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ISJ14 Cover FINAL 30/5/06 12:09 pm Page 1

VOLUME 3 No. 14 - 2006 WWW.ISJFORUM.COM


£ 25 - UK, ROW
$ 43 - Americas
INVESTOR €35 - Europe, Mid-East, Africa

S ERVICES
JOURNAL

HIDDEN DANGER
HOW MUCH WILL MiFID COST YOU?

PENSION PAINS - NORTH AMERICA


CEE ANALYSIS - PENSIONS & CUSTODY
HEDGE FUNDS - TECHNOLOGY ADVANCES
PAPER AGE - CORPORATE ACTIONS
SEC. LENDING - CANADA FOCUS PLUS:
TRANSFER AGENCY - PANEL DEBATE
PENSIONS INTERVIEW - RAILPEN
RISK REPORT - ARE CONFERENCES SAFE?
COMPANY PROFILES: SOCGEN AND BARCAP

THE GLOBAL SECURITIES SERVICES INDUSTRY JOURNAL


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ISJ14 pp1-57 FINAL 30/5/06 9:22 am Page 1

Editorial

INVESTOR READING, ’RITING, REGULATION


S ERVICES This issue begins with a big ‘hello’ to all those
whom I haven’t yet had the chance to meet, and
visit to Moscow and my obviously misplaced
belief that this industry is a safe place to be.
JOURNAL a hearty re-greeting to everyone else.
MiFID is the focus of the current issue as the
My previous job took me to the tribal belt
between Pakistan and Afghanistan and an
industry anxiously awaits the final ‘Level II’ interview at the Taliban madrassah outside
VOL 3 No.14 - Jun/Jul 2006 text, which is now expected in late July. Having Peshawar; but during the whole trip I
spoken to a dozen or so experts among you, I experienced nothing more threatening than an
am pretty convinced that the industry will over-zealous T-shirt vendor.
cope. It should be seen as an opportunity to In any case, a special thanks goes to Harry for
modernise rather than a bugbear. allowing me to grill him at length on the state of
Our panel discussion this month looks at the Eastern Europe’s economies despite the pain.
latest developments in the transfer agency My first month at ISJ has been a learning
sector (p. 31), while ‘Analyse this’ examines experience - not dangerous in the least - and I
hedge fund technology. Don’t miss our thank those of you who have taken the time
Barclays Capital profile and specials on North patiently to walk me through different aspects of
American pensions and securities lending. the securities services industry. I expect to be out
At the back of the book, our anonymous and about quite a bit in June personally getting
columnist presents the fruit of 5 weeks to know you. Keep those invitations rolling in!
delving for disaster scenarios. JF
Not recommended for the faint-hearted.
My thoughts somehow turn to Harry Devroe PPA Magazine Awards
of ING and the five broken ribs he incurred after
The ISJ team attended the PPA awards
slipping in a hotel bathtub while on a business
following our publisher Justin Lawson’s
nomination for Publisher of the Year.

2006 PPA AWARDS


PUBLISHER OF THE YEAR
HIGHLY COMMENDED
MEMBER - PERIODICAL PUBLISHERS ASSOCIATION

TOTAL NET CIRCULATION 10,343


Analysis for the Audit Issue Vol 2, No 7 and distributed July 2005.
Source: AUDIT BUREAU OF CIRCULATIONS, www.abc.org.uk Monique, Nick, Tasha, Alan and Jan of Team ISJ

Editor: Jan Fossgård (Jan.Fossgard@ISJforum.com)


Reporter: Alan Duerden (Alan.Duerden@ISJforum.com)
Contributing Editor: Brian Bollen. Contributors: Christine Senior, James Reed

Publishing Manager: Nicola Barker-Moseley (Nicola@ISJforum.com)


Operations Manager: Tasha Fryer (Tasha.Fryer@ISJforum.com)
Account Managers: Kenny Thomas (Kenny.Thomas@ISJforum.com)
Nick Parsons (Nick@ISJforum.com)
Directory Sales: Monique Theart (Monique.Theart@ISJforum.com)

Publisher: Justin Lawson (Justin.Lawson@ISJforum.com) investor


Chairman: Mark Latham (Mark.Latham@ISJforum.com) intelligence partners
INVESTOR SERVICES JOURNAL
37-38 Margaret Street, London W1G 0JF
T: +44 (0) 20 7493 9966 F: +44 (0) 20 7493 3366 W: www.ISJforum.com
TO RENEW YOUR SUBSCRIPTION PLEASE © 2006 Investor Intelligence partners. All rights reserved.
TELEPHONE: +44 (0)20 7493 9966 No part of this publication may be reproduced, in whole or in part, without prior written permission from the publisher.
OR VISIT... ISSN 1744-151X. Printed in the UK by Pensord Press
WWW.ISJFORUM.COM Credits: Image on page 38 provided courtesy of Czech Tourism
ISJ14 pp1-57 FINAL 30/5/06 9:22 am Page 2

INVESTOR VOL 3 No.14 - Jun/Jul 2006


VOLUME 3 No. 13 - Apr 2006 WWW.ISJFORUM.COM
£ 25 - UK, ROW

INVESTOR
$ 43 - Americas
€35 - Europe, Mid-East, Africa

S ERVICES
JOURNAL

S ERVICES HIDDEN DANGER


HOW MUCH WILL MIFID COST YOU?

JOURNAL
PENSION PAINS - NORTH AMERICA PLUS:
CEE ANALYSIS - PENSIONS & CUSTODY TRANSFER AGENCY - PANEL DEBATE
HEDGE FUNDS - TECHNOLOGY ADVANCES PENSIONS INTERVIEW - RAILPEN
PAPER AGE - CORPORATE ACTIONS RISK REPORT - ARE CONFERENCES SAFE?

CONTENTS SEC. LENDING - CANADA FOCUS COMPANY PROFILES: SOCGEN AND BARCAP

THE GLOBAL SECURITIES SERVICES INDUSTRY JOURNAL

WORLD NEWS 6 THE LATEST SECURITIES SERVICES NEWS


REGULATION
COVER FEATURE: MIFID 27 HIDDEN DAHNGERS - HOW MUCH WILL MIFED COST YOU?
BASEL II 58 PUTTING THE BRAKES ON RISKY BUSINESS

CUSTODY/ASSET SERVICING
PROFILE: MAKING AN IMPACT 14 JOHN STRACQUADANIO OF BARCAP
COMPANY PROFILE 56 SOCIETE GENERALE
CEE FOCUS 38 CONSOLIDATION &OUTSOURCING

FUNDS/ALTERNATIVE INVESTMENT
FUND CENTRES 48 PRESENTING THE KEY FACTS
DATA MINING 51 ANALYSIS OF HEDGE FUNDS, PENSIONS AND SECURITIES LENDING

SECURITIES LENDING
CANADA FOCUS 16 NORTHWARD TRENDS IN THE INDUSTRY
RBC DEXIA 64 LENDING INSECURITIES

PENSIONS
SCHEME PROFILE 66 RAILPEN ON TRACK
US/CANADA 22 REJUVENATING PENSIONS
CENTRAL AND EASTERN EUROPE 38 GROWTH OF THE INDUSTRY

TECHNOLOGY & STP


PANEL 31 THE LATEST ON TRANSFER AGENCY
CORPORATE ACTIONS 62 WHY ISN’T THE TECHNOLOGY BEING USED?

PEOPLE PLACING
RISING STAR 70 JAMES CRISP OF LORIEN PLC
MOVERS AND SHAKERS 72 ROUND UP OF THE RECRUITER’S ARTS...

REGULARS
MANDATES 68 AND THE TOP PRIZE GOES TO...
RISK REPORT 71 ARE WE SAFE IN CONFERENCE?
DIRECTORY OF SERVICES 75 COMPREHENSIVE DIRECTORY OF SERVICE PROVIDERS

Download ISJ back issues at


WWW.ISJFORUM.COM

2 INVESTOR SERVICES JOURNAL


ISJ14 pp1-57 FINAL 30/5/06 10:38 am Page 3

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have implemented all these new regu- groups are now being created in
Letters to the Editor latory “enhancements”, which may well Germany, France and Spain which will
involve installing new systems, by 1st also be focusing on this key issue.
November 2007…. Investment firms can already start their
Spot the potential problem? This well- MiFID implementation planning,
intentioned but still not finalised regulation including their plans for client classifi-
is to be live and operational within our cation projects and processing the nec-
industry a mere 17 months from now. essary changes to all of their client
This is of similar size and complexity agreements. Waiting for the new rules
to the big systems changes required for of Best Execution will only delay the
the introduction of the Euro and Year rest of their MiFID projects.
Write to 2000 and will require new systems,
Jan.Fossgard@ISJforum.com interfaces, major enhancements and all UK Joint Working Group on MiFID
the necessary testing and parallel run-
The prospect of MiFID’s delays, bene- ning. Yes, the Euro and Year 2000
fits and threats exercises our readers both passed off relatively smoothly, so MIFID OPPORTUNITY, AND THREAT
this issue... why can’t MiFID? Well it can, but….
there are only so many finite resources Further to Brian Ladyman’s comments
available in our industry and not every (Letters ISJ April), it seems that many
MIFID: THE DEVIL IS IN THE LACK supplier may be MiFID-ready as yet (I banks, brokers and asset management
OF DETAIL can only speak positively about one companies, even those taking action
particular software house that I know on MiFID now, are treating it purely as
MiFID is an EU-initiated piece of regu- intimately!). a compliance issue. While it’s true that
lation that is designed to benefit both And that’s the potential strain and there is much with which they will have
our industry and us as individual associated cost of the “good” regula- to comply, MiFID also represents an
investors. MiFID should help to open tion that’s intended to benefit both our opportunity, or a threat.
up markets and cut the costs of trading industry and our clients right across Because of the inaction highlighted
in securities, especially in cross-border the EU. by Mr Ladyman, some of these firms
transactions – and that’s something may ask a major investment bank to
that isn’t exactly simple today despite Mike Winn, CEO, DST International take over some or all of their trading
many years of EU regulation and activity in order to avoid having to com-
ply themselves. This is made more like-
TIME FOR MIFID COMPLIANCE ly because some organisations appear
“MiFID’s Achilles’ heel to have abandoned MiFID to their IT
is the ongoing delay in We are now drawing towards the end of
the Level 2 consultation on MiFID. The “The end result is
finalising the detail MiFID Joint Working Group has been
likely to be further
examining the technology-related impli-
while sticking with an cations of MiFID for the last 12 consolidation into
aggressive timetable.” months, and has a very good under-
the hands of the
standing of the critical areas that the
creeping Europeanisation. MiFID is
Directive is expected to impact. With
Best Execution being at the heart of
global banks. Is this
designed to improve liquidity and
transparency…… genuinely laudable
MiFID, we are now waiting for the Level what we want?”
2 text of MiFID to be locked down by
aims. the European Parliament, which is due and legal departments without under-
So, do we classify MiFID in the “good standing the business implications, and
regulation” category? At a high level outsourcing some or all of the process
the answer is decidedly yes. But, as “Waiting for the may seem to provide a quick fix.
with any ground-breaking legislation,
there is always some aspect that’s con- new rules of best Although MiFID’s transparency
requirements initially impact only equi-
troversial. In the case of MiFID its execution will only ties, the best execution provisions
Achilles heel is the ongoing delay in apply to all instruments – yet how can
finalising the detail whilst still sticking delay the rest of firms’ you achieve best execution in an
with an aggressive timetable.
Like most government-backed initia-
MiFID projects.” instrument that is not transparent? Very
soon all other instruments will be
tives MiFID is in danger of failing due to happen by July. Until then, the included, so what a firm does “just” for
to unrealistic timescales. The very MiFID requirements for Best Execution equities will become their solution for
final, final agreement on what is called cannot be taken for granted by either other traded instruments too.
MiFID Level 2 is only scheduled to be regulators or investment firms. The end result is likely to be further
published in Q3, 2006. After that each How much work investment firms consolidation of European financial
EU member state is required to adopt have to do to achieve compliance with services into the hands of the global
the legislation by 31st January the Best Execution requirements of banks. Is this what we want?
2007….. and we all know that not MiFID is a critical factor for all market
every EU initiative has met with unani- participants. The MiFID Joint Working Mike Hill
mous approval by the member states Group has a Best Execution Subject Marketing Director, Gissing Software
in the past. Finally, the financial serv- Group that is concentrating on this
ices companies are then expected to area alone, and national MiFID working (Letters continue on page 70)

4 INVESTOR SERVICES JOURNAL


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ISJ14 pp1-57 FINAL 30/5/06 9:22 am Page 6

News - Europe Middle East Africa

ence to regulatory requirements.” While helping to ensure that risk measurement


MiFID does not become operational methods comply with industry regulations
until November 2007, member state leg- such as Basel II. David Gaines, executive
islators and regulators must have the vice president, risk management,
rules in place by the end of January Wachovia, said: “SunGard has demon-
2007. strated that it can offer a strong partner-
ship with a solid track record of delivering
London - The Financial Services a solution that will help us address our
Authority (FSA) has today imposed a credit risk management requirements in
penalty of £6,363,643 on Deutsche Bank an effective way.”
AG (Deutsche) for breaching FSA
Principle 5, by failing to observe proper Funds & Administration
standards of market conduct, and Amsterdam - ABN AMRO Asset
Principle 2, by failing to conduct its busi- Management has announced that it is to
ness with due skill, care and diligence. sell its US mutual fund business to
These breaches arose from two separate Highbury Financial Inc. for USD 38.6 mil-
transactions conducted by Deutsche dur- lion. The transaction involves 19 mutual
ing March 2004 in relation to a book funds that presently have USD 6 bn under
build in Scania AB (Scania) B shares, management. ABN AMRO Asset
while the second involved the stabilisa- Management will continue to provide
tion of Cytos Biotechnology AG (Cytos) investment advisory services to the funds.
shares. The FSA has also imposed a “This is an excellent opportunity to place
Market Infrastructure financial penalty of £350,000 on Mr David even greater focus on the institutional side
London - Mellon Financial Corporation Maslen, Deutsche's former Head of of the business,” said Interim CEO and
has completed the formation of its previ- European Cash Trading, for being know- President Nancy Holland of ABN AMRO
ously announced 50:50 joint venture with ingly concerned in the failure to observe Asset Management Inc. in the US. “We are
WestLB AG, WestLB Mellon Asset proper standards of market conduct in the forming a strategic alliance with Highbury
Management. The new company was Scania transaction. Financial Inc. that offers additional oppor-
launched on 01 April 2006 with approxi- tunities for distribution of our investment
mately 250 employees and EUR38 bn in Technology capabilities in the institutional market.”
assets under management. The agree- Dublin - SmartStream Technologies has Under the terms of the proposed transac-
ment in principle was announced on 21 announced that Bank of Scotland (Ireland) tion Highbury Financial's investment advi-
September 2005 and the formal joint ven- has successfully completed a project to sor Aston Asset Management LLC will
ture agreement was signed on 20 automate their Payments and Receipts become the advisor of 19 mutual funds.
December 2005. The company includes processing. The Bank implemented TLM
WestAM's activities in Germany, the U.K., Process Automation and TLM Custody & Outsourcing
Italy, Spain, the U.S., Australia and Japan Reconciliations to automate and control Zeist - Trax has been selected by PGGM to
and is the exclusive distributor of Mellon complex real time systems and processes support the migration of its banking
products in Germany. across their Finance & Treasury divisions. communications to SWIFTNet. PGGM is
Commenting on the project, Steve Moss, responsible for providing the pensions of
London - Nearly 50 per cent of board UK Managing Director, stated: “This proj- 1.9 million people in the Dutch healthcare
members and senior managers in finan- ect is a further endorsement of TLM's and social work sector and makes approx-
cial services organisations lack awareness ability to create scalable, flexible applica- imately 200,000 payments to pensioners
of the implications of the Markets in tions that deliver significant ROI to our per month. Until now, the pension fund
Financial Instruments Directive clients. Bank of Scotland (Ireland) has has sent bulk files containing pension
(“MiFID”), according to a KPMG transformed their Payments and Receipts payments to its main payments bank via
International report. Based on a survey of operation to support the firm's significant cartridges, but decided to migrate to
199 financial services companies across growth by becoming volume insensitive SWIFTNet for communication of all
Europe, the report found that only 29 per- and delivering a much greater level of payment and transaction data with its
cent of companies have even assigned a operational control.” banks. “We wanted to move to SWIFTNet
project manager to oversee the implemen- because it is a secure, bank-independent
tation of MiFID and only 17 percent have London - SunGard has announced that payments channel,” said Roelof van der
allocated a budget to prepare for MiFID. Wachovia has selected its Adaptiv solution Struik, Team Manager Payments and
Jonathan Jesty, Financial Services Partner for enterprise-wide counterparty credit risk Settlements at PGGM. “We chose Trax
at KPMG LLP (UK), said: “Companies that management. Wachovia will use Adaptiv as our global payment factory solution for
continue to perceive this Directive as Credit Risk to manage credit risk in corpo- its scalability and high performance
being purely compliance or an IT-based rate and investment banking and capital and Trax's consultants based on their
issue, risk missing the opportunity that management groups, across a range of sound advice.”
MiFID presents. MiFID is not another trading activities. The solution will help
‘Y2K’. It is about strategy, competition and Wachovia to integrate credit risk manage-
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ISJ14 pp1-57 FINAL 30/5/06 9:22 am Page 8

News - Americas

Market Infrastructure New York - Asset Control has announced Funds & Administration
Massachusetts - RSA Security Inc. has that Wachovia Corporation has success- Chicago - Northern Trust has announced
announced that it has acquired PassMark fully expanded its risk management solu- the addition of the Northern Emerging
Security who deliver software-based tion by extending their AC Plus product Markets Equity Fund to the Northern
authentication to millions of users world- suite. “Asset Control has a range of inter- Funds family of mutual funds. The fund
wide, through consumer-facing financial faces to complex data feeds which seeks to provide investment results that
institutions. RSA Security purchased reduces our development cost and approximate the performance of the
PassMark for total consideration of $44.7 improves time to market,” said Barry MSCI Emerging Markets Index. Using a
million, consisting of $9.0 million in cash Fenwick, Divisional Information Officer of quantitative investment approach, the
and the issuance of approximately 2.0 Wachovia Corporate Investment Bank. fund intends to maintain similar sector
million shares of RSA Security common “This allows us to improve the quality of exposure and risk as the index. Managed
stock. The Company will also reserve market data utilized within risk manage- by James B. Francis, senior vice president
approximately 80,000 shares of its com- ment and can be leveraged throughout Northern Trust Quantitative Management
mon stock related to the assumption of the organiza- Group, stocks for the Northern Emerging
PassMark’s stock option plan. “Since our tion.” Markets Equity Fund will be selected, held
successful acquisition of Cyota and the and liquidated on the basis of quantita-
great traction we are gaining in the mar- tive analysis.
ketplace, we have become even more
bullish about our opportunity.”said California - AXA Rosenberg Group LLC
Art Coviello, president and CEO of has announced the launch of the AXA
RSA Security. Rosenberg Global Emerging Markets
Equity Strategy and an All Country
Technology World Equity Strategy. The funds
Boston – ActionsXchange has will invest across the capitaliza-
announced that AQR Capital tion spectrum of the emerging
Management has chosen markets of Asia Pacific, Eastern
ActionsXchange as its global Europe, Africa, the Middle East
corporate actions data part- and Central and South America.
ner. Under the agreements of Separate accounts as well as var-
the two-year deal, ious commingled vehicles includ-
ActionsXchange will provide ing a Dublin-based UCITS for
coverage of both global equities investors in Europe and Asia will
and fixed income securities be available. “AXA Rosenberg’s
through its ActionService product proven investment strategies are
that processes consolidated and predicated on the belief that earnings
client-specific corporate action matter and that the best companies to
records on more than 2.0 million invest in are those that produce the high-
securities. Jerry Levine, vice president of est future earnings relative to their cur-
AQR, said: “Accurate corporate actions rent price,” said Stéphane Prunet, AXA
information is a critical part of our Rosenberg Group Chief Executive Officer.
investment process. It was important for
us to partner with a company that could Custody & Outsourcing
supply us with the most comprehensive New York - AIM Software has announced Boston - ESecLending recently completed
and exact data.” that Lava Trading, Inc. has selected AIM a securities lending auction of approxi-
Software's data management platform mately $76 billion in US equities for the
New Jersey - Interactive Technologies, has GAIN for the integration of price, static California Public Employees’ Retirement
announced that CIBC Mellon has agreed and corporate actions data provided by System (CalPERS). Exclusive borrowing
to license its Advantage Fee System to Telekurs Financial's Valor Data Feed rights to the securities were auctioned on
optimize its client fee billing and revenue (VDF). The GAIN platform features batch May 03, 2006, with four major financial
management. “We were looking for a file requests and returns exit codes for institutions submitting winning principal
solution that would simplify our client fee escalation purposes. Once launched, the bids. Citigroup Global Markets Inc. won
billing process with the scale and flexibili- software synchronizes the VDF security the majority of assets and will retain exclu-
ty to process increasingly complex trans- master file with the incoming delta files. sive borrowing rights to the portfolios for
actions over time,” said Thomas Options, equity and corporate actions the term of the agreement. Goldman,
MacMillan, president and CEO of CIBC data for North American securities are Sachs & Co., JPMorgan and Lehman
Mellon. The Advantage Fee System will loaded daily. “AIM's experience and Brothers Inc. also won exclusive rights to
automate, consolidate and simplify the expertise in integrating VDF data proved access portions of the funds. CalPERS
fee billing and revenue management to be a key factor in selecting GAIN,” said also awarded a portion of the US equity
activities for CIBC Mellon's asset Richard Jacobi, Vice President, Vendor assets to Metropolitan West Securities,
servicing and trust clients. Relationships, Lava Trading. LLC to lend on an agency basis.

FREE NEWS DAILY AT WWW.ISJFORUM.COM


8 INVESTOR SERVICES JOURNAL
ISJ14 pp1-57 FINAL 30/5/06 10:41 am Page 9

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leadership and innovation
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LOANET • GLOBAL ONE • MARTINI securities finance

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Trademark information: SunGard, the SunGard logo, Loanet, Global One and Martini are trademarks or registered trademarks of SunGard Data Systems Inc.
or its subsidiaries in the U.S. and other countries. All other trade names are trademarks or registered trademarks of their respective holders.
ISJ14 pp1-57 FINAL 30/5/06 9:22 am Page 10

News - Asia Pacific

DIFC is an obvious choice of location used as an integrated module with other


for us to set up a new office as it offers SMART suite solutions, in isolation or
access to a major pool of liquidity and interfaced to a variety of third-party appli-
investment funds, a strong pre-existing cations. It delivers automation to all
infrastructure and international stan- aspects of exception related processes,
dards regulations.” Dr Omar Bin including automated investigation genera-
Sulaiman, Director General of the DIFC tion and follow-ups, compensation claims,
Authority, welcomed Group One Takaful message generation and accounting
Holding and commented: “We are entries. Darius Wanardi, General Manager
delighted with the arrival of Group One at Bank Central Asia commented:
Takaful Holding to the DIFC. By provid- “Operational efficiency is of utmost
ing the right environment and infra- importance to the way we service our cus-
structure to enable the industry to real- tomers, and we believe that the automa-
ize its potential, the DIFC is laying the tion of investigations provided by Swallow
foundation for the future of regional Tech is of significant importance in
insurance and Islamic banking opera- increasing our competitive advantage,
tions.” reducing operational risk and expense.”

Technology Funds & Administration


Melbourne - Charles River Development Sydney - DST International (DSTi) has
has announced that Cooper Investors announced that Merrill Lynch Investment
Plc., with AUD 2.7 bn in assets under Managers is the first organisation in
management, has implemented the Australia to implement DSTi’s new, locally
Charles River Investment Management developed Reconciliation solution. The
System (Charles River IMS) to support Reconciliation module will reduce reconcili-
its Melbourne asset management oper- ation processing time for fund managers by
ations. “After reviewing a variety of sys- eliminating manual processes. DSTi
Market Infrastructure tems, we chose Charles River due to their launched the Reconciliation module for
Tokyo - Panopticon has signed a non- clear understanding of our functional and HiPortfolio/3 in 2005 following its develop-
exclusive resale agreement with business requirements,” said Peter ment for the global market at DSTi’s Global
Lightstone Corp, a specialist in localising Cooper, Managing Director of Cooper Development Centre in Melbourne. The
software for the Japanese market. Investors. “By implementing Charles River new module forms a component of the
Lightstone will translate Panopticon’s IMS and FIX messaging we have a seam- HiPortfolio family, DSTi’s strategic transac-
software and supporting documentation, less trade workflow which provides com- tion processing and investment accounting
beginning with Panopticon plete support for all investment classes, solution. The Reconciliation module per-
Enterprise.NET, and sell it to Japanese foreign and domestic exchanges, and all forms security balances, reconciles general
clients in the financial services industry. trade message types.” Cameron Field, ledger and has myriad reporting uses
As well as the traditional banking and managing director, Asia-Pacific at Charles including a natural archiving facility. It can
securities houses, Panopticon and River Development, stated: “Cooper be used to import and consolidate data
Lightstone will also target Japan’s growing Investors are another example of an from various sources and produce a wide
internet trading sector. Commenting on Australian operation that has recognised range of ongoing reports in addition to
the deal, Panopticon co-founder and CEO Charles River IMS’ suitability to manage General Ledger reconciliations. Merrill
Willem De Geer, said: “We are delighted all types of global securities including Lynch Investment Managers is using the
to be working with Lightstone to take this large and small cap equities. Our N-Tier Reconciliation module to reconcile the
step into the Japanese marketplace. With service oriented architecture (SOA) and HiPortfolio general ledger with the
over a decade of experience in the field, customized business approach provide HiPortfolio/3 investment system it already
Lightstone is the ideal partner to help us the flexibility needed to solve problems for has implemented. “It makes sense to lever-
bring our next generation visual business our clients, including streamlined connec- age existing organisational information
intelligence tools to one of the world‚s tivity to multiple data feeds and counter- within HiPortfolio using a single step
foremost financial centres.” parties.” process, rather than the multiple manual
reconciliation activities,” said Ian
Dubai - Group One Takaful Holding, a Singapore - SwallowTech has announced Mathieson, DSTi Chief Executive Officer
company recently launched by the Kuwait- that Bank Central Asia, Indonesia (BCA) Australia and New Zealand. “While the
based Investors Group, has been regis- has purchased their SMART-Resolve solu- time savings are a tremendous business
tered as an unregulated company at the tion for enterprise-wide investigations. benefit, cost savings are also compelling
Dubai International Financial Centre. Mr. BCA has chosen the SMART-Resolve solu- because the Reconciliation module elimi-
Sami Al-Bader, Chairman of the Investors tion to increase their operational efficiency nates so many back office operation costs.”
Group, commented: “Group One Takaful and decrease operational risk by automat-
Holding has been specially launched to ing and centralising the control of pay- FREE NEWS DAILY AT
consolidate all of our Shariah-compliant ment related investigations from various
reinsurance business in the region. The electronic sources. SMART-Resolve can be
WWW.ISJFORUM.COM

10 INVESTOR SERVICES JOURNAL


ISJ14 pp1-57 FINAL 30/5/06 10:42 am Page 11

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or its subsidiaries in the U.S. and other countries. All other trade names are trademarks or registered trademarks of their respective holders.
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ISJ14 pp1-57 FINAL 30/5/06 9:23 am Page 12

