THE GLOBAL SECURITIES SERVICES INDUSTRY MAGAZINE

Fair value? Volume 5 No. 34 - 2008

CEO Profile - GBP 25 - UK, ROW
Donal Smith
USD 45 - America
of Data Explorers
EUR 35 - EMEA
Panel -
Securities Lending www.ISJ.tv
Analyse This - ISJ goes monthly
Caribbean Fund Services
Custody - Benelux

Fair
value?
Mark-to-market
in a volatile world

Payments - Asia
Fund Administration - Japan
In Focus - Collateral Thinking

Front Cover .indd 1 12/11/08 15:50:59

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 ISJ | Investor Services Journal Editor’s Letter

P.14 CEO Profile P.25 Benelux Custody P.32 Panel Debate P.42 Japan

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56

News
BNP Paribas’ assets under 7%
custody in Benelux in 9% The last month of updates in
June 2008 by country custody, clearing and settlement,
percentage. securities lending, legal and
Source: BNP Paribas 84% compliance and technology.

Ben Roberts - Editor Catherine Kemp - Reporter Giles Turner - Group Editor
Belgium 9% | Luxembourg 84% | Netherlands 7 Giles@2ipartners.com
Ben@2ipartners.com Catherine@2ipartners.com

Contributors:
Joe Corcos
Editor’s letter been their familiarity with
Brian Bollen
Anthony Harrington
The billions spent on the territory and long-
financial restructure in many standing customers. The
Associate publisher:
Justin Lawson currencies around the world, Benelux region is a notable
E: Justin@2ipartners.com
Publishing manager: coupled with widespread example of this: despite
Monique Labuschagne
E: Monique@2ipartners.com
interest rate cuts among an array of opinions from
Account managers: national banks and the industry experts concerning
Craig McCartney
E: Craig@2ipartners.com ECB, have provided more the service benefits of the
Tarik Rekiouak
E: Tarik@2ipartners.com
questions than answers as global-versus-local custodian,
David Valenzise to the outlook, attitude and ISJ encountered a greater
E: David.Valenzise@2ipartners.com
culture of the companies that sway towards a shrinking
Operations manager:
Sue Whittle have apparently benefited. circle of large players (see
E: Sue@2ipartners.com
Designer:
The future for structured this month’s feature on the
David Copsey products, bi-party trading region, page 25). The reasons meets the respective CEO
david@2ipartners.com
agreements, rating agencies for this forecast included the and chairman. On the other
Commercial director:
Jon Hewson
and trader monitoring are all bigger banks’ sophistication side of the world, Japan’s
Jon@2ipartners.com under the microscope, with in servicing esoteric assets traditionally insulated funds
CEO: the regulators and the world and their ability to provide industry has allowed a few
Mark Latham
Mark@2ipartners.com media turning the lens to get the full suite of services. global banks to develop local
Investor Intelligence
the situation in focus. But if the oligarchy of roots as its pension funds
16-17 Little Portland Street, As a result, securities global custodians offering diversifies – turn to page 42.
London W1W 8BP
T: +44 (0) 20 7299 7700 services across the board a similar breadth of service Japan is a key element
F: +44 (0) 20 7636 6044
W: www.ISJ.tv
are at the cusp of a new era. becomes the norm, the in our other Asian focus,
Bank consolidations – seen question becomes: what as Anthony Harrington
© 2008 Investor Intelligence
All rights reserved. recently in many countries, will be the new value-added explores the possibility of a
No part of this publication may
be reproduced, in whole or in both amicable and hostile - services? pan-regional payment and
part, without prior written
permission from the publishers.
can create new combinations Mergers, challenges settlement system. Can the
of expertise in the rebranded and innovation are also countries come to a decision;
ISSN 1744-151X.
Printed in the UK by Pensord Press. conglomerates, and highlighted this issue in is Asia’s uneven financial
occasionally monopolies. fund administration. Equity landscape a hindrance?
In custody, global players Trust, an opportunistic buyer Find out inside. ■
are strengthening their historically, recently sealed
position in small markets to a deal with Custom House Ben Roberts
challenge the local players to create a USD50 billion
whose key selling point had enterprise. Giles Turner

1-18 ISJ34.indd 1 10/11/08 17:30:56

 Contents ISJ | Investor Services Journal
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56

Contents
News Custody

04 Letters to the editor 25 Benelux in flux - profile

06 News and mandates
The last month of updates in
custody, clearing and settlement,
securities lending, legal and
compliance and technology.
08 Foresight Reform the rating
agencies before it’s too late,
argues Giles Turner.
10 News analysis -
The importance of
being Erste
Plus, analysis of the DTCC-LCH.
Clearnet link-up and Mohamed El-
Erian’s award-winning book.
CEOPeople
Profile
14 CEO profile - Donal
Smith of Data Explorers
The chief executive talks to
Giles Turner.
Regulation
16 Fair value? - Valuation
and trading
Joe Corcos examines the IASB’s
call for US-style opt-out on fair
value reporting.
Fair value?
valuation and trading 20 MiFID - one year on
- GL Trade on the regulation’s
implications for the back office
Payments
Regulation
Ben Roberts explores the diverse
custody lanscape across Belgium,
Netherlands and Luxembourg.
Tim Lind, Omgeo, page 41
31 Global Custody Forum
- Conference vendor
profiles
Securities Lending
32 ISJ Panel Debate -
Securities lending
Leading companies talk over
issues for a changing industry.
38 Collateral thinking -
Counterparty analysis
Brian Bollen investigates how
today’s markets have altered Administering a nation Japanese
the perception and content of fund administration, page 42
collateral in transactions.
Fund Administration
30 Custom made - Merger
profile Dermot Butler of
Custom House and Hugo Van
Vredenbuch of Equity Trust
discuss their firms’ merger.
42 Administering a nation
- Japan Catherine Kemp
discovers a gradual opening in
the insulated world of Japanese
fund administration.
Asian Payments
46 Analyse This - A fragmented market? page 21

21 Asia’s payment Caribbean Fund

MEMBER - periodical dilemma - Asian Services Insight from fund
publishers association
payments administrators and one of the
Anthony Harrington considers worlds leading domiciles
whether a pan-Asian payments
and settlement system will ever
Total Net Circulation 12,133
Analysis for the Audit Issue Vol 4, be realised. 48 Directory of services
No 22 distributed June 2007. The company listing.
Source: AUDIT BUREAU OF CIRCULATIONS,
www.abc.org.uk

To RENEw youR SuBSCRiPTioN

PLEASE TELEPhoNE: Mark Faulkner
+44 (0)20 7299 7700
oR viSiT... www.iSJ.Tv
Panel Member, page 32

1-18 ISJ34.indd 2 10/11/08 17:32:40 Caceis

 ... and climbing.

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customers meet competitive challenges on a global scale. Find out
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1-18 ISJ34.indd 3 11/11/08 19:31:04

Caceis adv climb EN 203x267H.indd 1 8/04/08 14:20:01
 Letters
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56
Dear ISJ
Planning for the next six
months used to be considered
short-term thinking.
However, the rules of the
game have now changed. As
recent weeks have shown,
nothing can be taken
for granted.
It is essential for survival that
businesses leaders consider
every possible obstacle and
eventuality. It’s now difficult
to look ahead more than an
hour or two.
Technology has developed
to respond to this need for
agility. M&A activity has
taken a new direction, and
in this fiercely competitive
climate companies and
banks are quick to swallow-
up the struggling small fry
in order to stay afloat in
stormy waters. Technology
exists that enables fast-build
operational integration and
consolidation of enterprises
and communities that are
radically reshaped following
mergers, acquisitions and
nationalisations. The re-
shaping process is not yet
finished, and banks must
urgently apply resource and
effort to the deployment
of strategic solutions that
validate business data
accurately and consolidate
risk reporting comprehensive
– and they must deploy
solutions that have the
bandwidth to scale, as further
enterprises are acquired, or
non-core lines of business
are sold.Strategic, enterprise-
wide deployment of
consistent risk management
and market-modelling
technology may have
helped, but it depends on
1-18 ISJ34.indd 4
Letters
the business portfolio of the
bank. Some are more exposed
to external market forces than
others. Technology can help
to run a business efficiently
and transparently, however
it cannot make boardroom
decisions. If your highly
profitable core activities
suddenly become highly
unprofitable, technology
alone is not going to come to
the rescue.
Businesses should be
reconsidering the quality of
the data processed through
these applications, and
reconsidering the adequacy
of their strategic risk-
monitoring across products,
across lines of business,
across markets and across
global locations. Many
surviving mega-banks already
do this. For others that do
not, investment (or perhaps
engagement of an outsourced
service) is critical. Inevitably
this measure will be too late
to survive in the current
turmoil, but these events are
inevitably cyclical and will
periodically recur.
Richard Spong
Managing director,
Sterling Commerce n
Dear ISJ
Valuing knowledge is
paramount to the success of
any organisation, particularly
financial institutions in
volatile markets as we
witness ever increasing staff
turnover rates. Although
some financial services staff
are more easily replaced
4 To express your views, write to ben@2ipartners.com or write a blog at www.ISJ.tv
than others, specialist
knowledge in certain sectors
is much harder to locate and
safeguard.
‘Tacit knowledge’ is the
knowledge that people carry
in their minds. By default
it is normally difficult
to access and typically
provides a reference or
context to particular events
or situations. Companies
that fail to safeguard this
valuable ‘knowledge area’
are not treating it with the
respect it deserves, and in
turn are creating unnecessary
risk. Others who tackle the
problem head-on can not
only reduce their exposure,
but also their single points
of failure and impact to the
business when an individual
chooses to leave a company.
One way that some
companies are managing
‘tacit knowledge’ retention,
is to outsource it. By aligning
key areas of concern, with
best-of-breed outsourcers,
companies are able to
gain access to the scale of
resources that they can never
achieve alone. They are also
able to buy into a more
commercialised approach to
‘tacit knowledge,’ achieved for
example through formalised
cross training.
As financial companies
grow more confident in
partnering with outside
specialists, I believe the
case for outsourcing ‘tacit
knowledge’ will grow with it.
David White
Executive director
MFT n
ISJ | Investor Services Journal
Dear ISJ
The successful managing down
of the risks of market default has
been a huge vote of confidence
for the effectiveness of a CCP
model in mitigating the risk of
OTC trades.
In a recent speech Charlie
McCreevy, the European Union
internal markets commissioner,
made it clear that there is a
pressing need for a central
clearing counterparty (CCP) in
the Europe – illustrated with the
recent merger talks between US
and European clearing houses.
The bespoke nature of
derivatives contracts arises
concerns that if a significant
party fails to honour its
obligations, there can be serious
knock on effects.
The opaqueness of OTC
means regulators have little sight
of potential liabilities building
up for institutions. Moving
them increasin gly towards
exchange-clearing will provide a
much clearer view of where the
real risks in these instruments
lie. The migration will increase
their exposure to electronic
trading strategies.
Institutions will increasingly
have to look to service providers
that can offer low latency
solutions that provide access to
market data, trade execution,
and trade cycle applications
and services. If plans for a CCP
model progress across Europe,
institutions must also address
connectivity to ensure fast and
secure access to trading partners
and exchanges.
Kevin Covington
Head of Product &
Propositions, BT Global
Financial Services n
10/11/08 17:34:50
ISJ_SEB
 Nordic/Baltic Excellence
SEB is the leading provider of custody and clearing services in the
Nordic/Baltic region.
Business is built on long standing partnerships with our clients.
Our commitments are efficiency, reliability and providing the highest
service quality.
For further information please contact: Global Head of Custody Services: Göran Fors,
goran.fors@seb.se. Head of Sub-Custody Client Relations: Ulf Norén, ulf.noren@seb.se.

ISJ_SEB_Eye_Map_203x267.indd 1 07-07-13 07.58.43


News and Mandates
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56
Custody
GERMANY - It is understood that
BHF Bank – the private bank
owned by Sal. Oppenheim – is
looking to spin off its custody
and Depotbank service offering
into a separate entity.
LONDON - The National
Association of Pension Funds
(NAPF) has launched the final
version of its 16 Best Practice
Principles on investment
advice to pension funds. The
Principles - endorsed by 12 major
consultancies - are a key part of
the NAPF’s Assessing Investment
Consultants Performance toolkit
designed to help pension fund
trustees evaluate and compare
investment consultancies on a
more consistent basis.
NEW YORK - The Bank of New
York Mellon was selected by the
U.S. Department of the Treasury
to support the government’s
Troubled Asset Relief Program
authorised under the Emergency
Economic Stabilization Act.
BNY Mellon is providing
accounting for the portfolio,
holding all cash and assets in
the portfolio, pricing and asset
valuation services and assisting
with other related services. It will
also serve as auction manager
and conduct reverse auctions for
the troubled assets.
Month Winner
October BNY Mellon
October BNY Mellon
October BNY Mellon
October Pac Inv. Man Co.
September Northern Trust
September Citi
1-18 ISJ34.indd 6
Legal and compliance
LONDON – Standard & Poor’s,
the financial market intelligence
provider, launched its Fixed
Income Risk Management
Services (FIRMS) business.
FIRMS’ capabilities include:
market research and
commentary on cross-market
and cross-asset class valuations
and relationships in complex
structured products; credit
ratings information and data
distribution and insight through
RatingsDirect; real-time
coverage of the leveraged loan
primary and secondary markets;
company cross-tagging of global
identifiers, reference data,
counterparties and securities;
credit risk models and solutions,
and independent securities
evaluations for cash fixed
income and structured finance
instruments offering, through
Standard & Poor’s Securities
Evaluations, independent price
evaluations of almost three
million hard-to-price fixed-
income and structured securities
daily, and extensive fixed income
reference data.
Technology
LONDON and BOSTON - Axial
Investment Management has
selected Eagle Investment
Systems LLC’s performance
Latest mandates
Client
Farglory Life
Eureko B.V
Troubled Asset RP
Fed Res’s comm. paper
Maryland State Ret’mnt
OCBC
measurement solution to assist
its fund managers with their
investment administration
Eagle, a financial services
technology and The Bank of
New York Mellon subsidiary, will
allow Axial to quickly and easily
calculate returns in different
formats and can consolidate
data from multiple sources to
create different views of data
across its business.
LONDON - BT now provides
resilient connectivity to NYSE
Euronext through the new
Secured Financial Transaction
Infrastructure® (SFTI®)
network’s hubs in London and
Paris. This gives customers
access to the new Universal
Trading Platform that will
support Euronext Cash Equities,
Liffe Market Data and Trading
through the Radianz Shared
Market Infrastructure that
connects users to the global
community of trading-related
partners, financial applications
and services.
LOS ANGELES - Vhayu
Technologies has combined its
tick bar data processing system,
Vhayu Velocity, with Alphacet
Explorer, a “codeless advanced
historical backtesting engine”
to create a tick database and
alpha generation product.
Location Assignment
Taiwan Admin/custody
London Global custody
Washington Custody
Washington Management
London Custody
Singapore Custody
KOGER
ISJ | Investor Services Journal
LONDON - Barclays Capital has
signed a contract to purchase
Caplin Trader - a web based
application platform, to be
used in Barclays’ Fixed Income
eCommerce offering.
LONDON - Alberta Investment
Management Corporation
(AIMCo), the Canadian
investment manager, has
chosen SimCorp Dimension an
integrated, enterprise-level
tool that provides front, middle,
and back office solutions for the
investment managers.
Vantage Reporting, the provider
to private investment firms,
changed its name to Vantage
Software, reflecting the
company’s focus on delivering
out-of-the-box products
implemented with or without
customisation. David Sayles has
joined Vantage as director of
sales and client service.
Clearing
Brussels and London –
Euroclear Bank’s FundSettle
platform has launched an
automated link to EMXCo’s
EMX Message System. This will
further automate cross-border
flows in UK funds, providing an
integrated, electronic means
for order input through to
settlement and asset servicing. n
Mandate size
n/a
EUR38 billion
USD700 billion
n/a
USD40 million
n/a
12/11/08 15:59:52
KOGER 11/10/05 12:04 pm Page 1

1-18 ISJ34.indd 7 11/11/08 18:23:01

 News and Mandates
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56
An agency reform needed, at any rate
Giles Turner, group editor at ISJ’s publisher 2i Business Media, argues for the
reform of the rating agencies
Some say rating agencies are partly to
blame for the current crisis. Crippled by
conflicts of interest, these agencies let
their paymasters (the very people they
were supposed to rate), dictate ratings of
structured products, including mortgage
backed securities. If the rating agencies
did their job, investors might have been
better informed of these products’ falli-
bility.
This may be letting investors off the
hook, but by definition rating agencies
have to examine the fundamentals behind
products and companies and give a risk
assessment. This involves an element of
soothe-saying and opinion making, but
this clairvoyance involves sophisticated
quantative analysis – one hopes.
The quantative approach may ex-
plain Moody’s rational rating approach
of General Motors, reflecting its steady
27-year decline from AAA to CCC. Leh-
man Brothers, however, went from AAA
to junk in a single weekend. No amount
of hand-wringing and modelling can ex-
plain why Lehman Brothers continued to
have high ratings across the board.
In the Policy Statement on Financial
Market Developments by the President’s
Working Group to George W Bush,
signed by US Treasury Secretary Henry
Paulson, the situation was reported as
follows: “Faulty assumptions underly-
ing rating methodologies and the subse-
quent re-evaluations by the credit rating
agencies led to a significant number of
downgrades of subprime RMBS, even of
recently issued securities… The number
and severity of negative ratings actions
caused investors to lose confidence in the
accuracy of the ratings of a wide range of
structured credit products.”
To much, too late, perhaps, but what
are the alternatives? Some have put for-
ward the notion that a more objective
method in analysing credit risk would
be through the over-the-counter credit
default swap (CDS) market – a gauge for
1-18 ISJ34.indd 8
some of company solvency. Statpro, a data
management company, has developed a
“dynamic” credit risk model integrating
credit risk and market risk; the StatPro
VaR. This lets you know the current level
of CDS spreads traded in the OTC mar-
ket. Dario Cintioli, head of risk, StatPro,
advises that “One approach to isolating
credit situations and spot potential prob-
lems in time, is to compare the evolution
of the StatPro VaR (or of CDS spreads)
of one issuer against its peers. Significant
deviations from the sector average may
provide strong signals relating to the start
of credit problems”.
A listed rating agency is a
contradiction
CDS spreads are an effective method
of analysing market risk in the short term,
but do not offer an effective method for
long term analysis. Before a solution can
be found, there are many dogmas that
need to be discarded. The first is the as-
sumption that the free-market can find
the solution. A listed rating agency is a
contradiction, and increased competition
among listed rating agencies does not
improve rating quality. A paper entitled
Reputation and Competition: Evidence
from the Credit Rating Industry (Bo Beck-
er and Todd Milbourn, Harvard Univer-
sity and Washington University, St Louis),
highlighted that the more credit rating
agencies competed with one another, the
greater likelihood they will issue higher
ratings. Focusing on the ‘before and after’
of the introduction of Fitch Ratings dur-
ing the mid-1990s, and its effect on the
Standard and Poor’s-Moody’s duopoly,
the paper found that not only did ratings
become friendlier with increase competi-
tion, but that bond yields and ratings be-
came less correlated.
The basket of services offered by the
rating agencies failed to deliver satis-
factory results. If they wish to be listed,
ISJ | Investor Services Journal
profit-seeking companies, then failure to
produce the goods should result in either
new companies rising to take their place
or a review of the system.
Capitalism relies on trust. Companies
trust in their suppliers will deliver on
time, that fixed income payments will be
made, and that you have some forewarn-
ing from the analysts you pay to examine
the market that one of the largest invest-
ment banks in the world is about to
go bankrupt. Ratings are essential to any
product or bond. But as soon as the rating
agencies realised that inordinate amounts
of money could be made through posi-
tive ratings and client relations, any hope
of independence evaporated. The rating
agencies became one with the financial
system.
The President’s Working Group docu-
ment proposes to “reform the credit rat-
ing agencies processes for and practices
regarding rating structured credit prod-
ucts to ensure integrity and transparen-
cy”. This reform must include the propo-
sition that the rating agencies cannot be
financed directly by the companies they
rate.
An alternative would be an investment
tax for all financial companies that go to-
wards a totally independent rating agen-
cy. This tax will be a flat rate, required by
law, on every listed company and invest-
ment vehicle. The regulator within the
country where the bond or company is
issued or listed would be in charge of is-
suing and receiving the tax. The revenues
would not only fund an efficient rating
agency, paying salaries at near the market
rate, but also any excess revenue would be
funnelled into improving regulators, and
perhaps financing a ‘fund of last resort’,
for when, not if, the next liquidity crisis
occurs.
Rating accuracy must lead to profit.
Over the past few decades, the rating agen-
cies have made profits lead to accuracy. A
mild reform may not be enough. n
10/11/08 12:28:19
 Early 2009 will see the full launch of an exciting portfolio of
innovative new dotTV websites by 2i Business Media.

Online dotTV brand extensions of two of our leading

magazines; Investor Services Journal and Alternatives, are
already running successful test-beta sites; www.ISJ.tv and
www.alternatives.tv

These new interactive video streaming sites will move out of

beta mode early in 2009 and will a offer host of exciting new
digital media opportunities.

