ISJ25 Cover 19/10/07 4:59 pm Page 1

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

S ERVICES
JOURNAL
VOLUME 4 No. 25 - 2007

PAINTING
A BETTER PICTURE
Has the EDM Council gone from
concept to reality?
CHANNEL ISLANDS - FUNDS MARKET LEGAL ISSUES - REG NMS VS MIFID
RUSSIAN MARKET- CUSTODY FOCUS ANALYSE THIS - SECLEND TECHNOLOGY
SIBOS ROUNDUP - TECHNOLOGY PANEL DISCUSSION - CEE CUSTODY
MERITON OF GOLDENSOURCE - CEO PROFILE PAYMENTS - TARGET2

THE GLOBAL SECURITIES SERVICES INDUSTRY JOURNAL

ISJ25 Cover 19/10/07 4:59 pm Page 2
ISJ25 pp1-21 ML 19/10/07 6:32 pm Page 1

HEADS UP

INVESTOR Aggressively entrepreneurial

S ERVICES ibos is done and dusted for another our feature on page 61.

JOURNAL
VOL 4 No. 25 - 2007
S year and, along with the jetlag, we
have been left with many issues to
ponder – not least of which is how Swift
will pursue its new commercially
assertive agenda. Lázaro Campos’s
opening plenary speech certainly left an
impression on the delegation: his use of
words such as “offensive” and
“aggressive” suggest that it’s going to be
a year of vigorous campaigning for
Swift over 2008. We briefly look at the
main issues of the conference (and share
a few select snaps of the social events)
on page 56.
This month’s cover feature deals with
another industry group that has
garnered its fair share of criticism: the
EDM Council. Given that there are a
large number of vendors involved, many
have been quick to accuse the council of
pushing a suspicious agenda – namely to
foist so-called EDM “solutions” on
unsuspecting practitioners. However,
following the recent involvement of a
number of large banks in the EDM
agenda, this may now be a false
assumption. You decide (see page 16).
We also took the time out to interview
a leading figure in the EDM vendor
community, Mike Meriton, CEO of
GoldenSource, about his perspectives on
the data dilemma (see page 14).
When there is market data discussed,
MiFID is never far behind. And as it is
not only the year of the MiFID, but it is
now the month of MiFID, we decided to
take a quick look at how it compares to
the regulatory regime across the pond in
As well as a focus on data, this issue
could also be termed the European
emerging markets issue, with our feature
on the shape of Russian custody (see
page 35) and our panel discussion on the
Central and Eastern European markets.
According to our panel of experts, the
CEE custody markets are continuing to
evolve up the value chain from basic
safekeeping and settlement to fund
administration, as the demands for
mutual funds and pension services
increase. Read more on page 38.
I should also take a brief moment to
mention that pen manufacturer Cross
has been kind enough to sponsor our
letters to the editor page. Thus you now
have a proper incentive to get writing in
with your comments and criticisms to
me at virginie@isjnews.com. The carrot
is always preferable to the stick
(although Commissioner McCreevy may
disagree with me on that).
The ISJ team should also be out in
force at FIMA this month, so if you
spot one of us, you may be able to
deliver your letters personally!
Virginie O’Shea
Editor

INVESTOR SERVICES JOURNAL

PPA MAGAZINE AWARDS Editor: Virginie O’Shea (Virginie@isjnews.com)
PUBLISHER OF THE YEAR Senior reporter: Jamie Darlow (Jamie@isjnews.com)
HIGHLY COMMENDED Contributing editor: Giles Turner (Giles@isjnews.com)
MEMBER - PERIODICAL PUBLISHERS ASSOCIATION Contributors: Brian Bollen, Fabien Buliard, Nicholas Pratt

Publisher: Justin Lawson (Justin@isjnews.com)

Publishing manager: Monique Theart (Monique@isjnews.com)
Account managers: Peter Lines (Peter@isjnews.com), Kaz Ayoade (Kaz@isjnews.com)
Directory sales: Craig McCartney (Craig@isjnews.com)
Systems manager: Jon Gunnarsson (Jon@isjnews.com)
Operations manager: Sue Whittle (Sue@isjnews.com)
TOTAL NET CIRCULATION 12,133 Sales administration: Kim van Berkel (Kim@isjnews.com)
Analysis for the Audit Issue Vol 4, No 22 distributed June 2007. Chairman: Mark Latham (Mark@isjnews.com)
Source: AUDIT BUREAU OF CIRCULATIONS, www.abc.org.uk
Investor Intelligence partnership
16-17 Little Portland Street, London W1W 8BP
TO RENEW YOUR SUBSCRIPTION PLEASE T: +44 (0) 20 7299 7700 F: +44 (0) 20 7636 6044 WWW.ISJNEWS.COM
TELEPHONE: +44 (0)20 7299 7700
© 2007 Investor Intelligence Partners. All rights reserved. No part of this publication may be reproduced, in whole or in part,
OR VISIT... WWW.ISJNEWS.COM without prior written permission from the publishers. ISSN 1744-151X. Printed in the UK by Pensord Press
ISJ25 pp1-21 ML 19/10/07 6:32 pm Page 2

CONTENTS

VOL 4 No. 25 - 2007

■ Funds
22 Channel Islands funds
Regulatory upgrades

28 South African funds

Roaring ahead

32 Domiciles reports
Isle of Man and Guernsey

■ Custody
33 Spanish custody
Building for the future
16
35 Russian custody
Data services: Dealing with an image crisis
Has the EDM Council Roaring ahead 28
finally moved from 38 Panel discussion
58 Target2
concept to reality? A focus on Central and Eastern
Nearing completion
European custody
1 Heads up
51 Transfer agency ■ Securities lending
Editor’s letter
A new business model?
60 Northern Rock affair
4 Letters
Points of view ■ Technology What does it mean for the future?

■ News 56 Sibos 2007 report ■ Legal

The lowdown on Boston
61 Reg NMS vs MiFID
6 Global snapshots & mandates
Ugly siblings?
Round up of securities services
headlines from isjnews.com
■ Regulars
10 News analysis
Reading between the lines 62 Analyse this
Securities lending technology
14 CEO profile
Mike Meriton of GoldenSource 68 People Moves

■ Special Report 80 Hindsight/Foresight

Calpers
16 Data services
EDM in the spotlight ■ ISJ Directory
20 FIMA vendor profiles 69 The directory of securities
The key vendors attending Services providers
Safe haven? 22

2 INVESTOR SERVICES JOURNAL

ISJ25 pp1-21 ML 19/10/07 6:33 pm Page 3

North, East, West, South?

Wherever you want to go!

No matter where you are heading, our skipper can chart

you a safe course through the waters of custody business.
Come on board and enjoy the atmosphere. With our innovative
ideas and dedication to service, it is your turn to just sit back and
relax. Our destination: navigating you from success to success. For
further information, please contact: Cornelia Keth, Tel. +49 69 718 -3738,
cornelia.keth@bhf-bank.com or visit www.bhf-bank.com
ISJ25 pp1-21 ML 19/10/07 6:33 pm Page 4
LETTERS TO THE EDITOR
ISJ letter prize of a Cross writing instrument
The pen is mightier than the sword...If you are affected by, or
have an opinion on, any aspect of investor services please
write to us at virginie@isjnews.com and enter into the running
to win an exclusive Cross pen.
Winning Letter
Is it all semantics?
mid the Northern Rock
A meltdown we can expect
renewed debate on the role of
the government in capital markets,
how to harmonise global regulation,
and whether more prescriptive rules
should be adopted by the FSA.
However, the rules versus principles,
or the SEC versus FSA, debate is
greatly exaggerated and takes us into
a whirlpool of semantics from which
we will never escape.
The SEC acknowledges that as
much as they might wish to, they will
never be able to set and enforce rules
that govern every situation. For a
supposedly rules-based regulator
most enforcement actions taken by
the SEC arise from basic principles in
the Exchange Act forbidding deceit
and false claims of material facts.
The FSA, on the other hand, has
plenty of prescriptive rules. I have no
doubt that those who feel
overburdened by regulation will argue
for a more principles-based
framework, while others will argue for
more specific guidance and rules in
the wake of negative spikes in the
market or some other crisis in
confidence.
Pro-regulation advocates may seize
the sub-prime mess in the US and its
subsequent aftershocks in overseas
credit markets as a justification for
new rules. Were we really surprised
that lending money at adjustable
rates to people with a bad credit
history would lead to default risk?
What is it about the term “sub-
prime” that we didn’t understand?
Would you eat sub-prime beef?
Would you fly on a sub-prime plane?
I’m sure the prices would be
attractive but what is the real cost?
Most national regulators
acknowledge that regulation is most
effective when it is instigated as
4 INVESTOR SERVICES JOURNAL
closely as possible to the regulated
activity. By definition, the most
effective form of control starts within
the four walls of the financial
institution itself. The primary
objective of this industry is not to
encourage regulation but to pre-empt
regulation. We pre-empt regulation by
acting in accordance with our
investor’s interests and giving
regulators confidence that our
internal risk controls are effective.
It’s up to us as a community to
sustain investor confidence by taking
responsibility for our own ethical
standards. It comes down to the
simple question – do you want to
shape the direction of your industry
or do you want it dictated to you
through more prescriptive regulation?
Tim Lind, managing director,
Omgeo
Replastering required?
SJ’s focus on MiFID in September
I had some interesting views from
across the market regarding
market readiness to adopt MiFID.
Another reason for the slow
preparations by banks is the lack of
transparency in the rules of a
regulation that, somewhat ironically,
is all about transparency. In May
2007, CESR issued what it said
would be its “last set of guidance” on
MiFID Level 3 regulation. This
guidance however, failed to fully
define the unanswered issues from
the previous MiFID Level 2 Guidance.
The questions of exactly how many
fields of data are to be reported to a
competent authority and, importantly,
what specifically should be reported
in those fields have been left
somewhat opaque. The implication of
these omissions is that both the data
fields (beyond the basic 23 specified
in the Level 2 Guidance), and the
actual content of each field will be
specified by each country regulator.
This raises the possibility that there
could be 30 different sets of
requirements – one for each
jurisdiction. It also increases the
likelihood that one of the major
objectives of MiFID could be
compromised: that of market
transparency.
If we can’t even rely on using the
same set of instrument codes across
the 30 MiFID countries, how can this
information be consolidated? And if it
can’t, then surely the whole concept
of market transparency is fatally
compromised. The lack of clarity
regarding exactly this set of
parameters has led many of the big
investments banks to do very little,
one bank describing it to us as:
“papering over the cracks on existing
systems”.
Perhaps this is unwise? Very
possibly, papering over the cracks in
an existing system is not going to
meet even the initial requirements,
let alone deal with subsequent
modifications required by regulators.
As these requirements shake down
and as other instrument classes (such
as bonds and derivatives) are added
to the MiFID transparency checklist,
better home improvement now may
mean you don’t have to re-plaster the
whole wall tomorrow.
Mike Hill, marketing director,
Gissing Software
Since its founding year in 1846, Cross, the
leading luxury writing instrument
manufacturer, has had a reputation for
innovation, craftsmanship and design. Today,
the Cross collection is comprised of well
designed and always appropriate lifestyle
accessories for where you work – whether
that’s at the office, at home, on a plane, or in
your car. These include personal leather
accessories, timepieces, cufflinks and reading
glasses.
The winner of the letter of the month will
receive an Apogee Ballpoint Pen from Cross
in a Black Star Lacquer finish, hand polished
to perfection and accented by polished
chrome plated appointments, worth GBP 60.
For further information see www.cross.com
ISJ25 pp1-21 ML 19/10/07 6:33 pm Page 5

Banking

CapitalMarket
Capital Market
asset management
Asset Trading
SmartCo
Data Management for
the Finance Industry
Smart Financial Data Hub (SFDH) is a global Data SmartPlanet is an innovative, scalable technology that
Management solution that covers most of the data area, covers the key areas of urbanisation - Enterprise Data
including market data, corporate actions, indexes Management, Business Process Management and
and benchmarks, third parties, funds and mandates, finan- Business Intelligence. SmartPlanet guarantees
cial analysis, etc., as well as operational data the flexibility of Smart Financial Data Hub for today
with positions and transactions. and tomorrow. It provides you with a tremendous time
SFDH provides a very rich set of Data Management to market in your business solutions
functionnalities:
• a full connectivity support with multiple protocols,
data transformation and mapping, and APIs,
• a customisable, powerful and user-friendly
front-end, The answer to the challenges of the finance
• quality controls and data enrichment, industry
• customisable workflow and business logic, • Increase the quality of your data to improve
• full audit trail and permissioning, your operational performance
• documents management, • Increase the value of your data to speed up innovation
• a robust and scalable multi-tiered architecture • Simplify your information system for more rapid reaction
for massive volumes, • Integrate new strategic activities more easily
• support for most systems and RDBMS.
The solution is provided with data models based
on 15 years of best practices and designed to meet
the requirements of the most demanding users
and clients.

SmartCo
37 rue de Liège
SmartCo, founded in 2004 by financial software 75008 Paris
T - +33 (0)1 58 22 29 60
and consulting professionals working in finance, F - +33 (0)1 58 22 20 50
is a software provider specialising in solutions info@smartco.fr
for the financial industry.
www.smartco.fr
ISJ25 pp1-21 ML 19/10/07 6:33 pm
NEWS
News
CUSTODY, CLEARING AND
SETTLEMENT
Boston - JPMorgan Worldwide
Securities Services has
integrated and upgraded its
US and international
GlobeClear clearance service
to improve processing
efficiency. JPMorgan has made
a multi-million dollar
investment in its US Agent
Bank Clearing product to
expand its core clearance and
custody systems to improve
settlement of securities
processes through the
Depository Trust & Clearing
Corporation (DTCC). The
bank says clients can now:
segregate participant accounts,
eliminating traditional
limitations of omnibus account
structures; minimise delivery
fails and their associated
financing; rehypothecate,
permitting straight through
processing of all repurchases
and loans; automatically
process equities through
securities payment orders; use
Swift messaging, expanded to
improve access to settlement
status and corporate action
information and income
information on rehypothecated
positions. Ed Corral, Clearance
and Settlement Business
executive at JPMorgan
Worldwide Securities Services,
says: “JPMorgan has long been
a participant in US domestic
off-exchange clearance, and
this investment and upgrade
enables us to offer what we
believe is a new standard for
integrated global clearance. As
markets continue to become
global, the convergence
between US and international
clearance becomes increasingly
important.”
Boston - Bank of New York
Mellon Asset Management
subsidiary Boston Company Asset
Management has lost two public
pension fund mandates jointly
worth USD2.2 billion because
of under-performance. The
6 INVESTOR SERVICES JOURNAL
Page 6
Pennsylvania Public School
Employees Retirement System,
which has USD64 billion in
assets under management,
terminated Boston Company,
which managed an active non-
US equities portfolio worth
about USD1 billion. The
Pennsylvania termination came
a day after Boston Company
lost another billion dollar
mandate. The Massachusetts
Pension Reserves Investment
Management, which oversees
funds with USD48.2 billion in
assets, took the firm off a
USD1.2 billion European,
Australian and Far East equity
portfolio that it co-managed
with Wellington Management.
FUNDS & ADMINISTRATION
New York - Man Group is looking
for opportunities to buy
independent rivals in the hedge
fund space that have become
more amenable to approaches
in the wake of the summer
market turmoil, according to
chief executive Peter Clarke.
Clarke said Man Group always
has an eye for acquisitions, but
is aware of far more targets
becoming available since hedge
funds’ volatile investment
performance in late July and
August. He said prices had
come down and looked cheap,
adding it would be no surprise
if some small independent
firms sought to be taken over
by Man Group. Clarke said he
expected to win staff and
clients as a result of dis-
appointing performance by
some hedge funds. He said the
firm had not reduced leverage
on any of its funds, and this
allowed it to profit from the
rebound that followed.
New York - Fund of hedge
funds Morgan Creek Capital
Management has opened a
Beijing office to oversee its
investments in the region as it
embarks on global expansion.
Jason Zhang, previously an
employee of Stanford
Management Company, was
appointed to head up the office
and will be in charge of
investments in the region. The
Beijing office could change
location to Hong Kong or
Shanghai or both after the
Olympics next summer. Next
year, the company intends to
move one of its senior staff
members over to the China
office. North Carolina-based
Morgan Creek currently has
USD6 billion in assets under
management, with up to 4% in
Chinese investments.
According to Mike Hennessy,
Morgan Creek’s managing
director of investments, the
company wants to grow its
stake from 10% to 20%.
Dublin - PFPC has launched
depositary services in
Luxembourg and now offers a
full range of services to clients
with Luxembourg domiciled
funds. Luxembourg is Europe's
leading domicile for traditional
investment funds and the
second largest worldwide
domicile for funds after the
United States. In early 2007,
Luxembourg made a series of
changes to its investment
regulations, including the
introduction of the new
specialised investment funds
(SIFs). As a direct result, an
increase in alternative asset
class activity in addition to the
continued growth in the
traditional and long only asset
classes is expected. PFPC now
provides transfer agency,
depositary, middle office, fund
accounting and administration
and risk management services
in Luxembourg.
Paris - Asset management
company Euragone has
mandated Société Générale
Securities Services (SGSS) for
the launch of its new French
real estate mutual fund
(OPCI), a new type of
investment vehicle for real
estate professionals and
individuals designed to boost
the non-listed paper real estate
market and recently launched
in France. SGSS has been
involved in market discussions
for the launch of OPCIs over
NEWS DAILY AT WWW.ISJNEWS.COM
the past three years. SGSS
provides tailor made services
covering trustee and
depositary, custody and
holdings, transfer agency and
fund administration.
LEGAL AND COMPLIANCE
London - Public disclosure and
voluntary restrictions on the
use of voting shares has been
proposed for hedge funds by a
working group chaired by
former Bank of England
deputy governor Sir Andrew
Large. The proposition came as
part of a wide ranging
consultation report on best
practice standards for the
industry. The report, published
for public consultation after
being written with 14 hedge
fund managers, advocates
increased disclosure as a means
to ensure that hedge funds
address their responsibilities,
which, the report says, have
grown as their influence has
expanded. This includes
responsibilities to investors,
regulators and the wider
public. Improved disclosure to
investors lies at the heart of
its recommendations, and the
report encourages investors to
push for any changes they
want. The authors said they
hoped this would help address
wider issues of stability in the
financial system. The report
also proposes that hedge fund
managers voluntarily agree
not to exercise their right to
vote using stock that they have
only borrowed.
London - The European
Commission is continuing its
review of the USD17.4 billion
deal to combine Thomson and
Reuters, with the Commission
moving into Phase 2 to study
its competitive impact, the two
companies said in a joint
statement. The Commission
has 90 days to complete the
review, which will push the
merger into the first quarter of
2008. Also, the US Dept. of
Justice has agreed to render a
decision on its competition
review by 15 January.



ISJ25 pp1-21 ML 19/10/07 6:33 pm Page 7
ISJ25 pp1-21 ML 19/10/07 6:33 pm Page 8

NEWS

London - Omgeo’s regulatory
reporting service, Omgeo
Transaction Report, has been
updated to meet new MiFID
requirements, as set out by the
Financial Services Authority
(FSA). The service has been
certified by the FSA as an
Approved Reporting
Mechanism (ARM) and will let
Omgeo clients comply with the
new transaction reporting
regulations. MiFID requires
transactions of all instruments
admitted to trading on a
regulated market to be
reported to the local
competent authority. The FSA
has extended the UK regime
to include commodity, interest
rate and foreign exchange
derivative contracts. Each
transaction must be reported
to the competent authority by
no later than the close of
business on the following day.
Omgeo Transaction Report
will report all types of
transactions by T+1 to meet
the FSA’s Full Approval
requirements.
London - More than 61% of
banks are incorporating new
sourcing strategies into their
plans in the run up to SEPA,
according to a survey of top
industry executives conducted
at Sibos 2007 in Boston. The
survey, conducted by
Capgemini, also found banks
throughout Europe widely
support a new European bank
card programme that would
replace existing national ones
and provide an Any Card at
Any Terminal field.
MARKET INFRASTRUCTURE
New York - Citigroup, Bank of
America and JPMorgan have
unveiled plans for an USD80
billion fund to buy bonds
whose values have fallen in the
wake of the credit crisis. The
banks hope to strengthen the
market for short term
borrowing and prevent a fire
sale in markets that have yet to
see the full extent of losses.
The arrangement was agreed
to with the involvement of the
Treasury Department, which
had been concerned that
further troubles in the bond
market could force banks to
curtail their lending. The plan
will help to foster orderly
capital markets, the Treasury
said in a statement. However,
there was some concern that
the new fund might distort the
market and prevent banks
from spotting troubled assets,
covering up the extent of the
crisis. Some industry experts
have said this lack of
transparency caused the crisis
in the first place.
London - Royal Bank of
Scotland’s Johnny Cameron,
chief executive of corporate
markets, has drawn up a
checklist to integrate ABN
AMRO’s wholesale banking
division, and has 45 days to
choose which parts RBS
wants and which staff to
retain. Cameron has drawn up
a list of 118 initiatives to
ensure the rapid integration
of the Dutch bank’s
wholesale banking division,
which could lead to hundreds
of job losses. Last week RBS
gained control of ABN
AMRO in a EUR 71 billion
acquisition with fellow
consortium members
Santander and Fortis. Each
initiative spans ABN’s
wholesale operations in 53
countries, including those
acquired by RBS in Asia,
central and Eastern Europe
and Latin America, excluding
the Brazilian business, which
has been sold to Santander.
Shanghai - Nasdaq and the
Shenzhen Stock Exchange have
agreed to expand their
business cooperation and
information sharing, according
to the Chinese bourse general
manager Zhang Yujun, as
China prepares to launch a
market for start-up firms this
year. Nasdaq expected the
Shenzhen bourse, which was
preparing to launch China’s
second board market, would
introduce domestic small and
medium sized companies to list
on Nasdaq in the future, said
Robert Greifeld, Nasdaq’s chief
executive. Last month, Nasdaq
won approval from the China
Securities Regulatory
Commission to set up a
representative office in Beijing.
Nasdaq is hoping to encourage
Chinese firms to list on its
technology focused stock
exchange.
SECURITIES LENDING
Boston - Lehman Brothers has
won the majority of a
securities lending auction from
Calpers totalling USD 4 billion
in US equity and non-US fixed
income securities. Lehman
Brothers will retain exclusive
borrowing rights to the
portfolios for the term of the
agreement, according to
eSecLending, which awarded
the securities lending deal to
the bank. Citi’s Prime Finance
Division was previously
awarded access to two
significant portfolios in 2006
and chose to extend their
relationship for another year.
BNP Paribas also won exclusive
rights to access portions of the
fixed income funds. Four
major financial institutions
submitted winning principal
bids for exclusive borrowing
rights to the securities in this
year’s auction. Calpers also
awarded a portion of the US
equity assets to Boston Global
Advisors, part of Goldman
Sachs, to lend on an agency
basis. “Our lending
programme is actively
managed and by repeatedly
reauctioning our lendable
assets,” says Dan Kiefer,
opportunistic portfolio
Manager for Calpers. ■

Mandates roundup of awards

JPMorgan stands out in September and October,
winning close to USD200 billion in mandates over the
two months. American Century Investments
consolidated the asset servicing mandates for its funds
and institutional accounts with JPMorgan Worldwide
Securities Services in October. The bank was previously
the primary custodian and securities lending agent for
American Century, but these services have now been
extended to include fund accounting, financial
reporting and tax services, pending contract
finalisation. The deal encompasses approximately
USD100 billion in total assets.
The rearrangement with American Century follows a
new contract win for JPMorgan to act as sole custodian
and securities services provider for USD82 billion in
assets held by the Washington State Investment Board
(WSIB). The mandate covers 16 separate state
employee retirement funds and 21 other public funds,
including insurance and trust vehicles.
JPMorgan Hedge Fund Services also won a contract
with Financial Risk Management (FRM) in September
to provide fund administration and custody services to
several FRM funds, around USD10 billion of assets (see
mandates table overleaf).

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

ISJ25 pp1-21 ML 19/10/07 6:33 pm Page 9

AT STATE STREET, WE
INSIST ON DOING THINGS
IN A VERY SPECIFIC WAY.
YOURS.

State Street has been providing securities lending services since 1974,
making it one of the most expert lending agents serving the market today.
We’ve put that experience to work to achieve significant returns for our
customers without compromising our conservative approach to risk.

With a global presence, a top-quality team and hundreds of lending and

borrowing customers worldwide, we are proud to be the industry leader in
securities finance.

For more information, please visit www.statestreet.com/securitiesfinance.

INVESTMENT SERVICING INVESTMENT MANAGEMENT INVESTMENT RESEARCH AND TRADING

This advertisement is not directed to any person in any jurisdiction where the publication or availability © 2007 STATE STREET CORPORATION. 07-STT01820207
of such services are prohibited by reason of that person’s nationality, residence or otherwise.
ISJ25 pp1-21 ML 19/10/07 6:33 pm Page 10

NEWS ANALYSIS

Mandates awarded in September and October 2007

Month Winner Client Location Assignment Mandate size
October Citi FCSS Luxembourg Custody Services n/a
October ABN AMRO Mellon Bpf Meubel Amsterdam Custody Services EUR1.5bn
October BNY Mellon Popular Espanol Madrid Custody Services USD2bn
October RBC Dexia Bridgewater Calgary Custody/Reporting n/a
October BNY Mellon Sicav San Marino Custody Services n/a
October RBC Dexia IA Clarington Montreal Custody Services CAD5bn
October JPMorgan American Century Kansas City Custody/Sec lending USD100bn
September Handelsbanken Tapiola Stockholm Custody Services EUR10bn
September BNY Mellon PCA Asset London Custody Services n/a
September JPMorgan Washington State Washington Custody Services USD82bn
September State Street ADIC Abu Dhabi Custody Services n/a
September JPMorgan FRM New York Custody Services USD10bn

Eating in
were due to be settled on 17 October, the
consortium had said in a statement.
While Barclays had intended to merge
the two operations to create one enormous
With the battle for ABN banking powerhouse, the RBS-led group
AMRO finally over, the is expected to divide up the 183 year old
ABN AMRO.
pie must be divided up Fortis is expected to take ABN AMRO’s
Dutch operations, Santander is interested
t long last, the tussle for ABN
“During the first 45 days [of ownership]
we intend to validate our base line plans for
the changes intended for ABN AMRO and
the transfer of businesses to the
appropriate consortium partner,” the RBS-
led group said. “We expect this plan will
form the basis for continued consultation
with employee bodies and regulators with
whom there have been extensive and

A AMRO has drawn to a close as the

consortium of banks led by Royal
Bank of Scotland (RBS) declared its
USD99.3 billion bid for the Dutch bank
unconditional in the second week of
October, sealing the largest takeover ever
in the financial industry.
The drama began in March as the RBS
consortium tabled a rival offer to that of
Barclays, which saw its final bid fail a week
before the successful RBS bid. As ISJ went
to press, payment for the 86% of shares
tendered in RBS’s EUR70.4 billion offer
10 INVESTOR SERVICES JOURNAL
in its Brazilian and Italian arms, and RBS
intends to take the remainder, which
includes operations in Europe, Asia and
the Americas and ABN AMRO’s banking
ongoing discussions.”
Meanwhile, there had been concerns
from the ABN AMRO staff council that a
merger would lead to job losses around
division investment banking arm. The the globe. The RBS consortium has said it
consortium is expected to release detailed plans to add jobs in the long term, but will
plans of the restructure in the coming make cuts in the short term. It said it
weeks. didn’t plan any forced reductions in the
RBS has appointed one of its most Netherlands, where jobs will be lost due to
senior investment bankers to oversee the overlap between Fortis and ABN. ■
integration, highlighting the importance
that the bank places on the investment
banking division. Brian Crowe has
relinquished his role as chief executive of
global banking and markets at RBS and
Not black
joined the managing board of ABN
AMRO to take responsibility for the
investment and retail banking businesses.
and white
Crowe will lead the acquisition,
reporting to Mark Fisher, who has moved Is hedge fund regulation
from his role of chief executive of RBS’s an oxymoron?
manufacturing division to replace
Rijkman Groenink as chairman of ABN’s or the dust to settle after the
managing board.
RBS has 45 working days from 11
October to write and submit a transition
plan to the Dutch National Bank (DNB).
F present financial troubles, a
scapegoat needs to be found. Hedge
funds are always an easy target. Rich,
successful, expensive and secretive, they
The DNB then has a month to approve the are ripe for condemnation. The UK
plan, leaving RBS free to start formal Financial Services Authority (FSA) plans
integration on 1 January 2008. over the next month to discuss several
ISJ25 pp1-21 ML 19/10/07 6:34 pm Page 11

Time to change?