Domiciles Report

Bermuda, Jersey and Luxembourg


comment on the outlook for the balance of 2006

Paula Cox Graeme McArthur Jean-Jacques Picard

Invigorated regulatory and legislative environ- Jersey’s funds industry is determined to press 2005, like 2004, was again an exceptional year
ments bode well for vigorous growth in Bermuda. ahead with further reforming measures that will for the Luxembourg fund industry. Net assets
Paula Cox, Minister of Finance for Bermuda, com- ensure the momentum of the Island’s fund industry under management increased by almost
mented on the outlook for the balance of 2006, revival is maintained. 419 billion euros during the year. 2006 has started
“Bermuda is a stable, intelligently regulated juris- There are already plans to enhance the regulatory under excellent auspices since net assets grew by
diction with a highly sophisticated infrastructure framework still further with the complete overhaul 9.84% in the first quarter, raising total net
well-suited for all financial services, especially the of the legal framework for funds functionaries. Two assets under management to 1,675.2 billion euros,
investment/fund sector. Innovative amendments to new papers have been issued by the Island’s a new record.
our financial services legislation are implemented regulator and are currently under discussion by the True, this performance is partly due to
on a regular basis and are constantly under review. Industry. The purpose behind these is to enable favourable market conditions and all players know
We have the confidence of the financial services service providers to register to carry out funds busi- that market conditions can and will change.
world, with both Moody’s (Aa1) and Standard & ness rather than using the present system, which Furthermore, the competitive advantages in the
Poors (AA) assigning Bermuda investment grade involves applying for separate permits for each of past will not be the same as those of the future.
credit ratings with a stable ratings outlook. the funds they service. The current European debate on the upcoming
Professional support services including banking, Discussions are also underway to develop a White Paper is slowly but surely laying the ground-
legal, investment advisory and accounting services further category of fund that would sit between the work for a more harmonised Europe.
combined with excellent communications infra- Expert and COBO fund regimes. Presently termed Together with the Regulator and the
structure and daily airlinks to major gateway cities the ‘Super Expert Fund’ regime, it would be targeted Government, the Association of the Luxembourg
attract leading companies and executives. Bermuda at investors deemed to have a higher level of Fund Industry is thus actively encouraging prod-
is a premier international financial centre.” sophistication than under the Expert Fund regime, uct innovation. Innovative products will produce
Robust interaction between government, the in which case less regulatory controls at authorisa- much-needed diversification in the investment
Bermuda Monetary Authority (BMA), Bermuda tion stage would need to be in place, relying more fund centre.
Stock Exchange (BSX) and the public sector has exclusively on adequate disclosure. Given the rising interest in alternative invest-
yielded fundamental reforms to Bermuda’s finan- Meanwhile, the net asset value of funds under ment funds, ALFI is currently finalising a draft
cial services and company law. management in the Island are at record levels, revision of the 1991 law with a view to mod-
Recently, ‘Launch ‘n List’ funds were introduced, growing by 32% during 2005 to £137.4billion, whilst ernising and updating the legal framework for
allowing simultaneous approval by the BMA and the number of Expert Funds approved grew by 90 institutional funds. The planned new law should
listing on the BSX, which has Designated during the year and is now close to 200. At least encourage the development of Luxembourg-domi-
Investment Exchange recognition, as well as being five hedge fund management companies have also ciled funds aimed at sophisticated investors. It
a member of the World Federation of Exchanges. opted to relocate to the Island in response to the will allow for the development of fund structures
This is another example of Bermuda’s ability to Industry’s campaign to encourage specialist fund adapted to alternative investment strategies with
leverage on its fully electronic stock exchange and managers to do so. more open risk diversification requirements
a regulatory authority with a practical but effective These most recent figures indicate a new wave of compared to traditional retail UCITS funds.
approach to regulation supporting development optimism in Jersey’s fund sector, and the The text is currently subject to review by the
of bespoke products for the investor. importance attached to these current reforms and CSSF, after which it may be deposited as a draft
consultations points to an extremely positive bill of law with the Parliament.
commercial environment within which the Industry
Paula Cox , Minister of Finance, Bermuda. is now gearing up for further growth.
Susan Stirling, who contributed to this piece, is Jean-Jacques Picard,
Acting CEO, Bermuda and International Business Graeme McArthur, Director Public Relations Association of the
Association (BIBA) representative of the Jersey Funds Association and Luxembourg Fund Industry - ALFI
Managing Director of Northern Trust in Jersey

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WHERE IT COUNTS This advertisement has been issued on behalf of the RBC Financial Group subsidiary companies that comprise Royal Bank of Canada's Global Private Banking network. Some of the services may not be offered in all the
jurisdictions above or be available to you. This material has, to the extent required, been approved for purposes of the UK Financial Services and Markets Act 2000 by Royal Bank of Canada Investment Management (UK) Limited,
71 Queen Victoria Street, London, EC4V 4DE, which is authorised and regulated by the Financial Services Authority. ™Trademark of Royal Bank of Canada used under licence. BKI/05/158
SGSS-CBasse-ISJ.ai 24.5.2006 12:32:34

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ISJ14 pp1-57 FINAL 30/5/06 9:31 am Page 14

Profile - Barclays Capital

ISJ - I understand that you have been with Barclays


ISJ talks with John Capital from the beginning?
Stracquadanio, Director and JS: For this particular product, yes. 1998 was the starting
point pretty much from which Barclays bought an equity
Head of Equity Prime Services, prime brokerage business, and that was the starting point
from where we began to branch out and build.
Americas, at Barclays Capital, on
how the firm established itself ISJ - It seems to have established itself very firmly in the
market from what I have seen. How did you manage to
in the New World and what establish it so quickly and get it up there with the best in
such a short space?
makes the man himself tick. JS: I think being new entrants back then, we had to focus
on what kind of value proposition we could offer and
what may be a good alternative to some of the customers
that we thought we should target, relative to the estab-
lished service providers or prime brokers. Our first goal
was to come up with a strategy to service the multi-asset
class hedge fund that was growing.

“The majority of our customers


in prime services are very large
institutional size pensions,
north of 1 billion USD. This
Making an is a space that we are quite
comfortable in.”
impact ISJ - Where were you before you joined Barclays Capital?
JS: Most of my career has been with Barclays Capital and
Morgan Stanley. I was with Morgan Stanley for about 8 or
9 years, I think I left in April 1997. I then went to ING
Barings for a short stint before I came to Barclays.

ISJ - How is your role different with Barclays than before?


JS: Well, Morgan has a very large established business and
has had a successful prime brokerage business for a while.
The discipline was a little bit different in that my only
focus was financing specifically for the equity part of the
prime brokerage business or securities lending part; so
what changed when I got to Barclays was the ability to
have a green field site and to have a much wider view on
potential activities.

ISJ - What are your personal achievements at Barclays


Capital?
JS: I am very proud of the fact that I was able to help the
firm establish itself within a business that is extremely
competitive. I am very proud of the fact that in 1998, the
typical conversation with a hedge fund manager in the US,
would stop when I introduced Barclays as we just were not
a well-known name. This is now not the case. I'm proud of
the fact that early on I was able to work with some of the
US based institutions and tell the story of what we were
trying to do and what the plan was, and get some buying
from some of our counterparts.

ISJ - How did you manage to sway people?


John Stracquadanio
JS: When you see some of the performance and the execu-

14 INVESTOR SERVICES JOURNAL


ISJ14 pp1-57 FINAL 30/5/06 9:31 am Page 15

Profile - Barclays Capital

tion from senior management in terms of talking to us been doing and I do I see further consolidation like that. I
about what the plan is and then actually seeing that plan believe that once you get large enough, the economies of
executed as opposed to in other scenarios where you see scale probably mean that you may need to do some of the
some of it getting lost along the way, it gives a sense of belief. stuff yourself - so yes, I think that will be more so within
the larger firms who find the need to incorporate some of
ISJ - Can you describe the culture of Barclays capital? the operations and accounting capabilities inside as
JS: I believe it still remains entrepreneurial. I mean, we opposed to having to pay for it.
have clearly grown, we've clearly been seen. With credit to
Bob Diamond and the management and executive com- ISJ - Does that take business away from you?
mittee, the firm has maintained the sense of entrepreneur- JS: I don't think so, I think that the efforts that you have to
ship and has maintained a positive corporate culture over undertake in order to do some of this stuff are pretty big
the past 8 to 10 years. and I don't necessarily think that because you may have
200 hedge funds, that are managing 1 billion USD or
“My relaxation is definitely not more, you will see 200 hedge funds become self clearing
and 200 hedge funds producing their own.
reading financial journals over
the weekend.” ISJ - Are there any regulations that impact on your busi-
ness and is your regulatory landscape changing in the
ISJ - How many employees are there? areas that you deal with?
JS: I would have guessed about 10,000 globally and about JS: It's big. Without naming all of them clearly, specifically
3000 in the US. in the States and Europe and every region that we deal
with has a suite of regulations that we need to abide by
ISJ - What share of the market does it have now for prime and prepare for from the standpoint of change. In the
service in the US? States, for example, we have dealt with the regulation HSO
JS: The majority of our customers in prime services are which came into place about 1.5 years ago, it's one of
very large institutional size pensions, north of 1 billion those scenarios where we had to put in the technology to
USD. This is a space that we are quite comfortable in. meet the regulations - it's a series of constant change and a
state of preparedness that we have to maintain, its just one
ISJ - How do you see things in the future in terms of your of the inputs on how we need to run this business.
role and indeed Barclays Capital as a whole?
JS: I see further growth in the US and part of this is also ISJ: What inspires you?
dependent on the firms desire to grow revenue overseas, JS: Clearly competition. The underdog scenario of being
from a UK perspective as well. I see further growth here in here originally 8 years ago has been a driving force. All the
the US and I see a continuation of adding to our franchise people that work for me I try to make sure that we surround
in the states, I believe that I will be involved with the rest of ourselves with individuals that have that same competitive
our management team in furthering that effort here in the spirit and service orientation. Sometimes it's hard to find
states - I think that there is still a lot of work to be done. both, but over the course of time you refine your selection
process and you begin to find people who will fit in.
ISJ -Can you talk about the middle and back office and
how far you have your own in house services and which ISJ: Where do you see yourself in 5 years.
are outsourced in BarCap. JS: I haven't spent a lot of time thinking about my career
JS: Similar to many other prime services shops, depending in 5 years. I'm too focused on what I'm doing now. I
on the products and regions, there will be a combination would like to think in a similar but maybe wider role,
of in-sourcing and out-sourcing of operations. For exam- maybe I'm running a business that is a little bit more ver-
ple, there were cases when we first started the business in tical in terms of larger dollars of much bigger revenue base
the states we were not a self clearing organisation for US than we are managing now.
equities and one of the things that we realised that we had
to work on immediately, specifically to become competi- ISJ - How do you relax?
tive and also from a control perspective in order to feel JS: I have a family and every moment that I can not work,
that we had a bit of a handle on the product in the States I want to spend by doing fun things with them. I have two
was that we needed to self-clear and we did. young children and a wife of about eight years. I think
about the same time that I came to Barclays, within the
ISJ - Do you see further consolidation in the services you same month we married. I'm a big fan of US football,
offer to your clients? Pittsburgh football. They won the Superbowl last year, I
JS: I think part of that is dependent on the size of the was there, it was a great thing to watch. My relaxation is
funds that you are dealing with. In certain cases funds are definitely not reading financial journals over the weekend.
large enough that they are beginning to in-house services It's trying to spend as much time with the people that are
that were traditionally offered by prime brokers and that's important to me.
fine and that makes a lot of sense. In that case, from our
perspective they are still clients of ours but they are in- John Stracquadanio is Director and Head of Equity Prime
sourcing some of the traditional business that we have Services, Americas, at Barclays Capital

INVESTOR SERVICES JOURNAL 15


ISJ14 pp1-57 FINAL 30/5/06 9:31 am Page 16

Securities Lending Focus

Northward
trends in
Securities
Lending

When first looking at the securities lending market in


Canada, I came across a number of publications and
articles that talked about conservatism in the Canadian
market and readily described the market with epithets
such as ‘domestic-focussed’ and ‘Canadian-centric’.
This puzzled me slightly as the growing number of par-
ticipants in the Canadian hedge fund arena and increased
numbers of institutional investors involving themselves
with instruments like pension funds would lead me to
believe that the market was anything but conservative.
“I think the common view historically of the Canadian
marketplace and potentially why it is defined as conserva-
tive is because it is a much smaller market verses Europe
Overshadowed by larger global or the U.S.,” says Don D’Eramo, Vice President and
Canadian Regional Business Executive for State Street’s
markets and with a reputation Securities Finance business.
of being on the conservative Being so closely aligned with the North American has
taken its toll on the reputation of the Canadian market as
side, Alan Duerden reports both markets are compared almost as equals despite the
foundations on which each market is based being
on the highs and lows of completely different.
the Canadian Securities “As the ‘other’ North American market, the Canadian
market is naturally compared to the big market to the
Lending industry. south,” says James Slater, Senior Vice President and Head

16 INVESTOR SERVICES JOURNAL


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This advertisement is not directed to any person in any jurisdiction where the publication or availability © 2006 STATE STREET CORPORATION. 06-STT04060506
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ISJ14 pp1-57 FINAL 30/5/06 9:31 am Page 18

Securities Lending Focus

of Capital Markets, CIBC Mellon. “In the U.S., lending is years and has made available almost $400 bn worth of
conducted primarily against cash collateral. In Canada, the assets for the market to lend.
custodial lending market has traditionally been against In March 2001, the introduction of National Instrument
non-cash collateral. This approach maybe perceived as 81-102 allowed mutual funds to participate in securities
conservatism, but it could also be said that it’s closer to the lending where previously they had been excluded from
European model.” being able to lend. “Certainly the issuance NI 81-102 in
Traditionally 2001 levelled the playing field among institutional
The removal of foreign content the Canadian investors by allowing mutual funds to lend,” believes Mark
market was a Fieldhouse, Director of Technical Sales, RBC Dexia
restrictions on pension plans non-cash Investor Services. “This change was well received by the
market. The
has impacted greatly market itself is
majority of mutual fund companies, who jumped at the
chance to increase returns.” With this opportunity for
now increasing mutual funds to get more involved in the market there is
its share in the cash side and Canada is now looking and now a lot of growth potential for new assets coming into
behaving a bit more like the markets in Europe and North the market.
America. “In the last few years, there has been a movement Also, as Warren Maynard, Vice President for State
towards a more balanced collateral book with cash Street’s Securities Finance business in Canada suggests, the
becoming an increasingly important component,” removal of foreign content restrictions on pension plans
states Slater. has impacted greatly. “Recently the Canadian resident
The co-mingling has had the effect of increasing the clients had their Foreign Content Restriction lifted, they
speed and ability of these types of structures to take on a were only allowed to invest 30% of their portfolio’s in
wider breadth. foreign assets, and that restriction has completely gone.”
What this has done is increase the lending opportunities
Regulation for clients who wished to expand beyond the traditional
Legislative changes have had a massive impact in 30% limit that was previously in place.
opening up the Canadian securities lending market, The direction of the Canadian market is pushing the
domestically and internationally. It has almost been as if regulators to allow lenders to utilise more markets and the
the market has been bursting at the seams with potential be able to lend in more asset classes for beneficial owners
but bound by regulation. and this has been seen specifically in the area of mutual
“Under Section 260 of the Income Tax Act Canada, funds. Legislative change seems to be key to the
regulatory change has made it possible for institutional development of the market through relaxing of regulations
investors to take part in securities lending which has and greater transparency.
added both comfort and clarity to the market for lenders “The market in Canada is becoming more transparent
and those loaning securities,” says Slater and you are seeing a little bit more of price discovery,” says
“Recent draft legislation to Section 260 provided com- D’Eramo. “That is a good thing for the market place in
fort regarding the lending of qualified mutual funds trust,” general as it allows for some really good discussions with
he continues. “Without this comfort, the majority if not all all players; the beneficial owners and the agent lenders as
lenders would have refrained from lending their income to what is driving demand.
trust units.” Transparency really brings about the opportunity for
The treatment of mutual funds in the Canadian market lenders to be able to continue to move the market and
has been one of the key developments over the last few space that will add value for the beneficial owners.”
220
Number of Canadian Securities Firms
Rising numbers of securities firms based in Canada between 1991
and 2004
200

180

160

140

120
Canada has seen a huge rise
in the number of securities
firms since the early 1990s. 100
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

18 INVESTOR SERVICES JOURNAL


ISJ14 pp1-57 FINAL 30/5/06 10:44 am Page 19

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Trusted by more than 70 borrowers worldwide in 19 global markets, plus the US


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Our strategy is to maximize returns and control risk by focusing intently on the
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 Securities Lending
Through our Loanet, Global One, and Martini products, we provide comprehensive business
 Outsourcing
solutions with worldwide reach for equities or fixed income securities financing. These solutions –
all in an integrated, exception-based processing architecture – include order routing and trading
 Workbench
support through operations, settlement and reconciliation.  Benefit Payments

 Foreign Exchange
We invite you to explore how we can increase the profitability of your securities financing business.
For more information on Loanet, Global One or Martini, contact us toll-free at 1-800-825-2518 in
the U.S. or on +44 (0) 20 7420 6380 in the U.K., or email moreinfo@sungard.com.
Enabling You to
Focus on Your World
www.cibcmellon.com
www.sungard.com/loanet • www.sungard.com/globalone
www.workbench.cibcmellon.com • www.sungard.com/martini
CIBC Mellon Global Securities Services Company is a licensed user of the CIBC and Mellon trademarks.
Trademark information: SunGard, the SunGard logo, Loanet, Global One and Martini are trademarks or registered trademarks of SunGard Data Systems Inc.
or its subsidiaries in the U.S. and other countries. All other trade names are trademarks or registered trademarks of their respective holders.
ISJ14 pp1-57 FINAL 30/5/06 11:01 am Page 20

Securities Lending Focus

Challenges & Opportunities


Even though a lot of progress is being made on the regu-
latory side, Canada has lagged behind other jurisdictions
in over addressing issues to do with governance and the
management of risk. “The market as a whole would bene-
fit from an update to the regulatory requirements with an
emphasis on the methodology of managing risk,” says
Fieldhouse. “For example, the implementation of the Basel
II recommendations and their implications for expanding
upon the currently acceptable forms of collateral.”
This aside, the recent developments in the Canadian
market have opened up the securities lending world to
new opportunities, one of which is hedge funds. Canada’s
close proximity to the U.S., flexible regulatory framework
and blossoming growth have made it an ideal location for
hedge fund investment. “We believe Canada is a perfect
component of the overall offshore hedge fund servicing
centres that includes Ireland, Luxembourg as well as the
Cayman and Channel Islands. This is further supported
by the trend in Canada among institutional investors to
move beyond their traditional long-only strategy and into
the hedge fund space,” believes Fieldhouse.
It is clear that the securities lending market in Canada
has undergone considerable evolution in recent years,
through legislative change and movement away from its
more traditional foundations in non-cash collateral.
Whether the Canadian market was a market of conser-
vatism will be debated again and again. Where the debate
finishes however, is over the type of market it has become,
because from an outsiders perspective Canadian securities
lending is alive and kicking and anything but conservative.
ISJ

SHARP FOCUS... AN EXAMPLE OF MOVEMENT IN A CHANGING LANDSCAPE


Changes to Canadian legislation are making it increasingly attractive for funds to trade in non-domestic securities, requiring
prime brokers to borrow and lend in more markets and currencies. Growth in the Canadian hedge fund market means that
lending operations at prime brokers have to become more pro-active, and sharper on rates.
Scotia Capital, an arm of Scotiabank Group, is taking advantage of the changing landscape with an aggressive global growth
strategy and is building a global platform that will allow Canadian hedge funds to trade internationally; and enabling global
funds to borrow and lend Canadian securities more effectively
“The overwhelming reason behind choosing ARTS was because it is one global platform for all the divisions where we trade,
and is easily deployable to those who want to trade. It can capture securities finance trades and repos and we can see aggre-
gated positions across all of our trading centers,” says Alyson Bailey-Flynn, Director of Financial Engineering at Scotia Capital.
Scotia Capital is implementing the ARTS modules in three phases. And, although the deployment is for both fixed income and
equities capabilities, the bank will initially launch it to its equities users, and a small subset of its repo traders.
The first phase involves rolling out Anvil ARTS to traders in Scotia Capital’s Dublin and London offices and Back Office users
in Toronto, and is expected to be completed by November of this year.
The second phase involves installing the product at Scotia Capital’s managed lending and equities borrowing and lending
departments in Toronto, as well as relevant middle and back office personnel. There will be upwards of 35 users globally once
the second phase is completed. The third phase will extend the implementation of ARTS to other offices, including Singapore
and New York City.
ARTS will be integrated with clearing and settlement services such as the Canadian Depository for Securities and the
Depository Trust and Clearing Corporation. Centralizing the clearing and settlement services in one system, with the margin
and reporting functionalities will streamline many of the current processes and allow for increased operational efficiencies.

20 INVESTOR SERVICES JOURNAL


ISJ14 pp1-57 FINAL 30/5/06 11:02 am Page 21

D E S I G N E R S O F T WA R E
Where can experience,
leadership and innovation
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Anvil specialises in front and middle office software systems and consultancy services
Around
for the financial the world, $6 trillion in securities financing is managed on SunGard's proven solutions for
markets.
international and U.S. domestic securities lending and repo.
Our systems and expertise span trading and risk management for bonds, repo, F/X,
money markets,Through options, futures,
our Loanet, Globalswaps, equities,
One, and Martinisecurities
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beenyou
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For more information on Loanet, Global One or Martini, contact us toll-free at 1-800-825-2518 in
the U.S.
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bridging the (0)
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business U.K.,technology.
or email moreinfo@sungard.com.

F O R M O R E Iwww.sungard.com/loanet
N F O R M A T I O N A B O U T A N V I L• Swww.sungard.com/globalone
O F T W A R E V I S I T W W W. A N V I L . C O•Mwww.sungard.com/martini
Trademark information: SunGard, the SunGard logo, Loanet, Global One and Martini are trademarks or registered trademarks of SunGard Data Systems Inc.
or its subsidiaries in the U.S. and other countries. All other trade names are trademarks or registered trademarks of their respective holders.
ISJ14 pp1-57 FINAL 30/5/06 9:31 am Page 22

North America Pensions Focus

Pension
Pains ISJ’s Brian Bollen investigates Ask any representative of the securities services
industry in the USA or Canada to identify the major
what North Americans are trends and issues that keep them awake at night, and the
doing to rejuvenate pensions answers will sound very familiar. A recent document
produced by Northern Trust, for instance, pinpoints four
against the backdrop of an mega-trends affecting the asset servicing business: under-
funded pensions; cost reduction; the shifting asset mix;
ageing population. and the unholy trinity of governance, transparency and
compliance. In fact, according to Ray Carney, head of the
Innovation Centre at Northern Trust in Chicago, there is
an argument that all the mega-trends stem from the
prime culprit, the ageing of the population.
Within these mega-trends, Northern Trust highlights a
number of sub-trends. With pensions it points to the
decline of defined benefits, the rise of defined
contributions, and US social security reform. Cost reduc-
tion is driving growth in the outsourcing by investment
managers, and by corporate pension plan sponsors. The
asset mix is shifting thanks to an increase in alternative
investments and new investment strategies; investment in
hedge funds, private equity, and REITs, commodities,
derivatives and SMAs are all up, while US investment in
foreign assets grew by 10% a year between 1995 and
2004. Increasing government regulatory burdens and a
more complex market combine with greater client
demands for information to make life more interesting.

“The good news for the


mutual fund is that it remains
the product of choice for most
investor needs.”
“We are also witnessing the ‘retailisation’ of retirement
funds as more people migrate to defined contribution
plans, allowing people to withdraw more money,” adds
Ray Carney. Some believe this could be causing anxiety
amongst public policy makers. “Anything that takes away
from certainty in respect of income in retirement will
worry them,” says Jim Phalen, head of North American
investor services at State Street. His own analysis of
major trends includes a focus on the very strong positive
inflows to equities via mutual funds in 2005, continuing
so far in 2006, combined with an increase in allocations
to international funds. “The good news for the mutual
fund is that it remains the product of choice for most
investor needs,” he says.

22 INVESTOR SERVICES JOURNAL


ISJ14 pp1-57 FINAL 30/5/06 11:09 am Page 23

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www.sungard.com/loanet • www.sungard.com/globalone • www.sungard.com/martini
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Trademark information: SunGard, the SunGard logo, Loanet, Global One and Martini are trademarks or registered trademarks of SunGard Data Systems Inc.
or its subsidiaries in the U.S. and other countries. All other trade names are trademarks or registered trademarks of their respective holders.
ISJ14 pp1-57 FINAL 30/5/06 9:31 am Page 24

North America Pensions Focus

The not so good news for the USA’s Pension Benefit asset management unit, while American Express spun off
Guarantee Corp is the pressure being put on that body Ameriprize Financial to separate its asset management
by airline bankruptcies, transferring underfunding from manufacturing arm from distribution.
troubled corporates to a troubled PBGC, which in turn The separation of alpha and beta investing as managers
could increase the burden on healthy plans. pursue different investment objectives, and the parallel
For his part, Patrick Curtin, Head of US Investor increase in use of alternative investment structures are
Services at The Bank of New York, identifies what he calls other important trends identified by Curtin. “There’s
two global secular trends affecting the investment market been an incredible explosion of alternative investments
and providers of investor services worldwide: global pen- broadly, whether it’s hedge fund investing, venture capital
sion reform and the rapid change that is taking place in or the use of structured derivative products by
the investment management industry. traditional asset managers. All of these things, when put
“Global pension reform has been in place for the better together, build a changing landscape in our region for
part of a decade,” he comments. “The migration from people in the investment management industry or those
traditional pension schemes like defined benefit schemes serving the investment management industry.”
to defined contribution schemes is starting to accelerate “One of the principal roles that we’ve played up until
and that has significant implications for asset servicers, this point for pension clients has been analysing all their
asset managers and plan sponsors in terms of the way investments and providing consolidating reporting so
these groups interact and deliver their services.” that they have an across-the-board view of their exposure
“One of the manifestations of that in the last decade within their alternative asset portfolio. Another role we
play is for hedge funds directly, who hire us for fund
administration and accounting. Increasingly we will also
“Asset managers are asking have to be able to process very complex structured
derivatives as efficiently as we do a traditional bond or
themselves whether they want to stock. The clearing and custody of credit default swaps,
spend their time as a for instance, is much more complex than traditional
instruments. We will play a central role in the prolifera-
manufacturer of investment tion of alternative investments.”
Northern Trust also rehearses the familiar arguments on
products or a distributor of the pensions problem at some length. Retirees are living
investment products.” much longer than they did in the past, which makes this
era possibly the first in human history where living
and a half has been incredible growth in mutual fund longer has been officially decreed by Governments and
asset management, at least in the US and Canada, as the by the financial services industry to be a bad thing.
growth in defined contribution plans in these countries Except, of course, for those in Government and at the top
found their way into mutual funds. As a growing number of the financial services industry, who seem magically
of pension schemes cross the bridge from defined able to exempt themselves from the problems of the
benefits to defined contributions, many are questioning lumpenproletariat. Those who retired from 1950-55
whether or not the mutual fund structure is the appro- could expect to live on their pensions for 11 years,
priate structure for them. And many are finding that observes Northern Trust. As of 1995-2000 the figure had
mutual funds may not be the optimal way to do it. So we increased over 50 percent, to 18 years.
stand at a real inflection point in the US and Canada: the The problem does not end there. The higher level of
institutionalisation of defined contribution plans.” benefits promised to retirees means that benefits expand-
“Plan sponsors are beginning to think about offering ed to unsustainable levels during high-return years in the
alternatives, such as separate accounts and exchange- 1980s and 1990s. Some early retirement programs have
traded funds. Because of that, there are inevitably allowed retirement at 50 with benefits at 90% of final
implications for the way you do custody, accounting, salaries. Healthcare costs have grown 9% per year since
administration, risk management and a host of other 1980, and today account for some 44% of total employer
services for a pension fund This is a trend we think will benefit costs compared with 27% in 1980.
continue to accelerate in North America over the course As a result, if one accepts the short-term knee-jerk reac-
of the next decade and it’s something we have been tions to what are very long-term situations, many pen-
positioning ourselves for.” sion funds look underfunded. In response to lower mar-
The asset management industry is witnessing a number ket returns and what are perceived to be near-limitless
of developments, says Curtin, with consolidation and liabilities, a growing number of corporations are focusing
specialisation well to the fore. “Asset managers are asking on fund liabilities. As a result, we are seeing fund struc-
themselves whether they want to spend their time as a tures change, DB plans are closing to new entrants, or
manufacturer of investment products or a distributor of freezing entirely. Benefits are being cut, and some
investment products and we’ve seen recently some pretty investors are seeking aggressive returns through hedge
big events in the industry that answer that question.” He funds, other alternative assets, and international assets.
cites as examples how Citigroup spun off its Legg Mason “Buffet says the days of 8% returns are over,” comments

24 INVESTOR SERVICES JOURNAL


ISJ14 pp1-57 FINAL 30/5/06 11:08 am Page 25

Where can experience,


leadership and innovation
take you?
A fresh
perspective
on investor
services
Solutions for
LOANET • GLOBAL ONE • MARTINI securities finance

Around the world, $6 trillion in securities financing is managed on SunGard's proven solutions for
international and U.S. domestic securities lending and repo.