For more information contact Group Editor Giles Turner

Tel: +44 (0)20 7299 7718
Email: Giles@2ipartners.com

Reporter Ben Roberts can be reached on:

Tel: +44 (0)20 7299 7717
Email: Ben@2ipartners.com

Reporter Catherine Kemp can be reached on:

Tel: +44 (0)20 7299 7714
Email: Catherine@2ipartners.com

ISJ.TV Advert.indd 1 13/11/08 16:13:49

 News Analysis
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56
The importance
of being Erste
A beleagured CEE region has a champion in the Austrian bank, writes Ben Roberts
Austrian bank Erste, one of the most
prominent custodians in Central and
Eastern Europe, has reported strong
growth in the region despite many of the
countries seeking financial help from the
International Monetary Fund.
In the first nine months of 2008,
many of the company’s regional
subsidiaries performed well. Net interest
margin at 4.5% remained at a high level,
while operating result advanced by 52%
to EUR1.36 billion.
Though its total investment
in securities and other financial
investments dropped in September of
this year to EUR44,066 million from
EUR53,554 million in Sept 2007, its risk
weighted assets grew to EUR105,342
million, up from EUR93,814 million in
September 2007.
Other liabilities, including minority
interests, were stated at EUR15,537
million in September compared with
EUR20,293 million in the same month
of the previous year. The return on
equity has risen, up to 34.2% in Sept
2008 from 12.9% 12 months before.
Erste, which has operations in
Ukraine, Croatia, Hungary, Czech
Republic, Slovakia, Romania and in
September announced the opening of its
office in Serbia, has remained positive on
the region despite the need for IMF help.
On 29th October it was announced that
Hungary was to receive EUR20 billion in
a rescue package agreed by the European
Union, the World Bank and the IMF to
bolster the nations finances following
the depreciation of the currency, the
forint.
Andreas Treichl, Erste Group’s CEO,
came out in strong defence: “We firmly
1-18 ISJ34.indd 10
believe that current negative sentiments
surrounding Central and Eastern
Europe in general and Hungary in
particular do not reflect the tremendous
opportunities and underlying potential
of this region. We have made a long term
strategic investment in Hungary and are
determined to continue to support the
Hungarian economy and specifically to
meet our clients’ needs.”
In the mid-run, we
see stable economic
performance
prospects
Alen Kovac, Erste
The outpost in Serbia looks like a canny
move by the bank, which in recent years
has even outpaced its German rivals
in establishing a CEE network. After
10%
Hard times to great expectations: GDP 2-year forecasts
for year on year growth (source: Erste bank)
8%
6%
4%
2%
0%
Czech Rep Romania
Despite an overall slump in GDP forecast for next year, Hungary is set to make the biggest gain in 2010.
Only Ukraine is forecast for a prolonged decrease over the next two years.
10
ISJ | Investor Services Journal
a slowdown at the end of 2007, gross
domestic product growth accelerated to
8.2% year on year. “Overall, we see the
GDP growth rate for the financial year
for 2008 at slightly above 7%, pointing
to a stable and strong performance of
the economy in terms of GDP growth.
In the mid run, we see stable economic
performance prospects,” said Alen
Kovac, macro analyst at Erste Group.
The parliamentary elections
organised in May were concluded, after
intense negotiations, with the pro-
European forces managing to assemble a
DS-led coalition and a new government
headed by DS candidate Mirko
Cvetkovic. Such a resolution alleviated
a significant proportion of the political
risks to macroeconomic stability and
was in line with our expectations,
according to Erste. “With political risks
considerably diminished, we see lower
volatility on the FX market although
towards the year-end there might still be
some room for mild depreciation”, an
Erste Group analyst commented. n
2008 2009 2010
Slovakia Hungary Croatia Serbia Ukraine
10/11/08 12:28:28
 “ A masterpiece! The story hinges around BNP Paribas Securities Services, who are always coming up with
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11

1-18 ISJ34.indd 11 10/11/08 12:28:28

 News Analysis
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56
Clear
sailing?
The DTCC and LCH.Clearnet have
agreed to merge in a deal that will create
the world’s largest clearing house. The
merge – announced 22nd October –
will for the first time give a common
infrastructure to post-trade activities
between the US and Europe.
Donald F. Donahue, chairman and
chief executive officer of DTCC and
A. Chris Tupker, chairman of LCH.
Clearnet, gave the usual official response
as to the combined efficiencies and
complementary expertise and the
intended cost savings to users.
But is everything as neat as that?
Marco Strimer, CEO of SIX x-clear, has
reservations. “A merger only works when
you can reduce costs and create benefits
to clients. So I think the success of this
merger will depend on whether they can
reduce costs to the extent they want to.”
He adds that he was underwhelmed as
to the 7-8% operational efficiency gains
the companies are aiming for in a letter
from Donohoe.
Strimer adds there needs to be a
correlation between different products
when they are combined. “Is there a
positive correlation between repo swap
transactions from a margin point of
view with an equity transaction?”
Clearing houses are not banks, and so
need a degree of steadiness before they
launch new deals or innovative products
on the market is necessary, he believes.
“This must be the number one goal, to
not disturb the market.”
He says he has seen more transactions
in the last few months, but the amount
of individual trades has decreased. “As
fees go down, traders are trading at a
lower value because they don’t need
the same return any more. With fewer
market participants and a reduction in
credit lines for proprietary trading, fewer
transactions will happen.” n
1-18 ISJ34.indd 12
El-Erian plots
collision course
When Markets Collide, Mohamed El-
Erian’s exploration of the changes in
the global investment landscape, and
recent winner of the Financial Times and
Goldman Sachs Book of the Year, is an
ambitious study that just about finds the
mid-ground between the insider investor
and the ‘educated’ layman. Like any good
storyteller, we are “on a journey” to
a “secular destination”.
The book charts the
world up to January
2008 – time enough to
take the credit crunch
into his analysis of risk
management, asset liabilities
and credit ratings without
yet seeing a month like
September. In sum, the
credit crunch did not cause
specific long-term changes -
it instead quickened trends
that were already happening.
In Western markets, this is defined by
the sophistication of new trading ideas -
mortgage-backed securities is an obvious
example - operating within traditional
frameworks that are too inflexible
to accommodate them. In terms of
oversight, he collates neatly the market
doubt as to the relevance of the IMF.
Disruptions in the market, the “signals”
among the “market noise”, are the result
of this discrepancy, made up of statistical
anomalies. Heed these anomalies or
suffer, is his main point.
In emerging markets, El-Erian charts
how the transformation of countries such
as China and India from debtor nations to
creditor nations has been integral to a new
importance. Further, the simultaneous
growth of many Asian countries has
solidified key trading relationships with
each other, with the rise of derivatives
dissolving barriers to the markets. He
explores how sovereign wealth funds are
12
ISJ | Investor Services Journal
diversifying their investment wider than
the initially cautious investment into US
government bonds. He picks up on, and
defies, the Western suspicion of SWFs in
a neat moment of rhetorical flourish.
By page 110, the most effective
metaphor surfaces: “The global economy
has been likened to a plane flying on one
engine – fed by the vibrant activities of
US consumers. Well, now that engine is
spluttering. But the plane
will be able to maintain
altitude because a number of
smaller engines are coming
onstream… this transition
includes bumps, but, despite
that, it has potential to
prevent a hard landing.”
But emerging
economies have their own
problems. Perhaps the
most lucid exploration in
the book is the challenges
facing emerging markets. As he repeats
the adage, managing success can be as
difficult as managing a crisis. Sudden
inflows of cash can distort a country’s
normal investment policies - policies
that may be difficult to alter if out-of-
kilter with the country’s wider economic
uncertainties. Sustainability is “a decades
long process,” a useful point to make as
China’s growth slips below double digits
for the first time.
When Markets Collide is an impressive
read in its scope. El-Erian’s accreditation
of others’ general points is a modest
acknowledgement that he is standing on
the shoulders of giants. A book that was
published in January is not dated. A crisp
assessment of alternative asset classes
that may unlock future returns, risk
management and policy consideration
shows that age-old investment wisdom
can always keep up with the times. n
10/11/08 12:28:44
1-18 ISJ34.indd 13 11/11/08 18:40:26
 CEO Profile
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56
Head of the explorers
Donal Smith, CEO of Data Explorers, talks to Giles Turner
Size matters. In March this year Donal
Smith moved from Thomson Reuters,
with a workforce of 10,000 people, to
Data Explorers, of around 80 people.
Although this may have come as a
shock to most, Smith quickly found that
ideas in a smaller company can find
their way off the board room table and
into reality in a matter of days. Data
Explorer’s Stock Lending Index (DESLI)
is a good example of this. DESLI shows
the variations in the amounts of stock
borrowed and amounts available to
borrow in all regions and sectors around
the world.
“We decided we had to paint the
macro picture of what is going on in
stock lending to help people understand
what the big picture trends are,” explains
Smith. “We had that conversation on the
Wednesday, and by Friday we had the
first cut of that index available on the
website.”
Securities financing, stock lending
and short selling have been at the centre
of the credit crunch storm for the past
six months at least. As a result, the need
for the press, politicians and regulators
to understand the industry has never
been more important. Data Explorer
has often been at the forefront of the
drive to keep people informed about the
industry, from regular appearances on
CNBC and Bloomberg to front page of
the Financial Times. Smith has also seen
a concerted effort from his customers
for Data Explorers to get in contact with
the regulators and provide information
to help them understand the intricacies
behind securities lending.
“I think we can
help by providing
irrefutable data, but
we are not policy
makers”
1-18 ISJ34.indd 14
It would be easy to hypothesise that
downturns often favour IT companies,
especially data management companies,
where getting the most reliable and cost
effective data becomes a major issues.
However, Smith sees some negatives
for the industry during the present
downturn. “People always need data,
people know that data can mitigate
risk, show them opportunity and
increase their companies performance,”
he says. “With the bigger companies
their revenue is increasingly tied to the
number of clients, and I suspect there
will continue to be job losses both in
Wall Street and the City. This could
well have an impact on some of the
companies in the data business.”
Data Explorers seems better placed
than most to avoid this downturn. Not
only is the firm hiring, with additions
to its London and Boston sales and
client services teams and its Edinburgh
data centre over the summer, but it
also has its very own YouTube channel,
which has to be a first for securities
lending. Although Smith is adamant
14
ISJ | Investor Services Journal
that Data Explorers is a data – and not
a media - company, there is an element
of new-media to the firm given the
board mainly comprises of ex-Thomson
Reuters employees. Smith himself started
his impressive career as a publisher with
Pearson, running their FT.com offering.
“There is always going to be a part
of it where we try and interpret what’s
going on, and have a view of the bigger
picture,” Smith explains. “I think it is
very easy for people in securities lending
just to get down into their particular
niche and not have the ability to take a
view over the top. You don’t get that in
the equity and bond market because the
mainstream media covers the respective
industries heavily. Our industry is not
covered by the mainstream media -
what we are trying to do is to bring a
bit more clarity to that. We are a data
management company, and there is a
media element to it, but no more than
that.”
Smith joins many industry figures
by stating that securities finance needs
someone who can speak up when
the media, politicians and regulators
are misinformed. At the RMA/ISLA
Securities Lending conference in Texas
in mid October, the possibility of a
prospective industry spokesperson
was discussed. Brian Lamb, CEO of
EquiLend, and Mark Faulkner of Data
Explorers advocated the need for a
more concerted PR effort on the part
of the industry. “I think we can help
by providing irrefutable data, but we
are not policy makers. For the hedge
fund industry in the US, the Fund
Management Association have hired
some heavy weight people for the policy
role, but in the securities lending world
there isn’t anyone who is doing that,”
says Smith.
You may be hard pressed to find
industry insiders better qualified than
those at Data Explorers. Mark Faulkner
and Bill Cuthbert, the company’s
10/11/08 15:01:03
 ISJ | Investor Services Journal
founders, originated from the securities
finance industry, and have been working
closely as consultants and advisors
with all of the major participants in the
market for a long time. The demand
for data has also been growing for some
time. “The primary fuel for growth has
been the appetite from participants
in the market to have more data
transparency and also the ability to
correlate their data with third party data
sources, all of which help them make
more profitable decisions,” says Smith.
Data quality is often defined by your
ability to apply and analyse it. Smith
highlights an interesting phenomena
coming out of the recent disruption in
the securities lending markets. “Over
the last month one might’ve suspected
the short selling bans to cause liquidity
problems, yet we’ve seen quite an uptake
on the activity of lending. Stock-on-loan
was up 15%, according to our index,
even though inventory, partly driven
Is your custodian
focused on you?
We are.
Swedbank Markets
Custody and Banking Service –
Stockholm, Sweden
Ola Laurin
Tel + 46 8 585 914 70
ola.laurin@swedbank.se
1-18 ISJ34.indd 15
by lowering of values, has fallen 10%.
It shows that during good times or bad
securities financing is an important
central part of liquidity proposition
for the capital markets. Once you have
accepted this, it is a bit like looking back
40 years in time to the bond market or
the currency market, and realising that
there wasn’t a lot of data at first about
those markets as they developed. The
amount of data grew, the interest in the
data grew, and the necessity and value
grew. I can see this industry definitely
taking that track.”
At present, the job of the fund
manager is multi asset, and multi-
geography. If anything, the majority
of the financial industry suffers from
information overload. The most
important factor today is finding the
right piece of information, at the right
time, for those in the front office. This
is the motivating factor for Smith,
working in an area where collating
Hansabank
Custody and Banking Service –
Estonia, Latvia and Lithuania
Tiina Norberg
Tel + 372 613 18 09
tiina.norberg@hansa.ee
CEO Profile
and transferring data efficiently and
effectively has yet to match other
asset areas. However data companies
can only go so far; it is yet to be seen
if managers make the most of the
information available. n
Biography
Prior to joining Data Explorers, Donal
Smith was President and COO, EMEA and
Asia of Thomson Financial. He joined
the company at the end of 2001 and was
responsible for driving the growth of
Thomson Financial’s international busi-
nesses.
He also worked with the European Com-
mission to gain regulatory clearance
for Thomson’s proposed acquisition of
Reuters. Previously, he worked for the
Financial Times Group, firstly as Manag-
ing Director of Business Information at
FT Information and then as Director of
Electronic Publishing for the FT Group,
and as a member of the group’s manage-
ment board. During this period he was
responsible for the launch of FT.com.
10/11/08 15:01:04
 Regulation ISJ | Investor Services Journal
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56

Fair value?
As investors scramble to unwind deals and calculate positions,
regulation surrounding fair value has shifted, writes Joe Corcos.
The world’s governments have tinkered
with the financial system on a massive
scale in a desperate attempt to stave
off the worst of what started as the
subprime crisis, developed into the
credit crunch, and has since turned into
a full blown financial meltdown.
The developed world’s financial
sector, the very chalice of capitalism, has
taken a beating and changes to some of
the fundamentals of the system have had
to be made to fix it. And while bending
the rules may help avert another Great
Depression, nobody knows what the
long-term repercussions will be. Case
in point – the concept of fair value and
the recent relaxing of the rules that have
been built to enforce it.
Prior to the financial crisis the
concept of fair value was little known
or referenced outside the accountancy
universe. But in the last month or so a A debate over fair says: “In the normal market you don’t
have distressed sellers and people
debate over fair value and the role it has
played in the current crisis has hit the
value has hit the desperate to raise capital so they have to
sell no matter what the price.
mainstream media. mainstream media “That causes distortion, you’ve now
The concept of fair value, or mark
to market, is the practice of assigning with a vengeance got a disorderly market. Adoption of
fair value in a disorderly market is not
certain assets the price that the market an accurate reflection of the value of the
deems them worth. Since the early assets.”
1990s both Europe and the US, which pricing those assets far below what Banks forced into massive write-
use different accounting standards, they may actually be worth. So those downs have complained that having to
have instituted rules around fair value. who have assets that have no market price their assets in an illiquid market
Usually these rules and the concept of appetite anymore – ie, mortgage-backed is exacerbating the damage, and that
fair value in general are an important, securities – are being forced to price they are having to price assets that are
sensible part of the valuation process them at Lehman’s fire-sale prices, when not on the market in the same way as
that lends clarity and transparency to they may be worth more in the near those that are, making them seem to be
the market, especially where hard to future. worth much less than they believe they
price derivatives and other complicated This is the situation that banks and are in reality. Richard Fuld, the disgraced
instruments are concerned. Usually. other financial institutions are faced Lehman Brothers CEO told Congress
However fair value only works with today, one that they claim has made recently that fair value accounting rules
when there is an orderly market where their billions of write-downs even worse. had played a major part in the bank’s
voluntary transactions are taking place. And it is this situation that has resulted collapse.
But what if there is no market? Or a in furious debate over fair value. Thus the besieged financial services
market where an entity like Lehman Neil Beckley, UK manager for sector is begging for a suspension of the
Brothers or Bear Stearns is forced to Fernbach, a company specialising in risk fair practice rules, at least temporarily.
sell off assets on the cheap, therefore management and accounting solutions, On the other side of the fence are the

16

1-18 ISJ34.indd 16 10/11/08 12:29:14

 ISJ | Investor Services Journal
accountants, investors and regulators
who believe that scrapping fair value
would essentially allow institutions
to internally value their own assets,
leading to opacity, possible abuse, and an
unknown consequences.
When it comes to the rules governing
accounting practices, most of Western
Europe and the rest of the developed
world fall under the auspices of the
International Accounting Standards
Board (IASB). However, the US uses its
own Generally Accepted Accounting
Principles (GAAP). The idea is to
eventually bring the US under the IASB
umbrella. However, this is unlikely to
happen in the next few years. Therefore
Europe is forced to stay aware of US
actions when it comes to accounting in
order to ensure its companies remain
competitive.
Deciding action was needed on
the fair value issue, the SEC released a
statement on 30th September ‘clarifying’
Financial Accounting Standards
Board’s (FASB) statement 157, the
statement which addresses fair value
measurements. The clarification notice
essentially said that management can
use internal estimates such as expected
0ENSIONS\,IFE)NSURANCE\)NVESTMENT\0ORTFOLIO!DMINISTRATION\4RANSFER!GENCY\340&INANCIAL-ESSAGING
&INANCIALSOFTWARESOLUTIONS
THATSTANDOUTFROMTHECROWD
)3*
!USTRALIA\.EW:EALAND\(ONG+ONG\4HAILAND\)NDIA\,UXEMBOURG\5NITED+INGDOM\3OUTH!FRICA
1-18 ISJ34.indd 17
future cash flows and so forth to value
an asset. The statement went on to say
that ‘disorderly’ transactions are not
determinative when pricing and that
general transactions that take place in
an inactive market “may be inputs when
measuring fair value, but would likely
not be determinative”.
In essence this allows banks to apply
fair value as they see fit.
However, when the FASB itself
issued a further clarifying statement
on 10th October, it only succeeded in
muddying the already cloudy waters.
In its statement the FASB says liquidity
risk has to be included in the cash flow
calculation, which could result in values
being calculated to distressed sale levels.
American Bankers Association (ABA)
was among those unimpressed with the
FASB statement. Donna Fischer, head
of tax and accounting at the ABA, says:
“We don’t think the FASB position was
useful. It was not helpful. It had some
good points in it but it’s circular; it tells
you all of these things that do clarify
what fair value is, but at the end it says
you must use liquidation risk that a
current market participant would use,
and the only current market participants
Regulation
are those that have the distressed sales,
so that gets you back to zero.
“We need a clear definition of what
fair value is in an illiquid market. And
we need it very quickly.”
Meanwhile, the SEC has been
charged by Congress to conduct a study
examining the influence of fair value
accounting rules on firms’ balance sheets
and whether other accounting methods
are more feasible.
Perhaps most importantly, included
in the US Emergency Economic
Stabilization Act, more commonly called
the ‘bail-out’, is a clause which allows the
SEC to completely suspend the fair value
rules at the push of a button.
Whether this will happen or not is
unknowable, but in the meantime it is
impossible for the SEC to go through
every single financial instrument in
existence and determine whether fair
value should apply to it. This is why so
far it has resorted to giving guidance and
essentially letting the banks decide for
themselves. This is a move that may be
frustrating for the banks but is extremely
disquieting for others.
Denise Valentine, an analyst at Aite
Group says of the situation: “So now
WWWBRAVURASOLUTIONSCOM
10/11/08 12:29:19
 Regulation
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56
you’re going to have judgement calls
being made. Now it becomes a question
of what doesn’t get valued. Now you’re
getting all these judgement calls about
what needs to have fair value applied to
it and what doesn’t.
“What happens with the SEC
typically is they don’t give you a list of
instruments, they give you interpretive
guidance. That’s the scary part. So until
these companies and banks get audited
or are heading south, or for some of
them if they’re going to now be owned
by US citizens and get examined, you
don’t know. Until those reviews and
audits occur you don’t necessarily know
if things are being done appropriately
and in good faith.”
With the onus being on the
institutions to classify their own assets,
the investor is left relying on the
individual companies to fully disclose
how they are doing this. The need for
more instruction from the regulators is a
common theme across the industry.
Paul zur Nieden, the vice president
for product management and investment
accounting at SunGard, says: “I think
that there could be more regulatory
guidance but it also comes down to the
individual investment company how
they interpret that guidance.
“Where able to they should continue
their fair value practices. Where there’s
an excessive burden adhering to the fair
value rule they should say so and call
that out in the reporting.”
Meanwhile, Europe has been keeping
close eye on America, and has been
making its own moves to ensure that
European-based entities are given the
same breaks.
The French have long opposed fair
value rules, which in Europe and much
of the rest of the world take the form of
the International Accounting Standards
(IAS) 39. Thus when the banks and
others started clamoring for a relaxation
or reinterpretation of the rules, and the
SEC responded, the French President
Nicholas Sarkozy took the opportunity
1-18 ISJ34.indd 18
to exert pressure on the IASB to review
IAS 39. At the insistence of the EU,
currently chaired by France, the IASB
duly relaxed the IAS 39, and allowed
companies to value some assets on the
assumption that they would be held
on to until they matured, rather than
using the fair value price dictated by the
market.
For a time many were worried that
the EU Commission would insist on a
Relaxing the fair
value rules could
significantly delay
the realisation of
losses
full carve out of the rule which would
have allowed banks a free hand to
transfer assets out of trading books, and
some thought that the EU may even
create its own accountancy standards
body. However, when the Commission
met on 21st October it decided political
intervention was unnecessary and that
the IASB would be left to the decision-
making regarding fair value. We are still
likely to see the IASB consider other
changes in the future, such as letting
firms have more leeway in classifying
assets which include derivatives as
amortised, rather than fair value, which
would leave them unaffected by further
market turbulence.
Assets that are re-classified to be held
to maturity will then be classified by
the company using the mark to model
technique. This incorporates cash flows,
risk of default, market interest rates,
non-market risk, and other factors.
Beckley says: “It is the fundamentals
that are the way every asset is priced, if
ignored the liquidity, ie, the free flow of
willing counterparties to buy and sell,
which basically means I’m an investor
18
ISJ | Investor Services Journal
holding these assets to maturity and am
not really bothered if there is a market
out there or not. This is not something
that’s new, it hasn’t just been created
with mortgage-backed securities. We’ve
had for 30 years private placement,
there’s no market price for a private
placement, it’s always been priced on a
model basis and nobody got excited.”
By relaxing IAS 39 and FAS 157
the regulators have saved many firms
billions of dollars in write-downs
ahead of their third-quarter reporting.
However, it is possible that the relaxing
of the fair value rules could have severe
repercussions in the future.
“Relaxing the fair value rules could
significantly delay realisation of losses
and could result in the financial crisis
lasting longer”, says Andrea Cicione, a
senior credit strategist at BNP Paribas.
Cicione goes on to give the example
of Japan in the 1990s as an example of
what can happen without fair value rules
in place. This is when Japanese banks
refused to admit the extent of bad assets
they had on their books, which severely
prolonged the country’s financial woes.
Then on 29th October, in a
controversial decision, Japan’s finance
minister said the country will join
Europe and the US in easing its fair
value rules, as recommended by the
Accounting Standards Board of Japan.
In this time of massive flux in the
markets, regulators and governments
are quickly taking measures to ensure
that swathes of important firms do not
fail. Easing fair value accounting rules
is one of these measures. However,
no one, least of all the politicians,
can fully understand the effects that
these measures will have in the future,
especially concerning the financial crisis
and how long the recessions which swirl
in its wake will last.
On whether fair value should be
relaxed or not, Valentine says: “What’s
the lesser of two evils? Would you
rather be going about your business
undervalued or overvalued?” n
10/11/08 12:29:21
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19-29 ISJ34 3.indd 19 10/11/08 12:10:06

