can otherwise be
operationally robust financial services and other financial services firmss to extraordinarily complex. Companies can
companies. fine-tune their fee billing practices and calculate fees and payables based on assets,
procedures. transactions, performance or custom
services. Additionally, automated solutions

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 p. 90

“To process increasing managed accounts volumes on

regular cycles as well as daily to address compliance,
cost management controls, and improve cash flow,
firms will need to turn to vendor solutions,”

make it easier for firms to present summary Another important attribute of an Equally useful are alerts that flag deltas
fees by client, account, program, invoice; automated billing solution is straight- on valuations that have been used for
or study detailed fees for each investment, through processing functionality that calculation or invoicing purposes so
sleeve or portfolio in an account or delivers exception-based intelligence to that billing managers can take proactive
program. expedite cases that need high-priority measures or resubmit invoices, if necessary.
and personal attention. Processing only
Automated fee billing solutions enable exceptions allows billing administrators to The ability to customise all aspects of
financial services to attribute fees based on expedite their billing cycles and cash flow. the fee billing process for managed
a myriad of dimensions, such as investment It also provides more capacity for handling accounts—including account enrollment,
strategies for unified managed accounts, growth in volumes. maintenance and termination, complex
or individual account sleeves assigned to multi-currency fee and accrual calculations,
multiple managers. Systems that feature An embedded rules-based engine lets firms revenue reconciliation, invoice and advice
full historical audit trails and management define rules to manage their fee billing generation, special adjustments and
by exception capabilities additionally based on the way they do business—all reversals - gives financial services firms
help firms meet increasingly rigorous without custom coding. This level of firm- maximum leeway to suit their management
compliance and audit requirements. specific fee billing process management styles and preferences.
provides yet another competitive
Flexible fee billing solutions feature open advantage in the increasingly crowded MA With increased demand for accurate and
application programming interfaces and marketplace. customised fee-based investment strategies,
compatibility with industry-standard including managed accounts programs,
relational databases, servers and desktop There is also growing pressure for robust firms that implement robust solutions
systems. This makes it possible to reporting and query capabilities to analyse can process fees more effectively at firm-,
seamlessly integrate more sophisticated fee billing information to gain an overview of manager- and account-specific levels. By
billing functionality into a firm’s existing revenues and improve strategic decision- implementing standards-based software
third-party solutions, such as accounting, making. Beyond standard revenue reporting based on user-defined rules and best
performance measurement and customer functions, fee billing data is an excellent practices, financial services institutions can
relationship management (CRM) systems. source of data mining that can help significantly enhance their fee processing
institutions better understand their account while scaling their operations for growth.
A user-friendly graphical user interface base. For example, reports can be created to
and user-definable workflow and show regional as well as advisor profitability ABOUT THE AUTHOR
calculation rules make it easier to define patterns. Redi2 Technologies CEO Seth Johnson
product, account and organizational is co-chair of the Money Management
hierarchies and other data mappings. The growth of the industry has been Institute’s billing standards sub-committee.
The challenge is to find a solution that accompanied by increased demand on the Winner of Money Markets’ 2008 Innovation TCS Fi
is easy to use and standards-based yet part of investors, auditors and regulators Award, Redi2 Technologies ( HYPERLINK Payme
Comp
powerfully sophisticated. For instance, for increased transparency and improved “http://www.redi2.com” www.redi2.com)
reconc
advanced analytics capabilities allow users fee billing and payables reporting. is a leading provider of fee billing solutions
growt
to slice, dice and analyze revenue and Companies can help to ensure accuracy and for the global financial services industry. bankin
accrual information at any level of the transparency through automated fee billing
organizational hierarchy, and to instantly processes, such as audit trail capabilities All figures referenced in this article are
view information by user-defined attributes. that automatically compare against existing denominated in USD.
valuations in the system.

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 That’s certainty

TCS Financial Solutions introduces TCS B NCS, a comprehensive and integrated financial suite covering
Payments, Securities Processing, Securities Trading, Treasury, Market Infrastructure, Corporate Actions,
Compliance, Core Banking, Islamic Banking, Insurance and the TCS Aspire Service for Outsourced
reconciliation processing. Across 240 financial institutions in over 80 countries, TCS B NCS drives customer
growth, reduces total cost of ownership, enhances new product development and enables clients in
banking, insurance and capital markets to experience certainty.