Choose a flexible Securities Finance solution

that integrates seamlessly

4sight Securities Finance provides a full front
to back office system for lending, borrowing,
repo, swaps, and collateral management of
both Equities and Fixed Income Securities.
4sight Securities Finance is a proven solution
used globally by a wide range of financial
institutions, and can be used on an agency
or principal basis.
• Software with the flexibility to be tailored to your
unique business requirements
• Maximise efficiency through quick and seamless
integration with your existing systems
• Quick and easy real time access to your data,
with the ability to import and export in any
required format.

email: info@4sight.com www.4sight.com

Financial Markets Solutions EDINBURGH • LONDON • TORONTO • SYDNEY

ISJ25 pp1-21 ML 19/10/07 5:26 pm Page 12

NEWS ANALYSIS

options to increase transparency within
the hedge fund arena. The headline news is
that companies could be given greater
powers to force hedge funds to disclose
their stakes held in derivatives contracts.
Not wanting to wait around letting
others change the very meaning of hedge
funds, the biggest funds in London
recently came together in an attempt to
pre-empt the regulators. The Hedge Fund
Working Group (HFWG) produced a
doorstep report in an attempt to address
many problems that have been floating
about regarding best practice standards
within the industry.
Sir Andrew Large, chairman of the
HFWG, stated: “This is a significant step
in that it is the first time a group of
leading hedge funds have come together to
give real substance as to how they will
comply with FSA principles. It shows that
the industry recognises its responsibilities
as a significant force in the financial
system.”
The new voluntary standards, open for
debate until 14 December, after which a
final report will be submitted in January,
focus particularly on valuation, risk
management, disclosure and fund
governance. The working group has also
recommended that hedge fund managers
disclose more information about
themselves on their websites and that
more information about the industry is
made available collectively to the public.
The FSA has encouraged the industry to
produce standards, and the HFWG has
based its code heavily on the FSA's
regulatory principles. FSA chief executive
Hector Sants said in an email he welcomed
the group's work and, in particular, the
report's focus on issues such as
transparency and valuation.
The responsibilities of hedge funds have
increased dramatically over recent years, as
pension funds invest in alternative fund
managers. Gone are the days when the
average Joe could dismiss hedge fund
losses as sad, but largely isolated incidents
where a select number of very wealthy
individuals lost out – anyone with a
pension now has cause for concern and an
earful for the regulators.
In July, the Massachusetts state pension
system lost USD30 million following the
collapse of Sowood Capital Management,
which told investors it had lost around
50% in July - around USD1.5 billion.
Earlier in the year, Opers committed
USD50 million to investing in hedge
funds, and Calpers committed USD350
million to invest in new hedge funds. Last
year, the Californian teachers fund Calstrs
voted to shift its portfolio towards more
risky investments.
So, is the alternative funds industry
running scared that increased scrutiny will
hurt its profits and prevent it from
functioning as it would like? Yes, and
justifiably so.
As always with regulation, voluntary or
otherwise, there must be a level of balance
between protecting investors and letting
management maximise profits. In this case,
however, the balance should perhaps be
weighted more in favour of profits, as
hedge funds are by nature risky animals –
what is the point of investing in an
alternative fund if it behaves as a
traditional manager? ■

“ Where can I find the international financial

services and professional support
infrastructure my business and I need? ”
The Isle of Man benefits from a strong reputation.
It is home to a well regulated professional infrastructure – including world-class advisers,
wealth managers and corporate & trust service providers – allowing you to manage your
business and personal wealth with the help of peerless professionalism and expertise.
The triple ‘A’ rated jurisdiction* is committed to wealth creation and preservation.
Businesses benefit from a zero rate of corporate tax. Personal tax is very low, with liability
capped at £100,000, and there are no wealth, inheritance or capital gains taxes.
The Island provides the freedom to flourish making it the natural choice for you and
your business.
To find out how the Isle of Man can enhance your personal and business wealth,
please contact Isle of Man Finance on 01624 686400.
(*Standard & Poor’s and Moody’s)

www.isleofmanfinance.gov.im

You can in the Isle of Man

ISJ25 pp1-21 ML 19/10/07 6:18 pm Page 13
ISJ25 pp1-21 ML 19/10/07 4:55 pm Page 14
CEO PROFILE - GOLDENSOURCE
Data guru
Michael Meriton, CEO of data services vendor GoldenSource, explains to
ISJ his views on EDM and the future of the market
ichael Meriton is a true
M believer in the power of
enterprise
management (EDM). In fact, he is
data
considered to be a leading light
involved in the work of the EDM
Council, which was formed in 2005
and is engaged in raising the profile
of data management across the
industry. “One of the things that I
thought was imperative, two years
after I joined GoldenSource, was to
encourage the industry to listen to
this mission critical endeavour
through a three letter term that
could galvanise people and work
with other major companies. With
this in mind we created and
sponsored an industry council that
is known today as the EDM
Council,” Meriton elaborates.
When the council was first
formed it consisted of 11 companies
with 22 executives represented by
C-level officers, such as the chief
information officer of Deutsche
Bank, chief architect of Bank of
America, chief operating officer of Franklin Templeton and
chief operating officer of Citigroup, he says. However, from this
initial meeting, the EDM Council has now grown organically to
include 150 firms and over 450 executives.
Meriton is passionate about the importance of EDM for the
future of the industry: “One of the most rewarding parts of my
career was being part of the foundation of the EDM Council
and helping to get EDM defined and recognised as an industry
term and a critical business issue. Having helped launch this
with GoldenSource and our other founder partners, IBM,
SunGard, Bearing Point and Cicada, it has definitely been a
defining moment of my working life.”
Five years ago data was a back office, non-strategic, highly
fragmented activity, but the EDM Council has built market
awareness while working with data executives to drive the
industry’s EDM agenda, he explains. This has led to many firms
now appointing a chief data officer (CDO) or a global head of
enterprise data management. These roles have been elevated to
report into the chief information officer or chief operating
officer under a structured data management strategy that is
governed in a serious way at these institutions. “We also wanted
to make the council a neutral body open to both a
combination of institutions and vendors to focus on the issue of
EDM,” he adds.
14 INVESTOR SERVICES JOURNAL
Meriton has always been keen to
rise to a challenge; his early career
experiences at mid-market systems
integration company JGI/BAAN are
testament to this. “The first
challenge in my career at
JGI/BAAN was to develop a sound
business case and model and to
secure funding for the business. ERP
offerings, which at the time had
cracked open the tier one of the
manufacturing marketplace, then
had an opportunity to move into the
mid-market. Our business model was
to take one of the best in class ERP
systems and have a systems
integration team rapidly install it
into mid-market manufacturers. We
initially received funding of USD6
million and then went on to face the
challenges of properly executing the
business plan,” he elaborates.
The project turned out to be a
success: “We had to hire in a team of
customer-centric professionals with
proven experience and customer
success. During this time we coined
the phrase ‘reference factory’: when any customer installation
was completed quickly, that customer would then serve as a
reference and create more momentum for the next customer.
The program proved to be very successful: we were able to hire
the team and execute with upwards of 20 mid-market
manufacturer client references within 18 months.”
Following his time at JGI/BAAN, Meriton moved on to fulfil
a number of leadership roles at other vendors including D&B
Corporation, Oracle and Automatic Data Processing (ADP). His
time at ADP also brought with it a number of key challenges,
including being able to rapidly implement a customer on the
ADP offering. “The way the business was organised at the time
was very siloed. The sales team would go out and identify leads
and opportunities, then work with executives to move the
contract forward. Once that had occurred, a separate team under
a separate manager would come in to complete the installation,”
he explains.
“During this time I was named as a new type of manager: new
client acquisition team manager. My direct reports included a
combination of both direct sales and direct implementers on one
common team. The idea was to take the new client process and
be able to rapidly understand the opportunity, speed up the
execution time and deliver exactly what the client bought in the
sales cycle. We found that this approach increased confidence on
ISJ25 pp1-21 ML 19/10/07 4:55 pm Page 15
the client side and enabled us to deliver
on the objectives established in the sales
cycle, during the implementation stages
of the project. The end result was faster
implementations of exactly what they
requested,” he adds.
Meriton’s experiences at D&B and
Oracle exposed him to a market trend
The nirvana for EDM would be a company identifying its underlying data sources, the
quality assurances levels it is seeking and the systems it wants to power
that ultimately attracted him to
GoldenSource: the ability to witness the
whole transformational revolution of
ERP in every market except for
securities. “Oracle was the horizontal
database with applications on top of it,
and while their offering was simple, at
the time it was innovative and unique,” he
explains. “It was a platform that would
integrate data across applications and
have a common application and
processing architecture. As a result,
anything you would do for order
management would update inventory
that in turn would update financials,
which would then update human
resources, so everything was integrated.”
What ultimately attracted Meriton to
GoldenSource was the high percentage of
financial services clients at D&B: around
70% of the customers were in the
financial services market. These included
large organisations such as Citigroup,
Metlife, Prudential and Merrill Lynch
that were users of D&B best of breed
financial applications. “I learned that in
that market best of breed was good and
competitive, but in the end, integrated
applications were the preferred
approach,” he explains.
“I then saw a diamond in the rough:
GoldenSource. GoldenSource was a
company that spearheaded a joint
venture of half a dozen global banks
each contributing their requirements to
define a common data architecture across
the different lines of business in the
securities industry. These included
private banking, asset management,
investment banking, wealth
management, trust, custody and security
services firms,” he says.
“In addition to the common data
architecture, there was a need to build
business engines and software that would
get data in and out and handle
exceptions. So what I saw was a unique
opportunity for GoldenSource to
leverage, at the time, more than USD200
million in research and development that
had been invested in the product in an
industry that uses data as its fundamental
asset,” he continues.
Unlike manufacturing and engineering
everything that happens in the securities
market is ultimately powered by data,
adds Meriton, yet data had been
relegated to a back office function that
was highly fragmented and distributed
with a lack of common governance.
“With GoldenSource, I felt that we had
the best opportunity to crack the last
bastion business vertical in the world
that did not have a platform with
integrated data and processes at the
heart of it,” he says.
Meriton sums up his current aims: “I’m
looking to use my 20 years of business
experience in taking ERP from early
adopter to later stage mass adoption. At
GoldenSource, there is an opportunity
with this technology to help lead a
similar transformation for the securities
industry. We are already seeing the early
adopters of EDM moving to early mass
adoption.”
The EDM journey is still evolving.
The industry has seen EDM move
through the early adoption stage, but the
thing that keeps Meriton awake at night
now is the move to early mass adoption.
Mass adoption has some prerequisites: a
predictable result for a predictable price
in a predictable timeframe. According to
Meriton, the nirvana for EDM would be
a company identifying its underlying
data sources, the quality assurances
levels it is seeking and the systems it
wants to power. If all of those answers
could result in a platform that is fully
operational for its institution globally
and could happen in weeks and
months, this would result in mass
adoption, he says.
“I would categorise our product
implementations and those of our
CEO PROFILE - GOLDENSOURCE
competitors five years ago as taking a
year or more, while two years ago it was
multiple quarters, and today we are
generally looking at months. What
drives this as a prerequisite for mass
adoption is looking at every bit of the
challenge and what can be pre-
configured, for example the inbound
connections, how many can we have
operational and maintained by
GoldenSource, so our clients do not have
to worry about mapping in their own
feeds and maintaining others,” he
contends.
The second prerequisite to mass
adoption is in the platform itself: the
industry must be able to simplify and
automate workflow and data exception
problem resolution. “We also took this
platform and developed strategic
relationships with IBM and Broadridge.
They use GoldenSource as a processing
architecture where they can squeeze out
the cost of operating, managing and
cleansing exceptions and provide a value
add outsourced service to their clients
powered by GoldenSource technology,”
he explains.
GoldenSource is already seeing
tremendous interest from financial
institutions, especially in light of the
current sub-prime mortgage crisis, he
says. This has had an effect on virtually
every global financial firm and has now
put a cost pressure on them, so anything
that can be properly outsourced is
gaining high attention right now.
Despite the hard work, Meriton is
satisfied that progress is finally
happening: “This is the hardest job I have
ever done, but also the most rewarding. It
is incredibly meaningful and complex.
It’s complex in areas such as the increase
in major issues including instruments
marketed, trading volumes that have
grown substantially, increasing
regulatory and compliance issues –
this make this the hardest industry to
serve. The irony is all of these issues can
be resolved with good data man-
agement. EDM is here and is not going
to go away.” ■
INVESTOR SERVICES JOURNAL 15
ISJ25 pp1-21 ML 19/10/07 4:55 pm Page 16
DATA SERVICES - EDM COUNCIL
Painting a better picture?
he latest enterprise data
T management (EDM) survey,
commissioned by Reuters, listed six
main categories of EDM drivers:
competitive advantage, ability to manage
regulations and compliance, enhanced risk
management, increased operational and
workflow efficiencies, more stable
technology, and increased data technology.
These drivers have been lurking under the
bed for years and financial institutions have
effectively ignored them, instead preferring
to concentrate on where the money is
made. But at last we may be on the cusp of
real change, as EDM moves from concept
to reality.
Reuters’ survey, which was published
globally in September, questioned industry
consultants, banks and investment banks,
investment managers and global
custodians and found 75% of respondents
said their EDM projects were on schedule,
with only 8% saying they were not. The
remaining 17% indicated that they were
still defining a strategy. However, it should
be noted that the survey was restricted to
those actively taking part in an EDM
project.
The survey was commissioned to test the
following premise: “The EDM market has
16 INVESTOR SERVICES JOURNAL
evolved over the last five years. Firms
participating in capital markets have
growing awareness of the competitive
edge that maintaining consistent,
comprehensive, clean data can offer. They
are also realising, to achieve the firm’s
goals, EDM solutions need to be business
driven, technology enabled, and
operationally supported. Do you agree?”
Perhaps unsurprisingly, 100% of
participants validated and agreed with this
somewhat leading hypothesis and one
explicitly added: “EDM supports data
strategy, creates a high level of data
quality, and makes data an enterprise asset.”
Of course, enterprise data management
may be the best and perhaps the only
approach to the efficient storage, recall and
management of data – more on this in a
minute – but the current response from
vendors indicates the industry may not be
as interested as they perhaps should be.
Outsourcing has floundered in many areas
and Adam Honoré, senior analyst at Aite
Group, compares the choice between
building in-house and outsourcing to the
tussle between VHS and Beta in the 1980s.
“Beta was higher quality, but it lost for no
apparent logic. Outsourcing is suffering the
same problem,” he says.
The issue of
enterprise data
management
and the work of the
EDM Council have
come under some
criticism in the past,
but is the industry
now ready to deal
with data? Jamie
Darlow investigates
“Capco seems to have found a niche in the
market, but Accenture has dropped it and
Broadridge has yet to sign an external
client,” Honoré explains. “Where
outsourcing has been successful is the data
cleansing for counterparty scrubbing. The
business process of that effort has been
farmed out to firms like CounterpartyLink,
Avox, Reuters, CreditDimensions, and
others.”
Most financial services firms do not
question that the concept of EDM is a
good thing and that it is the best approach
to solving the increasingly complex data
demands on organisations. Honoré says the
process should be “evangelised” due to the
critical nature of data and its history of
being ignored by senior management. The
majority of firms still operate separate,
multiple systems that function in the back,
middle and front offices. They often also
maintain separate systems supporting each
asset class, such as fixed income, derivatives
and equities, particularly where the firm is
functionally organised by asset class.
“The problem with this situation is that
each separate system requires its own set of
market data feeds, individual data stores
and warehouses, and data administration
teams,” explains Mario Orphanou, product
ISJ25 pp1-21 ML 19/10/07 4:55 pm Page 17
manager at data vendor Odyssey. “This can
lead to a lack of consistent information
across transactional applications, including
differences in pricing, ratings and names, a
lack of automated processes or controls to
validate and manage data and different data
standards applied in different silos,
creating inconsistencies. This results in
increased data costs and administration
due to the duplication of effort, which puts
a considerable strain on existing resources
and infrastructure.”
Odyssey’s software is an effective tool for
cleansing and administering data across a
firm, bringing reduced risk and cost
savings of up to 50% on data service
budgets. But what the vendor does not
represent is a fundamental shift by
participants in the way data is stored and
managed – something largely unpopular
with banks and custodians. Honoré says:
“There’s an awful lot of legacy code out
there connecting into old systems. It will
take years, more like tens of years, to
eliminate silos for large enterprises.”
Unfortunately the industry does not
have 10 years to get over the problem. Less
than a decade ago, US market data vendors
were able to aggregate real time market
data for major exchanges on one T1 circuit
– this is out of the question today, as
market data itself has increased by two
orders of magnitude. And it continues to
increase.
While data itself increases in volume, it
seems today’s markets require even more
quotes to make trading happen. Eurex
reported it received eight times as many
quotes per trade in 2006 as in 2001, while
the ICE Futures exchange has seen a 275%
increase in traded volume over the past
two years. Transaction volume itself –
representing all message types – has
grown 2700% over the same period.
High frequency trading systems and
auto quoting options are partially to blame
for what has oft been termed the market
data tsunami. “A single price movement in
the underlying security may cause the
system’s logic to re-quote every strike for
every month in the options series,”
explains Tom Haldes, senior product
manager for automated trading at Trading
Technologies International. “Now assume
the underlying security is also being
quoted by high frequency black boxes, such
as index or statistical arbitrage systems,
with each new quote from the black box
applications potentially resulting in re-
quotes of hundreds of strikes in the
options series, and you can begin to
understand why data is becoming such an
issue for exchanges, vendors and trading
firms alike.”
An overload of data has already caused
several high profile exchange failures. The
Tokyo Stock Exchange (TSE) was forced
to close early in January 2006 because its
trading system was unable to cope with a
surge in sell orders. The TSE suffered its
worst ever systems failure that halted
trading for more than four hours on 1
November 2005. The exchange later
blamed Fujitsu for the crash. TSE
announced last year Fujitsu would develop
its next generation trading system and
said at the time it would spend over half a
billion dollars over the next three years
improving its electronic trading systems.
Data, it seems, is an issue that cannot be
ignored.
The number of participants generating
data has also increased as the technology
for high frequency trading becomes more
readily available. High performance
trading systems are no longer strictly in
the domain of the world’s largest banks
and funds, instead many smaller funds are
choosing to go down this road. Pension
funds, for example, have diversified in
recent years, investing in more risky and
secretive hedge funds. For some, the
investment failed to pay off – the
Massachusetts state pension system lost
USD30 million in July, following the
collapse of Sowood Capital Management.
The Boston-based hedge fund informed
investors it had lost around 50% in July,
around USD1.5 billion.
Earlier this year, Ohio Public Employees
Retirement System (Opers) committed
USD50 million to investing in hedge funds,
while Calpers committed USD350 million
to invest in new hedge funds. Last year, the
Californian teachers’ retirement fund
(Calstrs) voted to shift its portfolio toward
more risky investments. It remains to be
seen whether funds will be scared off by
this summer’s turmoil, or decide the
payoffs justify the risks. Either way, data is
set to increase in volume and,
fundamentally, firms are going to have to
store more of it.
Yet the fortunes of EDM may be about
to change, as Swift’s Sibos conference in
Boston this year witnessed the entry of
Reuters into the EDM space, where
previously it had only provided the data.
DATA SERVICES - EDM COUNCIL
Reuters’ Enterprise Platform has been
developed for financial institutions to
integrate both real-time and referential
data on an open source platform, from
front to back office. The platform is a
response to customers’ concerns that there
is no set of definitions for EDM and
vendors are largely providing products
tackling issues surrounding data storage,
Reuters says. The entrance of one of the
world’s biggest data suppliers onto the
EDM scene can only be a good thing, as far
as driving forward the automation of the
process and offering institutions with an
effective and scalable EDM product. Just as
critically, the development of the platform
at customers’ behest must also signify a
growing demand for EDM.
It seems some major firms have been
quietly taking note of the symptoms of
data’s illness and potential treatments over
the past 12 months and demand is growing
for these. Not only have big firms begun to
appoint senior managers to titles such as
‘global head of data’, they have also begun
long term, big spend projects to bring their
data into line. JPMorgan Chase has
established a centralised operational
infrastructure for reference data; Citi
announced in August it was implementing
a project to define data standards
enterprise wide, a project headed by
Balakrishnan Nayar, vice president of
business architecture and standards at Citi
Finance; and now UBS is going live with
the first infrastructure release of its multi-
year global client data transformation
programme.
“On our global client data
transformation programme, we are going
live with our first release with a new
software and infrastructure over the next
two weeks,” reports David Goldberg,
Americas head of client counterparty and
instrument data for UBS. “In November
there will be a subsequent release,
continuing into 2009. We are really
moving into the execution stage. The first
release has really focused on supporting
our on-boarding function for anti-money
laundering and compliance and workflow
associated with those functions. In the
second part of the initial release we are
seeing enhanced workflow and STP
automation in the account maintenance
process. Both will impact primarily data
operations and the client on-boarding
functions.”
This increased ability, not only to store



INVESTOR SERVICES JOURNAL 17
ISJ25 pp1-21 ML 19/10/07 4:56 pm Page 18
DATA SERVICES - EDM COUNCIL
data across businesses, but also to recall it
and manage it, will benefit firms like UBS
when dealing with regulatory pressures.
The raft of new regulations hitting the
industry has already had some positive
impact on the market and this is set to
continue as MiFID finally hits our screens
this autumn. “Basel, MiFID, KYC, and
other regulatory requirements have been a
big benefit to EDM,” says Honoré. “The
nice thing about regulatory initiatives is
they can’t be ignored by senior managers
and tend to require cross functional
support by nature. Once people have the
systems in place, the next challenge is
proving out the value beyond the initial
deployment and spreading the data
through the enterprise.”
Basel II is set to drag Europe up to the
banking standards level of the US, which
I would like to see the council and the industry do more collectively. Is it realistic we
could be doing more than has been done? I’m not so sure
has the advantage of the Federal Reserve
Bank and the DTC setting nationwide
standards. Europe is following suit,
defining how much capital financial firms
need to put aside to guard against the types
of financial and operational risks they face.
In practice, this means local regulators are
empowered to set up risk and capital
management requirements, the aim being
to ensure capital allocation is more risk
sensitive; separating operational risk from
credit risk, and quantifying both; and
attempting to align economic and
regulatory capital more closely to reduce
the scope for regulatory arbitrage.
This has a considerable impact on data
management, explains Orphanou. “Basel II
is exposing significant issues with data
management. Under the Advanced
Measurement Approach of the accord,
banks must be able to identify and track
key operational risk factors reflecting their
business environments and internal
controls. Complying with Basel II requires
a significant history of consistent, accurate
and granular data. For those firms still
using a siloed data management approach,
this represents a major stumbling block.
Systems that centrally collect, manage and
retain critical operational data will help
practitioners to analyse and make better
decisions about their credit risk
exposure. Such a system also makes it
possible to audit data from the point of
18 INVESTOR SERVICES JOURNAL
origin to consumption.”
He continues: “Basel II leaves EDM
databases and associated market data
systems largely unchanged. This is unless
a decision is made to expand the EDM
beyond basic market data requirements
and to store information about firm capital,
capital reserves, firm exposure, and so on,
in the database. In most cases, this
expansion would require the addition of
subject areas, tables, and stored procedures
to the database, in short, additional data
architecture for the EDM system.”
Gary Barr, head of EDM at Reuters,
says EDM directly answers the critical
needs of risk managers tasked with
monitoring and managing their firm’s
market and credit risk exposure. “This
results in solutions that allow them to
properly navigate their data, measure and
manage their risk, and transparently
address risk regulations such as Basel II.
In doing so, they protect their reputation
and their customers’ interests, and
minimise their financial risk through the
effective and timely management of
customer and financial data.”
MiFID also requires the storage and
management of vast quantities of data to
be able to prove best execution going back
five years. In short, EDM systems will
help comply with regulatory standards.
This is something the EDM Council has
been promoting since its inception two
years ago.
The latest report from the EDM
Council’s managing director Michael
Atkin, published in July, summarised the
progress made over the past year – chiefly
that financial institutions have made the
transition from cost to risk mitigation,
which represents the current driver. Data
content as a key business enabler
represents the next phase, the report says.
After all, there is no value in the data itself
but there is value in the things it can do.
More firms are jumping on the data
management bandwagon and its visibility
is increasing, Atkin says. “We expect to see
more professionals anointed as head of
enterprise data management or CDO
with a full time mandate, a budget and a
seat at the board table to ‘get the job done’.
EDM is on its way toward becoming a
‘core value’.”
Of course Atkin’s eyes are also open to
where the council has fallen short in the
past. He is the first to admit the there has
been a failure to achieve true
organisational alignment, despite newly
found orientation on the concepts of
holistic data governance. “I note a
seemingly broad shift taking place across
the industry as it relates to governance,” he
explains. “Many of the initial data
management projects were started to
address a clear and specific problem – and
the spectrum of problems are broad.
Those high priority (but frequently
isolated) projects have now given way to
the creation of a new data management
group – which in itself could be a positive
development.”
However, Aite’s Honoré says the council
does not do enough to promote the
landscape of vendors across data
management issues. “There has been an
awareness problem that solutions existed
to help people with their challenges. The
counterparty space and risk is a perfect
example.” Consequently, the council has
failed to have a major impact, he continues.
“This is a heads down effort and people
don’t really care about data standards and
group initiatives when they’re engaged in a
project,” Honoré says. “The council has
helped foster discussions and more
dialogue between firms, but they are not
moving the industry on their agenda.”
There has also been a smattering of
cries from the industry that the council is
pursuing the agenda of the data vendors –
namely to push expensive and time
consuming products onto beleaguered
practitioners. This impression has not
been helped by the composition of the
board, which has largely consisted of
vendors themselves. But this is set to
change on 24 October, when the EDM
board meets to allow more practitioners to
join. The new makeup is under wraps at
present, but rumours suggest the top
global banks will be represented. UBS’s
Goldberg does not currently sit on the
board, but has been solicited to join.
Goldberg also refutes claims the council
is weighted in favour of vendors. “The
vendor participation, and, in particular,