 Regulation
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56
MiFID: Anniversary
Alex Walker, global head of GL TRADE’s post-trade for securities
business line, looks at challenges and rewards that MiFID - now a year
old - can bring to the back office.
Given the generation of revenue in the
front end it is not surprising that most of
the attention of the impact of the Markets
in Financial Instruments Directive (Mi-
FID) has focused there. However, as the
effects of the directive start to be felt, post
trade processes are starting to be regarded
as equally important.
The efficiency of back office operations
post-MiFID is important because the frag-
mentation of markets, particularly in eq-
uities, means that clearing and settlement
functions are inevitably due to become
more complex.
As well as all the regulatory require-
ments around client classification, best
execution and transaction reporting, mar-
ket participants also have to cope with the
technological complexities of connecting;
not only to a greater range of trading ven-
ues, but also to multiple central counter-
parties (CCPs), which act as intermediary
between security market participants.
In addition, we see today the emergence
of the new multilateral trading facilities
(MTFs), such as Chi-X, Equiduct and Proj-
ect Turquoise, as well as numerous dark
pools, creates competition right through
the deal chain.
For years, a debate has raged about the
merits of vertical and horizontal exchange
clearing models. Until the introduction of
MiFID, these were mainly academic. How-
ever, horizontal and vertical models have
at times allowed the incumbent exchanges
to display a degree of monopolistic behav-
iour. The control of clearing has allowed
them, to a large extent, to dictate where
trading takes place.
Now MiFID is changing this and the
concept of ‘inter-operability’ between
various CCPs is starting to become a
reality. Industry watchers will have seen
20
19-29 ISJ34 3.indd 20
ISJ | Investor Services Journal
the success Chi-X is having with its pan-
European clearing solution. Ironically
though, sources say Chi-X approached
some of the existing established CCPs
for clearing purposes, but none of them
was able or willing to deliver what the
MTF needed. Chi-X eventually imple-
mented a novel solution using Fortis’
European Multilateral Clearing Facility
(EMCF).
This pan-European CCP is provid-
ing competition at the clearing level,
which most institutions will embrace;
however, this implementation has in-
troduced more complexity in the post-
trade arena. The purpose of new trad-
ing venues is to provide access to better
pricing and a wide range of markets. It is
very possible that Europe will eventually
follow the American model with a pan-
European clearer. Certainly Euroclear
Single Settlement Engine is taking us in
the right direction. Until we get there
though, without appropriate back office
systems, any gains achieved in the front
office could be soaked up in increased
clearing and settlement costs, with the
risk of becoming uncompetitive.
Settlement instructions and their
routing remain the ‘crown jewels’ of the
back office world. Middle and back of-
fice systems need to be able to handle
complexity in this area catering for cus-
todians and clearers preferences, and
perform netting. Users must have a flex-
ible interface allowing them in real time
to see the status of their trades, coun-
terparty exposures, stock and cash posi-
tions all at their fingertips. After all, why
stay with a system that will stop your
front office from taking advantage of the
new business opportunities
now available? n
10/11/08 12:10:11
 ISJ | Investor Services Journal
You can find this article and others on ISJ.TV.
Asia’s payment dilemma
Can a pan-Asian payments and settlement system be created?
Anthony Harrington assesses the task.
As the central bankers of Europe and
the US both know all too well, putting in
place pan-regional all singing, all danc-
ing payments and settlements systems
is a tough act to pull off. Europe has
additional challenges of mediating be-
tween multiple languages and customs,
thought these are just two issues facing
the creation of a pan-Asian payments
and settlement system.
One notable difference between
Europe and Asia is the way markets in
the countries of the region span the
whole spectrum from very undeveloped
(such as Vietnam), to developing (such
as Malaysia), to very developed markets
(Singapore, Hong Kong and, of course,
Japan).
Eli Cohen, General Counsel Asia,
at Euroclear, based in Hong Kong, has
followed the various initiatives towards
pan-Asian systems closely over the last
19-29 ISJ34 3.indd 21
few years. He argues that the position
in Asia is probably at least five years
behind Europe’s efforts. However, as
he says, “There are many initiatives
ongoing and there is a great deal of
political and industry recognition that
something needs to be done.”
Despite the great variation between
the countries, he says that from a
technical and legal perspective, there
are numerous similarities between the
continents. “We firmly believe that
there are lessons that the Asian project
initiators can learn from the European
experience,” he says.
In fact, Euroclear is part of the
Group of Experts convened earlier this
year as part of the ASEAN + 3 Asian
Bond Markets Initiative to put together
a pan Asian settlements infrastructure
for the Asian bond markets. This is one
of the most significant projects in the
21
Payments
area. The Asian bond market initiative
began in 2003, under the direction of
the ASEAN + 3 finance ministers, and
in 2008, after much initial exploratory
talk, a taskforce on infrastructure was
created.
This had its first meeting in April
2008 and at that meeting the task force
decided to create the Group of Experts
(GoE). “The Task Force has a two-year
mandate. We are at the start of this
project in terms creating a forum with
wide stakeholder input and onward
communication to the decision makers,”
Cohen says.
The Task Force is left with a chicken
and egg scenario. At present, cross
border bond flows inside Asia are
insignificant and certainly do not
warrant an infrastructure spend in
the many tens of millions of dollars.
However, Cohen argues that, “like
10/11/08 12:10:15
 Payments
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56
in Europe, the Asian markets will
be increasingly defined by their
infrastructures”.
“At present, there is no easy way for
Korean investors to invest in Japanese
government securities, and vice-versa.
Both sides would have to convert local
currency into dollars first and then to
the denomination currency to invest
in the other party’s sovereign debt,” he
comments. This means that if Korean of
Japanese investors wanted to invest in
sovereign debt, it is just far simpler for
both sides to buy US Treasury bills.
But with Japan and Korea already
massively overweight in US debt,
finance ministers and central bankers
in those countries want to see much
more cross-border investment. The
Asia bonds settlement system would
be a huge enabler for Asian countries
to invest in each other’s debt and, it is
hoped, will cause a lot more of Asia’s
money to be retained in Asia for the
good of the region.
“We believe that the work we are
doing within the Group of Eight will
be very significant in helping to build
the infrastructure Asia needs. It will
probably take ten to 15 years to achieve.
But at the same time, there are several
private and national payment and
settlement initiatives on going. Some
will assist the capital markets in the
region as these markets move towards
a standardised and common processing
infrastructure,” Cohen says.
Jonathan Butterfield, executive
vice president, Marketing and
Communication at CLS Bank, the
global clearing and settlement system
for FX, argues that while a pan Asian,
multi-currency payments infrastructure
for bonds and securities is a very
legitimate aspiration, it will be a tough
act to pull off. There are several issues
around standards, legal commonality,
operational cycling etc. but one of
the real issues, he points out, is that
a number of Asian economies have a
19-29 ISJ34 3.indd 22
habit of periodically slamming the door
on any foreign currency inflows and/
or outflows whenever the economic
climate gets a little perturbed. This
is an understandable policy tool and
there are still plenty of currency trading
restrictions in place, and not just in
China. Whether they exempt this utility
is a significant question.
“If you are in Korea with an FX
licence there is no problem. You can
trade the won aggressively. But if you are
outside Korea there is no way to trade
If you are outside
Korea there is no
way to trade the
Korean currency
and there is often
virtually no external
visibility of the
trades taking place
the Korean currency and there is often
virtually no external visibility of the
trades taking place in Korea, even for
a parent bank with a subsidiary inside
Korea. They sometimes seem astonished
by the amount of FX business their
subsidiaries do in Korea!”
Butterfield says CLS has a good
relationship with the Korean Central
Bank and firmly believes that it
will continue to push for further
deregulation. But across the region
the tendency or instinct to shut up
shop if it looks like external pressure
on the currency could damage the
local economy, remains very strong.
“It happened in Malaysia and happens
periodically in Thailand ,” he says.
A good many Asian economies are
understandably nervous of, or adverse
to, the free floating currency model
because they are only too aware of the
22
ISJ | Investor Services Journal
damage to their economies if there is a
run on their currency or if it becomes
overvalued against other key currencies.
Another problem in getting a pan-
regional infrastructure off the ground
is the relative size gap between Japan
and the rest, in market terms. “Japan
dwarfs everyone, and then there is a
second tier, with China growing in
significance. There is a growing volume
of FX trading domestically in China and
we recently added the Bank of China as
a shareholder in CLS.”
In a keynote speech on 18th October,
Akinari Horii, assistant governor of the
Bank of Japan, presenting to the Global
Operations Managers’ Conference
in Tokyo, said that the Bank was
seeing strong growth in the number
of Japanese retail investors with a
real appetite for Asian currencies and
“commodity” currencies. He argued
too that the emergence of new entrants,
such as hedge funds and public sector
investors, has also added to trading
volumes in what he termed “emerging
currencies”.
Settlement issues continue to be very
important, he says, particularly in the
current unsettled conditions, and there
is necessity to work towards a reduction
in the settlement risk of FX transactions.
A pan-Asian payment and settlements
system would be massive in this regard,
but it is still a long way off. Toshiro
Muto, then deputy governor of the Bank
of Japan, pointed out in a speech that
Japan’s payment systems have come a
long way in just two decades. Before
the Bank of Japan Financial Network
System, the BOJ-NET, which links the
Bank and Japanese financial institutions,
began working in 1988, payment
instructions for settlement using current
account deposits at BoJ, were delivered
as cheques by clerks on bicycles.
The payments system enabled the
Bank to deal efficiently with the huge
growth in transaction volumes, but just
as importantly, it enabled it to manage
10/11/08 12:10:16
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 Payments
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56
and reduce settlement risk – which rises
sharply as transaction volumes rise.
In 2004 BOJ-NET settled transactions
totalling some YEN78 trillion, while the
Foreign Exchange Yen Clearing System
(FXYCS) settled around YEN19 trillion.
BOJ-NET moved to a RTGS approach in
January 2001.
Japan moved to CLS when it was
launched in September 2002 and was
one of the seven founding currencies.
Today, via CLS foreign exchange,
trillions of transactions are settled on a
payment-versus-payment basis among
settlement members. BoJ moved earlier,
in 1994, to a delivery-versus-payment
system for securities transactions.
China, with an economy that is on
course to become the largest in the
world, is already quite far along in
the development of its own payment
systems. The People’s Bank of China
(PBOC) oversees the country’s payment
systems while also acting as a service
provider in the inter-bank clearing
and settlement services arena. It works
together with the China Banking
Regulatory Commission (CBRC) which
supervises individual banks and has
the twin responsibilities of promoting
financial stability and facilitating
financial innovation. A key part of
the country’s financial system is China
National Advanced Payment System
(CNAPS). This provides clearing
services for banks and the financial
market and it consists of two separate
applications, the High Value Payment
System (HVPS) and the Bulk Electronic
Payment System (BEPS). The former
began operating in June 2005 and settles
large value payments on a trade by
trade basis at gross value in real time.
According to a study by the Federal
Bank of San Francisco, the HVPS
system processed 170 million payments
and clearing transactions in 2007 with
a total RMB value of 530 trillion, or
USD76 trillion. In effect it provides
PBOC with a system for real-time fund
settlements of its securities trades.
BEPS handles low-value debit payments
24
19-29 ISJ34 3.indd 24
and credit transfers and is all about
providing a low cost payment and
clearing service for high volume
transactions.
The thrust of present initiatives in
China are all concerned with scrambling
to help China’s fast developing banking
and securities industries keep abreast
of change, while at the same time
finding ways of extending the payments
infrastructure to provide access to
financial services in rural areas. Pan-
Asia these systems are not and building
a pan Asian payments infrastructure
promises to be hard work.
At present, the major driving force
pushing for a regional payments
infrastructure, as Euroclear’s Cohen
notes, comes from the various finance
ministries and central banks in the
region. However, as is always the case
where national interests are concerned,
the fact that there are multiple central
banks is also itself part of the dilemma,
since there are multiple ambitions to
be fulfilled and political aspirations to
be catered for. Japan, China, Korea and
Singapore all aspire to have elements of
such a pan-Asian infrastructure located
in their cities and arguments about who
gets to run what could be a big diversion
of energy away from any pan-regional
infrastructure project.
Beyond this, as CLS’s Butterfield
notes, there is also the fact that intra-
Asian flows are not of themselves
sufficient to justify a huge spend. There
are real analogies here with the euro, he
argues. “The aspiration to have a “scale
currency” was one of the drivers behind
the creation of the euro. It has clearly
become the second reserve currency,
but one wonders whether, ex Japan , for
the time being, whether the other Asian
countries government bonds form a
large enough pool for foreign investors
to sustain the proposed infrastructure.
“The argument that the East Asian
bonds settlement project will enable a
brisk trade between Asian countries in
each other’s sovereign debt has yet to be
bottomed out.” n
10/11/08 12:10:19
 ISJ | Investor Services Journal
Benelux in flux
How have the three countries developed such a varied
custody landscape? Ben Roberts considers major market trends.
The takeover and part-nationalisation
of Fortis at the turn of September-Octo-
ber demonstrated the accord by which
three governments can tackle the res-
cue of a major financial institution. The
bank’s arms met different fates – BNP
Paribas swooped for the Belgian and
Luxembourg banking outlets while the
Netherlands operation was nationalised
– but in a period of difficult takeovers it
can be perceived as straightforward. The
Benelux alliance – the mutual parlia-
ment of Belgium, Netherlands and Lux-
embourg – appeared a steady region.
Looking under the bonnet, the Ben-
elux custody landscape is greatly varied.
Legislation in each market has spurred
new innovation, and as a result the three
countries’ divisions are marked. The
Netherlands is well known as one of the
most sophisticated pension fund mar-
kets, with sizeable assets under manage-
ment to match its ambition to diversify.
APG – perhaps the biggest fund – has
19-29 ISJ34 3.indd 25
Mergers
Acquisitions
Alternatives
Value added
its own asset management arm that it
is looking to commoditise as a service:
a corporate fund that is itself becoming
something of a corporation. Belgium, by
contrast, is dominated by private pen-
sion plans.
However, according to Renaud Van-
denplas, head of location in Belgium for
BNP Paribas, new infrastructure is ex-
panding the market to the extent that cus-
todians are offering value-added services
such as securities lending. Luxembourg,
one of the world’s foremost investment
fund domiciles, presents its own chal-
lenges to custodians in the proliferation
of specialised investment funds (SIFs)
and SICAF (Société d’investissement à
capital fixe) funds that demand the full
suite of services. In all, even the biggest
custodians must be nimble and adapt as
the space unfolds.
A Dutch pension fund is overseen
by a tripartite of a board of trustees, a
fiduciary manager, and a custodian. A
25
Custody
fiduciary manager will hire and fire the
asset managers, sculpt the tactical asset
allocation and help the trustees – who
have ultimate responsibility for the fund
– define a strategy. They will also hire
the custodian, which can give an inde-
pendent view while providing core and
ancilliary custodial services.
How pension funds are valued, and
the frequency of valuation, has been
one of the most significant events in the
Dutch market in what has been called
the New Financial Framework. Asset/
liability ratios before were calculated as
if the interest rate was fixed at 4%. Now,
the Dutch National Bank demands that
asset/liability calculation is based on the
real interest rates, with a pension fund
altering its exposures in accordance.
“There was a pure concentration on
the asset side of the balance sheet and
not on the liability side,” explains Erwin
Reyes, head of location for Netherlands
at BNP Paribas. “This was changed be-
10/11/08 12:10:23
 Custody
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56
cause of the drop in interest rates. There
wasn’t an interest in looking at the liabil-
ities on the longer terms because it was
fixed. But two years ago the New Finan-
cial Framework dictated that pension
funds need to calculate their liabilities
against a market rate - if the interest rate
goes down, it increases your liabilities.
The regulator requires a coverage ratio,
if a pension fund falls under 105% today
[every EUR100 worth of assets needs to
be offset by 105% liabilities] you have to
work on a recovery plan.”
More frequent adjustments to port-
folio calculation have shortened the
investment outlook for many pension
funds. “The implementation of the new
framework has definitely called for more
focus on the short term,” says Eric Pou-
wels, head of location in the Netherlands
for Northern Trust. Reyes at BNP Paribas
suggests that pension funds might be less
weighted in equities and more in bonds
to maintain balance as volatile markets
encourage the constant revision of inter-
est rates.
This bolsters the allocation into de-
rivatives, already a popular asset class in
the Netherlands, and this plays into the
hands of custodians that have experience
with such tools. “You need to hedge your
portfolio, how can you do that? Through
investment in swaps, for instance,” says
Reyes, “but swaps need to be adminis-
tered and reported and that is a service
we provide.” Reinoud Van Den Broek,
head of institutional sales and account
management for Benelux at Robeco, also
identifies this hedging technique, and
says socially responsible investing has in-
creased in the Netherlands.
Leonique van Houwelingen, head of
relationship management, Continental
Europe at BNY Mellon Asset Servicing,
notes that the growing complexity of in-
vestment products and investment strat-
egies, coupled with more onerous regula-
tory requirements, is putting a strain on
19-29 ISJ34 3.indd 26
pension funds, particularly those smaller
funds that may lack the sophistication to
deal with, for example, derivatives.
Adjusting the calculation of asset/lia-
bilities is particularly pertinent given the
recent debate over ‘fair value’ accounting.
In October, the International Accountan-
cy Standards Board announced a united
front with the US’s Financial Account-
ing Standards Boards that portfolios of
financial institutions would be mark-
to-market, despite the billions in losses
this could incur. This came in defiance of
many banks and insurers that demanded
Traditionally,
Belgian pension
funds have been
more cautious
a parallel system of valuation between as-
sets that are likely to be traded, and assets
that will remain on a bank’s books until
maturity. Sebastien Danloy, global head
of sales and relationship management at
Société Générale, had followed the devel-
opments of this debate, and comments
simply: “We are in a global economy, so
it only makes sense to have similar rules.”
Van Houwelingen is also in favour of an
assured harmony of accountancy.
The other key development in the
Dutch market is the adoption of the
Fonds voor Gemene Rekening (FvGR)
pooling vehicle. This system, also preva-
lent in Luxembourg and Ireland, effec-
tively brings together the strands of a
large pension fund that has investments
in different countries using different
providers under a single custodian. Eric
Pouwels at Northern Trust explains that
this can have tax advantages for the pen-
sion fund overall, governance and risk
26
ISJ | Investor Services Journal
mitigation improves, and the fee bills
come down.
However, this can pose problems for
client reporting. “At an FvGR aggregate
level then it is simply reporting. But
some of our clients need reports on the
underliers at a sub-fund level. In an ideal
world you would pool all assets through
one vehicle supported by one custodian,
but in reality you need to work together
with other custodians,” says Pouwels.
Danloy also sees downsides. “You will
always have the issues surrounding the
taxation of the plan,” he says. “You pay a
premium to the plan but you don’t have
the same tax process in the every coun-
try.”
The Belgian market, Danloy concedes,
is everything and nothing in comparison
– as a Belgian himself he can admit this.
Of the three ‘pillars’ of pension types that
retirees will fund themselves – namely,
the state plan, the corporate plan and the
private plan – the country is dominated
by the first and third pillars. A govern-
ment pension plan is more generous in
Belgium, Danloy explains, and there are
tax advantages to creating your own.
In this way, Belgian corporate pension
funds, the second pillar, are playing catch
up on the international stage.
“Traditionally Belgian pension funds
have been more cautious and still have a
lot of money in equities and bonds,” says
Renaud Vandenplas, head of location,
Belgium at BNP Paribas. Derivatives
are less popular, although he adds that
the market from a custodial viewpoint
has developed to the extent that certain
value-added services are on offer. “Secu-
rities lending is a good example because
BNP Paribas has just started a lending
programme [in Belgium]. These extra
services are requested more and more by
the biggest pension funds.”
Luxembourg is a different market
entirely. It has established an expertise
for domiciling funds, although much
10/11/08 12:10:27
 06:00 07:00 12:00 13:00 19:00
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 Custody
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56
of the money managed and promoted
elsewhere. It has been two years since
the legal draft for specialised investment
funds (SIFs) that replaced the undertak-
ings for collective investment legislation
from 1991. Now, SIFs – with their looser
regulatory structure and attractive tax
regime - are part of the driving force of
the country’s sales pitch as a domicile.
“Pioneer migrated its entire Luxembourg
fund range to SGSS earlier this year,” says
Danloy. “There are a lot of fund manag-
ers who structure their funds in Luxem-
bourg because it’s easy afterwards to dis-
tribute their product in Europe.”
The appetite for alternative assets ar-
guably outstrips the Netherlands. Olivier
The new framework Scherrer, sales manager in Luxembourg
has definitely
for BNP Paribas, identifies three major
trends. “Domiciled funds as well as in-
called for more surance and reinsurance funds putting
their assets in Luxembourg custody ac-
focus on the short counts. These investors are looking for
term
alternative assets. The lightly regulated
SIFs allow qualified investors a wide in-
vestment policy.
“Secondly, the regulator introduced
Eric Pouwels, a new circular widening the scope of
head of location,
lending; you can now lend 100% of your
portfolio, up from 50%. You have new
Netherlands, assets eligible as collateral, like corporate
bonds or money market instruments,
Northern Trust with no limitation of time in which to
recall the assets.
“Thirdly, we see an increasing trend
from asset managers that have assets
with us to invest in hedge funds. What
we’ve seen with the SIFs is a trend to
fund of hedge funds, private equity and
to an extent real estate.”
Danloy verifies this continued popu-
larity for private equity funds, and spots
two more new developments. “The first is
for life settlement funds: funds that buy
insurance policies from people who no
longer wish to pay the premium and can-
not stop paying them. The other trend is
for art funds.”
Scherrer adds that there has been an
increased frequency in the launching
of exchange traded funds (ETFs). BNP
Paribas recently won a mandate from
Commerz bank that decided to launch
28
19-29 ISJ34 3.indd 28
ISJ | Investor Services Journal
its Luxembourg-based platform. Along
with its servicing the Axa ETF, BNP
Paribas is the biggest ETF provider in the
country. But despite more ETF launches,
he says, there are two constraints: “One
constraint is for the asset manager be-
cause they need to replicate the index the
index and cannot take to much in man-
agement fees because the service provid-
er needs low fees for the net asset value to
reflect the index. So there are constraints
on the asset manager revenues and those
of the and service provider.”
Consolidation has swept the custody
terrain across the three countries. BNP
Paribas’s acquisition of Fortis leaves it in
a strong position to call itself the biggest
custodian in Europe. Olivier Scherrer
believes that in Luxembourg, the biggest
asset managers will be looking at a “top
five” players to provide the stability and
value-added services. Erwin Reyes in the
Netherlands is a little more generous to
the niche provider, arguing that players
such as KAS bank are closer to the local
culture and long-standing relationships
instead of a global reach. He adds: “I do
know some Dutch pension funds that
refuse to work with Anglo Saxon firms;
they are much more comfortable work-
ing with a local provider that speaks
their language and understands the new
rules imposed upon them.”
Sebastien Danloy believes local pro-
viders will be challenged in the face of
bank takeovers and nationalisations and
sees implications that go beyond securi-
ties services. “For niche providers, what
is becoming more important is to have
specific players dedicated to securities
services, but universal banks have prob-
ably a stronger business model because
clients not only want securities services
but also want the bank to look at financ-
ing, or if there are pension funds to be
administered, it is the relationship you
have.
“Today a number of institutions are
reducing the number of their counter-
parts so being a niche provider – niche
in terms of exclusively in asset manage-
ment – that might play against you
going forward.” n
10/11/08 12:10:47
19-29 ISJ34 3.indd 29 10/11/08 12:10:59
 Merger profile ISJ | Investor Services Journal
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56

Merger profile: Custom made fit

Hugo Van Vredenbuch, CEO of Equity Trust and Dermot Butler, chairman of Custom House, talk to Giles Turner.