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 p. 92 News

People moves
Deriv/SERV LLC, DTCC’s BNY Mellon Wealth Management
subsidiary supporting the fast- has appointed Joshi Gunputh
growing global over-the-counter (right) as client relationship
(OTC) derivatives market. She will manager to its Family Office
also be responsible for outreach Services group based in London.
efforts on behalf of DTCC’s Gunputh will serve as the primary
Enterprise Risk Management client contact and specialist
(ERM) to industry groups and resource across BNY Mellon
regulators. Wealth Management for family
offices and their advisers who are Saxo Bank has appointed Eric
Vhayu, the enterprise tick data supported by the London-based Rylberg and Karsten Poulsen
solutions provider, announced the Burton has been with DTCC since team. FXall, the foreign exchange to two new positions as chief
appointment of Tim King (above) 1997, most recently as director platform, has appointed Jerry executive director and deputy
to the position of director of of DTCC Risk Management, Putnam and Eddie Wen to its chief executive director
sales for Europe, Middle East and overseeing ERM Information board of directors, adding a wealth respectively. While remaining
Africa (EMEA) to support strong Technology projects covering of experience to the company as joint CEOs and keeping all formal
company growth in the region. credit/market risk and securities it continues to drive innovation responsibilities, Kim Fournais and
With three European customers valuation, quantitative analysis, in the market. Jerry Putnam is Lars Seier Christensen will leave
acquired in the first half of 2008, and operational risk management. currently a senior adviser to NYSE the daily tasks of running the bank
the appointment extends the Prior to joining DTCC, Burton Euronext and was previously to the two new appointees with
London-based sales and services held positions with the Federal president and co-chief operating the senior executive management
team and allows Vhayu to respond Reserve Bank of New York as a officer of NYSE Group, where he group reporting to them.
to increased market demand in the bank examiner from 1996 to 1997. was responsible for the Group’s
region. From 1994 to 1995, she worked market operations, technology Fournais and Christensen will
at Mabon Securities Corporation initiatives, new products, and focus on the strategic direction
“With the massive increase as the associate director for Risk information business. Prior to of Saxo Bank with growth and
in market data volumes, Management. Burton also worked joining NYSE Group, Putman expansion as their primary interest
fragmentation in liquidity at Bear Stearns & Co., Inc. as a vice founded and served as chairman and responsibility.
accelerating the shift to electronic president from 1987 to 1994. and CEO of Archipelago, the
trading and new compliance electronic exchange. As the former CEO and CFO of
requirements, all demanding 29West announced the expansion Eddie Wen is a managing director ISS, a global service company with
systems capable of supporting of its New York operations by at JP Morgan and the global head more than 300000 employees,
this surge in data, there is an even hiring Michael Guse as director of FX eCommerce, where he is Rylberg and Poulsen won
greater need for financial services of software engineering, and Matt responsible for strategy and for wide recognition as two of the
firms to look at how they process Saxe as director of east coast sales. algorithmic proprietary trading leading Danish executives and
and store vital tick information,” within the franchise business.. entrepreneurs who played a key
says Vhayu president Shanti Dev. Guse will be in charge of building Matt Frymier and Ray Kamrath role in the successful development
“Tim is an important addition to an integration consulting team were re-elected to the board. of ISS.
our team, and we look forward to and will focus on helping 29West Frymier is a managing director
building on this success together. customers during their selection and head of the Strategic Mercer, the human resource
and adoption of the 29West low- Investments Group (SIG) at Bank consulting, outsourcing and
King said: “I’m thrilled to join latency messaging products. of America, and Kamrath is a investment services provider, has
Vhayu at such an exciting time in managing director at Goldman appointed Steve Charlton as a
its growth.” Of his appointment, Guse Sachs in the Fixed Income, principal within its retirement
comments, “I am excited to join Commodity, and Currency business, specialising in defined
The Depository Trust & Clearing a company that has a proven and Division. The other members contribution (DC) pensions.
Corporation (DTCC) has winning product in the low- of the FXall Board are Henry Based in London, he will be part
appointed Jisun Burton to vice latency messaging space - LBM Feinberg and Robert Trudeau of of the DC leadership team.
president of product risk and and UME - and that continues to FXall shareholder Technology
strategy. She will be responsible introduce more exciting features Crossover Ventures (TCV), and
for the risk activities of DTCC for their customers.” Phil Weisberg, CEO of FXall.

ISJ | Investor Services Journal

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1-114-PDF FINAL NEW .indd 94 16/1/09 15:44:18
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 p. 96

Directory
of Services

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 ISJ Directory of Services p. 97

1-114-PDF FINAL NEW .indd 97 16/1/09 15:44:37

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 p. 110 Running a Company

Hannu Syrjala, CEO of TietoEnator

routines and reduce risk....