ISJ25 pp1-21 ML 19/10/07 4:56 pm Page 19

Visit Interactive Data

Wherever You Look, Interactive Data at FIMA 2007 Stand 3
Across the globe, thousands of leading financial 6-7 November
institutions work with Interactive Data to help ensure London Olympia
success across their front, middle and back office
operations. We’re a trusted source of mission-critical,
high quality financial information and value-added
services, including real-time data, pricing and evaluations,
reference data, sophisticated analytics and innovative
market data managed solutions.
Our offerings empower clients to maximise efficiency
from one end of the company to the other, from pre-trade
compliance, through risk management and trade
confirmation, to account valuation and client reporting.
And we’re there to help as you plan for the future.
By focusing on our clients’ needs and continually
monitoring the global markets, we can deliver new
offerings and provide expert guidance as the industry
changes, from the latest regulatory mandates to the
emergence of new, complex securities and more
powerful trading applications.
For more information about Interactive Data, contact
+1 877 462 3843 (North America), +44 (0)20 7825 7800
(Europe) or +61 3 9249 2000 (Asia Pacific), or email
info@interactivedata.com.
ISJ25 pp1-21 ML 19/10/07 4:56 pm Page 20
DATA SERVICES
that of the consulting firms, is very valuable because they have
resources to work on the project and an incentive to do so. But I don’t
think the council, or any of the working groups I’ve been on, are
unduly influenced by either consulting firms or vendors. The council
and its members, the meetings we’ve had and working groups have all
been independently minded, looking for industry solutions.”
He praises the role and actions of the council for bringing visibility
to the EDM problem: “Active participation from major financial
institutions, as well as vendors and consultancy firms, has been
extensive. In fact there’s a meeting today [11 October] in New York,
hosted by Credit Suisse. It’s a broad based coalition.”
Goldberg continues: “I would like to see the council and the industry
do more collectively. Is it realistic we could be doing more than has been
done? I’m not so sure – it takes many years and a lot of active
participation by people who have full time jobs, to get together for the
greater good of our industry. In one sense I’m pleased at what the
council has achieved and, in another, we’re not quite to the point where
the EDM Council is a fully effective voice of the industry. Some
organisations have more of a formal mandate and the industry has
bought into them. The EDM Council is still trying to figure out how
to effectively move an agenda along.”
In it’s short life, the EDM Council has been actively pursuing and
evangelising the goal of uniting a firm’s data across its businesses
and offices. Its success depends on active involvement in the process,
perhaps reflecting its good intentions and level of progressive
influence on those it actually reaches. For those not actively involved
in EDM projects (and there are many), the influence of the
council may have gone unnoticed until now. The next 12 months will
see the fortunes change for both the council and the principle of
EDM as visibility grows. ■
Forward Focus
Nat Sey, reference data business manager, Interactive Data
To a large extent, I believe that the industry landscape is
unlikely to change significantly from what we have seen
throughout 2007. During that period, market participants have
been busy trying to understand their new regulatory obligations
and then, increasingly, seeking to make provision for them.
Few consider the European Commission's Financial Services
Action Plan (FSAP) to be complete, so the smart money is on
the emergence of more regulatory challenges over the next
couple of years.
Some might consider corporate actions to be the grandfather
of regulatory threat. For years now, the concern has been that if
the industry cannot improve the transparency of the processing
cycle and in particular, reduce the degree of required
interpretation of notifications, then a regulatory mandate may
need to be brought to bear. Whether 2008 will make this more
likely is unclear at present. What is certain, though, is that
some firms are sure to be trying harder than ever before to avert
such an outcome by proactively addressing the underlying
problems. Such an endeavour is Swift's planned introduction of
the Software Testing and Qualification Service (STaQS). It is
hoped that this will allow users of the network to have their
inbound communications pre-validated by software
components on the network, which will check for standards and
market practice conformance. While this cannot hope to
solve the challenge of engaging issuers in to the
standards process, it is hoped that it will create an environment
where we see increased standards’ adherence and fewer
exceptions as a result.
20 INVESTOR SERVICES JOURNAL
EDM to the rescue
Alexis Calmon, SmartCo
The crisis in sub-prime mortgage market, and its
contamination worldwide raised a new information challenge.
Indeed, the lack of information instantaneously available for
all the actors involved contributed strongly to the devastating
consequences on the financial markets and global losses
that early estimates evaluate at USD250 billion.
The loss of trust and a fear of the unknown or of uncertain
losses at financial institutions and their counterparts was
compounding the problem. No one had a clear assessment
of the size of the questionable assets, and nobody knew
where the risks were.
Along with the complexity and multiplicity of the traded
instruments, financial institutions deal with an increasing
interdependency and correlation between their components.
Therefore, data quality and availability is critical and the
decision makers need immediate access to clean and
centralised data through a powerful, flexible and
customisable financial data management system.
This crisis emphasises the need for reactive information
management. Financial institutions have created complex
instruments and packages. In case of securitised mortgages
such as ABS, it is necessary to obtain detailed information
on the bundled package, to store it and to manage it in a
suitable information system. The complete modelling of a
securitisation process requires adapted and flexible tools and
is therefore difficult to integrate in most existing and not
flexible front office or back office applications. Financial
institutions need software with capacity to integrate, such as
new quality processes or new financial instruments models.
AEMS is the leading global provider of technology solutions
for exchanges, clearing houses, banks, brokers, and
intermediaries.
As market leaders, we value the insight of our clients and
as their technology requirements develop, we collaborate to
find the most suitable product solutions for their needs.
AEMS is committed to one key objective – providing the
most innovative, scalable, efficient technology solutions at
the best price points possible.
We serve global markets throughout the trading process -
banks, brokers, asset managers and intermediaries;
exchanges; clearing houses and CSDs.
We employ 1,300 industry experts worldwide and have
offices in London, Paris, Brussels, Chicago, Dubai, and
Hong Kong.
EVENT ORGANISER
HAZEL HARDIN, COMMUNICATIONS CO-ORDINATOR
T: 020 7655 7025 E: HAZEL.HARDING@AEMS.NET
ON-SITE CONTACT
NIGEL MATTHEWS, SALES MANAGER, CAPITAL MARKETS
T: 07841 673 425 E: NIGEL.MATTHEWS@AEMS.NET
ISJ25 pp1-21 ML 19/10/07 9:54 pm Page 21
Alacra creates sophisticated online tools and technology to
help clients find, package and present business information.
Financial institutions, professional service firms and other
corporations have long used the same content sets to support
clients, research deals and investigate market opportunities.
The Alacra mission is to package this content and deliver it in
a format that best meets each organization's precise needs.
Alacra Concordance seamlessly ties together multiple forms
of reference data ranging from company and security to
industry identifiers. With access to all global public
companies, 350,000 private companies, subsidiaries and
divisions, all rated entities including corporations, municipals
and special-purpose vehicles, Alacra Concordance is a rich
tool. This unique application services global customers who
need a means to de-dupe client lists, obtain external content
identifiers, create a single view of a customer, prospect, or
build a central authority file.
KEY CONTACT: GAIL JEWSBURY
A: 148 LEADENHALL STREET
LONDON, EC3V 4QT
T: +44 (0) 207 743 7180 F: +44 (0) 207 743 7181
E: GAIL.JEWSBURY@ALACRA.COM W: WWW.ALACRA.COM
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. Through its businesses, Interactive
Data supplies time-sensitive pricing, evaluations, dividend,
corporate action and reference data for more than 3.5 million
securities traded around the world, including hard-to-value
instruments. Many of the world's best-known financial
service and software companies use Interactive Data’s
services in support of their trading, analysis, portfolio
management and valuation activities.
WWW.INTERACTIVEDATA.COM
GLOBAL HEADQUARTERS - 32 CROSBY DRIVE, BEDFORD MA
01730, USA +1 781 687 8800
EUROPEAN HEADQUARTERS, FITZROY HOUSE, 13-17 EPWORTH
STREET, LONDON, EC2A 4DL, UK +44 (0)20 7825 8000
ASIA PACIFIC HEADQUARTERS, 1155 MALVERN ROAD,
MALVERN, VICTORIA 3144, AUSTRALIA +61 3 9249 2000
FIMA VENDOR PROFILES
Siperian is an innovative provider of the most flexible master
data management platform for financial organisations.
Siperian helps companies unify their critical data about
clients, counterparties, securities, products and employees
that is fragmented across different systems—and delivers the
most reliable, complete views of this data within existing
business processes. As a result, companies can benefit from
all of their data assets to increase profitability, reduce
operational costs and better address regulatory compliance.
Siperian’s approach delivers excellent ROI with rapid
implementation which has earned the company its reputation
for leadership and proven success.
CONTACT – SALESUK@SIPERIAN.COM
WEB – WWW.SIPERIAN.COM
STAND #25 AT FIMA
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
CONTACT DETAILS:
SMARTCO
37 RUE DE LIÈGE
75008 PARIS FRANCE
T: + 33 1 58 22 29 60 E: INFO@SMARTCO.FR
W: WWW.SMARTCO.FR
INVESTOR SERVICES JOURNAL 21
ISJ25 pp22-37 ML 19/10/07 6:25 pm Page 22
CHANNEL ISLANDS FUNDS
Safe
havens?
The Channel Islands
of Guernsey and
Jersey have shaken
up their regulatory
environments in
recent years to
attract new and
established funds.
Jamie Darlow reports
ess than five years ago, the
L Channel Islands were under
threat not from reduced interest
in investing in the domicile, but from the
European Union’s increased scrutiny of
their tax regimes. In five short years the
islands have resolved the concerns of
the EU and introduced a swathe of
regulatory changes, prompting
around 25% growth in assets
under management over the 12 months
to June 2007.
The EU had effectively threatened to
end the Channel Islands’ status as a tax
haven, criticising the practice of
exempting foreign companies from
taxation while levying a 20% rate on
domestic companies. The EU had
termed this ‘discriminatory’ and while
the expected response was to hike taxes
across the board, Jersey and Guernsey
did the reverse, imposing a ‘zero-ten’
policy exempting both domestic and
foreign players from tax. Guernsey will
put the policy into effect next year, with
Jersey following suit in 2009, and the
shortfall in tax revenue is expected to be
picked up by a 10% tax demand on
regulated financial services firms.
Jersey and Guernsey’s efforts to re-
establish themselves as specialist fund
22 INVESTOR SERVICES JOURNAL
domiciles have been relatively impressive
as the domicile steps away from what
some have termed an overly zealous
focus from the EU. Both domiciles
showed strong growth in the 12 months
to June 2007, with the Channel Islands
recording the establishment of 308 new
funds: 151 in Guernsey and 157 in
Jersey. Over the same period, Guernsey
was up 26% from GBP93 billion of
assets under management to GBP125
billion, and Jersey up 24% from GBP160
billion to GBP210 billion.
This is all the more impressive when
you consider Jersey and Guernsey were
already established players in the field of
offshore funds servicing. Compare this
to the recently emerging Isle of Man as
an offshore domicile – domestic
government statistics predict the island
will see a 17% change from 2009-2010,
up from USD85.3 billion to USD100
billion. It’s sometimes harder to keep
building and maintaining success than it
is to begin from scratch.
Part of this performance comes from
managing funds held in other domiciles,
explains Horace Camp, head of fund
services in Guernsey for Kleinwort
Benson. “The value of funds established
in other jurisdictions but managed in
Guernsey has this year risen to a
GBP30.7 billion high – a testament to
the level of expertise to be found in the
Channel Islands,” he says.
Guernsey and Jersey were essentially
faced with two choices: accept the status
quo and fade into obscurity as the
plethora of established domiciles such as
the Cayman Islands or the newly
emerging jurisdictions such as Malta
and Dublin take over; or shake things up
and redesign the regulation surrounding
the funds business. The Channel Islands
chose the latter. The regulators in both
islands, Guernsey more so than Jersey,
are now following the general policy of
regulating the service providers rather
than the funds themselves. Funds are
given more regulatory freedom while
still under the auspices of regular
checks and audits by the regulators.
The advantage of this practice is that
time is saved in the approval and take-on
of funds, as Linda Pearson, consultant at
Morse Jersey, explains. Guernsey’s new
closed ended ‘registered fund’ regime
was introduced on 1 February 2007 to
streamline the process of consent,
making domiciling funds in the island
simpler and quicker, she says. “The
responsibility for reviewing the
ISJ25 pp22-37 ML 19/10/07 6:25 pm Page 23
promoter, the investment manager and
the prospectus or admission document
has been moved from the Guernsey
Financial Services Commission (GFSC)
to the Guernsey licensed fund
administrator, allowing fast track fund
set up, which can now be complete in as
little as three working days.”
Pearson continues, of the registered
closed ended investment fund regime
used extensively by local fund
administrators: “By 30 June 2007, a total
of 37 registered closed-ended
investment funds had received consent
under this regime. The effect has been to
compound the resource, operating
model and systems pressures.”
The registered fund regime in the
Bailiwick grew out of the overarching
shake up of regulation on the island,
termed the Qualifying Investor Fund
Regime (QIF), in February 2005 and a
The key challenge for Channel Islands fund administrators is to support this continued
growth with limited resources by continual improvement through efficiency in processes,
new technology, outsourcing of back office functions and retention of key staff
total of 35 funds were approved in the
year to 30 June 2007.
Gavin Farrell, partner at law firm
Ozannes, agrees that recent regulatory
changes have contributed to the
continuing increase of the funds sector
in the Channel Islands. “Guernsey in
particular has had a surge of business
for registered closed ended funds,” he
says. “The regulatory changes have
certainly continued to put Guernsey on
the map and are important in continuing
the upward trend.”
Farrell also hints at forthcoming
amendments to regulation: “We are
currently trying to review the potential
for Guernsey as a jurisdiction for pure
hedge funds.”
Camp expects the Guernsey
Registered Funds’ fast track service to
continue gaining in importance over
time. “It does not require prior approval
from the regulator and is aimed at
experienced investors and promoters. It
is early days at the moment but we
expect take up to strengthen over time,”
he says.
Not to be outdone, Jersey has also
seen a raft of changes over the past
years with the launch of the expert
funds regime in February 2004. Under
this umbrella come changes including an
extension of the list of approved
domiciles for managers wishing to
launch an expert fund, and the launch of
a listed funds guide, which allows even
more flexible regulation for funds
looking to list and that meet specific
criteria.
There has also been a relaxation of
regulation pertaining to non-Jersey
domiciled funds – board meetings can
now be held in Jersey without the fund
being deemed to be managed from
Jersey and therefore treated as Jersey
domiciled, for example.
Further amendments are planned in
the shape of a proposed introduction
from the first quarter of 2008 of two
unregulated fund products – one for
professional investors and one for listed
funds, explains Natalie Sullivan, partner
at Maples & Calder. “Assuming the fund
meets the relevant criteria, a simple
declaration is filed by the manager and
there is no regulation applicable in
Jersey,” she says.
Sullivan summarises Jersey’s funds
industry as extremely healthy with a
growing number of fund
establishments, as well as a rapid
expansion in local businesses providing
funds services. “While there are a
number of local fund administrators,
there is also a wealth of expertise and
support in the island and a very credible
business in terms of managers,
investment managers, custodians,
bankers, registrars, directors,
accountants, auditors and lawyers to
name but a few,” says Sullivan.
A further breakdown of the Channel
Islands’ performance reveals that, of the
GBP335.4 billion of growth seen
CHANNEL ISLANDS FUNDS
during the year ending 30 June 2007, by
far the strongest sector was in expert
funds in Jersey and domiciled closed
ended funds in Guernsey.
During the year ended 30 June 2007
the net asset value (NAV) of funds under
administration in Jersey rose by
GBP50.7 billion (31.8%) to GBP210.4
billion and the number of expert funds
has grown by 105 to 319 (49.1%). The
NAV increased by GBP16.6 billion
(76.6%) to GBP38.3 billion, while the
NAV of equity funds increased by
GBP15.6 billion (28.5%) to GBP70.2
billion. Over the same time period,
Guernsey saw the NAV of funds under
administration rise by GBP32.3 billion
(34.8%) to GBP125 billion with the
domiciled closed ended funds increasing
GBP23.7 billion (61.3%) to GBP62.4
billion. In short, the largest areas of
growth are coming from the areas where
the most regulatory change has been
made.
Domiciles have always preferred those
funds prepared to establish themselves
permanently in a jurisdiction and act as
true fund managers, rather than
dodging around for the best tax rates.
For this reason Jersey and Guernsey
have preferred to play host to fund
managers rather than fund services
providers and the Channel Islands can
still be considered more than just
domiciles for fund administrators.
Under Jersey Law, Jersey domiciled
funds are required to be administered on
the island and there is even a proposal to
introduce an ‘unregulated fund’, which
will allow Jersey funds to be
administered in other jurisdictions.
While in Guernsey, non-domestic
schemes, for which some aspect of
management or administration is
carried out in the Bailiwick, increased by
GBP8.5 billion (38.2%) to GBP62.6
billion over the year to 30 June 2007,
demonstrating the jurisdiction’s
INVESTOR SERVICES JOURNAL 23
ISJ25 pp22-37 ML 19/10/07 6:25 pm Page 24
CHANNEL ISLANDS FUNDS
stickiness.
The changing regulatory
environment in the Channel Islands is
clearly aimed at increasing the numbers
of funds establishing themselves in the
jurisdiction. All well and good, but there
is a genuine worry that relaxing
Jersey and Guernsey are getting it right on regulation as
it relates to gaining domiciled funds from Cayman, but I
would say that they should have gone further and
deregulated closed ended schemes and not kept the
COBO regime in a watered down form
regulation may undermine the
reputation of Jersey and Guernsey as a
reliable and safe domicile. Placing the
onus on administrators may mean
standards are not consistently
maintained across the islands.
Kleinwort Benson says it enjoys the
extra flexibility this gives investors
from regulators. “However, we are also
very much aware of the extra
responsibility of due diligence and
compliance placed on the administrator,”
Camp explains. “Registered funds in
Guernsey and the new non-regulated
fund in Jersey are recent examples.”
Those looking to gain fund approval in
either Jersey or Guernsey should
effectively regulate themselves, given
that their reputations are just as much
on the line, perhaps even more so, than
the jurisdictions themselves, the theory
goes.
But Alan Smith, chairman of the Isle
of Man Fund Management Association,
feels the service providers will pay the
price for any mistakes made. “If the
service providers muck up, then it’s a initially as a carrot to bring insurance
serious damage to reputation. work to Guernsey – they proved
Interestingly, the reputational trend is popular and versatile as a vehicle in
moving more to the legal and regulatory collective investment funds. Jersey
issues – Cayman and the liquidation of followed suit in the adoption of PCCs,
the Bear Stearns funds, for example – as did others including the Isle of Man.
what is the legal remedy in Cayman for Jersey also introduced the ICC, designed
similarly to a PCC but separating the
assets and liabilities of each cell. By 30
June 2007, Guernsey had 96 registered
PCCs.
Morse’s Pearson explains the effect
this has had on Jersey and Guernsey:
“Since the introduction of the new fund
regimes, the Channel Islands has
enjoyed a huge surge in the
establishment of new funds investing in
the US action on extraterritoriality and UK and non-UK property. In the year to
what are the Cayman regulators doing 30 June 2007, Jersey saw property funds
or saying? And as standards of third increase by GBP8.2 billion (35.3%) and
party service providers continue to Guernsey saw the number of closed
decline due to capacity issues – a non ended property funds increase by 45
EU European time zone (truly offshore) (64.3%) to 115.”
location will become more attractive to Pearson continues: “Changes
hedge fund managers – a longer contained in the March 2006 UK budget
communication day than EST.” included draft legislation introducing a
Flexible regulation worked in the past new UK property holding vehicle, the
for Jersey and Guernsey, opening up the real estate investment trust (REIT),
Channel Islands to real estate which to some extent threaten the
investment opportunities for fund Channel Islands’ property fund industry.
managers seeking diverse investment However, following the introduction of
strategies or looking to segregate asset the REIT in January 2007, the use of
classes. Mike Spittal, managing director the Jersey Property Unit Trusts
of Investec Trust (Jersey), sees the use (JPUTs) and other offshore vehicles
of protected cell companies (PCC) and continues to remain an attractive
incorporated cell companies (ICCs) alternative.”
continuing as offshore structuring tools The USD64,000 question must be,
in the funds area. “The demand for will the recent regulatory changes prove
property funds administered from the as successful in drawing hedge funds
Channel Islands is still high. With an and alternative asset managers to the
exceptionally high demand from funds Channel Islands as property asset
investing in Eastern Europe.” classes have been in attracting property
Guernsey launched PCCs in 1997, funds? To date, hedge funds have
STRENGTH WHERE IT COUNTS
Contact: Stuart Mauger
Head of Sales and Business Development
Royal Bank of Canada (Channel Islands) Limited
Telephone: +44 (0) 1481 744779
Email: stuart.mauger@rbc.com
www.rbcprivatebanking.com/ci.html
Channel Island
Fund Administrator
of the Year
Global Custody | Fund Services | Corporate Services | Trade Execution | Trustee Services | Banking | Online Services
This advertisement has been issued on behalf of the RBC Financial Group subsidiary companies that comprise Royal Bank of Canada's Global Private Banking
network. Some of the services may not be offered in all the jurisdictions above or be available to you. This material has, to the extent required, been approved for
purposes of the UK Financial Services and Markets Act 2000 by Royal Bank of Canada Investment Management (UK) Limited, 71 Queen Victoria Street, London,
EC4V 4DE, which is authorised and regulated by the Financial Services Authority. ®Registered trademark of Royal Bank of Canada used under licence. FUNDS/07/200
 ISJ25 pp22-37 ML 19/10/07 6:25 pm Page 25

Acanthistius Brasilianus

Butterfieldus fundi servicium

Abudefduf saxatilis

Small enough to be quick.

Big enough to swim with the big fish.
There’s an ideal size for a fund administrator. At Butterfield Fund Services, we’re small enough to
offer the rapid, personal service you may not get from those at the top of the food chain. Yet with
a well-established financial institution behind us, we have enough weight to offer additional
services like banking, custody, money market funds, lending, trust and foreign exchange. You’ll find
us in the well-regulated waters of Bermuda, The Bahamas, the Cayman Islands and Guernsey.

For more information, please contact:

Head Office: Bermuda – Andrew R. Collins
Tel: (441) 299-3954, E-mail: andrewcollins@bntb.bm
The Bahamas – Heather Bellot
Tel: (242) 677-8200, E-mail: heatherbellot@butterfieldbank.bs
Cayman Islands – John C. Lewis
Tel: (345) 815-7592, E-mail: john.lewis@butterfieldbank.ky
Guernsey – Patrick A. S. Firth
Tel: (44) 1481-737756, E-mail: patrick.firth@bfmgl.gg

Services provided by subsidiaries of The Bank of N.T. Butterfield and Son Limited.
www.butterfieldbank.com
g
r
,
0
ISJ25 pp22-37 ML 19/10/07 6:25 pm Page 26
CHANNEL ISLANDS FUNDS
preferred tried and tested centres such
as Dublin and, of course, the Cayman
‘Goliath’. Opinion is mixed as to
whether ‘David’ can perform, but we
must remember it was not so long ago
Bahamas was considered untouchable.
Ozannes’ Farrell opines that the
Channel Islands are not in a position to
compete directly with Cayman, which
boasts the established Caribbean hedge
fund structure. Sullivan from Maples &
Calder concedes that Jersey is not
necessarily expecting the re-
domiciliation of existing funds from
other jurisdictions, but will seek to
attract new business, whether that is
from new funds for existing managers or
new managers. Jersey offers viable
alternatives and advantages including
improved regulation or zero regulation,
We are very much aware of the extra responsibility of
due diligence and compliance placed on the
administrator
proximity to London and Europe, and a
modern and robust legal framework, she
explains. “Jersey is also broadening its
appeal to the wider world and
developing business from North
America, the Middle East and Asia, as
well as the traditional markets of the
UK and Europe.”
Kleinwort Benson’s Camp voices a
more measured opinion, pointing out
many fund administration companies
have adopted a multi-jurisdictional
approach with offices in multiple
countries. “The competition between
jurisdictions and the difference in
product offerings keeps the product mix
very much alive and healthy,” he says.
While Spittal’s belief is that the
islands can challenge other domiciles.
“In relation to Cayman, the Channel
Islands have a similar or even better
financial infrastructure without the
danger of disruption of service due to
adverse weather conditions,” he says.
“Although Dublin has an advantage as a
lower cost base jurisdiction, we believe
that the funds expertise and financial
infrastructure of the Channel Islands is
more advanced than Dublin.”
Pearson is less committal, pointing
out that it is both patchy performance
from other domiciles and aggressive
26 INVESTOR SERVICES JOURNAL
initiatives from the Channel Islands that
have spurred on growth. “The key
challenge for Channel Islands fund
administrators is how to support this
continued grow with limited resources
by continual improvement through
efficiency in processes, new technology,
outsourcing of back office functions and
retention of key staff. Jersey and
Guernsey Finance will continue to
promote the Channel Islands finance
industry and develop relationships with
other key jurisdiction such as the Middle
East, Hong Kong, Singapore and China.”
Smith applauds the changes made in
the Channel Islands, which are seriously
threatening Cayman’s fund domicile
position, he says. Cayman has lost and is
losing a significant share of the domicile
market to Jersey, around 7% last year,
Smith continues, with the Isle of Man
and Channel Islands making rich
pickings. “I think Jersey and Guernsey
are getting it right on regulation as it
relates to gaining domiciled funds from
Cayman, but I would say that they
should have gone further and
deregulated closed ended schemes and
not kept the COBO regime in a watered
down form,” he explains. “They should
also have allowed funds domiciled in
Jersey or Guernsey to be administered
anywhere acceptable – like Dublin –
without undue control. If they want
Caymans domicile business, then just
adopt the Cayman model.”
Part of the success the Channel
Islands have seen must come from the
introduction of a local vehicle in which
to make investments through. The
Channel Islands Stock Exchange (CISX)
was introduced in 1998 and is now
attracting listings from key jurisdictions
across the globe such as England,
Cayman, Jersey, Luxembourg, Ireland
and Bermuda. The regulation light
appeal of the CISX has attracted over
2,000 securities approved by the market
authority, since inception less than a
decade ago. Of the 676 securities
currently listed, only 29.1% are
Guernsey domiciled.
Growth rates for the year
ending 30 June 2007
- Jersey and Guernsey’s NAV of
funds under management was
GBP335.4 billion, an increase of
GBP83 billion (25%)
- Jersey’s NAV of funds under
administration has risen by
GBP50.7 billion (31.8%) to
GBP210.4
- Jersey’s expert funds grew by
105 to 319 (49.1%) and the
NAV increased by GBP16.6
billion (76.6%) to GBP38.3
billion
- Jersey’s NAV of equity funds
increased by GBP15.6 billion
(28.5%) to GBP70.2 billion
- Guernsey’s NAV of funds under
administration has risen by
GBP32.3 billion (34.8%) to
GBP125 billion
- Guernsey domiciled closed
ended funds saw continued
growth, with increases of
GBP23.7 billion (61.3%) to
GBP62.4 billion
- Guernsey domiciled open ended
fund grew by GBP8.6 billion
(15.9%) to GBP62.6 billion
Morse’s Pearson says this has
benefited the funds industry by
providing investors with competitive
pricing, fast turnaround and consistency
of approach. “Vehicles that are created
in the jurisdiction are subject to less
regulation than other European stock
exchanges as it is not an EU regulated
market and they have the advantage of
being officially recognised by other
exchanges,” she explains.
The Channel Islands are in a strong
position to build on the successes seen
over recent years and regulatory
changes have done much to promote the
jurisdiction as a viable domicile for many
types of funds, but has it gone far
enough in striking its balance between
over and under regulation? The
Channel Islands must remain flexible, as
new jurisdictions look for footholds in
this competitive environment, with
the recent emergence of the Isle of
Man, Malta and, perhaps in the not
too distant future, Edinburgh if
Scotland gains independence from
British sovereignty. ■
ISJ25 pp22-37 ML 19/10/07 6:25 pm Page 27

The first-class provider of fund

administration, corporate trustee,
custody, treasury, banking and corporate
services in the UK offshore markets
Jersey - Guernsey - Isle of Man
The closer, the better

We deliver solutions to a variety of

mainstream and alternative funds
including:

Hedge funds

Fund of hedge funds

Property

Private equity

Debt markets

All supported by leading technology

platforms, recognised industry leadership
and service excellence.

We pride ourselves on the delivery of our Contact

Brett Allen
tailored solutions to meet the complex Telephone: +44 (1) 534 813832
demands of your business. email: brett.allen@bnpparibas.com

BNP Paribas Securities Services is authorised and regulated by the CECEI & AMF in France and is regulated in the conduct of its designated investment
business in the UK by the Financial Services Authority.

www.securities.bnpparibas.com
ISJ25 pp22-37 ML 19/10/07 6:25 pm Page 28
SOUTH AFRICAN FUNDS
Roaring ahead
The South African funds market has
experienced a healthy growth rate over the
last few years. Fabien Buliard reports
ith an economy benefiting
W
from a yearly growth rate of
about 6%, driven by
commodities such as gold and platinum,
as well as strong manufacturing and
agricultural sectors, South Africa has
become an attractive destination for
foreign investors, who currently own
about half of the country’s equity
market.
Moreover, unlike many emerging
markets, South Africa boasts a modern
financial infrastructure, with advanced
technology, process automation and
dematerialisation. In that context, South
Africa offers huge potential for the local
funds industry, dominated by domestic
players and currently aimed mainly at
domestic asset classes, due to strict
currency regulations.
According to Mathieu Maurier,
managing director of Société Générale
Securities Services (SGSS) for South
Africa, the country’s funds market is
already well developed but there is a lot
of room for its growth to intensify. “You
see a lot of unit trusts, with a market
representing about EUR70 million. The
largest asset class remains equities, with
relatively little sophistication in asset
management strategies,” he says.
28 INVESTOR SERVICES JOURNAL
In terms of the demand for funds, Di
Turpin, chief executive of the
Association of Collective Investments
(ACI), says a great deal of money and
attention has been directed at the fixed
interest sector. “Dividend income, target,
absolute and real return funds are also
popular, only just over 30% are held in
pure equity funds.”
The main players in the local funds
market are largely local firms owned by
major South African banks, such as RMB
Asset Management, controlled by First
National Bank, or Stanlib, controlled by
Standard Bank. Other major players
include independent firms such as Allan
Gray, Sanlam or Investec. Philip Knibbs,
sales director for the retail market at
RMB, says a major trend over the last
five years has been the emergence of
small boutique asset management firms.
“They are individuals who have
managed money for the large firms, made
some money themselves and have the
financial independence to start their own
small firm,” he explains. “Today, while
large players still dominate the market in
terms of assets under management, they
do not dominate the victories in new
mandates from the likes of pension funds
anymore. They are given to smaller
boutique managers.”
Another trend is the emergence of
‘black economically empowered’ asset
managers, as part of a large social
redevelopment programme aimed at
providing economic opportunities to
groups penalised by Apartheid.
For Knibbs, certain characteristics of
the South African funds market
somewhat limit its potential. “The first
and obvious one is scale,” he says. “The
opportunity set in South Africa is a
fraction of what you find for a Frankfurt
or New York domiciled asset
management business, for a number of
reasons. When you look at the
Johannesburg Stock Exchange’s all share
index, which is the broadest based, it
consists of 163 stocks. If you compare
that to a Russell 3000, you can get a feel
for the size limit.”
Another differentiating factor is South
Africa’s regulatory environment, devised
in a large part by the country’s Financial
Services Board (FSB), whose function is
similar to that of the UK’s FSA or the
US’s SEC. “The FSB is pretty good at
what it does, but it is a follower of
developments in Australia and the UK, in
terms of regulatory oversight,” Knibbs
explains. “I would say we lag behind the
innovation of regulators in other parts of
the world.”
Knibbs considers that regulatory
discrepancies, notably compared with
UCITS, or in terms of hedge fund
regulation, as well as the limited size if
the market, are the main reasons for the
small number of foreign players in the
local funds space. “Most European
investment firms who have also
registered to do business in South Africa
are under a UCITS structure,” Turpin
points out. “The South African regulator
has allowed these firms to do business
here despite a previous anomaly in
legislation between UCITS and the
South African Collective Investment
Schemes Control Act, as otherwise these
firms may have had to pull out. Now,
legislation for local funds will be brought
in line too.”
Turpin also points out that a lot of
offshore business is conducted through a
life wrapper, which has less regulation
attached to it, and therefore
makes entrance to the South African
market easier.
While foreign firms do set up shop in
ISJ25 pp22-37 ML 19/10/07 6:26 pm Page 29

The best part about

our range of products and services,
is the people that provide them.
As the leading regional custody provider in sub
Saharan Africa, we
offer more than just the technology and resources needed
for business in Africa. We also have the best people across the continent;
with the specific talent and experience to not only grow your business
but more importantly, to partner with you along the way.
For more information please contact Adam Bateman on 011 636 6615 or visit
our website at www.standardbank.co.za.

Inspired. Motivated. Involved.