Urge to merge: Equity Trust’s 38-year expansion

1970: Equity Trust Co NV
formed in the Netherlands

1972: The Netherlands

Antilles office opens

1991/2: BVI, Belgium and Labuan

office opens

1994: Hong Kong, Jersey and

Luxembourg offices open

1995: Formation of holding

company to consolidate
trust companies

1998: Guernsey
office opens

1999: Singapore
office opens

2000: Buys
Matheson
Trust

2006: Buys Ernst and Young’s domiciliation business

Luxembourg; Cyprus, Malta and Sweden offices open

2008: Buys Custom House Fund Services; Germany

of ABN AMRO Bank NV; Argentina, Aruba, Brazil,
2005: Buys global trust and fiduciary business

Cayman Islands, New York, Liechtenstein, and

and related corporate secretarial services in

Chartered Bank plc’s trust operation

Shanghai and Uruguay offices open

2002: New Zealand office opens
2001: Mauritius, Malaysia

2007: Panama office opens

2003: Geneva office opens
2001:Mauritius, Malaysia

and Taiwan offices open

and Taiwan offices open

2004: Buys Standard

office opens
While Rio Tinto and GM stumble not always been the case in the wider probably on the low side,” wrote Ftfm,
over potential mergers in their market. During the Banking Era of the Oct 20th 2008), Van Vredenbuch has a
respective fields, one corporate link-up past decade, many investment banks huge amount of faith that the alternative
went forward without a hitch. In the flush with profits followed the acquire- space will not only continue but also
beginning of September 2008, Custom then-fire method when bolting on thrive and eventually cease to be the
House, the fund administrator, and fund administrators to their business alternative space, but rather the norm.
Equity Trust Fund Services Business, portfolio. While this may be unfair to “Twenty years ago all pension funds had
announced that the partnership between banks - as any other method would have some real estate investment as some core
the two companies had received them classed under that dreaded term investment. Now it is considered as an
regulatory approval. The combined ‘uncompetitive’ - it is undeniable that alternative,” says Butler. “Why, I have no
business totals assets of USD50 billion, the deal suits both parties at a time when idea. Nothing has changed. Real estate is
acting for approximately 210 managers the banking industry is under the cosh. still bricks, mortar and yield.”
through around 610 funds. Van Vredenbuch also states that fund Both agree that in the future, we
Equity Trust has grown considerably administration has moved away from will be talking not of the alternative
through acquisition over the years. amateur hour some time ago; a time industry as one colossal monolith, but
In 2000, it acquired Matheson Trust; when you could get away with running as a number of different strategies.
in 2004, Standard Chartered’s trust your business off an excel spreadsheet. That these strategies may sprout their
operation; in 2005, the global trust and “There was next to no interaction own individual service industry is not
fiduciary business of ABN AMRO Bank between all our different offices in our anathema - if anything this is a return to
NV; and in 2006, it captured Ernst and different jurisdictions, plus our different the golden days of bonds, equities and
Young’s domiciliation business and offices were often using different property, where asset classes and their
related corporate secretarial services in platforms,” he explains. “Once we had services were siloed together.
Luxembourg. However, as Hugo Van decided that the fund administration Post merger, the combined businesses
Vredenbuch (pictured right, above) , business interacted with many of our have total assets under administration
CEO Equity Trust, explains: “Along with other business sections, we needed to of USD50 billion. “That puts us within a
these newly acquired portfolios came a grow it. However, gaining critical mass, comfort zone for institutional investors,”
number of legacy accounts within hedge an integrated global network, and says Butler. “[This is] perhaps more
fund administration, an area untouched integrated economies of scale is very important for institutional managers
by Equity Trust. Here we had to decide hard to do on your own. Custom House because the manager is concerned that
whether or not to cast out a number of had what we needed.” the administrator is acceptable. Perhaps
new customers we had acquired, decide While the average hedge fund has because we are not part of a big bank
to build a new fund administration lost 13% in the last nine months, and that makes us more of an attractive
business in house, or acquire someone amid a number of alarmist articles in the counterparty.” It is a promising start
who knows what to do in the first place.” press stating that half of the hedge funds in a time when comfort zones and safe
It looks to be a stable, amicable were going to evaporate (“estimates counterparties become anomalies. n
merge for the long term, which has that 30% of funds will disappear are

30

30-45 ISJ34 4.indd 30 10/11/08 17:41:25

 ISJ | Investor Services Journal
The Standard Bank Group is
the largest African banking
group ranked by assets and
earnings. The group has a wide
representation which spans
18 African countries and 20
countries outside of Africa, with
a focus on emerging market.
Investor Services, a division
of Standard bank Corporate
and Investment Banking, is
a leading provider of custody
services and investment related
products and services across
twelve Sub-Saharan African
markets to both local and foreign
institutional investors with an
excess of US$250 billion in assets
under custody. A deep rooted
African bank with a local bricks
and mortar presence, our team
of experts are able to provide a
client-centric approach into our
African markets. Our diversified
product offering and business
SEB is the leading provider
of securities services in the
Nordic and Baltic area. We are
committed to custody and
clearing processes for the
wholesale market. We provide
services in more than 80
markets, 11 of them under the
SEB name (Sweden, Norway,
Finland, Denmark, Luxembourg,
Germany, Estonia, Latvia,
Lithuania, Russia and Ukraine).
We offer a full range of securities
services including corporate
action and information services,
securities lending and services
to remote members of the Nordic
and Baltic stock exchanges.
30-45 ISJ34 4.indd 31
2nd-3rd December 2008
strategy for global expansion
enhances Investor Services’
capability and product depth
across Africa. Investor Services
was recently rated a ‘Top Rated’
custodian in the Major Markets
Survey conducted by Global
Custodian Magazine.
For more information, please
contact:
Mark Kerns
Managing Director
Standard Bank Corporate and
Investment Banking Investor
Services
+44 207815 5518
Mark.kerns@standardbank.
co.za
Fiona Green
Head of Client Relationship
Management
Standard Bank Corporate and
Investment Banking Investor
Services
+27 11 636 0531
Fiona.green@standardbank.
co.za
Or visit our website:
www.standardbank.co.za
We continuously develop new
products in connection with
clients and partners to ensure we
deliver the high-quality products
our clients demand.
We always strive to make the
processes more efficient. With a
history of over 150 years in the
securities industry; we know the
market and our clients well.
Contact:
T: +46 8 763 53 04
F: +46 8 763 69 30
C: Goran Fors, Global Head of
Custody Services
E: goran.fors@seb.se
W: www.seb.se
31
Strate is the authorised Central
Securities Depository (CSD) for
the electronic settlement of all
financial instruments in South
Africa. Our core purpose is to
mitigate risk, bring efficiencies
to the market and improve South
Africa’s profile as an investment
destination.
Currently Strate handles the
settlement of equities, warrants
and bonds for the JSE Ltd and
the Bond Exchange of South
Africa. In the future Strate
will also settle money market
instruments. In addition, Strate
is the provider of a growing
number of products, data and
services in line with market
demands and trends. Strate is
aligned to international best
practices and continually strives
to bring further efficiencies
and enhancements for the
Not-for-Profit Partnership “The
National Depository Center” is
the largest settlement depository
in Russia, servicing the full range
of debt and equity securities of
Russian issuers. The internation-
al rating agency Thomas Murray
has assigned NDC an AA- rating
as a central depository. NDC is
Russia’s national numbering
agency, and the substituting
numbering agency for the CIS,
authorized to assign the interna-
tional ISIN and CFI codes.
NDC offers a full package of
custody and related services,
including:
• Settlement (FoP, DvP)
• Safekeeping
Conference profile: GCF 2008
good of Southern Africa’s
financial community. Strate is
a public unlisted company with
dematerialised assets under
custody in excess of 5.0 trillion
(ZAR).
Physical Address:
1st Floor
9 Fricker Road
Illovo Boulevard
IIlovo
Sandton
2196
South Africa
Postal Address:
PO Box 78608
Sandton
2196
South Africa
Switchboard
+ 27 (0) 11 759 5300
Facsimile
+ 27 (0) 11 759 5500
Web: www.strate.co.za
• New issues distribution
• Collection of income and
redemption proceeds
• Allocation of ISINs to domestic
securities and other financial
instruments
• Proxy voting procedures
• Tax reclamation
• Client reporting
• Corporate actions
For more information, please,
contact:
Maria Ivanova, Director for
Development
Tel: +7 495 232 0364
Email: Ivanovam@ndc.ru
Olga Rink, Public Affairs Director
Tel: +7 495 232 0910
Email: Rink@ndc.ru
Svetlana Kireeva, Head of Client
Services Division
Tel: +7 495 232 0513
Email: Kireeva@ndc.ru
Websites: www.ndc.ru
www.isin.ru
13/11/08 13:20:35
 Panel debate
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56
Panel: Securities lending
Mark C Faulkner is managing
director of Spitalfields Advisors and
Data Explorers. He has worked at L.M.
(Moneybrokers) Ltd., Goldman Sachs
and Lehman Brothers. In 1995 he co-
founded Securities Finance International
and Spitalfields Advisors in 2004.
(NB, Question 3 will be answered by
David Carruthers, head of quantitative
analytics, Data Explorers.)
1. What are your views regarding the
international bans on short selling?
Faulkner: I think it’s been fairly inef-
fective and there’s work to be done
to analyse exactly how ineffective. I
think some of the bans were politically
expedient and owed very much to the
school of ‘being seen to be doing some-
thing’ rather than reflecting joined-up
thinking. I think it’s clear when the
FSA continually says it realises short
selling has a fundamental role to play in
the efficient functioning of the capital
markets, and it’s just at this extraor-
dinary time and it is clear to separate
short selling from naked short selling.
So that’s been quite constructive. But
there’s a tremendous amount of uncer-
tainty around certain authorities and I
know that ISLA is doing its very best to
seek clarity for the institutions.
The bans have not really stemmed
the decline of markets. The period of
extreme volatility that the market is
enduring has not been assisted by these
bans. The bans are also quite different,
it’s difficult to collectively deal with
them. They haven’t necessarily achieved
the objective of the more balanced,
less volatile markets. The motivation
and justification I would question
as being political, not economic. So
many other moving parts have been
applied to the markets – government
interventions, bailouts – so it’s difficult
30-45 ISJ34 4.indd 32
Guy d’Albrand is a global head of
liquidity management at Societe generale
Securities Services. He began as a futures
broker in Japan in 1988. . He joined
Fimat in 1997 to run the Tokyo office,
before becoming exective vice-president
and special dviser to the CEO for Societe
Generale, Japan. After further deputy
CEO and CEO roles he returned to Paris
in 2002.
to actually isolate the impact of any
short selling ban. In the RMA/ISLA
Securities Lending Conference in Texas
a gentleman at a round table said after
the SEC brought in new legislation the
industry responded within 24 hours
with 27 questions, with two answers. So
the practitioners in the epicentre of the
lending and borrowing business don’t
know the answers, so it’s no surprise to
me that the institutional suppliers don’t
know either.
D’Albrand: I believe that the bans were
viewed as necessary to reassure the
markets. Short selling was making
headlines in the newspapers so regula-
tors had to show that they were taking
active measures to protect market
levels. However academic studies have
never shown that Securities Lending
leads to lower share prices. Despite
the measures that have been taken it
is obvious that financial institutions’
stocks are decreasing faster than the
declining market. This would indicate
that Securities Lending is not a cause of
high volatility. The Securities Lending
industry is paramount in providing
liquidity in the market. Liquidity exists
because people borrow and lend. It is
not banning the lending and borrowing
of securities that makes the market
more stable.
Furthermore, countries did not agree
upon a common rule. The measures
32
Mark Payson is the managing director
of Trading & Asset Liability Management
for Securities Lending at Brown Brothers
Harriman & Co. He joined the firm in
1999 as the Head of Securities Lending
Trading and in July 2003 was appointed
Co-Manager of Global Securities Lending.
taken by each country varied in terms of
timeframe, severity and practicability,
which is indeed detrimental to smooth
operations and requires
specific monitoring.
Payson: Given the severity of the global
credit crisis and the recent extreme
volatility in equity markets worldwide, it
is not surprising that regulators around
the globe have felt compelled to take
any action they feel may stem declin-
ing equity valuations. What remains
uncertain, however, is the actual impact
such actions have had upon capital
markets. Our primary view is that the
various bans on short selling have been
a relatively blunt instrument to address
challenging and complex financial
stresses. There remains little evidence
to support a causal link between short
selling and declining equity market
valuations. The practice of naked short
selling had already been illegal in many
countries while the announced ban on
all short selling penalized legitimate
investment practices.
We are hopeful that global regulators
will revisit the imposed rules while con-
sidering all perspectives surrounding
short-selling and ancillary transactions,
including securities lending. We are
likewise in support of thoughtful and
well-planned regulation and enforce-
ment actions designed to combat illegal
naked short selling which works to
ISJ | Investor Services Journal
Francisco Gonzalez is head of Eurex
SecLend, reponsible for the market
management regarding business and
product development of the electrnic
market place for international securities
lending and borrowing at Eurex. Before
joining Eurex in 2001, he was head of
Systems Development, in charge of the
systems design for the electronic stock
market at SWX Swiss Exchange.
undermine confidence in
financial markets.
2. Would you perceive a change in
relationship with the regulators given
the recent kneejerk legislation?
Faulkner: I think the relationship with
regulators on a global basis has been
collegiate and communicative and
these are extraordinary times. I think
it’s a bit odd to look at sec lending in
isolation, but the regulators on a glob-
al basis were as surprised as anyone
else by what’s going on. The emergency
powers they’ve cited to allow them to
do things at pace are less soft touch
has been a shock to everyone, includ-
ing themselves. I think regulators will
look and feel very difficult. Hector
Sants of the FSA has said the body
needs more focus, clarity, experience
and intellectual firepower in what is
effectively a much more serious game
than they thought it was. Light touch
may be replace by a heavier touch.
People will expect more regulation, and
strategies that have been blown out of
the water by the stroke of a regulator’s
pen will be very difficult for people to
embrace going forward. So there may
be sections of the hedge fund market
that may never recover from this.
Convertible bonds were having a chal-
lenging time, broadly speaking, a flat
year, and some of the largest players
10/11/08 12:59:16
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 Panel Debate Securities Lending
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56
are nursing losses so large they may well
be out of the business. The bottom line
is they were terribly shocked, and ‘once
bitten, twice shy’ is the people will look
at this going forward and in it will factor
into the contracts that are written, the
business done, the strategies pursued
and the risk appetite of all people en-
gaged in all aspects of capital markets
that the game, rules and pitch can be
changed by external factors.
D’Albrand: Regulators were extremely
proactive in changing rules but also very
concerned with the industry’s opinion
of the markets. Many meetings between
the financial industry and regulators
took place in the post-Lehman period
that has certainly increased the regula-
tors’ recognition of the importance of
the Securities Lending business. Regu-
lators were eager to listen and to ensure
that the new rules were fully understood
by market participants. Although some
traders complained about the restric-
tions, most measures were implemented
as financial institutions’ management
were worried about a fall in their share
price and were eager to see regulators
talk and take an active stance to protect
the market.
Payson: While the recent extreme mar-
ket conditions have certainly demanded
a regulatory response, the effectiveness
of this response cannot yet be fully
assessed. However, one benefit of the
recent changes has been an increase
in the dialogue between industry
associations such as the RMA or SIFMA
and local regulators. The challenge for
the industry will now be to foster these
relationships to increase communica-
tion and understanding, ensuring
future policy can be developed in a way
that maximises benefits to industry par-
ticipants while minimising unintended
adverse impacts. As the awareness of
securities lending increases, the role
it plays in support of efficient financial
markets and the enablement of viable
investment strategies will become more
clear. The level of dialogue between the
securities lending industry and local
regulators is likely to increase.
Gonzalez: Our relation with regulators
remains very close and fruitful. We don’t
see any change in that as a result of the
recent market turmoil.
3. According to the latest research,
the available stock for lending globally
has decreased in the last month but
30-45 ISJ34 4.indd 34
the volume on loan has increased
dramatically. How do you account for
this discrepancy?
Carruthers of Data Explorers: Data
Explorers has an index put together
recently based around 300 stocks,
looking at quantities, not values. It is
split between UK, US, Europe and Asia.
For each region there are two indices:
the amount of stock made available by
beneficial owners, and how much of
that is on loan. Since 1st September
the amount available has dropped fairly
steadily, but particularly since Lehman
Brothers’ collapse it is now down 10-
12%. That’s partly from people doing
less lending. The quantity on loan has
been moving a lot depending on the
region. A lot of stock got caught in the
system, including repo, so a lot of the
agent lenders made good to the owners
whose stock was temporarily missing by
borrowing. So there was a big increase
in loans that wasn’t necessarily to do
with short selling. Following various
short selling restrictions, people went
looking for anything they could short,
so there was a big increase in loans -
and probably shorting - in Asia, where
there were fewer restrictions. Now the
Asian positions have come back down,
but in the US it has bounced around
a lot. This has been partly down to
Lehman’s collapse, where people seek
to cover specific names, but also some
genuine build up in short positions in
some very large stocks.
Amid hedge funds deleverage you
would expect to see a decline in short-
ing; shorting declined in UK stock quite
dramatically between September and
now; it’s beginning to stabilise. In
Europe it has bounced around but is
pretty much where it was. In Asia it saw
a huge increase followed by a decrease.
In the US, the volume is bouncing
around but growing. In general, people
are shorting US stocks more, despite
the deleveraging.
D’Albrand: While I have seen a sharp
decrease in lendable assets in the mar-
ket, I have not witnessed any increase in
the volumes on loans neither for bonds
nor for equities. What we have seen is a
sharp increase in lending conditions of
those fixed income products that were
eligible for the central bank auctions.
Due to the lack of market liquidity it has
certainly been difficult to recall loans
and many lenders who had balances
with borrowers kept their balances but
increased dramatically the haircut or
34
upgraded the quality of their collateral,
such as only accepting cash, with cer-
tain counterparts.
4. Have increased margins affected
lending activity?
Faulkner: I think this is a very hot
topic. When one asks for margin on a
collateralised business, they are looking
for security and safety. It’s extremely
easy to ask for more margin; whether
or not you can get it is another thing.
Historically the industry has settled
at three levels: zero, 2% or 5%, and
the industry has got comfortable with
that. Those numbers are shown to be
insufficient in many cases; so there is
a broad but disparate effort on certain
parties to get those margins to change.
That means the margins – typically –
go up. The capital that the borrowers
have to put up for raising margins is
extremely expensive and they’re very
reticent to do this; so put your margins
up too high and you will lose business.
Some people have to put their margins
up to retain cash collateral. There’s this
bilateral ‘one-to-many’ or ‘one-to-one’
discussion and maybe there needs to
be a broader discussion of maybe the
adoptions of standards that people
can understand that factor in a whole
range of different important variables:
what are the asset classes - cash nor
non-cash – you’re taking as collateral
and lending; what is the credit quality,
not just the rating but maybe the CDS
brand, counterpart quality, what is the
foreign exchange volatility – which is
absolutely huge at the moment. This
business is broadly viewed through the
eyes of someone mainly in US dollars.
The markets are off maybe 40% globally
recently, and the dollar has appreci-
ated about 20% against a basket of
currencies. That’s 60% that the market
can’t control! That’s way beyond a 5%
margin. It’s in nobody’s best interest to
have this constant operation expense.
People want it to be capital and op-
erationally efficient. There’s a need for
the industry to sit down when the dust
settles to work through these issues and
set more appropriate standards that can
ratched up or down depending on
the marketplace.
D’Albrand: Increasing margins in vola-
tile and risky markets is a normal course
of action. The most natural move was to
get cash collateral to eliminate market
risk on collateral value. However, as
liquidity on the market was tight we
ISJ | Investor Services Journal
treated each transaction on an ad hoc
basis to provide alternative solutions
with counterparts who appeared on
our watchlist.
Payson: As it relates to increased mar-
gin, we assume this is in reference to
the prime broker’s decision to increase
the margin requirement for positions
held by hedge funds. Although not a
direct impact to lenders it can be as-
sumed that this has contributed to the
deleveraging phenomenon and, in turn,
has caused balances at agent lenders
to decrease. As they sell long positions
they will also be forced to cover shorts
and return shares to lenders.
5. How necessary is the current review
of the Global Master Securities Lend-
ing Agreement for the industry?
Faulkner: One thing that’s always neces-
sary in any industry is the constant
review of the legal, tax, regulatory and
compliance environment. The GMSLA
has stood up reasonably well. The
problem is most organisations don’t
use it and they have their own language
that might cover some areas as critical
as indemnification and what happens in
the case of default. I think it’s shown it-
self to be broadly robust, but everything
always needs updating. And again, the
bilateral element – where people say
‘it’s a good idea that there’s a global
master, but here’s our idea of the global
master’ - means it isn’t the real Agree-
ment but a different version.
I’m not sure how much of the business
done under the terms of the GMSLA
without amendments, but it’s a good
international framework for doing
business. I think the challenges as-
sociated with the seizing of assets by
the administrators associated with
the Lehman Brothers prime brokerage
business will taint UK law and there will
be potentially rigorous clarity required
regarding this. I think if you don’t have
confidence and don’t have trust in your
counterparts you shouldn’t be doing
business with them, and you do need
that confidence and trust reinforced by
a valid and dependable legal contract.
I don’t think this contract is in anyway
flawed; it needs revising, these thing as
always do, but it’s not a top-of-agenda
item: the industry has bigger issues.
D’Albrand: The current GMSLA works.
Nonetheless it is important for lenders
and borrowers to review the legal
coverage of default situations, such as a
10/11/08 12:59:27