Through our Loanet, Global One, and Martini products, we provide comprehensive business
solutions with worldwide reach for equities or fixed income securities financing. These solutions –
all in an integrated, exception-based processing architecture – include order routing and trading
support through operations, settlement and reconciliation.

We invite you to explore how we can increase the profitability of your securities financing business.
For more information on Loanet, Global One or Martini, contact us toll-free at 1-800-825-2518 in
the U.S. or on +44 (0) 20 7420 6380 in the U.K., or email moreinfo@sungard.com.

www.sungard.com/loanet
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and Martini are global or registered trademarks of SunGard Data Systems Inc.
or its subsidiaries in the U.S. and other countries. All other trade names are trademarks or registered trademarks of their respective holders.
custody, fund and pension administration and shareholder services.
See how our fresh perspective can support your strategic objectives
ISJ14 pp1-57 FINAL 30/5/06 9:31 am Page 26

North America Pensions Focus

one Northern Trust client. “I need to be immunised Canadian securities lending market, the world’s fourth-
against inflation and interest rate risk,” says another. largest, in the April 2006 issue of Defined Benefit
Cost-cutting is an issue too, says Northern Trust. Monitor.
Investment managers who believe their core strength is The bulk of the custodial lending in Canada is of the
picking assets will discuss everything else for outsourc- non-cash variety – that is, where loans of securities are
ing. “We don’t want to be fund administrators…we knew collateralized by other securities, observe the authors.
our custodian had the capability to do it, and do it quick- More recently, however, there has been an increase in
ly,” says one. “We ask ourselves, ‘Is the risk transferable?’” the amount of cash collateral lending (where cash
Northern Trust, incidentally, believes that the market rather than securities collateralize the loan) as plan
for outsourcing is strongest in Europe, which, it calcu- sponsors begin to recognize the potential benefits of a
lates, has seen at least 25 major deals so far, involving cash lending program – greater revenues and increased
assets of $4.5 trillion. It estimates this as market penetra- lending volumes.
tion of only around 5% so far. In the U.S., write the duo, cash is the dominant form of
The search for extra yield is the impetus behind a recent collateral (84 per cent of North American bond loans
commentary on risk-adjusted returns and securities and 96 per cent North American equity loans. Until
lending in the Canadian Investment Review. In this recently, cash was the only form of collateral permitted
thought-provoking piece, James Slater, senior vice-presi- for certain U.S. institutional lenders.
dent, capital markets, at CIBC Mellon, observed how By contrast, securities lending in Canada has historically
pension plan and mutual fund sponsors quantify the risk been conducted almost exclusively on a non-cash basis.
and performance of their investment portfolios and Over the past few years, plan sponsors have become
analyze how they compare to their peers in a meaningful better acquainted with the risks and rewards of cash
way, exploring alternatives to improve their risk-adjusted collateral and the finer workings of securities lending in
returns for their underlying beneficiaries and investors. general. Unlike non-cash collateral that sits dormant with
Securities lending should not be any different, he argues. the custodian, cash collateral is invested in money market
Historically, Slater writes, sponsors have relied heavily instruments (short-term investments of high credit
on the qualitative attributes of the industry to under- quality) to generate income. In non-cash lending, the
stand the risks of securities lending. The global borrower pays a fee for borrowing the securities, whereas
securities lending market is substantial, with over US$5 with cash collateral the cash is reinvested and the
trillion on loan, and Canada is one of the oldest securi- borrower is paid a ‘rebate’ (as the gross investment
ties lending markets in the world, ranking third (not income on the cash is typically higher than the fee that
including the U.S.). In addition, securities lending plays would be commanded by the loan). The difference
an important role in capital markets by providing between the investment rate and rebate rate is called the
liquidity for hedging. It is also dominated by large, ‘spread’ representing the income on the loan. The rebate
sophisticated institutions that are supported by central on a cash loan is a function of the current overnight rate
banks. Securities lending activities and participants are and the demand for the securities. The higher the
also highly regulated and the process is governed by demand, the lower the rebate.
standard market practices, codes of conduct and Managed properly, cash collateral can produce positive
industry standard agreements. risk adjusted returns. The most obvious risk is the loss of
In the event of a default, indemnification mitigates the principal associated with issuer insolvency. This can be
shortfall and, at the same time, independent credit mitigated by limiting investments to high credit quality
adjudication typically leverages the sophisticated credit names, applying concentration limits, and monitoring
function of banks. Finally, securities lending expertise is credit quality. Similar safeguards can mitigate against
rounded out by technology, people, daily mark-to-market issuer credit rating downgrades. A second risk is that
and sound margin practices. investment income can be negatively impacted by interest
With the quantification of risk and performance, spon- rate movements. This is typically minimised by
sors and their agents can understand their performance developing forecasts around an interest rate outlook and
on a risk-adjusted basis, facilitating a better appreciation implementing a strategy
of the correlation of risk and returns. The measurement to ensure rate hikes are captured almost immediately on
of risk and reward will continue to fuel the growth, the re-investment portfolios.
transparency, and acceptance of securities lending as a While the integration of technology is important, the
viable option that adds to the overall capital markets investment of cash collateral is highly specialized and
along with plan sponsors and their participants. Sponsors should be separated from the daily securities lending
will also benefit from the ability to be flexible with the functions, they argue. Plan sponsors also need to ensure
mix of collateral they are willing to accept, and the level that the cash re-investment program has proper inde-
of collateral margin permissible. pendent oversight and controls. The agent lender should
Elsewhere, two of Slater’s colleagues, Rob Ferguson & have an oversight committee and policies and procedures
Dexter Gall, pondered the opportunities and challenges to control how the program is operated.
presented by the rise and rise of cash collateral in the ISJ

26 INVESTOR SERVICES JOURNAL


ISJ14 pp1-57 FINAL 30/5/06 9:31 am Page 27

MiFID - Impact

Ready for
MiFID?
Firms limber up
for latest
regulatory
hurdle

Jan Fossgård takes on Any day now, the European Parliament is expected to put
the final touches to its new Markets in Financial Instruments
the giant that is Markets in Directive, or MiFID as it is widely known. Even before the
‘Level 2’ text is finalised in all of the EU’s 20 official lan-
Financial Instruments Directive guages, investment firms across Europe are getting jittery.
and tries to separate myth from With its projected one billion-dollar-plus price tag, according
to one industry insider, and a fair amount of confusion over
reality by talking to key figures in the final wording, this is hardly surprising.
‘MiFID has caused a lot of angst in the industry,’ observes
the industry. John Ingamells, Director of Public Affairs at Fidelity, ‘though
services in the UK are fairly well forward relative to their
European counterparts’. MiFID, which is expected to come
into force on 1 November 2007, is aimed at smoothing cross-
border investments within the European Economic Area
(EEA), and is therefore in harmony with the European com-
munity’s original objective of a common market.
The legislation will need to be transposed by individual
member states into domestic law far sooner, by 31 January
2007, and there now appears little prospect of a further delay

INVESTOR SERVICES JOURNAL 27


ISJ14 pp1-57 FINAL 30/5/06 9:31 am Page 28

MiFID - Impact

beyond the six month extension agreed during the British everyone is saying therefore MiFID will mean ‘repapering’,
presidency of the European Union. Even so, Sungard’s which means recontracting every client into one of
MiFID spokesman Richard Thornton suspects that there the two new categories rather than the FSA's existing
could now be a phased rollout over two or three years after structures.’
November 2007. A further foggy area is around so-called ‘systematic
MiFID, sometimes known as ISD2, after the original internalisers’, or SIs, which are defined by the legislation as
but flawed Investor Services Directive, is designed to ‘Investment firms that deal on own account by executing
ensure consistency in investment activities and sets client orders in an organised, systematic and frequent
standards for providers to meet across the EEA, manner’. Jeff Wootton of Aleri, a Chicago-based firm
including access to clearing and settlement systems producing real-time event stream process software, says
throughout the community. ‘There’s ongoing debate about what the criteria are for SIs’.
The rules will apply to all Multilateral Trading Facilities The British Bankers’ Association notes that these criteria
(MTFs) operating in the EEA, with a few exceptions such are ‘too wide to be helpful’.
as where investments represent only a minor part of a Industry insiders and regulators, including the FSA, now
provider’s activities. In these cases, compliance is with await the final text of MiFID, and particularly Article 4,
regulations in force locally. with trepidation, though Kirby notes that ‘There is positive
It should, in theory, be welcomed by companies wishing progress. The realisation seems to be that a lack of
to do business elsewhere in Europe in a safer, more trans- progress could lead to a risk of ‘regulatory arbitrage’ which
parent way. could add to current uncertainties and stall current
The time for worrying is past. preparation efforts underway until the release of material
at Level 3 (transposition)’.
“Some of the regulators themselves may not be ready Costs
with their systems to allow them to capture the Yet there is still widespread concern
over the cost of compliance. Kirby
transacion information when it is delivered to them” warns, ‘If handled insensitively,
MiFID could represent conservative-
‘MiFID’s impact will not be another Y2k or even Basel II ly at least one billion dollars of net cost to the European
transformation, so the time for scaremongering is over’, capital markets over the coming 18 months’. Medium and
reassures Anthony Kirby, Chairman of the MiFID JWG small-sized enterprises are more likely to lose out, espe-
Best Execution Subject Group and Reference Data Subject cially if they fail to prepare adequately, he adds. ‘Common
Group. solutions for shared problems are sorely needed’.
This is an opinion echoed by Capco partner Steve Webb. While some firms, such as Fidelity, appear to have
‘Whilst MiFID is a big and headline-catching piece of preparations in hand, smaller investment companies, such
mandatory project spend firms are going to have to tackle, as the Cooperative Bank, say they will wait for the FSA’s
there is a certain amount of hysteria and hype that have consultation paper, due out in October.
become attached to it.’ While much of the debate has focused on the readiness of
Confusion the industry, there is also a question mark over the
But concerns persist over some aspects of the legislation, regulators’ readiness. Thornton says, ‘Some of the
notably Article 4, which appears to leave a loophole for regulators themselves may not be ready with their systems
individual states to retain their own rules even after MiFID to allow them to capture the transaction information
comes into force next year. This, fears John Ingamells, when it is delivered to them. There is a question over
could undermine the whole project, and lead to just the whether the fundamental infrastructure is going to be
kind of confusion it was meant to remedy. there within time.’
In particular, there is continuing uncertainty over how MiFID is likely to have greatest cost impact on systematic
Article 4 will square with the UK Financial Services internalisers, which will have to change the way they
Authority’s regulations on soft commissions and bundle operate most radically. The costs may be so great, some
brokerage, which could create ‘a major ripple effect around experts say, that smaller internalisers could be forced out
costs, as in transaction cost analysis’, Chris Skinner, of business or may look to outsource certain functions.
Associate Director of Tower Group warns. Wootton says, ‘Sis will have an obligation to publish their
Another area of uncertainty is client classification as internal quotes. This is something they haven’t done
defined by MiFID. ‘Client classification is potentially a before. They will need real-time technology to do this.’
contradiction between MiFID and FSA rules because In addition to the real-time streaming process require-
MiFID only has two classifications of clients: professional ments, internalisers will also face storage requirements.
investor and retail investor,’ notes Skinner, ‘whereas FSA John Coulter, vice-president for marketing and business
rules allow for three, which is an intermediate investor as development at Vhayu Technologies, the Los Gatos,
well as professional and retail; and on the basis of the fact California-headquartered technology engineering
there are two different client classification structures, company, says ‘One of the major technology challenges is

28 INVESTOR SERVICES JOURNAL


ISJ14 pp1-57 FINAL 30/5/06 9:31 am Page 29

MiFID - Impact

how these firms are going to be able to store massive investment management consultancy, warns ‘The longer
amounts of tick data, to be able to show the burden of companies leave it, the more it will cost them’.
proof to achieve best-execution. That’s been
pretty much set in stone, so that firms know
that they need to be able to store and analyse
“Summer is cancelled,” says Gissing’s Michael
a year’s worth of data and the mandate calls Hill, given the compliance mountain firms will
for 5 years storage of tick data.’
The technology demands of MiFID are
need to climb with regard to MiFID
clearly good news for the firms that have
relevant solutions. Indeed, companies are queuing up to Savings and Profits from MiFID?
win contracts to supply MiFID solutions, each offering a Some say it’s all a matter of attitude and that taking a
slightly different piece in the ‘jigsaw puzzle’, as one positive approach could ease the process and yield savings.
provider put it, to meet the requirements in terms of ‘Those who take a tick-box approach will lose to those that
pre- and post-trade transparency, best execution, conduct actually embrace the opportunity MiFID creates and look
of business and passporting. The cost of meeting the to see it as a competitive advantage,’ Roger Chidwick of
requirements, according to Chris Skinner of Tower Group, Capgemini believes, while Skinner points out that
will be in the order of 22 million dollars per internaliser, systematic internalisers could potentially claw back in the
half of which will be invested in technologies around algo- order of 4.5 million dollars after they have made the
rithmic trading, order management and data storage. necessary changes through organisational gains, and a
further 3 million dollars a year through efficiency gains.
Ready for MiFID? Further savings could be achieved by the consolidation
There are mixed messages on the industry’s state of made possible by the passporting opportunities under
readiness for MiFID. John Coulter believes there are indi- MiFID. Thornton hypothesises, ‘If you’ve got trading in
cations a majority of firms have in fact now woken up to each of the countries, why can’t you do that out of one
the reality of MiFID. ‘We did a webinar in February and location in Europe? Under MiFID, certainly you can. If
there were 200 participants listening in and we did a poll people were to go down that route, any funds they’re going
and asked firms whether they had budgeted for MiFID to spend from a technology point of view will easily be
already or whether they were budgeting this year or next? offset by closing three or four trading floors down’.
70 per cent said they were budgeting in 2006, so firms The FSA is doing its best to cast the legislation as an
have dedicated resources to it’. opportunity for financial services to increase their
On the other hand, observes Richard Gissing, Chief European penetration. ‘MiFID aims to make it easier for
Technology Officer of Bromley, UK-based Gissing firms to do business in other European countries’, says
Software, ‘Based on our survey last year, only one third of David Cliffe of the FSA. ‘It seeks to do this by improving
firms have project managers in place. It wasn’t until the operation of the ‘passport’ for investment firms and by
February 2006 that people started to take notice when the widening the range of investment activities that can be
level II text came out.’ Gissing Software’s Marketing ‘passported’. Cliffe adds the FSA is ‘broadly content with
Director Michael Hill believes that ‘summer is cancelled’ the substance of the measures’ and is urging firms ‘to
given the compliance mountain firms will need to climb consider now how these changes will affect them and how
with regard to MiFID. Gissing Software, which claims to they will implement them’.
have a ‘turnkey’ solution as far as the transparency All are agreed that technology alone cannot ensure
requirements of MiFID are concerned, also offers training compliance. ‘It’s too early in my view to talk up specific
and consultancy. technology solutions even though we are 90 per cent
Chris Pickles, chair of the UK’s Joint Working Group on there,’ argues Kirby. ‘Technology is a key enabler to the
MiFID, is also concerned about the industry’s state of electronification of the market but compliance will also
readiness. He reckons ‘70 to 75 per cent of firms do not depend on upon the right policies and procedures.’ In the
know what MiFID is and have not yet bothered to read it’. area of consulting and systems integration, companies
As a consequence, he argues, ‘There are going to be a lot of such as Accenture, Atos Origin, Bearing Point, Capgemini
firms that won’t be able to continue’. and IBM all have a comprehensive offering on MiFID,
While some firms, such as Fidelity, appear to have guiding clients through the whole process. In general these
preparations in hand, smaller investment companies, such firms prefer to take a holistic, longer term view rather than
as the UK’s Cooperative Bank, say they will wait for the presenting a one-off ‘turnkey’ solution.
FSA’s consultation paper,
due out in October.
Despite slight
“The longer companies leave it, the more it will cost them”.
differences on approach and interpretation among the Recruitment
consultancy and technology companies interviewed for As MiFID gets ever closer, technology and consultancy
this feature, they are unanimous on one thing: the need to firms are beginning to take on new staff to cope with
move quickly. Philip Painter of Etheios, the UK-based the expected surge of interest. Chris Pickles, Manager

INVESTOR SERVICES JOURNAL 29


ISJ14 pp1-57 FINAL 30/5/06 9:31 am Page 30

MiFID - Impact

of Industry Relations BT Radianz, which supplies


networks that can provide the necessary physical
connectivity for MiFID, said, ‘I’m getting calls from
human resources firms and headhunting firms to say,
“when people start asking for personnel for MiFID
projects, remember that we’re here” ’.
Technology companies such as CapCo and Etheios report
that they have already started taking on more staff
specifically to work on MiFID. Webb says, ‘We’re recruiting
as fast as we possibly can. The only constraint on our
recruitment right now is how quickly we can actually get
people through the door’; while Painter says he expects
the Etheios MiFID practice to expand to ten or more
staff by next year.

“Fundamentally, MiFID is a
political tool. It’s not something
that the market in the UK views
as being of much benefit. The
benefit is, if you want to have
Europe as a whole competing
with the US, China, India in the
next decade or so and beyond”
As part of their MiFID package, some companies have
developed proactive ways of adding value to their
offering. Software company eflow, which has teamed up
with Oracle to provide end-to-end transaction
monitoring and auditing specifically for MiFID, deploy
their staff to work within the client company in order
fully to understand the nature of its business and
implement the solution accordingly.

Lingering questions
While there is no longer any doubt that MiFID will now
come into force, and there is fair amount of agreement
that more transparency is a positive trend, there are still
some who question the European Commission’s real
intentions. ‘Fundamentally, MiFID is a political tool,’
Sungard’s Richard Thornton opines. ‘It’s not something
that the market in the UK views as being of much bene-
fit. The benefit is, if you want to have Europe as a whole
competing with the US, China, India in the next decade
or so and beyond, we need to improve significantly the
efficiency of the financial markets in Europe, particularly
in relation to cross-border trading.’ That, of course, may
not be a bad thing in terms of Europe’s competitiveness,
but it seems to suggest that smaller firms will lose out.
Whatever the real intentions behind MiFID,
investment services would do well, however, to unite in
recognising its inevitability and work together on shared
solutions. The time for grumbling is over and the time
for action is now.
ISJ

30 INVESTOR SERVICES JOURNAL


ISJ14 pp1-57 FINAL 30/5/06 9:31 am Page 31

Panel Discussion - Transfer Agency

Transfer Agency
The State of Play
Etienne Carmon

Etienne Carmon, CACEIS. M. Carmon joined CACEIS as Senior


Product Manager for the Transfer Agency business in September
2005. Previously he worked as transfer agency manager for US
funds promoters including Merrill Lynch, American Express,
Morgan Stanley and later on Goldman Sachs. In 1998 he joined
Chase Manhattan Bank, now known as JPMorgan Chase as
CRM. In 2000, he joined European Fund Administration in
charge of all developments for the TA Business. Karine de Bondt
Karine de Bondt, RBC Dexia. Karine is vice president and Head
of Product Management- Shareholder Services within RBC Dexia
Investor Services Bank. She joined Dexia Fund Services, a prede-
cessor business of RBC Dexia Investor Services, in January 2005.
Karine started her career in 1990 at Euroclear in Brussels. In
1992, she joined Clearstream Banking in Luxembourg where she
held management positions in Operations, Network
Management and Product Development.

Barry McGloin AB Prodata, Barry is a British national with 18


years experience in the investment management industry in the Barry McGloin
UK, Europe and the US. Accordingly, he has in-depth knowledge
of the industry as a whole, and particular expertise in the
intricacies of fund registration documentation and legal and
compliance issues in relation to Pan-European fund companies.
His current position is head of business development at AB
Prodata, the Luxembourg based provider of the Babel Integrator
STP messaging platform.

Ray Pepper Mellon IMS, Ray is managing director, Mellon


Investment Manager Solutions (IMS) Transfer Agency.

David White MFT. David is Director of Marketing and Customer Ray Pepper
Relations at MFT, the specialist software, systems and consult-
ing group. David joined MFT in 2002 and is responsible for
managing the relationships with MFT's customers and all
aspects of the company's marketing strategy. Prior to joining
MFT, David worked at Aberdeen Asset Management PLC as
Head of Wholesale Marketing for Europe. Prior to this he
worked for Schroders PLC in the UK. David holds a 1st class
honours degree in Business Studies and is a Member of the
Chartered Institute of Marketing.

David Bower, CSTIM. (No picture) David is a founding member


CSTIM Ltd, an investment industry consultancy. He leads the David White
Retail Practice, focussing on the developments underway in the
provision of investment products to the end investor. CSTIM
provides support to organisations required to react to these
developments, including advisors, administrators, product
providers and investment managers.

INVESTOR SERVICES JOURNAL 31


ISJ14 pp1-57 FINAL 30/5/06 9:28 am Page 32

Panel Discussion - Transfer Agency

What are the latest developments to affect the transfer Bower: There remain many barriers preventing consolida-
agency industry? tion, particularly the marketing barriers still in place in
Bower: In most cases the developments are a continuation selected jurisdictions, making consolidation seem unat-
of market trends which have been impacting the industry tractive in the short term. When consolidation does take
for sometime. These include developing the services to place, the advantage will lie with the transfer agent with
manage the changing nature of distribution, coping with international coverage, and experience of supporting dis-
the latest developments in the regulatory and legal frame- tribution into multiple jurisdictions. The market for
works, and searching out more efficient methods of run- domestic transfer agents will shrink and I believe they will
ning the operations struggle to achieve the scale required to re-invest in their
technology and services.
Carmon: The cross-border distribution of funds within a
continuously evolving European regulatory environment De Bondt: It will adversely impact those transfer agents
forces the TA to continuously improve its systems and who do not have a global offer supported by a global plat-
organisation to handle new requirements or at least to be form and are hence not in a position to serve their clients
prepared to do so. in several jurisdictions. It is probable that this consolida-
The last few months have also shown a significant increase tion of fund ranges will also lead to a concentration of
of transaction volumes. On-going reassessment of our business with a decreasing number of providers.
technical infrastructure to increase our STP rate to keep a
competitive cost-base transaction has become a must and McGloin: The fund industry, like many other industries, is
requires lots of efforts and developments from our IT and consolidating. Mergers are part of the landscape. Fund
development teams. companies have done a relatively good job of merging
funds with relatively minor shareholder disruption and
investor relations explaining why the mergers
“I don’t think that the outsourcing of certain TA good for all. There is very little scrutiny during
these periods of change. This is where market-
functions to cheaper labour makets would help.” ing and communications of fund companies
are at their best, or is that worst? Fund mergers
De Bondt: Developments in several areas have impacted can in fact be exploited to report better results- creative
and continue to impact the transfer agency industry: these fund managers can bend the rules, merge two funds, and
developments range from changes in the regulatory frame- use the better-performing funds historical returns.
work like the implementation of EUSD and MiFID to
industry initiatives sponsored by bodies like EFAMA or Pepper: It is difficult to second-guess which domiciles will
the FPSG. While the objective of these initiatives is to be the winners and losers of any consolidation, so its
evolve towards more standardization in Europe, we see therefore important for Transfer Agents to have a presence
that, in practice the market is moving slowly and that in each of the major fund centres. A key enabler to this is
more efforts are to be made in order to implement best having technology that can accommodate different regula-
practices. tions and market practices. At Mellon we have been mind-
ful of this in our implementation of strategic technologies
McGloin: TA has to jump through many hoops in order within our Transfer Agency business and we have also
to provide the support and meet the demands of the fund recently established a Mellon office in Luxembourg which
promoter. The distribution of products on a cross-border will offer support for providers requiring administration
basis has become a fierce challenge due to the evolution of services in this location.
investors, increased competition and the complexity of the
tax and regulatory environment. David White: From a technology point of view it will sig-
nificantly impact those providers who are single market
Pepper: The Transfer Agency industry is sensitive to and not able to handle multiple jurisdictions. If funds are
changes in the distribution and product strategies of fund being merged into particular domiciles you need to be
providers. We also continue to see a significant amount of able to support this in order to retain your business. Over
regulatory change, with a number of our fund providers the past few years we have witnessed many single market
having converted to COLL, and the remaining ones well technology providers disappear and in Europe.
into their planning. We have also seen a number of new
fund launches taking advantage of the wider investment How far is it possible to outsource transfer agency func-
powers provided under COLL. tions to cheaper labour markets, such as India and
Eastern Europe?
White: A. From a technology standpoint, there are three Bower: In certain markets it is now 'possible' from a legal
key areas: Supermarket platforms; STP; and legislation and and regulatory standpoint to outsource the entire transfer
other industry initiatives. agency function. What is more difficult to overcome are
the marketing, business process e.g. timeliness of activity
With clients looking to merge their funds located in dif- and promoter relationship barriers that exist. Feedback
ferent domiciles, how will consolidation of this kind from a number of the leading transfer agents is that the
impact on the transfer agency industry? operating quality (e.g. reflected in error rates) and service

32 INVESTOR SERVICES JOURNAL


ISJ14 pp1-57 FINAL 30/5/06 11:11 am Page 33

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ISJ14 pp1-57 FINAL 30/5/06 9:28 am Page 34

Panel Discussion - Transfer Agency

standards in their offshore centres surpass that provided kets as the ability to process business from common plat-
by their home operations. forms (operations and technology) becomes more feasible.
The pain can be illustrated through the significant invest-
Carmon: I personally don’t think that the outsourcing of ment made by the Luxembourg transfer agents to imple-
certain TA functions to cheaper labour markets would ment the EUSD, where impacts have been across many
help. However, from a technical infrastructure standpoint areas including investor reporting, tax reporting and fund
and according to the apparent expertise that per example set-up.
the Indians seem to have, it would probably be interesting
to analyse if this type of outsourcing solution would per- Carmon: The proposals made by the FPSG working group
mit to reduce the cost-base transaction while the market are definitely a move towards the harmonisation of trad-
expertise would stay in the Transfer Agent’s side. ing processes within Europe. They address the practical
problems that the different actors of the transaction chain
De Bondt: Certain activities such as compliance, KYC and face while trying to support the distribution of funds
AML cannot be delegated. While pure processing tasks can cross-border. The success of such initiative depends on the
be outsourced to cheaper labour markets, the transfer agent number of actors who will adopt the recommendation and
will want to retain certain added-value or client-facing who will have the strength, financial and organisational, to
activities such as client services, for example. This can be an adapt systems and processes to follow the recommenda-
opportunity to focus resources on those areas which signifi- tions.
cantly influence the service level. However like for any out-
sourcing, particular attention needs to be paid to the moni- De Bondt: Certain of these changes have a potential posi-
toring of the quality of service delivered by the agent. tive impact upon the transfer agency industry as they are
the foundations for further standardization and automa-
tion processes. This said, the market is moving slowly in
“The European-wide initiatives are these areas, particularly when it comes to recommenda-
creating significant work” tions issued by market bodies such as the EFAMA. A set
of rules of conduct were published back in 2004 but they
are far from being adopted by the industry.
McGloin: From a technical and processes view there are
few blocking factors, and with labour savings of up to sev-
enty percent, there remain those who have and those who McGloin: Certainly the initiatives coming from the
are pondering the opportunity. But before the CFO’s reach European Market, via various working groups such as
this nirvana there are inhibiting factors. EFAMA are encouraging, and infrastructure provider
The regulation. Or to be more precise, where the domicile offerings such as SWIFT with its ISO20022 for funds mes-
of the fund is registered remains a key factor and as such sage set do supply the mechanism to further the cause of
back office services remain linked to the jurisdiction of the automation. Indeed, whilst ISO20022 delivers the basic
Fund. standard, SWIFT and other players are currently busy
ensuring that variants are available for specific markets,
Pepper: In theory, it is possible to outsource almost any via individual templates for national markets and specific
function to cheaper markets. In practice, however, this messages, such as the ISO20022 Transfer message for the
may not prove to be either practical or desirable. Mellon’s UK that deals with PEP’s and ISA’s.
global operating model follows a ‘hub and spoke’
approach, whereby multiple locations are involved in the Pepper: There are few fund providers or transfer agents in
servicing of our clients and we are able to build centres of the UK today capable of sending and receiving these mes-
excellence in particular functions. We do not, as a Third sages, which is hardly surprising given the early stage of
Party Administrator, outsource core functions to third this process. However, a good number of fund providers
parties, but have established our own operations centre in and transfer agents, including Mellon, will already be
India which provides specific processing functions and is members of SWIFT and therefore have the necessary
integrated within our operating model in the same way as infrastructure in place. Additionally, like Mellon, most
our other UK locations. firms will have also developed some form of STP process-
ing, whether it be a proprietary Internet solution or EMX,
What impact are moves towards European harmonisa- so it should be possible to leverage much of this capability
tion, such as EUSD, and the rolling out of MiFID and for their SWIFT development. Mellon is signed up to the
FPSG, having in the transfer agency arena? ISO20022 standard and we aim to support the initiative by
Bower: The European wide initiatives are creating signifi- the end of 2006.
cant work within the transfer agents across the member
states as we move local regulatory environments to a What is the industry's state of readiness for the latest
European wide regime. Swift messaging standard?
The short term pain associated with the harmonisation Bower: The SWIFT Fin Funds standard has been estab-
activity is critical if we are to see a true Europe wide mar- lished for several years and adopted by both distributors,
ket for funds. In the event that this can be achieved, the promoters and fund order platforms across Europe and
natural progression will be for consolidation across mar- Asia. SWIFTNet, compliant with the ISO 20022 standard,

34 INVESTOR SERVICES JOURNAL


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ISJ14 pp1-57 FINAL 30/5/06 9:28 am Page 36

Panel Discussion - Transfer Agency

is being actively reviewed by the industry. A range of par- be deployed will have material implications for the activity
ticipants are already testing the new format, for example the industry will undertake; and the flows into funds are
Allfunds, HSBC, BNP and Fundsettle, though there remain forecast to continue rising as individuals gradually take
many counterparties who have not yet initiated their more responsibility for their long term savings, and the
implementation. This will result in the operation of the mutual fund is ideally suited as an investment vehicle to
dual formats for a number of years, and it will be likely support them.
that SWIFT will need to hold the withdrawal of the Fin
Funds standard. Carmon: For me, the opening of European borders and
the emergence of new types of investment products and
Carmon: CACEIS is actively participating to the “early actors of the distribution chain are the challenges, and
adopters” group. On our side, the new SWIFT xml format opportunities, that the Transfer Agency should take into
ISO20022 has required some enhancements of our account in its strategy for the forthcoming years. The
middleware application which should be completed cross-border distribution of multiple-domiciled funds
sooner than later. We will then be able to go on with the impact the Transfer agency in several ways. New products,
testing of the new messages. new actors, new countries mean:
Regarding the industry’s state of readiness, we know that New regulations and legal constraints; New transactions
our competitors, member of the “early adopters” group and data flows; and Diverse cash and security settlement
face the same type of issues but we don’t know that are the modes which requires the TA to be flexible enough to cope
next steps on their sides. with these different transaction cycles.