Authorised financial services provider

The Standard Bank of South Africa Limited (Reg. No. 1962/000738/06). SBSA 808736 08/07
ISJ25 pp22-37 ML 19/10/07 6:26 pm Page 30
SOUTH AFRICAN FUNDS
South Africa, they tend to be more active
outside of the funds management
business, for example on the sell side,
with presence from the likes of Deutsche
Bank, JPMorgan or UBS. “However, you
are seeing a proliferation of foreign
players in the wealth management game,”
Knibbs adds. “It is the advisory function
of the business where the presence of
foreign firms is growing. That is because
the population of dollar-based
millionaires in South Africa is one of the
fastest growing in the world. I think the
wealth management element is a lot more
attractive than the fund management
function for the larger firms.”
Another regulatory limit on the fund
market’s potential is the strict currency
exchange controls imposed on South
African residents, with an allowance for
offshore investments capped at ZAR2
million (about EUR200,000). This means
the market’s primary focus is on domestic
stocks and bonds. “There is limited
demand for offshore funds, with higher
demand from institutional investors, like
pensions funds or unit trusts,” Maurier
says. “They, too, are subject to limits
ranging between 15% (for pension funds)
to 25% (for insurance companies) of their
portfolios.”
Turpin believes the consequences of
currency controls on the demand for
foreign investment products are fairly
limited, at least in the retail space: “Most
South Africans are well catered for by the
individual foreign exchange allowance
and they also appear to be more
interested in investing locally than
offshore on the whole. This has probably
been as a result of excellent local
performance over a good many years.”
Knibbs also considers that currency
controls only affect very wealthy
individuals: “It is more of an issue for the
firms doing business globally. For our
corporate development, our geographic
economic growth, is it a big problem.”
Yet, despite some challenges, the South
African funds market continues to show
strong potential, with the retirement
market expected to be one of the main
areas of growth in coming months. For
Maurier, there remains a lot of untapped
potential in terms of retail demand.
“There is still a lot of work to be done in
the field of pension financing in South
Africa,” he says. “The population
currently has a very low propensity to
30 INVESTOR SERVICES JOURNAL
save money. While consumer spending
fuels economic growth, there is still a
very large untapped potential for the
funds market. This trend should shift
once the government starts encouraging
retirement savings through compulsory
contributions to an employer’s pension
fund.”
Indeed, the country’s 50 year old
pension fund legislation is under review,
as South Africa currently offers very
little in terms of state pension benefits.
“We have a welfare system that really
targets the poorest of the poor,” Knibbs
explains. “There are proposals to
introduce a compulsory social scheme, so
that every single person will contribute
to a government controlled social
security system.”
The changes in legislation could create
a wealth of opportunities for South
African players and the industry is
prepared to play a major part. “The
collective investment scheme industry
believes that it will be able to play a more
active role in any future pension fund
structures as they are currently fairly
limited in what they may offer,” Turpin
says.
Although the traditional fund business
remains promising, alternative forms of
investment management have not
developed quite as fast as in other
markets. “In the last few years, we have
seen the emergence of more
sophisticated, alternative management,
and the appearance of hedge funds,”
Maurier says. “However, that market is
still in its infancy compared to European
marketplaces.”
While the alternative investment
industry is already fairly active in South
Africa, it has so far experienced relatively
low demand, due in large part to a lack of
regulation. “Hedge funds are in the
process of being regulated and there are
currently strict limits as to the exposure
pension funds are allowed to have to that
asset class,” Maurier continues.
Another major reason for the limited
demand for these strategies is the strong
performance of the South African equity
market, with the JSE’s main index
posting yearly growth of 30% to 40%
over the last three years. “With these
kinds of returns, investors do not really
have a strong need for a more
sophisticated asset management
approach, which would probably not
perform as well in the current context,”
Maurier says. “I think we will probably
reach a peak in coming years and the
growth potential of more complex
investment approaches will then
certainly become more attractive. The
hedge fund market is already showing a
very positive trend, which will accelerate
when the market experiences a
downturn.”
Turpin points out that while some
hedge fund managers would like to offer
a regulated product, others don’t. She
adds that the ACI has been attempting to
work with the Alternative Investment
Management Association and the FSB to
develop a framework for a retail hedge
fund offering but says that a number of
obstacles have presented themselves over
the years.
The development of the South African
funds market naturally provides business
opportunities for the securities services
players, but the market is already highly
competitive with strong pressure on
prices. “We are one of six players on a
relatively small market, compared to
large international marketplaces,” says
Maurier. The French bank, which has
acted as a custodian in South Africa since
1991, is one of two foreign companies on
the local clearing and settlement market,
with Australian player Computershare.
The other four competitors are local
banks: Nedbank, Standard Bank, Absa
and FNB. The six firms are the only ones
to have an account with South Africa’s
central securities depository, Strate.
The development of alternative
investment management strategies is also
fuelling demand for securities lending.
Maurier says his bank has experienced
strong growth in that field, mainly with
local clients. “Several hedge funds focus
on a long/short strategy and therefore
need to borrow securities that have been
shorted on the market,” he explains.
“There currently is a shortage in the
supply of securities lending, which
implies strong demand from hedge funds
and prime brokers.”
Despite the growth in the funds
market, Maurier does not expect to see
any new entrants in the South African
custody space. “Given the competitive
pressure on margins and the technology
investments required for such activities,”
he says. “I would rather expect a
consolidation in that market.” ■
ISJ25 pp22-37 ML 19/10/07 6:26 pm Page 31
ISJ25 pp22-37 ML 19/10/07 6:26 pm Page 32
DOMICILES REPORT
Review and report
Funds review
In March this year, Treasury Minister,
Allan Bell MHK, announced the
completion of a major review of the Isle
of Man’s funds sector in order to secure
its long term prospects and make the
island the preferred offshore jurisdiction
for fund activity.
The review was commissioned against
a background of considerable growth in
the funds sector between 2003 and 2006,
when the level of funds under
administration more than tripled. In
response to this, the Isle of Man Fund
Management Association (FMA)
announced ambitious growth targets for
reaching USD50 billion of funds under
management and USD100 billion of
funds under administration on the island
by 2010.
The results of the funds review were
produced in the form of a report entitled
the Smith Report, which included
recommendations for regulatory and
legislative changes, as well as the
introduction of a new suite of funds to
raise the profile of the island as an
attractive location for the establishment
of front, middle and back office fund
operations.
On 20 September 2007, the Isle of
Man’s new funds regime, as outlined in
the report, was officially launched by
leading funds expert and Funds Review
Group chairman Paul Smith and the
FMA. The new regime reflects a dynamic
and comprehensive funds proposition,
offering a new and enhanced suite of
fund categories, including the specialist
fund (SF) product, which will be effective
from 1 November.
The SF category is for distribution to
institutional and high net worth
investors. It offers maximum flexibility
on strategy and asset allocation, for
32 INVESTOR SERVICES JOURNAL
Isle of Man and Guernsey
report on their domiciles
example a minimum initial
subscription of USD100,000 and no
requirement for any regulatory pre-
approvals.
The funds initiative positions the Isle
of Man as a highly cost effective and zero
tax location for fund managers and
includes a major new focus on alternative
funds in order to secure business for the
incorporation, domiciliation and
establishment of fund management
operations in the Isle of Man.
To complement the initiative, increased
marketing efforts on the part of
government and industry will raise
awareness of the Isle of Man as a fund
centre and promote the island on an
international stage.
The Isle of Man’s new funds regime
illustrates the island’s strategy to be at
the forefront of global developments and
the willingness of both public and private
sector to adapt in order to maintain and
extend our competitive edge by
developing new platforms for growth.
Brian Donegan, director of Foreign
Direct Investment, Isle of Man Finance
UK regions roadshow
Professionals from the UK regions learnt
at first hand during September about
establishing investment funds in
Guernsey and the potential benefits of
doing so for themselves and their clients.
Prior to this, Guernsey had focused its
promotional efforts on the City of
London and relevant conferences and
exhibitions targeting the European and
other overseas markets.
The new regional initiative in the UK
was targeted at the growing number of
potential promoters outside of the
capital. Jointly hosted by Guernsey
Finance and the island’s Investment
Funds Association (GIFA), a masterclass
seminar entitled “Demystifying funds in
Guernsey”, was staged in Manchester,
Leeds and Edinburgh.
So far the feedback from these regions
and the Guernsey industry participants
who attended is that it was a great
success. There were strong attendances,
the delegates reported that they found
the sessions informative and stimulating
and there has been genuine interest –
including from those that have not used
Guernsey previously – about establishing
investment funds in the island.
The message that the industry
delivered was very clear – Guernsey is
looking to increase business flows in this
already booming part of its business,
borne out by the statistics with the
quarter ending 30 June 2007, showing a
total of GBP155.6 billion, an increase of
GBP15.2 billion over that quarter.
At each seminar a panel of experts
from Guernsey’s funds industry
discussed private and public fund
structures in Guernsey, illustrated by a
working example of property as an
increasingly popular asset class. These
interactive seminars also included a
question and answer session to ensure
that delegates got the most out of the
event.
The roadshow gave industry
representatives the opportunity to talk
face to face with existing and potential
Guernsey clients. For example, one of
the delegates from Huddersfield, whose
clients have used various Guernsey
structures, was reported to have said: “In
an ever more sophisticated financial
world, one looks for stability, reliability
and experience and that was portrayed by
this presentation, where the emphasis on
these qualities was reinforced.”
The audiences was left in no doubt that
Guernsey is very much open for quality
business and is now looking to extend
introducers of business to the island from
the major financial centres in the UK.
As a result, Guernsey’s fund industry
will be reviewing the initiative with a
view to taking its message further afield
in the near future, to key European
regions and beyond.
Ian Burns, group managing director of
the Anson Group
ISJ25 pp22-37 ML 19/10/07 6:26 pm Page 33
Building it up
conomic growth in Spain has
E averaged more than 3% a year
since it joined the EU in 1986 and
GDP per head currently totals almost
92% of the euro zone average. This
growth has largely been fuelled by the
extraordinary performance of the
property market – testament to this is the
fact that house prices have more than
doubled since 1997. Spanish companies
have also gained more financial clout and
a rising number of Spanish quoted
companies are becoming global, for
example Telefonica, Banco Santander,
BBVA, and Repsol. “This reality and the
fact that those companies are an easy way
to channel investments to South America
will increase the interest in the Spanish
stock exchange,” says José Maria Alonso-
Gamo, managing director, RBC Dexia
Spain.
The positive economic climate has
contributed to the success of the Spanish
stock markets operator, Bolsas y
Mercados Españoles (BME). According
to BME figures, the exchange’s net
profits in the first half of 2007 increased
66.1% from the year before, to
EUR102.98 million. The stock
exchanges operator was created to
integrate in one single unit for action,
decision and coordination: Madrid Stock
Exchange, Barcelona Stock Exchange,
Valencia Stock Exchange, Bilbao Stock
Exchange, MF Mercados Financieros
and Iberclear.
Alonso-Gamo believes that this move
represents significant costs savings and
A booming economy has allowed the Spanish
capital markets sector to experience
significant growth and the country has
invested in its infrastructure accordingly.
Virginie O’Shea reports
consequently allows for bigger
investments and an integrated
management of the activity in all four
business areas: equities, derivatives, fixed
income instruments, and clearing and
settlement. “With one single society and
one single managing body, the Spanish
markets are now more powerful when
establishing alliances or agreements with
other European or worldwide markets,”
he says.
The BME presents a solid image of the
Spanish financial markets to the
international financial community and
this has definitely attracted additional
investment in Spain, adds Sally Maddick,
head of sales and relationship
management, Financial Intermediaries,
BNP Paribas. There are also rumours in
the national press that BME is in talks
with Spanish economic minister Pedro
Solbes and CNMV chairman Manuel
Conthe about negotiating a possible
merger with Deutsche Börse. Set against
the backdrop of intense M&A activity in
the global exchanges landscape this year,
this seems to be a rather sensible move.
Infrastructural improvements have
picked up pace over the last couple of
years in Spain, for example central
securities depository (CSD) Iberclear
decided last year to move away from
proprietary communication protocols to
ISO 15022 and implement a single
communications window for users. “The
adoption of ISO 15022 standards has
made possible a more efficient treatment
of the instructions and more accurate
SPANISH CUSTODY
information concerning the trades
processed. Moreover, monitoring and
control on the full trades process have
been improved,” says Alonso-Gamo.
Paloma Pedrola, head of Investor
Services in Spain for Société Générale
Securities Services (SGSS), feels the
latest developments implemented by
Iberclear have been decisive: “The roll
out of the SUC system (Unique
Matching System) to the fixed income
products in March 2007, the further to
roll out for equities and loans, are
interesting not only for securities
services providers, but also for investors.”
From a service provider’s perspective,
some of the possibilities implemented,
such as a pre-matching facility, avoiding
phone pre-matching between market
participants, makes processing easier and
allows productivity to increase, she says.
From a technical point of view, the
modernisation of communications on to
SwiftNet-based protocols, allow more
reliable communications between
Iberclear and its members. “Iberclear has
demonstrated its willingness to comply
with European technical standards as per
recommended by ECSDA,” she adds.
In addition, the migration to an IP-
based communication protocol, to be
finalised by end of November 2007 to
remove the X25 line, will also contribute
to make the local markets more reliable,
efficient and able to absorb additional
volumes, says Pedrola. “For investors and
international financial institutions, the
use of ISO 15022 protocol makes the
INVESTOR SERVICES JOURNAL 33
ISJ25 pp22-37 ML 19/10/07 6:26 pm Page 34
SPANISH CUSTODY
local market easier to manage and more
consistent with what they are used to in
other countries. Besides, those
improvements could be considered part
of the initial stages to facilitate European
cooperation. Indeed, as Spain belongs to
the Target2-Securities project, those
enhancements could facilitate further
harmonisation projects at a European
level,” she continues.
However, there is still work to be done,
says Maddick: “Although the
communication system used for fixed
income and equities is now the same, the
logic which is applied to the settlement
process is still different in each market
segment and, in this respect, the market
remains fragmented.”
As well as infrastructural issues, the
Spanish regulatory environment has been
challenging for both domestic and
international investors. Highly
prescriptive regulation in the trade
registration process, for example, has
proved a dampener for foreign
investment and this is not likely to
change for the time being. “Despite the
pressure from the international market
players to change the registration
procedures’ regulations, no changes are
foreseen so far,” says Alonso-Gamo.
The regulation is unchanged with
respect to the obligation of maintaining
the registration component at settlement
level and, consequently, its control in the
entire post-trading process. Maddick
elaborates on the impact of this: “This
has had an important effect, especially for
those custodians unable to manage high
volumes, and has a high impact in
registration controls. Trade registration
has historically caused significant
concern and hindered non-resident
investors who now represent over 50% of
the investment carried out in the Spanish
market.”
Pedrola agrees that the trade
registration process is still to be
considered carefully when processing
portfolio migration from one provider to
another. She believes that it definitely
makes a change of providers more
expensive than in other markets. “But
more generally speaking, the registration
reference process does not stop Spanish
market modernisation. For instance, the
ETFs, and shortly the certificates, will be
implemented within the local market,
even if processed via registration
34 INVESTOR SERVICES JOURNAL
references. As a market leader for
warrants, and now ETFs and certificates,
SGSS has fully integrated the
registration reference process within its
paying agent and liaison agent services to
make it transparent for its clients issuers,
in compliance with Iberclear regulation,”
she explains.
Certain regulations have, however,
been revised in light of competitive
concerns, says Maddick: “Changes in the
regulations in Spain for both investment
funds and pension funds have meant that
asset managers and insurance companies
have been able to diversify their
investment and have more sophisticated
portfolios. These entities therefore
require more specialised providers in
custody and depository services. BNP
Paribas Securities Services Madrid has
therefore put together a bundled product
offering of depository bank and fund
administration and some added value
services for portfolio accounting, such as
forex and securities lending.”
BNP Paribas is one of the main non-
resident players in the Spanish custody
market, which also include SGSS and
Citi. RBC Dexia’s Alonso-Gamo believes
BNP Paribas, Banco Santander Central
Hispano and BBVA are the dominant
players in the market: “In our opinion,
their success in the custody business is
due to strategic and political agreements
with other international groups with
interest in Spain and the business
reciprocity derived from these
agreements.”
Pedrola elaborates on her view of the
market: “The Spanish custody market is
dominated by a mix of important local
players who are backing their securities
services with their strong banking
franchise: SCH, BBVA, Caixa, Banco
Sabadell, RBC Dexia (Bancoval); and
foreign institutions maintaining local
offices within their global securities
services business lines.”
The two groups have different profiles
in the market, says Pedrola. Spanish
players are mainly doing custody for their
home bank assets – investment banks,
retail banks, asset management. They
also provide local banks that cannot
afford to maintain a global agent bank
network with global custody services,
and they deliver agent bank services to
foreign ICSDs or some big international
global custodians.
On the other hand, foreign players
maintaining a local Spanish unit of their
global securities services network
mainly serve non-resident clients –
broker-dealers, commercial banks, and
sometimes global custodians – and tend
to deploy their global suite of products
locally. “For instance, the fast growing
onshore hedge fund industry would find
more adapted skills with those locally
installed non-resident players that can
roll out their expertise already developed
in Luxembourg or Dublin, than with big
Spanish banks limiting their custody
business to Spain,” says Pedrola.
With this in mind, she believes that
foreign banks focused on securities
services in Spain are in a better position
to take advantage of the modernisation
trend starting on the Spanish market,
whether in terms of business practices
or products. “In the medium term, we
can even forecast that some medium
sized Spanish players will exit the
securities services business as not being
a core business for them, and
therefore give room for external growth
for international securities services
players to reinforce their local franchise,”
she adds.
A note of caution should also be raised
given the recent global economic climate.
There are serious fears in the domestic
market that the Spanish economic bubble
is about to burst. The threat of a
property crash has been adding to the
pressure on the capital markets sector
and raising questions about its economic
resilience. For example, in April this
year, there was a fall in the stock market
as a result of concerns that a crash was
imminent (and that was even before the
sub-prime debacle in the US).
However, it is important to note that
the pension fund sector is currently
performing well and the trade balance is
in surplus, and that inflation seems to be
largely under control. The Spanish
market is well known for the controls
and the level of security and protection
it brings to investors, says Pedrola.
“While maintaining this level of
protection, Iberclear and
regulatory bodies have demonstrated
their willingness to bring
flexibility to the system,” she adds. And
this level of flexibility should stand
them in good stead to face the challenges
of the future. ■
ISJ25 pp22-37 ML 19/10/07 6:26 pm Page 35

RUSSIAN CUSTODY

t still seems unavoidable to talk about Russia without

I first mentioning the USD40 billion default in 1998. For

the past decade, the default has lurked in the corner,
scaring potential investment away. At present however,
investors are desperate to part with their money in order to
enter the Russian market and, as a result, Russian
companies are taking loans at minimal rates above Libor.
Rusal, the world’s biggest aluminium producer, obtained
a loan in August for only 70 basis points above Libor for the
first three years on a USD2 billion loan. OAO GMK Norilsk
Nickel, the world’s largest producer of nickel, borrowed
USD6 billion at 52.5 basis points also for the first three
years. These are minimal rates compared to the US for
example, where US Steel Corp took a loan with a spread of
125 basis points in August. Money is cheap in Russia, even
with the present credit crunch. According to David Bassett,
global head of market loans for Royal Bank of Scotland:
“Russia is less affected by liquidity issues in the leveraged
market.” Good news for custodians wanting a route into
Russia. Bad news for those left waiting at the door.
The recent Russian rejuvenation stems heavily from the
increasing price of oil and natural gas. In 1998, the price of
oil was less than USD14 a barrel. At the time of writing, the
price of Nymex crude oil futures reached a record
USD79.02. This has allowed Russia to build up foreign
currency reserves of around USD400 billion. While this
immense sum seems surprising, economically it makes
perfect sense. The global balance of payment is a zero sum
gain. For every minus, there must be an equal plus
somewhere in the global accounts.

Mother While America’s current account deficit is mired in

domestic debt and the consequences of its foreign policy,
the emerging markets, namely China and Russia, have been

Russia keeping their cash under the mattress. Now that domestic
returns in America have dried up, many custodians are
looking abroad to tout their services and find a way into
these current account surpluses, hence the low basis points
for loans directed towards Russia.
Like every Russian epic, there is always a twist. In
Giles Turner examines September, the credit crunch managed to worm itself into
the mindsets of Russian boardrooms. Rusal decided to delay
the popularity of its initial public offering that hoped to raise around USD7.5
billion on the London market. According to the investment
Russia against the banking research company Dealogic, only USD529 million
has been raised through share offerings in the third quarter
background of this by Russian companies. Compare this to USD10.8 billion in
the same period for 2006.
year’s credit crisis According to Maxim Seltzer, general director at Nomura
for the post-Soviet region: “People are much more choosy
now and it is clearly a buyer’s market, unlike in the past.” So
at present we have a buyer’s market, but excessively cheap
loans seem to point towards an extended seller’s market. A
confusing situation.
Perhaps some of the confusion regarding evaluating
Russia as economic opportunity is the method of its
growth. The Russian capital market most certainly enjoys
growth, but its breakneck speed means that the market’s
infrastructure simply can’t cope. Already fragmented and
underdeveloped, rapid growth is simply exacerbating the

INVESTOR SERVICES JOURNAL 35

ISJ25 pp22-37 ML 19/10/07 6:26 pm Page 36
RUSSIAN CUSTODY
problem. Valery Merkushkin, head of mandatory payment in rubles.”
securities, operations and custody, The difficulties facing Russian custody
Raiffeisenbank in Russia, highlights a have not stopped the rating agency
major problem: “Russia still lacks a Moody’s claiming that Russian banks will
central securities depository (CSD); face positive ratings pressure in the near
though its creation is eagerly awaited by future, due to the favourable
Russia still lacks a CSD, though its creation is eagerly
awaited by all market participants
all market participants. The CSD bill is macroeconomic environment. At present,
likely to be approved in the near future the Russian banks’ financial ratings range
and is expected to cover such aspects as from ‘E+’ to ‘D+’. Moody’s also believes,
shareholding, risk management and that the relatively low penetration in the
corporate governance requirements. The banking system is acting as a constraint
creation of the CSD will be a challenge on further lending.
for Russian custodians operating in the However, Natalia Sidorova, director of
market as it will significantly modify the securities services at ING, Eurasia,
current range of services they provide to disagrees: “Actually, the relatively low
investors, especially associated with re- penetration is a very good opportunity for
registration of rights to securities.” banks that are actively developing this
He continues: “Under the draft law, segment of business. The unoccupied and
depositories will be required to acquire a vast area remains a good chance for
specialised licence of a settlement further expansion to mid and small cap
depository authorising them to settle corporate lending. At the same time,
exchange traded stock, to act as a volumes lent to retail customers through
nominee with securities registrars, and to mortgage loans are now estimated to be
open and maintain nominee accounts on less than 1% of the country’s GDP, which
behalf of foreign depositories. Custodian is extremely low if compared to CEE
banks will no longer be permitted to hold rates. This trend is especially relevant for
“The relatively low penetration is a very good opportunity for banks that are actively
developing this segment of business” Natalia Sidorova, ING
nominee accounts with registrars directly. the situation outside large cities, such as
Under this structure, custodians will Moscow and Saint Petersburg.” The
service only beneficial owners of expected development into internet
securities. It is clear now that all the said banking over the next few years should
changes in the current infrastructure also help to open up these untapped
setup will stimulate custodians to markets and overcome further constraints
reconsider the scope and quality of on lending.
services they provide to clients.” As any market develops, consolidation
To put the lack of a CSD into becomes a powerful factor. The
perspective, imagine the chaos that would fragmented Russian market will be no
occur if you took away the US Depository exception to this rule. If anything, it will
Trust Company (DTC). This is not the be a model example. The main players in
only problem facing the custody business: the market are well known and mergers
there is also no delivery versus payment often involve a Moscow-based bank and a
system, mainly due to the lack of a smaller, regional bank. Regarding a
centralised clearing and settlement timeframe, Merkushkin of Raiffeisenbank
infrastructure, and there is a problem sees consolidation as an evolving process
regarding legal clarity. Moreover, over the next decade.
according to Merkushkin, the problem is ING’s Sidorova brings up an important
exacerbated by: “The absence of point regarding catalysts for
uniformity as well as a central consolidation: “The future of Russian
counterparty concept backed by a banking system soundly depends on what
guarantee fund that would facilitate the conditions will be for Russia to enter
36 INVESTOR SERVICES JOURNAL
the WTO. These conditions may
influence local banks to become acquired
by large international financial
institutions that shall cause a strong
desegregation impact. At the same time, a
significant decrease in the quantity of
banks will ease the building of an efficient
and centralised state cash clearing
network.” It will be interesting to see
whether Russia is willing to be at the
behest of a supranational body, or perhaps
it will be the other way around?
Much will depend on how the
governmental bodies react to the
changing marketplace. A large proportion
of cash liquidity is concentrated within a
small number of sizeable institutions
controlled by the state. Due to the lack of
transparency in Russia, it is difficult to see
who isn’t controlled by the state and to
what level state intervention takes. Shady
stories of Soviet subterfuge are always
worming their way into the press.
A recent survey for the Foreign
Investment Advisory Council (FIAC) of
106 foreign companies investing in Russia
found that 72% highlighted combating
bureaucracy as one area the present
government should focus on improving.
Furthermore, a World Bank report places
Russia 106 out of 178 counties regarding
ease of doing
business, which is
10 places lower
than it was in
2006.
On the plus side,
the FIAC survey
also indic-ated that
82% of investors
were either
moderately or
highly satisfied Natalia Sidorova, ING
with Russia as a
whole. The market has both potential and
room for improvement but a major sticking
point to progress will be its image.
Slipping from 126 to 143 out of the 180
countries polled in the annual Corruptions
Perceptions Index will not help its cause.
Moreover, while it is good for Russia to
receive cheap loans, the infrastructure to
reap the benefits needs to be installed
before the system overloads. ■
ISJ25 pp22-37 ML 19/10/07 6:26 pm Page 37

When you know

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

In Northern Ireland the right people are always in

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

Look no further
ISJ25 pp38-55 ML 19/10/07 8:20 pm Page 38

PANEL DEBATE - CEE CUSTODY

Bloc party
Our panel of
ISJ PANEL DEBATE
experts debate the
developments within
Central and Eastern
CEE custody European Custody
Renata Mudrova, CSOB Renata Mudrova is a PhD graduate from the University
of Economics in Prague in the field of international trade. Since 2006, she
has been working at CSOB in Prague in the Custody Department.

Jarkko Järvitalo, Handelsbanken Jarkko Järvitalo is the head of Global Custody

Products at Handelsbanken and is also heading up Handelsbanken’s launch of
custody services in the Baltics. Järvitalo has been with the company since 2004.

Nikolay Egorov, The National Depository Centre With over 15 years of experience in
the financial and IT industry, Nikolay Egorov is currently the NDC director,
MICEX senior vice president and member of the MICEX executive board.

Ramy Bourgi, Société Générale Securities Services Ramy Bourgi has been head of
Emerging Markets Development for Société Générale Securities Services
since September 2007. Bourgi began his career in 1986 as a financial analyst
for Dar Al-Handasah Consultants.

Kristi Sisa, SEB Eesti Ühispank Kristi Sisa is head of Custody Services at SEB
in Estonia. She has 10 years of experience in the securities industry,
including with international banking groups. SEB is a leading provider of
custody services in the Baltics and Nordic region.

David Penstone, Unicredit David Penstone is director and global head of Group
Sales and Business Development at Unicredit. He has been in the custody
industry since 1988, having started in settlements at a large Canadian broker.

Lilla Juranyi, ING Lilla Juranyi is the global head of Custody at ING Wholesale
Banking Securities Services. She has been in this position since September
2006. Juranyi is also a member of the Settlement Committee of the Budapest
Stock Exchange and one of the members of the SMPG in Ukraine from her
regional position.

38 INVESTOR SERVICES JOURNAL

ISJ25 pp38-55 ML 19/10/07 8:20 pm Page 39

PANEL DEBATE - CEE CUSTODY

How has the CEE custody market evolved over
the last year? Which countries have seen the
most progress and why?
Mudrova: The Czech Republic in particular
has been experiencing an increasing trend
in terms of the volume of invested funds,
for example two new IPOs were launched
at the end of last year, and another one has
come up recently (AAA). This is still not
all, since some other IPOs are planned
before the end of 2007. However, the
Czech Republic still cannot beat Poland or
even Hungary, whose markets have been
much more dynamic with regard to IPOs.
We can also clearly notice growth in the
demand for global custody products.
Taking into account the interests of our
clients, I would say the most progress has
been seen in countries like Romania or
Bulgaria.
Järvitalo: We have seen a growing interest
for custody within the CEE markets. From
our domestic clients we have especially
seen an increased interest in Poland,
Hungary, the Czech Republic, Slovakia,
Ukraine, Romania, Bulgaria and Turkey.
We are also seeing a better awareness
regarding the Baltic countries where there
have been a couple of silent years.
Handelsbanken became a member of both
the stock exchange and the local CSD in
Estonia during 2007. The driving force
was the growing demand among both
local and international players.
Egorov: As for the Russian market, the best
progress has been achieved in the
technological development of interaction
with registrars based on the close to ISO
15022 standard. During the year, share of
operations supported by electronic
document interchange reached 79.5% of
all NDC operations with registrars (31%
at the beginning of the year). NDC
actively promotes the necessity of
establishing EDI between Russian
infrastructure participants meeting
approval from the Federal Securities
Market Commission and some leading
professional associations. On the other
hand, registrars themselves have become
more interested in this modern
technology and more proactive.
Bourgi: CEE custody markets continue to
evolve up the value chain from basic
safekeeping and settlement to fund
administration, as the demands for mutual
funds and pension services are increasing.
If we look at the growth of activities
within our local branches, the progress
has been spread across a number of
markets.
Sisa: The CEE markets with an SEB
involvement are the three Baltic markets
(Estonia, Latvia and Lithuania) and
Ukraine. The Baltic markets continue to
grow in 2007, though not at an
outperforming rate in comparison with
the Nordic markets. It has, during the last
year, been encouraging to see the number
of new client relationships opening up and
many international players are now
established with a structure to deal with
Baltic activity when it comes.
We have seen the most rapid
development in Ukraine. This is indeed
expected as one of the largest nations in
Europe in terms of population continues
to develop. The underlying factors for
growth are certainly in place and with a
continued positive political and regulatory
development, we foresee very rapid
growth in the brokerage, asset
management, insurance and wealth
management sectors; all very important
for a healthy custody development. On the
positive side, we see growth in GDP,
modernisation programmes in many
sectors and reforms driving pillar two
type private pension plans. On the
negative side, we see a lack of consistent
regulatory environments, an absence of
asset servicing guidelines, the lack of a
DVP environment, obstacles relating to
currency regulation, and the comparably
unstable political environment.
Penstone: In the frontier markets of
emerging Europe, progress is relative to
the country’s individual current stage of
evolution and willingness to change. In
Bosnia, for example, the recognition of
the role of the custodian was a major
achievement, whereas in the Ukraine it
was an achievement just to establish a
Securities Market Practice Group.
Poland and Hungary have had the
most time to align themselves to
international standards and have the
most competitively neutral practice
groups. By definition these markets have
created a culture of change and have
benefited by being the most progressive.
Russia is perhaps the market that will
experience the most material
changes over the next two to three years,
as the consolidation process of the
exchanges and local depositories is only
a matter of time.
Serbia is an extremely good example
of what can be achieved when
global custodians, sub-custodians and
the local depository band together for a
common goal. In 2002, our group
collaborated with a US-based
global custodian and the local depository
in lobbying the market to recognise the
role of custodian banks in the
investment cycle.

Flexibility on a solid ground

To keep the customer in
focus. That is one of the
cornerstones at
Handelsbanken. We do not
simply sell products, we
provide you with the
services you need and
want.
Because of a decentralised
structure, we ensure a
flexible and quick decision-
making process, and it
helps us to create tailor-
made services, as well as
new market solutions to
meet your expectations.
Handelsbanken is one bank
throughout the region –
with the same organisation,
management and culture,
and one of the highest
rated private banks in
Europe.
As the first bank to provide
local in-house custody in all
Nordic markets, we have a
set-up that allows the same
high level of service
throughout the region.
Handelsbanken
We offer flexibility on a solid Nordic Custody Services
ground.
www.handelsbanken.com/nordic_custody_services
ISJ25 pp38-55 ML 19/10/07 8:20 pm Page 40
PANEL DEBATE - CEE CUSTODY
Juranyi: I would clearly say that in Central
and Eastern Europe there is a clear
difference in the progress between the
smaller matured markets, such as Slovakia
and Hungary, and the ‘growth’ emerging
market of Eastern Europe. The highest
increase in interest, as well as realised
business, is from Russia, Ukraine and
Romania. In each country we see new
business and also newcomers, who want to
enter into the securities market only now.
At the beginning of the year, Romania and
Bulgaria joined the EU, and within the
preparation phase, similar interest could
be seen from foreign investors. However,
the experience in 2007 to date shows that
Romania is far ahead of Bulgaria, which is
still a sleeping beauty.
Has the high level of growth in the economy
filtered down to domestic infrastructure
investment and encouraged a greater appetite
for custodial services? Which services are
being demanded in particular?
Mudrova: In the last decade, the majority of
assets of individuals and firms were held
on current accounts, terms accounts and
savings accounts. Recently, a strong shift
in this trend towards other possibilities of
preserving free financial resources has
been apparent. This is particularly true in
the context of the marked economic
growth of the Czech Republic, the
increase in the standard of living and the
accumulation of holdings of these
subjects. The products of financial
markets have started playing an important
role, including stocks, obligations and
other forms of collective investments,
which – on the other hand – have had a
positive impact on the custody business.
This trend is also a significant sign that
the Czech Republic has been approaching
Western Europe as regards the structure
of household investment.
Järvitalo: Yes, the growth in local
economies is noticeable also within the
custody market. Developing stock markets
and increased currency flows, both
internationally and domestically,
especially within the former Soviet
republics, have meant a growing demand
for custody, and settlement services. In the
CEE markets it has started to show in
particular when it comes to savings for
pensions. This would of course call for
global custody services and fund
management services. However, the CEE
40 INVESTOR SERVICES JOURNAL
countries also enjoy spectacular interest
from international investors and also in
the sub-custody area there are big growth
opportunities in these markets.
Egorov: In 2006 and 2007, the Russian
capital market enjoyed vigorous growth,
thus market activities demonstrated a
significant increase. The historical
maximum value of the MICEX Index at
the close (1821.21 points) was recorded on
8 October 2007. Thus, I would say the
Russian market has remained stable
against the deterioration of the situation
on world stock market, caused mainly by
the crisis of the US market for mortgage
loans. The fast market growth has
increased demands on the market’s
infrastructure services. NDC plans to
broaden its presence in the international
markets. The main task for us is to extend
our relations with European and CIS
depositories, so that allows NDC to
increase its service offering. To date, NDC
has direct accounts with Clearstream
Banking, Euroclear Bank, NDC of
Azerbaijan, CSD of Kazakhstan, and has
signed a memorandum of understanding
with the Central Depository of the
Republic of Belarus.
Bourgi: Better infrastructure coupled with
improved pension regulation is helping to
build a framework within which
professional custody services and fund
administration can work to offer
improved local services. Fund
administration, trustee, custody services
and securities lending are all important for
all markets. Clearly though, some markets
are advanced more than others.
Sisa: The major infrastructure investments
in the three Baltic markets were taken in
connection with OMX’s acquisitions of
the exchanges and CSDs and no major
investment has been made in
infrastructure during the past 12 months.
In Ukraine, the expected consolidation of
the exchanges and trading platforms is
slow, but consolidation of trading volumes
has already happened to a great extent.
The creation of a CSD with real CSD
features is expected within the next 12
month period.
Clients are looking into a regional
assimilation of services, expecting the
service levels and level of commitment in
the Baltics to mirror those of the Nordics.
We also see a renewed drive for non-
Nordic broker-dealers to become remote
members, a development that would be
very good for the markets as a whole. For
us as the leading remote membership
agent on the OMX and NOREX
exchanges, this is a very favourable
development.
Penstone: Record growth across the entire
region over the past four years has
definitely filtered down to the domestic
infrastructure. One must note that
although the countries of emerging
Europe may have experienced record
growth, these markets remain relatively
small in terms of market capitalisation.
Local demand for custody is steadily rising
and foreign investors are pushing for
international standards as their portfolios
grow. Nevertheless, services demanded
tend to remain plain vanilla, mostly due to
the early stages of development. The
markets must first address risks inherent
in their local practices or, more
importantly, the lack of local practices.
The pace of change is extremely rapid and
E
investors are looking to mature markets
for best of breed practices
Juranyi: Which services are being
demanded in particular? It is interesting
to see that the growth markets show some
infrastructural improvement as well, but
not to the extent as would be required.
The regulations in most [growth]
countries reflect similar developments as
seen in the mature Central European
markets, but in daily life, there are a lot of
difficulties with quite simple actions, such
as account opening and client
identification (with heavy documentation
requirements). The progress in
infrastructure is slow: in some countries
there are talks about the need for a central
depository, but no actual steps have been
taken to improve this. There are some
features of the emerged markets that are
totally unknown to these countries. The
special status of special investor types, for
example funds or trustees, sometimes
causes a lot of difficulties to the investor,
to the global custodian and to the sub-
custodian as well. Not surprisingly, the
status of global custodians is not
recognised at all. The nominee concept is
either not acknowledged or not
acknowledged for foreign institutions and
this makes life quite difficult.
ISJ25 pp38-55 ML 19/10/07 8:20 pm Page 41

Excellen
lenc
ce, the art of
mastering demands
Brokerage, Custody, Liquidity Management, Fund Administration, Transfer Agency, Outsourcing and
Issuer Services
Société Générale Securities Services, SGSS, provides a comprehensive portfolio of value-added financial services for investment
professionals: asset managers, financial intermediaries and institutional investors. SGSS is committed to the ongoing pursuit of
excellence and increasingly personalized service within a technologically innovative environment.
www.sg-securities-services.com

Wider.
Closer.
Simpler.