post-mortem analysis of how the GMSLA
agreement worked during recent events.
Moreover, issues regarding collateral
status should be further defined in GMS-
LA. I am confident that David Rule, ISLA
Chief Executive, will help take additional
measures which will prove beneficial to
the whole financial industry.
Payson: The review is necessary in all
environments, but especially so in the
wake of recent market events. As with
any crisis, it will cause beneficial own-
ers, borrowers, and agents to review
operational processes, risk management
practices, and protections afforded
through their service agreements. It
is probable that many lenders and
borrowers have had to re-familiarise
themselves with the provisions of their
lending and borrowing agreements.
Further, many of these documents may
be aged and may not completely reflect
the nuances of today’s business prac-
tices. The Lehman Brothers bankruptcy
and subsequent default proceedings
have likely put an additional spotlight
on the need to review standard and
customised agreements.
Gonzalez: For years, many financial
markets worked on the basis of trust
– the dictum ‘my word is my bond’
is well known. However, there must
be a legal basis to transactions, and
the securities lending and borrowing
market (SLB) is no exception. Markets
evolve, so it is natural that existing
legal arrangements, such as the Global
Master Securities Lending Agreement,
are revised and updated. The ongoing
market turmoil has probably accelerated
the need for what would otherwise have
been a regular review.
6. Can the industry continue to grow
at this pace in its historical, over-
the-counter, status or will the use of
electronic platforms become more
prominent?
Faulkner:The business will not continue
to grow at this pace. We will be faced
with a smaller business
in terms of counterparties involved,
lenders, intermediaries and borrowers.
It will also be smaller in terms of the
number of markets in which people are
willing and able to take responsibility
and act upon, and smaller in the abso-
lute value in transactions taking place
because the worlds can’t deleverage and
not impact the volume of securities that
are financed and borrowed. This doesn’t
30-45 ISJ34 4.indd 35
InvestorServiJournal_68x267.ai 27.5.2008 10:45:4
The Creative Factory
mean it can’t be a profitable activity:
one of the outcomes of this scaling back
is that prices become more realistic
and you actually pay the right price for
what’s going on rather than a blurred,
cross-subsidised bundled price, there
might be more precise price-discovery
in the securities financing and lending
business. I think we’re at a crossroads
and there are some significant initia-
tives with regard electronic trading,
central clearing and exchanges. There’s
never been a more relevant time to
discuss this; my only reservation as
to whether things will happen is that
there’s so much going on, people are
stretched to the limit and I don’t know
if people have the capacity to deal with
these things. They may need to
be forced to.
If you look at some of these elec-
tronic exchanges and the volumes going
through – much of this is anecdotal – is
when things really got difficult people
picked up the phone and started to deal
Our
solutions ,
with each other in a more intense man-
ner because it was a much more high
touch business. Far from it being more
automated and low touch and higher
volumes, the market went the music to your ears
other way!
D’Albrand: If the current pace had con-
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A nimble market does not necessarily For more details, please contact:
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james.wolff@socgen.com
Wider.
Payson: Technology will and has already Closer.
played and important role in the Simpler.
maturation of securities lending as a
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markets. Greater price transparency
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35
10/11/08 12:59:31
 Panel Debate Securities Lending
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56
product will likely gain momentum in
the coming years as participants look to
further enhance price transparency and
manage counterparty risk.
Gonzalez: SLB has a long history of op-
erating as an over-the-counter market.
However, the days when markets worked
in splendid isolation are gone. If there
is something introduced in one market
which brings about efficiency, it will
inevitably cross over into other assets.
The difficulty is that sometimes change
is resisted. This is understandable to
an extent. One of the biggest fears
surrounding greater use of electronic
markets is that they erode margins.
However, history has shown that this is
more than compensated by an increase
in volumes and counterparties, because
more particpants are willing to trade if
they know something’s value. So easier
price discovery – or transparency – is
something which is in the longer term
beneficial. There is no reason why this
won’t be the case in SLB.
Electronic trading will make it easier
to integrate SLB activities into the
general funding operations of financial
institutions. If there was ever any doubt
of the importance of having an overall
view of an institution’s liquidity posi-
tion, there isn’t now. Electronic trading
also facilitates other efficiencies, such
as straight-through-processing and
genuine real-time risk management
and allows for a greater distribution
of product to a wider base of potential
counterparties. There are many posi-
tives.
7. Securities lending is often cited as a
vital provider of liquidity. What more
needs to happen for the industry to
gain even more prominence and fulfil
its promise/potential?
Faulkner: I think the industry would
probably be keen to have a lower profile.
The industry needs to regroup and
come across to prospective customers
and regulators and press with a clear
message of the benefits of this activity.
It struck me at the RMA Annual Confer-
ence on Securities Lending in Texas that
when asked a question, most people
can’t really articulate why the business
is a good one and how it contributes
to the efficient workings of the capital
markets in words of one syllable. It
becomes too complicated too quickly.
If you’re a pension fund manager, an
30-45 ISJ34 4.indd 36
insurance company or a mutual fund,
you’re an expert in what you do, and
this is a very important but peripheral
activity - you don’t want it to be more
complicated that it needs to be. The
industry needs a clear and single voice
and think about how they communicate
with clients, regulators and the press,
so they can give central coherence an-
swer to simple questions they struggle
with. The challenge is how to communi-
cate the benefits of participation in this
business and put them into context.
D’Albrand: Transforming securities
liquidity into cash liquidity is one of the
main functions of securities lending.
However, in the absence of liquidity
going into cash/money markets, the
upsurge in issuer risks and the risk
& compliance constraints on cash
reinvestment, receiving cash liquidity
as collateral has proved to be difficult.
Securities lending can play the role of a
lock between the securities market and
the money market provided that there is
liquidity in the two pools. This liquidity
is only there if confidence among partic-
ipants exists. The market is conservative
at the moment. For most institutions,
the current focus is primarily internal
as they need to provide liquidity to their
clients and not to the market.
Payson: The securities lending industry
has enjoyed steady growth over the past
30 years in response to rising financial
markets and increased participation by
beneficial owners. That confidence has
been shaken recently due to a several
high-profile negative events. This has
resulted in increased scrutiny from
beneficial owners, regulators, and the
media. It is important for the industry
to clarify that all securities lending
programs are not structured in the
same way and that securities lending
can be managed in a way that avoids
unnecessary risks to investors. Actions
that must be undertaken to confirm the
continued viability of securities lending
include: providing increased transpar-
ency to participants, allowing them to
fully understand the risks and benefits
of lending; adopt a “back to basics”
mentality that avoids overly complex
transactions and transactions that do
not provide a compelling return for
the risk assumed, and undertaking an
initiative to unite the industry with the
goal of reinforcing the benefits provided
to capital markets by a robust and active
36
securities lending program.
With sound leadership and prudent
management, securities lending will
continue to be the lubricant to financial
markets allowing superior liquidity,
increased price transparency, and
enhanced transaction settlement.
Education and collaboration between
associations and local regulators - as
described in my response to the second-
question - are key.
Gonzalez: There is a need to update
the SLB market – to make it more
standardised. It has played a key role in
liquidity provision over the past years,
but unfortunately SLB is relatively
backward when compared to many
other markets.
The European repo market has seen
the impact of standardisation over the
past year. Clearly defined and easily ac-
cessible baskets of securities are a must.
The standardisation is a pre-requisite
for technological development. The
SLB market has been quite slow to
implement electronic trading and this
has made it harder for institutions to
integrate their systems with those they
use elsewhere. This hinders their ability
to get an accurate, real-time appraisal
of their funding position and, if they
are client facing, their overall exposure
to their customers. Looking ahead, and
making a small prediction, it is clear
that institutions will need to make their
work as efficient as possible. To do this
requires an efficient mechanism across
the entire value chain –this will drive
the uptake of electronic trading and
standardisation in SLB.
8. To what degree is lending cash –
with securities as collateral – a risk,
and how do you mitigate that risk?
Faulkner: Not very well by some, much
better by others. One of the things that
we’ve always advocated was the identi-
fication that there were many routes for
a lender to participate in the lending
market. You could be exclusive, be in-
dependent, go through an agent, go to
a third party. But perhaps to the extent
that cash reinvestment and programs
could be more bespoke at the style
and experience to execute could differ
provider to provider was overlooked.
Plain vanilla securities lending doesn’t
exist, nor cash investment – there are
so many ways to do it. What is required
is a ‘back-to-basics’ approach. If I, as an
ISJ | Investor Services Journal
institution, sign up to be part of a se-
curities lending program, I want to buy
just that; I don’t want to be manoeuvred
into an aggressive, leveraged securities
financing business. If I chose to take
cash collateral, I want to make sure my
risk appetite is clearly understood, and
the asset management process taken in
my name by my provider is appropriate.
D’Albrand: The high quality of securities
received as collateral, diversification
of securities received and a sufficient
haircut to cover for market volatility of
those securities received as collateral
are all factors that mitigate the risks of
lending cash. The golden rule though is
that as responsible bankers we should
not do a trade because we think the
quality of collateral is sufficient but be-
cause the credit quality of the borrower
is solid. Customers’ asset protection
dictates to remain simple. Subsequent-
ly, dynamic counterparty analysis is the
first step in entering into any trade in
the current market environment.
Gonzalez: The repo market does provide
lessons about how SLB could develop.
Many people have been surprised that
volumes generally in the Euro-Zone
have declined since the start of the sub-
prime crisis – credit fears have proved
too great for the bilateral market to
function. The notable exception to this
has been Eurex Repo, which provides a
fully electronic collateralised funding
marketplace, supported by a central
counterparty, which virtually removes
counterparty risk. In particular, its
Eurex Repo’s GC Pooling segment has
shown its true worth over the last
year. GC Pooling is an automated and
standardised funding market, made up
of baskets of European Central Bank-
eligible securities. It has become an
extremely important way of securing
central bank liquidity. In Switzerland,
the Swiss National Bank conducts its
monetary policy almost totally via Eurex
Repo. If you want central bank funding,
it has to be done on a collateralised
basis. n
10/11/08 12:59:44
30-45 ISJ34 4.indd 37 10/11/08 12:59:47
 Securities Lending ISJ | Investor Services Journal
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Collateral thinking
Collateral in tri-party repo has shown itself to
be the answer when mitigating counterparty
risk, but it needs to be approached with
a degree of flexiblity in volatile markets, finds
Brian Bollen

period, comments Staffan Ahlner, man- organised through pooled group struc-
aging director, Global Collateral Man- tures, afforded some stellar returns with
agement, at The Bank of New York an overriding focus on revenue genera-
Mellon. “Tri-party repo had never been tion, not risk. But a number of recent
tested in the market until September 15; factors, not least the high profile collapse
no-one had ever gone into default on of Lehman Brothers, created market vol-
such a major scale, the default showed atility that forced certain lending agents
that tri-party worked. Some major in- to unwind cash investments in order to
stitutions had their collateral back by free up cash collateral as the correspond-
Monday 15th September, tri-party did ing loans were terminated. In some cases,
enable them to take very quick action to the unwinding of such investments can
protect themselves. The subsequent scale potentially lead to significant losses for
of selling of collateral might have driven engaged market participants – triggering
down the prices fetched, but that was is fresh client concern and creating poten-
market issue, not a tri-party repo issue.” tial reputation issues for banks running
Attitudes have changed too, he adds. cash-reliant lending programmes.
“Previously, institutions were preparing Susan Pike, global head of market
for an event that they thought would products and services at RBC Dexia In-
The international financial services sys- never happen. Now that it has hap- vestor Services, says: “The cash-based
tem has been stress-tested almost to pened, they are taking a more practical approach to col-
destruction over recent months, and approach to the subject. How do I manage it? How do I get lateral manage-
few parts of it have emerged with much my assets? The market has had a crash course on insolvency ment has not
credit. The importance of collateral procedures and the knowledge of how to manage assets in been without its
management, however, has been recog- an insolvency has grown greatly. Collateral needs to be ring- problems in the
nised more than ever, and its reputation fenced and maintained.” In this more wary environment, the current market.
enhanced, if one agrees with industry transaction sizes being collateralised are significantly smaller, When providers
observations. every exposure is collateralised not only repo and stock loan took cash collat-
“I believe the recent market turmoil transactions. “Collateral management is eral they were, in
has given hard evidence for the need to collateralise exposures, being redefined,” he adds. “Where in the many cases, plac-
as well as to have risk-controlled procedures in place to mo- past we might have seen collateralised ing this in money
bilise and monitor collateral obligations,” says Cedric Gillerot, transactions of around USD200 million, market funds or
director, Collateral Services, Euroclear. “Recent events have today we are seeing collateral required pooled funds – in-
put the spotlight on those firms that have and have not fol- for USD10-USD20 million.” vested as a group.
lowed good business practices in this regard. The key lessons A number of custodian banks have This strategy was
learned are to know your counterparty and take the necessary traditionally provided collateral man- all about getting
precautions to protect your firm and your clients’ business in agement programmes heavily based a better return on
the event there are more casualties from the liquidity and credit on cash reinvested in money market investment. But
crisis.” instruments to generate high returns. the problem with
The landscape has changed completely in a relatively short Until recently these instruments, often money market

38

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 Securities Lending ISJ | Investor Services Journal
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56

funds is that if, as agreements that support them. Going forward, the amount of volumes picked up as the trend towards
has happened in reporting clients are going to be asking for and the amount of secured financing developed. Today we
the recent mar- due diligence they are going to want to do on collateral mix and regularly register monthly outstanding
ket, you get a large counterparties involved will increase significantly. The param- volumes above € 400 billion when we
number of clients eterisation of how collateral is managed and the diversification only crossed the EUR300 billion thresh-
pulling out of away from cash into multiple types of instruments can only old a year ago. Growth is even more
them at the same grow.” significant when you look at the longer
time, then, depending on where those For Brian Staunton, Citi’s head term. Volumes grew 30% in 2007 over
investments are, you can actually realise of securities finance for EMEA, Global 2006 and are growing even more in 2008
losses on them. This has happened re- Transaction Services, the most signifi- compared to 2007. In 2005, monthly out-
cently – with a significant reduction in cant change in the market in recent times standing volumes were EUR183 billion,
the value of some money market funds.” is the sheer scale and complexity of col- in 2007 EUR327 billion and so far in
The issues surrounding cash-based col- lateral management. “Our business has 2008 EUR395 billion. The overall qual-
lateral management programmes are increased significantly over that period, ity of the collateral has also significantly
now encouraging some securities lend- partly because of the move by investors improved as eligibility criteria requested
ing clients to seriously consider other away from investing in the unsecured by all participants have been amended
programme options that reduce risk. markets and towards investing in the along the line.”
Collateral flexibility includes accessing secured markets like repo’s. This raises Wilkin believes secured lending is
more types of sovereign debt, allowing some questions. Can your systems han- “here to stay”, with many players look-
for a prudent mix of equities as collateral dle the volume, and the growth in the ing at all types of assets on the balance
and a better understanding of how a dif- volume? If it isn’t scaleable, you have a sheet and trying to turn them as much
ferent mix can affect risk. This entails an major problem.” as possible into some form of collateral
educative process for beneficial owners. Moreover, he adds, smaller players value. “Right now the issue for us is to
But the better the communication and will struggle to offer a global integrated cope with the demand from new cus-
strategic partnerships between provid- collateral management service. “If you tomers wanting to join our programme.
ers and underlying clients, the better the want to use Asian assets, for instance, for We see customers knocking on our door
recipe for creating additional value and repo collateralise in the US, you need a who we had never been able to attract
understanding what is driving that re- physical geographic presence in the US; before. And this includes new type of
turn. you need global capacity to meet local clients, such as corporates, or insurance
Although the current market has re- needs on a global scale, and not many in- companies when we see large corpora-
duced demand for some key securities stitutions can call themselves truly global tions asking for collateral from banks.”
lending demand drivers – such as short players.” As a result of the recent liquidity and
credit crisis, firms are monitoring their
The recent market turmoil has given hard risks, exposures and collateral positions
evidence for the need to collateralise much more tightly, says Cedric Gillerot.
“It is common knowledge that the inter-
exposure Cedric Guillerot, Euroclear bank money market has declined sub-
stantially over the past couple of months,”
he says. “Therefore, it should come as no
selling and hedge fund-related activity Jean Robert Wilkin, head of global se- surprise that when firms now trade with
– Pike believes demand will return over curities financing product management, each other, they are taking measures to
time, albeit with much greater scrutiny Clearstream, also has something to say collateralise their exposures vis-à-vis
of lending and collateral management on the question of volumes. “When the their counterparties across a broad range
arrangements. “In the months and years subprime crisis started a year ago we first of transactions. They are also seeking
ahead we expect collateral management saw a decline in the volumes of our glob- to make the collateralisation process as
to become one of the key focuses,” she al securities financings products which risk-controlled and efficient as possible.
says. “With everything that has happened encompass securities lending, tri-party We expect this trend will continue into
in the market in the last 12 months there repo, derivatives, collateralisation of cen- the foreseeable future as an appropriate
has been a big change in attitudes related tral banks and many other applications business practice and, in time, possibly
to the significance, risk and importance for collateral management,” he says. as a result of more stringent regulatory
of collateral management and the legal “Then after just a couple of months, the pressures.”

40

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 ISJ | Investor Services Journal
“We are now seeing a broader mix of
firms that are collateralising exposures
across a wider spectrum of transactions,
ie, repo, securities lending, secured loan
and derivatives transactions, as well as
for central counterparty margin manage-
ment purposes. In addition, as a result of
the recent increased intermediation by
central banks in order to ease the pres-
sures within the inter-bank money mar-
kets, we have seen increased focus on the
collateralisation of central bank credit
facilities. We have also seen a gentle tight-
ening of the collateral eligibility profiles
in 2007 and a more sharply defined trend
in 2008. Collateral takers are now more
thoroughly reviewing the basket of col-
lateral they are willing to accept. When
going further, and comparing today with
three to five years ago, today there is a
distinct trend of ever-increasing use of
collateral to manage exposures and risks
associated with a growing list of trans-
action types. The best evidence we can
Modern investment styles create ongoing
credit and counterparty exposure
Tim Lind, Omgeo
30-45 ISJ34 4.indd 41
offer is our statistics: In 2005, the aver-
age daily collateral provision outstand-
ing within the Euroclear group was the
equivalent of EUR480 billion, which has
grown to nearly EUR600 billion per day.”
Revel Wood, Northern Trust’s global
product manager for derivatives, reports
increasing demand for what he calls strin-
gent and robust collateral management.
“The events of the past 12 to 15 months
have highlighted the risks involved in
conducting transactions on an uncollat-
eralised basis; there is a whole lot more
emphasis today on monitoring your col-
lateral at the individual risk and exposure
level and knowing where it is at any one
time. All the traditional players have seen
a flight to safety in terms of where their
collateral is held. A huge number of cli-
ents who previously left collateral with
a counterparty now want it left with a
global custodian. A number of lessons
have been driven home by the collapse of
a cornerstone of the banking world.”
41
Securities Lending
The pressure placed on the industry’s in-
frastructure by recent credit events has
had a direct impact on how a company
like Omgeo, the post-trade, pre-settle-
ment management firm, is changing to
reflect the evolving situation. “It height-
ened our awareness of the extent of the
challenge we face in servicing the indus-
try,” says Tim Lind, managing director,
strategic planning, Omgeo. “Modern in-
vestment styles create ongoing credit and
counterparty exposure whether through
derivatives, repo or securities lending,
and a new need for valuation services
when marking to market. Most opera-
tions and settlement infrastructure is
designed to settle a security and hold it
in an account, but securities don’t sit in
an account any more. They are pledged as
collateral and change every day. We need
a more effective way to monitor exposure
intraday, and to adjust as necessary.”
The need for such adjustments ex-
plain Omgeo’s recent purchase of Allus-
tra, the London-based provider of collat-
eral management solutions, which claims
to offer a suite of products that provide
customers the ability to consolidate trade
positions across asset classes, including
OTC derivatives, while mitigating the as-
sociated counterparty risk. “We looked
at how Omgeo could enter the market,
which is very adjacent to our traditional
markets. Given the speed at which we
think it will unfold, we didn’t have time
to design and build our own solution. We
had to acquire, and Allustra stood out.”
But how long will this new conser-
vatism last? Medical practitioners gen-
erally estimate that when they scare a
heavy drinker into giving up alcohol,
the subsequent dry period will only
last approximately six months. His-
tory suggests the financial markets be-
have in a similar way. “How long is col-
lective corporate memory?” asks BNY
Mellon’s Staffan Ahlner. “We have seen
similar things happen in the past.”
Over time, people will go back to their
old ways, is the clear suggestion. ■
10/11/08 17:44:14
 Fund Administration ISJ | Investor Services Journal
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56

Administering a nation
Catherine Kemp discovers a gradual opening in the insulated world of
Japanese fund administration
Japan is very much a scale business. The
three major Japanese ‘trustee’ banks for
fund administration - Master Trust Bank
of Japan (MTBJ), Japan Trustee Services
Bank (JTSB) and Trust & Custody Ser-
vices Bank (TCSB) - were created specifi-
cally to provide trustee and back office
fund administrative services for Japanese
mutual funds, institutional pension funds
and government pension funds and pro-
vide Japanese accounting at competitive
rates.
Major domestic banks have a vested
interest in these institutions. Mitsubishi
owns a 46.5% stake in MTBJ, Sumitomo
Trust and Mitsui Trust each hold 33%
stakes in JTSB, and Mizuho Financial
Group owns a 54% stake in JTSB.
The only two global banks with a sig-
nificant presence in the onshore retail
and institutional market are State Street
and Citi. State Street has 400 members of
staff and provides Japanese trust services
for pension funds and insurance compa-
nies. It also provides traditional middle
office and investment manager report-
ing services to global funds. Citi merged
with Nikko bank in 1999, and the result-
ing Nikko Citigroup provides trustee
and fiduciary services to retail and mu-
tual funds and also acts as an outsourcing
agent to fund managers - a pricing agent,
as they cal it in Japan – providing net as-
set value calculations for mutual funds.
The main driver of the Japanese funds
industry has traditionally been high net
worth individuals. The character and
shape of the mutual funds industry is
very much influenced by these investors.
The structure is similar to the US model,
except that in the US the fund manager is
the distributor; in Japan, the distributor
is an independent brokerage house. The
distributor will have retail clients, often
high net worth individuals, who will ap-
proach the fund managers and ask them
to develop specific products based on

42

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 ISJ | Investor Services Journal Fund Administration

market trends. The managers build the
products and the distributor offers it on
their platform. The distributor then ap-
points the trustee bank, the global custo-
dian, and anyone else that supports the
portfolio. In a mutual fund sense, there-
fore, the distributors instruct the fund
manager as to what they need on their
platform.
Despite a tradition of long-only strat-
egies and mainstream asset classes, there
is an increasing drive into the alternative
funds space. Matt Brown, regional head
of fund services at Citi, says: “The alter-
the one hand are the trustee banks that
focus on the retail and long only space. Japanese fund allocation
Then there are global banks like BNY
Mellon with relationship managers that
offer investors access to the banks off-
shore domiciled and administrated hedge
funds.
“There are a large volume of both tra-
ditional and alternative investment strat-
egy offshore funds that are invested into
by investors in Japan, some institutional
and some retail money, and the admin-
istrators for that part of the business are
not limited to the three large Japanese

The domicile of the fund drives the location

of the administration, and most funds are
domiciled overseas for tax purposes
Matt Brown, Citi
native space has always been very strong
here because hedge funds have been
widely used by the high net worth sector
for years. It is probably one of the most
established markets in Asia. There has
been a very strong industrial base here
for a long time and, as a result, an unusu-
ally large number of high net worth indi-
viduals.”
However, few hedge funds are ad-
ministrated or managed in Japan. Most
are domiciled overseas, with Cayman
Islands, Dublin, Luxembourg a few such
destinations. Brown says: “There are a
small number of Japanese domiciled
hedge funds which have to be adminis-
tered onshore, with the local trustee. But
to the best of my knowledge this is a very
small amount. The domicile of the fund
drives the location of the administration
and most funds are domiciled overseas
for tax purposes. And this won’t, or is
very unlikely to change.”
The market is thus divided into two. On
trustee banks,” says Andrew Gordon,
head of alternative investment services
business in Asia at The Bank of New York
Mellon.
“That is where other big international
banks involved in that type of activity in
other parts of the world provide services,
including BNY Mellon. The actual work
for offshore funds is not done in Japan.
We would provide relationship managers
and technology support, but we wouldn’t
do the onshore NAV calculation in Ja-
pan.”
In the mutual funds space, however,
this division is being challenged. Histori-
cally global fund managers have tended
to focus on Separately Managed Accounts
(SMA) and similar products. Now, global
fund managers are playing a more active
role in the mutual funds space. One of
the reasons for this is that Japan’s tradi-
tional ‘saving culture’ that prefers to put
money into bank accounts rather than
invest in stock products. But in the last
Japanese pension funds make up one of the
worlds biggest asset pools at USD 1,068 bil-
lion, according to Greenwich Research, based
on interviews with professionals at 361 of
Japan’s largest corporate pension funds, public
pension funds and financial institutions.
Across all Japanese pension funds, average
hedge fund allocations increased to 1.9 per
cent in 2007 from 0.4% in 2003.
The biggest are Japanese corporate pension
funds, which hold an estimated YEN 30,000bn
(USD250bn) in deposits, and who according to
Greenwich research have increased allocation
to hedge funds from 63% in 2006, to just under
70% in 2007.
According to Daiwa Institute of Research, 70%
of corporate pensions have hedge fund
holdings in 2008, compared with 4.5% in 2001.

