ISJ24 Cover Final ML 7/9/07 4:41 pm Page 1

VOLUME 4 No. 24 - 2007 ISJNEWS.COM

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

S ERVICES
JOURNAL

HARD TO SWALLOW
European clearing and settlement barriers

ASIA - FUNDS MARKET LEGAL ISSUES - MIFID

US MARKET- CUSTODY FOCUS ANALYSE THIS - FUND DOMICILES
SWIFT & SIBOS 2007 - TECHNOLOGY PANEL DISCUSSION - CUSTODY
PAUL GALANT OF CITI - CEO PROFILE PAYMENTS - EUROPE & SEPA

THE GLOBAL SECURITIES SERVICES INDUSTRY JOURNAL

ISJ24 Cover Final ML 7/9/07 4:41 pm Page 1

VOLUME 4 No. 24 - 2007 ISJNEWS.COM

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

S ERVICES
JOURNAL

HARD TO SWALLOW
European clearing and settlement barriers

ASIA - FUNDS MARKET LEGAL ISSUES - MIFID

US MARKET- CUSTODY FOCUS ANALYSE THIS - FUND DOMICILES
SWIFT & SIBOS 2007 - TECHNOLOGY PANEL DISCUSSION - CUSTODY
PAUL GALANT OF CITI - CEO PROFILE PAYMENTS - EUROPE & SEPA

THE GLOBAL SECURITIES SERVICES INDUSTRY JOURNAL

ISJ24 Cover Final ML 7/9/07 5:04 pm Page 2

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ISJ24 pp1-23 ML 6/9/07 2:30 pm Page 1

HARD COPY

INVESTOR Hazy days of summer?

S ERVICES nlike a normal August, it the days of his predecessor Greenspan,

JOURNAL
VOL 4 No. 24 - 2007
U certainly has not been a slow
news month. A typical August
sees most banks running on two thirds
of the number of normal staff, as it is
the month that most decide to go on
summer holiday. Not so this year, as
everyone in the financial services
industry has been forced into a state of
high alert.
The sub-prime mortgage crisis and
speculation about its long term impact
on the global economy has been
headline news every day for the last few
weeks. BlackBerrys became lifelines to
the office for many, as those on holiday
attempted to keep in touch with
colleagues and keep up to date on the
latest developments from the constant
stream of press coverage. A recent
report by analyst firm Datamonitor has
indicated that the crisis may have now
even extended as far as the Indian
outsourcing sector.
No one seems to know for sure how
big the total losses from the crisis of
confidence in the debt markets will turn
out to be. The European Central Bank
(ECB) indicated the scale of the
problem when it took the decision in
early August to inject an unprecedented
amount of funds into the interbank
market to ensure that it continued to
function as usual.
Federal Reserve chairman Ben
Bernanke has also had a hard month as
he faced criticism for his delay in
cutting the main interest rate. The
move signals a shift in Fed policy from
who was predisposed to cut interest
rates at times of economic crisis.
Bernanke on the other hand, seems
wary of encouraging investors to act
more recklessly, which he feels could be
the case if the Fed is there to pick up
the pieces. Our news analysis on page
10 looks at the impact of the crisis so
far.
Lest we forget, this month is also the
run up to Swift's Sibos in Boston. I take
a look at the changes that have been
occurring to the Swift executive over
the last year and what impact these have
had on the 2010 objectives in our
feature beginning on page 42.
Our cover feature on European
clearing and settlement explores the
progress that the industry has made
towards removing the Giovannini
barriers, including the Commission's
Code of Conduct (page 16). Other
highlights of the issue include the
developments in the US custody market,
the Asian funds market, corporate
actions and SEPA.
I hope you enjoy the issue and look
forward to seeing
you in Boston.
Virginie O’Shea
Editor