De Bondt: The changes in the regulatory framework


represent a major challenge together with the evolution of
“When it comes to cross-border distribution patterns as well as the emergence of new and
complex products. In order to be successful, providers will
funds there is a real lag.” need to integrate all these changes but, also, increasingly
focus on client services and client satisfaction. Those
De Bondt: While there is a consensus that it is the direc- times where the role of the transfer agent was only to
tion where we should go, the market evolves slowly and process orders and carry out reconciliation are behind us.
the number of participants that have implemented the
new standards and are using them to communicate with McGloin: Outsourcing adds complexity, with the back-
their regular counterparties is still quite low. Efforts to office now potentially spread across several different geo-
adopt the new messages have to be sustained. graphical locations that all need to talk to each other. The
elimination, or at least the radical reduction of these risks
McGloin: While the investment industry has largely auto- and inefficiencies will be paramount. Automation, espe-
mated its back-office services, when it comes to cross-bor- cially of messages, but tainted with the view that this may
der funds there is a real lag. Trading across borders is a only be a part of the solution, requires several things to
major culprit– funds trading within one country has happen first.
adopted STP matching two ends. Cross-border and multi-
ple domestic markets requires many standards, often Pepper: As always, regulatory change will continue to be
compounded by varying levels of regulation. Nevertheless, one of the key challenges in the Transfer Agency market,
a solution is available to fill this gap in the form of with regulatory-driven development projects likely to
SWIFTNet Funds which caters for domestic and cross- match those driven by product development. The
border fund distribution flows in Europe and Asia-Pacific. migration of accounts from main registers towards
platforms is also likely to continue, putting pressure on
David White: STP is absolutely key to the whole industry Transfer Agents to process more efficiently, to diversify
that surrounds transfer agents and is now clearly a base their product range and to provide more value added
necessity and no longer an added value element to any services.
transfer agency system. MFT has been at the forefront of
offering SWIFT solutions first with ISO15022 message White: I see a number of key opportunities for transfer
processing and now with the migration to SWIFT’s latest agency providers in the years ahead: 1. I believe that
messaging standard ISO20022. platform businesses, such as FundsNetwork will
increasingly dominate the retail mutual fund space. 2. As
What are the key challenges and opportunities for trans- the alternative investment market matures and becomes
fer agency providers in the coming months and years? more successful there will be an increasing need for con-
Bower: I see three significant areas of development that solidation with standard mutual fund transfer agency plat-
will shape the industry over the next 5 years: The position forms. 3. The expansion of the EU through new entrants –
of transfer agency in the value chain will continue to with the expansion of the EU there will be many new
adapt, and the transfer agents have an opportunity to opportunities and challenges for transfer agents as new
move further forward to support the distributor; the needs and requirements are requested by distributors and
current debate by market as to whether the Central fund promoters in these new jurisdictions.
Securities Depository (CSD) model or Register model will ISJ

36 INVESTOR SERVICES JOURNAL


ISJ14 pp1-57 FINAL 30/5/06 9:28 am Page 37

Company Profile - Allied Testing

Russia is rapidly evolving into a


sophisticated location for outsourcing
and has attracted numerous Western
companies, including Intel, Motorola,
Siemens and Alcatel, looking to tap into
To RUSSIA With Love
the pool of technological talent that the Allied Testing test the water on the Russian
country has to offer.
“We now have a presence in two loca- outsourcing market
tions: in Moscow and in Kitchinof (the
former Soviet republic of Moldova) and “A lot of business knowledge was accu- pened in Bangalore.” This legislation will
we have ambitious plans to increase our mulated,” continues Albert, “at which result in zones where companies can take
size in both locations over the next two stage the company decided to offer two advantage of tax breaks and state-of-the-
years,” states Dasha Klyachko, Managing more types of service: one was the devel- art communications infrastructure.
Director of Allied Testing LLC. opment of trading products and systems “The government has clearly seen the
“Countries like Russia are in an excellent and the other was behavioural testing.” outsourcing success story in India,” says
position for outsourcing services in IT John Moore, Regional Manager of
and/or services where IT borders with Trading Support Services Business Development at Allied Testing,
business knowledge and expertise.” Of special interest for investor services “and is now determined, at quite a
Financial companies have been out- firms, Allied Testing’s behavioural testing broad level, to give support to the out-
sourcing for a number of years, with com- looks at the underlying logic and the algo- sourcing business and other IT-enabled
panies such as JP Morgan and State Street rithms that drive the trading process services in Russia.”
utilising locations like India and Dublin within platforms developed by clients. Where the Russian market differs from
for some of their back- and middle-office Bringing all this together, the company other countries is in the types of sophis-
functions. Now however, Russia is also now offers Trading Support Services, ticated skill sets that are produced by the
recognised as a prime location for out- which include the tailor-made develop- Russian education system, being firmly
sourcing activities, especially those based ment of new trading algorithms, the mod- set in physics, engineering and mathe-
around IT and requiring high levels of eling of statistical and market micro- matics. According to recent reports, some
technical expertise. For companies like structures, trading & performance analysis outsourcing locations such as India have
Allied Testing, this provides a huge and data mining and strategy testing. been hindered by the conformist nature
opportunity. “We have general software Further down its development cycle, of the people working in the market and
development and QA expertise, trading the company is also focusing on Allied Testing commented that the
expertise and the ability to test trading financial modelling, business analysis Russian education system breeds a more
strategy,” explains Klyachko. “When you and the development of exchange enquiring and non-structured mind
put the three together, we are strongly simulators for trading strategy validation which can add real value in the area of
positioned to offer QA and development and product testing. financial outsourcing.
services to the financial services and “There is a place in the market for both
investor services markets.”
“The Russian market approaches,” explains Moore. “Everyone
Allied Testing was set up in 2000 by differs from other has heard the Indian story but it is not the
complete answer or the whole picture.”
Klyachko and her brother to provide
Quality Assurance in its traditional sense countries in the types of
and financial testing. Six years on and sophisticated skill sets The Future
the company employs 260 staff and this A combination of government support,
number is expected to grow to 350 by produced by the Russian a solid educational system and a large
the end of 2006. The company prides talent pool make Russia an attractive
itself on the fact that the two founders of
education system.” destination for outsourcing in the
the company still own the stock and all finance industry. “One of the opportuni-
the development has been financed out Why Russia? ties moving forward is to increase our
of cash flow. The conservative running of The fast growing outsourcing industry presence in the product development
the company is seen by its owners as an has caught the attention of the Russian space,” says Klyachko. “This is where we
old fashioned yet sturdy way of running government. Having seen the success of see the biggest opportunity.”
a business. the outsourcing market in countries like Another area where Allied Testing sees
Denis Albert, SVP-Product India, the government is setting up poli- huge opportunities is Continental
Development at Allied Testing, explains cies to develop IT and technology net- Europe, which is increasingly warming to
how the history of the company has works to help facilitate the outsourcing the idea of outsourcing. “In the US,
taken a few jumps. “One was in early process in Russia. everything is outsourced and Europe is
2001, when the company decided to ori- As Klyachko explains: “A law was put beginning to open up now and we see
ent itself around financial services.” The through the Russian Duma (parliament) opportunities here,” explains Klyachko.
company dived into training specifics last autumn which provides for the set- “One of the areas where we’re concen-
and shifted towards the financial niche ting up of dedicated out-sourcing zones trating is to increase our presence in out-
by hiring people with specific skills based in certain locations around Moscow and sourcing services in Europe.”
on mathematics, finance and economics. in university towns, similar to what hap- ISJ

INVESTOR SERVICES JOURNAL 37


ISJ14 pp1-57 FINAL 30/5/06 9:28 am Page 38

CEE Pensions & Custody

AT THE CUTTING EDGE:


PENSIONS AND CUSTODY IN
CENTRAL AND EASTERN EUROPE

ISJ probes the state of health Though pensions do not generally feature among the
popular eye-catching graphs charting the phenomenal
of the pensions and custody recent economic growth of Central and Eastern Europe
(CEE), they are nonetheless advancing steadily within the
sectors in ‘emerging Europe’ and region. Local attitudes towards pensions are revealing and
the status and level of acceptance of this investment class
interprets the mixed messages. may well be indicative of a maturing in the market.
Laura Brank, managing partner at the Moscow office of
Danube House, Prague multinational legal firm Chadbourne & Parke LLP, who
has spent the past 11 years in Russia, says pensions funds
are very much still in their infancy across much of Eastern
Europe. By contrast, the Central European and the Baltic
countries are relatively advanced as far as pensions are
concerned.
Estonia in particular is well forward in the pensions sec-
tor. Its second pillar pension scheme is now in its fourth
year and is funded by a mix of private and state contribu-
tions. Working people pay a 2 per cent slice of their
salaries and the state doubles the contribution. Latvia
enjoys a third-pillar scheme which was launched in 2001.
Still, the concept of private pensions is only just begin-
ning to enter the consciousness of many citizens of the
region. It is easy to appreciate why this is so when one
considers that market economics are still a relatively new
concept too. It is only 17 years since the Berlin wall fell
and rather less since the reforms began.
Most citizens in Central and Eastern Europe still expect
the state to provide for them in later life, and employers
continue to pay pension contributions into government-
run pension schemes. These schemes are in turn invested
conservatively in bonds and equities.

Caution
The reason for this conservatism, explains Robert Idelson,
President of Parex Asset Management, is ‘strict regulatory
requirements and conservative investment policies of most
of the funds’.
The notion of putting money into stocks and shares is
still frowned on as too risky, while alternative investments
such as hedge funds are almost unthinkable and illegal
under local law in most CEE states.
Memories of the 1998 economic collapse are still fresh in
people’s minds and have led to an attitude that one should
try to earn the most amount of money now because it
could all happen again. ‘There’s very much a feeling of that
in Russia,’ says Brank. ‘ “If the oil prices drop we’re going

38 INVESTOR SERVICES JOURNAL


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ISJ14 pp1-57 FINAL 30/5/06 9:28 am Page 40

CEE Pensions & Custody

to be in trouble” ’. And while offshore investments are see- Ulf Noren, Vice-President, Head of Sub-Custody Client
ing a lot of interest in the region, pensions are seen as too Relations at SEB, sees the main threat to his business as
long term and therefore too exposed to the vagaries of the ‘margin pressure’. His solution: ‘Add more geography into
markets. the picture and make sure you don’t have a cost disadvan-
And since foreign investments are also either illegal or tage’. SEB is now expanding energetically into other areas
severely restricted, it is currently not possible for pension of the CEE region and at the end of February announced
fund managers to spread their investments in that direc- the acquisition of the St Petersburg, Russia-based
tion. ‘Local pension funds invest predominantly in local PetroEnergo Bank.
assets,’ observes Werner Niepel, General Manager of As if to reinforce the point, in the same month Raiffeisen
Raiffeisen International Fund Advisory, ‘and will have to International Bank-Holding AG announced its takeover of
alter their regulations towards international assets to avoid Russia’s JSC Impexbank and now claims to be the largest
bubbles on the loca markets.’ foreign banking group in the CIS states.
Ernst Bollhalder, Head of Customer Relations
with SIS Swiss Financial Services Group, is more
“Most Western banks swiftly pulled out sanguine about the outlook for custody service
providers. ‘As far as consolidation is concerned, we
following the crash of the late 1990s; are very confident that with the EU harmonization
while local firms stayed put and emerged more hurdles will be taken to further ease the
process for these markets.’
in positions of considerable strength.” The CEE region is widely viewed as an attractive
destination to outsource certain middle and back-
office functions, including custody services. Noren
In this area too, the Baltic states are well forward of their opines, ‘I do not think that local CEE banks will build up
eastern neighbours, with almost unfettered freedom to Global Custody capabilities so the outsourcing perspective
invest abroad. Harry Devroe of ING sees this market looks good.’
opening up elsewhere too. ‘They are likely to become more
adventurous in future.’ He speculates that ‘eventually these The challenge of local regulation
pension funds are going to grow so big because there’s so Foreign players note the difficulties associated with
little being drawn because they started so late. So eventual- inward investment into the region in the absence of har-
ly they’re not going to find instruments to invest to in monisation. Bollhalder comments, ‘The current labyrinth
their indigenous markets, there’s not going to be enough of regulatory rules and regulations is a massive nightmare
return.’ for all involved parties. The variety of documents needed
Brank says in Russia there have been insufficient civil ini- and the various recognitions and attestations including all
tiatives to see private pensions take hold. ‘There’s a lack of the notary and consular involvement is a great hurdle for
civil movement, there isn’t enough grassroots campaigns further investments.’
to get these things going.’ At the same time, she notes that Brank agrees that the legalities involved in inward invest-
the momentum has picked up elsewhere in former Soviet ment are complex, involving obtaining licences, under-
Union. ‘There are countries near Russia such as Ukraine standing the securities regulations and ‘having people who
and Georgia that have really had very active democratic understand your tax structure’.
movements and desires to change to push the envelope.’ Richard Warne, head of relationship management for
Nonetheless, local and foreign banks have spied an Europe, the Middle East and Africa at JP Morgan,
opportunity and are now building products in the space. describes some of the legal groundwork the firm did when
Says Devroe, “ING has established their own pension it entered the region over a decade ago. ‘We had to work
funds within some of these countries. That’s to develop extensively with local counsel and advisers to ensure that
the local pension business. Obviously they’re investing in investments were made in a way that best protected the
the equities and bonds and treasury bills and other assets”. interests of the end-investors, whether they be pension
funds or investment funds. And that’s a challenging
The outlook for custodians process, particularly when it’s new and some of the laws
In terms of custody services, providers are faced with simi- are untried and untested for those circumstances.’
lar challenges to elsewhere: the need to consolidate and Despite the challenges, the rewards are well-documented
pursue a variety of cost-cutting meas-
ures in order to remain competitive.
This perception is shared by both “The legalities involved in inward investment are
local and foreign custody service
providers.
complex, involving obtaining licences, under-
Normunds Vigulis of Latvia’s Parex standing the securities regulations and having
Banka observes, ‘Taking into account
the low market activity and low profit people who understand your tax structure.”
margins on separate custody prod-
ucts, it is highly doubtful that custody services may be for those who persist. Brank notes that many Western
developed and maintained as a separate business’. banks swiftly pulled out following the economic crash of

40 INVESTOR SERVICES JOURNAL


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ISJ14 pp1-57 FINAL 30/5/06 9:28 am Page 42

CEE Pensions & Custody

the late 1990s; but that local banks continued to build


their portfolios during that time and emerged from the
crisis in positions of considerable strength.
The lack of harmonisation, the regulatory hurdles and at
times jittery economic and political circumstances are
perennial issues in emerging Europe, but the CEE and CIS

“Western Europe has been pushing


its economic model eastward and
has a responsibility to nurture the
emerging fledgling economies for the
longer-term benefit of all.”
countries have come a huge distance in a short space and
deserve our attention for that reason among others.
Another reason is that it is precisely the countries of
Western Europe that have been pushing their economic
model eastward and that therefore have a responsibility to
continue nurturing the fledgling economies they have
helped to ‘emerge’ for the longer term benefit of all.
ISJ

Nordic Excellence

Securities Services is the leading provider of custody and clearing services in the Nordic 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: Head of Securities Services: Mikael Björknert,
mikael.bjorknert@seb.se. Custody Services: Göran Fors, goran.fors@seb.se. Global Client
Relations: Ulf Norén, ulf.noren@seb.se.
ISJ14 pp1-57 FINAL 30/5/06 9:28 am Page 43

Clearing and Settlement

Finally, after years of frustration and hollow promises,


if looks as if we might be getting somewhere as far as
Europe’s post trade infrastructure is concerned.

Regular readers of this journal well know the arguments


only too well. Settling a trade, any trade, on a domestic
basis in Europe is reasonably competitive. But try to do
the same thing cross border and costs spiral. Taking equi-
ties as an obvious example, it typically costs between 0.50
and 2 to settle a domestic trade depending on the market
compared with a whopping 5- 20 to do the same thing
cross border.

So why the huge difference? Well, the chain of intermedi-


aries involved when you want to buy and settle a foreign
security is scarily long. Agent banks, custodians and sub
custodians must be paid to smooth out the complex
process. End investors are forced to pay these charges
because they are unlikely to hold an account with every
security depository involved along the chain.

With the introduction of the Euro back in 1999, it became


clear that fragmentation in the clearing and settlement
business was inefficient. At the time, there were 15 mem-
ber states and 31 settlement systems in the EU. What’s
more, some countries like Spain ran different settlement
systems for different types of securities; one for govern-
ment bonds, another for corporates bonds, a third for
equities, and so on.

Some of this duplication has been stripped out over the


years. In Spain, for example, one organisation, Iberclear, is
tasked with clearing and settling all trades from Bolsa de
Madrid; the public debt market; the AIAF fixed income
Settle Down
market; and Latibex, the Latin American stock exchange.
Iberclear is a 100% subsidiary of the stock exchange itself,
which is, in turn, owned by Spanish banks.
Two’s
In some parts of Europe, settlement systems have gone
further and started to merge cross border. In the Nordic
Company -
region, stock exchange operator, and one time suitor of the
LSE, OMX, has brought together the Finnish and Swedish
settlement platforms and plans to bring other countries on
three’s the
board further down the line. It owns around 20% of the
merged entity with the rest controlled by local banks. regulator.
Tale of two companies
The highly liquid market for Eurobonds (essentially cor-
porate bonds issued outside the country of the currency in Clearing and Settlement
which the bonds are denominated ) has always been a spe-
cial case in point. Settlement has traditionally been carried
systems in Europe are
out by two rival iCSDs, Euroclear Bank and Clearstream. dominated by the two rivals,
As regular readers will know, Euroclear has expanded Euroclear and Clearstream.
abroad, merging with Crest, the CSD for UK and Irish
securities, and the national CSDs of France, the
Both now await the EU’s
Netherlands and Belgium. Euroclear Bank is run com- decision on whether to use
mercially, but is owned and governed by its customers.
“We give rebates at the end of the year and we regularly force to bring down the barriers
reduce our tariffs when it becomes clear that there are to cross-border trade.

INVESTOR SERVICES JOURNAL 43


ISJ14 pp1-57 FINAL 30/5/06 9:28 am Page 44

Clearing and Settlement

economies of scale and a critical mass of business to justify Börse about a possible merger. Twice its German rival has
the reduction,” says Euroclear’s Denis Peters. “If we can been forced to pull out of the running. Now it looks
afford to reduce the price of a service without, of course, increasingly likely that American giants Nasdaq or NYSE
putting any of our investment projects at risk, we will.” will get their hands on the business while Deutsche Börse
has entered talks to merge with Euronext, the operator of
Euroclear regularly talks up its exchange-neutral creden- the French, Dutch, Belgium and Portuguese stock
tials, advocating a “horizontally integrated” market struc- exchanges and the owner of the Euronext.Liffe derivatives
ture where the settlement business is run independently of exchange.
clearing and trading.
The implications for post trade processing are both dra-
Clearstream, on the other hand, was bought by Frankfurt matic and uncertain. A Euronext-Deutsche Börse merger
exchange operator Deutsche Börse in 1999 and now han- will presumably force Euroclear and Clearstream closer
dles the settlement of German securities as well as together. But ownership of Clearstream itself is a major
Eurobonds. The business is run for profit, contributing barrier to any deal. Euronext has long supported the hori-
79 million to Deutsche Börse’s earnings in the first quar- zontally integrated model of consolidation and would, it’s
ter of the year, around a third of the group’s total profit. thought, be unhappy to be pushed into a ‘vertical silo’
infrastructure group that also includes a large settlement
Clearstream is the most obvious example of a vertical silo platform. Deutsche Börse, as a publicly traded company
in Europe, a business structure that provides the customer answerable to its shareholders, would find it hard to justify
with everything from trading through clearing to settle- spinning off a unit worth a third of its annual profits.
ment.
“In principle, we are fairly neutral as to what happens on
“You have to distinguish between different types of securi- the stock exchange level,” says Euroclear’s Denis Peters.
ties,” says Bruno Rossignol at Clearstream. “Most of our “But if there is an exclusive relationship between any stock
business is in Eurobonds and, in that market, we compete exchange and their own post trade provider, that’s when
with Euroclear every day. The so-called vertical silo only we have an issue. That is not competitive.”
exists in the equity market, which represents just 17% of
our business. In Germany, the trade and post-trade func- In an attempt to pacify users and regulators, Deutsche
tions in the cash market have been integrated into an end- Börse has opened up the settlement of German equities to
to-end process for a long time. It will never be extended competition. Any company can apply to work as a
beyond Germany and we don’t see why it should be modi- Wertpapiersammelbank, a special type of organisation
fied in Germany. The structure has been chosen by market which certain regulatory characteristics. Clearstream is
participants.” currently the only Wertpapiersammelbank out there in the
market. Other securities depositories have reacted to the
A merger of Euroclear and Clearstream has long been offer with scepticism, asking how they can compete if
talked about as the most obvious way of consolidating the Clearstream’s parent company Deutsche Börse controls
post trade infrastructure in Europe, creating one platform access on the trading side.
similar to the DTCC in the United States. But progress is
slow, and both companies continue to fight it out, both in BRUSSELS TO THE RESCUE?
the press and commercially.
Despite all the talk of cross border investing, most activity
“In the Eurobond market there is a de facto duopoly in Europe continues to be domestically focused. UK pen-
because participants want it that way,” says Bruno sion fund invest in gilts and UK equities. Spanish mutual
Rossignol. ”Our clients can switch to Euroclear tomorrow funds hold government debt and local shares. But atti-
if they are not happy with our service. They have indicated tudes and actions are changing fast. On the corporate side,
they like competition because competition benefits the we’ve seen a flood of pan-European deals this year, from
market. At the equity level, we do not intend to consoli- Telefonica’s acquisition of O2 in the United Kingdom to
date by buying other CSDs. Euroclear has another project ABN Amro’s 7.6 bn buy of Italian lender Antonveneta.
but that’s their strategy.” And professional investors are also looking increasingly
outside national borders. The value of cross border share
TRADE BATTLES transactions leapt in 2005, according to the latest data.

But if you think the pace of consolidation on the post The world is changing but not fast enough for regulators
trade side is frustrating, that’s nothing compared to the in Brussels. The European Commission’s Internal Markets
situation in the front office. Does Europe really need a team, headed by former Irish finance minister Charlie
separate national stock exchange, each with its own trad- McCreevy, dreams of a single capital market across nation-
ing platform and rules, in all 25 member states? The al borders that will spread wealth, generate growth and
answer is probably no. But national stock exchanges gener- create jobs. It’s the Commission’s task to remove any barri-
ate nationalist sentiment and big newspaper headlines if er to this ideal.
they enter merger talks with a foreign “predator”. Twice the
London Stock Exchange has been approached by Deutsche Europeans pay too much to trade securities across national

44 INVESTOR SERVICES JOURNAL


AD EuroclearINVEST.SERV.JOURNAL 7/10/05 11:48 Page 1

Wherever you settle should feel like

home

Demands for a single European


capital market have set
harmonisation in motion.

We are convinced of the benefits


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

DELIVERING A DOMESTIC
MARKET FOR EUROPE
ISJ14 pp1-57 FINAL 30/5/06 9:28 am Page 46

Clearing and Settlement

borders. But the inefficiencies in the market cannot just be their responsibilities and collectively put their foot on the
blamed on duplicate CSDs and the failure of Euroclear gas,” said Mr McCreevy back in September last year. “The
and Clearstream to negotiate a merger. At the start of the Commission is taking a close look at the economic case for
decade, the European Commission appointed Alberto action. We will decide whether any European legislation,
Giovannini, a respected Italian banker, to identify ineffi- or other intervention, is necessary on that basis and in the
ciencies in the clearing and settlement business. His group light of developments in the market. The next 6 months
of more than 70 market participants have now published are crucial. As far as I am concerned, the clock is ticking.”
two reports (2001, 2003) identifying 15 major barriers to
efficiency in the market. Today they form the backbone of Those six months are now up. The Commission is expect-
both market driven, and possibly future regulatory, reform ed to decide before the summer break whether it will push
of the industry. ahead with a formal directive that will spell out if the
industry has met Giovannini’s 15 challenges
and decide if more force needs to be used to
A merger of Euroclear and Clearstream has long push the process forwards.
been talked about Mister McCreevy is, at the time of writing,
keeping his cards very close to his chest. It’s
unclear what form any future directive will
“Building integrated and efficient clearing and settlement take and exactly what the Commission will ask (or force)
arrangements is urgent and functional to other initiatives the industry to do. But any decision made by the internal
to strengthen the EU financial system,” says Giovanni. “A markets team is unlikely to break apart the vertical silo
project of such importance requires – and deserves – structure that still exists in parts of Europe. It seems hard
strong political support. With clear direction, the private to believe that Mister McCreevy would split up a listed
sector and authorities can be expected to quickly imple- company, in this case Deutsche Börse. More likely is some
ment those initiatives that will eliminate the barriers.” pressure on national regulators to press ahead with elimi-
nating Giovannini’s nine non-market barriers.
Giovanni split his 15 barriers into two distinct types: pub-
lic and market failures. The nine public barriers include As for the six market barriers, CSDs across the region say
legal structures in the transfer of ownership, settlement work is progressing well without the need for regulators to
times and tax processing. The key word throughout the carry a big stick. The danger, according to some, is that an
report is “harmonisation”. A single European CSD may overly prescriptive directive will discourage the market
sound ideal, but in reality it requires significant develop- itself from progressing further.
ment investment and
may simply build on
some of the existing The danger, according to some, is that an overly pre-
complexities in the sys-
tem and reduce the bene-
scriptive directive will discourage the market itself from
fits of economies of scale.
Giovannini takes a more
progressing further.
rational down to earth
approach, advocating harmonisation of existing systems “The market is moving, and moving quickly. But we are
before the industry starts moving towards a single solu- not sure if the Commission will say, ‘Great, continue, we’ll
tion. leave you alone’,” says Denis Peters at Euroclear. “If there is
intervention by the Commission with very precise ways of
Progress has already been made on this front. Of the six how to address the Giovannini Group barriers that were
market barriers identified by the group, the European CSD assigned to the market to remove, then we fear that the
Association has already developed standards for dealing market’s progress could slow down or delay the delivery of
with three: opening hours, settlement finality and corpo- what we think is the foundation of a single, competitive
rate actions. Communications network SWIFT has defined capital market for Europe.”
a draft protocol for both clearing and settlement, address-
ing one of the most technologically troublesome barriers
identified by Giovannini. Executives at Clearstream agree. “Like many market partic-
ipants, we do not want to see a directive imposed,” says
LATEST MOVES Bruno Rossignol. “We would much rather see the market
come up with solutions. The difference in settlement costs
Since taking over from Frits Bolkestein in 2004, The EU’s between the US and Europe does not stem from market
Charlie McCreevy has pushed, sometimes aggressively, for participants but comes from the 15 different languages,
the industry to cut the cost of cross border investing, par- regulations and tax systems in the region. If you create a
ticularly at the post trade level. pan-European infrastructure, these will still exist. It’s not
for the industry to decide which regulation is the best.”
“The time has now come for all interested actors to take ISJ

46 INVESTOR SERVICES JOURNAL


ISJ14 pp1-57 FINAL 30/5/06 9:28 am Page 48

Fund Centre Overview

Well established, investor-friendly jurisdictions are not the stuff of legend.