Société Générale Securities Services, operating through Société Générale and/or subsidiary companies, provides services to market professionals and financial institutions. These
services are not available to private or retail investors. This promotion should not be construed as an offer or solicitation to buy or sell any investment product.
ISJ25 pp38-55 ML 19/10/07 8:21 pm Page 42
PANEL DEBATE - CEE CUSTODY
Who are the main regional domestic and
international players in the market and how
are they competing with each other?
Mudrova: There are four main custody
players in the Czech Republic – CSOB,
Citi, HVB Bank, and ING Bank. CSOB
was the first bank that started the custody
business in the Czech Republic, which
brings us the advantage of long
experience, an extensive client base and
long term personal contacts. Citi has a
reputation as a large global custodian with
a worldwide network. HVB Bank (now a
member of Unicredito) has had a long
term focus on Central Europe thanks to
Creditanstalt, and finally, ING Bank has
also been involved in Eastern and Central
Europe for a long time. The two other big
players in the Czech banking sector –
Komercni banka and Ceska sporitelna are
not involved in custody as much as the
above mentioned banks.
Järvitalo: In the more exotic markets we
now see that some of the big players have
entered locally, but there is still a lack of
competition. For example, there is only
one international custodian in Kazakhstan
and none in Uzbekistan or Georgia.
Egorov: To date, NDC is the largest
Russian settlement depository performing
as CSD de jure on the government debt
market and CSD de facto in servicing
corporate debt securities. The segment of
servicing shares is still competitive.
Among the biggest Russian settlement
depositories are NDC, Depository
Clearing Company CJSC and Settlement
and Depository Company CJSC. NDC’s
leadership among settlement depositories
has been confirmed by an industry
ranking entitled “Russia’s 30 Largest
Depositories”. NDC’s share calculated on
the basis of the value of securities on
deposit for 2006 reached 54% or RUR3.34
trillion. Obviously, NDC is mindful of
market needs and aims to cooperate with
domestic players. The competitors
understand the important role played by
NDC and DCC in the Russian securities
market and the necessity of increasing the
responsibility of management and
shareholders of these organisations for
the Russian securities market’s future.
Recently the NDC-DCC ‘bridge’ (inter-
depository link) has been improved in
terms of working hours and the list of
42 INVESTOR SERVICES JOURNAL
securities accepted for circulation.
Bourgi: I do not believe that there is one
dominant player in the market. Local
players still dominate their own markets
with one or two foreign players dabbling
only in custody services in some markets.
Sisa: In our four CEE markets, the
competitive situation is materially
different from the one we see in the Nordic
region, where the competitive playing
field long term is an SEB/Nordea matter.
Starting with the three Baltic markets
(Estonia, Latvia and Lithuania), the
competitive playing field for sub-custody
consists of SEB and Hansabank on the
ground and with UniCredit (through the
Vienna hub solution) and Nordea (through
the Helsinki window) as challengers. The
local presence of other players is starting
to materialise but as can be seen in the new
entrants section, it will be difficult to have
a significant bearing on the picture.
In Ukraine, the custody competitive
situation is evolving, with ING as the
largest player, followed by UniCredit,
RZB, SEB and Citi. We do expect the
competitive landscape to be further
enriched by international players
establishing a presence, while the domestic
custodian presence must consolidate a lot
further.
Domestically, we believe that the local
players will have a competitive challenge
versus the regional players, as the regional
players benefit from the scale advantages
of parent organisations, both when it
comes to the volume game, as well as for
the availability of IT and process
investment dollars, client base knowledge
and share of wallet aspects. Also,
contractual choices become greater and it
is our estimate that sub-custody and
global custody clients tend to opt for a
balance sheet risk of an established
regional player rather than a stand alone
domestic one. The demand for seamless
service is evident all across the region and
the desired investment need per market is
turning out to be more or less the same, no
matter the size and revenue production of
the market.
Penstone: For UniCredit, it is difficult to
pigeon hole our group as either
international or domestic. Unlike our
competition, the CEE region is our home.
We follow an extremely focused strategy
of being the best provider in the CEE;
when we buy banks it is within the region
and not on the other side of the earth.
In emerging Europe, UniCredit, Citibank
and ING are the most experienced.
However, both Citibank and ING have
chosen not to pursue a region-wide
strategy and can’t be purely defined as
regional players. Deutsche Bank has re-
invented itself as a multi-market sub-
custodian, but they have also pursued a
‘cherry picking’ approach. Single market
domestic players are facing increasing
competition as regional or quasi-regional
players offer standardised services and
price incentives across multiple markets.
Juranyi: There are a few international
players with good regional coverage in
CEE. ING is one of the top ones, and the
major competitors are Citibank, UniCredit
and, in some countries, Deutsche Bank has
quite good position, but not with full
coverage in the region. In some countries
there are also a few local players, but in
most cases their clients are the local
investors, mainly investment funds and
pension funds. The custody business is
very competitive in the whole region; in
some countries there are too many
custodians, while in others where the
market has been attractive only in the past
few years there are newcomers.
Occasionally it takes several months after
the decision before a new bank can launch
its operations and the process can be
troublesome, requiring huge numbers of
documents.
Competition is fierce in the region, but
occasionally that also helps to make joint
lobbying efforts possible, as the difficulties
and problems are identical for all of us. I
trust the common effort and common
target can be more useful than any
individual lobbying. That is how the
Securities Market Practice Group
(SMPG) was established in Ukraine by
four banks: ING, Citibank, UniCredit and
SEB. The SMPG’s target is to harmonise
the documentation requirements and also,
as a next step, to have the market make it
more flexible and require only those
documents that are internationally
standard.
How are new entrants into the market
differentiating themselves and establishing a
customer base?
Mudrova: The Czech market is quite
saturated regarding custody. There is very
ISJ25 pp38-55 ML 19/10/07 8:21 pm Page 43
ISJ25 pp38-55 ML 19/10/07 8:21 pm Page 44
PANEL DEBATE - CEE CUSTODY
intense competition amongst existing
players and not much space for new
entrants. One way to keep clients or to
gain new clients is to maintain a high
standard of service quality, while
lowering fees and further expanding the
scope of services.
Järvitalo: At the moment, Handelsbanken
only has experience of establishing
ourselves in Estonia, where we became a
member of the national CSD this autumn.
Our intention is to be the first
international player in the market,
providing global custody for local players
as well as sub-custody for international
players. This is done in cooperation with
our Estonian branch, which was
established in 2006. Branches have been
established also in Poland, but currently
we have no plans for offering custody in
that market.
Egorov: In view of Federal Financial
Market Services’ projects to facilitate
direct trading of foreign securities in
Russia, as well as introducing the Russian
Depository Receipts, NDC foresees new
challenges coming to the market and
expects to service the instruments of a
large number of entrants unknown before
to the Russian public issuers. This requires
intensive developments, both operational
and in the sphere of cooperation, as well
as communications. NDC’s efforts are
pressing towards establishing cooperation
with international organisations in order
to study the experience gained by the
developed markets. On the recent ECSDA
meeting hosted by NDC in St Petersburg,
it was generally agreed that NDC has
become an equal partner by the European
CSDs in discussing solutions of
harmonisation of market practices.
Bourgi: Clearly each foreign player will
have their own market entry strategy
capitalising on their strengths; Société
Générale has a big footprint in CEE
markets with local expertise and know
how. Our strategy, at SGSS, is to capitalise
on this know how and couple it with our
international expertise. SGSS is a
dedicated business line (not just for
internal needs) with clear commitment to
the industry and an ambitious
development strategy.
Sisa: In the Baltic markets, we have not
44 INVESTOR SERVICES JOURNAL
seen any new entrants and there are
multiple reasons for that. The two main
ones are the small size of each of the
markets, with market capitalisation
ranging from EUR2 billion in Latvia, via
EUR5 billion in Estonia and EUR9 billion
in Lithuania. Advancing up the market
share ladder is difficult in any market and
two players that are highly quality rated
dominate the picture. The revenue
potential, relative to the size of the
investment and the management efforts
required, does not seem to provide an
attractive business case. We continue to
see competition from ‘regional windows’
using the services of the two established
sub-custody providers.
In the Ukraine, we are a new entrant
ourselves, together with many more.
What we see here is that providers with
outspoken regional ambitions are the ones
In the frontier markets of emerging Europe, progress is
relative to the country’s individual current stage of
evolution and willingness to change
establishing themselves and thereby
introducing features of conformity in an
otherwise far from conformed
environment. SEB has, together with ING,
Citi and UniCredit, established a forum for
best market practice and nourishes high
hopes for this forum to make a difference
in introducing further internationally
accepted mechanisms into this interesting
market. We expect the Ukrainian market
to add more foreign suppliers to the
pamphlet and that a consolidation will
only happen once the market has reached
more of its full potential.
Penstone: Unfortunately, some of the new
entrants (well established brands in
Western Europe) and late starters (new
names with no material experience in the
region) have the tendency to undermine
value in the CEE markets in a desperate
attempt to buy market share. However,
one new entrant is more clever and is
attempting to compete at all levels –
service, commitment, full product pallets
while leveraging pre-existing experience
in Germany.
Whether they will be able to
successfully establish a solid customer
base has yet to be evidenced but the region
has perhaps become the most competitive
in the world.
At UniCredit, we continue to pursue a
business model, which began in Austria
and Hungary in 1991, and differentiation
based on delivery and experience
continues to be the secret of our success.
Juranyi: I cannot tell from a personal view,
as ING is one of the players that has
offered custody services in the region from
the mid 90s. But I think that the
newcomers are not in an easy situation.
The foreign investors that have ties to
good custodians do not move easily. Of
course, price is a factor and that is
beneficial for investors. A custodian –
either a newcomer or an agent for a long
time – can offer value added services that
attract clients and that is a differentiator.
First of all reporting, but also very
proactive staff and any new initiatives to
assist with smooth processing, are well
appreciated by clients.
As an emerging market, what are the main
restricting factors that remain and what can
be done to tackle these?
Mudrova: One of the biggest issues of the
last few years remains the creation of a
central securities depository (CSD) in the
Czech Republic. Currently, the Central
Securities Register, SCP, is considered as
an ‘eligible securities depository’, however,
under Czech law (the Capital Market Act)
the CSD is expected to undertake the SCP
role. All accounts and securities databases,
as well as all past records, will be
transferred from the SCP to the CSD once
it becomes operational. Originally, the
CSD should have taken over the SCP at
the beginning of this year, however, the
issuers, securities owners and other
entities entitled to maintain records have
still been waiting in vain for the decision
on its creation.
Järvitalo: The main restricting factors are
to a great extent administrative and
operational. For example, the lack of
nominee registration requires individual
accounts in most of the markets and the
account opening procedures are time
ISJ25 pp38-55 ML 19/10/07 8:21 pm Page 45

$PNNJUNFOU 
&ĊFDUJWFOFTT &YQFSJFODF

Ɓ40#4FDVSJUJFT$VTUPEZ
t*GZPVBSFMPPLJOHGPSBQBSUOFSXJUIQFSGFDULOPXMFEHFPGmOBODJBMNBSLFUT
JOUIF$[FDIBOE4MPWBL3FQVCMJDT UVSOUPƁ40#$VTUPEZ
t8FDBOHVBSBOUFFMPOHUFSNFYQFSJFODF GVMMTFSWJDFBOENBYJNVNFċDJFODZ
t5IJOLBCPVUSFHJPOBMDVTUPEZJO$FOUSBM&VSPQFXJUI,#$(SPVQNFNCFST
$POUBDUGPSƁ40# CBOL
JOUIF$[FDI3FQVCMJD
+BSPTMBW;ÈSVCB QIPOF FNBJMK[BSVCB!DTPCD[ XXXDTPCD[
$POUBDUGPSƁ40# CBOL
JOUIF4MPWBL3FQVCMJD
&SJLBÀPMÓLPWÈ QIPOF FNBJMFTPMJLPWB!DTPCTL XXXDTPCTL

ƁFTLPTMPWFOTLÈPCDIPEOÓCBOLB
BT
ISJ25 pp38-55 ML 19/10/07 8:21 pm Page 46
PANEL DEBATE - CEE CUSTODY
consuming. These markets have a lot of
operational risks due to the lack of
standardisation at all levels of the value
chain, especially in Kazakhstan and
Ukraine.
Egorov: The Russian capital market faces
no dematerialisation problem, like most
European ones, but requires fundamental
legislative improvements. Up to this day, a
central depository is absent in Russia,
although its need has long been
recognised by market participants. The
central depository bill is to be considered
by the State Duma in the near future and
will probably include shareholding, risk
management and corporate governance
requirements. The CSD is supposed to be
established in Russia by the middle of
2011, after several years of consolidation.
Bourgi: The CEE markets have evolved
well and there are no obstacles as such.
The key will be to bring local
infrastructure to international levels.
Sisa: These factors in the Baltics include:
the reliance on the euro implementations
power to address overall shortcomings
and the delay of implementation
heightens the FX risk; rising imbalances;
and signs of moving in the wrong
direction from a macro perspective with
savings deficits, credit growth, wage
growth, declining real interest rates and
the wrong policy mix. Here we would
wish for a slower credit growth and
tighter fiscal policy.
For the Baltics, the limited size of the
markets and low market cap of the listed
companies is a restraining factor. The
largest Baltic company (Mazeikiy Nafta)
has a market cap of only EUR2 billion.
The micro cap size of companies makes
good, new, listings easy targets for cross
border takeovers. The lack of quality
issuers (especially in Latvia) and limited
need for further privatisations is a
hindrance of development in size.
All three markets have insufficient
authority focus on assimilating to greater
European wide initiatives.
For the Ukraine, the major restricting
factors are: the lack of a consistent
regulatory environment; the absence of
asset servicing guidelines; the lack of a
DVP environment; obstacles relating to
currency regulation; and the comparable
instability of the political environment.
46 INVESTOR SERVICES JOURNAL
The documentary nightmare in order to
establish client custody business is holding
many institutions back and this, in
addition to the very high risk profile
following lack of regulatory consistency,
is the largest hindrance for a further
widening of the sub-custody client base in
this market.
For all four of our markets, a general
restricting factor is some difficulties in
finding staff with the required experience
and expertise profile.
Penstone: Frontier markets, while offering
very attractive returns, often
unintentionally restrict entry through a
complicated account opening process or
dissuade investment through punitive tax
procedures. Consequently, investors often
determine that entering a specific market
is not worth the effort and choose
alternative markets or depository receipts.
Account structures and account opening
documentation continues to the most
quoted reason for not opening a market.
Culture continues to be one of the most
challenging hurdles, whether it is local
acceptance of foreign investors or
concerns over hostile takeovers by much
larger multi-nationals.
In some markets, the securities industry
is simply not high on the political agenda.
In Bosnia for example, there is no debt
market and the government is busy
enough reconstructing the country.
Nevertheless, our team has been successful
in pushing for change.
Education of local authorities alongside
our customers and hiring local staff with
a ‘can do’ attitude are the only effective
weapons to defeat these hurdles.
Juranyi: As mentioned above, the clear
understanding of the status of global
custodians, the status and relation of the
underlying clients with the custodians, the
special types of investors, and the heavy
documentation requirements, are
restricting factors. The lack of flexibility
in the interpretation of required
documents, and required documentation is
also a restricting factor. For example, it is
a very complicated situation in Russia –
the cash account agreement should be a
separate one from the custodian
agreement; it cannot be included in one,
and that causes a lot of additional effort
from all of the parties in the account
opening process.
The lack of a central course of
information for corporate actions is also a
headache for everybody and the missing
standardised procedures for corporate
actions. Just a simple example: in a few
countries you may never know when you
will get your dividend, it might even take
a few years.
Some restrictions in connection with
cash processing also make everybody’s life
difficult. Long stories can be told about the
RUB cash processing, with the obligatory
payment code requirements and the need
for transliteration of English Swift
instructions into Russian.
What are the main challenges facing
international players in the market?
Mudrova: The major event in 2006 was the
preparation for the key changes associated
with Basel II and the implementation of
the Markets in Financial Instruments
Directive (MiFID). This directive was
incorporated in the Capital Market Act
Amendment effective as from 1 July 2007.
The main changes include: a “passport”
where firms covered by MiFID will be
able to provide services in other EU states
while still being regulated in their home
state; new client categorisation – retail
clients, professional clients and eligible
counterparties – that will have varying
levels of protection, starting with higher
regulation in dealing with retail clients;
more transparency both pre and post-
trade with stricter price publishing
requirements and retention; and better
client information capture to assure a firm
is working in the best interests of clients.
Another important issue in the Czech
Republic is the new Income Tax
Amendment and amendments to other
legislation, that are part of the bill on the
reform of public finance, which was
approved by the Chamber of Deputies. If
approved by the senate and signed by the
president, the corporate tax will be
reduced to 21% in 2008, 20% in 2009 and
19% in 2010. The WHT rates on
dividends and interest income will be
reduced to 12,5% starting in 2009.
The amendments extend the tax
exemption for dividends received by a
Czech parent company or a permanent
establishment of an EU company to
distributions from subsidiaries that are
resident in non-EU countries that have
entered into double taxation treaties with
the Czech Republic. A number of
ISJ25 pp38-55 ML 19/10/07 8:21 pm Page 47

/PSEJD#BMUJD
&YDFMMFODF
SEB is the leading provider of custody and clearing services in the
Nordic/Baltic region.
Business is built on long standing partnerships with our clients.
Our commitments are efficiency, reliability and providing the highest
service quality.
For further information please contact: Global Head of Custody Services: Göran Fors,
goran.fors@seb.se. Head of Sub-Custody Client Relations: Ulf Norén, ulf.noren@seb.se.
ISJ25 pp38-55 ML 19/10/07 8:21 pm Page 48
PANEL DEBATE - CEE CUSTODY
conditions have to be met, including a
requirement that the subsidiary is subject
to income tax in the country of residence
of at least 12%.
Companies will be exempt from
corporate tax on gains from the sale of
shares in a subsidiary resident in the EU
or a country with which the Czech
Republic has concluded a double tax treaty,
as long as the shares have been held for at
least 12 months. Qualifying holdings will
be defined in the same way as for the
dividend exemption.
Järvitalo: For the countries of the former
Soviet Union, we see a very low level of
standardisation also; of course, the
regulatory aspects follow with this. As well
as the technical problems, these should not
be underestimated.
Egorov: As I see it, the main challenge we
face is a standardisation barrier. Together
with Swift, we are working actively on ISO
standards to be implemented in the
Russian market. This facilitates the
implementation of paperless document
flow and then the integration with the
world capital market infrastructure.
Bourgi: Challenges will not arise from
internal issues. It is a matter of
capitalising on the international
developments in systems and know how
and choosing the right international
partner to achieve their ambitions.
Sisa: The Baltic scene is relatively free from
such challenges. Only minor issues
relating to the power of attorney structure
in Lithuania for asset servicing issues and
strict Latvian rules for the establishment
of non-EFTA relationships are throwing
some shadows over these three markets.
The newly implemented fierce fining
system for late deliveries might have a
setback, especially for one point of entry
initiatives to the three markets, but it is too
early to say just yet.
For Ukraine, the list of challenges is
longer and considerably more complex:
the absence of DVP settlement;
sale/purchase agreement enclosed, the
payment is client responsibility, no
guarantee fund; the absence of CSD; NDU
ISJ25 pp38-55 ML 19/10/07 8:22 pm Page 49

www.erstebank.at
Doris Marx-Schrammel
+43 (0)5 0100 - 16342
Doris.Marx-Schrammel@erstebank.at

Birgit Povolny
+43 (0)5 0100 - 13487
Birgit.Povolny@erstebank.at

Franz Josef Beidl

+43 (0)5 0100 - 16343
Franz.Beidl@erstebank.at

Gertrud Hadrany
+43 (0)5 0100 - 17212
Gertrud.Hadrany@erstebank.at

Strategies for changing times.