43

30-45 ISJ34 4.indd 43 10/11/08 13:00:39

 Fund Administration
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56
few years, this has changed, and Citi and
State Street are preparing for this change.
State Street plans to reinforce its team
in order to offer pricing services to this
market, something Citi already provides.
Andrew Erickson of State Street’s In-
vestor Services team explains: “This new
investment culture has been expanding
steadily for the past three years,” he says.
“We think it will definitely continue to
grow and that the time is right to begin
servicing these new types of assets. We
plan to bring global standards of pricing
services to Japan and roll that out to a
We plan to bring global standards of pricing services to Japan and
roll that out to a broader client base next year
Andrew Erickson, State Street
broader client base next year.”
Institutional and state pension funds
are also a growing influence on the type
of products available for investment.
Japan is an extremely wealthy country
with the second biggest gross domestic
product (GDP) in the world and a size-
able amount of public pension fund as-
sets. They also have an ageing population,
with more people looking for their retire-
ment benefits now, than compared to 25
years ago. This puts pressure on the pen-
sions system, driving the desire of public
institutions to invest funds differently.
Erickson says: Erickson says: “We see
that pension funds here are now looking
to hire investment mangers because they
are looking to provide more value in the
way they invest. Pension funds and invest-
ment managers are streamlining services.
I believe we are looking at the combina-
tion of the onshore traditional products
model versus offshore alternatives model
and that you will gradually see more ser-
vicing of derivatives and other types of
these products under locally based struc-
tures. This is a real opportunity for com-
panies like State Street that focus on the
Japanese and offshore servicing market to
a high degree, because we are more likely
to have solutions that apply.
Investors in Japan will be looking to
30-45 ISJ34 4.indd 44
see how they can apply the newer invest-
ment strategies in the best possible way,
and while the offshore business is a stable
business and will continue to grow, you
are going to see more organisations look
to do that onshore. I believe that onshore
complexity will continue to grow and
both will increase overtime accordingly.”
While it may be time for change in
Japan, with the breakdown of this rather
consolidated and inflexible system into a
more fluid system, some say that this is
highly unlikely, at least in the alternatives
sector.
Brown explains: “Hedge funds are inher-
ently unregulated vehicles, so in many
senses to establish a hedge fund in a ju-
risdiction that has extensive fiduciary
oversight, like Japan, is not really what
the business is about. People buy into
hedge funds because they want to achieve
alpha, and once they have that mind set
then they want to minimise costs also.”
Brown adds that the consolidated
model provides a high degree of protec-
tion to investors. “At the end of the day,
the role of the trustee bank in Japan is to
look after the fiduciary obligations of the
individual investors. Japan has been very
active in that space. Consolidation ulti-
mately leads to a reduction in cost which
is good for investors. The creation of a
number of trustee banks a few years ago
was in order to achieve greater fiduciary
and operating efficiency. Utility banks
designed specifically for this purpose
achieve this very effectively.”
The Nikko Citigroup merger is anoth-
er indication of this further integration.
The merger has allowed Citi a broader
distribution network, product depth and
investor profile, which has ultimately
given it increased access into the retail
investor space, which may have a signifi-
cant impact on the industry and type of
products that would be available onshore
44
ISJ | Investor Services Journal
for investors.
The recent acquisition of Lehman
Brothers’ staff and technology by prime
broker Nomura, and Mitsubishi’s acqui-
sition of 20% of Morgan Stanley, has also
altered the banking industry in Japan.
These acquisitions signal the a greater
crossover between Japanese banks and
the global financial system.
However, the recent economic down-
turn may hold back this process of expan-
sion. Japan’s direct exposure to sub prime
or related issues was initially very small,
with the domestic economy largely unaf-
fected. But it is now feeling the knock on
effect of the freezing of inter-bank lend-
ing, and at the end of October the Nik-
kei 225 closed at 8,576.98, a fall of 23.8%
over the month. The previous Monday
the index plunged 486.18 points, or 6.4%,
to 7,162.90, its lowest close since October
1982.
Nevertheless, Erickson says State Street
believes that Nomura’s and Mitsubishi’s
acquisitions will provide the two banks
with opportunities for further growth,
which in the long run will add to the
complexity of the business in Japan. This
will only create opportunities for global
players like State Street. n
10/11/08 13:00:48
30-45 ISJ34 4.indd 45 10/11/08 13:00:55
 Analyse This: Caribbean Fund Services
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56
Analyse This:
Caribbean Fund Service
Robert Briant, managing partner at law firm Conyers Dill & Pearman,
British Virgin Islands, provides a double header of legal analysis
What are the implications
of the credit crunch to fund advice
in the British Virgin Islands?
Although we will, of course, feel the
effects of a global recession, the British
Virgin Islands are perhaps less directly
tied to the crisis than other jurisdictions.
The large number of BVI holding
companies around the world continues
to bring corporate work, and with the
opening of the new commercial court
and the strength of BVI’s insolvency
legislation, BVI maintains its position as
one of the most popular offshore hedge
fund jurisdictions.
In the current climate, advising funds
in distress is a busy area, particularly
for Conyers Dill & Pearman. It is times
like this when the efforts in structuring
funds come to the forefront and what
works and what does not work becomes
more apparent.
When a fund is in difficulty, its
directors must be careful to act within
the scope of the fund documents. In
the case of redemptions, the timing of a
redemption request and whether it has
crystallised can dramatically differentiate
49-64 ISJ34.indd 46
an investor between a creditor and
a shareholder.
Of issue is the point in time at
which the directors and manager
perceive the fund as starting to be
“in trouble”. From this point onward,
they need to consider how to treat all
investors fairly. Unless redemptions
were suspended as of such point in time,
anyone who submitted a redemption
request which has crystallised has ceased
to be a shareholder. Rather, the person
is a creditor, and all shareholders who
have not submitted redemption requests
or whose redemption requests have not
crystallised remain shareholders.
As with any corporate vehicle,
creditors get paid prior to shareholders.
As such, these creditor redeemers may
get a higher net asset value than non-
redeemers. This puts considerable stress
on the directors in determining when to
suspend redemptions.
Many funds are receiving redemption
requests that are triggering their gating
provisions. The directors, especially the
independent directors, need to seriously
consider the future life of the fund, or
more specifically whether it has a life. If
the gate is being triggered, then the fund
may be in crisis, and it may be more
suitable to suspend redemptions and
start treating all shareholders equally by
redeeming all shareholders and planning
an orderly wind down.
This is difficult, especially for the
manager who set up the fund, but if the
directors wait too long and rely on the
gate then they risk possible law suits for
failing to suspend redemptions earlier.
However, if the fund otherwise has legs
as well as gates, then gates could be
utilised if there are immediate but not
long term liquidity problems. n
46
ISJ | Investor Services Journal
What are the fiduciary
duties of a director to a fund?
The statute requires directors to act
honestly and in good faith in what they
believe to be in the best interests of
the company. The memorandum and
articles of association are generally very
broadly drafted to be consistent with
such a framework. The memorandum
and articles of association also set out
the rules on which the fund operates.
Hedge fund directors must be
particularly aware of the provisions
relating to the suspension of
redemptions and the calculation of
net asset value. The memorandum
and articles of association will govern
these provisions, rather than the private
placement memorandum. The two
documents should be consistent, but this
is not always the case.
Where there is inconsistency
between these two documents, it is the
memorandum and articles of association
which will govern the mechanics of
redemptions, calculation of net asset
value and suspension. There may be
a remedy for breach of contract if the
PPM differs, but you must look at the
memorandum and articles of association
to determine the mechanics.
Therefore, the directors cannot
merely rely on the PPM of the offshore
fund but rather should review the
memorandum and articles of association
to determine their obligations.
Directors who do not do so may be
in for a surprise when counsel for an
investor sets out a different redemption
parameter from that in the PPM. n
10/11/08 12:38:45
 ISJ | Investor Services Journal
Greg Bennett, Managing Director, Butterfield Fulcrum Group,
focuses on the Cayman Islands
How has the Cayman Islands
developed into a leading domicile
for alternative assets?
As the hedge fund industry regains its
footing following the global credit crisis,
one aspect of the industry that remains
steady and sure: The Cayman Islands.
Cayman, the number one domicile for
hedge funds globally with over 10,000
funds currently registered with the
Cayman Islands Monetary Authority
(CIMA), got its edge over competitor
domiciles in the early 1990s when the
close partnership between government
and the financial community led to fund
legislation that was conducive to setting
up professional fund structures.
While other prominent jurisdictions
have now copied to a great degree
the Cayman Islands legislation, first-
mover advantage coupled with a large
infrastructure of financial professionals
and a legal system based on UK common
law has allowed the Caymans to retain
its significant lead in this market. In the
meantime, the close partnership between
regulators and the financial community
has continued, ensuring that updates to
existing legislation continue to meet the
49-64 ISJ34.indd 47
ongoing needs of the global hedge fund
industry.
Cayman also continues to lead the
industry with innovations such as
introducing the E-Reporting initiative,
whereby financial statements, including
basic financial and non-financial
information contained within the
financial statements, are now e-filed
with CIMA. While fund specific
information remains confidential, the
result is comprehensive and statistically
significant aggregate information
being available regarding the hedge
fund industry, including gross industry
inflows, total assets, and average
performance by strategy.
In terms of the recent market
turmoil, regulators in the US and UK
are definitely taking a more proactive
approach in relation to hedge fund
regulation. That said, early indications
are that both the US Securities and
Exchange Commission (SEC) and UK
Financial Services Authority (FSA)
are satisfied with the Cayman Islands’
existing ‘quick to market’ regulatory
framework. In fact, recent concerns
about hedge funds have been centred
on concern about the possible systemic
risk these funds pose to the financial
markets. Therefore any approach that
develops to monitor and mitigate these
risks is more likely to involve oversight
in the markets that the funds trade,
rather than to require an increase in the
review and oversight in the jurisdiction
of domicile.
That said, this type of global crisis
lends support to increased market
scrutiny by legislators across the globe,
and often “offshore” jurisdictions
become an easy scapegoat in this
process. As such much work will need
47
Analyse This: Caribbean Fund Services
to be done at all levels to educate the
various international constituents about
the vital role these jurisdictions play in
terms of the global financial system.
Finally, Caymans’ leadership as a
domicile is also closely tied to its
strong fund administration industry.
Consistent with the innovative and
responsive reputation of the jurisdiction
as a domicile, local administrators
span from the largest in the world, to
boutique players as well as all sizes in
between, ensuring the diverse needs of
investment managers can be met locally.
Fund administrators such as Butterfield
Fulcrum Group provide NAV servicing,
shareholder services and middle and
back-office support to hedge funds
globally. n
Butterfield Fulcrum Group (BFG) is
a leading global fund administrator
for the alternative asset industry,
with over USD100 billion in assets
under administration from nearly
1,000 hedge funds, fund of funds,
private equity and institutional
investment management clients.
BFG is among the top ten alternative
asset fund administrators globally, is
headquartered in Bermuda and has
around 400 employees in ten locations
across nine countries. BFG employs
advanced technological and middle
office capabilities offering clients
access to a full range of institutional
financial services. For more
information, visit www.bfgl.com.
10/11/08 12:38:46
 ISJ Directory of Services
Asset Servicing
GOAL is the widely-acknowledged
industry leader in providing creative
products, services and solutions to
automate and optimise the global
reclamation of withholding tax and class
action compensation. Our research has
shown that in excess of US$6 billion
of withholding tax remains unclaimed
each year by the rightful owners and
beneficiaries and the amounts for class
actions is even larger.
T: +44 (0) 844 499 6388
C: Saghar Bigwood or
Stephen Everard
A: 7th Floor, 69 Park Lane,
Croydon, CR9 1BG
E: sbigwood@goalgroup.com or
severard@goalgroup.com or
info@goalgroup.com
Consultants|Consultancy
SMA Financial is the UK’s premier provider
of SWIFT services and a long standing
business partner of SWIFT. SMA’s vast
experience in the banking and securities
industry has provided high quality
provision of SWIFT related consultancy,
training, system care and bureau services
which is second to none. SMA prides itself
on their in-depth and highly experienced
team of consultants chosen from the
banking and securities industry. The
introduction of the SWIFT bureau service
has witnessed much success by providing
cost effective and quality hosted
connectivity services to many satisfied
clients.
Simon Murby
Managing Director
SMA Financial Limited
Telephone : +44 (0)20 7940 4200
Bramah House,
65-71 Bermondsey Street,
London. SE1 3XF
Website: www.sma.co.uk
Directory NEW.indd 48
Custody & Clearing
BHF-BANK is one of Germany’s most
prestigious private banks. Its roots date
back to the year 1854. As an advisory,
service and sales & trading bank, we offer
our discerning clientele a comprehensive
array of customised solutions. BHF-BANK
combines the strengths of a private bank
with a long track record of capital market
competence.
Trust, an individual approach and
impartiality - these qualities are at the
very heart of the long-term guidance
and advice we provide for our clients. Our
bank’s activities are grouped within the
divisions Asset Management & Financial
Services, Financial Markets & Corporates
and Private Banking.
The bank’s longstanding experience
in the German securities services
market goes hand in hand with a
corporate culture that values prompt
acknowledgements and short decision-
making channels.
BHF-Bank offers tailor-made custody
services to meet its clients’ particular
requirements. It’s reporting services
include a comprehensive SWIFT reporting
matrix as well as its Internet-based
reporting tool cds@web. Assets under
Custody: EUR309 bn No of funds: 409
C: Cornelia Keth
T: +49 69 718 3738
F: +49 69 718 6050
E: cornelia.keth@bhf-bank.com
C: Moritz Ostwald
T: +49 69 718 6838
E: moritz.ostwald@bhf-bank.com
A: Strahlenbergerstraße 45,
63067 Offenbach a.Main
Germany
W: www.bhf-bank.com
48
CACEIS, with EUR2.3tr under custody
and EUR950bn under administration is
one of the world’s leading asset servicing
providers, dedicated to institutional
and corporate clients and the premier
provider in the sizeable French market.
We are rated AA- by S&P, which reflects
the significant financial support of our
shareholders, Crédit Agricole S.A. and
Natixis. Our services combine powerful IT
systems and expert staff to help clients
reduce their costs, improve service quality
to their investors and focus on their core
business.
Through offices across Europe and North
America, CACEIS delivers a comprehensive
set of high quality services, covering
custody and depositary/trustee, fund
administration, transfer agency and
corporate trust.
International: Olivier Storme
T: +352 4767 2847
E: olivier.storme@caceis.com
France: Patrick Lemuet
T: +33 (0)1 57 78 03 34
E: patrick.lemuet@caceis.com
KBL, leading service provider in the
Luxembourg fund industry, offers
one-stop shop facilities to international
fund promoters. Product structuring
(of SICAV, FCP, SIF, SICAR, SEPCAV,
…), global custody services as well as
an efficient fund administration and
transfer agency infrastructure are some
of our fields of expertise that will bring
added value to the management of your
assets.
For all kinds of Undertakings for
Collective Investment going from plain
vanilla cash, money-market, equity and
bond funds to sophisticated alternative,
venture capital/private equity, pension
pooling and funds of hedge funds, KBL
offers expert legal, fiscal and technical
advice as well as access to the global
markets.
Business Development –
Investment Fund & Global
Custody Services 43, boulevard Royal
L-2955 Luxembourg
Stéphane Ries
E: stephane.ries@kbl-bank.com
Sandra Cortese
E: sandra.cortese@kbl-bank.com
Stéphane Pesch
E: stephane.pesch@kbl-bank.com
T : (352)4797 3512
F: (352)4797 73910
www.kbl.lu
ISJ | Investor Services Journal
DnB NOR is the largest and leading
provider of Custody, Clearing and
Remote Member Service in Norway. In
addition, DnB NOR provides a wide range
of value added services to both Foreign
and Domestic clients.
Through an Alliance solution with banks
in Sweden, Finland and Denmark, DnB
NOR can offer seamless regional products,
which can be customized to our client’s
needs.
T: +47 22 94 92 95
F: +47 22 48 28 46
Contact: Bente I. Hoem
E: bente.hoem@dnbnor.no
W: www.dnbnor.com
Nordea is the leading financial services
group in the Nordic and Baltic Sea region
and operates through three business
areas: Nordic Banking, Banking & Capital
Market Products and Savings & Life
Products.
Nordea is the leading custody services
provider in the region. Nordea provides
high quality, tailor-made custody services
for local and foreign investors dealing
with Nordic, Baltic or global securities.
- The leading financial services group in
the Nordic and Baltis Sea region
- A world-leading Internet banking and
e-commerce operation
- The largest customer base of any
financial services group in the region
T: +47 2248 6238
Contact:
Anne-Lise Kristiansen
Head of Sub-custody and Clearing
Email:
anne-lise.kristiansen@nordea.com
13/11/08 14:08:11
 ISJ | Investor Services Journal
Designing custody solutions
– for the Nordic region
One region
One custodian
One point of entry
RBC Dexia Investor Services offers a
complete range of investor services
to institutions worldwide. Our unique
offshore and onshore solutions,
combined with the expertise of our
5,200 professionals in 16 markets,
help clients grow their business and
sustain enhanced performance through
efficiency improvements and robust risk
management practices.
Equally owned by RBC and Dexia, the
company ranks among the world’s top 10
global custodians with USD 2.8 trillion in
client assets under administration.
rbcdexia.com
T: +44 (0) 20 7653 4096
F: +44 (0) 20 7248 3946
Contact: Tony Johnson
Head, Sales & Relationship
Management
E: antony.johnson@rbcdexia-is.com
Address: 71 Queen Victoria Street,
London, EC4V 4DE, UK
Directory NEW.indd 49
SEB is the leading provider of securities
services in the Nordic and Baltic area. We
are committed to custody and clearing
processes for the wholesale market. We
hold securities worth over 560 bn EUR and
provide services in more that 75 markets,
10 of them under the SEB name (Sweden,
Norway, Finland, Denmark, Luxembourg,
Germany, Estonia, Latvia, Lithuania and
Ukraine).
We offer a full range of securities
services including corporate action and
information services, securities lending
and services to remote members of the
Nordic and Baltic stock exchanges. We
continuously develop new products in
connection with clients and partners
to ensure we deliver the high-quality
products our clients demand. We always
strive to make the processes more
efficient. With a history of over 150 years
in the securities industry; we know the
market and our clients well.
T: +46 8 763 53 04
F: +46 8 763 69 30
C: Goran Fors, Global Head
of Custody Services
E: goran.fors@seb.se
W: www.seb.se
49
Banking Securities Services provides
award winning local and regional custody
services for investment professionals.
We are proud to be the largest custodian
provider in terms of assets and number
of foreign clients in Central & Eastern
Europe. ING has been providing Securities
Services in CEE since 1994 and we
will continue our ongoing pursuit of
excellence through new technology.
Innovation and client focus are the key
drivers to service our clients the best way.
Other activities of ING Wholesale Banking
Securities Services are Paying Agency
Services and web-based management of
employee stock option & share plans.
ING is your local partner in: Belgium,
Bulgaria, Czech Republic, Hungary,
Poland, Romania, Russia, Slovak Republic
and Ukraine.
For further information please contact
Lilla Juranyi, Global Head Custody
at + 31 20 7979 435
or contact her by email:
Lilla.Juranyi@mail.ing.nl
Société Générale Securities Services
offers institutional investors, asset
managers and financial intermediaries
a comprehensive range of financial
securities services: custody, clearing &
trustee services, fund administration,
asset servicing and transfer agency. SGSS
currently ranks 3rd European custodian
and 9th worldwide custodian (Source:
Globalcustody.net) with EUR 2,580*
billion in assets held and valuates
4,354* funds representing assets of EUR
405* billion (as of June 2007).
Sébastien Danloy
Global Head of Sales,
Investor Services
Société Générale Securities Services
T: +33 (0)1 41 42 98 65
E: sebastien.danloy@socgen.com
W: www.sg-securities-services.com
ISJ Directory of Services
Intesa Sanpaolo’s Transaction Services
include :
• Sub Custody, Derivatives and
Remote Membership Clearing
• Global Custody and Depository Bank
for mutual funds, pension funds,
real estate funds, private equity
funds and hedge funds
• Fund Administration for mutual
funds, pension funds, real estate
funds, private equity funds and
hedge funds
• Paying Agent for foreign funds and
sicavs
• Cash and Payment services like
swift to checks, mass payments,
checks and cash letters
INTESA SANPAOLO S.P.A.
Financial Institutions
Transaction Services
Piazza della Scala 6
20121 Milan
Italy
T: +39 02 8794 2466
F: +39 02 8794 1519
W: intesasanpaolo.com
C: Riccardo Lamanna
E: riccardo.lamanna@
intesasanpaolo.com
Financial Asset Services is the custody
and investments-servicing division of
Standard Bank, providing a unique suite
of services to sophisticated investors
in South Africa and eight sub-Saharan
markets.
Standard Bank has assets under custody
to the value of ZAR1.56 trillion and an
overall market share of approximately
40%.
Standard Bank’s unique selling point
lies in its consultative approach to
relationships combined with the bank’s
commitment to custody and investment
administration services.
A:Standard Bank
Financial Asset Services
3rd Floor
25 Sauer Street
Johannesburg 2107
T: +2711 636 6615
E: adam.bateman@standardbank.
co.za
W: www.standardbank.co.za
13/11/08 14:08:15
 ISJ Directory of Services
Custody & Clearing
Santander is Spain’s leading financial
institution and the largest bank in the
euro zone by market capitalization. Our
commitment and contribution to the
securities industry is well established
after more than a century of providing
services in this field.
Santander’s cutting edge technology
enables it to offer a comprehensive
array of innovative services in a broad
range of markets. Santander currently
has full local capabilities in Iberian and
Latin American markets along with a
franchised presence in many others.
Santander`s experience and product
range ensures that every aspect of the
securities business is fully contemplated.
T: Europe: (34) 91 2893932 / 28
T: USA: (1212) 350 39 02
W: santanderglobal.com
E: globalsecurities@
gruposantander.com
Standard Chartered leading the way in
Asia, Africa and the Middle East.
Standard Chartered has a history of over
150 years in banking and is in many of
the world’s fastest-growing markets
with an extensive global network of over
1,200 branches (including subsidiaries,
associates and joint ventures) in over 50
countries in the Asia Pacific Region, South
Asia, the Middle East, Africa, the United
Kingdom and the Americas.
As one of Asia’s leading custodians,
Standard Chartered has an impressive
track record across the 16 Asian markets
in which it provides securities services.
It serves global, regional and local
custodians and broker-dealers, as well
as local and regional fund managers. The
Bank plays a key role in promoting the
development of these markets and keeping
the international investor community
informed of industry developments across
the region.
C: Neil Daswani,
Global Head, Securities Services
T: +65 6517 0022
E:
Neil.Daswani@sg.
standardchartered.com
W: www.standardchartered.com
Directory NEW.indd 50
Swedbank provides client-focused custody
services to domestic and international
securities lending (including auto-borrow
facilities), derivative clearing services,
proxy voting, full corporate actions and
income service. Flexibility is an important
aspect of Swedbanks products and
services. Our dedicated Client Relations
Managers and Account Managers are
focused on personalized processing and
reporting solutions.
Other Features:
- ISO9001:2000 quality certification.
- Swedbank Markets Online (SMO) internet
information and reporting toolfor Custody
and Securities Lending.
- Nordic Custody alliance with DnB
NOR (Norway), OKO Bank (Finland)
and Amagerbanken (Denmark) to offer
regional custody product.
Institutional Assets under Custody: USD
70 billion
T: +46 8 5859 1800
F: +46 8 7237 147
C: Neal Meacham, Head of Custody
E: neal.meacham@swedbank.com
A: S tockholm SE 1 05 3 4 Sw eden
Unicredit Markets & Investment Banking
(MIB) serves as UniCredit Group’s global
product and competence center for global
financial markets and investment banking
services, including Custody throughout
Central and Eastern Europe, including
Austria.
Brand diversitiy under which the group
operates (Bank Austria Creditanstalt,
HVB, Bank BPH, Bank Pekao, Zagrebacka
Banka and International Moscow Bank),
has its roots in local market presence and
knowledge, contributing into a single
unified product across the region. In
2006 the group was recognised by no
less than 3 independent surveys as being
the best region custodian. The group’s
ability to deliver service excellence
across 13 markets is the cornerstone of
our success. From participation in local
market associations to our inter group
training sessions, to a client consultative
approach, the group continues to work
towards making a single impression -
excellence.
T: +43 50505-58510
F: +43 50505-58579
C: Andreas Petzl , Head of Sales
and Relationship Management
E: Andreas.petzl@ba-ca.com
W: www.hvb-custody.com/
50
Data Services
Market Data & Analytics provides high-
value real-time market data, indices
and back office services. Information
from diverse sources are provided to
its customers, tailored to their specific
information needs. Accuracy and
reliability are ensured by collecting
the data from the Group’s own trading
platforms, such as Xetra® and Eurex®
and cooperation partners like STOXX Ltd.
and the Irish Stock Exchange. Avox®,
a majority-owned subsidiary, validates,
corrects, enriches and maintains
business entity data. With an operational
model, unique in the industry, Avox®
enables clients to comply with regulatory
requirements and to achieve a holistic
view of the risk exposure towards a
client.
Avox
Redwither Tower
Redwither Business Park
Wrexham, LL13 9XT
United Kingdom
T: +44 (1978) 661 813
F: +44 (1978) 661 668
W: www.avox.infow
Telekurs Financial specialises in
the procurement, processing and
distribution of international financial
information. Financial market
specialists at Telekurs Financial gather
information from all the world’s major
trading venues – directly and in real
time. The Telekurs Financial database
with its structured, coded securities
management data is unique in terms
of its depth of information and data
coverage. With offices in 22 countries,
Telekurs Financial combines the
advantages of global presence and local
know-how.
Telekurs (UK) Ltd
15 Appold Street
London
EC2A 2NE
T: +44 (0) 20 7550 5000
F: +44 (0) 20 7550 5001
E: info@telekurs.co.uk
W: www.telekurs.co.uk
ISJ | Investor Services Journal
Interactive Data Corporation (NYSE:
IDC) is a leading global provider of
financial market data, analytics and
related services to financial institutions,
active traders and individual investors.
The Company’s businesses supply
real-time market data, time-sensitive
pricing, evaluations and reference
data for millions of securities traded
around the world, including hard-to-
value instruments. Many of the world’s
best-known financial service and
software companies subscribe to the
Company’s services in support of their
trading, analysis, portfolio management
and valuation activities. Through its
businesses, Interactive Data Pricing
and Reference Data, Interactive Data
Real-Time Services, Interactive Data
Fixed Income Analytics, and eSignal,
the Company has approximately 2,300
employees in offices located throughout
North America, Europe, Asia and
Australia.
www.interactivedata.com
T: 020 7825 7800
F: 020 7608 3514
Brendan Beith
European Sales Director
eu-info@interactivedata.com
Fitzroy House
13-17 Epworth Street
London EC2A 4DL UK
SmartCo is a leading provider of data
management solutions for the financial
industry.
SmartCo’s software, Smart Financial Data
Hub, covers all the data area, including
financial instruments, market data,
third parties, funds, transactions, and
provides full connectivity, a powerful
and user friendly front-end, traceability,
quality control, data enrichment and
customisable workflow.
Our solutions are based on SmartPlanet,
an innovative technology focused on
data management, and able to meet
evolving business requirements.
SmartCo offers to its customers the
ability to respond in the fastest way to
regulatory and business changes.
For further information: www.smartco.fr
or info@smartco.fr
SmartCo
37 rue de Liège
75008 Paris
France
T: + 33 1 58 22 29 60
E: info@smartco.fr
W: www.smartco.fr
13/11/08 14:08:21
 ISJ | Investor Services Journal
Fund Administration
CACEIS is an Investor Services company
with six offices across Europe. Owned
in equal parts by Crédit Agricole and
Natixis, CACEIS provides Custody,
Fund Administration and Corporate
Trust services to demanding Corporate
and Institutional clients. We have
considerable expertise in Cross-Border
Fund Distribution Support as well as
Alternative Investment and Private Equity
servicing.
Our staff have the language skills and
industry knowledge to develop business
relationships into strong partnerships and
our powerful IT systems are constantly
updated to ensure high levels of process
automation.
CACEIS is responsible for over EUR1.75
trillion held under custody, and over
EUR850 billion under administration.
International: Olivier Storme
T: +352 4767 2847
E: olivier.storme@caceis.com
France: Patrick Lemuet
T: +33 (0)1 57 78 03 34
E: patrick.lemuet@caceis.com
W: www.caceis.com
Société Générale Securities Services offers
institutional investors, asset
managers and financial intermediaries a
comprehensive range of financial securities
services: Clearing, Liquidity Management,
Custody and Trustee, Fund Administration,
Asset Servicing, Fund Distribution Services
and Issuer Services. SGSS currently ranks 3rd
European custodian and 7th worldwide
custodian (Source: Globalcustody.net) with
EUR 2,731* billion in assets held and valuates
5,158* funds representing assets of EUR 499*
billion (at end March 2008).
Sébastien Danloy
Global Head of Sales
Société Générale Securities Services
T: +33 (0)1 41 42 98 65
E: sebastien.danloy@socgen.com
W: www.sg-securities-services.com
Directory NEW.indd 51
Folio Administrators Limited, part of the
Folio Group of Companies supplying fund
administration, company management,
director services and insurance
management, is the leading fund
administration company in the British
Virgin Islands.
We specialize in servicing the needs of
start-up to medium sized hedge funds,
covering all aspects of fund formation,
structuring and on-going operations.
We work closely with an extensive number
of banks, brokers, custodians, auditors
and lawyers
to ensure that our clients receive
the best independent advice
and structures.
Daniel Cann, Director
Daniel@folioadmin.com
William Harris, Director
William@folioadmin.com
Folio Administrators Limited
Folio House, Road Town
British Virgin Islands
www.folioadmin.com
T: 284 494 7065
F: 284 494 8356
Drawing upon an extensive track record
of proficiency, dependability and
responsiveness, Swiss Financial Services
acts as administrator as well as registrar
and transfer agent of funds investing in
a broad range of financial instruments.
These include futures, foreign exchange,
equities, options, bonds and other funds.
We perform accounting and
administration services for diverse fund
types domiciled in, but not limited to, the
United States, Bahamas, Cayman Islands,
B.V.I. and Ireland.
Swiss Financial Services
(Ireland) Ltd.
Block 4B,Cleaboy Business Park,
Old Kilmeaden Road,
Waterford, Ireland
T: +353 51 351180
F: +353 51 871595
Adrian Maher
E: amaher@swiss-financial.ie
51
ISJ Directory of Services
Established in 2002, IMFC Fund As one of the world’s leading third-party fund
Services B.V. is a boutique hedge fund administrators, PFPC has over 30 years of
administrator and a trustee with its experience delivering personalised solutions to the
offices in Amsterdam and Sydney. IMFC global marketplace. PFPC services an international
offers third parties administration and client base from the United States, Luxembourg,
related services to all type of onshore Ireland and Poland, and from a presence in the
and offshore funds combining high Cayman Islands and London.
quality, independency, technology,
timely calculation with flexibility, A: PNC Financial Services Group, USX Tower,
experience, custom-made solutions and 600 Grant Street, Mailstop P6-PUSX-36-1,
competitive rates. Our services include: Pittsburgh, PA 15219
fund set-up and corporate services,
NAV calculation and other accounting C: darin.reffitt@pncgis.com
services, R&T agent and other investors C: lisa.presson@pncgis.com
and compliance services.
For more information visit our website:
www.imfcfundservices.com
www.imfcfundservices.com
t +31.20.644.4558
f +31.20.644.2735
Mrs. Consuelo Nardon
e: consuelo.nardon@imfc.nl
Rivierstaete Building, Amsteldijk 166,
1079 LH Amsterdam, Netherlands
Fund Services is a dedicated fund
administrator providing customized and
flexible services for traditional and alternative
investments.
Our comprehensive range of services for
investment funds includes fund set-up,
registration and support around the world,
fund accounting, NAV calculation, risk control
and reporting. We have practical experience
with registering funds in 28 jurisdictions.
We provide a flexible offering from the full
range of services, including Private Labelling,
to selected functions. Through our leading
fund administration architecture, multi-
source pricing and powerful compliance tools,
we offer a tailored, cost effective service.
www.ubs.com/fundservices
Luxembourg: Jean-Paul Gennari, tel. +352-44-
1010 1
Switzerland: Markus Steiner, tel. +41-61-288
4910
W: www.ubs.com/fundservices
C: Andre Valente
T: + 41 61 288 6269
E: andre.valente@ubs.com
A:UBS Global Asset Management -
Fund Services, Brunngässlein 12,
PO Box CH-4002 Basel, Switzerland
14/11/08 15:37:28
 ISJ Directory of Services
Hedge Fund Administration
Apex Fund Services Ltd is a global hedge
fund administration solution for hedge
funds and private equity clients located
in 12 separate jurisdictions across the
globe. The company uses the software
solution, PFS PAXUS, which is a fully
integrated hedge fund accounting