INVESTOR SERVICES JOURNAL

PPA MAGAZINE AWARDS Publisher: Justin Lawson (Justin@isjnews.com)
PUBLISHER OF THE YEAR Group editor: Virginie O’Shea (Virginie@isjnews.com)
HIGHLY COMMENDED Senior reporter: Jamie Darlow (Jamie@isjnews.com)
MEMBER - PERIODICAL PUBLISHERS ASSOCIATION Contributing editor: Giles Turner (Giles@isjnews.com)
Contributors: Brian Bollen, Alison Ebbage, Fabien Buliard, Maria Trombly
Publishing manager: Monique Theart (Monique@isjnews.com)
Account managers: Ben Katzler (Ben@isjnews.com), Kaz Ayoade (Kaz@isjnews.com)
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Operations manager: Sue Whittle (Sue@isjnews.com)
Sales administration: Kim van Berkel (Kim@isjnews.com)
TOTAL NET CIRCULATION 12,133
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
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OR VISIT... WWW.ISJNEWS.COM No part of this publication may be reproduced, in whole or in part, without prior written permission from the publishers.

ISSN 1744-151X. Printed in the UK by Pensord Press

ISJ24 pp1-23 ML Edit 6/9/07 6:38 pm Page 2

CONTENTS

VOL 4 No. 24 - 2007 ■ Funds 62 European payments

SEPA in focus
24 Asian funds
Full of Eastern promise?

28 Domiciles reports
Jersey and Guernsey

■ Custody
Asian hot topics 24
30 US custody
Does the market still have room
to grow? 69 Corporate supply chain
Who has the upper hand?
34 Panel discussion
A focus on custody and
technology
■ Securities lending
16
72 Securities lending in the US
■ Technology Maintaining the lead?
This Month’s ISJ

Clearing and settlement:

42 Swift in 2007
A year of change
■ Legal
Is the industry finding the last
barriers too difficult to tackle? 46 Real-time reference data 76 Class actions
A coming revolution On the agenda

48 Sibos 2007 78 Regulation

The key vendors attending Challenges and opportunities
1 Hard copy
Editor’s letter
52 Corporate actions 80 MiFID
Is it done yet? Talking heads
4 Letters
Points of view
58 Proxy voting ■ Regulars
■ News Has the SEC made any headway?
86 Analyse this
Fund domiciles
6 Global snapshots
Round up of securities services
94 People moves
headlines from isjnews.com
96 Mandates
10 News analysis
Reading between the lines
98 Statistics
14 CEO profile
112 Hindsight/Foresight
Paul Galant of Citi Markets and
Parex Asset Management
Banking

■ Special Report ■ ISJ Directory

101The directory of securities
16 Clearing and settlement Facing the future 42 Services providers
Breaking barriers down