OVERVIEW TYPES OF FUNDS


There are 15 banks represented in Gibralter; No UCITS schemes have been authorised in
GIBRALTAR seven UK banks, four European banks, three
Swiss banks and one privately owned bank.
Gibraltar as the Financial Services Commission has
advised that industry participants cannot currently
meet the relevant criteria due to a lack of the
The jurisdiction has almost GBP5 bn assets, required level of resources.
GBP 2.2 bn accounted for by offshore business.
Investment funds in Gibraltar are usually formed
There is almost GBP1 bn of funds under under a trust deed either as unit trusts or mutual
management of investment firms. funds, or under the Companies Ordinance as private
or public companies.
Gibraltar has a GDP of over GBP342 million,

It has an extensive service-sector economy


dominated by financial services and tourism.
Both onshore and offshore financial activity
accounts for almost 30% of the countries GDP.

In total, there are almost 450 international Irish domiciled funds are mostly divided into UCITS
IRELAND financial institutions operating from Dublin. and Non-UCITS. Non-UCITS funds tend to be larger
and operate on a private placement arrangement.
The total assets under management in Ireland
are approximately USD768 bn. At the end of June 2005, 3,020 alternative investment
funds (AIF’s) with a net asset value of $474 bin were
Ireland has a GDP of over USD136.9 bn. being serviced by the investment funds industry in
Ireland. Hedge funds make up the largest proportion
A high number of institutional investors are of this with 65% of the total assets.
entering the alternative investments arena and
the hedge funds market is growing rapidly. A Common Contractual Fund structure enables
assets held on behalf of pension schemes to be
centralised through a single vehicle, jointly by the
trustees or custodians of the individual pension
schemes.

In May 2004 Malta became a member of the EU. Malta was one of the first European jurisdictions to
MALTA There are 19 banks in Malta and over 300 funds
introduce a specialised regime for professional
investor funds in 2000. The Maltese regime for pro-
in total. fessional investor funds (PIFs) recognises two types
of funds: those targeting qualifying investors (QIFs)
Maltese financial services sector contributes to and those targeting experienced investors (EIFs). The
over 12% of the countries GDP, and this is net asset value of Malta-based PIFs in February 2006
expected to rise to 25% over the next ten years. was US$ 3.6 bn.

Malta has a GDP of over USD7.5 bn. At the end of June 2005, the Malta Stock Exchange
had listings for over 70 mutual funds.

Sources: FSC, DFIA, bizoffshore.com, MFSA, CDF Advocates

48 INVESTOR SERVICES JOURNAL


ISJ14 pp1-57 FINAL 30/5/06 9:28 am Page 49

Fund Centre Overview

ISJ gives you the low-down on three of Europes flourishing fund domiciles.

REGULATION SERVICE OFFERING KEY CONTACTS


The Financial Services Commission is At theend of 2005 an agreement to the Gibraltar Finance Centre
required to match U.K. supervisory stan- passporting of investment services was Tel: 350 50011
dards where European Union law applies. announced which will allow the Finance Fax: 350 51818
Centre to extend its reach and enhance E-mail: finance@dtti.gov.gi
The Head of Banking and Investor Services transparency. Website: www.gibraltar.gov.gi
Provision is responsible for the authorisa-
tion and regulation of firms offering invet- Financial servies available include; banking, Financial Services Commission
ment services and collective investment insurance services, and small-scale fund Tel: 350 40283 or 40284
schemes. management & advisory business. Fax: 350 40282
E-mail: fsc@gibnet.gi
Emphasis is placed on authorisation Website: www.fsc.gi
assessment and licensing of investment
firms. Gibraltar Regulatory Authority
Tel: 350 74636
Fax: 350 72166
Website: www.gra.gi

In 2003, regulation of the financial sector Outsourcing of non-core functions such as Irish Financial Services Regulatory Authority
was consolidated under the Irish Financial fund accounting, administration, investor Tel: 353 1 410 4000
Services Regulatory Authority (IFSR), set up services, trustee and custody services is Fax: 353 1 410 4900
under the Central Bank of Ireland. increasing. Website: www.financialregulator.ie
The Central Bank and Financial Services
Authority of Ireland Act 2004 came into Value added services such as web-enabled The Irish Stock Exchange
effect on 01 August 2004 and gave the IFSR technology and enhanced reporting are Tel: 353 1 617 4200
power to impose administrative sanctions being employed. Fax: 353 1 677 6045
where financial service providers had been E-mail: info@ise.ie
non-compliant with legislation. Dublin is recognised as a centre for the pro- Website: www.ise.ie
The Irish financial regulator operates a flexi- vision of Accounting and Administrative
ble system of regulation and assumes that services to Mutual Funds domiciled in The Dublin Funds Industry Association
sophisticated investors who can invest a Dublin and in other jurisdictions including Tel: 353 1 670 1077
certain amount of money accept the risks the UK, Cayman, Bahamas, Bermuda and Fax: 353 1 670 1092
that go with that. BVI. Website: www.dfia.ie

Established in 2002, the Malta Financial The core services offered in the jurisdiction Malta Stock Exchange
Services Authority is responsible for the include accounting and portfolio pricing, Tel: 356 212 44051
licensing, regulation and supervision of investor servicing, custody and trust and Fax: 356 256 96316
Investment Services providers. corporate services. E-mail: borza@borzamalta.com.mt
The Investment Services Act, amended in
2002 establishes the regulatory framework Current regulation allows for funds Malta Financial Services Authority
for Investment Services and for Collective registered in Malta to be managed or Tel: 356 441 155
Investment Schemes. The ISA provides for administered from another jurisdiction Fax: 356 441 188
two types of licences - an Investment Services provided it is part of the EU. E-mail: communications@mfsa.com.mt
Licence and a Collective Investment Scheme
Licence. Small accountancy firms are setting Malta Financial Services Regulators
Malta has a flexible regulatory framework. up fund administration services as E-mail: business@legal-malta.com
The MFSA regards the legislative guidelines in other jurisdictions. Website: www.legal-malta.com
as a framework within which standard license
conditions can be tailored to meet the partic-
ular application being considered.

INVESTOR SERVICES JOURNAL 49


ISJ14 pp1-57 FINAL 30/5/06 11:27 am Page 50
ISJ14 pp1-57 FINAL 30/5/06 9:28 am Page 51

Pension Asset Mix in Western European Countries Other (%)*


Bonds (%)
Equities (%)
100% 4 3
7

90%
12 13

22
15
Data Analysis
80% 35
33
The bar chart presents the latest data on
70%
63
the asset mix of pensions in a basket of
Western European countries. Bonds
Catching latest trends on
60% 60 56 38 52

remain the asset class of choice in all but pensions, hedge funds and
three countries: Ireland, Spain and the
50%

UK. In these, equities are currently the securities lending from


40%

60 62
preferred choice. Alternative investments,
including hedge funds, still constitute
Mercer, HFRI and Data
30%

40
only a small part of pension fund invest- Explorers.
20%
31 33 33 ment in Europe. Spain tops the table on
28

10%
the alternative side, with 22 per cent
invested in this area. Statistics supplied The top hedge fund graph compares the performance of hedge
0% by Mercer Consulting. funds in emerging markets from January 2004 to April 2006.
France Germany Ireland Netherlands Spain Switzerland UK
Central and Eastern Europe (CEE) and the Commonwealth of
12
Independent States (CEE) showed the strongest performance over most of this period,
Emerging Market Hedge Fund Performance though they also demonstrated the sharpest dips as well, suggesting volatility within the
10 marketplace. Asia and the CEE/CIS have outperformed the global index through most the
period. As the journal went to press, hedge funds had weakened significantly, however,
8 amounting to possibly the worst month of the year.

6 This lower graph is a comparison of the monthly performance over the last 28 months of
hedge funds invested into the energy, real estate and technology sectors is revealing.
4
Technology shows signs of steady improvement while the energy sector has failed to
regain the performance highs of late 2004 despite soaring prices and the massive profits
recorded by oil companies in recent months. Real estate has gathered pace since the blip
2
in April 2004 though recent data suggest a slight weakening in this sector. Statistics cour-
tesy of Hedge Fund Research Incorporated (HFRI).
0
2004

2005

2006

140
-2 Trends in Utilisation of Securities

120 SL Fee (Bp) All Securities


-4
Utilisation (%) All Equities
Asia
Utilisation (%) All Bonds
CEE/CIS
-6 Utilisation (%) All Securities
Latin America 100
Global Index

10
80
Hedge Fund Performance; Energy, Real Estate, Technology
8

60

40
4

20
2

0 0
2004

2005

2006

02

09

16

23

04
05

12

19

26

7
02

09

16

23

30

r0

r1

r2

r2
b

ay
n

ar

ar

ar

ar

ar

Ap

Ap

Ap

Ap
Fe

Fe

Fe

Fe
Ja

Ja

Ja

Ja

M
-2
The above graph reveals a gentle increase in the utilisation of securities lending since the
start of the year. According to some economists, this may mean more uncertainty to
-4
Energy come. However fee income appears to has outgrown the market as a whole: this suggests
Real Estate
Technology
the market may be more secure. And while bonds are still the securities lending collateral
-6 of choice, equities are edging slightly ahead of the general trend.
600,000 200,000

Securities Lending Distribution - Bonds Securities Lending Distribution - Equities


USD (m) USD (m)
Lenders Cash
Lenders NonCash
500,000
Lenders Cash Borrowers Cash
493,744

Borrowers NonCash
Lenders NonCash
150,000
Borrowers Cash
Borrowers NonCash
400,000
321,262

300,000
100,000
139,101

200,000
68,739

67,950

50,000
100,000
24,446
19,323

16,509
13,218
10,448
6,908

4,504
2,558
2,348

1,791

1,900
528
77
55
23

2,260

1,327

0
940
289

Corporate Bonds Emerging Market Government Bonds Depository Exchange Traded 0


Bonds Receipts Funds American Equities Asian Equities European Equities Other Equities

The latest data on the distribution of securities lending shows that America still leads the way in securities lending, with USD 195,815 million cash and 45,658 non-cash on
loan. America also had the greatest number of borrowers, with a USD 84,617 million cash and 19,194 non-cash on loan. Government bonds are still the most popular form
of securities lending, with a staggering USD 493,744 cash and 321,262 non-cash on loan. The most modest borrowings were in the emerging market bonds market, with USD
77 million cash and 55 million non-cash on loan. Statistics courtesy of Data Explorers.
ISJ14 pp1-57 FINAL 30/5/06 9:28 am Page 52

Analyse this... Hedge Funds Technology

ISJ invites technology providers and hedge fund managers to comment


on latest developments in the hedge fund technology world

Stephen Everard Sunil Chadda

IT WAS REPORTED IN THE FINANCIAL TIMES LAST CAN TECHNOLOGY KEEP UP WITH THE TRAIL-BLAZING
MONTH THAT A PRELIMINARY RULING BY EUROPE'S STRATEGIES OF HEDGE FUNDS?
HIGHEST COURT MIGHT FORCE GOVERNMENTS TO
REFORM "WITHHOLDING" TAXES ON INCOME BEING
SENT ABROAD. IS THIS TRUE AND WHAT ARE ITS IMPLICA- Sunil Chadda, Head of the Hedge Fund & Derivatives Practice,
TIONS FOR DIVIDENDS ON THE FOREIGN INVESTMENTS Citisoft
TYPICAL OF MANY HEDGE FUNDS’ COMPOSITION?
A renewed focus on IT solutions by hedge funds has
Stephen Everard, Managing Director, GOAL Group occurred as a result of several industry trends including his-
torically low returns, increasing regulation and demands for
Leendert Geelhoed, advocate-general at the European Court transparency, the emergence of new trading techniques and
of Justice, remarked in this preliminary ruling that it was "quite crucially the shortage of people with detailed knowledge of
patently discriminatory" that France was imposing a higher tax complex instruments within the industry. With these in
burden on dividends destined for a Dutch parent company mind, many hedge fund managers believe that technology
than those distributed to French parent companies. can help open up new investment opportunities for them to
The newspaper claimed that “The case, brought against the explore. However, with technology now firmly at the front of
French government, is likely to have implications for all a hedge fund manager’s mind, are current technology solu-
European governments that levy withholding taxes. These tions able to keep up?
taxes, on dividends and interest payments paid to a non-resi- In recent months, hedge fund trading strategies have
dent taxpayer, are designed to ensure that income does not included commodities, private equity, carbon emissions
leave the country without being taxed.” trading and the lending of funds for corporate takeovers
Those of us with longer memories remember that this is not and, going forward, could include almost anything.
the first time that withholding tax reform has been pushed at Algorithmic trading too is enjoying its place in the spotlight,
European level. We all also remember that such reform has alongside the exponential growth in the use of OTC deriva-
also been quietly put aside after each such ripple of excitement. tives. Vendors are currently building out functionality to
One should note that the judgement was referring to dividends cater for these innovative trading strategies and related
between parent and subsidiary rather than dividends paid to instruments. But with hedge funds likely to move swiftly into
third party investors. new strategies as and when new opportunities for return are
To take a balanced view of the situation, a few hard facts identified, technology providers must consider carefully the
need to be considered. To be sure, tax is withheld by the coun- ROI of building out this functionality in their systems.
try of registration on dividends and earnings on foreign invest- Of course, implementing technology is not just a case of
ments. However, tax is also reclaimable. The purpose of with- creating return or cost efficiencies. Many hedge funds are
holding tax is to ensure that taxation of some kind can be reaching critical mass and need to formalise their approach
enforced. Otherwise, too many would be tempted to ignore to IT systems. In addition, the potential to gain increasing
the tax obligation. Exactly the same principal applies to inflows from institutional investors have seen hedge fund
income tax at source and to the probate system. managers and fund of hedge funds managers looking to
Research on this subject conducted by GOAL, shows that improve systems, processes, transparency and accountability.
around 75% of reclaimable withholding tax is reclaimed. The opportunities for the systems market are clear, but so
Admittedly the remaining unreclaimed sum still amounts to a often vendors have to play catch up to provide hedge funds
staggering $10.5 billion worldwide. Standards of reclamation with what they need. The huge demand for cross-asset trad-
from hedge fund managers and – where applicable - their cus- ing, accounting, risk and performance systems means that
todian banks therefore need to improve further. But the picture now several different types of providers are also working
is nowhere near so gloomy as the EU lobbyists would claim. towards meeting these needs. These include: traditional buy-
Arguments are strong for consistency of withholding tax side vendors; sell-side vendors; specialised hedge fund ven-
rates. Sensible folk in government and business will recognise, dors; hedge fund administrators and prime brokers.
in a world where cross-border investment is becoming increas- Although the systems market has lagged behind, hedge
ingly popular, that some system of compulsion is necessary to funds now demand the ability to manage their funds on a
ensure tax is not avoided. Withholding tax will undoubtedly moment by moment basis irrespective of the complexity of
remain in place. However, hedge fund managers need to the assets within them. Increasing automation is the only
employ widely available services to ensure that their customers way this demand can be met – and software vendors and
reclaim money that is rightfully theirs. developers are working hammer and tongs to achieve this.

52 INVESTOR SERVICES JOURNAL


ISJ14 pp1-57 FINAL 30/5/06 9:28 am Page 53

our vision
Michael Harriman To Deliver Outstanding Business Solutions for the
Financial and Securities Services Community.

Why change your business to suit your software


when there are technology solutions that can suit
WHAT ARE THE TECHNOLOGY TRENDS IN THE HEDGE your business?
FUND REGULATORY ENVIRONMENT?

Michael Harriman, Manager, International Business peterevans’ flexible business rules allow us to
Development, Aquin Components GmbH configure our software to meet your business
Technology has always been a powerful weapon in the hedge
procedures. Why compromise with less?
fund manager’s quest for absolute return. Technology can also
address the challenge that Hedge Funds and traditional invest- peterevans offers a wide range of solutions
ment managers face in the changing regulatory environment.
Traditionally hedge fund organisations have been lynch-
supporting end-to-end Straight-Through
pinned by IT systems which have been purpose built, in-house, Processing for:
by small group of individuals with economic and quantitative
skills to support the hedge fund’s proprietary investment
strategies. Clearing and Settlement
Over time, Hedge Funds have matured from a cottage indus- Stockbroking (Internet, Institutional & Private Client)
try to becoming a key niche in the mainstream investment Treasury Operations
management world. The appetite of Pension funds and other
institutional investors to invest in Hedge Funds has brought Corporate Action Processing
about a convergence with conventional Asset Managers. Custody and Nominee Accounting
Traditional long-only management firms have established or Fund Management
acquired Hedge Funds. Single fund firms have opened new
funds and their infrastructure has increased in size so that an
average Hedge Fund operation is a long way from those origi- peterevans’ configurable front to back-office
nal “3 guys in a garage”. solutions can be integrated into a financial
Differences to a conventional asset manager remain. Hedge
Fund strategies are more complex with more complex asset institution’s existing infrastructure, or combined
classes and more sophisticated investment models. However with existing back-office systems to provide a
as regulators enable mainstream funds to invest in higher risk complete solution.
asset classes including structured products, synthetics and
credit derivatives, the risk control and investment oversight
requirements start to converge.
Hedge Funds are coming under increasing scrutiny by the
regulators. Different jurisdictions are attempting to instigate
policies and controls to oversee investment managers with dif-
fering levels of focus. In the UK, the FSA is looking to apply
“an informed, transparent and proportionate regulatory envi-
ronment” Hedge Fund investment. In Germany, the recent
Investment Modernisation Act provided for the establishment
of local German Hedge Funds and Fund of Hedge Funds, how-
ever, applies a prescriptive set of investment restrictions.
The “3 guys in a garage” or the technologists maintaining a
Hedge Funds core investment systems do not have the
resources to monitor and continually adapt to regulatory
changes, particularly across multiple jurisdictions.
Flexible, purpose built, investment and risk oversight tools
developed by specialist software vendors are now available to
address this regulatory challenge. Many fund service providers
are implementing such solutions to increase the service level New Broad Street House,
to their Hedge Fund and mainstream clients.
35 New Broad Street, London EC2M 1NH
Telephone +44 (0)29 2040 2200
www.peterevans.com
ISJ14 pp1-57 FINAL 30/5/06 9:28 am Page 54

Analyse this... Hedge Funds Technology

Scott Dowle Joanna


Roemer-Babelek

BESPOKE TECHNOLOGY SOLUTIONS........ IS THERE A CHALLENGE IN TREASURE ISLANDS?

Scott Dowle, Head of Technology, Credaris Joanna Roemer-Babelek, Managing Director, HedgePole
Alternative Investment Consulting
The Alternative Investment Industry faces a growing chal-
lenge of finding suitable technology platforms to support The “Treasure Islands” article in the last issue of ISJ points
strategies and funds in a consistent manner across a variety of out, among others, process automation, fund infrastructure
asset classes. An additional challenge arises for managers with and technology developments in the alternative investments
a focus on asset classes that have yet to gain full coverage industry as a challenge recognised in major fund jurisdictions.
from software vendors, e.g. cash CDO, MBS, ABS and synthet- Considering current practices in the market a question arises
ic bespoke CDO tranches. as to whether any areas with a real potential for process
Buy-side vendors often provide coverage for long-only strate- automation exist. To the extent they do, such automation will
gies but lack in support for more complex products. A typical need to be supported by technology developments. I suggest
solution is to look to the sell-side vendors who are leaders in one such area is price collection.
the field of multi-asset class systems and found across many
investment banks. This approach seems to be sensible but Lack of standardisation is one thing that has not changed
there are important limitations like lack of flexibility, insufficient over time in the alternative investment industry. This is not
time to market for new product implementations and high surprising given that hardly any two funds have the same trad-
costs. With the emergence of new technologies, data transfer ing or pricing features. Every fund will have a different legal set-
standards and niche 3rd party vendors, timing and advantages up following the requirements of the fund manager or investor
to be gained from building a hybrid bespoke solution are and the regulatory requirements of their chosen jurisdiction.
immense. Such solutions typically involve a spreadsheet frame- This lack of standardisation creates unavoidable manual
work which, although a powerful environment for implement- processes in the operational flows.
ing evolving business ideas, inevitably leads to a fragmented
non-scalable infrastructure, the unorganised exponential As I suggest above, one area where there is a great potential
growth of which leads to greater complexity. for standardisation and process automation is the collection of
Asset managers like London-based credit-specialist Credaris prices on the hedge funds and fund of hedge funds investment
are developing bespoke solutions to avoid these problems. level. To this effect HedgePole has developed a web-based plat-
Unlike monolithic fit-all solutions, their Multi Asset Platform form, HedgePrice, which offers a dedicated price collection
(MAP) is based on the universal adoption of Service service for all industry players. In HedgePrice each share class
Orientated Architecture (SOA) enablers - namely XML and Web and each series of shares is assigned a unique identifier which
Services. This allows them to build a best-of-breed solution might be an initial step for industry-wide common identifiers
that provides maximum control, integrates leading vendors for hedge funds. The services of HedgePrice include tracking of
and enables heterogeneous components and applications to the investor relevant Net Asset Values, their equalization cred-
exist within a common framework. Integration with the fund its and roll-up of series.
administrator has been made easy due to their adoption of an
XML based message protocol. Standards such as FpML (XML The alternative investments industry has still a long way to
schema for derivative products) and the emerging Bond go until full straight-through-processing can be achieved.
Market Associations XML schema (for cash CDOs) simplify the However; establishing industry-wide common identifiers for
landscape for multi-asset managers. hedge funds is feasible and would certainly be a big step in the
Scott Dowle, Head of Technology at Credaris, explains: “The right direction.
advantages of MAP have quickly become apparent. Our cen-
tralised Web Service architecture empowers our trade and risk
management platform to co-exist with spreadsheets that can
both leverage the same data and functionality to promote com-
pany-wide consistency and eliminate spreadsheet maintenance
errors. The same interface allows us to build web-based report-
ing for our clients and will in future permit them to pro-
gramme their own interface. As more vendors expose their
functionality in the form of Web Services, we will be in a posi-
tion to quickly integrate this functionality within our SOA to
stay ahead of competitors.”

54 INVESTOR SERVICES JOURNAL


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ISJ14 pp1-57 FINAL 30/5/06 9:28 am Page 56

Company Profile - SG GSSI

SG’s vision is to provide an extensive range of services


to customers across Europe. This strategy is being imple-
mented through deals such as the acquisition of the secu-
rities services business of Unicredito Group (2S Banca)
in February 2006, including custody, clearing and settle-
ment, depositary bank, fund administration and transfer
Alain Closier agency for clients in Italy, Luxembourg and Dublin or the
Head of SGSS acquisition of European Fund Services (EFS) in
Luxembourg.
What this acquisition does is allow SGSS to enhance
their presence in Italy, Luxembourg and Ireland. “There
are key countries in Europe where we want to be able to
provide a service to the customers,” says Closier. “Italy for
example is very important because what we will be able
to do is two-fold, to provide a service to the non-Italian

The French community in Italy and to attract new Italian customers.”