system combined with web-based
reporting to allow clients and investors
to access their information 24/7 securely
online. We will tailor all solutions to
meet your needs and our continuing
focus on the quality of service and the
relationship with each and individual
client ensures that we retain our ethos of
providing a personalized service rather
than a generic solution.
Highly qualified and experienced staff,
mirrored with top tier technology and
competitive fee structures make Apex
Fund Services Ltd the clear choice for
your fund administration needs.
C: Peter Hughes
Group Managing Director
T: +1 441-292-2739
F:+1 441-292-1884
E: peter@apex.bm
John Bohan
Group Manager of Operations
T: +353 21 4633366
F: +353 21 4633377
E: John@apexfunds.ie
Payments & Settlements
VocaLink is the payment transaction
specialist. Trusted by the world’s top
banks our automated payment system
processes over 90 million transactions
per day. The VocaLink switching platform
powers the world’s busiest ATM network
and provides end-to-end management
of Europe’s largest ATM estate, while the
Real-Time Payments platform provides
the central infrastructure for the UK
Faster Payments service. The VocaLink
EuroCSM delivers reach for our clients
throughout the SEPA and beyond with
a range of value-added services that
leverage our know-how and technical
capabilities. VocaLink is the partner of
choice internationally, working with BGC
to process Sweden’s automated payments.
Find out how we can help your business at
www.vocalink.com
Directory NEW.indd 52
Custom House, which is one of the world’s
largest independent alternative investment
and hedge fund administrators, was
awarded a SAS 70 Type I in May 2007 and a
SAS 70 Type II in December 2007.
Custom House offers a round-the-world,
round-the-clock service from its office
in Dublin and representative offices
in Chicago and Singapore, enabling it
to provide, not only complete global
administration services, but also the ability
to produce daily dealing NAVs.
Custom House is authorised by the Irish
Financial Regulator under Section 10 of
the Investment Intermediaries Act, 1995,
which authorisation does not extend to
the Chicago and Singapore representative
offices.
Custom House Administration &
Corporate Services Limited
A: 25 Eden Quay, Dublin 1, Ireland
T: +(353) 1 878 0807
F: +(353) 1 878 0827
C: dermot.butler@
customhousegroup.com
C: david.blair@
customhousegroup.com
ww.customhousegroup.com
VocaLink
Drake House
Homestead Road
Rickmansworth
Hertfordshire
WD3 1FX
T: +44(0)870 1650019
F: info@vocalink.com
W: www.vocalink.com
52
Fund Services holds a leading position
in the area of hedge fund administration
with specialized teams around the world.
We offer a complete range of services
including accounting, NAV calculation,
shareholder services, banking and credit
facilities.
With specialist expertise in both single
manager and fund of hedge fund
administration, services can be provided
for both onshore and offshore funds.
Through our comprehensive range of
services and products, leading edge
technology platforms and superior client
service, we work in partnership to offer
the solutions you need.
Cayman Islands: Darren Stainrod,
tel. +1-345-914 1076
Ireland: Don McClean,
tel. +353-1-436 3636
US: Concetta Mastrangelo,
tel. +1-212-882 5523
Hong Kong: Michelle Chua,
tel. +852-3712 2387
W: www.ubs.com/fundservices
C: Darren Stainrod
T: +1-345-914 1076
E: Darren.stainrod@ubs.com
A: UBS Fund Services (Cayman) Ltd,
PO Box 852 GT, Grand Cayman, Cayman
Islands
Prime Brokerage
Newedge Global Prime Brokerage Group
is a global, multi-disciplinary, solution-
providing team dedicated to delivering
superior services to alternative investment
industry participants including hedge
funds, commodity trading advisors (CTAs),
fund of hedge funds, family offices,
and institutional investors (insurance
companies, banks and pension funds).
The Newedge prime brokerage team
offers a global range of brokerage services
covering a wide range of asset classes
including equities, bonds, currencies,
commodities, and their related listed and
OTC derivative products. We also offer an
ISJ | Investor Services Journal
International Finance
Centres
The British Virgin Islands has created a
progressive and transparent environment
for the establishment and regulation
of mutual/hedge funds and their
functionaries. By the end of Q3 2006 the
BVI had recognised or registered more
than 4,000 funds, and licensed some 700
managers and administrators, making
the BVI a leading domicile of choice for
investment business.
Benefits of conducting investment business
in the BVI include:
-Fast-track registration and licensing
system - funds can be registered in a few
days.
-Presence of qualified, experienced legal,
accounting & administration practitioners.
-A well-developed corporate professional
infrastructure.
-Modern, robust and cost-effective
regulatory and corporate regimes.
-BVI private and professional funds fall
outside the scope of the EU Savings
taxation Directive.
- Segregated Portfolio Companies - also
known as Protected Cell Companies - can
now be formed as mutual funds under the
BVI Business Companies Act 2004.
British Virgin Islands
International Finance Centre
Haycraft Building
1 Pasea Estate
Road Town
Tortola
British Virgin Islands
T: +1 284 494 1509
F: +1 284 494 1260
W: www.bviifc.gov.vg
innovative portfolio-based cross-margining
solution, a dedicated account management
desk, hedge fund start up services,
quantitative information on the hedge fund
industry, capital introductions services, and
recently prime brokerage services to Sharia
compliant hedge funds.
Newedge is a major new force in finance,
resulting from the merger of the two
brokerage firms - Calyon Financial and Fimat
- on January 2nd, 2008. Newedge is wholly
owned by Calyon and Société Générale, with
both companies having
50% ownership.
Philippe Teilhard de Chardin,
Global Head of Prime Brokerage
T +44 20 7676 8536
Vincent Tournant,
Head of Business Development
T +44 20 7676 8171
Duncan Crawford,
Head of Capital Introductions
T +44 20 7676 8504
E: pbinfo@newedgegroup.com
www.newedgegroup.com/
primebrokerage
14/11/08 15:37:35
 ISJ | Investor Services Journal
Securities Lending
Data Explorers Limited, a specialist and
independent company, offers impartial
quantitative measurement of securities
lending performance services to the
global securities financing industry. We
help our clients monitor and understand
the relative performance of their lending
activity and risk, and turn raw lending,
borrowing and collateral data into useful,
actionable information. We also provide
proxies for short selling information.
Working with the industry we ensure
information flows are appropriate and
peer groups relevant. We are not involved
in transactions.
All of our services: Performance
Explorer, Transaction Explorer, Risk
Explorer, Index Explorer and Report
Explorer are web based and available to
clients over the internet.
United Kingdom (London)
2 Seething Lane,
London, EC3N 4AT
T +44 (0) 20 7264 7600,
F +44 (0) 20 7392 4004
United States (New York)
75 Rockefeller
Plaza, 19th Floor
New York
10019, USA
T +1 212 710 2210
F + 1 212 710 2212
Julian Pittam
T +44 (0) 207 264 7616
E:julian.pittam@dataexplorers
.com
New York:
Richard Allin
T +212 710 2210 (ext 353)
E: richard.allin@data
explorers.com
www.dataexplorers.com
FINACE® is the only fully integrated
solution today which supports the
future business model within the area
of Securities Finance and Collateral
Management. The architecture of
FINACE® is based on a stable, leading
edge technology platform, which
was developed with performance and
robustness as the focus of design. With
flexibility at its core, customer-driven
extensions and modifications can be
quickly and easily applied to the standard
component set.
T: +41 (0)44 218 14 14
F: +41 (0)44 218 14 18
E: info@finace.ch
A: COMIT AG, Buckhauserstrasse 11,
CH-8048 Zurich, Switzerland
W: www.finacesolution.com
Directory NEW.indd 53
EquiLend is a leading provider of trading
services for the securities finance industry.
With its robust suite of automated trading
tools, EquiLend enables its clients to scale their
businesses with great efficiency on a global
basis in all securities finance markets. Used by
borrowers and lenders throughout the world,
the EquiLend platform automates formerly
manual trading and post-trade processes.
Using EquiLend’s complete end-to-end
services reduces the risk of potential errors and
eliminates the need to maintain costly point-
to-point connections while allowing firms to
drive down unit costs. Firms can then free more
resources to expand their business and grow
trading volumes without increasing costs. This
makes the EquiLend platform a cost-effective
choice for all institutions, regardless of their
size.
A: 54 Lombard Street, London, EC3V 9EX
T: UK- +44 (0)20 7743 9510
C: Michelle Lindenberger
E: michelle.lindenberger
@equilend.com
A: 17 State Street, 9th Floor
New York, NY, 10004
T: US- +1 212 901 2224
C: Michelle Lindenberger
E: michelle.lindenberger
@equilend.com
W: www.equilend.com
Santander is the only Spanish financial
institution with a team exclusively
dedicated to securities finance & with
the purchase of Abbey in 2004 has
expanded its capacity on a Global basis
with trading teams in London (UK) &
Connecticut (USA).
Santander’s leading local capabilities
in Spain, Portugal, UK, USA & Latin
America, along with its solid balance
sheet & combined with the state-of-
the-art technology, provides its clients
with the broadest range of solutions in
securities lending & financing, including
availability across all assets classes, as
well as access to uncommon emerging
markets.
W: www.gruposantander.com
T: (3491) 289 39 42/54
E: securitieslending@
gruposantander.com
53
eSecLending is a leading global provider
and administrator of customized securities
lending programs and they have grown
to become one of the largest lending
agents in the marketplace. Their program
has been adopted by some of the world’s
largest and most sophisticated asset
gatherers including pension funds, mutual
funds, investment mangers and insurance
companies. eSecLending’s approach has
introduced investment management
practices to the securities lending
industry, offering beneficial owners an
alternative to the custodial lending model.
Through eSecLending, beneficial owners
have achieved optimal returns, greater
transparency and increased control over
their program as compared to traditional
lending models.
eSecLending maintains offices in Boston,
London and Burlington, Vermont.
T: US- +1 617 204 4500
T: UK- +44 (0)20 7469 6000
C: Christopher Jaynes
E: info@eseclending.com
W: www.eseclending.com
A: 175 Federal Street, 11th FL, Boston, MA
02110, US
A: 1st Floor, 10 King William Street,
London EC4N 7TW, UK
Eurex is one of the largest derivatives
exchanges and the leading clearing house
in Europe. Wherever you are located, we
provide you with access to the benchmark
futures and options market for European
derivatives. Eurex also offers short term
funding products, such as Eurex Repo.
Eurex Repo is among the forerunners in
providing integrated trading and clearing
for repo transactions. Eurex’s latest
innovative marketplace is called Eurex
SecLend.
Eurex SecLend. Europe’s leading
investment banks participate as borrowers
in the Eurex SecLend marketplace,
acting as principal brokers, dealers and
intermediaries. They all benefit from
Eurex’s leading state-of-the-art trading
and processing services. For Eurex,
service and technology innovation is not
just a buzzword. New trends are being
transformed into inventions through the
adoption of advanced trading practices.
Find out more on www.eurexseclend.com.
W: www.eurexseclend.com
T: +41 58 854 2066
F: +41 58 854 2455
E: info@eurexseclend.com
Eurex Zurich Ltd., Selnaustrasse
30, 8021 Zurich, Switzerland
ISJ Directory of Services
JPMorgan’s Securities Lending program
is unparalleled due in no small part to
the Firm’s breadth of capability, financial
strength, professional expertise and
seamless operations.
Our program enables investors to access
a broad spectrum of lending markets,
with a diverse borrower base, offering
a broad indemnification against
borrower default, while achieving very
competitive bids for their securities - all
of this in an environment designed
not to compromise the activities of
their fund managers. As one of the
founding members of EquiLend, a global
automated platform for borrowers and
lenders, JPMorgan is at the forefront of
technology and is ideally placed given
its integrated lending, custody and
accounting platforms.
New York: William Smith
T: 212-623-5664
E: william.z.smith@jpmorgan.com
London: Michael Fox
T: 44 207 742 0256
E: michael.uk.fox@jpmorgan.com
Sydney: David Brown
T: (61-2)92504606
E: david.ldn.brown@jpmorgan.com
W: www.jpmorgan.com/wss
Around the world, USD9 trillion
in securities financing is managed
on SunGard’s proven solutions for
international and U.S. domestic
securities lending and repo for over
250 clients. Through our Loanet,
Global One, Martini and Astec Analytics
products and services, we provide
comprehensive business solutions and
information with worldwide reach for
equities or fixed income securities
financing. These solutions – all in an
integrated, exception-based processing
architecture – includes order routing,
pre-trade analytics, trading, position
management, operations, accounting,
settlement and reconciliation.
Email:
securities.finance@sungard.com
Contact: Switch board: +44 (0) 208 081
2000 Marketing: +44 (0)208 081 2853
Visit: www.sungard.com/loanet www.
sungard.com/globalone www.sungard.
com/martini www.astecgroup.com
13/11/08 14:08:46
 ISJ Directory of Services
Technology
Accuity is the leading provider of data,
software and services that enables banks
and corporations to maximise payment
efficiency and AML compliance for
financial transactions.
Our Payment Solutions are designed to
deliver the critical payment information
necessary to improve payment straight
through processing rates. Our Compliance
Suite offers a complete range of
caution lists and screening tools that
defend against participation in illicit
financial activities. Accuity’s Strategic
Services Group provides businesses with
consulting, training and services.
Since 1836 we have helped businesses
around the world and our role as the
Official Registrar of the American Bankers
Association (ABA) Routing Numbers
since 1911 has enabled us to compile and
maintain the most authoritative and
comprehensive database of global bank
information available.
Luis F. Rolim
Marketing Manager - EMEA and Asia
Pacific Accuity
1 Quality Court
Chancery Lane
London WC2A 1HR
United Kingdom
t: +44 20 7014 3454
f: +44 20 7061 6478
e: Luis.Rolim@AccuitySolutions.com
www.AccuitySolutions.com
DST International is the world’s premier
vendor of technology solutions to the global
investment management community with
over 700 clients in 55 countries, and 1500
employees in 19 of the world’s leading
financial centres. Our wide range of asset
management solutions meet the needs of
fund managers, dealers, settlement staff,
custodians and record keepers operating
as international asset managers; from front
office simulation, opinion management
and modelling functions, through data
management, dealing and settlement to
custody and corporate actions. The suite of
products can be used either as stand-alone
applications or brought together in flexible
combinations according to specific needs.
T: UK +44 (0)20 8390 5000
Boston +1 617 482 8800
Hong Kong +85 225 812 880
F: +44 (0)20 8390 7000
E: info@dstintl.com
A: DST House, St Mark’s Hill, Surbiton,
Surrey, KT6 4QD
W: www.dstinternational.com
Directory NEW.indd 54
Advent Software EMEA, established in
1998, provides trusted solutions for the
front through to back office operations,
based on a true real-time fund/portfolio
accounting platform, to the investment
management community throughout
Europe, 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 brokers, fund
administrators, wealth managers,
private banks and family offices who
continue to improve their businesses
using Advent’s suite of integrated
investment management solutions.
Advent Software EMEA is part of Advent
Software Inc. (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.
T: +44 (0)20 7631 9240
F: +44 (0)20 7631 9256
E: emea@advent.com
A: One Bedford Avenue,
London WC1B 3AU, UK
W: www.advent.com
Aquin are the market leader in investment
compliance software with MIG21® powered
by Aquin LawCards® for global compliance
including UCITS III and SEC 1940.
The company has built its reputation on
solid compliance and IT experience in long
term relationships with its clients.
Aquin services a blue-chip client base of
the world’s leading investment
management companies, hedge funds,
fund administrators and custodians.
These include Citi, State Street, BNP
Paribas, Credit Suisse, CACEIS Investor
Services, Allianz Global Investors, Pioneer
Investments and Commerzbank. The
company has its headquarters in Frankfurt,
Germany with subsidiaries in Boston,
London, Paris, Dublin, Luxembourg and
Zurich.
Annette Lindinger
press@aquin.com
T: +49 69 21 93 66 600
F: +49 69 21 93 66 650
Mainzer Landstr. 199
60326
Frankfurt am Main
Germany
W: www.aquin.com
54
BI-SAM is a leading provider of analytics
software, client reporting and data
management solutions to the investment
management community.
Our integrated and innovative solutions
have already been adopted by many
renowned asset managers in France,
Belgium, Luxembourg, UK, Hong Kong
and Singapore who have assets under
management ranging from 10 to 450
billion Euros.
The B-One suite of products covers:
performance measurement, performance
attribution (equities, balanced and
fixed income), risk attribution (ex-post
and ex-ante), as well as multi-lingual
client reporting and factsheets. This
suite of products can be used either as
stand-alone applications or ASP hosted
solutions.
The Company has approximately
45 employees in offices located in
Europe (Paris, London, Luxembourg).
Offices in Asia and North America are
under consideration. The Company is
headquartered in Paris.
A: BI-SAM Ltd
1 Cornhill
London EC3V 3ND
T: +44 (0)20 3008 5834
F: + 44 (0)20 3008 5831
E: marketing@bi-sam.com
W: www.bi-sam.com
Financial Tradeware provides integrated
solutions for medium to small sized
Investment Management firms, Fund
Managers and Hedge Funds, covering the
full trade life cycle. It is part of the Dharma
Group of companies and benefits from the
joint contributions and experiences within
the group of market traders, business
analysts, financial services professionals
and skilled Microsoft Certified
programmers. The company has developed
a suite of applications that integrate and
Straight Through Process (STP) real-time
trading, back office administration,
accounting and compliance. Ultra.net®,
S-Messenger® and H-Fund® arwe the
company’s flagship products all based on
Microsoft.NET infrastructure. The company
also offers a Member Concentrator for
hosted SWIFT connectivity and Member
Administered Closed User Group (MA-CUG)
services for Corporates and Hedge funds.
W: www.f-tradeware.com
T: +44 (0)20 7493 2773
F: +44 (0)20 7495 4858
C: GrahamBright
E: info@f-tradeware.com
A: 31 Dover Street
London W1S 4ND UK
ISJ | Investor Services Journal
Broadridge Financial Solutions, Inc., with
over $2.0 billion in revenues and more
than 40 years of experience, is a leading
global provider of technology-based
outsourcing solutions to the financial
services industry.
Our systems and services include
investor communication, securities
processing, and clearing and outsourcing
solutions. We offer advanced, integrated
systems and services that are dependable,
scalable and cost-efficient. Our systems
help reduce the need for clients to
make significant capital investments
in operations infrastructure, thereby
allowing them to increase their focus
on core business activities.The product
listings will still stay the same apart from
Securities Data Management needs to be
replaced by the following:
SWIFT Service Bureau - provides fast-
track access to the SWIFT network for
full range of SWIFT messages including
securities, treasury, derivatives, payments
and corporate actions, all in a complete
service environment.
Broadridge Financial Solutions
The ISIS Building
193 Marsh Wall
London E14 9SG UK
T: +44 (0) 20 7551 3000
E: info@broadridge.com
W: www.broadridge.com
Eagle Investment Systems LLC is a global
provider of financial services technology,
serving the world’s leading financial
institutions. Eagle’s Web-based systems
support the complex requirements of
firms of any size including institutional
investment managers, mutual funds,
hedge funds, brokers, public funds, plan
sponsors, and insurance companies. Eagle
is committed to providing enterprise-
wide, leading-edge technology and
professional services for investment
accounting, data management, and
performance measurement. Eagle’s
product suite is offered as an installed
application or can be hosted via Eagle
ACCESS, Eagle’s application service
provider. Eagle Investment Systems LLC is
a division of The Bank of New York Mellon
Corporation. To learn more about Eagle’s
solutions, contact sales@eagleinvsys.com
or visit www.eagleinvsys.com.
W: www.eagleinvsys.com
T: +44 (0) 20 7163 5700
F: +44 (0) 20 7163 5701
A: Mellon Financial Centre 160 Queen
Victoria Street London, EC4V 4LA
13/11/08 14:08:58
 ISJ | Investor Services Journal
Elemes NM is your partner in global
agent bank custodian network
management providing a global view
of your relationship network in a
powerful and easy to use package. It
includes diary, invoice verification,
document management, multi-entity
views, reporting, account information
incorporating fee and rate structures,
contacts, notes and supports eFee –
electronic fee invoicing technology.
Unrivalled extensibility allows you to
develop your own functionality with your
in-house development team.
Flexibility does not stop with the
software, our commercial terms offer
adaptable pricing to suit present and
future requirements for all sizes of
organisation.
Fingertip Developments Ltd
Curtain Court
7 Curtain Road
London EC2A 3LT
UK
T: +44 (0)20 7100 9280
enquiries@fingertip-
developments.com
Pirum provides a full suite of automated
reconciliation and straight through
processing (STP) services supporting
Operations within the global securities
finance industry. The company’s on-
line SBLREX service encompasses daily
contract
compare, monthly billing comparison,
mark-to-market & exposure processing,
pending trade comparison, income claims
processing and
custody reconciliation.
Subscribers to Pirum’s services
significantly increase their operational
efficiency and reduce their risk by using
Pirum’s solutions, as staff are able to
focus on fixing the exceptions instead
of using their time to check and process
routine business. These automated
processes are more scalable and risk
controlled too, allowing
significantly higher volumes to be
managed without corresponding increases
in operations headcount.
T: +44 20 7220 0961
F: +44 20 7220 0977
C: Rupert Perry
E: rupert.perry@pirum.com
A: Pirum Systems Limited
37-39 Lime Street
London, EC3M 7AY
W: www.pirum.com
Directory NEW.indd 55
GL TRADE is your global financial
software solutions company, operating
in over 50 countries and serving 1,600
clients. We are the leading provider
of multi asset front to back solutions,
connectivity and information services.
We deliver trading solutions that ensure
our clients success on securities, listed
derivatives, commodities, fixed income
and foreign exchange.
Dedicated to post trade securities
operations, GL RIMS is your
comprehensive real time securities post
execution processing solution, covering
middle office, settlement and accounting
requirements. Its wide use of automation
enables global capital markets
organisation to achieve maximum STP.
It is a flexible, highly scalable and easy
to install platform with a new Service
Oriented Architecture feature that allows
smooth and efficient connections with
other third parties within a company.
www.gltrade.com
GL TRADE
Cheapside House
134-147 Cheapside
EC2V 6BJ London UK
Tel: +44 207 665 6200
Email: marketing@gltrade.com
For more than a decade, administrators,
managers, and advisors have relied
on KOGER for dependable software tools
backed by extensive industry
experience and expertise. Now, for those who
want to reduce costs and streamline business
processes, Koger offers Fully Integrated Fund
Administrator, a vertically integrated suite
serving the back-office software needs of the
fund industry.
Fully Integrated Fund Administrator consists
of three core programs:
~ NTAS, the New Transfer-agency System
~ E*TAS, Electronic Transfer Agency System
~ GRID, Global Reach Interface Daemon
Other programs, such as PTAS, KIT, and
KORS available separately, complement the
core competency of Fully Integrated Fund
Administrator.
T: 001-201-291-7747
F: 001-201-291-7808
C: Mr Ras Sipko
E: ras@kogerusa.com
KOGER USA
12 Route 17 North
Suite 111
Paramus
New Jersey, NJ 07652, USA
W: www.kogerusa.com
55
Information Mosaic is a global provider of
advanced custody, corporate actions and
wealth management solutions to the global
securities industry. Information Mosaic’s
business professionals leverage decades of
financial industry expertise and technical
knowledge to deliver complex projects on
time and within budget. Since inception,
the company has utilized the most modern
technology to develop solutions to run on a
scalable, single platform. Today, Information
Mosaic’s supports clients from offices in
Boston, Dublin, London, Luxembourg, New
York and Singapore. Currently, six of the top 10
global custodians deploy Information Mosaic
solutions worldwide.
For more information on Information
Mosaic, please visit our website at
www.informationmosaic.com
Global:
emullan@informationmosaic.com,
US:
emullaninformationmosaic.com
Europe:
aleyder@informationmosaic.com
Asia:
djennings@informationmosaic.com
General Enquires
jflett@informationmosaic.com
IGEFI is the foremost provider of
software solutions for international
fund promoters, third-party service
providers and fund managers. Its
prestigious client-base is testimony to
our commitment, service and quality
with more than 200 expert staff
supporting clients from seven offices
worldwide including Bangalore, Boston,
Frankfurt, Geneva, London, Luxembourg
and Paris. MultiFonds is operational
in more than 20 countries worldwide
and support investment funds assets
in excess of US$ 2 trillion. MultiFonds
Fund Accounting and MultiFonds
Transfer Agency are developed on a “one
system-one database” philosophy and
provide significant advantages including
reduced overhead and IT support costs
and single look and feel reporting for
global clients.
A:IGEFI Group Sàrl - 7, Rue des
Primeurs,
L-2361 Strassen
T: +352 26 44 211
F: +352 26 44 21 44
E: marketing@igefi.com
W: www.igefi.com
C: Mr. Jesper Steiness - Head of
Business Development
Europe & Asia
E: jesper.steiness@igefi.com
ISJ Directory of Services
Odyssey Financial Technologies is an
industry leader in the global provision of
wealth and asset management solutions
and services to the Private Banking,
Mass Affluent and Retail Banks as well as
Institutional and Fund Managers. Over
200 financial institutions in more than 30
countries have chosen Odyssey solutions.
Odyssey focuses on providing a
comprehensive range of components
for portfolio management (PMS),
advisory process, customer relationship
(CRM), compliance, risk, analytics and
Enterprise Data Management (EDM). The
components are deployed on a single
scalable wealth and asset management
platform, facilitating the enterprise-wide
implementation of solutions and data
management. Founded in Luxembourg
in 1995, Odyssey today has offices in the
key financial centers, including London,
New York, Singapore, Zurich, Frankfurt,
Brussels, Geneva, Madrid, Toronto and
Tokyo. Odyssey’s operational head office
and main development centre is located in
Lausanne, Switzerland. Throughout this
knowledgeable network Odyssey employs
over 600 professionals.
London Office:
Martin House
5 Martin Lane
London EC4R 0DP U.K.
T: +44 (0)20 7621 5800
F: +44 (0)20 7621 5899
E: info@odyssey-group.com
W: www.odyssey-group.com
Building on over twenty years of experience
in capital markets and cross-asset software
solutions, Murex introduces Mx Asset Manager
- a unique cross currency, cross asset fund
management solution capable of handling the
full range of products, from plain vanilla to the
most complex derivative products.
Coupled with a high degree of flexibility and
customization, Mx Asset Manager
features a multifaceted design catering to the
needs of both service providers
(prime brokers, administrators, asset servicing
providers) and direct clients (portfolio managers
for mutual, pension or hedge funds, insurance
companies).
With so many new challenges presented
to buy-side managers when integrating
increasingly-complex derivatives into their
portfolios and funds, Mx Asset Manager
represents a strong and reliable ally for dynamic
position keeping and multi-dimensional risk
management in a thriving market.
C: Hélène Desbiez
Business Development Manager
T: +33 1 44 05 32 00
E: helene.desbiez@murex.com
W: www.murex.com
13/11/08 14:09:11
 ISJ Directory of Services
Orc Software is the leading global provider
of powerful solutions for the worldwide
financial industry in the critical areas of
advanced derivatives trading and low-latency
connectivity. Orc’s competitive edge lies in
its depth of knowledge gained by deploying
advanced solutions for professional traders
for over 20 years. Orc Trading and Orc Connect
provide the tools for making the best trading
and connectivity decisions, strong analytics,
unmatched market access, powerful automated
trading functionality, high performance
futures and options trading capabilities
and risk management. Sophisticated and
high-frequency traders use Orc’s solutions to
make markets or undertake complex trading
strategies like volatility trading, futures
spreading and index arbitrage.
New York:
Michael Noto
T: 1.212.507.0000
E: michael.noto@orcsoftware.com
London:
Lee Griggs
T: 44.20.7942.0950
E: lee.griggs@orcsoftware.com
Hong Kong:
Dennis Chen
T: 852.2167.1950
E: dennis.chen@orcsoftware.com
www.orcsoftware.com
peterevans is a leading provider of front
to back office solutions for the financial
services sector. With 23 years experience
peterevans takes a sophisticated and
dynamic approach to assist customers
in reducing costs and witnessing an
increase in margins by seamlessly replacing
costly and restricting legacy platforms.
peterevans works in a collaborative manner
and sees clients as partners to help meet
all the demands in today’s marketplace.
The xanite product suite offers a highly
configurable, flexible and fully integrated,
browser based, comprehensive front
to back solution that complies with
message standardization and settlement
harmonization. Deployed as a single
application or integrated as components
into your existing platform. Each of the
xanite modules can be delivered via an
ASP or self-hosted. Covering: wealth
management, custody corporate actions
clearing and settlement private client and
on-line stock broking.
peterevans
New Broad Street House
35 New Broad Street
London EC2M 1NH
T: +44 (0) 29 20 402200
E: info@peterevans.com
W: www.peterevans.com
Directory NEW.indd 56
Princeton Financial Systems, a wholly owned
subsidiary of State Street Corporation, is a
leading provider of investment management
and accounting systems and ASP services for
global institutional investors.
Its flagship PAM® investment management
systems provide comprehensive STP-ready
functionality that can be licensed for
in-house use or accessed via the Internet.
PAM® systems are currently used worldwide
by over 275 leading investment managers,
insurance companies, mutual funds and
unit trusts, pension funds, hedge funds,
endowments, banks and corporation, which
manage combined total assets over US$3
trillion. Princeton Financial has offices
located throughout the United States,
United Kingdom, Belgium, Australia,
Singapore, Amsterdam and Canada.
For more information, visit Princeton
Financial’s website.
T: +1 609-987-2400
F: +1 609-514-4794
C: Lorne Whitmore, Vice President,
Global Sales & Product Management
E: lwhitmore@pfs.com
A: 600 College Road East,
Princeton, NJ 08540, USA
W: www.pfs.com
Misys provides integrated, comprehensive
solutions that deliver significant results to
over 1,200 financial institutions globally.
Our buyside solutions help asset servicers,
asset managers and hedge funds handle
the latest complex products, streamline
processes, reduce costs and improve
STP. Misys Summit is our award winning,
multi-asset class solution that boasts 18
years OTC derivatives market expertise.
With extensive OTC buyside coverage and
the market leading structured products
module,
Misys Summit delivers the solution you
need for handling the end to end process
for OTC. We also provide a customisable
ASP service for fast implementation and
lower costs.
www.misys.com
tcm.marketing@misys.com
56
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 regional specialities.
SimCorp Dimension has been designed
from scratch as an enterprise-wide
system, handling all aspects of the
investment management process and
related administration functions,
consistently. Data is recorded once into
a core database so that reporting is made
easy, there is no reconciliation of data and
no duplication of procedures.
-By cutting latency in securities
processing, our clients are recognising
new efficiencies, reducing costs and
increasing throughput
-By streamlining their customer on-
boarding processes, our clients are
gaining faster access to fees, increasing
customer satisfaction, gaining greater
cross-sell opportunities
T: +44 (0)20 7260 1900
F: +44 (0)20 7260 1911
C: Elizabeth Gee, sales director
of SimCorp Dimension
E: elizabeth.gee@simcorp.com
W: www.simcorpdimension.com
A: SimCorp, 100 Wood Street,
London EC2V 7AN
With annual revenue of USD5 billion,
SunGard is a global leader in software
and processing solutions for financial
services, higher education and the public
sector. SunGard also helps information-
dependent enterprises of all types to
ensure the continuity of their business.
SunGard serves more than 25,000
customers in more than 50 countries,
including the world’s 50 largest financial
services companies.
Visit SunGard at
www.sungard.com
Netik’s team have spent the past 25 years
perfecting the art of bringing together
market, reference, portfolio accounting,
performance and risk data from
disparate sources into a single version
of the truth (SVOTTTM). The result is
a highly scalable and sophisticated
business data model that has been
designed to process all securities and
offers a complete model for traditional
and alternative markets.
For more information please visit:
www.netik.com
or email: marketing@netik.com
ISJ | Investor Services Journal
Over 100 Capital Markets firms worldwide
rely on Singularity to achieve step-change
improvements in efficiency and cost-
effectiveness. Across front, middle and
back office operations, Singularity’s clients
are improving performance by automating
process and leveraging their human capital
most effectively. Our process automation
solutions combine deep knowledge and
long-standing capital markets experience
with award-winning technology. Clients
include JPMorgan, Bank of Tokyo Mitsubishi
UFJ, Raymond James, Prudential, Invesco,
BNPParibas, Morgan Stanley, American
Express and M&G.
-By cutting latency in securities processing,
our clients are recognising new efficiencies,
reducing costs and increasing throughput
-By streamlining their customer on-boarding
processes, our clients are gaining faster access
to fees, increasing customer satisfaction,
gaining greater cross-sell opportunities.
-By automating their KYC & other compliance
processes, our clients & reducing risk.
-By improving collaboration in their client
reporting cycle, our clients are providing more
timely and insightful investment performance
information.
T: +44 (0)20 7826 4470
F: +44 (0)20 7826 4480
C: Nick Stevens
E: sales@singularity.co.uk
A: Singularity
4th Floor, 101 Moorgate
London EC2M 6SL UK
Further Contacts:
US T: +1 212 946 2685
Singapore T: +65 9616 7732
Founded in 2002, Redi2 Technologies is
a leading provider of fee billing solutions
to the global financial services industry.
Redi2 offers flexible, feature-rich
solutions that help firms streamline
operations, improve cash flow, reduce
costs, enhance client service and meet
compliance obligations.
Redi2’s flagship fee billing and revenue
management solution Redi2 Revenue
Manager helps financial professionals
more easily manage the fee billing
process, including client setup, multi-
currency fee and accrual calculations,
invoice and advice generation, accrual
reconciliation, adjustments and reversals.
Our open APIs and support for industry-
standard relational databases ease
integration with third-party solutions,
including accounting, performance
measurement and CRM systems.
Redi2 Technologies, Inc.
1771 Broadway St.
Oakland, CA 94612
T: +1 (510) 834-7334
E: info@redi2.com
W: www.redi2.com
13/11/08 14:09:21
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C M Y CM MY CY CMY K