2 INVESTOR SERVICES JOURNAL

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ISJ24 pp1-23 ML 6/9/07 2:31 pm Page 4
LETTERS TO THE EDITOR
Beyond banks
ith just a few months
W remaining before the first
Single Euro Payments Area
(SEPA) deadline comes into effect, it
appears that businesses may be
relying too heavily on banks for
support in developing the systems
needed for SEPA compliance.
Many banks lack the necessary
understanding of the capabilities of
technology for reducing and
eliminating complexity in
transactional and financial
management systems. A number of
banks are investing tens of millions of
pounds in developing payments
systems, which are inflexible, of
limited functionality and unable to
adapt to change, for their customers’
SEPA and wider cash management
requirements.
Banks would benefit from a better
appreciation – achieved through frank
and constructive dialogue with the
technology industry – of the role that
an interconnected IT infrastructure
can have within the business.
Nicola Toombs, director of Banking,
Oracle UK
Illiquid interest
read with interest the “Hedging
I your bets” feature in ISJ’s June
issue, where your contributors
explored some of the technological
and operational issues affecting the
hedge fund industry today.
One issue that was alluded to by
your contributors, and which has
been greatly scrutinised by market
participants over the past months, is
how hedge funds and other investors
in illiquid instruments value their
portfolios.
Essentially, the challenges of
valuation begin once a fund’s
investment strategy moves outside of
traditional liquid investments and into
illiquid and structured OTC derivative
products. In this market there will be
no secondary trading, and therefore
the issue of how to price individual
securities and whole portfolios
appropriately, consistently and
independently comes to light.
4 INVESTOR SERVICES JOURNAL
This has been particularly
highlighted in the structured credit
market recently, with regards to CDOs
and sub-prime mortgages. In the
absence of a liquid market, the ability
to mark to market the CDO and its
illiquid collateral, such as sub-prime
RMBS tranches, has a knock on
effect both in the valuation of the
instrument and the derived CDO.
Having a meaningful valuation that
represents the market sentiment
today, allows for better decision
making in the investment process, a
greater understanding of risk and
ensures the resulting NAV calculation
is more representative of current
market conditions. Generally, the only
quote available will be from the lead
manager and industry practice is now
moving to have that price independ-
ently verified by a third party.
I also think it is worthwhile for the
institutions to look more closely at
how their valuations are determined,
since methodologies and processes
used to create valuations differ from
provider to provider and not all
methods may be appropriate in every
circumstance for all types of funds.
IOSCO and AIMA have published
guidance on hedge fund valuations
and the US’s financial accounting
standards SFAS 157 helpfully break
down the approaches to valuation into
three approaches. The market
approach looks at the use of
observable market prices and
information generated by market
transactions involving comparable
assets or liabilities. In the income
approach, future cash flows are
converted to a single present value
and model driven approaches such as
Black Scholes may be used. The cost
approach is based on the current
replacement cost. The choice of
valuation approach will depend on the
availability of market-based input.
As such, it is important that each
hedge fund and fund administrator
weigh up the methods and
approaches that are most appropriate
for their circumstances when
considering how to value the illiquid
instruments within their portfolios.
Peter Jones, director, Standard & Poor’s
Securities Evaluations Europe
Living the American nightmare
he current profit alerts as the
T
fall out from the US sub-prime
market hit European stalwarts
have left the global markets jittery,
without true direction, and suffering a
credibility crisis.
While some hedge funds stuck to
rigid investment policy without
engaging the once rich pickings of
the sub-prime mortgage markets, they
are the few in number.
What strikes a really discordant
note is that weeks after the first
indications of the creditworthiness
and debt management crisis,
financial institutions seem to be
hiding bad news by drip feeding
admissions of higher than expected
losses, rather like parliamentary
emails.
Were the banking giants not aware
of the extent of losses as they
scramble to apportion blame on
somewhat tenuous hedge fund
strategies? And how many more are
affected? Taking responsibility for
actions and timely understanding of
the full repercussions of larger
investments seems beyond the grasp
of some of the major players. The
chasm between business and
technology will no doubt see each
blaming the other for inconsistency,
non-consolidation and separation of
the necessary management elements.
The disastrous meltdown from the
sub-prime markets, and taking
responsibility for actions may well
result in company boards changing,
with votes cast to alter the structure
and the strategy. And so it should.
All companies must reassess their
investment policy to capitalise on
opportunities and not look at the past
as an indicator of future returns.
Graham Bright, managing director,
Financial Tradeware
If you are affected
by, or have an
opinion
on, any aspect of
investor services
please write to us...
Virginie@isjnews.com
ISJ24 pp1-23 ML 6/9/07 2:31 pm Page 5