There has been much talk of the creation of a har-
monised European market, allowing companies to chase

Connection cross-border business and strive towards providing con-


sistent services to customers in different countries. Hugh
Palmer, Manager of Strategy for Market Infrastructure,
SGSS explains the two processes pushing European har-
monisation forward. “One is the bright idea or dream of
creating a single European market and the second
Alan Duerden talks to SG GSSI process is working between markets, getting to know
each other and agreeing on how to do things.”
about what makes them tick. In July 2004, an important decision was reached by the
Euroclear board and gave the green light to a project
Usually found jostling somewhere in the top rankings for called Euroclear Settlement for Euronext-Zone Securities
global custodians, with nearly EUR2000 bn of assets under (ESES) which kick-started action on plans that had just
custody and EUR270 billion of assets under administra- been talked about for years. As Palmer suggests however,
tion, Societe Generale could be considered to hold its own 18-months down the line and some quite significant
with the heavyweights of the custody industry. progress has been made, but the problem has come in
The past preconceived idea by the industry has been that agreement being reached between countries over some of
the bank is a French-based institution serving French- the issues. “With 25 member states it’s a lot more difficult
based clients and this is an image that SGSS, the Securities coming to agreement in practice rather than theory,
Services arm of Societe Generale want to shake off. when it is just about writing something down on a paper
One thing the company seems keen to express is that and not actually forcibly doing it in the immediate
they are not confined to the French market and as Alain future. The Euroclear projects are making us look at har-
Closier, Head of SGSS explains, are interested in cross monization from a very practical angle.”
border and international business. “Our focus at the
minute is in Europe because in our business, working Regulation
and providing a true European service in Europe will be Varying regulations between different countries in the
more and more difficult and as such, a true differentiat- Euronext Zone has posed its problems with countries
ing factor. It’s not about providing a service in one spe- wanting to preserve their own rules and ways of doing
cific country but globally.” business. In some areas the regulators have also created
more requirements for banks and custodians and the size
European Harmonisation of legal and compliance teams has grown over the last
For the time being the focus of SGSS has been in few years.
Europe and to open offices in the main European finan- “In France a few years back, the regulators main role
cial centres. One of the ways SGSS has done this is by was quite simply to protect the end investor and so the
embracing the consolidation that has been happening regulator would come out with a fairly wide set of rules
across Europe in recent years, a process that looks set to that brokers have to comply with, that asset management
continue even more in the future. companies have to comply with,” says Palmer.
“If the securities services in Spain do not link with the To support the idea of a more harmonised Europe, the
securities services in Luxembourg using the same plat- regulators in some countries are recognising that they
form and tools, then you can not provide a consistent need to be more flexible and accommodating if they are
service for your customer,” believes Closier. “This is still going to attract business to the country.
something that we are in the process of remedying and is “As the barriers in Europe are fading the regulators are
a key development for us.” starting to understand that if they over regulate people
realise that business can be run more easily elsewhere

56 INVESTOR SERVICES JOURNAL


ISJ14 pp1-57 FINAL 30/5/06 9:28 am Page 57

Company Profile - SG GSSI

and they go elsewhere,” says Palmer. The 2S Banca deal exemplifies this where Unicredito no
Sebastien Danloy, Global Head of Sales, SGSS Investor longer wanted to do custody and asked the question ‘does
Services, echoes this sentiment, citing how the French anyone want to buy our custody business?’ and Societe
government have dealt with hedge funds. Generale acquired it. Driven by customer demand, the
Compared to other domiciles such as Ireland and bank has the belief that they should provide a one-stop-
Luxembourg the French regulator has been extremely shop for their core activities and provide the entire serv-
stringent about the role of the trustee depositary bank in ice chain to remain competitive in the market.
France and it has been hard to find an agreement “We provide the entire value chain,” says Closier. “We
between prime brokers and the depositary bank to serv- have customers that are with us only on one portion of
ice hedge funds. “For a long period of time these issues the services we offer. However, with our extended value
have slowed down the growth of hedge funds in the chain, we hope to attract further services from our com-
French market so a lot of French asset management com- petitors by providing our clients with the full value chain.
panies that were interested in launching
these hedge funds have had to launch
them abroad, in Cayman, Ireland and so “We are going to have to bring our partnerships
on,” says Danloy.
What is being seen now is the regulators
with the likes of FIMAT closer together so
understanding that their point of view that we can cross-pollinate.”
doesn’t necessarily favour the growth of a
countries market and they are re-addressing how strin- The Future
gent the regulatory environment should be. The Securities Services arm of Societe Generale is made
up of a number of different divisions spanning Custody &
Technology Trustee Services, Brokerage, Fund Administration,
In supporting this ideal of European harmonisation, Outsourcing, Liquidity Management and Retail. In pursu-
Societe Generale have also adopted new technology plat- ing their goal of being an internationalised business the
forms to give clients greater choice and flexibility and to different groups within SGSS will have to work closer and
promote themselves as an international bank. closer to address the challenge of greater market coverage.
There has been substantial movement of software onto “Greater coverage is going to be a clear challenge for us
single platforms so that clients and offices globally can going forward. We are going to have to bring our part-
communicate in the same language and through the nerships with the likes of FIMAT closer together so that
same system. “If you look at the three core pillars of the we can cross-pollinate,” Mark Newby, Global Head of
investor services division, which are; custody & trustee, Sales, SGSS Investment Banking division. “The cross-pol-
fund administration and transfer agency services, our lination of services and client offerings is going to be a
approach has also been to harmonise the systems on a very positive environment for both us and clients.”
pan-European basis,” says Danloy. Amid the organic growth that the company is experi-
An in-house global custody system has been developed encing and growing demand in the European and global
and rolled out to all European locations and similar is arena, SGSS wants to maintain their levels of client satis-
true for fund administration with the implementation of faction and choice of products available to the client.
Alfas (Advance & Lending Fund Administration “Without technology we would have never been able to
Services), an entire platform based on Global Portfolio face the challenge of better serving our clients and also
III, a third party vendor product. decreasing the cost of production to remain competitive,”
With emphasis on one platform to be rolled out across says Breteau. “If we try to project ourselves in the future
all countries for each component of the banks offering, its clear that size matters, so we need to process more and
rather than having several systems, IT is one of the key more volume.”
strategies for SGSS’s bigger picture. Alain Closier also sights technology as important to the
“When I moved to London in 1999 there were probably future developments of the Societe Generale business,
ten people in our IT department,” says Nicolas Breteau, saying: “You need to successfully implement your IT sys-
CEO, Fimat UK & Europe, part of SGSS. “Today I have tems and do it at the same speed as the consolidation in
got 50 people and it is interesting to see that without Europe. In addition we have to consider that this type of
straight through processing we would not have been able business is not only local or European business but
to cope with the increase in volume and business.” worldwide business.” And as such we have to be in a posi-
tion to service all levels of customer requirements.
Outsourcing With consolidation in the market and the process of a
Following in the footsteps of the U.S., outsourcing has harmonised European market on the horizon, SGSS’s
become a growing trend in the European market. SGSS strategy of acquisition will undoubtedly help them
however, see themselves as more of an insourcer and con- increase their market share of securities and custody busi-
solidator in the market, taking over and acquiring compa- ness. “Europe is a large market with a few European play-
nies in the countries that they want to be present in. ers who are committed,” says Closier. What we are sure of
“We are a consolidator in the market, so we try to get is that if you are not organised and committed at a
onboard the activities of competitors that are not large European level for this business then it’s not relevant to
enough to be self sustainable,” explains Closier. continue.” ISJ

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Basel II

Basel II comes into force on


1st January 2007 but what does
it mean for banks and the
investor services industry?

Is it an unnecessary barrier to
business or an essential safety
measure? Brian Bollen looks
into it.

After what seems like an eternity of discussion, drafting


and debate, the Basel II regulations on capital adequacy
Putting the brakes on for internationally active banks finally comes into force on
January 1 2007 (a year later for US banks). The process

riskybusiness will, in fact, have taken less than a decade from the publi-
cation of the first round of proposals for revising the capi-
tal adequacy framework by the Basel Committee on
Banking Supervision in June 1999. A blink of an eye by
international institutional standards.
Critics of the framework can be harsh. I have personally
argued in the past that the nub of the matter in the debate
over the acceptability of the Basel II framework is that
banks in effect want to be able to decide for themselves
how much capital they need to back their sundry activi-
ties. For those with long memories of how idiotically even
the oldest and staidest of financial institutions can behave
when not monitored to within an inch of their commer-
cial life, even without the interventions of a rogue trader,
or a trader with a heavy finger, this could be a recipe for
disaster. It could ultimately come to be seen as being akin
to granting King Herod a licence to run a baby-sitting
service for two-year-olds, or appointing a fox to arrange
security for henhouses.
Others dismiss this as a fallacious argument. Good risk
management requires robust, timely and accurate risk
measurement, they say. All major financial firms have risk
measurement systems, methodologies and tools for this
purpose that are independent from any regulatory capital
measures. “We manage our risk and measure our business

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Basel II

performance on the basis of these internal risk models, not areas like credit cards and consumer loans.”
on the basis of regulatory requirements,” says one banker. For the investor services industry too, Basel II has impor-
“Indeed the majority of times, internal risk models require tant implications, according to those familiar with the sub-
capital in excess of regulatory minimums. This is expected ject. In fact, when it comes to securities lending for
as regulatory capital as defined provides a "minimum" instance, its expected impact dwarfs all other considera-
requirement. Those instances where regulatory capital tions in determining whether an institution should
exceeds internal measures or "economic" capital levels attempt to build a self-lending capability or outsource the
usually occur when regulatory capital calculations are whole process.
based on arbitrary (i.e. not risk-based) rules.” “Would-be lenders will need more and more substantial
“There are numerous examples of this in Basel I, e.g. where investment in technology to measure the risk profile of
a 10-year loan to a BBB-rated government entity may their portfolios more scientifically than in the past,” says
require far less capital than a one-year loan to a AAA-rated Fred Francis, Toronto-based vice president, Global
corporate entity. Indeed the primary reason for the Basel II Securities Lending and Finance at RBC Dexia Services.
initiative is to address the areas where Basel I measures are “Securities lending is a high-volume business that usually
outdated and not risk-based. Bank managers have always the self-lender can’t afford; some people who lent securi-
been responsible for risk measurement/management and ties quietly to earn a little extra, with little or no formal
therefore their own capital management. Basel II does procedures or approvals in place, have had a rude awaken-
nothing to change this other than recalibrate the require- ing, finding themselves facing so many awkward questions
ments for minimum levels of regulatory capi-
tal.”
This argument is, though, not quite true, in
“Would-be lenders will need more and more
that Basel II does of course forcibly introduce substantial investment in technology to measure
a new element into the risk management
equation: the identification and measurement the risk profile of their portfolios.”
of operational risk. And from an Operational
Risk capital perspective, the impact will be relatively high- from the top down about country risk, credit limits and
er for the commercial and global market businesses as whether or not full legal and accounting due diligence has
opposed to the retail side. been carried out that the only decision they can possibly
“The real issue for operational risk and the capital make is to exit. I see this as a consistent trend that will
requirements directive will require that Senior continue to develop.”
Management must ensure that appropriate internal con- Rob Coxon, head of international securities lending at
trols are maintained to satisfy the Senior Management ABN AMRO Mellon, believes that price and cost are in
Arrangements Systems and Controls requirements,” com- fact secondary considerations, ranking well behind the
ments Dallas McGillivray, Joint Managing Director, impact of Basel II. “Any institution considering doing
FMConsult. “If not satisfactory the FSA, Competent securities lending in-house needs to be aware of the risks
Authority, will have the right to require regulated compa- involved; a badly handled corporate action can cause sig-
nies to increase their regulatory capital.” nificant loss, and if you’re doing it in-house you take that
Another big question is the extent to which the new rules risk yourself, rather than direct it towards a third party.”
will hinder growth in the securitization market, says Paul Bodart, of The Bank of New York in Brussels,
William Perraudin, director of Risk Control Limited. believes that the financial impact of the new framework
“Basel II is specifically designed to reduce the incentives on the institutions required to comply with them will be
banks face to securitize so one would expect deals motivat- broadly neutral, but nevertheless sounds a note or two of
ed by “capital arbitrage” to be reduced. On the other hand, caution. “There is an incentive to improve risk control so
the new system will force many banks to develop detailed the capital to be allocated will be reduced,” he says. “But
scoring systems and historical performance datasets for what you save on the credit side by measuring market risk
their lending businesses. This data will permit banks to and credit risk more precisely will be balanced by the need
engage in much more systematic risk transfer securitiza- to provide more capital for operational risk.”
tion programmes if they wish. The jury is out on whether And while BoNY is - like many western banks who lived
reduced capital arbitrage will exceed new volumes of risk through the international debt horrors of the 1970s and
transfer deals or not.” 1980s - currently well capitalised, even overcapitalised, he
The main gainers from Basel II will be retail banks, adds sounds a note of caution in respect of unnamed markets
William Perraudin. “The Quantitative Impact Studies con- where he believes banks are undercapitalised and likely to
ducted by the Basel Committee itself show that the addi- remain undercapitalised, and in respect of markets where
tional capital banks must hold against operational risk is there are perhaps too many banks for the regulators to pay
of the same magnitude as the fall in capital that will come enough attention to them all. The onus remains on regula-
from less conservative rules for retail lending capital,” he tors to make sure banks stick to the new rules and contin-
says. “It is important to realise however that retail banks ue to do so, he reminds us. And while he doesn’t say it, the
should almost certainly hold even les capital than will be experienced listener still hears it. If an overworked regula-
required under Basel II. Though the Committee has tor gets it wrong, we could have a bank miscalculating its
reduced capital in this area experts in the risk measure- own capital adequacy requirement, leading to scandal and
ment believe they remain distinctly too conservative in even disaster…. ISJ

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Corporate Actions

The technological limitations on middle and back


office processing systems are a thing of the past and the
barriers that prevented technological advancement ten
years ago have been broken down.
Constraints that were put on the industry from a tech-
nological point of view, such as lower processing power,
memory being expensive and band-width not being
widely available have all been solved. “All those issues

Switched have now really gone away,” says Nat Sey, Manager of
Delivery & Infrastructure, FT Interactive Data.
“Bandwidth is now plentiful, RAM is relatively inexpen-
sive and we have processing power coming out of our
ears - so that’s no longer the problem that it once was.”

On? So, if all these former challenges associated with tech-


nological advancement have been removed why is it that
some of the middle and back office processes, namely
corporate actions, have been reluctant to embrace tech-
nology and are happy to stick to more manual paper-
based processing of corporate actions?
Sey believes that the reason why we have not reached
that complete automation and standardisation nirvana
for corporate actions is the slow take-up and adoption
of standards such as ISO 15022.
“The idea of technology and
standardisation seem to go
hand-in-hand and in the past,
lack of standardised messaging
formats had been holding the
technological side of things
back as un-standardised data
made the automation process
extremely difficult.”
Standardisation
“The development of technology and standardisation
often go hand-in-hand and in the past the lack of stan-
dardisation messaging formats held back technological
innovation as un-standardised data made the automa-
tion process extremely difficult,” says Giles Arbuthnott,
Product Manager at the London Stock Exchange. “The
standardisation of formats like ISO 15022 is enabling
technology to use that data to process the corporate
actions far more effectively. It also avoids the need for
human intervention and the risk of human error.”
Corporate actions processing does involve significant
ISJ evaluates the risks and heavy financial losses can be incurred if a
progression of mistake is made or information is not processed cor-
rectly. The effect however is not only financial, as repu-
technology and tation can also be lost through carelessness. Gerard
Bermingham, Vice President of Professional Services,
automation in Information Mosaic feels that “Corporate actions are
corporate actions. not just a ‘back-office’ problem but have an impact
throughout the entire firm, from the front office trading
strategies to risk and compliance and the efficiency of

60 INVESTOR SERVICES JOURNAL


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Corporate Actions

Corporate
actions service
providers have
their say...

Mondas DTCC Capco


Harvey Colborne Brett Lancaster Brian Lott
Vice President, Product Chief Operations Officer
Management
Corporate Actions have become a hot There has been a growing realization The most obvious is the attention that
topic recently because of financial that there is a great deal of risk is given when a corporate action is
institutions successes in the front involved in handling these issues. missed and the result is a huge loss
office which leads to larger stresses Cross-border investing in issues from due to the need to compensate cus-
WHY HAVE and strains in the middle and back around the world makes it more diffi- tomer. However, what gets lost is the
CORPORATE ACTIONS offices with more people needed to cult to track corporate actions in all underlying fact that a corporate action
BECOME SUCH A HOT process the higher volumes and the issues investors hold. There has impacts nearly everything about a
TOPIC IN RENT YEARS? greater levels of risk associated with also been an increasingly level of com- security including prices, performance,
larger exposures. Further risks include plexity involved with many corporate and related securities. Therefore, the
whether you can find the extra staff of actions that make it easier to miss a need isn’t just to know that one exists
the skill set required to minimise the key element or incentive. but to have accurate information
work load. about it.

With the introduction of better stan- Standardisation and automation are Through standardization everyone can
WHY IS dards, the Corporate Action process the keys to coming up with solutions speak the same language and how to
STANDARDISATION AND can be further automated using soft- to the increased risk posed by corpo- interpret the information isn’t left to
ware that should require less manual rate actions. If we can standardise the users own device. Automation will
AUTOMATION OF input depending on the standard practices then we can provide an inter- also help the communication process
CORPORATE ACTIONS being utilised. Higher levels of pretation of exactly how this market or since many corporate actions are time
NECESSARY? straight through processing can be that treats this particular event. If the sensitive and efficient automation
achieved enabling simpler events to systems are automated, the informa- allows for dialog to occur before the
process much more simply. tion can get to the investors quicker action requires settlement or decision.
and more accurately.

We have already seen a significant The ISO 15022 standards are already The best way to achieve standardiza-
HOW CAN move in the standardisation of proving very helpful in developing a tion and automation is through indus-
AUTOMATION AND Corporate Actions messaging with the way to transmit information that try bodies and penalties for non com-
ISO15022 standard; this will increase everyone can understand and use. pliance. After all what is the incentive
STANDARDISATION OF levels of straight through processing While there are some issues that need for any firm to invest in its communi-
CORPORATE ACTIONS for those that have bought / built pro- to be addressed, I think that solves cation process if there’s no financial
MESSAGES BE ACHIEVED? cessing software to utilise the mes- one of the basic issues, and makes it benefit (or loss) to do so. Left to its
sage set. Most vendors keep their sys- possible for everyone to send and own evolution it will take a lot longer
tems up to date with the latest receive data. unless there are some additional pres-
changes to enhance their product sures for firms to become compliant.
offerings.

Automation leads to less time Automation and standardization make


involved in processing simple actions. it possible to move information more The outcome of efficient
WHAT AFFECT DOES Better standards allow further automa- rapidly to the end investor. The more automation and standardisation
tion to be achieved and higher straight you can automate the process, the is a better environment for
AUTOMATION AND through processing rates. Less manual faster information moves and the less firms to operate, leading to
STANDARDISATION involvement can mean fewer errors chance there is for errors. Standards more efficient and higher value
HAVE ON when faced with time constraints due provide a foundation to understand offerings to the ultimate end
CORPORATE ACTIONS? to larger volumes. Fewer errors reduce what is going to happen and leaves user, our clients.
risk levels, namely, missing an event, everyone on an equal footing in terms
missing a key date, sending the wrong of making decisions about that event.
instructions etc.

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Corporate Actions

capital markets globally. of the software that is available to automate corporate


Automation is not just a case of trying to reduce risk actions and eliminate some of the risk involved in man-
but also the manpower and resources that are put into ual processing. “There is a renewed level of comfort that
the manual processing of corporate actions. “Manual can only come from testing real world events,” explains
processing has resulted in significant increases in Sey. “And we aim to ensure that the events we are out-
resource requirements, in particular experienced putting on a daily basis are efficiently integrated and
resources,” believes Bermingham. “Increasing resources processed in the applications vendors’ interface for the
increases the risk of errors, resulting in long manual benefit of our customers.”
checklists to make sure nothing is missed. Peoples work
is checked and double checked, even triple checked to Regulation
mitigate the risk of human error and oversight.” Currently there is no regulatory pressure for compa-
The ISO15022 standard, launched in 1997, standardis- nies to take up the ISO standard or automating technol-
es message flows and sets out principles for the design ogy and regulatory pressures have been mainly associat-
and presentation of those messages. Global communica- ed with reference data. What initiatives like Sarbanes
tion of corporate actions messages means that there are Oxley and Basel II are doing however is increasing the
differences between different countries and companies pressure on companies to re-assess any lack of automa-
in the way they treat and display the messages and the tion and control they have in the middle and back office.
15022 standard tackles this problem by
introducing a standard means of communi-
cation. “There is a renewed level of comfort that can
Berminham explains how standardisation
and technology are linked together in only come from testing real world events.”
improving the corporate actions space.
“Improved technology helps to standardise the way in “Technologically this has driven the evolution of solu-
which events are announced and reduce the inconsisten- tions focused on managing transaction risk and improv-
cy of information and data,” he says. “Applications can ing transparency across the complete event management
now rapidly process multiple complex corporate actions lifecycle,” says Steve Miller, Senior Product Manager,
across multiple markets on a single platform, from SmatStream.
announcement capture to eligible balance calculations, Automation and technology is being addressed across
instruction management and final distribution.” the whole of the processing and servicing sector and
All of this sounds fantastic in theory but, as touched Smartstream believes that this merging will continue.
on earlier, one of the main problems with bringing tech- “The days of stand alone corporate actions have passed.
nology and standardisation into corporate actions is the In the future there will be a tighter linkage between
actual take up in the software that is available. People in corporate actions systems and other areas of the back
the market need to see proof that the software works and middle office.”
before they take it on and because a lot of these systems Greater adoption of standards in corporate actions is
are still early in their life cycle there is no track record definitely on the horizon and as confidence grows in the
for people to go on so the uptake is slow. market towards processing software and automation the
“Corporate actions have always been a struggle tables will turn to the point that you will need to adopt
because there are exceptions that have been beyond the Swift messaging standards to take part in the corporate
capability of the software, says Graham Parry, Manager actions arena.
of the European Business Development Group, FT As Geoff Harries, Director of STP Product
Interactive Data. “I wouldn’t say it is a standard uptake Management, CheckFree says, “Most institutions want to
all across the market, we are still talking to clients now see a combination of defined standards from independ-
who are manually processing a significant number of ent Securities Market Practice Groups, together with
events.” existing SWIFT formats. To achieve this, institutions will
The 15022 standard is good for the majority of corpo- need to be either linked to SWIFT or make other com-
rate actions messages but there are a proportion still patible connectivity investments.”
need to be done manually as they are outside the scop of In the not too distant future there will be a reliance on
the software that is available. “When the next generation standardised corporate actions messages as more and
of technologies comes along, people don’t jump to these more companies acknowledge that standardising
things immediately - they take time, they wait and see if message structures and increasing automation reduces
they will become established in the market. People don’t the risk and potential financial losses that they can
want to go first, they wait until things have got a track make. “Significant steps are being made in the industry
record,” says Parry. to create a framework for corporate actions information
FT Interactive Data has aimed to addressed this and as exchange. The next few years will see an investment
Nat Sey explains, they have focussed on interacting with focus in workflow solutions to make this framework a
clients through road shows and meetings to help them reality and to deliver automation to the internal process-
understand what is happening in the market and some es that rely on this information,” says Harries. ISJ

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Securities Lending

and multiplicity of options is actually strengthening the


What must agents do to agent lender’s hand. It comes down to economics and
survive? dynamics. With the economics of the business getting
tighter, considerations such as size, specialisation, depth of
Fred Francis of RBC Dexia infrastructure and risk management all make it imperative
that the agent lender option is given serious consideration.
Investor Services examines the The convergence of hedge funds and traditional asset
state of the industry. managers is accelerating. This trend is actually driving the
growth of the lending business. Perhaps more importantly,
as the evolution of the asset management business means
going forward, lending will no longer be a stand-alone
activity – rather, it will be part of a holistic, integrated
service offering. It is agent lenders who are best positioned
to provide such a bundled offering.

Lending As traditional managers move into the hedge funds arena


(either directly or through the adoption of hedge fund like
strategies), increased demand for liquidity will be driven
by the increase in short positions. This ‘mainstreaming’ of

insecurities hedge fund strategies will fuel lending at an unprecedent-


ed rate. Indeed, it is fair to say we can expect to see a gen-
uine boom over the next few years. Borrowing, once large-
ly the remit of the hedge funds, has become institution-
alised. With supply stable, as the overwhelming majority of
large institutional investors already lend, this increased
demand will lead to higher utilization and perhaps higher
loan rates. A win-win situation for lending clients.
In such conditions, custodians clearly need to adapt.
However, there is a great deal of contention at present
around the path custodians should take. If they are to offer
a truly end-to-end service, then several pieces of business
must be brought together – custody, fund administration,
Investment analytics and securities borrowing. Some cus-
todians maintain they would never consider going down
this route. By making available direct securities borrowing,
a custodian would be encroaching upon the territory of
the prime brokers, who are traditionally borrowers in a
custodial agency programme. The existing supply chain
comprises the institutional lender, who lends through an
agent, who lends to broker dealers/prime brokers, who in
turn lend to hedge funds. By bringing the agent lenders
directly into contact with the hedge funds or institutional
investors holding short positions, the prime broker will be
disintermediated. In such circumstances, will the prime
broker continue to borrow from the agent lender?
Probably.
It has been suggested in some quarters that securities lend- At the end of the day, the prime broker must have access
ing – or, more precisely, agent lending – is doomed, if to the liquidity pool and that pool is primarily provided
indeed not already dead. The authors of this theory cite by the agents. Consequently, the agent lenders cannot be
the proliferation of third-party lending, the rise of exclu- completely bypassed. Certainly, a prime broker may be
sives and the emergence of online auction platforms as the able to offer an exclusive programme to a particular insti-
primary culprits for this demise. Today, runs the argu- tution, but that is not going to satisfy their day-to-day
ment, no lender or beneficial owner remains unaware of needs, since any one prime broker is unlikely to control
the range of new options available to them, nor will they enough of the required liquidity to have a significant
be able to resist them. In this brave new world, there is no impact.
need for agent lenders to intermediate within the lending On the other hand, the custodian has no real choice but
process. to follow the dictates of the market. If the traditional fund
Well, it’s certainly true that there are now multiple managers (who use the custodian for fund administration)
avenues through which beneficial owners and fund man- move to adopt hedge-like strategies, the custodian faces a
agers can reach the market. However, some would argue choice: either offer them that facility directly, or refer them
that the opposite conclusion should be drawn from the to a prime broker. However, if they choose the second
evidence presented above – that in fact, this fragmentation option, that collateralised finance means assets are moved

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Securities Lending

out to the prime broker, who then starts to take on the provide this holistic service offering. Custodial services,
role of the custodian. fund accounting, lending and borrowing and the very
For agent lenders, change is inevitable as traditional important third party risk and compliance monitoring all
client pools start ‘hybridizing’ through increased under one roof . At the end of the day, whoever has the
adoption of hedge fund or hedge fund-like strategies. inventory can supply the liquidity – but if you do not pos-
The custodian either loses that business to the prime sess that liquidity, all you can do is buy it.
brokers, or it evolves along with those clients, extending Agency lending has historically been an engine of growth
its traditional offering to provide them with the in North America. In Europe, however, there has histori-
additional services they require. cally been a broad range of options and agents have not
Take it a step further. A traditionally long-only client predominated. However, we are now seeing a clear move
investigates adoption of hedge fund-like strategies and away from self-lending and very strong support of the cus-
approaches the agent lender to borrow. At this point, todial agency model. This change is being driven by eco-
against prevailing Biblical advice, a
dichotomy appears. The relationship
has evolved into that client utilizing It is no longer sufficient for beneficial owners merely
the agency programme as both bor-
rower and lender. The agent can
to make a few pennies on the side as a little fillip –
structure the client’s borrowing such their assets have got to be made to work.
that his fund accounting is holistic:
the books covering his long positions, his loan positions nomics as well as changing investment priorities. There is
and his borrowing positions are combined within one a recognition in the marketplace that earnings are not
statement. If the client were then to go to a prime broker, being optimised. It is no longer sufficient for beneficial
which uses a different fund administration platform, part owners to merely make a few pennies on the side as a little
of the overall assets will have to be pulled out, and the fillip – their assets have got to be made to work.
client will then end up with three different sets of num- One of the key strengths of an agent is their ability to
bers. aggregate. The fragmented pieces beneficial owners hold in
So a holistic, one-stop shopping for the lending process multiple markets, regardless of their size, will only gener-
means that, from the client’s perspective, there is a single ate the returns they deserve when they are combined with
box that accounts for everything. One set of processes, one other fragments from other clients. It is aggregation that
set of controls, one service. This also enhances risk man- makes lending a worthwhile undertaking in commercial
agement, because all the client’s activity, his behaviour, is terms. Securities lending is not a cottage industry.
being monitored and authorised through a single point. Certainly you can start up a small operation, but suddenly
Having a complete picture in one place means the likeli- one morning you’ll discover that you have substantial
hood of an error or incident that undermines the fund unclaimed dividends, and collateral that has not been
manager is minimized. By contrast, in an uncoordinated returned and whose provenance is unclear. Why? Because
or disjointed environment, there is no means of validating the recordkeeping capabilities put in place for collateral
the extent of exposures, the concentrations, diversification. management, income collection and corporate actions are
Consequently there is a very strong rational incentive to not robust or thorough enough to cope with today’s secu-
keep the whole process holistic. rities lending industry.
Why, then, is it natural for the custodian to offer such a Another important consideration is the segregation of
service? The custodian has already put in place the most execution and lending. For many hedge funds, whose sur-
technology-intensive component within the process, which vival is predicated on keeping their investment strategies
is basic custody. That is overlaid with fund accounting and under wraps, the fact that a custodian does not run a pro-
a settlement process and when securities lending is added prietary book provides increased comfort. So does the
to the mix it is merely a matter of connecting those differ- confidentiality many custodians offer between lender and
ent pieces in a seamless fashion. More importantly, this borrower. In the past, their ability to offer research along-
integration allows the thread of risk management to carry side execution has been a major selling point for brokers;
through the entire process. It cannot be ignored that the however, in the wake of the clampdown on softing, the
adoption of Basel II New Capital Accord will force firms segregation of research looks inevitable and that weakens
into a very structured risk management process. the brokers’ case that they too can offer a holistic service.
Institutional investors are looking for service providers The trend toward alternative strategies, whether directly
who can partner with them on such significant infrastruc- into a hedge fund product offering or the adoption of
ture development. This will continue to be an essential ele- hedge fund-like strategies, will continue for years to come.
ment to help ensure they have the required risk manage- As institutional investors explore this investment space,
ment and controls required for today and a partner who’ll they are looking for a provider with the commitment, rep-
work with them to be where they need to be over the utation and infrastructure to partner with for years to
longer term. The result is a beginning-to-end service come. This market evolution is also good news for those
proposition that starts with a partnership at the front investors who wish to remain long–only, as this ongoing
office with the client and runs into a middle office over- development of alternative investments means they can
sight function through into a back office support function. look forward to solid lending returns from their agents in
The custodian is the best-positioned market participant to the years to come. ISJ

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Pensions Profile - Railpen

On Track: The £17bn Railpen Investments is the are pretty safety first,” said Hitchen. “We
successor to the Railway Pension Scheme have a strict policy on what we will accept
that covered employees of British Rail. On as collateral and the margins we require on

Railpen privatisation 12 years ago, the reserves collateral.”


were split into separate reserves for each of
the separate railway employers. Custodian