Probedruck
 Diversity of services means the
world to our clients.
Now we have a name that
reflects this.

PFPC is now PNC Global Investment Servicing.

For over 30 years PFPC has been the
name asset managers, distributors and financial
advisors have turned to for fund administration
and accounting, shareholder recordkeeping,
regulatory compliance, custody and wealth
management reporting services. Our record
of precision and accountability has enabled
our clients to focus on what is most important
to them: managing and growing their own
clients’ assets.
Now, in recognition of our continuous
expansion of innovative solutions and product
offerings, we have taken on an identity that
more accurately reflects the breadth of our
capabilities. PNC Global Investment Servicing
signifies a more diversified mix of services that
we have been building and evolving for more
than three decades. Our new name recognises
our credentials in the investment industry as a
provider of integrated technology, business
intelligence and processing services.
All of our services are bolstered by our
position within The PNC Financial Services
Group, one of the most financially robust and
technologically forward banking organisations in
the world. PNC provides a foundation of strength
and stability that enables us to further broaden
our offerings while at the same time giving our
clients the reassurance that they are working
with an industry leader. PNC’s commitment to
supporting our plans for continued growth will
help us to do the same for you.

Ranked No.1 in Europe in hedge fund

administration by Global Custodian.*
pncgis.com

*2008 Global Custodian Hedge Fund Administration Survey. ©2008 The PNC Financial Services Group, Inc. All rights reserved. PFPC PDF 1108-012

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