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ISJ24 pp1-23 ML Edit 7/9/07 9:29 am
NEWS
CUSTODY,
CLEARING AND
SETTLEMENT
Milan - BNY Mellon Asset
Servicing has been appointed
by Banca Popolare di Milano to
provide custody services.
David Galli, head of
Securities Department at
Banca Popolare di Milano,
says: “We were extremely
impressed with BNY Mellon
Asset Servicing’s enthusiastic
team. They have
demonstrated a clear
understanding of our needs,
and have proven experience
in meeting and servicing the
complex requirements of
institutions such as ours.
Equally importantly, they
have shown their ability to
develop solutions for us as we
grow in sophistication and
complexity. BNY Mellon
Asset Servicing has been
chosen after a rigorous
selection procedure and we
look forward to partnering
with them.”
London - Citi Markets &
Banking and Eurogiro, a low
value payments network of
postal organisations and
financial institutions, are
collaborating to extend their
respective payment networks.
The alliance will bring
together Eurogiro's 61
connections in 50 countries
across the globe with Citi's
existing payment network
encompassing over 100
countries. The alliance will
6 INVESTOR SERVICES JOURNAL
Page 6
enable Eurogiro members
access to Citi's distribution
capacity and payment
offerings, while Citi and its
customers will gain access
to Eurogiro's distribution
network and products.
Henrik Parl, managing
director of Eurogiro, says:
"We are thrilled to be
collaborating with Citi. Citi
provides Eurogiro with the
leading international
payments capabilities and
cross border expertise we
were looking for in a banking
relationship so we can
continue to grow our
network while providing
clients with the greatest
choice of solutions at the best
price."
FUNDS & ADMINISTRATION
London - Schroders has
extended the use of SimCorp
Dimension to include its Asia
Pacific operation, installed as
a regional system in
Singapore and supporting
operations in Singapore,
Hong Kong, Japan, Indonesia
and Australia. Schroders'
decision to consider SimCorp
Dimension for its Asia Pacific
operation was prompted by
Schroders UK's adoption of
SimCorp as its portfolio book
of record, the vendor says,
and after a comprehensive
review of the system to
determine if it could support
its broader Asia Pacific
business requirements.
SimCorp Dimension will also
be used to manage its back
office activities including
accounting, settlement and
performance reporting across
a broad range of asset classes
that include equities, fixed
income, money market and
derivative instruments.
Schroders has USD276.2
billion under management as
at 30 June 2007. "We chose
SimCorp Dimension because
it will enable us to extend
our regional investment
operations platform in
Singapore and because of its
strong support for
derivatives," says Lilian
Tham, chief operating officer,
Schroders Singapore.
London - Cash starved euro
zone banks demanded a
record amount of regular
three month funds from the
European Central Bank on 29
August, as market
expectations for an interest
rate increase at the bank's
meeting on 6 September
continued to fall. In its
regular three month
financing operation, the ECB
pledged EUR50 billion as
expected. But bids for the
funds totalled nearly
EUR120 billion, and the cut
off lending rate beat
expectations to hit 4.56%.
The cut off rate for last
week's extra, one time offer
of EUR40 billion was 4.49%,
and at the ECB's last regular
three month operation on 25
July, the cut off rate was
4.2%.
Shanghai - AXA Investment
Managers, Shanghai Pudong
Development Bank (SPDB) and
Shanghai Dragon Investment
(Shanghai Dragon) have
launched a joint venture,
entitled AXA SPDB Investment
Managers. AXA SPDB
Investment Managers - in
which SPDB, AXA IM and
Shanghai Dragon hold shares
of 51%, 39% and 10%,
respectively - is
headquartered in Shanghai.
"AXA Investment Managers
has ambitious growth
objectives, and establishing
and building our presence in
China is a very important
part in achieving that target,"
says Dominique Carrel
Billiard, CEO of AXA IM.
The asset management
industry in China is entering
a stage of rapid development,
with increased competition
NEWS DAILY AT WWW.ISJNEWS.COM
for assets and a growing
range of investment options
available to individuals and
institutions. China's USD200
billion asset management
market is predicted to grow
by 25% per annum. Carrel-
Billiard adds: "We are
building a business that is
positioned to be a market
leader, and the high
percentage shareholding that
AXA IM has in the JV
reflects our commitment to
providing Chinese clients
with the highest level of
investment management
expertise."
New York - The New York State
Pension Fund with USD154
billion in assets under
management is reportedly
ready to make an investment
in contact lens maker Bausch
& Lomb, signalling a
departure from its tradition
of company board agitation.
The pension plan will invest
USD15 million in an effort
to save jobs by keeping the
company in New York,
according to recent reports.
The fund’s move was
triggered by Bausch &
Lomb's sale to private equity
firm Warburg Pincus for
USD3.7 billion. Bausch &
Lomb shareholders will vote
on the acquisition next
month. US public pension
funds are a huge force among
investment schemes with
more than USD3 trillion in
assets and the larger ones
are not shy about taking an
activist approach to
corporate governance issues.
Calpers, the California public
pension fund that is
America's largest with
USD245 billion in assets, is
especially well known for its
activist investing position.
Calpers is raising its
investment in corporate
governance, up to 8% of its
USD150 billion equity
portfolio, as well as