Investments “It’s a bit like running a unit trust,” said Railpen recently announced the appoint-
chief executive Chris Hitchen. “The assets ment of a ABN AMRO Mellon in addition
are pooled but each section holds a certain to one of the existing custodians, Bank of
number of units in each asset class.” New York, Investment accounting is not
ISJ interviews The biggest section, the 1994 pensioners’ undertaken by the custodians; instead
Railpen uses Mellon because of the com-
section worth £5bn, covers all members
Railpen chief executive who had already quit active employment plexity of the scheme’s structure.
Chris Hitchen at privatisation.
Consultant
Asset allocation The scheme actuary is Watson Wyatt, who
Weighting to equities is fairly high at also provides the investment consulting,
around 62%, with private equity taking up but some investment strategy work is done
3% of that, though its target is 5-6%. The in house.
bond portfolio, at around £3.5bn,
amounts to 20-21%. Real estate takes a 7% Corporate governance and SRI
weighting, and a cash plus fund – a diver- Railpen has a strong track record on cor-
sified fund of hedge funds – is around 4%. porate governance. “We were apparently
The remainder relates to member AVCs, a the first UK pension fund to adopt its own
mixture of unitised accounts and insur- corporate governance policy back in 1992
ance policies. and we have been routinely voting our UK
shares since then. We recently moved to
Fund managers voting on a more global basis and we have
Bond and equity portfolios are managed gone into partnership with an engagement
by 20 managers, the largest equity man- firm called Governance for Owners,” said
agers being Capital International, Fidelity, Hitchen.
BGI, and But Hitchen confesses to being “more
“Railpen is looking at more exposure Goldman agnostic” on SRI. “We are pretty clear our
Sachs Asset fiduciary duty is to invest the scheme
to alternative assets” Management. money to get the best return for the mem-
“The approach we try to take in giving bers, in a non-risky way. We believe in cor-
money out is to think about the risk budg- porate governance: in the long run if com-
et – how much money could this manager panies are well managed, we’ll get a better
lose for us,” said Hitchen. “So some man- return out of their shares. I think the case
dates are quite aggressive in targeting quite on SRI remains to be proven.” But Railpen
a high added value. There you accept that does ask its managers to take SRI princi-
if you want to earn a lot you could lose a ples into account where relevant.
lot. We give quite small amount of money
to those managers.” Looking ahead
The main bond managers are Prudential At the moment the effects of last year’s
M&G, F&C for index linked bonds, actuarial valuation are causing unrest
Western AM, Wellington Management and among the rail unions, as employers
Aberdeen for global bonds and Merrill reassess their contribution rate.
Lynch (BlackRock) for short dated sterling On investments Railpen is trying to avoid
bonds. putting too much into conventional
Property investment is handled by equities, which leads Hitchen to look at
Orchard Street Management, while the more exposure to alternative assets.
allocation to hedge funds is via three funds “We are constantly looking to increase
of hedge funds, all north American. private equity, and looking at whether we
Private equity investment is via a number can increase the weighting in hedge
of small firms. funds,” he said. “We have decided in prin-
ciple to invest in infrastructure projects
Securities lending though we haven’t actually put any money
The fund lends out its stock to earn extra in the ground yet, and we are looking
revenue, but within rigid guidelines. “We seriously at commodities.”
ISJ

66 INVESTOR SERVICES JOURNAL


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ISJ14 pp58-74 FINAL 30/5/06 9:55 am Page 68

Conference Diary / Mandates

For the diary Mandate News


Securities services events Despite the jittery markets in recent
weeks, several sizeable mandates
4 JUNE 2006, 4 DAYS 17 OCTOBER, 2 DAYS
have been signed off. ISJ reviews the
FUNDS WORLD MIDDLE EAST
DUBAI, UAE
HEDGE 2006
VICTORIA PARK PLAZA - LONDON
headliners.
TERRAPINN TERRAPIN
TEL: +65 63222 721 TEL: +44 (0) 20 7539 4320
Topping the list this month is ABN AMRO Mellon
WWW.FUNDSMANAGEMENTWORLD.COM/2006/FWM WEB: Global Securities Services B.V. which secured a whop-
WWW.HEDGEFUNDSWORLD.COM/2006/HEDGE/ ping EUR 115 billion custody and securities lending
21 JUNE 2006, 2 DAYS mandate of the DEPFA Group. In addition, ABN
DERIVATIVES & SECURITIES WORLD 2006 23 OCTOBER 2006, 3 DAYS AMRO Mellon will provide administrative services for
LONDON, UK HYBRID SECURITIES EUROPE 2006
FOW LONDON
the functions undertaken in-house by DEPFA Bank plc,
TEL: +44 (0)20 7827 5222 TERRAPIN which include reverse repo transactions, custody of
WWW.FOW.COM/EVENTS/LONDON TEL: +44 (0)20 7827 4161 cover pool assets for asset-backed bonds, and DEPFA’s
WEB: WWW.TERRAPINN.COM/2006/HSEUROPE/ own securities lending operation.
19 SEPTEMBER 2006, 3 DAYS
PRIVATE EQUITY WORLD MIDDLE EAST 2006 6 NOVEMBER 2006, 4 DAYS
THE JUMEIRAH BEACH HOTEL, DUBAI, UAE - ENERGY INVESTMENT TRADING ASIA 2006
In addtion, ABN AMRO Mellon successfully bid for the
UNITED ARAB EMIRATES SINGAPORE mandate to act as new joint-global custodian of the
TEL + 44 (0)20 7827 5989 TEL: +65 6322 2705 UK’s Railpen scheme. Mellon bumped incumbent JP
HTTP://WWW.TERRAPINN.COM/2006/PEME WWW.TERRAPINN.COM/2006/EITA%5FSG/ Morgan out of the race to win the contract and will
now partner with the Bank of New York. The Railway
24 JULY 2006, 3 DAYS 7 NOVEMBER 2006, 2 DAYS
ALTERNATIVE INVESTMENT SUMMIT 2006 ASSET ALLOCATION ASIA 2006 Pensions Scheme and other pension schemes run by
AUSTRALIA THE CONRAD HOTEL - HONG KONG RPTCL have assets totaling some GBP 17 bn, with
RYDGES JAMISON HOTEL, SYDNEY, AUSTRALIA TERRAPIN equity and fixed income assets of approximately GBP
TERRAPINN TEL: +65 63222 721 14 billion.
TEL: +44 (0)20 7827 4171 WEB: WWW.TERRAPINN.COM/2006/AAA/
WEB: HTTP://WWW.TERRAPINN.COM/
8 NOVEMBER 2006, 3 DAYS Coming in second was HSBC which landed a substan-
12 SEPTEMBER 2006, 3 DAYS ETHANOL & BIOFUELS ASIA 2006 tial USD 40 billion mandate from Royal London Asset
HEDGE FUNDS WORLD ASIA SINGAPORE Management (RLAM) to outsource the global custody,
HONG KONG CONVENTION CENTRE, HONG KONG TEL: +65 6322 2726 securities lending and investment administration activ-
TERRAPINN WEB: WWW.TERRAPINN.COM/2006/EBA/
TEL: +44 (0)20 7827 4171
ity from June this year. RLAM’s unit trust accounting
WEB: HTTP://WWW.TERRAPINN.COM/ 14 NOVEMBER 2006, 4 DAYS will, however, remain with JP Morgan.
HEDGE FUNDS WORLD AFRICA 2006
26 SEPTEMBER 2006, 2 DAYS CAPE TOWN INTERNATIONAL CONVENTION RBC Dexia was successful in its bid to continue provid-
THE 15TH ALFI & NICSA INVESTMENT FUNDS CENTRE - CAPE TOWN, SOUTH AFRICA ing custody services to OTG Financial Inc. which cur-
FORUM LUXEMBOURG TEL: +27 (0) 11 516 4054
TEL: (+352) 22 30 26-1 WEB: rently manages in excess of CAD 500 million for more
WEB: WWW.ALFI.LU / WWW.NICSA.ORG WWW.HEDGEFUNDSWORLD.COM/2006/HFWZA/ than 16,000 active and retired education workers.
Under the new and expanded mandate, RBC Dexia will
26 SEPTEMBER 2006, 3 DAYS 19 NOVEMBER 2006, 3 DAYS provide fund valuation services. RBC is proud of the
PORTABLE ALPHA 2006 TRADE FINANCE MENA 2006
AL BUSTAN ROTANA HOTEL - DUBAI
fact that it continues to top R&M Consultants Global
TBC, LONDON, UNITED KINGDOM
TEL: +44 20 7539 4325 TEL: +44 (0)20 7092 1267 Custody Survey and the Global Investor Global
WEB: HTTP://WWW.TERRAPINN.COM/2006/ALPHA/ WEB: WWW.TERRAPINN.COM/2006/TFME/ Custody Survey as the best overall global custodian.
9 OCTOBER 2006, 5 DAYS The Duesseldorf-based subsidiary of HSBC, Trinkhaus
SIBOS 2006
SYDNEY, AUSTRALIA
& Burkhardt, reported having been selected by Essen-
SWIFT based Karstadt Hypothekenbank to manage EUR 400
TEL: +32 2 655 31 11 million in assets from its depot bank and custody busi-
WEB: WWW.SWIFT.COM ness. HSBC’s assets under custody had swelled to
HTTP://WWW.TERRAPINN.COM/2006/ZURICH/
more than 103 billion euro from 76.3 billion by the year
16 OCTOBER 2006, 3 DAYS
to end 2005.
HEDGE FUNDS WORLD LATAM 2006
FOUR SEASONS HOTEL - MIAMI Northern Trust announced that it has been selected by
TERRAPINN the Stichting Federatief Pensioenfonds (“SFP”) – the
TEL: +44 (0)20 7242 2324 collective pension fund for small and medium-sized
WEB: WWW.HEDGEFUNDSWORLD.COM/2006/LATAM/
privatised public bodies in The Netherlands – to pro-
vide custody, securities lending and performance
measurement services to the 330 million Euro fund.
68 INVESTOR SERVICES JOURNAL
ISJ14 pp58-74 FINAL 30/5/06 9:55 am Page 69

MANDATES TABLE
Month Winner Client Location Assignment Mandate Size
May HSBC RLAM UK Securities Servcies USD 40bn
May AA Mellon Railpen UK Custody GBP 17bn
May Northern Trust SFP Netherlands Asset Servicing EUR 330m
April Northern Trust Prince Street USA Global Custody USD 160m
April HSBC Karstadt H. Germany Depot bank & Custody EUR 400m
April BNP Paribas Avance Madrid Outsourcing EURO
April AXA Rosenberg AP7 Sweden Equities EURO 320m
April AA Mellon DEPFA Bank Netherlands Custody & Securities EUR0 115bn
March State Street AXA IM UK Outsourcing mandate EURO 20bn
March State Street Stagecoach UK Custody USD 900m
March Northern Trust SBB Netherlands Custody EUR 7.5bn
March SG SS ESCA Austria Custody EUR 600m
March BNP Paribas ENASARCO Italy Depot bank EUR 2.7bn
February State Street CalPERS US Investor Services USD 200 bn
February State Street Massey UK Custody GBP 55 m
February State Street D&G Council UK Custody GBP 80 m
February State Street Milk UK Custody GBP 280 m
February State Street Hoover UK Custody/compliance GBP230 m
February Mellon Mackintosh Inv UK Custody New Fund
January Mellon Onderlinge Holland Custody EUR 850 m
January Mellon SDCERA US Custody USD 6.9bn
January HSBC Legal & General UK Custody GBP 21bn
January Northern Trust San Jose FCE US Asset Services USD 1.6bn
January State Street John Hancock US Asset Services USD 15 bn
December State Street Independ. Age Scotland Custody/fund admin GBP 220 mn
December Northern Trust Univest Luxembourg Asset Services EUR 2bn
November SG GSSI Weinberg France Trustee Services EUR 400 m
November Citigroup Lothian fund UK Global Custodian £2bn

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www.dpmmellon.com
ISJ14 pp58-74 FINAL 30/5/06 9:55 am Page 70

Tomorrow’s People

access to the relevant execution venues are


A way with people: under the ever-increasing burden of regulation
and technological change! more likely to be able to provide best execution
recruitment consultant What do you like most about your current
position at Lorien PLC? The day-to-day excite-
to buy-side firms.
Providing their clients with best execution - by
James Crisp ment of putting forward new candidates for
positions within growing organisations. No
law - is going to mean more automated trad-
ing. Buy-side firms will need to re-evaluate
Following on from A- one day or candidate is ever the same. their order management technology, order rout-
levels, Crisp left Additionally, I am in charge of my own destiny; ing systems and their connectivity to brokers
school to take up a my only competition is me.
Who are your Mentors/Role models?
from the ground up, to make sure that they will
sales role within a be able to comply with MiFID. Buy-side firms
financial publishing Everyone I have ever met. There is always
company and by the something you can take from one’s colleagues, and brokers will need to host their applications
age of 20 he had per- clients or bosses which can aid one’s personal in close proximity to these venues to achieve
formed to a level development in life. the fastest execution.
where he was in We at ISJ work hard. We heard you work long MiFID comes into force on 1 November 2007.
charge of a team of hours too? Without going into too much detail Those firms that have access to a shared net-
three covering two and boring you about when I get in to the office work infrastructure will have some of the bur-
titles. and how late I stay - “You snooze, you lose!” den lifted off them but some buy-side firms will
In need of new If you were named Lorien PLC employee of need to enhance their technology beyond con-
horizons, Crisp opted to go travelling, a deci- the year how and where would you celebrate? nectivity. MiFID is a reality and it is time to
sion he does not regret. His trip took in coun- At the end of the year we have a Christmas start planning.
tries such as Australia, New Zealand, Thailand, bash when everyone gets rewarded for their
Malaysia, Cambodia, Laos, Singapore, efforts so I guess then. Saves me taking anyone Chris Pickles
Vietnam. out on my expense!! Manager, Industry Relations
In early 2003 Crisp returned from his interna- Outside of work, what are your vices? BT Radianz
tional education with a desire to get back into My vices are that I am not aware of them, but
sales and keep close to the financial markets. perhaps you should ask people that know me. Bird Flu Continuity
In March of 2003 he joined Lorien Plc to work What are your goals for the future? Be happy,
within new business development, placing con- healthy, and not too stressed out!!
Bird flu is indeed becoming accepted as a huge
sultants and technology specialists into the THE ISJ MINUTE MP3
Financial / Compliance sector. CD OR MP3? business continuity issue, with repercussions in
What are the latest trends in your industry? MUSIC OR FILMS? FILMS the most popular off-shoring locations sectors
In one word, ‘MiFID’ (Markets in Financial BEER OR WINE? BEER and on traditional sources of hardware supply.
Instruments Directive). Owing to the impend- BEACH OR SKI? BEACH As well as this new threat, security alerts, fire
ing regulation I have set up a business unit in CAR OR BICYCLE? CAR or flooding, transport crisis, along with power
Lorien to cover this area. I believe that the FOOTBALL OR GOLF? FOOTBALL failures or extreme weather can all close a
requirements are for consultants to be able to WATCHING OR PLAYING? PLAYING business or prevent staff making it into work,
assist in impact assessments now. This will GYM OR SWIM? GYM and then of course there is the knock-on effect
involve matching an existing organisation NIGHT IN OR NIGHT OUT? NIGHT OUT to the supply chain that also needs to be
against the MiFID requirements and producing considered.
recommendations. It is not just simple compli-
ance as there will be business decisions involv-
Letters (cont. from p.4) So it is not surprising that business continuity
is rapidly becoming this season’s must have.
ing offerings of new services, withdrawing from But with modern technologies now easily
some services and geographically consolidat- MiFID and the buy side
available, it is neither not nearly so onerous nor
ing others. as expensive as it has been in the past. With
Following the impact assessment I see route BT Radianz has been working in the MiFID area
since 2003, even before this EU directive (the the abundance of cheap broadband Internet
maps being produced, extensive assessments connectivity, coupled with the emergence of
of product vendors - who is going to be ready Markets in Financial Instruments Directive)
came into force. The general lack of awareness hosted ASP-style products and services, staff
earlier with the best facilities, also which sys-
tems should be consolidated - and cost benefit and understanding of MiFID by buy-side firms can now easily work from a temporary site or
analyses. The actual implementation will not from home.
In the equities markets, Fidessa is at the
involve massive new developments but will
entail integration of multiple changes, new data
“Best Execution - by forefront of offering business continuity servic-
es with its award-winning technology. The
and information services, links to new
exchange services and also a massive amount
law - is going to Fidessa Workstation Business Continuity
of documentation - client classifications, con-
ducts of business and internal procedures. I
mean more Service provides a simple backup to any mar-
ket-data service. In the event of an issue
am actively looking for new contacts in this
area as many feel there will be a shortage of
automated trading.” affecting the client or the supply of data, then
our service can be used from any location with
candidates for the expected demand.
internationally is still surprising. an Internet connected PC.
Where do you see yourself in five years’ time?
MiFID means that buy-side firms will have to And with minimal cost of having the service
Having won ‘The Apprentice’, I would have on standby and normal data charges only kick-
taken over Alan Sugar’s empire, I would have select their brokers carefully and make sure
that each broker that they select is actually ing in if the product actually goes live, the lux-
started to employ all the top recruitment con- ury of having a Plan B no longer has to be the
sultants that I am aware of to create the capable of providing the buy-side firm with
best execution on an order-by-order basis in bastion of the major market players.
AMSTRAD of recruitment particularly focussing
on the growing needs of financial institutions their clients’ interests. Brokers that have direct Evelina Amanatidou, Fidessa

70 INVESTOR SERVICES JOURNAL


ISJ14 pp58-74 FINAL 30/5/06 9:55 am Page 71

Risk Report...

I suspect it is because we are based in zone and with a mid- Atlantic growling
America that we here in the London hangover I managed to smile at the
office get on so many international invi- nonsense of this Corporate travel policy.
tation lists, but a convention in Tampa There was a time when the Corporate
in May beats sweating it out here in the travel policy simply had to balance
city. This one has a really snappy title, comfort against cost. If the fight is less
“Improving back office performance than three hours then everyone flies
ratios by managing your customers Economy Class. We should only stay in
expectations”. As soon as the invitation four star hotels in London. All quite
had been cleared by my boss, I could reasonable and very travel, cost-centric.
see the Club Class Beds and entertain- Now it seems that Kisten wants to poke
ment centres and almost taste the her nose into just about everything!
mimosa and caviar. On the down side I Should travel be able to make up their
could imagine the wonderful insight I own policy decisions based on risk?
was about to glean from another rather Does anyone in the travel department
One Helluva Show grey “has been” speaker on the circuit have any experience of Risk
conference. So, now it is all quite easy, a Assessment? Is this all a knee jerk reac-
quick call to the travel office and book tion to 9/11?
those flights to Tampa. Well they certainly have not talked to
“Hello, Kirsten here, what is your anyone in Disaster Recovery. Because if
destination”? they had, Disaster Recover would say
“Hello Kirsten, I need to travel from even if you limit the number of senior
London Heathrow to Tampa Florida” staff that you allow on a plane and
“I am sorry we cannot allocate a flight then they all go to the same resort,
As the conference to you at this time Sir”
Now I know this flight to Tampa, and I
with today’s air travel reliability you
have not really mitigated risk, you have
season begins, our know that Kirsten can be less than help- simply changed the possible location,
ful, but I have traveled there a few and by regrouping all the staff and
anonymous disaster times, so a quick check on the BA web then adding staff of the same caliber
recovery expert asks, site confirmed that there are loads of
seats. So why would our internal travel
from other organizations you have
potentially increased that risk. How do
‘Are we safe?’ service not book me on the flight?
A quiet word with security over a pint
we square this off against the rental of
corporate jets and having the whole
Well “hello again” from continuity tow- explained the problem. When you reach European management team on the
ers! Some of your kinder letters received a certain grade within our organisation same aircraft?
this month have convinced us all that the travel department can not book Or is it only scheduled aircraft that may
we should not go off looking for more than four of that grade on a flight. potentially have an incident? Are private
internet paradise opportunities with And that is how I got to Tampa via jets not subject to hijack?
those six figure salaries but stay here at Boston, Washington, Denver, Fort Worth We only have to think back to the
Mega Bank oiling the wheels of the and Miami. Conservative Party conference in
Disaster Recovery Blackpool and the devastation the IRA
Industry. Oh, and thanks “Ask your organisers what special
for all the other offers, it
caused with their hotel bomb. How
close did they come to perhaps wiping
seems that a fair propor- security precautions they have out a whole cabinet? Does it not create
tion of our readers have an heightened risk scenario when you
some lucrative part time taken to protect you” bring together Leaders of Industry at
ventures! the same location?
With all of the wonderful opportunities You see, everyone who had the date in Understandably conference organizers
we explored on the Internet it was a dif- their diary since the conference last year are reluctant to talk about their security
ficult decision to stay in gainful employ- had already booked the direct flights, arrangements, but I just wonder if they
ment. Thank heavens that the first quar- the later you came to the table then the have in fact given any thought at all as
ter is now over, it is always the worst of more indirect and more oddly timed to the possible targets they are creating.
the year, that run from Christmas until your flight had to be. Now I don’t want to spoil your confer-
the bank holiday weekend we have just So after almost two days traveling on ence season, but perhaps you should
won, seems to go on for ever. There is four airlines with several recurring left- ask your organisers what special
however a rising of the sap and morale over hangovers, I had arrived at two in security precautions they have taken to
as we all move into “Conference the morning and found myself in the protect you and if their reply is along
Season”, a global free for all with an hotel bar in Tampa with everyone from the lines of “Sorry Sir, we do not divulge
opportunity for everyone to go any- the office in London and several col- our security arrangements to anyone”,
where from Milton Keynes to Hawaii leagues from the New York office as then assume they have done nothing.
and collect free T-shirts or PDAs well. Even in my own personal time- ISJ

INVESTOR SERVICES JOURNAL 71


ISJ14 pp58-74 FINAL 30/5/06 9:55 am Page 72

People Moves

Moving professional, who will provide strong


leadership and continuity at the helm of
Euroclear.” Commenting on his appoint-
of DnB NOR's banking operations in
Sweden it has been announced.
Carlsson has 18 years' prior experience
& ment, Wicks added: “As the new
Chairman, I will be delighted to contin-
at ABB, where he was head of Financial
Services in Scandinavia. During the last

Shaking ue the work we have begun and uphold


the very active consultative approach we
have taken with our clients and our
three years, he was head of Retail
Corporate at Nordea and is now looking
forward to expanding DnB NOR's bank-
markets on key developments.” ing organisation in Sweden. “We aim to
capture market shares from the four
HSBC’s Custody and Clearing business large Swedish banks. There is a signifi-
has appointed Patrick Cichy as Head of cant potential for acquiring customers
its Custody and among medium-sized Swedish compa-
Clearing business nies," he said. “We will win by offering
in Hong Kong. straightforward everyday banking servic-
Cichy has been es, high-quality financial advisory servic-
A selection of the appointments Acting Head of es and products as well as proximity to
updated daily at WWW.ISJFORUM.COM the Hong Kong the customers.”
operation for the
The Fortis Board of Directors decided past five months HSBC Securities Services (HSS) has
on 05 April 2006 to propose the elec- and will be announced that Clare Fraser will be join-
tion of Clara Furse and Reiner responsible for the ing Institutional Fund Services (IFS),
Hagemann as non-executive directors development and Europe, as head of market strategy.
for a three-year term. Furse has been ongoing service Fraser will report to Paul Stillabower,
Chief Executive of the London Stock standards of the head of business development, Europe,
Exchange since early 2001 and prior to Patrick Cichy custody and clear- Middle East & Asia. In this role, she will
that worked for 15 years at UBS, where ing business in Hong Kong, as well as
she held several senior positions. focus on developing IFS' strategy in
representing HSBC and its clients on Europe, with emphasis on product inte-
Hagemann holds a PhD in Public the relevant industry bodies and with
Finance and after working as a manage- gration, new market entry requirements,
regulators in Hong Kong. “I am very
ment consultant at McKinsey, his career pleased that Patrick has taken on this alignment and synergy with HSS, and
has been with Allianz Group. Subject to new role,” said James Hogan, Global parent businesses Global Transaction
the shareholders' approval of proposals Head of HSBC Custody and Clearing. Banking and HSBC Corporate
for re-election and appointment, the “His extensive experience will help us Investment Banking and Markets prod-
Board, as of 31 May 2006, will be com- further develop our Hong Kong opera- ucts. Fraser joins HSBC having previ-
posed of Maurice Lippens, Chairman; tion and enhance the level of service we ously worked in key strategy roles in
Jan Slechte, Vice-chairman; Philippe provide to our clients.” both Europe and Asia Pacific for the
Bodson; Richard Delbridge; Clara Furse; European Commission in Brussels, the
Reiner Hagemann; Jan-Michiel Hessels; ADP Clearing & Outsourcing Services, chief executive office for NM Rothschild
Jacques Manardo; Aloïs Michielsen; Inc., has announced that Michael and Macquarie Bank in Australia.
Ronald Sandler; Rana Talwar; Piet Van Alexander has joined ADP Clearing &
Waeyenberge; Klaas Westdijk, all non- Outsourcing as Executive Vice President ABN AMRO
executive members, and Jean-Paul of Operations. In his new role, Mellon Global
Votron, CEO. Alexander will be responsible for man- Securities Services
aging all aspects of day-to-day clearing B.V. has
Euroclear has announced the
announced that Sir operations. Alexander brings more than
20 years of experience running large- appointment of
Nigel Wicks, cur- Brian Leddy to the
rently Deputy scale operations for various financial
position of Head
Chairman, will firms, most recently as Senior Vice of Sales, effective
succeed Chris President of Operations at Charles 01 May 2006. As
Tupker as Schwab & Co. “I am pleased to wel- Head of Sales,
Chairman of both come Michael to ADP Clearing & Leddy will report
Euroclear plc and Outsourcing,” commented Joe Barra, Brian Leddy to John van Verre,
Euroclear SA/NV, President, ADP Clearing. “His proven Chief Commercial
effective 01 track record of operations management Officer, and will assume direct responsi-
January 2007. combined with his team building skills bility for ABN AMRO Mellon's sales and
Sir Nigel Wicks Commenting on will be instrumental in the operational sales support teams. Leddy's most
the election Tupker, success of our organization.” recent role was Head of London
said: “In Nigel Wicks they have found a Custody Operations, Mellon Global
highly respected and knowledgeable Peter Carlsson has been appointed head Securities Services. He succeeds Peter

72 INVESTOR SERVICES JOURNAL


ISJ14 pp58-74 FINAL 30/5/06 9:56 am Page 73

People Moves

Adams, who moved to Mellon Financial effect from 1 June 2006 for a term of will be responsible for expanding virt-x’s
to lead the integration of the non-US four years. Kadiks will be responsible for reputation for innovative exchange serv-
legacy Mellon Analytical Solutions' busi- client focus. The division of responsibili- ices in response to member consulta-
ness into Mellon and maximise oppor- ties within the Managing Board will be tion. Lennox has worked in the financial
tunities in business development. as follows: Albert Röell, Chairman sector for many years holding senior
(Internal Audit, Personnel & roles with Reuters, Instinet, SWIFT and
Deutsche Bank has announced the Organisation, New Business ABN AMRO. Jim Gollan, CEO of virt-x,
appointment of Alexander Schuetz as Development); John van Scheijndel, said: “We are delighted to welcome
Chief Operating Officer, Middle East Chief Financial Officer (Treasury, Risk these three senior trading experts to
North Africa (MENA) effective 01 May Management, Legal & Compliance); virt-x. We have appointed Stuart, Chris
2006. Based in Dubai, Schuetz will be Hans Kadiks, Client Focus (Institutional and Ian to support the growth of our
responsible for coordinating the Bank's Investors, Financial Institutions, Passive core trading activities and assist in the
infrastructure functions across all busi- Asset Management Services); Nico development of our business. Our
nesses, product groups, legal entities Blom, Operational Excellence (ICT, members are facing many new chal-
and branches. Schuetz will report to Operations). lenges at present, particularly with the
Ken Borda, Chief Executive Officer for introduction of MiFID. In response to
MENA and Chairman of Asia Pacific (ex Railpen changing regulation, virt-x will continue
Japan), and be a member of the MENA Investments has to offer flexible trading solutions tai-
Executive Committee and will also have announced the lored to client needs.”
a functional reporting line to Frank appointment of
Krings, COO for Regional Management. Keith Shepherd as SmartStream Technologies has
“We are pleased to have Alexander join Head of announced the appointment of Rudi
our team,” said Borda. “He brings more Investment Schnepf to lead the company's Corona
than 10 years experience in a range of Management. business. With 17 years experience in the
Deutsche Bank businesses and corpo- Shepherd joins the Financial Services technology market
rate functions to the role. This appoint- company from Schnepf will lead the whole product busi-
ment re-enforces the Bank's commit- Wellcome Trust ness including Product Management and
ment to ongoing growth ambitions in
the region.”
Keith Shepherd where he spent 5
years as Head of
Product Development to drive further
growth from the Corona product line.
Public Equities and prior to that at the
Commenting on his new position
The Bank of New York has appointed City of Edinburgh Council where he was
Alan Verschoyle-King as Managing Head of Investment and Treasury. In his Schnepf said: “This is a great opportunity
Director and head of European pay- new role Shepherd will be responsible to lead the future strategy and delivery of
ments and trade services. Based in for the research, selection and construc- the world's most heavily installed recon-
London, Verschoyle-King will report to tion of portfolios of managers, provision ciliation solution. Corona has blossomed
David Cruikshank, head of international of advice on changes to portfolio and transformed over recent years and
payments and trade services, and will parameters and developing the invest- there's still much more to come.”
have responsibility for managing and ment process for assessment and
building the bankís growing European appointment of managers. Commenting Fidelity International has announced
cash management and trade finance on his appointment Shepherd, said: that Nick Baulch has
business. “The company’s reputation for innova- been appointed as a
tion and forward thinking attitude is Relationship Director
The Managing extremely exciting for me as a new for the UK
Board of KAS Bank recruit and I’m very much looking for- Institutional Client
will be extended ward to getting involved in the progres- Relationship team.
with the post of sion of the pension fund strategy as the Baulch joins Fidelity
Chief Financial company continues to take great steps from Deutsche Asset
Officer (CFO) as ahead in its investment approach.” Management where
from 1 June 2006. Nick Baulch he led a team of three
Within the virt-x, the London-based securities Client Directors who were primarily
Managing Board, exchange and subsidiary of SWX Group, responsible for developing client rela-
Mr. John van has announced three new appointments
tionships. Commenting on the appoint-
Scheijndel will be to its London team. Stuart Rutherford
appointed CFO joins from BT Radianz as Business ment, Peter Yarrow, Senior Investment
John van and, as such, will Connectivity Manager, and will report Director, said: "We are very pleased that
Scheijndel be responsible for directly into Jim Gollan, CEO; Chris Nick has joined Fidelity. His extensive
Finances, Treasury, Risk Management Smith joins from TradeWeb and has knowledge of the UK market will add
and Legal & Compliance. The been appointed Business Development further resource to our existing team
Supervisory Board also has the inten- and Commercial Manager; and Ian and our clients will benefit from his
tion to appoint Hans Kadiks to the Lennox joins virt-x as Senior Project experience, gained over many years in
Managing Board of the company with Manager. Both Rutherford and Smith the industry."