Your custody team in Austria!
CHOOSING THE RIGHT CUSTODIAN PARTNER MAKES THE DIFFERENCE. Come to us and build on our expertise. Your
personal needs are our focus. We are committed to provide customised and highly flexible custody services adapted to
your individual requirements. Find out yourself by contacting Erste Bank – your team in Austria!
ISJ25 pp38-55 ML 19/10/07 8:22 pm Page 50
PANEL DEBATE - CEE CUSTODY
and MFS might merge, but we foresee a
dependency on registrars for some time;
the absence of a foreign nominee
concept; the owner of account equals
owner of securities and the owner must
sign all documents; the lack of regulation
surrounding income and income
repatriation; high risks concerning C/A
information, fragmented documentation
needs and different timings; information
on best effort basis, statutory document
requirements, verified audit reports
necessary in banks; the account opening
process takes time and is not for the
From our domestic clients, we have especially seen an
increased interest in Poland, Hungary, the Czech
Republic, Slovakia, Ukraine, Romania, Bulgaria and Turkey
impatient; and currently 19 documents
need to be completed in SEB to open up a
relationship and this is one of the most
efficient account opening processes in the
market.
Penstone: Local market risk is the main
challenge facing custodians in the region.
Whether it be a fractured infrastructure,
as is the case in Russia, or undefined local
market practices due to lack of real
experience, as in Kazakhstan, it is
difficult to identify all the risks in a given
market.
Second, bridging the gap between local
market practices and international
standards remains challenging. What is
standard in mature markets is often not
appreciated as being value added in
frontier markets.
Transparency between the custodian
and its customers is key to facing these
challenges. End to end transparency
between ourselves, our customers and the
end investor is essential to ensuring that
all parties recognise local market nuances
or nuisances are recognised up front and
what the local sub-custodian is doing to
close the gap or add value.
Knowledge remains key in mitigating
risk and attaching value to services
provided.
How has the broader funds market developed
in comparison to Western Europe?
Mudrova: The origins of the Czech
securities market and development of
50 INVESTOR SERVICES JOURNAL
funds markets are closely linked to the
mass voucher privatisation scheme, which
was the main part of the government’s
economic reform programme in the early
1990s. Recently, the EU-entry of the
Czech Republic has had a significant
influence on the development of the
funds market, especially in the field of
collective investment. The advent of
being able to offer products and services
in other EU member states under a single
European licence has had the biggest
impact on collective investment.
Likewise, the Czech capital market began
to be open to foreign entities and the
foreign banks started offering funds from
all over the world. During 2006, the
volume of investment in open ended
mutual funds increased by CZK13.5
billion to CZK156.2 billion, according to
a report by the CNB. Generally, the most
significant attention of investors is
focused on secured funds.
Järvitalo: This differs a lot from market to
market, especially among the former
Soviet republics. Generally, there is a
strong demand, as the need for custodial
services and financial services grows
when the domestic economies grow and
get more integrated with the world
economy. The fund markets in the CEE
countries are less developed than in
Western Europe. In some markets, such
as Romania and Serbia, mandatory
pension funds were only started in the
last few years. The most developed
market is probably Poland, where the
pension reform was done in 1999, since
then, the assets have grown and we have
seen an increased interest in investment
funds.
Bourgi: If we were to look at the gaps in
wealth, pension funds usage, mutual
funds acceptance, saving rates, and levels
of pay, then it is understandable that
there is a gap and in some cases a big one.
However, on the positive side, the growth
will be far greater in CEE markets and
long term players will benefit greatly
from their current and future
investments.
Sisa: Looking at our four markets, the
appetite for funds has been largest in
Estonia, where investment funds and
mutual funds, Estonian as well as foreign
domiciled ones, are increasingly popular.
Investments into hedge funds to diversify
portfolios and increase returns are not
unusual either. In both Latvia and
Lithuania the savings picture is more
conservative with the overwhelming
majority of savings held as demand or
term deposits or in real estate. The
investment mentality is rapidly changing
however, towards products in the more
sophisticated end of the investment line
and especially mutual funds are gaining
in popularity. In Ukraine, the investment
fund industry is still young. The
percentage of savings being invested in
funds is considerably lower than in the
overall CEE perspective. The
opportunities for growth both in the
retail and wholesale segment are
considerable. The private pension fund
market is very small but expected to
grow quickly.
Penstone: The local funds markets are still
evolving. Local investors need to be
convinced to move from cash savings into
an investment environment. Any
comparison to Western Europe would be
unfair and would lead to misleading
results. These markets need to evolve on
their own time, some faster and some
slower, however with the distinct
advantage of having Western Europe as
an example of what to do right and
where things can go wrong.
Juranyi: In the mature market, the funds
business shows the increase – a big
variety of funds were launched and new
ones established. Not only simple equity
or money market funds, but the more
complex hedge funds and also the real
estate funds are quite popular. Not
only have new local funds been
established, but also some foreign well
performing funds have been introduced
in the region. In some countries,
however, the fund business is in its first
stage and not significant today,
but in these countries I think that will be
one of the most significant developments
in the future. ■
ISJ25 pp38-55 ML 19/10/07 8:22 pm Page 51
Weighing W
ho would be a transfer agent
(TA)? They have fewer
customers thanks to the
ongoing consolidation in the investment
the industry and they face more competition
from multi-fund distributors. They are
required less, thanks to the growing
options adoption of automation, which is
drastically reducing the revenue for
those operating in a market that was
previously defined by its manual
To some, the processes. And just to make things
worse, the services they do provide have
TA market may to be far better than before, thanks to
the more discerning demands of their
be dwindling, customer base. Things are not looking
but to others it is good for TAs.
This is at least one way of looking at
simply evolving. the TA market. “It is absolutely the case
that the market for transfer agents is
dwindling. That is very clear and is
Nicholas Pratt down to a number of reasons,” says Paul
Bratch, a director with Morse, a systems
examines the management consultant in the financial
services sector.
changes Bratch says that the larger providers
are attempting to develop a bigger
market share in order to finance the
necessary investment and this is
squeezing out some of the smaller
players. Additionally, the greater
adoption of automation is only just
beginning. “There is still a lot of
potential for implementing more STP
and I am still surprised at how little
automation there is with the large
operators,” he says.
Consequently, it is not surprising that
the consolidation we have seen
elsewhere in the investment
management industry is also affecting
the TA market. Recently, a number of
TAs have been bought by the global
custodians and asset servicing firms.
Citi recently bought alternative funds
administrator Bisys, while State Street
has entered into a 50/50 joint venture
with DST Systems called International
Financial Data Services (IFDS).
“There is continual change in the
current TA market, be it through
regulation or the constant pressure on
costs and revenue, and the service level
demands are constantly rising,” says
Paul Roberts, managing director, IFDS.
This rising expectation among
customers is putting a strain on TAs
that can only be relieved by serious
investment in systems and services, says
TRANSFER AGENCY
Roberts, and it is an investment that few
can afford to maintain. “A TA can build
some new technology, but unless they
are able to invest continually in new
technology, it can be difficult to stay
competitive. You need shareholders that
support this view and, unless TA is
central to what you do, it is hard to
justify the level of investment needed,”
says Roberts.
If you are on the right side of the
consolidation trend, then you can still be
successful and do a reasonable amount of
business, he continues, but there simply
is not enough of a market to support,
say 10 transfer agents, hence the
importance of consolidation. “Our
revenue has gone up slightly over the
last four years and most of that has
come through acquiring greater market
share. Revenue for existing clients is
falling at about 10% per annum, as
clients move away to these multi-funds
platforms,” he adds.
Acquiring market share and continual
investment is one of only two options
open to transfer agents looking to keep
their business viable, believes Roberts.
The other option is to simply hang in
there and decide to offer a steady, no
frills, traditional service, where you
concentrate on not making any mistakes
rather than trying to evolve the offering
to cover new areas.
A lot of the factors that have led to
diminishing returns for TAs seem to
centre on efficiency – be it STP or a
multi-fund platform. Consequently, says
Roberts, customers end up with a better
product at the end of the day. But the
downside is that there are many more
mouths to feed in the administration
food chain: the distributor, the fund
platform, the TA and the underlying
fund manager. Overall fund volumes and
the value of these funds are increasing,
which means that this equation is
working at the moment, although it is
questionable how long it will be
sustainable.
So if the market starts to contract
even more, squeezing profit margins yet
further, what other revenue generating
avenues can they explore? “Many TAs
will recognise that they are professional
record keepers and just because, in the
case of the fund supermarkets, the
records are not kept with each
underlying fund, does not invalidate
INVESTOR SERVICES JOURNAL 51
ISJ25 pp38-55 ML 19/10/07 8:22 pm Page 52
TRANSFER AGENCY
their services.” In other words, if the
record keeping won’t come to the TAs,
then the TAs must go to the platforms
and provide these services for all of the
funds distributed through them.
Nevertheless, one man’s dwindling
market is another man’s opportunity and
many other TAs are bullish about their
prospects. “I would disagree that the
market is dwindling,” argues Gert
Rautenberg, global head of transfer
agency services at Société Générale
Securities Services (SGSS). Much of it,
he says, depends on interpretation and
how the activities of a modern day TA
are defined. “There is a tendency for TAs
to talk themselves down.”
If you look at the TA business as
simply focused on record keeping,
account administration and transaction
processing, then yes it is becoming more
standardised and commoditised with a
reduced margin and fewer players, says
Rautenberg. But, if you look at the
market as one that is changing and
evolving, then it is possible to see the
commoditisation of the core activities as
an opportunity to focus on more high
value services, such as distribution
support and hedge fund specific tasks,
such as performance fee attribution, local
compliance guidance and web-based
front end services. However, TAs are not
alone in trying to target these services.
“As TAs, we have not had it very easy
of late to clearly differentiate ourselves
from custodians and fund
administrators,” says Rautenberg. “As
the needs of our clients are becoming
wider and deeper, any successful TA will
have to understand those needs to be
successful.”
Another potential rival to the TAs are
the multi-fund platforms or fund
supermarkets, such as CoFunds. But it is
also possible to forge a working
relationship with the supermarkets,
rather than simply go head to head for
the same business, says Rautenberg.
France
Luxembourg
Ireland
Belgium
The Netherlands
Switzerland
www.caceis.com
“From our point of view, these platforms
are distributors and intermediaries
between the TA and the wider
distribution chain, so our ability to
provide them with the right technical
data, meet their information needs and
offer an efficient interface will be key to
determining the success of this
relationship.”
It really depends on what kind of
business a TA wants, Rautenberg says.
Do they want to concentrate on highly
complex but high margin activity or the
less complex, lower margin areas? “We
see ourselves as operating in the space
focusing on providing high value added
services and there are certainly other
players trying to position themselves as
we are. But there are still TAs that are
solely focused on the more
industrialised, low value, low cost
approach, but I am seeing less and less of
those in today’s market.”
Josée Denis, global TA product
manager at BNY Mellon Asset
Servicing, principally covering Europe
and Asia, also disagrees that there is a
diminishing role for TA today. She
points to the emergence of more
sophisticated investment products, not
just the hedge funds but also the real
estate funds, as new avenues for TAs.
“We are in a healthy and growing
funds market and it is up to TAs to ride
that wave to ensure that they provide the
most appropriate TA administration and
quality of service to support the ever
evolving global fund distribution
landscape, regardless of the investment
funds type and country and region of
distribution,” she explains.
Denis feels that many fund managers
are taking a dual approach to their TA
appointments. While they are happy to
appoint a third party TA for their retail
investments, for the more sophisticated
alternative investments world, many are
initially performing the TA role
themselves. They are then reviewing
what TA service providers out there are
doing in this space, before looking to
third party TAs.
Consequently, the more ambitious TAs
are developing their alternative
investment arms, says Denis. One
example of this is Citi’s acquisition of
Bisys. “In the future, there won’t be any
room for niche players in the TA or fund
administration market,” says Karen
Tyrrell, managing director of Citi’s
Global Transaction Services, Ireland.
“Instead, there will be niche divisions
within big firms. There will still be those
investors that will only want to invest in
hedge funds, but there will be a vast
number of mutual funds investors
looking to work more with hedge funds
and I don’t think they will be looking to
use two different TAs. Instead they will
want a one stop shop, this may explain
the consolidation that we have seen over
the last five years.”
However, this is not a foolproof
answer. “The mistake would be to
assume that a big player could buy a
niche operator and simply roll them over
onto their systems. If that is done then it
negates any value added service that may
be provided by the niche player. It is
important to recognise the reason for
any acquisition and standardise those
processes that are commoditised and
bring some efficiency to both
organisations but also identify those
elements that create the added value and
that require different people and
different processes,” she says.
These types of investors moving into
the hedge fund space are seeking more
transparency and regular liquidity and
reporting, says Tyrrell. Previously, a
hedge fund would produce monthly
reports for its high net worth investors
but this is not acceptable for the
institutional investor seeking daily
liquidity and daily reporting. Investors
are also creating a hybrid market as
convergence between the traditional and
Custody-Depositary / Trustee
Fund Administration
Corporate Trust
CACEIS benefits from
an S&P AA- rating
ISJ25 pp38-55 ML 19/10/07 8:22 pm Page 53
alternative funds continues to flourish
through products such as 130/30 and
various UCITS-based products.
But even though the distance between
these funds may be diminishing, there
still remain some differentiating
characteristics for TAs to deal with, says
Tyrrell: “One such difference is the legal
structure. There tends to be less
regulation and more of a master feeder
structure, so the reporting for a TA is
different to that of a mutual fund. And
then there are the fee calculations, which
tend to be different and potentially more
complicated for hedge funds.”
As well as new fund types, TAs are
also benefiting from new geographies,
notably in the Asian market. Scott
McLaren, head Asia Pacific, Sales and
Relationship Management for RBC
Dexia, believes there is still some in-
sourced activity in Asia, which will not
be able to sustain the technology
upgrades, regulatory changes, and
volume increases that characterise the
modern TA market.
“The Asian market is still heavily
manual, particularly Singapore, Hong
Kong and Thailand, but some markets
like China already have an automated
model, which is a blessing since there is
huge demand for mutual funds with
millions of trades coming in, sometimes
daily. These manual markets are going
to feel the pinch when volumes continue
to go up, as they will have a heavy
reliance on a tight labour market, will be
exposed to potentially failing to carry
out all the trades in a day and this
represents a considerable risk,” says
McLaren.
There is also a great deal of difference
in the operating models of different
regions in Asia, says McLaren. “There
are many, such as Taiwan, that have not
yet fully accepted third party
administrators to operate in the funds
market, therefore limiting the role of
any TA with global ambitions. And, in
general, when talking of the emerging
markets, the price for the service can be
very competitive.”
RBC Dexia is not alone in targeting
the Asian market. Some of the key global
TA players have been operating in Asia
for over five to seven years already.
BNY Mellon’s Denis says: “If I have a
client distributing Luxembourg
domiciled funds in Hong Kong or
Taiwan, I have to make sure I have an
Asian dedicated hub located somewhere
in Asia that will allow us to service them
in the appropriate time zone, language
capabilities, and most importantly, be able
to deal with the cultural differences in the
funds world across the Asian market.”
The real opportunities in the TA
market seem to lie where inefficiency
still remains. However, the TAs argue
that increased automation should be
encouraged wherever possible. “If a TA
finds its volume is dwindling, it is
TRANSFER AGENCY
because either another entity is doing
the sub-agent work or has a better
service offering,” says McLaren. “For
example, a fund supermarket or platform
may have a performance measurement
service or better consolidation across
multiple funds that is taking business
away from the TA.” An unsophisticated
TA will struggle to cope with high
volume retail, which is predominantly
manual and requires a high level of
accuracy and a large dealing team. But,
says McLaren, if a TA has the capacity
and technology to deal with the
complexity and volume of today’s
market, then there are countless
opportunities.
Likewise, the growth of STP should
be strongly encouraged, as should
outsourcing. “It very much depends on
your cost structure. For example, if you
have 20 people all involved in manual
processing, it is a considerable cost in
human resources, office space, insurance
and operational risk. So, while
automation brings in efficiencies, it also
breeds a better model and brings down
the risk profile and resultant cost of the
business. Anybody that understands the
business knows that more automation is
better for everyone and the various
initiatives in Asia need to get traction
and adoption by the industry at
large both on the distribution side and
with the fund managers’ support,”
concludes McLaren. ■
ISJ25 pp38-55 ML 19/10/07 8:22 pm Page 54
TRANSFER AGENCY IN ASIA
Casting a
wider net
Scott McLaren of RBC
Dexia explores how
Asian asset growth
has been challenging
the status quo
ith the majority of Asian
W
equity markets delivering
stellar, double digit
performance in 2007 year to date,
institutional and individual investors
across the region continue to flock to the
literally thousands of funds –
predominantly European UCITs –
available for purchase in Asia through
myriad banks, brokers and insurance
companies. Indeed, with US and
European GDP numbers paling in
comparison to Asia’s emerging
economies, where wealth creation has
become the norm, growth in offshore
investing continues to climb, with some
mature markets such as Taiwan
recording 150% year over year.
Implications of growth
While such phenomenal growth should
be viewed as beneficial for the underlying
emerging capital markets and investors
alike, the commensurate processing
burden on many fund managers and their
distribution channels can be huge,
complex and costly. Buoyant markets
often drive unexpected surges in trade
volumes, which can cause manually
54 INVESTOR SERVICES JOURNAL
fraught processes to buckle, fund
managers to shudder and investors’
returns to suffer.
In reality, the difference between
handling 50 and 500 trades per day
requires a more automated operating
model that is efficient, scalable and routes
monies as quickly as possible to the hands
– and imminent investment choices – of
the fund manager, and then back
(correctly) to the account ledger of the
investor.
As they exist today in Asia, fund
processing inefficiencies are due in large
part to the heavily fax and paper-based
nature of the fund industry, coupled with
its broad geographical footprint,
disparate regulatory environments and
convoluted reporting requirements.
Unfortunately, such inefficiencies
translate to an opportunity cost for fund
managers, their funds’ performance and,
in turn, their clients.
Consider how a faxed instruction
sitting on a desk waiting to be inputted
into a system impacts negatively the end
to end cycle time of a transaction. It
prevents fund managers from knowing
how much new money will soon be
available for investment, and it delays
investment opportunities – and possibly
returns – for the end client.
The need to streamline communication
and service levels between
geographically diverse, local fund
processing centres in Asia, which are
experiencing rapid growth, and multiple
offshore fund manufacturing centres in
Europe (for example, in the UK,
Luxembourg and Ireland) has, therefore,
never before been so critical.
In today’s world, real-time, transparent
access to money flows across funds and
geographical markets is essential if a
fund manager wishes to maintain a
competitive edge. Choosing the optimum
operating model that gives real-time
access to such information is key.
Change in focus
Historically, a courageous handful of
large fund houses chose not only to try to
manage money well and outperform their
benchmarks, but to build the IT systems,
processes and infrastructure required to
maintain shareholder records, including
purchases, redemptions, transfers,
account balances and NAVs. For most,
this proved a substantial resource
commitment given the complexities of
operating across time zones in multiple
jurisdictions. It also helped propel many
fund houses down the expensive path of
IT development and maintenance,
hypothetically detracting attention from
their core competency of fund
management.
So, the growing trend that emerged
and continues today is for fund
management companies to outsource
such mechanics to reputable third parties
who have the expertise, systems, scale
and physical presence in key geographies
– the operating model – required to
manage such matters efficiently and cost
effectively.
But what are the perceived obstacles to –
and ultimate advantages of – adopting
such an enhanced operating model?
Possible reasons preventing change
It is certainly understandable that there
exist coordination issues between the
technical and operational staff within
many fund houses, who have committed
huge resources over time to their
internal systems, and external third
parties who have sprung up over the
years to specialise in what has been
termed the transfer agency space.
While arguments abound as to why
fund houses should focus on managing
funds for optimal return and let the
technical processes be managed by
institutions who are better equipped to
offer scalable, state of the art and cost
effective solutions, such lines of
reasoning are not always cogently
accepted, for two primary explanations.
First, a case could be made that many
fund houses that operate in both Europe
and Asia foster and support two very
different and often competing sets of
management objectives – two cultures at
inadvertent odds within the same
organisation. As such, attempting to
implement a new business model that
serves and achieves different markets’
objectives through a standardised
approach may be viewed as an inherent
compromise and, ultimately, not in the
best interest of each individual market.
Moreover, if territories and assets were
suddenly combined into one master
platform across multiple jurisdictions,
then how would you attribute success,
allocate rewards and compensate
disperse distribution channels correctly?
ISJ25 pp38-55 ML 19/10/07 8:22 pm Page 55
And second, if one posits that
regulatory regimes are best understood
and navigated by local players with local
influence, how could a single global
solution possibly better position entities
that operate across multiple
jurisdictions?
While both rationales posited above
might have seemed legitimate at some
point in the past, it is fair to say that the
emergence of the “global transfer agent”
model should overturn such thinking. We
will examine how later. But, first, let us
remind ourselves how most fund
distribution business in Asia is arduously
conducted today.
Current model
Consider a fund manager that distributes
multiple products across several
countries in Asia and through a number
of distribution channels in each market.
As funds trade on a daily basis, every
subscription, redemption or transfer
made at the consumer level needs to be
received, tallied and dispatched up the
organisation to be further aggregated
and passed along until it is finally
submitted (within a rigorous time
deadline) and accepted and acted upon by
the fund manager. Then, of course, the
process reverses and acknowledgment of
such actions are passed back down the
chain to be reconciled and reported.
For all parties involved, this end to end
cycle translates to a lack of transparency
at all stages and a nightmare of manual
and error prone processes both on the
submission and reconciliation ends. For
the fund house, the administrative burden
quickly converts to higher expenses
(especially in actively traded markets)
and, by virtue of an inefficient operating
model and lack of standards and
automation, an inability to provide
quality customer service. For the
distribution channel, it can mean
dissatisfied customers and either tardy or
inaccurate commission and trailing fee
compensation.
Do such assertions require a reality
check? You need only consider the plight
of a pensioner whose timely instruction
for a lump sum distribution of his entire
life savings was submitted just as the
stock market was peaking. Due to
processing backlogs, however, his order
was delayed several days and only acted
upon once the market had significantly
corrected, resulting in far less of a
redemption value than he had expected.
Even worse, perhaps his cheque then
went missing in the mail and he only
learned of his missed opportunity weeks
later. In such a scenario, the reputational
risk to the fund management company far
exceeds the actual, though not negligible,
cost of correcting the situation.
Global model and its benefits
Just as a global transfer agency’s online,
real-time platform allows fund managers,
compliance officers, operational and
customer service staff to slice and dice
different views of much of the same
information, and then act quickly
thereon, the benefits of such a
consolidated, single view can be
appreciated from many perspectives. For
instance, faster and more accurate
(automated) reconciliation of trades
pleases all parties along the end to end
trade cycle. It drives down operational
costs, thereby improving a fund’s
performance and gratifying the end
investor, not to mention the distribution
channels’ sales people and other customer
service staff. It also largely eliminates
input errors, exceptions processing and
reconciliation risks, which no doubt
pleases legal and compliance
departments and regulators alike – in
every country involved. Distribution
channels delight as well, for their
commissions and trailing fees are paid
out accurately and on a timely basis,
which provides added incentive for future
asset gathering.
Paperless trade order aggregation and
submission means the ability to extend
trading windows for distribution
channels, which results in less pressure
for support staff (who will therefore
make fewer errors and not violate
submission deadlines) and faster and
higher AUM for fund managers. Once
again, compliance officers are relieved,
and regulators are sure to receive fewer
complaints from the disgruntled
investing public.
A single, consolidated view across
multiple products allows clients to monitor
their positions in real time and make
informed decisions about future
subscriptions, transfers and redemptions,
asset allocation and portfolio optimisation.
The introduction of operational
standards (that automatically comply
TRANSFER AGENCY IN ASIA
with local practices and regulatory and
tax reporting requirements) across a
geographically diverse institution and its
distribution channels removes subjective
interpretation of facts and resultant
calamities and claims.
Finally, local support across the trade
cycle drives prompt servicing in key
markets and time zones and gives fund
managers the edge they need to invest
swiftly and accurately. In sum, a
“harmonised” operational model
produces exactly that sentiment in the
many parties that use it and/or benefit
from its use across the trade cycle.
The challenge
Confronting the status quo and helping
close the gap between what fund managers
perceive may one day be possible through
a global transfer agency operational
solution and what is already available
today is an ongoing challenge for
transfer agents, to be sure. At RBC Dexia,
we believe the emerging, dominant
operating model for fund manufacturing
centres and their distribution channels is
to offer consolidated, real-time access to
data for fund managers and their
clients and service staff – all ultimately
aiming to protect investors and serve their
best interests. ■
Scott McLaren,
head of Asia
Pacific, Sales
and Relationship
Management at
RBC Dexia. Scott
McLaren of RBC
Dexia works with
fund managers
across Asia to
implement
distribution solutions and optimise
their operating models. RBC Dexia
supports lead fund managers globally
through 15 locations in the North
America, Europe and Asia, and
currently processes over 9 million
transactions per year for some 6.4
million shareholder accounts. Through
an integrated technology and
infrastructure, RBC Dexia is
able to provide increased efficiency
and service quality while reducing cost
and risk.
INVESTOR SERVICES JOURNAL 55
ISJ25 pp56-67 ML 19/10/07 8:52 pm Page 56
SIBOS 2007 REPORT
Gaining momentum?
Virginie O'Shea examines the main issues
discussed at this year's Sibos
his year's opening plenary speech
T by new CEO Lázaro Campos was
as slick as a well oiled machine.
His decision to opt for a walk among the
delegation conveyed (as I imagine was
intended) his desire to engage with
Swift's customers and it certainly set the
tone for the rest of the week.
Campos stressed the cooperative's
focus on lifting the barriers to the use of
Swift for both new and existing
customers. “Not everyone wants or needs
a PhD in Swift. They just want a seamless
operation. A Swift button on a fax
machine - beautiful simplicity,” he
contended. This is all part of the plan to
build a different Swift (as detailed in our
last issue): a Swift that has a deeper
understanding of who its customers are
and how to “delight” them. Part of this
was the suggestion that Swift will
introduce a flat fee for a period of three
years for its largest users (which went
down rather well with the crowd).
He was also frank about Swift's lack of
traction in the fund management
industry in terms of participants and
acknowledged that unless cheaper and
simpler entry points to the network are
introduced, fund managers' participation
will remain “marginal”. To this end, it
was a lucky coincidence that this year's
conference was in the fund management
hub for the US, Boston. According to
Swift, many local fund managers took the
option of a day pass to the conference,
56 INVESTOR SERVICES JOURNAL
which was a positive result for both the
cooperative and the exhibitors alike.
The issue of devolution was
highlighted by Campos when he
announced that the management
structure and thus the decision making
process of the organisation will be
regionalised. Three regions will therefore
become the “cornerstone” of the
reorganised Swift. “I want the decision
making process to be as close as possible
to where you and your businesses are. No
one should be kept waiting for a decision
from HQ,” he explained. Each regional
head will be empowered to run the region
with considerable autonomy but key
global clients will continue to have global
account relationships with Swift.
As with previous years, Swift's focus
remained on engaging the corporate
community on the payments side of the
business and extending its reach into the
funds community on the securities side.
Sessions were geared along these lines
and payments panellists endlessly
debated how to improve their offerings
and remain competitive in a option of fixing the price of their
commoditised market. Luckily, as well as
representation from the local fund
management community, Sibos 2007 also
boasted a record number of corporate
delegates, who were at hand to provide
some answers.
The corporate panel urged banks to try
harder to understand corporate business
processes and adjust their offerings
accordingly. Walter Boileau, vice
president and corporate treasurer of
Sanmina-SCI, criticised banks' current
standpoint: “Banks seem more interested
in getting the sale done than in
understanding our business processes.”
Doug Gerstle, assistant treasurer,
Procter & Gamble, seconded this notion
and was emphatic about what banks
should offer corporate customers: “When
a bank approaches me, I want to know
how it can help me deliver against my
objectives, not the other way around. I
am the customer. Listen to me in order to
help me achieve what I want to do.”
The payments industry delegation
was not alone in getting a dressing
down during the sessions, the securities
panel on the future of the market
criticised the market for letting the issue
of T+0 fall off the radar. Till
Guldimann, vice chairman of SunGard,
called the delegation's attention to the
fact that while North America and
Europe are running the risks inherent in
T+3 settlement, emerging markets such
as Shanghai and Moscow have adopted
T+0. Guldimann suggested that this
might become a severe competitive
disadvantage in the future, given the
growth of these markets over recent
years.
It seems that Swift's ambitions to put
the customer at the centre of the
equation and step up to the plate in terms
of “aggressive leadership” are timely and
in keeping with the general attitude of
the financial services market. Given that
we live in increasingly competitive times,
being on the offensive seems the only way
to survive. ■
News of the week
By far the most interesting news of
the conference was the
announcement by Swift of its new
pricing structure to encourage
growth from its high volume users.
These parties will now be given the
traffic over Swift for the next three
years, based on 95% of what they
paid in 2007. However, volume
growth will be limited to a
maximum of 50% a year. This
pricing will initially be targeted at
Swift's top 60 customers, but this
may be extended to smaller
customers at a later date.
ISJ25 pp56-67 ML 19/10/07 8:52 pm Page 57

SIBOS 2007 REPORT

Candid camera

Lobster pink and

with its pincers
restrained, ISJ’s
very own Justin
Lawson hefts a
crustacean

BHF Bank’s booze cruise sorts

the wheat from the chaff

Nat Sey,
data doge

ABN AMRO’s last stand Sibos souls brave the descent

RBS provides the perfect getaway

vehicle to the Sibos afterparty

INVESTOR SERVICES JOURNAL 57

ISJ25 pp56-67 ML 19/10/07 8:52 pm Page 58
TARGET2-PAYMENTS
The next generation
he payments environment in
T Europe has changed significantly
since the creation of the original
Trans-European Automated Real-time
Gross settlement Express Transfer
system, commonly known as Target, in
1999. According to the European Central
Bank (ECB), the decision to update and
upgrade the system was driven by
requests from users for a more
harmonised level of service. Target's
shortcomings in the area of cross border
payments in particular, encouraged the
central bank to begin work on the
Target2 system, which is due to go live
on 19 November this year.
Target is currently one of the three
largest payment systems in the world and
it settles around EUR2.3 trillion every
day. It is a decentralised real-time gross
settlement (RTGS) system consisting of
16 national RTGS systems, the ECB
payment mechanism and the Interlinking
system. Thus Target is not really a single
system but a collection of systems linked
together under the banner of one and it
therefore shares the inherent weaknesses
of each of the underlying systems.
In view of this, and because of
58 INVESTOR SERVICES JOURNAL
Europe is witnessing
the final stages of
the transition to the
Target2 system, but
what will this mean
for the main players
in the market?
Virginie O'Shea
investigates
developments such as the further
enlargement of the euro area, the central
bank decided to build the second
generation of Target. Current Target
users will migrate in different waves onto
the Target2 platform, beginning on the
19 November go live date. Accordingly,
Target2 will have completely replaced
the current decentralised infrastructure
by 19 May 2008. The new and improved
system promises to provide a harmonised
service level and a harmonised pricing
scheme with a single technical platform:
the Single Shared Platform (SSP).
In December 2004, the governing
council of the ECB approved the joint
offer made by three national central
banks of the euro area - the Deutsche
Bundesbank, the Banque de France and
the Banca d'Italia - to build and operate
the SSP. Although the SSP is technically
a single platform (the name gives it
away), Target2 is legally structured as a
multiplicity of RTGS systems. Each
central bank in a country that
participates in Target2 will therefore
continue to have legal responsibility for
the business and legal relationships with
the domestic participants in the system.
The migration to the new system has
been arranged in four waves or country
groups and the migration period is
limited to six months. The fourth group
is reserved for contingency measures.
Each wave consists of a group of
national central banks and their
respective Target user communities. Alan
Buckland, vice president, Global Product
Management at the Bank of New York
Mellon, elaborates on the migration
process: “Each country has its own
national migration plan to move from the
old local Target infrastructure. One of
the key benefits will be the ability to have
uniform access to Target2 for pan-
European operators - the systems access
requirements will be the same regardless
of your location.”
To participate in Target2, a bank must
establish a timeline for the existing
national RTGS clearings and on joining,
must identify a suitable participation
structure and make any required internal
changes to support this. It must make
changes to its message handling, to send
and receive messages from the new
Target2 SSP, which will adopt SwiftNet
FIN Y copy. The participant must then
register with a participating central bank
and take part in testing, training and
implementation tasks.
Buckland is positive about the impact
of Target2 on the European payments
landscape. “Given that Target2 will
effectively replace the old national
infrastructures, it will obviously reduce
industry costs at a macro or national
level, which can only be a positive result,”
he says.
Antonella Vanara, payment systems
marketing manager at SIA-SSB, adds:
“Three categories of users will benefit
from Target2: national central banks,
credit institutions and ancillary systems,
including retail payment systems; large
value payment systems; central securities
depositories, international central
securities depositories, central
counterparties, clearing houses, securities
settlement systems, and foreign exchange
systems.” SIA-SSB is helping financial
institutions to access Target2 and has
developed the ancillary system interface
(ASI) on behalf of Monte Titoli -
Gruppo Borsa Italiana and e-MID, she
explains.
Alan Koenigsberg, JPMorgan
Treasury Services' core cash product
ISJ25 pp56-67 ML 19/10/07 8:52 pm Page 59
executive for EMEA and the Americas,
agrees that Target2 will prove to be a
significant influence on the future shape
of the market. “Target2 is an extremely
interesting development, moving Europe
towards a harmonised processing and
pricing model for RTGS payments within
an SSP. This consolidation and
harmonisation will remove many of the
functional and technical discrepancies
that exist today. In this regard, this
initiative should be seen as a major
catalyst for change, allowing banks,
particularly multi-country banks, to
realise further efficiencies by
rationalising the number of national
clearing entry points. The Target2
platform is designed on the best of
available national infrastructures with
refined capabilities and increased
resiliency,” he elaborates.
As Koenigsberg notes, the new
functionalities of Target2 enable multi-
country banks to consolidate their
internal processes, such as treasury and
back office functions, and to integrate
their euro liquidity management more
successfully. For example, participants
are able to group some of their accounts
and to pool the available intraday
liquidity for the benefit of all members of
the group if the legal requirements are
fulfilled. In addition, Target2 users have
uniform access to comprehensive online
information and easy to use liquidity
control measures.
Target2 therefore provides an
opportunity for further centralisation of
European payment operations and to
rationalise clearing memberships. New
participation options, if used effectively,
enable a multi-country bank to gain the
dual benefits of centralisation while
avoiding any conflict with legacy national
market practices, says Koenigsberg. The
payment message flow between Target2
participants will be more direct,
particularly in the case of payments
between different countries, providing
greater transparency and efficiency.
The system has been designed in a
modular way and every module is closely
related to a particular service; for
example the Payments Module is,
unsurprisingly, for the processing of
payments. Some of the modules are
optional for central banks and those that
choose not to use them can offer the
respective services via proprietary
applications in their domestic technical
environments. These optional modules
include the Home Accounting Module,
the Standing Facilities Module and the
Reserve Management Module.
The Target2 system uses Swift
standards and services, such as FIN,
InterAct and FileAct, to enable
standardised communication between the
system and participants. These
participants will be given a number of
options for access to the system,
including direct and indirect access (via a
direct participant). Another category of
access available will be Target2
addressable Bank Identifier Codes (BICs).
Any direct participant's correspondent or
branch that holds a BIC is eligible to be
listed in the Target2 directory,
irrespective of its place of establishment.
Moreover, no financial or administrative
criteria have been established by the
system for such addressable BICs,
meaning that it will be up to the relevant
direct participant to define a marketing
strategy for offering such status.
Koenigsberg elaborates on some of the
other features of the system: “The SSP
offers payment categories, reservation
and limit setting capabilities, greater
controls for payment queue management,
further encouraging the use of high
priority payment instruments like the
EBA Priority Payment Scheme. Pricing
is standardised and a tiered structure
ensures lower costs for higher volumes.”
Target2 provides a harmonised set of
settlement services in central bank
money for all kinds of ancillary systems,
such as retail payment systems, money
market systems, clearing houses and
securities settlement systems. The main
advantage for these systems is that they
are able to access any account on the SSP
via a standardised interface. In essence,
this means that participants are provided
with liquidity optimisation opportunities.
As a result of this impact on ancillary
systems, Hans Cobben, chief operating
officer of SunGard's AvantGard
Payments division, believes that Target2
will have an impact on the developments
in the retail payments system
architecture under the Single Euro
Payments Area (SEPA). “As one of the
first SEPA implementation phases,
Target 2 will clearly be both an acid test
for the readiness of the financial
institutions to cope with the new
TARGET2-PAYMENTS
standards as it will have a 'dry run'
function for the new pan European
ACHs. At the same time, we will see
which banks will be taking the lead and
potentially become service providers for
tier three and four institutions.”
The changes introduced by Target2
are less significant from a legal and
monetary policy perspective, contends
JPMorgan's Koenigsberg. “At this level
the infrastructure will remain
decentralised; for example it is still a
requirement to hold a central bank
account for holding minimum reserves in
each country that a bank operates in,
there is no means yet to centralise this.
Additionally, some central banks are
integrating their home accounts into the
Target2 platform; others are retaining
their proprietary home account system.
Similarly, ancillary systems are
integrating to the Target2 system at
differing speeds for purposes of liquidity
transfer and settlement, creating further
inconsistencies, often at a national level.
In some instances banks are forced into
holding a Target2 account within a
specific country to meet national
requirements,” he explains.
Additional challenges have been
presented for banks based in those
countries such as Sweden and the UK
that have opted not to provide direct links
into Target 2, says Koenigsberg. “Even at
the level of the basic payment
formatting, some national requirements
will remain, at least in the short term.
For example, national balance of
payment requirements and national code
words are required in some countries. In
some cases it has been a challenge to
integrate these national requirements
into the more integrated platform. This
has been particularly evident in the case
of multi-country banks, many of which
are centralising their treasury and
operations to gain increased efficiencies
from the opportunities that Target2
presents,” he continues.
Therefore, according to Koenigsberg,
despite the efficiencies introduced by
Target2, there are still some
inconsistencies to be tackled. “It remains
to be seen how quickly some of the
national features are addressed and
removed. So far these differences have
merely served to encourage
concentration of payment flows through
several key countries,” he concludes. ■
INVESTOR SERVICES JOURNAL 59
ISJ25 pp56-67 ML 19/10/07 8:53 pm Page 60
SECURITIES LENDING
Seeing the light
The Northern Rock affair demonstrates yet
again that securities lending is a bad thing,
and must be forbidden, argues Brian Bollen
ay that within earshot of any
S securities lending specialist and
stand well back. Lighting the blue
touch paper on a super size firework is
likely to have less of an explosive effect
than articulating such a thought. The
sharp spike in the volume of Northern
Rock's market capitalisation out on loan
in the summer was not a cause of the
Northern Rock crisis. As all keen
students of history will surely
appreciate, it was an effect. As all keen
legal students will appreciate, hard cases
make bad law, and this is an open and
shut hard case.
And, as data from Data Explorers
shows, it was not an isolated blip but a
continuation of a trend dating back
almost two years. The volume of
Northern Rock securities out on loan (6-
7%) has been significantly above the
average for the banking sector (2%) for
much of that time. “Activity really picked
up in February 2007, when it rose to
10%, and then reached extraordinary
highs in June and July,” explains Julian
Pittam, managing director at Data
Explorers. At its absolute height, around
22% of Northern Rock's market
capitalisation was out on loan.
The BBC's take on the story, inevitably
dumbed down for the broader
community, was that a single hedge fund
was said to have been behind almost half
that position. “Data Explorers puts the
overall profits for those short sellers of
Northern Rock shares back in June at
somewhere just north of GBP100
million,” noted the BBC. “Others in the
hedge fund community reckon the overall
profit from shorting Northern Rock is
much higher, and could be as much as
GBP1 billion.”
Whatever the precise levels of profit
booked, the consistent upward move in
the pattern indicates a degree of market
unease well before the refinancing crunch
that saw the first run on a British bank
since the 1860s. Or, the more flippant
60 INVESTOR SERVICES JOURNAL
might say, since Mary Poppins first hit
the cinema screens in 1964. That unease
will have been based on uncertainty
based on extensive (and expensive) first
hard research into the former building
society's business model, say market
observers.
Finding market participants willing to
talk on the record about Northern Rock
proved as difficult as finding hens' teeth.
The guarantee of a cloak of invisibility
was required by those who did agree to
provide a background, while others
issued uncharacteristically blunt refusals
to be interviewed. This makes it difficult
to address the subject in a meaningful
and balanced way, but it is clear that
anyone who resurrects the debate about
whether securities lending is good or bad
because of Northern Rock will find
themselves accused of showing a
fundamental misunderstanding of
finance.
“This is how free markets work,” says
one securities lending fan. “Do you want
a command and control market,
collective farms and five year plans? Or
do you want free markets? Do you want
to be the City of London, attracting
finance from around the world, or do you
want to be Kuala Lumpur, and ban
securities lending? Look at how much
international capital it [Kuala Lumpur]
has attracted over the years. Should
wheat producers be banned from locking
in profit by selling forward? Should we
ban short futures? Should we ban index
futures? Should we insist that everyone
invest on a long only basis?”
The clear implied answers are, of
course: No. Yes. London. No. No. No.
And finally, 'what on earth are you doing
in the modern financial services industry
if you have such a blinkered view of how
it works?'
The fact is that however indignant the
financial Luddites amongst us might be,
hedge funds and other investors put their
money at risk every day, and were only
doing their job by taking their profits.
Moreover, the respected financial
institutions that were lending the
securities in question were doing their
job by trying to boost overall portfolio
returns. Had they not lent, they could
conceivably have been found to be
derelict in their duty to their end
investors, especially at the height of the
storm, when the stock in
question became special and attracted a
premium price.
Then again, had they been carrying
out their own investment analysis they
might have spotted for themselves the
flaws in Northern Rock's business model.
It is well known in the market that hedge
fund investors had been sceptical about
Northern Rock's funding model for some
time. When it came to funding, Northern
Rock was over-reliant on the short term
capital markets for its funding.
If any lessons are to be learnt from
this affair, could one be that in-house
independent analysis is fundamentally a
good thing? Might another be that if
there is borrowing demand for a stock
that an institution owns, should that in
itself not cause an amber light to flash?
Might it not be a good idea to at least
consider the idea of selling that stock at
just under GBP11 (which Northern Rock
was in June), rather than pocket a few
basis points in fees and then be handed
back a stock that is worth less than
GBP5, as Northern Rock was in
September, or even worse, GBP1.35 at
the time of writing in early October? ■
ISJ25 pp56-67 ML 19/10/07 8:53 pm Page 61
Ugly
twins?
MiFID and Reg NMS
are often cited as
having similar goals,
but how close are
they really?
Virginie O'Shea
investigates
lthough they are not identical
A twins,
Commission's
Financial
the
Instruments
European
Markets
Directive
(MiFID) and the Securities and
Exchange Commission's (SEC)
Regulation National Market System
(Reg NMS) share the goal of creating
fairer and more efficient equity markets.
Reg NMS represents an attempt by the
SEC to modernise the US equity
landscape by improving share price
transparency and encouraging the
uptake of electronic trading. MiFID, on
the other hand, aims to harmonise
securities regulations across the 25
European Union member states, provide
greater transparency and increase
competition in the exchanges market.
Alasdair Haynes, CEO of agency
brokerage and technology firm ITG's
International Operations, believes that
the longer term impacts of both
regulations may be similar. “Both Reg
NMS and MiFID have accelerated a
movement towards electronic trading,
crossing networks and dark pools of
liquidity and the industry's perception of
these as alternative trading destinations
is already growing. It is likely that with
Reg NMS and MiFID's implementation,
more and more trading destinations will
emerge, leading to enhanced competition
and a more level playing field where the
products and systems that are innovative
and beneficial for their users that will
thrive in the post-MiFID and post Reg
NMS world order,” he comments.
Eric de Nexon, head of Strategy for
Market Infrastructure, Société Générale
Securities Services (SGSS), believes that
one of the key similarities between the
US market structure and the European
one as a result of regulation will be the
apparition in Europe of the multilateral
trading facilities (MTFs), which will
compete with the stock exchanges. “It is
also possible that in Europe, like in the
US a few years ago, the end of the
concentration obligation of the orders on
the stock markets will bring, in a first
step, a fragmentation of the market, and
in a second step, a consolidation of this
market,” he explains. In the longer term,
both should reinforce the competition in
the market. The prices should be lower
and the firms should be able to develop
their services at a European level, de
Nexon adds.
Both regulations have also been
in
lambasted by leading industry figures for
the potentially negative impact that they
pose to the financial markets. Even
current SEC commissioner Paul Atkins
was compelled to criticise the dangers
inherent within Reg NMS in September
2007: “In my view, Reg NMS represents
a massive regulatory intrusion into our
secondary trading markets that was
completely unwarranted, given the lack
of evidence of market failure and the
availability of substantially less intrusive
means to advance the purported goals.
Reg NMS has the potential to do
significant harm to our markets by
unduly interfering with the operation of
competitive forces. Whatever its
justification, Reg NMS is a carte blanche
for unsupervised meddling by the SEC
staff in the marketplace for years to
come.”
Likewise, concerns were raised by the
chairman of the UK Financial Services
Authority (FSA) Callum McCarthy
REG NMS VERSUS MIFID
during preliminary discussions about
MiFID in October 2003. It was
suggested that the directive might be
misguided and anti-competitive, and that
the provisions could send GBP300
million of business to New York.
However, the long term benefits of the
regulation have since been highlighted by
the regulator and, at the end of 2006, the
FSA published a report assessing both
the costs and benefits of MiFID.
Hector Sants, FSA managing director
for wholesale and institutional markets,
commented at the release of the report:
“As we have already foreshadowed, it is
clear that the implementation of MiFID
represents a substantial cost to industry
particularly in the upfront years, but it
does create the potential for revenue
opportunities over the longer term. We
would encourage firms to focus on these
opportunities.”
Reg NMS has not fared quite so well
over the last couple of months. The
recent closure of the Boston Equities
Exchange has been cited as proof that
the regulation's goal of opening up the
exchanges marketplace to smaller players
has failed. The exchange shut its doors
for the final time after two years because
it failed to gain sufficient market share. It
was assumed that Reg NMS and its order
protection rule would breathe new life
into regional exchanges, but this was
based on the proviso that exchanges
could attract liquidity and post the best
bid or offer consistently, which some have
not been able to achieve.
Although the issue of introducing
greater competition into the market can
be observed in both regulations, at a high
level, MiFID is far broader than Reg
NMS. MiFID affects all financial
instruments across the EU, while Reg
NMS applies only to equities in the US.
Haynes elaborates further on the
differences: “Reg NMS aims to create
fairer, more efficient US securities
markets, while MiFID aims to end old
trading monopolies, remove barriers to
efficiency and heighten market scrutiny.
MiFID essentially deals with cross
border regulation, aiming to create a
unified market and allow consolidation of
services across borders whereas because
there is only one regulator in the US, the
need for harmonisation is not relevant.
MiFID also has a very strong focus on
the end user.” ■
INVESTOR SERVICES JOURNAL 61
ISJ25 pp56-67 ML 19/10/07 8:55 pm Page 62
ANALYSE THIS - SECURITIES LENDING TECHNOLOGY
Analysis: Latest securities lending technology
Are more beneficial
owners using third
party securities
lending agents over
traditional custodial
agents?
LUKE MCCABE, MANAGING DIRECTOR, CLIENT RELATIONSHIP
MANAGEMENT, ESECLENDING
The answer is yes. It's a far cry from years gone by when
lending via a third party agent was seen as operationally
inefficient. Historically, technological linkages between
custodians and third party firms were often sub-standard
causing the potential for increased risks and costs within an
operating model. Allied to this, many custodians, fearing the
departure of lucrative lending revenues, were slow to react in
facilitating the support of third party lending.
These factors have all changed significantly and today,
third party lending is equal and competes evenly with
custodial programmes from operationals, risk and cost.
Advancements in technology have also helped to level the
playing field for third party securities lending providers. The
technology impact has primarily been on the operational side
of the business with the development of more standardised
messaging, such as Swift, and straight through processing
that has allowed volumes to increase and third party lending
to be more viable.
Recognising the need for change and the breakdown of
historic barriers, many beneficial owners in the US, Asia, the
Middle East and Europe have successfully implemented
securities lending programmes utilising both third party and
custodial agents. Beneficial owners are increasingly using
auctions and third party specialists to enhance returns on
their most attractive assets, while continuing to utilise their
custodian to lend their general collateral assets via the
agency queue.
Beneficial owners have been utilising multiple providers
for many years for investment management, brokerage
execution, and foreign exchange, even though these are all
services typically provided by custodian banks or their
affiliates. As many beneficial owners are now understanding
that securities lending is primarily a trading and investment
management function, they are choosing to optimise results
by utilising specialists.
We are also seeing a continued trend by beneficial owners
to unbundle their securities lending and custody mandates in
order to increase transparency and returns and gain greater
control over their securities lending programmes. Many
62 INVESTOR SERVICES JOURNAL
beneficial owners have recently unbundled their custody and
lending contracts to gain a better understanding and control
of their fees, and to more properly align the interests of their
service providers. Transparency is also increasingly
important for senior management and boards, to ensure that
their fund assets are earning the full and appropriate returns
for any risks taken and to ensure that objective criteria is used
to award asset mandates.
What are the pros and
cons of an integrated
middle and back
office?
BRIAN TRAQUAIR, PRESIDENT, CAPITAL MARKETS AND INVESTMENT
BANKING, SUNGARD
Everyone knows technology is a good thing, right? So why
is it that so many firms are still struggling with manual
processes in the middle and back office, inhibiting the scale
of their business? Maybe that is not so true in the US
industry where there is a unified regulatory approach, a
single currency and a central depository, however certainly
when we think of Europe, none of that holds true.
There is often a funding battle within the middle and
back office, a complex issue. It is easy to recognise that
some business processes could be enhanced to provide a
straight through process, but there is an inherent risk of
change as the complexity of the process is often held as
intellectual capital of the people currently managing the
work. Additionally, the technology desired is deferred
because the business processes require careful change
management in order to again reduce inherent risks.
Where does that leave us? The advantages of
integration within the middle office allow the
concentration on value added business within the front
office. With the middle and back office managing the
lifecycle of the trade and increased volumes due to
additional automation, activities such as mandatory
corporate actions are not missed, trades are compared with
counterparts and regulations will be adhered to.
The flip side is that tight integration can lead to systems
being inflexible. The agility of changes to industry
practice or internal processes requires the technology
development cycle to add to the time to market.
Additionally, the risks involved in changing business rules
are often difficult to quantify, and there is the potential of
ISJ25 pp56-67 ML 19/10/07 8:55 pm Page 63