ISJ24 pp1-23 ML 6/9/07 2:31 pm Page 7

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ISJ24 pp1-23 ML Edit 7/9/07
NEWS
recruiting staff and
continuing its habit of
investing in companies that
partner with other activist
firms.
LEGAL AND COMPLIANCE
Stockholm - Swedish
prosecutors have ruled out a
preliminary investigation
into the trading of shares in
Nordic stock exchange
operator OMX in August
before Borse Dubai's bid for
the company. The Swedish
National Economic Crimes
Bureau said it will not launch
a preliminary investigation
into the trading of OMX
shares ahead of Borse
Dubai's unsolicited USD4
billion cash bid last month.
Nasdaq bid USD3.7 billion for
OMX on 25 May. The news
follows the Swedish FSA's
decision to take no action
against Borse Dubai despite
ruling that the group broke
the law with its OMX stake-
building. But investigations
may not be over, and
regulators have looked at
trading prior to a May bid
for OMX by Nasdaq. Any
further investigations will
add more intrigue to a
takeover battle that has been
mired in controversy, pitting
a bid by state owned Borse
Dubai against a lower offer
from Nasdaq that OMX had
already agreed to.
Washington - Hedge fund
managers will face a new
restriction when the Security
and Exchange Commission's
anti-fraud rule goes into
effect on 10 September,
against a backdrop of
spectacular failures in the
USD1.5 trillion industry.
The five SEC commissioners
in July voted unanimously to
adopt a new rule clarifying
hedge fund fraud. It
prohibits advisers to
investors in hedge funds as
well as pooled investor
vehicles from making false or
misleading statements to
investors or defrauding
8 INVESTOR SERVICES JOURNAL
9:32 am Page 8
investors and prospective
investors. The SEC has also
named a new chief for its
enforcement programme, as
the regulator steps up its
oversight of hedge funds and
insider trading cases. Mark
Lineberry will head the
agency's office of market
surveillance, which
investigates insider trading
and securities fraud cases.
Frankfurt - Investment banks
will incur the most costs in
the period where national and
SEPA payment
infrastructures coexist,
according to a European
Central Bank (ECB) study into
the economic impact of
SEPA. The report
recommends keeping this
period as short as possible to
help banks more quickly
achieve economies of scale as
payments revenues begin to
drop due to competitive
pressures. Over time, two
opposing effects will
determine the benefits and
challenges of SEPA. First,
SEPA will increase
competition in the banking
industry as it removes the
barriers that formerly
protected national markets.
Second, SEPA will ensure
cost savings in payment
processing and give rise to
business opportunities.
MARKET INFRASTRUCTURE
New York - Normalcy is
returning to parts of the
market after the recent
financial turmoil that
followed unprecedented
global banking activity, the
Bank for International
Settlements has said. In its
latest quarterly review, the
BIS said at the end of August
that recent turmoil took
place in an environment of:
"solid corporate earnings
and with macroeconomic
conditions that still appeared
relatively favourable". The
report points to signs that
normalcy is returning to the
carry trade - the practice of
borrowing cheaply in one
country to invest in a higher
yielding asset somewhere
else. The surge in market
volatility had led some
investors to drop these risky
bets.
Lexington - Wealthy US
investors have shifted their
investments into higher
quality bonds, shortening
duration and seeking more
investment grade securities,
as a response to the recent
credit turmoil, new research
suggests. Within wealthy
individuals' fixed income
portfolios, allocations to
investment grade debt rose
by 3.6% points between 27
May and 30 August,
representing more than
USD1.6 billion of fund flows,
according to a report from
US research firm Advisor
Perspectives. Medium grade
fixed income - representing
riskier securities - fell by a
similar amount. Advisor
Perspectives tracks 48,000
fund accounts belonging to
high net worth individuals in
the US, classifying high net
worth as those who have
more than USD1 million
available to invest.
SECURITIES LENDING
Ohio - The Ohio Public
Employees Retirement System
(Opers) may eliminate its
brokerage arm and take on
direct lending of fixed
income securities in an
attempt to enhance returns
like Calpers. A report by
Opers staff estimated that the
public pension fund could
save up to USD22 million
over the next five years by
eliminating fees to State
Street for brokerage and cash
reinvestment services. The
fund does not yet have a
timeline for implementation
NEWS DAILY AT WWW.ISJNEWS.COM
of the proposal, a spokesman
said, although the staff
projected savings starting in
2008. Opers, with USD77.6
billion in assets under
management, is the eleventh
largest public pension fund in
the US. Funds lend out
securities, either equities or
fixed income, to a broker in
exchange for cash collateral,
which the fund reinvests in
short term securities.
Calpers, California’s public
employees’ pension fund that
is the largest in the US with
USD248 billion in assets sbc
under management, has had
an equities lending auction
system since 2000 with its
joint partner, the electronic
brokerage firm eSecLending.
Last year, Calpers started an
auction for fixed income.
Frankfurt - Electronic repo
market Eurex Repo plans to
become the first European
electronic market to enable
cross border liquidity
management over a range of
different collateral, after
internationalising its Euro
GC Pooling offering with
European collaterals. From 3