INVESTOR SERVICES JOURNAL 73


ISJ14 pp75-80 FINAL 30/5/06 9:45 am Page 74

ISJ Directory of Services

Consultants .
C: Professor Michael Mainelli,
Z/Yen helps organisations make better choices. Our name combines Zen and Yen -
Executive Chairman
“a philosophical desire to succeed” - in a ratio, recognising that all decisions are
E: michael_mainelli@zyen.com
trade-offs. Z/Yen’s mission is to be the foremost risk/reward management firm.
In the financial markets Z/Yen conducts numerous research projects on a variety of C: (Disaster Recovery and Project
wholesale and retail issues, as well as providing technical strategy, support and Management): Keith Ford,
prediction systems. Z/Yen’s renowned annual studies include: Senior Consultant
i. Global cost per trade benchmarks on equities, money markets and foreign E: keith_ford@zyen.com
exchange;
T: +44 207-562-9562
ii. Operational performance of broker ratings;
F: +44 207-628-6786
iii. Operational performance of client (buy-side) ratings.
W: www.zyen.com

Custody, Clearing & Settlement


Australia and New Zealand Banking Group Limited (ANZ) is one of the leading finan-
cial institutions in the Australian and New Zealand markets. We provide an extensive
range of Retail, Corporate, Institutional and Private Banking services in addition to a T: +61 03 92733563
range of specialised functions including Custody Services through ANZ Custodian F: +61 03 92732650
Services. ANZ Custodian Services is committed to our home markets and continu- C: Philip Dowman
ously seeks to provide our clients with highly competitive service through our cus- E: dowmanp@anz.com
tomer-focused and experienced teams, extended business hours and ongoing invest- A: Level 25, 530 Collins Street
ment in technology. Our capabilities incorporate core Custody and Clearing of securi- Melbourne Victoria VIC 3000
ties, Investment Administration Services, Cash, Foreign Exchange and Securities Australia
Lending. W: www.anz.com
Assets under Custody: AUD$90 billion

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

The CACEIS Group is a partnership between the Investor Services business lines
of Crédit Agricole S.A. and Groupe Caisse d'Epargne. We rank among the top 10 T: +33 1 43 23 89 75
custodians worldwide, with EUR1,681 billion in assets under custody C: (France)
(31/3/2006). CACEIS provides a full range of services to institutional clients in Patrick Lemuet
France, Luxembourg, Spain and Ireland. These services include, global and local E: france@caceis.com
custody (safekeeping of listed and OTC assets) depositary/trustee services, STP T: +352 4767 2567
transactions (SWIFT), corporate actions and income collection, proxy voting, tax C: (International)
services, compliance and performance monitoring, flexible online reporting, secu- José-Benamin Longrée
rities lending, matching, processing and settlement. We also have links to 200+ E: international@caceis.com
UCITS registrars. Our network of sub-custodians provides a secure environment W: www.caceis.com
for your assets in over 70 markets worldwide.

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

74 INVESTOR SERVICES JOURNAL


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Custody, Clearing & Settlement ISJ Directory of Services

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

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

New York: Christopher Lynch


T: +1 718-242-7555
JPMorgan Worldwide Securities Services provides custody and securities servicing
E: chris.e.lynch@jpmorgan.com solutions to the world's leading institutional investors, including fund managers,
London: Dick Feehan insurance companies, pension funds and banks.
T: +44 (20) 7742-0102 As one of the world's leading global custodians, we have $11.7 trillion in assets
E: dick.j.feehan@jpmorgan.com under custody.
Sydney: Laurence Bailey JPMorgan meets institutional investors' needs by providing extensive experience,
T: (61-2) 9250-4833 comprehensive products and advanced technology designed to optimize efficiency,
E:laurence.bailey@jpmorgan.com enhance revenues and mitigate risks associated with global investing.
W: www.jpmorgan.com/wss

Anne-Lise Kristiansen
T: +47 2248 6238 Nordea is the leading financial services group in the Nordic and Baltic Sea region
E: annelise.kristiansen@nordea.com and operates through three business areas: Retail Banking, Corporate and
Päivi Salonen Institutional Banking and Asset Management & Life.
T. +358 9 165 51108 - The leading financial services group
E: paivia.salonen@nordea.com - A world-leading Internet banking and e-commerce operation
Steen Holmfred, Head of Global - The largest customer base of any financial services group in the region
Custody T. +47 2248 6238 - A leading asset manager in the Nordic financial market
E: steen.holmfred@nordea.com - The most comprehensive distribution network in the region
Bo Thulin, Head of Client Nordea is the leading custody services provider in the region. Nordea provides high
Relations, Global Custody quality, tailor-made custody services for local and foreign investors dealing with
T. +46 8 614 7721 Nordic, Baltic or global securities.
E: bo.thulin@nordea.com

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

As a leading supplier of custody services in the Nordic region, SEB Securities


Services expertise in dealing with securities, complex information flows, transactions
T: +46 8 763 5770
and payments efficiently and accurately is crucial to your own business methods -
F: +46 8 763 6930
and to your ability to make wise investment decisions.
Contact: Goran Fors
A blend of personal service, advanced communication solutions and IT systems
E: goran.fors@seb.se
means that SEB can provide you with the assistance you need in order to deal with
W: www.seb.se your securities in the most logical manner.
Assets under Custody: US$ 200 bn

75 INVESTOR SERVICES JOURNAL


ISJ14 pp75-80 FINAL 30/5/06 9:45 am Page 76

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


Standard Bank, providing a unique suite of services to sophisticated investors in A:Standard Bank
South Africa and eight sub-Saharan markets. Financial Asset Services
3rd Floor
Standard Bank views custody, investment administration and securities lending as a 25 Sauer Street
core business crucial to many other services the bank offers. The bank has invested Johannesburg 2107
significant capital in developing Financial Asset Services and is continuing to invest T: +2711 636 6615
to maintain and extend its leading position in its chosen markets. E: adam.bateman@standard-
bank.co.za
Standard Bank has assets under custody to the value of ZAR1.5 trillion and an W: www.standardbank.co.za
overall market share of approximately 40%.

Data Services
Capco Reference Data Services (CRDS) provides a suite of reference data
management solutions that help financial services providers to achieve C: Donna Faup Bailey
superior data integrity, solve data integration issues and transform
operational performance while lowering data management costs. These Director Business Strategy &
services include a comprehensive managed services offering - a proven Marketing, Capco
alternative to in-house management of reference data as well as index T: +212 284 8749
and ETF data solutions. CRDS also provides consulting services E: Donna.FaupBailey@Capco.com
including advisory, assessment, migration, implementation, integration,
project management, development and training. For more information, W: www.capco.com/crds
please visit www.capco.com/crds.

Through its subsidiaries, DTCC provides clearance, settlement and information services for
equities, corporate and municipal bonds, government and mortgage-backed securities and London: Richard Bustard
over-the-counter derivatives. DTCC's depository also provides custody and asset servicing for T: +44 (0)20 7444-0403
more than 2.5 million securities issues from the United States and more than 100 other coun- E: rbustard@dtcc.com
tries and territories. In addition, DTCC is a leading processor of mutual funds and insurance
transactions, linking funds and carriers with their distribution networks. DTCC has operating New York: Susan Spivey
facilities in multiple locations in the United States and overseas. For more information on T: + 1 212 855-4144
DTCC, visit www.dtcc.com. E: sspivey@dtcc.com
DTCC’s GCA Validation Service gathers and distributes validated global corporate actions General information
announcement information on more than 1.4 million securities from more than 150 countries T: +1 212 855-1000
in more than 16 languages, more than any other provider.

Interactive Data Corporation (NYSE: IDC) is a leading global provider of


Interactive Data (Europe) Ltd
financial market data, analytics and related services to financial institutions, active
traders and individual investors. The company’s businesses comprise: FT Interactive A: European Headquarters
Data, ComStock, CMS BondEdge and eSignal. Fitzroy House, 13-17 Epworth
Street, London EC2A 4DL
FT Interactive Data provides global securities pricing, evaluations, dividend, corporate T: +44 (0)20 7825 7800
action and reference data designed to support financial institutions’ and investment F: +44 (0)20 7608 3514
funds' pricing activities, securities operations, research and portfolio management. FT E: eu-info@interactivedata.com
Interactive Data collects, edits, maintains and delivers data on more than 3.5 million W: www.interactivedata.com
securities, including daily evaluations for approximately 2.5 million fixed income and C: Brendan Beith – European
international equity issues. FT Interactive Data specialises in ‘hard-to-value’ instru-
Sales Director
ments and ‘hard-to-get’ information from emerging markets.

Fund Administration
Andrew Collins Managing Director
Butterfield Fund Services (BFS) provides valuation, accounting, corporate secretarial, T: 441-299-3954
compliance, directorial and shareholder services to hedge funds, fund-of-funds, and
mutual funds. BFS also services international pension & insurance trusts. Clients E: andrewcollins@bntb.bm
such as financial institutions, insurance companies, and institutional investors use Tania Kowalski Marketing
Butterfield Fund Services to set up and launch investment funds. BFS operates in Manager
Bermuda, Bahamas, the Cayman Islands and Guernsey. T: 441-278-6300
E: tankakowalski@bntb.bm
Whether a fund is just starting out or is well established, Butterfield Fund Services A: Rosebank Centre 11
can provide complete solutions to help clients better service their investors. With
over $50 billion in assets under administration, many alternative funds have turned Bermudiana Road, Pembroke,
to Butterfield Fund Services for timely and accurate administration services. Bermuda HM 08 / P.O. Box HM
195 Hamilton, Bermuda HM AX

The CACEIS Group is a partnership between the Investor Services business lines of
Crédit Agricole S.A. and Groupe Caisse d'Epargne. With a total of EUR823 billion in T: +33 1 43 23 89 75
assets under administration (31/3/2006), we are Europe’s premier third party fund C: Patrick Lemuet (France)
administrator. CACEIS provides a full range of services in France, Luxembourg, E: france@caceis.com
Ireland, Belgium and The Netherlands. These services include portfolio valuation
with multiple and automated pricing sources, NAV calculation, product structuring, T: +352 4767 2567
tax relevant data calculation, fees and commissions calculation, on-line client report- C: José-Benamin Longrée
ing, legal and statutory investment guideline monitoring, performance measurement (International)
and globalisation techniques such as Cloning. Our transfer agency services include
retail and institutional account management, Europe-wide transaction processing, E: international@caceis.com
distribution network management, third party distribution and shareholder services. W: www.caceis.com
The Fastnet Network, operated by CACEIS, undertakes some of the above services
and is a partnership venture with the Fortis Group.

76 INVESTOR SERVICES JOURNAL


ISJ14 pp75-80 FINAL 30/5/06 9:45 am Page 77

Derivatives Portfolio Management provides onshore and offshore alternative asset fund
T: +1 732-667-1155 administration, back and middle office outsourcing, portfolio valuation, daily NAVs, risk
C: Skander Aissa administration and portfolio transparency solutions for fund managers, asset allocators,
E: Aissa.s@dpmmellon.com institutional investors and proprietary traders. DPM Mellon’s services are designed to
A: 400 Atrium Drive, Somerset, solve complex administrative needs and improve operational efficiency. DPM Mellon has
New Jersey, the systems, infrastructure and experience to handle your toughest administrative
NJ08873, USA challenges. DPM Mellonhas a world-wide staff of 200 employees. DPM’s HQ is in
W: www.dpmmellon.com Somerset, New Jersey with offices in London, the Bahamas, and the Cayman Islands.

A Mellon Financial Company.

New York: Christopher Lynch JPMorgan Fund Administration provides a full suite of products for all aspects of
T: +1 718-242-7555 fund administration, enabling asset managers to focus on their core business of
E: chris.e.lynch@jpmorgan.com investment management. Fully integrated with JPMorgan's custody and fund
London: Dick Feehan accounting system, it also accepts automated data feeds from clients' in-house or
T: +44 (20) 7742-0102 third party accounting platforms. By automating these activities, we leverage
E: dick.j.feehan@jpmorgan.com
technology to build flexible business systems that increase efficiencies and deliver
Sydney: Laurence Bailey customer focused solutions.
T: (61-2) 9250-4833
E:laurence.bailey@jpmorgan.com A world-class team of experienced industry professionals provides the expertise you
W: www.jpmorgan.com/wss need in fund administration services.

Phoenix Administration Services is a leading third party administration group of


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

C: Fred W. Jacobs, III PFPC is a premier provider of processing, technology and business solutions to the
A: PFPC, 301 Bellevue Pkwy global investment industry. Our core offering includes accounting, administration,
Wilmington, DE 19809 USA investor services, middle-office services and regulatory administration services. Whether
T: 302-791-2000 your products are U.S. or non-U.S. domiciled funds, trust vehicles, limited partnerships
F: 302-791-1570 or commingled investment products, PFPC’s multi-jurisdictional, multi-fund capability
E: Information@pfpc.com allows us to process your complex fund structures - from hedge funds, fund of funds
C: Fergus McKeon and private equity funds to master/feeder and multi-managed funds.
A: PFPC Riverside Two
Sir John Rogerson’s Quay PFPC offers personalized alternative investment solutions tailored to your unique
Dublin 2, Ireland needs. With more than 30 years in the fund servicing industry, our seasoned and
T: +353-1-790-3500 responsive professionals bring you the know-how, focus and dedication to deliver the
E: Information@pfpc.com services you need, when and where you need them, any way you want them.

T: +44 (0) 1481 744000 Our clients have access to a broad range of value added services and tailored solu-
F: +44 (0) 1481 744529 tions including global custody and fund administration services for funds domiciled
C: Jose Santamaria in the Caribbean and Channel Islands.
E: jose.santamaria@rbc.com
A: PO Box 48 Canada Court Our services include Trustee, banking and credit facilities, treasury and foreign
St Peter Port Guernsey exchange, trade execution, financial accounting, corporate services, derivative sup-
GY1 3BQ United Kingdom port services and online access, leveraging a custody network that covers 80 plus
W: www.rbcprivatebanking. markets worldwide. Our service combines leading edge technology with professional
com/ci.html expertise and a truly integrated service delivering creative, customised solutions.

Atlanta: Peter Cohen For over 25 years, professional advisors, financial institutions, corporations and high net
T: 001-404-233-5275 worth families worldwide have relied on Trident Trust for integrity, reliability and commit-
BVI: Barry Goodman ment to client service.
T: 284-494-2434
Main Services: A full range of back office administration services tailored for hedge, pri-
Cayman Islands: Rick Gorter vate equity and closed-ended funds. We offer flexibility in structuring administration
T: 345-949-0880
which allows us to work closely with accounting firms and other service providers.
Guernsey: Mark Le Tissier
Services include full fund accounting, NAV calculations, registrar and transfer agent,
T: 01481-740-930
corporate secretarial including company formation, due diligence compliance and inter-
UK: Robin Harris
T: 44-(0)207-935-1503 net reporting.
W: www.tridenttrust.com Assets Under Administration: $13 billion * No. of Funds Administration: 185

INVESTOR SERVICES JOURNAL 77


ISJ14 pp75-80 FINAL 30/5/06 9:45 am Page 78

Cayman Islands: Sean Flynn,


UBS Fund Services is a leading fund administration business for traditional and tel. +1-345-914 1006
alternative funds and other collective investment vehicles. With a comprehensive Ireland: Guy Martell,
offering - from product design, through to registration, accounting, net asset value tel. +44-20-7901 5770
Canada: Pearse Griffith,
calculation and reporting – we offer a tailored, cost effective service making best use of
tel. +1-416-971 4702
the latest technology. Luxembourg: Jean-Paul Gennari,
tel. +352-44-1010 1
With administration centres located in the Cayman Islands, Ireland, Canada, Switzerland: Markus Steiner,
Luxembourg, Switzerland and the UK, at 31 March 2006, UBS Fund Services adminis- tel. +41-61-288 4910
tered assets of almost 340 billion Euro. UK: Mike Marsh,
tel. +44-20-7901 5000

Securities Lending
EquiLend Holdings LLC was formed by a group of leading financial institutions to T: +1 212 901 2200
develop a global platform for the automation of securities finance transactions. C: Carrie R. Schwartz
The EquiLend platform is designed to increase efficiency by standardizing, cen- E: carrie.schwartz@equi
tralizing and automating front and back office processes, while delivering global lend.com/info@equilend.com
access to liquidity, reduced risk and scalability. The EquiLend platform is A: 17 State Street, 9th Floor
designed to process equity and fixed income securities finance transactions on a New York NY 10004
global basis. Investors include: Barclays Global Investors; Bear, Stearns & Co. T: +44 20 7743 9510
A: 54 Lombard Street
Inc.; Credit Suisse; The Goldman Sachs Group, Inc.; J.P. Morgan Chase & Co.;
London EC3V 9EX
Lehman Brothers; Merrill Lynch; Morgan Stanley; Northern Trust Corporation;
W: www.equilend.com
State Street Corporation; and UBS.

eSecLending is a global securities lending manager servicing large institutional T: US- +1 617 204 4500
lenders, including pension funds, mutual funds, insurance companies and T: UK- +44 (0)207 002 7600
investment managers. eSecLending's model is based on the premise that C: Dan Ahern
exclusive principal relationships generally offer greater value and significantly E: info@eseclending.com
higher returns to a lender than traditional custodial or third-party agency lending W: www.eseclending.com
programs. The firm, which has auctioned over $750 billion since inception, A: 175 Federal Street, 11th FL,
awards principal business through an auction process to ensure greater Boston, MA 02110, US
competition and price transparency. eSecLending is majority-owned by Old A: Old Mutual Place, 2 Lambeth
Mutual plc and maintains offices in Boston, London and Burlington, Vermont. Hill, London EC4V 4GG, UK

IFBS offers the financial industry a wide range of consulting services as well as T: +41 (0)44 218 14 14
individual and standard software solutions. The firm supports clients along the entire F: +41 (0)44 218 14 18
E: info@ifbs.com
security value chain - from business modelling to change management processes.
A: IFBS AG, Buckhauserstrasse
IFBS’s IT solutions range from FINACE®, a Securities Finance and Collateral 11, CH-8048 Zurich, Switzerland
Management Platform, to the development of tailor-made IT applications. W: www.ifbs.com

New York: Christopher Lynch


JPMorgan Securities Lending offers institutional investors the opportunity to earn
T: +1 718-242-7555
extra income on investment and pension portfolios with minimal risk and E: chris.e.lynch@jpmorgan.com
involvement by lending their securities to qualified borrowers. With more than 300
London: Dick Feehan
lending relationships and lendable assets in excess of $1.2 trillion, JPMorgan is
T: +44 (20) 7742-0102
clearly committed to the market and to the value that our clients place in it. Our E: dick.j.feehan@jpmorgan.com
resources enable you to develop programs that comply with your business
Sydney: Laurence Bailey
requirements and achieve your business objectives. When you select JPMorgan as T: (61-2) 9250-4833
your securities lending agent, you have chosen a premier provider of securities E:laurence.bailey@jpmorgan.com
lending services worldwide.
W: www.jpmorgan.com/wss

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


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

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

Advent Software EMEA, established in 1998, provides trusted solutions for the front
through to back office operations, based on a true real-time fund/portfolio
T: +44 (0)20 7631 9240 accounting platform, to the investment management community throughout Europe,
F: +44 (0)20 7631 9256 Middle East and Africa. Advent has an established network of offices across the
region serving a growing client base of asset managers, hedge fund managers, prime
E: emea@advent.com
brokers, fund administrators, wealth managers, private banks and family offices who
Address: One Bedford Avenue, continue to improve their businesses using Advent’s suite of integrated investment
London WC1B 3AU, UK management solutions. Advent Software EMEA is part of Advent Software Inc.
W: www.advent.com (Nasdaq: ADVS), a global organisation that has been providing solutions to the
world's leading financial professionals since 1983. Firms in more than 50 countries
using Advent technology manage investments totaling more than US $8 trillion.

Data Solutions You Can Bank On


T: +44 (0)20 7464 8407 / +1 Asset Control's Total Data Management offers seamlessly compatible in-house
212 445 1076 software and out-sourced services. Asset Control solutions manage prices, reference
F: +44 (0)20 7464 8746 / +1
data, risk factors, credit risk data, corporate actions and research data. The solutions
212 265 6402
Contacts: Pascal Guignabaudet support market risk, Basel II, portfolio management, trading and enterprise-wide
(EU), Belinda Hamer (US) operational coherency.
Address: 60 Lombard Street, Asset Control is the only firm in its class offering turnkey solutions with guaranteed
London, EC3V 9EA, UK
delivery dates. These ready-to-work solutions eliminate development time and risk.
E: pascalg@asset-control.com
bhamer@asset-control.com As a future-proof technology investment, Asset Control has been certified by a
W: www.asset-control.com unique track record of long-standing customer implementations in leading financial
firms around the world.

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

T: +1 212 922 6590


F: +1 212 922 7677 Eagle Investment Systems LLC, a Mellon Financial CompanySM, is a global provider
E: sales@eagleinvsys.com of financial services technology, serving the world's leading financial institutions.
A: 200 Park Avenue, Eagle's Web-based systems support the internal straight-through processing
East Mezzanine, requirements of firms of any size including money managers, mutual funds, hedge
New York, NY 10166 funds, plan sponsors, banks, corporate trusts, and insurance companies. Eagle is
T: +44 (0) 20 7163 5700 committed to providing leading-edge technology, professional services, and global
F: +44 (0) 20 7163 5701 support for portfolio management, investment accounting, performance
A: Mellon Financial Centre, measurement, attribution, reference data management, AIMR/GIPS compliance,
160 Queen Victoria Street, reporting, and outsourcing. To learn more about Eagle's solutions, contact
London, EC4V 4LA +44 207 163 5700 or uksales@eagleinvsys.com or visit www.eagleinvsys.com.
W: www.eagleinvsys.com

GOAL is the widely-acknowledged industry leader in providing creative products,


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

INVESTOR SERVICES JOURNAL 79


ISJ14 pp75-80 FINAL 30/5/06 9:45 am Page 80

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

AIM-listed Mondas PLC provides specialist software solutions to the International


Banking and Securities Industry. Radica CAPS is Mondas' market-leading solution for C: Harvey Colborne
Global Corporate Actions Processing which, in addition to the core CA modules, com- E: harvey.colborne@mondas.com
prises functionality for Manufactured Overseas Dividends, Election Arbitrage and A: 17 - 29 Sun Street
Claims Management. Other products from the Radica suite include; NIPS (New Issue London, EC2M 2PT, UK
& Placing System), Radica EMP (Election Management Portal), Radica SPS (Short E: info@mondas.com
T: +44 (0) 207 392 1300
Product Solution (Corporate Action & Income) & Radica PRISM (Parser & Router for F: +44 (0) 207 392 1301
ISO Standard Messaging (Corporate Actions & Income). Mondas' clients include W: www.mondas.com
HSBC, Credit Suisse First Boston, Credit Suisse Asset Management, Brewin Dolphin
Securities, Williams de Broë, Man Financial & Stocktrade. www.mondas.com

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


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

Princeton Financial® Systems, a wholly owned subsidiary of State Street


Corporation, is a leading provider of investment management and accounting
systems and ASP services for global institutional investors. T: +1 609-987-2400
Its flagship PAM® investment management systems provide comprehensive STP- F: +1 609-514-4794
ready functionality that can be licensed for in-house use or accessed via the C: Lorne Whitmore, Vice
Internet. PAM® systems are currently used worldwide by over 275 leading invest- President, Global Sales &
Product Management
ment managers, insurance companies, mutual funds and unit trusts, pension funds, E: lwhitmore@pfs.com
hedge funds, endowments, banks and corporation, which manage combined total A: 600 College Road East,
assets over US $3 trillion. Princeton, NJ 08540, USA
Princeton Financial has offices located throughout the United States, United W: www.pfs.com
Kingdom, Belgium, Australia, Singapore, Amsterdam and Canada. Form more
information, visit Princeton Financial’s website.

Redi2 Technologies is an investment management software products and services


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

SimCorp Dimension is a powerful, comprehensive and truly seamless investment


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

80 INVESTOR SERVICES JOURNAL


C

www.aquin.com
Frankfurt
Zurich
London
Dublin
Paris

MIG21 Luxembourg
New York
Managing Investment Governance in the 21st century

Investment & Operational Risk Control 

HEDGE FUND OVERSIGHT


MIG21 sets the standard for automated investment monitoring in Europe’s leading
investment organizations, including…
Credit Suisse, Allianz Dresdner, CDC IXIS, State Street and Citigroup.
Aquin provides a comprehensive & integrated suite of flexible business solutions for…
x Pre and post-trade investment control
x Advanced derivative and hedge monitoring
x Investment strategy and style oversight
x Look through transparency for Structured Products and Fund of Funds
x Prime Broker and Fund Administrator reconciliation including NAV recalculation
x Production controls for marketing documentation, regulatory reports and filings
Featuring...
x Natural language for rule definition without programming
x Customized document and workflow tools with action and event tracking
x Transparent Portfolio and Market data, easily accessible from the desktop

With MIG21, a Chief Investment Officer has a consolidated view of all investment
exposure, a Chief Compliance Officer can control key compliance issues and adapt to new
regulations.
Germany United Kingdom United States Luxembourg
Head Office 288 Bishopsgate One Stamford Plaza Paris
Mainzer Landstraße 199 London 263 Tresser Boulevard, 9th Floor Dublin
D-60326 Frankfurt am Main EC2M 4QP Stamford, CT 06901 USA Zurich
Tel: +49 (0)69 2193 66-600 Tel: +44 (0)20 7266 1432 Tel: +1 800 946 4421
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