Better process, better price.

Looking to maximize securities lending returns
for your portfolio? There is a better way.

eSecLending takes an active approach to

securities lending by managing customized
programs for institutional investors. Unlike
the traditional agency approach, where many
lenders’ portfolios are grouped together
and their securities wait in a queue to be
borrowed, eSecLending markets each client’s
portfolio individually and awards lending
rights to the optimal bidders.

Traditional Way. Our clients receive more lending revenue

over their traditional programs, because
eSecLending introduces objective competi-
tion via a blind auction process. Rather than
the traditional “best efforts” approach, our
clients can count on their lending revenue
because borrowers pay guaranteed fees
in exchange for exclusive borrowing rights.
eSecLending clients achieve all this while
maintaining conservative risk parameters and
close control over their lending programs.

United States +1.617.204.4500

Europe +44 (0) 207.469.6000
info@eseclending.com
Our Way. www.eseclending.com

eSecLending provides services only to institutional investors and other persons who have professional investment
experience. Neither the services offered by eSecLending nor this advertisement are directed at persons not possessing
such experience. Securities Finance Trust Company, an eSecLending company, performs all regulated business activi-
ties. Past performance is no guarantee of future results. Our services may not be suitable for all lenders.
ISJ25 pp56-67 ML 19/10/07 8:55 pm Page 64
ANALYSE THIS - SECURITIES LENDING TECHNOLOGY
losing a knowledge source.
The goal of moving trades and activities through the
multiple touch points and limiting as much manual
intervention as possible, consequently adding scalability, is
best achieved by leveraging technology to interface and
integrate. It is clearly important to bear in mind the
potential changes in rules and industry regulations, and
where possible, the use of standards and discrete
components to give flexibility and agility.
Ultimately, integration can increase scale, allowing
technology teams to work on the provision of a manageable
and future proofed infrastructure.
Much more is yet to be
done to automate the
securities lending and
borrowing market
FRANCISCO GONZALEZ, HEAD OF EUREX SECLEND
The state of market practices in international securities
lending and borrowing (SLB) has the most potential for
improvements. One might say that from a technology and
processing point of view, it is still not that much advanced
compared to other financial market segments. In a time of
high profit growth and market penetration initiatives, SLB
is in fact in a state of underdeveloped autoimmunisation
and standardisation.
Traditionally, SLB loans have been negotiated between
counterparties on the phone or by exchanging mails over
common communication networks used in the financial
industry. As signs of technological developments, there is
an increasing amount of automated borrowing whereby
securities are matched as available. In typical electronic SLB
markets, lenders publish their security inventory daily and
selected borrowers compete to locate and borrow those
securities. More advanced electronic market places provide
real value added, if a prime selection of pre and post-trade
services are offered.
At present, market participants are tightly coupled to the
market of the related service organisations through
contractual and financial arrangements. With its
fragmented settlement landscape, SLB markets in Europe
have strong decentralised characteristics with limited cross
border activity. This has created many separated SLB
markets.
But overall market interest and demand for SLB are on
the rise strongly. Asset managers and pension funds are
increasingly turning to lending as an important source of
revenue and commercial banks and prime brokers are
64 INVESTOR SERVICES JOURNAL
falling over themselves to secure business from hedge funds
and other specialised investors, which continue to drive
demand for securities. The arrival of fresh lenders and the
opening of new markets (for example, Asia) create
promising opportunities, but also complexity and
operational risks.
With this rising demand, automation, with fast market
information access and execution on a global basis, becomes
a key success factor. That is where electronic marketplaces
come into play. The one(s) with a broad post-trade network,
which attracts deep and wide market liquidity, is in the pole
position for the next generation of SLB trading. Innovative
tools and services must serve to simplify all aspects of
market processes. The list of innovations, such as global
locating facility, collateral standardisation and re-use, and
the auctioning of hard to borrow stocks, seems endless. All
these endeavours are on the wish list of leading market
participants but, at the same time, face strong resistance to
change for many reasons. Ultimately, that remains the
challenge for electronic market providers to break this
slowly moving process in fast growing markets.
How has technology
advanced in the
securities finance area
and what future
changes are expected?
DARREN CROWTHER, PRE-SALES AND SUPPORT MANAGER, 4SIGHT
FINANCIAL SOFTWARE
Technology usage has not changed a great deal in the last
few years within the securities finance arena but we are
seeing signs of a transformation as new application and
development standards are introduced into financial
institutions. Like all sectors of finance, some organisations
are more cutting edge than others. Finding the correct
balance between a proven technology base and innovative
solutions can be tricky.
However, an analysis of some of the recent advances we
have seen in securities finance technology gives us some
indication of the directions in which technology systems
will develop and the benefits these changes will bring.
First, the rise of exchange traded platforms, such as
EquiLend and SecFinex, has seen a major shift on the
borrower side to using automated borrowing processes to
remove the day to day keying of tickets and to free up the
trading desk for the high value and low volume deals. If
this can be mirrored further on the lender side, then the
number of automated transactions can increase drastically.
This has enormous implications for the technology
platforms and the level of real-time checks that need to be
ISJ25 pp56-67 ML 19/10/07 8:56 pm Page 65

“Do you EquiLend?”

The ever-changing landscape of
global securities finance calls for
greater standardization and
increased efficiencies. EquiLend
evolves with the industry and helps
to lead in the development of robust
technology solutions. If scalability,
risk mitigation, and cost
containment are important factors
in growing your business, then you
should EquiLend. I invite you to
discover more about why financial
institutions throughout the
securities finance world use
EquiLend.

Born leaders choose EquiLend.

Melissa Gow
Managing Director
EquiLend

North America +1 212 901 2200 | Europe +44 (20) 7743 9510 | www.equilend.com

EquiLend LLC and EquiLend Europe Limited are subsidiaries of EquiLend Holdings LLC. EquiLend LLC is a member of the FINRA and SIPC. EquiLend Europe Limited is authorized and regulated in the United Kingdom by the Financial
Services Authority. All services offered by EquiLend are offered through EquiLend LLC and EquiLend Europe Limited using EquiLend proprietary technology and software. © 2001-2007 EquiLend Holdings LLC. All Rights Reserved.
ISJ25 pp56-67 ML 19/10/07 8:56 pm Page 66
ANALYSE THIS - SECURITIES LENDING TECHNOLOGY
performed for every new deal coming through.
As this becomes standard, we will see more requests for
an automated internal market software solution in order to
utilise the entire bank's asset pool before heading out to the
street with automated borrow requests. Again, these types
of checks require information to be available real time and
for systems to be able to run allocation and utilisation
programmes.
Also driving market efficiency is the requirement for price
transparency and real-time client reporting. This is
becoming more important due to the recent market
conditions. If your systems are unable to interface with the
data or service providers or run real-time data reports then
the level of service and up to date information that you can
provide to clients is reduced. For these reasons, batch based
systems no longer fit in with the real-time market.
Another trend that will become more prevalent is the
move from terminal-based applications to rich client and
web-based solutions. True front office securities finance
solutions require a level of functionality and user
interaction that is still not currently available in a web-
based deployment, however this will no doubt change over
the next few years. Middle and back office functions tend to
be less complex and a push in the near future to a full web-
based solution is very realistic.
Future developments should also see the evolution of and
a move towards service and modular oriented architectures
as institutions look to exploit the benefits of real-time
messaging between different systems, and improve on the
speed to market for new modules to fit in with constantly
changing market conditions. Flexibility and the ability to
rapidly implement change are, as always, the key to success.
When it comes to
technology, is
infrastructure
fundamental for the
future?
JIM HOOVER, VICE PRESIDENT AND TECHNOLOGY MANAGER OF THE
AGENCY LENDING PROGRAMME AT GOLDMAN SACHS
When ISJ approached the Risk Management Association to
write an article on the future of technology for agent
lenders, I first thought, how can I possibly predict that?
After all, technology is an ever present and ever changing
part of our industry, and we have all come to rely on it for
our daily processes and systems. As technology manager for
a major non-custodian agent lender, I am keenly aware of
the role technology plays in this business - and how it
constantly evolves. Can we really know where technology is
going?
A core theme for technology and operations in our
66 INVESTOR SERVICES JOURNAL
business is the importance of being able to process large
volumes of transactions in an efficient, well controlled
manner. This is critical to the success of all lenders in
today's markets. With increasing loan volumes driven by
hedge funds and downward pressure on spreads, we are
being forced to push more activity through the 'factory' as
efficiently and accurately as possible.
As agent lenders, we must be able to support multiple
lending products for a population of unique and discerning
clients. And we need the technology to do that. We require
technology that supports diverse lending products that, in
turn, support a diverse community of borrowers and
clients. It's true that the technology, at least on the lending
side, is maturing. There are many vendors and utilities in
the industry that support functions such as contract
compare, mark to market, billing compare, auto borrow,
standards for transmitting messages, and so forth.
However, I believe we may see more of “the future” for
technology in point to point processing - to automate the KP
entire securities lending process. Of course, we will always
need someone to handle the exceptions in our process flows;
we will always need a trader to handle the lending of a hard
to borrow stock. But our goal must be to automate the
entire lifecycle of agency lending with controls that
guarantee the integrity of the loan from the initial trade to
its return. Ideally, no one should have to touch a loan unless
there's an exception. This process is driven by technology,
and it's moving faster and faster every day.
But as I think more about technology's future, I keep
coming back to the same point: there can be no future for
technology in any organisation without a solid
infrastructure. When you have robust infrastructure,
strong security around your clients' data, and good BCP
solution, you can focus on building future solutions for your
clients and user community. Everything, even the
technology, flows from a solid infrastructure.
Along with the need to increase productivity and
capacity, is the critical focus on ensuring that the
confidentiality of our clients' information is protected. Also
critical is the provision for business continuity in the event
of weather or other disaster scenarios. For example, as a
recipient of client information, we must always look to new
technology to strengthen the information barriers we have
around our clients' data. We place the highest priority on
our responsibility to protect the data our clients have
entrusted to us.
BCP continues to receive a great deal of attention and
rightly so. An agent lender cannot afford a half hour or two
hour delay in trading or other critical processes. As the
technology supporting BCP evolves and becomes more
sophisticated, we as agent lenders must take advantage of it
to guarantee the integrity of our systems and make
recovery as quick and seamless as possible.
Technology forces us to think about our infrastructure,
and vice versa. The future of each is tied to the other.
Either way, I believe there is no end to the potential for
technology in the agent lender community - at least for
those who have a solid infrastructure.
ISJ25 pp56-67 ML 19/10/07 9:23 pm Page 67

Reader Discount! Save £100

Please quote KP4047ISJAD
"This conference has been 'spot on', very interesting for both the buy
side as well as the sale side of the industry"
Paul Pruymboom, Director, Deutsche Bank (delegate at IIR’s Network Management event in June, 2007)

18th International
Over 40 und
n&F
Pensio gers
Mana
Booked
Already ttend!
On To A

Europe’s Leading Global Investor Services Gathering

Tuesday 4th & Wednesday 5th December 2007, Park Plaza Victoria, London

New: Interactive Polling Session Plus don’t miss these essential events in
Hear The Views Of Over 40 Outstanding Where the real-time views of the audience are polled
Speakers From These Companies: and commented on by our high-profile panel members. IIR’s Custody Week:
This fantastic interactive session ensures the latest
trends and developments are under the spotlight.
• STATE STREET Pre-Conference One Day Workshop
• LCH CLEARNET Keynote Out of the Box Guest Speaker: The Evaluation, Selection and
Gerald Ratner
• MORGAN STANLEY "Recovering & Monitoring of your Global
• KUWAIT INVESTMENT OFFICE Learning Custodian
• THE WORLD BANK From Disaster" Monday 3rd December 2007
• NOMURA
• LEHMAN BROTHERS
Take Part in These Brand-New Panels:

Target2 Securities – Where Are We Now? Pre-Conference Half-Day Workshop NEW
• KDPW
Will The Code of Conduct Deliver Measurable Absolute Return Funds &
Benefits To Market Users?
• SWIFT
Custodian Charging: Bundling or Unbundling? Deal or Fund of Funds: Basics, Risks &
No Deal?
• BNY MELLON ASSET SERVICING
Derivatives Processing Challenges & Opportunities Opportunities
• KELER
Educating the Markets: What Can Custodians Teach Monday 3rd December 2007
the Markets?
• NCSD
Due Diligence – What Should A Client Regularly Assess
• ABN AMRO BANK In Respect Of Custodian Performance?

• SAUDI STOCK EXCHANGE Post-Conference Day

• BARCLAYS Exclusive Update: Global Markets Summit
Project Turquoise
• CCL PARTNERSHIP and How Their Post-Trade Solution Will Work Thursday 6th December 2007
• SHEARMAN & STERLING
• IBM PENSIONS
The Key European Event:
• TRANSCONSTELLATION 250+ Attendees Optional Two Day Training Course
• GLOBAL CUSTODIAN 40+ Speakers
4 Streams
A-Z of Global Custody Law
• EUROCLEAR
4 in depth focus days pre & post-conference Thursday 6th – Friday 7th December 2007
• CLEARSTREAM
1 Unmissable Event!
• INFORMATION MOSAIC
• RBC DEXIA INVESTOR SERVICES Co-Sponsor Internet Sponsor
• THOMAS MURRAY
• HSBC
• CACEIS
Media Partners
• SANTANDER
Arranged by
• DEUTSCHE BANK
• MERRILL LYNCH
• MAYER, BROWN,
ROWE & MAW
Tel: +44 (0) 20 7017 7200 Fax: +44 (0) 20 7017 7807
• FINANCIAL SERVICES RESEARCH
info@icbi.co.uk www.iir-conferences.com/custody
• EUROCLEAR
Paper sourced Elemental
• BROWN BROTHERS HARRIMAN from sustainable Chlorine Free
forests (ECF)
ISJ25 pp68-80 ML 19/10/07 9:07 pm
PEOPLE MOVES
MOVING & SHA KING
New York - Blue Bay Asset Management
has hired Deutsche Bank's London-
based head of distressed debt trading,
Simon Mullaly, as the hedge fund read-
ies for an expected boom in corporate
defaults next year. So far, Blue Bay,
which manages USD14 billion, has
focused primarily on three classes of
debt: investment grade corporate
debt; high yield; and emerging mar-
kets debt. It has USD3.5 billion in
European distressed debt. Blue Bay
chief Gina Germano says of the dis-
tressed business: “We consider it a
business of great importance and
opportunity for the firm."
Paris - BNP Paribas Securities Services
has appointed Sophie Gautié to head of
Strategy, Development and Public
Affairs, effective 1
September. She
reports to
Florence
Bonnevay, CFO
and member of
the executive
committee.
Gautié's appoint-
ment brings
together the team SOPHIE GAUTIÉ
in charge of
external growth and strategy with
that dedicated to relations with the
European regulators, the bank says.
London - State Street has appointed
Christopher Perretta as executive vice
president and chief information offi-
cer with responsibility for the bank's
information technology businesses
globally. Perretta will report to vice
chairman Joseph
Antonellis, who
has also held the
CIO position
since 2002.
Perretta will be
responsible for
the strategic
direction and
management of
State Street's
CHRISTOPHER PERRETTA
information
68 INVESTOR SERVICES JOURNAL
Page 68
technology. He will oversee global tech- London - Citadel has appointed Peter
nology infrastructure, application devel- Little as CEO to lead the next phase of
opment and systems architecture for all the company's strategic growth plans.
of State Street worldwide. Separately, Based in the London headquarters, his
State Street Global Markets, the invest- initial focus is on strengthening
ment research and trading arm of State Citadel's position across Europe and
Street Corporation, has expanded its the US.
transition management team in London
with the addition of three senior Paris - Société Générale Securities
appointments: Ian Barnes, Chris Martin Services (SGSS) has appointed Ramy
and Ben Mooney. Bourgi to the
newly created
London - UBS has appointed dedicated position of head
heads of its European investment bank- of Emerging
ing arm following Markets
the resignation of Development,
chairman Ken Costa SGSS. Based in
and the posting of London, Bourgi
a 43% growth in will report to
fees from the busi- Alain Closier,
RAMY BOURGI
ness. Hermann global head of
Prelle, UBS's head SGSS and Bruno
of German invest- Prigent, head of Investor Services.
ment banking, and Bourgi has close to 25 years experi-
Simon Warshaw, KEN COSTA ence in the finance industry, 13 of
head of its UK which he spent in managerial posi-
business, will take responsibility for tions at JPMorgan Chase Bank, devel-
Europe, the Middle East and Africa, 15 oping securities business in Europe,
months after the previous co-heads were the Middle East and Africa.
promoted to joint head of global invest-
ment banking. Costa, the chairman of Zurich - SWX Group, SIS Group and
UBS's European business, quit the bank Telekurs Group have nominated Urs
after more than 30 years to join Lazard Rüegsegger, head of the executive
to co-head its UK investment banking committee of the St Galler
division. Kantonalbank, as CEO of the soon to
merge combined enterprise.
London - F&C has strengthened its sen-
ior investment team with the recruit- Bedford, Massachusetts - Interactive
ment of Paras Anand to the new position Data has appointed Rona Fairhead to
of head of chairman of the company's board of
European Equities directors, effective immediately.
with overall Fairhead succeeds John Makinson,
responsibility for who has resigned from serving on
F&C's continental Interactive Data's board. Fairhead has
European and served as one of five Pearson affiliat-
pan-European ed directors on the Interactive Data
equities teams. board of directors since February
Anand will join 2007. She will also serve as chair of
F&C from the Nominating and Corporate
Deutsche Asset Governance Committee. Phil
PARAS ANAND
Management, Hoffman, a director on the Interactive
where he has been director, European Data board since February 2007, will
Equities. At F&C will report to Richard replace Makinson as chair of the
Wilson, head of Equities. Compensation Committee.
ISJ25 pp68-80 ML 19/10/07
T: +44 (0) 844 499 6388
C: David Monks, Saghar Bigwood
or Stephen Everard
A: 10, Earl Street
London, EC2A 2AL.
E: dmonks@goalgroup.com or
sbigwood@goalgroup.com or sev-
erard@goalgroup.com or
info@goalgroup.com
C: Professor Michael Mainelli,
Executive Chairman
E: michael_mainelli@zyen.com
C: (Disaster Recovery and Project
Management): Keith Ford,
Senior Consultant
E: keith_ford@zyen.com
T: +44 207-562-9562
F: +44 207-628-6786
W: www.zyen.com
C: Cornelia Keth
T: +49 69 718 3738
F: +49 69 718 6050
E: cornelia.keth@bhf-bank.com
C: Moritz Ostwald
T: +49 69 718 6838
E: moritz.ostwald@bhf-bank.com
A: Strahlenbergerstraße 45,
63067 Offenbach a.Main
Germany
W: www.bhf-bank.com
International: 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
www.dbs.com
+65 6878-1830
+65 6878-4766
Ms Low Swee Fun
investorsvs@dbs.com
DBS Bank Ltd,
Global Transaction Services,
Securities Services,
6 Shenton Way, #36-02,
DBS Building Tower 1
068809 Singapore
10:21 pm Page 69
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 withhold-
ing tax and class action compensation. Our research has shown that in excess of
US$6 billion of withholding tax remains unclaimed each year by the rightful owners
and beneficiaries and the amounts for class actions is even larger.
To establish your potential ability to reclaim over-withheld taxes and/or class action
compensation GOAL provides a free proof of concept analysis. We simply require details
of the income entitlement(s) and/or trade details together with the type and domicile of
the underlying beneficiaries. We do not need the name(s) of the beneficiaries.
Our Products include GTRS, Class Actions, GQI, e-Reclaim, GOAL TaxBack, DMS
and Bespoke Software Development.
Consultants
Z/Yen helps organisations make better choices. Our name combines Zen and Yen -
“a philosophical desire to succeed” - in a ratio, recognising that all decisions are
trade-offs. Z/Yen’s mission is to be the foremost risk/reward management firm.
In the financial markets Z/Yen conducts numerous research projects on a variety of
wholesale and retail issues, as well as providing technical strategy, support and
prediction systems. Z/Yen’s renowned annual studies include:
i. Global cost per trade benchmarks on equities, money markets and foreign
exchange;
ii. Operational performance of broker ratings;
iii. Operational performance of client (buy-side) ratings.
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 pri-
vate 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-mak-
ing 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: EUR269 bn No of funds: 328
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 servic-
ing.
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.
DBS offers a full range of custodial services including securities safekeeping, settlement
of trades, corporate actions and market information updates. These services are
available in Singapore, Hong Kong, Indonesia, India, China (A-shares) and other select-
ed markets. DBS also offers short-term, highly liquid overnight facilities for its clients'
accounts to earn daily interest on any excess funds.
With over 20 years of experience in the custody business, DBS' strengths lie in its ability
to provide quality services, in depth knowledge and expertise of the Asian markets, as
well as customized business solutions to support clients’ businesses. Its clientele
comprises the global custodians, international central securities depositories, broker-
dealers, financial institutions, insurance companies, investment managers, private banks
and corporate.
INVESTOR SERVICES JOURNAL 69
ISJ25 pp68-80 ML 19/10/07 10:21 pm Page 70

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

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

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 T: +47 2248 6238
quality, tailor-made custody services for local and foreign investors dealing with Contact: Anne-Lise Kristiansen
Nordic, Baltic or global securities. Head of Sub-custody and
- The leading financial services group in the Nordic and Baltis Sea region Clearing
- A world-leading Internet banking and e-commerce operation E: anne-lise.kristiansen@nordea.com
- The largest customer base of any financial services group in the region
- A leading asset manager in the Nordic financial market
- The most comprehensive distribution network in the region

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

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

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. T: Europe: (34) 91 2893932 / 28
T: USA: (1212) 350 39 02
W: santanderglobal.com
Santander’s cutting edge technology enables it to offer a comprehensive array of inno-
E: globalsecurities@
vative services in a broad range of markets. Santander currently has full local capabili- gruposantander.com
ties in Iberian and Latin American markets along with a franchised presence in many
others. Santander`s experience and product range ensures that every aspect of the
securities business is fully contemplated.

SEB is the leading provider of securities services in the Nordic and Baltic area. We
are committed to custody and clearing processes for the wholesale market. We hold
securities worth over EUR 460 bn and provide services in more that 70 markets, 9
of them under the SEB name (Sweden, Norway, Finland, Denmark, Luxembourg, T: +46 8 763 5770
Germany, Estonia, Latvia and Lithuania). F: +46 8 763 6930
We offer a full range of securities services including corporate action and
Contact: Goran Fors
information services, securities lending and services to remote members of the
Nordic and Baltic stock exchanges. We continuously develop new products in E: goran.fors@seb.se
connection with clients and partners to ensure we deliver the high-quality W: www.seb.se
products our clients demand. We always strive to make the processes more
efficient. With a history of 150 years in the securities industry; we know the market
and our clients well.

70 INVESTOR SERVICES JOURNAL

ISJ25 pp68-80 ML 19/10/07 10:21 pm Page 71

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
Société Générale Securities Services offers institutional investors, asset man-
agers and financial intermediaries a comprehensive range of financial securities
services: custody, clearing & trustee services, fund administration, asset servic-
ing 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).

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

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

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

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

rities lending (including auto-borrow facilities), derivative clearing services, proxy vot-
ing, full corporate actions and income service. Flexibility is an important aspect of
T: +46 8 5859 1800 Swedbanks products and services. Our dedicated Client Relations Managers and
F: +46 8 7237 147 Account Managers are focused on personalized processing and reporting solutions.
C: Neal Meacham, Head of Other Features:
Custody - ISO9001:2000 quality certification.
E: neal.meacham@swedbank.com - Swedbank Markets Online (SMO) internet information and reporting toolfor
A: Stockholm SE 105 34 Custody and Securities Lending.
Sweden - Nordic Custody alliance with DnB NOR (Norway), OKO Bank (Finland) and
Amagerbanken (Denmark) to offer regional custody product.
Institutional Assets under Custody: USD 70 billion
No. of Institutional Clients: 110
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.
T: +43 50505-58510
Brand diversitiy under which the group operates (Bank Austria Creditanstalt, HVB,
F: +43 50505-58579 Bank BPH, Bank Pekao, Zagrebacka Banka and International Moscow Bank), has its
C: Andreas Petzl , Head of Sales roots in local market presence and knowledge, contributing into a single unified
and Relationship Management product across the region. In 2006 the group was recognised by no less than 3
E: Andreas.petzl@ba-ca.com independent surveys as being the best region custodian
W: www.hvb-custody.com/ 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.

Interactive Data (Europe) Ltd
A: European Headquarters
Fitzroy House, 13-17 Epworth
Street, London EC2A 4DL
T: +44 (0)20 7825 7800
F: +44 (0)20 7608 3514
E: eu-info@interactivedata.com
W: www.interactivedata.com
C: Brendan Beith – European
Sales Director
Data Services .
Interactive Data Corporation (NYSE: IDC) is a leading global provider of financial market
data, analytics and related services to financial institutions, active traders and individual
investors. The Company's businesses supply time-sensitive pricing, evaluations and
reference data for more than 3.5 million 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 2,200 employees in
offices located throughout North America, Europe, Asia and Australia. The Company is
headquartered in Bedford, Mass.
Pearson plc (NYSE: PSO; LSE: PSON), an international media company, whose businesses
include the Financial Times Group, Pearson Education, and the Penguin Group, owns
approximately 62 percent of the outstanding common stock of Interactive Data Corporation.
INVESTOR SERVICES JOURNAL 71
ISJ25 pp68-80 ML 19/10/07 10:21 pm Page 72

Telekurs Financial, a company in the Telekurs Group, specializes in the procurement,

Telekurs (UK) Ltd
processing and distribution of international financial information for investment adviso-
ry services, portfolio management, financial analysis and securities administration. A 15 Appold Street
global network of local financial market specialists procures real-time stock exchange London
information at source from the leading financial centres. Containing over 3 million EC2A 2NE
financial instruments, the database of structured, encoded securities information main- C: Kimberly Neumann
tained by Telekurs Financial and its ten representative offices abroad is unparalleled T: +44 (0) 20 7550 5000
throughout the world in terms of both depth and data coverage. F: +44 (0) 20 7550 5001
Telekurs Financial is a founding member of the Association of National Numbering E: info@telekurs.co.uk
Agencies (ANNA) allocating Swiss security (Valor) numbers and leads the way in intro-
W: www.telekurs.co.uk
ducing standards aimed at simplifying trading and securities administration.