September, the scale of
available securities holdings
for Euro GC Pooling
transactions will be extended
to include Eurobonds and a
wide range of European
bonds in addition to German
bonds. The collateral basket
can also be used as collateral
for refinancing within the
framework of ECB open
market transactions. Eurex
Repo says this has been made
possible through the
connection to Clearstream
Banking Frankfurt (CBF)
and Clearstream Banking
Luxembourg (CBL). All
Clearstream's customers will
be able to use more than
8,000 securities as collateral
in Euro GC Pooling." I
C M Y CM MY CY CMY K
ISJ24 pp1-23 ML 6/9/07 2:31 pm Page 10
NEWS ANALYSIS
Dark days
The sub-prime mortgage
crisis has been causing
more than ripples
entral banks around the world
C have been injecting hundreds of
billions of dollars into troubled
financial markets in an attempt to quell
investor fears, after a month of turmoil
from the US sub-prime mortgage crisis
and credit crunch.
It was evident that trouble was ahead
when the Federal Reserve was forced to
step in with a cash injection on 15
August, following a selling spree in the
US caused by funding jitters. Despite
intervention by the Fed, the Standard &
Poor's 500 index dropped 1.4% and Asian
stocks saw heavy selling. The ripple
spread around the globe from North
America to Europe to Asia, with central
banks including the Bank of Japan,
Federal Reserve Bank of Australia,
European Central Bank, Swiss National
Bank and Bank of Canada all trying to
shore up market losses.
While US sub-prime lending may have
received much of the blame, it is clear
there are deeper forces at work. The last
decade has seen debt of every kind
traded as an asset class, in theory,
spreading the risk evenly around the
globe. However, the recent market
turmoil has revealed just how susceptible
this system can be to market crises.
Banks, hedge funds and private equity
houses have felt the crisis most acutely.
Banks have been unable to sell off debt
they've accrued, something they would
usually share out with other banks at low
rates. The failure to do this leaves them
over-exposed to risk. On top of that,
banks are unwilling to supply others with
credit, as they are all too aware that other
banks will not want any increase in risk.
A lack of cash causes a knock-on effect
for other banks, hedge funds and private
equity firms that need to raise capital,
sometimes at short notice.
Citi, Goldman Sachs, Lehman
Brothers, Merrill Lynch, Morgan Stanley
and UBS all experienced credit exposure
and share price falls over the second half
10 INVESTOR SERVICES JOURNAL
of August, but Bear Stearns was perhaps
worst hit of the big Wall Street banks.
Two of Bear's sub-prime funds were put
into provisional liquidation in the
Cayman Islands, followed immediately by
obtaining bankruptcy protection under
Chapter 15 in the US, effectively staying
class actions and other lawsuits pending
at the time.
However, this protection has dropped
away after the New York Southern
District US Bankruptcy Court ruled the
proceedings could not be carried out
away from the US. “The court's initial
order is always susceptible to challenge,
even in legitimate cases, on the basis that
a fund's COMI [main centre of interest]
is not in the Cayman Islands (even
though it is incorporated there),”
explains Jeremy Walton, Cayman-based
partner of offshore law firm Appleby, and
part of the firm's Fund Disputes Team.
“US courts will be able to use this factor
to weed out other cases where the
opportunity for protection is being
abused. I am not surprised the Bear
Stearns case was challenged.”
Quantitative hedge funds have suffered
losses, with many high profile funds
tumbling in the wake of the credit
crunch. Goldman Sachs' flagship alpha
fund declined 16% in the month to date,
investors said, while JPMorgan's
Highbridge Capital Management and
AQR Capital Management also saw poor
results at the beginning of August. DE
Shaw, a pioneer of quantitative investing
based on complex mathematical and
computer techniques, was hit hard in
August too. Its Valence fund is down
more than 22% in the month to date, fund
of fund hedge managers said, while DE
Shaw Composite is down 7%.
The initial bloodbath was dramatic, but
there may be further casualties over
coming months as hedge funds - which
manage around USD2 trillion - attempt
to meet redemption calls.
Yet there were signs as ISJ went to
press that the worst was over. Goldman
Sachs' decision to bail out its global
equities opportunities fund with a USD3
billion capital injection may have worked
out, as the fund was up 12%. AQR was
also up 22.1% at the end of August, after
poor performance at the start of the
month. Money markets around the world
were beginning to rebound and there was
a growing feeling it was better to have
had an adjustment now, than a crash a
few years down the line.
Wall Street banks are expecting the
worst to be over, with the Federal
Reserve cutting interest rates, but a word
of warning - UBS analysts have
suggested that even with lower interest
rates, the US economy's growth rate
could slow by more than one percentage
point in 2009. “We think the problems are
going to get worse in the funds sector
before they get better, and we have been
recruiting accordingly to accommodate
the likely increase in restructurings,
insolvencies and litigation,” cautions
Appleby's Walton. “We haven't yet seen
the bottom of the sub-prime-related
credit crunch, and its correspondent
liquidation activity, but whether that
results in a serious US or global market
correction is still open to question.” ■
ISJ24 pp1-23 ML Edit 7/9/07 9:58 am Page 11