Can you describe the STP tool on offer for front-

our customers is very important. It’s never to-back office clearing and settlement: who is
an easy job. The strong customer focus but currently using it, how long does it take to install,
it is built into our culture.” where is the next key market who may take it up?
Our comprehensive solution for retail and
He explains that much of his approach to institutional players in the market supports
running a business came from his time at complete STP in all stages of the life cycle, from
General Electrics, where he worked for five the origin of the trade to placing an order in the
years in Wisconsin as a vice president and global market place and on to when the trade is
general manager of one of the divisions in settled in the local market. At the front end our
Hannu Syrjala is into his seventh month its healthcare arm. “I found working in GE solution’s standardised interface towards the FIX
as CEO of TietoEnato, one of Europe’s tremendously exciting in terms of learning. protocol enables global multi-market features
leading IT service providers, including It’s very focused on discipline of execution, like connecting to the MTFs now emerging in the
for financial services and insurance as it employs a number of management market. For clearing and settlement, gateways
well as telecommunications, healthcare, techniques to make sure the strategy is adapting the ISO 15022 & 20022 standards
manufacturing and retail. implemented effectively. The HR practice secure straight through clearing and settlement
employs policies that are world class.” with local and/or central clearing parties.
TietoEnator’s client base began in the
Nordic region. It serves parts of the UK Back in Europe he is leveraging the skills Currently around 50 of the largest capital market
financial services industry and is looking to learned at GE. His switch from healthcare players in the Nordics depend on our solutions as
develop its selling bases across the world. was facilitated, he says, by the common their business critical solution and several of our
“Our organic growth has been around factors needed to drive a company. clients operate on a global scale.
10%, in the last quarter 11% growth, the “Remember that manufacturing industry
company is growing very well in financial globalised decades ago, IT services are only Implementation time for our solutions varies
services, offering services and product globalising now. So many of the things naturally depending on the complexity of the
to banks and financial institutions,” says I’ve been able to observe are very much operation. If a client would like to take the
Syrjala. TietoEnator’s products range from applicable to the services industry today.” solution “as is” and tailor it by means of table
the core banking solutions to card solutions and parameter settings only, implementation
and payment services. Syrjala can identify overall differences can be done in six weeks. If development of new
Syrjala explains thatTietoEnator is between different continents. “I worked a functionality is requested implementation time
increasing its competitiveness by lot in the emerging markets in Asia where varies from six to 12 months.
transferring some of the labour to more relationships are perhaps more dominant
favourable cost locations, and lists offshore there than in anywhere in the world. In the In the coming years TietoEnator will look to
centres such as India, Czech Republic, the US companies tend to be very structured, build on the strong foot hold it has in the Nordic
Baltic states and Belaruse specifically. He they tend to have stricter implementation region in the capital markets space. TietoEnators
estimates that 25% of the workforce is in of policies. European countries have to be strategy is to bring it’s tried and tested
these new areas. “The market dynamics of a bit more flexible as we have to adapt our experience in these spaces to an increasing
the IT is changing and is open for global ways of working to different countries in a number of mainland Europe countries.
competition. Much of the new competition small area.”
is coming from companies with offices in Has the client base with banks grown over the last
places in India.” However, he adds that globalisation has few years? If so, has there been a difference in
caused markets to have “more similarities what they have been asking for as an IT solution,
New countries are chosen strategically than dissimilarities” in the last few years. eg, reducing the manual input of trades and
based on employee skills. “Highly qualified “It’s a good thing; I find it tremendously settlement, reducing risk, the simplicity of a single
IT people in India still cost about one exciting that the world is opening up for platform?
quarter of the people in the Nordic everyone, regardless of where you are from.” The client base has grown significantly the last
countries, ” he says. There is a constant years, including banks as well as other financial
challenge to ensure what he calls a global institutions such as broker dealers and fund
TietoEnator – the financial offering, with managers.
delivery model to customers over these Helene Helvik, head of capital markets sales, Market participants are increasingly focusing
different countries. He says that other TietoEnator on improving efficiency, as well as striving to
challenges include employee turnover and be more agile than ever before. This focus has
salary inflation – both of which are higher Can you summarise what the Asset Wealth offering created a pressing need for solutions that offer
in India than in the Nordic region. is and how it can benefit portfolio managers? one-time-entry including efficient integration
Our solutions tailored towards Asset Wealth to surrounding solutions. Furthermore, to be
Customer service continues to underpin Managers meet the demands of asset, fund agile they need solutions that both support their
all that the company does. “Keeping the and portfolio managers alike. The solutions business development with short time to market
relationships and enhancing our work with handle the administration of securities/funds and quickly can be tailored to meet altered
transactions in an efficient manner.By using market requirements and new legislation.
our solutions you will gain control, improve

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 InvestorServJournal203x267_corr.ai 11.8.2008 13:49:03

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