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

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

www.imfcfundservices.com
Established in 2002, IMFC Fund Services B.V. is a boutique hedge fund
administrator and a trustee with its offices in Amsterdam and Sydney. IMFC t +31.20.644.4558
offers third parties administration and related services to all type of onshore and f +31.20.644.2735
offshore funds combining high quality, independency, technology, timely calcula- Mrs. Consuelo Nardon
tion with flexibility, experience, custom-made solutions and competitive rates. c.nardon@imfc.nl
Rivierstaete Building,
Our services include: fund set-up and corporate services, NAV calculation Amsteldijk 166, 1079 LH
and other accounting services, R&T agent and other investors and compliance Amsterdam, Netherlands
services. For more information visit our website.

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

C: Stuart Mauger
Our clients have access to a broad range of value added services and tailored solu- T: +44 (0) 1481 744479
tions including global custody and fund administration services for funds domiciled F: +44 (0) 1481 744529
in the Caribbean and Channel Islands. E: stuart.mauger@rbc.com
A: PO Box 48 Canada Court
Our services include Trustee, banking and credit facilities, treasury and foreign St Peter Port Guernsey GY1 3BQ
exchange, trade execution, financial accounting, corporate services, derivative sup- C: Deanna Bidwell (Cayman)
port services and online access, leveraging a custody network that covers 80 plus T: +1 345 949 9107
markets worldwide. Our service combines leading edge technology with professional F: +1 345 946 1288
expertise and a truly integrated service delivering creative, customised solutions. E: deanna.bidwell@rbc.com
W: www.rbcprivatebanking.com

72 INVESTOR SERVICES JOURNAL

ISJ25 pp68-80 ML 19/10/07 10:21 pm
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
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
W: www.ubs.com/fundservices
C: Mr Gerhard Fusenig
T: +41 44 235 4992
E: gerhard.fusenig@ubs.com
A: UBS Global Asset
Management, Fund Services,
Stauffacherstrasse 41, PO Box,
CH-8098, Zurich, Switzerland
Robert N. Chin, General Manager
T: (+) 5999 738 1351 ext 11
E: robert.chin@atcfunds.an
Kedi J. Chang, Managing Director
T: (+) 5999 738 1351 ext 10
E: kedi.chang@atcfunds.an
ATC Fund Services
Bon Bini Business Center, units
2B2K & 2B2L
Schottegatweg Oost 10
Curaçao, Netherlands Antilles
F: (+) 5999 738 1311
W: www.atcgroup.info
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
W: www.dpmmellon.com
T: +1 732 667 1155
F: +1 732 662 2650
C: Skander Aissa
E: Aissa.s@dpmmellon.com
A: 400 Atrium Drive Somerset
New Jersey NJ 08873 USA
Page 73
Société Générale Securities Services offers institutional investors, asset man-
agers and financial intermediaries a comprehensive range of financial securities
services: custody, clearing & trustee services, fund administration, asset servic-
ing 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).
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 domi-
ciled in, but not limited to, the United States, Bahamas, Cayman Islands, B.V.Iand
Ireland.
Fund Services offers comprehensive fund administration services including fund
set-up, registration and support around the world (currently 28 countries), fund
accounting, NAV calculation, compliance management, risk control and reporting.
We provide a flexible offering from the full range of services, including Private
Labelling, to selected functions. Services are based on leading fund administration
architecture, multi-source pricing and powerful compliance tools.
Capabilities also extend to services for hedge funds through our teams in Cayman,
Ireland and Canada.
In times when management attention is increasingly focused on value creation, it
may be rewarding to re-evaluate whether asset administration remains a strategic
core business to you.
Luxembourg: Jean-Paul Gennari, tel. +352-44-1010 1
Switzerland: Markus Steiner, tel. +41-61-288 4910
UK: Mark Porter, tel. +44-20-7901 5000
Hedge Fund Administration
ATC Fund Services is a specialized hedge fund administrator who has consistently
received excellent reviews from its clients. ATC provides full administration to hedge
funds, including daily processing of all funds’ activities, nav calculation on a daily,
weekly or monthly basis and registrar & transfer agency services.
In addition, ATC takes a pro active approach in assisting start up hedge fund
managers with the incorporation of their fund in jurisdictions such as the Cayman
Islands, the British Virgin Islands and the Netherlands Antilles.
Custom House is one of the world’s largest independent alternative investment
and hedge fund administrators and the first and only one to be awarded a Moody’s
Management Quality Rating.
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.
DPM Mellon provides onshore and offshore alternative asset fund administration,
back and middle office outsourcing, portfolio valuation, daily NAVs, risk
administration and portfolio transparency solutions for fund managers, asset
allocators, institutional investors and proprietary traders.
DPM Mellon’s services are designed to solve complex administrative needs and
improve operational efficiency. From the most basic reports to complex portfolio
valuations, risk analysis and daily transparency, DPM has the systems, infrastructure
and experience to handle your toughest administrative challenges.
DPM Mellon has a world-wide staff of approximately 200 employees. DPM Mellon
is headquartered in Somerset, New Jersey with offices in London, the Bahamas, and
the Cayman Islands.
INVESTOR SERVICES JOURNAL 73
ISJ25 pp68-80 ML 19/10/07 10:21 pm Page 74

For further information,

Quintillion is a full service hedge fund administration specialist which supports all
please contact:
portfolio investment strategies and fund structures from its head office in Dublin's
Joan Kehoe
International Financial Services Center (IFSC). The company has made a considerable
Chief Executive Officer
investment in technology and operations expertise, to give clients the opportunity to
E: joan.kehoe@quintillion.ie
manage a range of funds with the support of a single administration partner. Key
T: + 353 1 523 8001
technologies are Advent Geneva, Koger NTAS and Paladyne.
Ken Somerville
Typical strategies supported include Convertible Arbitrage, Multi Strategy, Distressed
Head of Business Development
Securities, Global Macro, Fund of Hedge Funds, Market Neutral and Managed Futures
E: ken.somerville@quintillion.ie
funds. A comprehensive range of fund structures, currency classes and performance fee
T: + 353 1 523 8003
mechanisms are also accommodated.
W: www.quintillion.ie

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

International Finance Centres

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

DIFC
The DIFC is the world's newest international financial centre. It aims to develop the Dubai International
same stature as New York, London and Hong Kong. It primarily serves the vast Financial Centre
region between Western Europe and East Asia. Level 14, The Gate
P.O. Box 74777, Dubai, UAE
Since it opened in September 2004, the DIFC has attracted high calibre firms from
E: info@difc.ae
around the globe as well as its region. Firms operating in the DIFC are eligible for
benefits such as a zero tax rate on profits, 100 per cent foreign ownership, no T: +971 4 362 2450
restrictions on foreign exchange or repatriation of capital, operational support and M: +971 50 4958902
business continuity facilities. F: +971 4 362 2333
W: www.difc.ae

Prime Brokerage
Europe (London):
Fimat Alternative Investment Solutions group is a global, multi-disciplinary, solution Philippe Teilhard (44) 207 676
providing organisation dedicated to delivering innovative & superior prime brokerage 85 36 - Duncan Crawford (44)
services to the alternative investment industry such as investors and fund managers. 207 676 85 04
Fimat AIS offers these services on all major asset classes and their related listed &
Americas (New York):
OTC derivative products, as well as providing dedicated account management, cross-
Steve Solomon and Marc Cohen
margining tools, hedge fund start-up services, quantitative information for investors
and Capital Introductions. (1) 646 557 9002
Fimat AIS is part of Fimat, which employs over 2,000 people in 29 market places, Asia (Hong Kong):
and is a member of 48 derivatives exchanges, and 20 stock exchanges worldwide. Kirby Daley (852) 2848 3368 -
www.fimat.com Gregoire Dechy (852) 2848
3369

Payments & Settlement

Eiger Systems solutions are designed to be best in class and are the leading products
within their market sectors. Developed to meet the needs of organisations with complex or
mission critical payment processes, our solutions interface easily with existing business A: Eiger Point
applications and are available for all main operating systems. Swift Park
EigerPAY Gateway is a global payments platform which handles complex payment require- Old Leicester Road
ments and multiple payment channels. Already the UK’s leading BACSTEL-IP solution,
Rugby
EigerPAY Gateway is ideally suited to organisations with one or more of the following:
CV21 1DZ
• a mission critical reliance on payments
• complex functional or technical requirements United Kingdom
• a requirement for numerous communication channels such as T: + 44 (0) 1788 554800
BACSTEL-IP, CHAPS, SWIFT, or PE-ACH connectivity (Sales): +44 (0) 1788 554810
EigerPAY Gateway’s flexible architecture enables organisations to integrate with the
many new and developing payment systems, with minimal change to legacy systems.

74 INVESTOR SERVICES JOURNAL

ISJ25 pp68-80 ML 19/10/07
A: Europe/Asia/Africa
42 New Broad Street
London EC2M 1SB
United Kingdom
T: +44-207-588-1100
F: +44-207-588-1155
A: Americas
30 Montgomery Street Suite 501 ing in countries outside the U.S. that have established Real Time Gross Settlement
Jersey City, NJ 07302
T: +1-201-946-1100
F: +1-201-946-1313
VocaLink
Drake House
Three Rivers Court
Homestead Road
Rickmansworth
Hertfordshire
WD3 1FX
T: +44(0)870 1650019
F: info@vocalink.com
W: www.vocalink.com
W: www.dataexplorers.com
T: +44 (20) 7392 4000
F: +44 (20) 7392 4004
A: 155 Commercial Street,
London E1 6BJ United Kingdom
London: Julian Pittam
T: +44 (20) 7392 5018
E: jp@dataexplorers.com
Boston: Tim Smith
T: + 1 (617) 973 5099
E: tim.smith@dataexplorers.com
T: +1 212 901 2224
C: Michelle Lindenberger
E: Michelle.lindenberger@equi-
lend.com/info@equilend.com
A: 17 State Street, 9th Floor
New York NY 10004
T: +44 20 7743 9510
A: 54 Lombard Street
London EC3V 9EX
W: www.equilend.com
T: US- +1 617 204 4500
T: UK- +44 (0)20 7469 6000
C: Christopher Jaynes
E: info@eseclending.com
W: www.eseclending.com
A: 175 Federal Street, 11th FL,
Boston, MA 02110, US
A: 1st Floor, 10 King William
Street, London EC4N 7TW, UK
W: www.eurexseclend.com
T: +41 58 854 2424
F: +41 58 854 2455
E: info@eurexseclend.com
Eurex Zurich Ltd., Selnaustrasse
30, 8021 Zurich, Switzerland
10:21 pm Page 75
Fundtech's payments solutions automate all aspects of the funds transfer and cus-
tomer notification process, enabling straight-through-processing (STP) of payments.
Fundtech also offers payments solutions for continuous linked settlement (CLS), nos-
tro account management and enterprise-wide payments management.
Global PAYplus - The enterprise-wide payments management solution for global
financial institutions.
PAYplus RTGS - A fully integrated, multi-currency payment system for banks resid-
(RTGS) standards.
PAYplus USA - The leading payments solution for financial institutions in the US.
VocaLink is the transaction specialist. We pioneered electronic payments four
decades ago and many of the world’s top banks have been relying on our services
ever since. Our automated payment system processes over 80 million transactions
per day and has the capacity to handle all of Europe's automated payments. Our
switching platform powers the world’s busiest ATM network.
The VocaLink CSM delivers reach for our clients throughout the SEPA and beyond
with a range of value-added services that leverage our know-how and technical capa-
bilities.
VocaLink is the partner of choice in the transactions business. Find out why at
www.vocalink.com
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, borrow-
ing 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.
EquiLend Holdings LLC was formed by a group of leading financial institutions to
develop a global platform for the automation of securities finance transactions.
The EquiLend platform is designed to increase efficiency by standardizing, cen-
tralizing and automating front and back office processes, while delivering global
access to liquidity, reduced risk and scalability. The EquiLend platform is
designed to process equity and fixed income securities finance transactions on a
global basis.
Investors include: Barclays Global Investors; Bear, Stearns & Co. Inc.; Credit
Suisse; The Goldman Sachs Group, Inc.; J.P. Morgan Chase & Co.; Lehman
Brothers; Merrill Lynch; Morgan Stanley; Northern Trust Corporation; State Street
Corporation; and UBS.
eSecLending is a global securities lending manager and a leading provider and
administrator of customized securities lending programs. Its programs attract
some of the world’s largest and most sophisticated asset gatherers, including
pension funds, mutual funds, investment managers and insurance companies.
The company has auctioned over $1. 3 trillion in assets and has achieved
significant growth in its client base, lendable assets and assets on loan. The firm
awards principal securities lending business through a competitive auction
process that has provided clients with higher returns compared to traditional
program structures and improved transparency and objective criteria upon which
to make decisions. eSecLending maintains offices in Boston, London and
Burlington, Vermont. Securities Finance Trust Company, an eSecLending
company, performs all regulated business activities.
Eurex is the world’s leading futures and options market for euro-denominated deriva-
tive instruments with market participants connected from 700 locations worldwide.
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 transac-
tions. 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.
Agent lenders and direct lenders, represented by numerous investment banks, private
banks and the investment managers of insurance companies and pension funds,
provide substantial availability in global fixed-income and equity names. 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.
INVESTOR SERVICES JOURNAL 75
ISJ25 pp68-80 ML 19/10/07 10:21 pm Page 76

Securities Lending .

FINACE® is the only fully integrated solution today which supports the future busi- T: +41 (0)44 218 14 14
ness model within the area of Securities Finance and Collateral Management. The F: +41 (0)44 218 14 18
architecture of FINACE® is based on a stable, leading edge technology platform,
E: info@finace.ch
which was developed with performance and robustness as the focus of design. With
A: COMIT AG, Buckhauserstrasse
flexibility at its core, customer-driven extensions and modifications can be quickly
and easily applied to the standard component set. 11, CH-8048 Zurich, Switzerland
W: www.finacesolution.com

New York: William Smith

JPMorgan's Securities Lending program is unparalleled due in no small part to the T: 212-623-5664
Firm's breadth of capability, financial strength, professional expertise and seamless E: william.z.smith@jpmorgan.com
operations.
London: Michael Fox
Our program enables investors to access a broad spectrum of lending markets, with a T: 44 207 742 0256
diverse borrower base, offering a broad indemnification against borrower default, E: michael.uk.fox@jpmorgan.com
while achieving very competitive bids for their securities - all of this in an environ-
ment designed not to compromise the activities of their fund managers. .As one of Sydney: David Brown
the founding members of EquiLend, a global automated platform for borrowers and T: (61-2)92504606
lenders, JPMorgan is at the forefront of technology and is ideally placed given its E: david.ldn.brown@jpmorgan.com
integrated lending, custody and accounting platforms.
W: www.jpmorgan.com/wss

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

financial services for individual, institutional, corporate and government clients. T: +44 (0) 20 7521 5672
The Group’s business activities include investment consultation and brokerage F: +44 (0) 20 7521 2683
services for retail investors in Japan, and, on a global basis, brokerage services, C: Jonathan Cossey, Head of
securities underwriting, investment banking advisory services, merchant banking, Equity Finance
and asset management. A: Nomura House,
Nomura offers a full range of Equity Finance services to institutional participants 1 St Martin's-le Grand, London,
in over thirty markets, through regional trading desks in London, New York, EC1A 4NP United Kingdom
Tokyo and Hong Kong. Identifying client needs and providing bespoke solutions W: www.nomura.com
is our top priority.

Pirum provides a full suite of automated reconciliation and straight through process-
ing (STP) services supporting Operations within the global securities finance T: +44 20 7220 0961
industry. The company's on-line SBLREX service encompasses daily contract F: +44 20 7220 0977
compare, monthly billing comparison, mark-to-market & exposure processing, C: Rupert Perry
pending trade comparison, income claims processing and custody reconciliation.
E: rupert.perry@pirum.com
Subscribers to Pirum’s services significantly increase their operational efficiency
A: Pirum Systems Limited
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. 37-39 Lime Street
These automated processes are more scalable and risk controlled too, allowing London, EC3M 7AY
significantly higher volumes to be managed without corresponding increases in W: www.pirum.com
operations headcount.

Santander is the only Spanish financial institution with a team exclusively dedicated
to securities finance & with the purchase of Abbey in 2004 has expanded its
capacity on a Global basis with trading teams in London (UK) & Connecticut (USA). W: www.gruposantander.com
T: (3491) 289 39 42/54
Santander's leading local capabilities in Spain, Portugal, UK, USA & Latin America,
E: securitieslending@
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 & gruposantander.com
financing, including availability across all assets classes, as well as access to
uncommon emerging markets.

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

76 INVESTOR SERVICES JOURNAL

ISJ25 pp68-80 ML 19/10/07
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
C: Belinda Hamer (US)
E: bhamer@asset-control.com
T: +1 212 445 1076
F: +1 212 445 1079
C: Pascal Guignabaudet (EU)
E: pascalg@asset-control.com
Address: 54 Lombard Street,
London, EC3P 3AH, UK
T: +44 (0)20 7743 0320
F: +44 (0)20 7743 0321
W: www.asset-control.com
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
W: www.burns-stat.com
T: +44 (0)20 8525 0696
C: Patrick Burns
E: patrick@burns-stat.com
4-b Jodrell Road
London
E3 2LA UK
T: UK +44 (0)20 8390 5000
Boston +1 617 482 8800
Hong Kong +85 225 812 880
F: +44 (0)20 8390 7000
E: info@dstintl.com
A: DST House, St Mark’s Hill,
Surbiton, Surrey, KT6 4QD
W: www.dstinternational.com
W: www.eagleinvsys.com
T: +44 (0) 20 7163 5700
F: +44 (0) 20 7163 5701
A: Mellon Financial Centre
160 Queen Victoria Street
London, EC4V 4LA
10:21 pm Page 77
Aquin Components ranks among the leading IT solution providers to the international
asset management and fund industry. Its core competency comprises investment
compliance and risk monitoring; trade and order management; data management;
customized reporting; custodian reconciliation and management of software
integration projects.
Aquin’s clients include the best-known asset management companies and custodians
in Europe and the USA. They benefit from substantial cost savings derived from
automation of investment management processes supported by the choice of
stand-alone products or integrated solutions. The company has its headquarters in
Frankfurt am Main and subsidiaries in Zurich, Paris, Luxembourg, London, Dublin
and New York.
Asset Control is the world's leading provider of Centralized Data Management (CDM)
to financial industry firms. With a complete range of in-house and outsourced
options, Asset Control delivers a hybrid approach to data management. The
selection of developer tools, turnkey software solutions and outsourced services
enable users to optimize their investment data for efficiency, cost control, reduced
operational risk and increased value from their data.
Asset Control solutions manage prices, reference data, risk factors, credit risk data,
corporate actions and research data. The solutions support market risk, Basel II,
portfolio management, trading and enterprise-wide operational coherency.
Broadridge Financial Solutions, formerly ADP Brokerage Services Group, with nearly
$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
integrated systems and services include international securities processing, investor
communication 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.
Proxy Edge – comprehensive solution for institutional global proxy voting management.
Gloss – leading international STP system which automates the trade processing lifecycle from
trade capture through confirmation, clearing agency reporting and settlement.
Tarot - a UK retail and private client stockbroking, custody and fund management solution.
Securities Data Management – outsourced data services for securities operations.
Burns Statistics provides software and consulting services. We are focusing on ran-
dom portfolios, a technique that provides significantly improved performance meas-
urement. A particularly powerful feature is that the initial holdings of the portfolio
can be used in the performance analysis in order to gain even more precision.
Performance measurement is after the fact, but random portfolios also allow fund
managers to test trading strategies before implementing them. There are many addi-
tional uses of random portfolios as well, one is to objectively evaluate the effect of
constraints on a portfolio.
DST International is the world’s premier vendor of technology solutions to the global
investment management community with over 700 clients in 55 countries, and
1500 employees in 19 of the world’s leading financial centres. Our wide range of
asset management solutions meet the needs of fund managers, dealers, settlement
staff, custodians and record keepers operating as international asset managers; from
front office simulation, opinion management and modelling functions, through data
management, dealing and settlement to custody and corporate actions. The suite of
products can be used either as stand-alone applications or brought together in flexi-
ble combinations according to specific needs.
Eagle Investment Systems LLC, a Mellon Financial CompanySM, is a global provider
of financial services technology, serving the world's leading financial institutions.
Eagle's Web-based systems support the internal straight-through processing
requirements of firms of any size including money managers, mutual funds, hedge
funds, plan sponsors, banks, corporate trusts, and insurance companies. Eagle is
committed to providing leading-edge technology, professional services, and global
support for portfolio management, investment accounting, performance
measurement, attribution, reference data management, AIMR/GIPS compliance,
reporting, and outsourcing.
INVESTOR SERVICES JOURNAL 77
ISJ25 pp68-80 ML 19/10/07 10:22 pm Page 78

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 W: www.f-tradeware.com
joint contributions and experiences within the group of leading market traders, busi- T: +44 (0)20 7493 2773
ness analysts, financial services professionals and skilled Microsoft Certified pro- F: +44 (0)20 7495 4858
grammers. The company has developed a suite of applications that integrate and C: GrahamBright
Straight Through Process (STP) real-time trading, back office administration, E: info@f-tradeware.com
accounting and compliance. Ultra.net®, S-Messenger® and H-Fund® are the com- A: 31 Dover Street
pany's flagship products all based on Microsoft.NET infrastructure. In addition the London W1S 4ND UK
company offers a Member Administered Closed User Group (MA-CUG) service for
SWIFT connectivity. For more information see: www.f-tradeware.com

Elemes NM is your partner in global agent bank custodian network management pro-
viding a global view of your relationship network in a powerful and easy to use pack- Fingertip Developments Ltd
age. It includes diary, invoice verification, document management, multi-entity Curtain Court
views, reporting, account information incorporating fee and rate structures, contacts, 7 Curtain Road
notes and supports eFee – electronic fee invoicing technology. London EC2A 3LT
UK
Unrivalled extensibility allows you to develop your own functionality with your in- T: +44 (0)20 7100 9280
house development team. enquiries@fingertip-
developments.com
Flexibility does not stop with the software, our commercial terms offer adaptable
pricing to suit present and future requirements for all sizes of organisation.

IGEFI is the foremost provider of software solutions for international fund

promoters, third-party service providers and fund managers. Its prestigious A:IGEFI Group Sàrl - 7, Rue des
client-base is testimony to our commitment, service and quality with over 170 Primeurs, L-2361 Strassen
expert staff supporting clients from six offices worldwide including Bangalore, T: +352 26 44 211
Boston, Frankfurt, Geneva, Luxembourg and Paris. MultiFonds is operational in F: +352 26 44 21 44
more than 20 countries worldwide and support investment funds assets in excess E: marketing@igefi.com
of US$ 2 trillion. W: www.igefi.com
MultiFonds Fund Accounting and MultiFonds Transfer Agency are developed on C: Mr. Jesper Steiness - Director,
a “one system-one database” philosophy and provide significant advantages Business Development
including reduced overhead and IT support costs and single look and feel reporting E: jesper.steiness@igefi.com
for global clients.

For more than a decade, administrators, managers, and advisors have relied
on KOGER for dependable software tools backed by extensive industry T: 001-201-291-7747
experience and expertise. Now, for those who want to reduce costs and F: 001-201-291-7808
streamline business processes, Koger offers Fully Integrated Fund C: Mr Ras Sipko
Administrator, a vertically integrated suite serving the back-office E: ras@kogerusa.com
software needs of the fund industry. KOGER USA
Fully Integrated Fund Administrator consists of three core programs: 12 Route 17 North
~ NTAS, the New Transfer-agency System Suite 111
~ E*TAS, Electronic Transfer Agency System Paramus
~ GRID, Global Reach Interface Daemon New Jersey, NJ 07652, USA
Other programs, such as PTAS, KIT, and KORS available separately, complement W: www.kogerusa.com
the core competency of Fully Integrated Fund Administrator.

Lombard Risk is an innovative and established provider of financial trading systems,

risk management software, regulatory software and independent valuation services. Lombard Risk
Our software solutions include Colline, a market leader in collateral management, 21st Floor
and STB-Reporter, a market leader for regulatory reporting. We also provide enter- Empress State Building
prise-wide trading and risk management solutions that allow you to value and man- Lillie Road
age risk proactively across a broad range of financial instruments. Other solutions London SW6 1TR
include sophisticated anti-money laundering and financial crime detection software. UK
Lombard Risk is a global company with offices in London, New York, Shanghai, T: +44 (0)20 7384 5000
Hong Kong, Singapore and Johannesburg. F: +44 (0)20 7384 5140
For more information, please visit www.lombardrisk.com www.lombardrisk.com

Building on over twenty years of experience in capital markets and cross-asset soft-
ware 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.
C: Hélène Desbiez
Coupled with a high degree of flexibility and customization, Mx Asset Manager fea-
Business Development Manager
tures a multifaceted design catering to the needs of both service providers (prime
T: +33 1 44 05 32 00
brokers, administrators, asset servicing providers) and direct clients (portfolio man-
E: helene.desbiez@murex.com
agers for mutual, pension or hedge funds, insurance companies).
W: www.murex.com
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-dimen-
sional risk management in a thriving market.

78 INVESTOR SERVICES JOURNAL

ISJ25 pp68-80 ML 19/10/07
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
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
T: +44 (0) 20 8289 8174
F: +44 (0) 870762 6157
C: Mr. Khalid Mukhtar
E: khalid@sectech.com
A: Sectech Limited
204-206 High Street
Bromley, Kent
BR1 1PW, UK
W: www.sectech.com
T: +44 (0)20 7260 1900
F: +44 (0)20 7260 1911
C: Elizabeth Gee, Sales Director
of SimCorp Dimension
E: elizabeth.gee@simcorp.co.uk
SimCorp, 100 Wood Street,
London EC2V 7AN UK
W: www.simcorpdimension.com
T: +44 (0)20 7826 4470
F: +44 (0)20 7826 4480
C: Nick Stevens
E: sales@singularity.co.uk
A: Cable House, 4th Floor
54-62 New Broad Street
London EC2M 1ST UK
Further Contacts:
US T: +1 212 946 2685
Singapore T: +65 9616 7732
T UK: +44 (0) 8452 303 065
T US: 1-888-650-1831
F: +44 (0) 8452 303 064
E: info@fintuition.com
A: FinTuition Ltd
1 Berkeley Street
London W1J 8DJ
United Kinddom
W: http://www.fintuition.com
10:22 pm Page 79
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 col-
laborative 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 mes-
sage standardization and settlement harmonization. Deployed as a single application or
integrated as components into your existing platform. Each of the xanite modules can de
delivered via an ASP or self-hosted. Covering: wealth management, custody corporate
actions clearing and settlement private client and on-line stock broking Clients contin-
ue to retain all control with their portfolio, fund and relationship managers, brokers,
middle and back office operation – on line anywhere in the world.
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 invest-
ment 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. Form more
information, visit Princeton Financial’s website.
Sectech Limited, established in 1998, provides comprehensive solutions
for Custody, Settlement and Securities Back office automation to meet the
needs of custodians, fund managers, asset managers, and pension funds
managers.
The Custody 2000 suite of applications is a powerful and feature rich system
that automates all areas of a securities back office operation. The system
is based on a multi-currency, multi product, and online real-time platform.
Modules include settlements, corporate actions, cash management, order
execution, compliance monitoring, performance measurement, investment
accounting, certificate management, MIS, SWIFT messaging, email reporting,
client billing, client query tracking and Market Interfaces.
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. Support for broader functions, such as performance attribution
and risk management, are particular strengths of the system.
SimCorp Dimension has been designed from scratch as an enterprise-wide system,
handling all aspects of the investment management process, consistently. Data is
recorded into a core database so that reporting is made easy, there is no
reconciliation of data and no duplication of procedures.
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 com-
bine 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 efficien-
cies, 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.
Training and Education .
FinTuition is an international training company based in London specialising in the
securities finance business: securities lending, equity finance, hedge funds, prime
brokerage, repo and collateral management.
FinTuition offers a regular schedule of open-enrolment courses from introductory to
advanced levels as well as tailor-made in-house training and consulting. We have
course locations in Asia, Europe and North America.
FinTuition training relies heavily on exercises, role plays and case studies to pro-
mote a better understanding of securities financing and trading concepts through
contextually reinforced learning.
For more information about our courses, course dates and course directors, please
visit our website www.fintuition.com
INVESTOR SERVICES JOURNAL 79
ISJ25 pp68-80 ML 19/10/07 9:31 pm Page 80
HINDSIGHT/FORESIGHT
Through the
eye in the
pyramid
Calpers spokesman Clark McKinley,
information officer for investments,
provides the perspective of a
pension fund on the past & future
How have investment management strategies evolved over the
past five years, with the benefit of hindsight?
Hindsight is a luxury that doesn't apply much to the real world,
and we don't talk much about it here. Maybe that's the perspec-
tive of a long term investor that's looking forward for a couple of
decades. Of course, we could have gained assets had we done a
particular deal or initiated a particular strategy earlier than we
did, or abandoned an under performing fund or partner earlier
than we did. This is where a sound asset allocation strategy
comes in - we know that we'll beat our actuarial target of 7.75%
gain, annualised, on total retirement fund assets if we have a well
constructed, diversified asset allocation strategy. Occasionally, we
congratulate ourselves for 'hindsight' great calls. The Calpers
board was aggressive and forward thinking in increasing com-
mitments to real estate during that sector's market slump in the
early 1990s. It paid off in double digit returns that exceeded 30%
in recent years when we were able to sell many of our US hold-
ings. We took a 5.5% equity stake with Carlyle Group in 2001.
While we don't disclose the current value of that deal, it's signif-
icant. But we passed up increasing our equity stake when we had
an offer to do so in 2003 - mainly because we had lots on our plate
in private equity at the time and the timing wasn't right for the
proper due diligence the deal would have required.
How have the lessons learnt impacted on the development
of new and innovative strategies?
The mortgage re-pricing development has made real estate less
attractive than it has been in recent years. Yet we are moving
aggressively forward with a restructuring of our real estate pro-
gramme, with plans to hire new staff and expand international
investments - at the very time that many other investors are
pulling back from the real estate sector. We haven't forgotten
how a similar initiative in the down market of the early 1990s
helped us achieve impressive gains later. We are always looking
80 INVESTOR SERVICES JOURNAL
for innovative strategies - regardless of what's happening in the
market - because we know that over time they may pay off by
giving us great results.
With the benefit of hindsight on market conditions and
volatility, what would you do differently?
If we had the luxury of a retroactive crystal ball, we'd go back
to buy, sell, and make deals to maximise gains and minimise loss-
es. Of course, nobody has a crystal ball, so we instead trust our
long term asset allocation strategy. We're always looking ahead,
and not in the rear view mirror. For example, the Calpers board,
in the coming months, will tweak our strategy, and add a fifth
asset class ('Inflation-Linked' with infrastructure, commodities,
timber, and inflation linked bonds components) to take advantage
of what we believe are emerging opportunities related to energy
and natural resources. We began a commodities pilot programme
a few months ago with an initial USD450 million commitment.
Many observers said Calpers was coming late to the party. When
you're a 75 year old investor with a USD245 billion portfolio, you
can afford to come late to the party. It's the long haul that counts.
Even with three under-par years early in this decade (including
loss years in 2002 and 2003), we finished the 10 years that ended
30 June with a 9.1 % return, annualised.
FORESIGHT
Are hedge funds still alternative?
Hedge funds are in our Global Equity programme. We have
more than USD5 billion in hedge funds and the Calpers board
recently increased the potential allocation, at staff's discretion,
to invest up to 8% of the Global Equity portfolio - more than
USD10 billion for hedge funds possibly. Hedge funds haven't
been directly affected by the mortgage problem.
Over the next few years where will the largest returns
come from?
We expect to see a greater share of returns coming from inter-
national investments, particularly in Asia, and in energy and
natural resources related investing.
What is the biggest risk you face?
The greatest risk to a long term investor is looking in the rear
view mirror or even looking only to the side or 10 feet down the
road. We want to be nimble to fast breaking market opportuni-
ties but, with our size and perspective, we have to look farther
down the road than today, next week, or even next month. ■
ISJ25 Cover 19/10/07 4:59 pm Page 3
ISJ25 Cover 19/10/07 4:59 pm Page 4