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ISJ24 pp1-23 ML 6/9/07 3:48 pm Page 12
NEWS ANALYSIS
All in one
basket?
Exchange consolidation
continues apace
orse Dubai made a USD3.95
B billion takeover bid for OMX at
the end of August, making the
month a hectic time for exchanges
globally, as they look to consolidate. The
state owned Dubai exchange might force
a bidding war with Nasdaq, which
already has a USD3.7 billion friendly
offer on the table.
As ISJ went to press, the Dubai
Exchange was offering SEK230
(USD32.84) per share, a premium of
13% over the cash and share Nasdaq bid.
Borse Dubai began its acquisition
process with a 4.9% stake in OMX and
options to take more than 25%.
But the Middle Eastern exchange is
fortunate to still be able to represent its
stake, after the Swedish Financial
Services Authority (FSA) ruled that
Borse Dubai broke the law with its OMX
stake building. Regulators ruled Borse
Dubai's press release dated 9 August, in
which the exchange group revealed it
was in the process of buying OMX
shares, constituted a public takeover bid.
The Swedish FSA said the exchange
did not follow Nordic Exchange
Stockholm rules and breached the law,
but took no action after deciding the
exchange had rectified the breach by
offering a takeover bid a week later. The
regulator could have fined the Dubai
exchange or worse; prevented it
representing its newly acquired shares.
The unexpected entry of Borse Dubai
puts pressure on Nasdaq to sell off its
London Stock Exchange stake, bought
for the unsuccessful takeover bid earlier
in the year. The shares would free up
cash and raise Nasdaq's stock price,
letting the exchange sweeten its OMX
offer - something it will certainly have to
do to stay in the bidding. Nasdaq must
also be feeling the pressure from rival
NYSE's purchase of Euronext in April,
allowing the exchange access the
European market, before MiFID comes
into force in 2008.
Meanwhile, the Intercontinental
Exchange (ICE) looks to have paved the
way for a merger with Winnipeg
Commodity Exchange for CAD50
million (USD35 million). ICE was forced
to up its original CAD40 million bid
after the New York Mercantile Exchange
(Nymex) jumped in with an offer CAD10
million higher.
Nymex is one of the only major US
markets not to have partnered with a
rival this year, as derivatives exchanges
across North America hurry to merge. A
surge in electronic trading is driving the
scramble, as investors increasingly look
to trade stocks, bonds, commodities and
currencies at one venue. Computer-based
trading is also reducing the fundamental
operating costs, with Nymex saying as
much as USD250 million a year in costs
could be cut if it merged with another
company.
Nymex has revealed it is in talks with
unidentified third parties to sell itself.
Nymex Holdings chairman Richard
Schaeffer said in a statement that the
exchange had held preliminary talks
with “certain parties” and that any
transaction would have to be at a
“meaningful premium” to the current
share price.
Rumours abounded at the end of
August that the unnamed suitor could be
Deutsche Börse, which also acquired the
International Securities Exchangein
April for around USD2.8 billion cash. ■
ISJ24 pp1-23 ML 6/9/07 2:33 pm Page 13

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ISJ24 pp1-23 ML 6/9/07 2:34 pm Page 14

CEO PROFILE - CITI

People Person
Paul Galant, CEO of Global Transaction Services, Citi Markets and
Banking, speaks to Virginie O'Shea about the basics of business
aul Galant is a firm away and paid me - he needed the

P believer in the power of

experience. Self reliance is
therefore learned through
equipment for Monday morning.”
Building that business, hiring
people, making payroll, being able
experience and not words, he to deliver on promises made,
explains. Chance and being able to succeed in an
perseverance are also important environment that was completely
factors in anyone's career, he foreign to him, taught him that
adds. Galant is currently CEO of success takes a combination of
Citi's Global Transaction street smarts, a little courage and
Services (GTS) but his career a lot of drive, Galant says.
began one summer when he saw After he sold his business, he
an opportunity in the market and then moved to Credit Suisse First
capitalised on it. Boston (CSFB) to become an
“I think it's impossible to plan analyst in the Financial
one's career. You take the building Engineering group in Fixed
blocks of fundamentals that you Income. “As it turned out, what
hold true and you apply them to the business really needed was
market situations, and you zig and leadership. Because of my
zag based on opportunities experience with BTP, I was able
presented, but you always lead to bring real value. Even though I
with that which you have strength was very junior, I demonstrated
in. When I was young, I needed to the ability to communicate
express creativity in a way that complex concepts, guiding others
enabled me to have resources, and to understand and apply them. I
sustain that which was interesting discovered how much I enjoyed
and important to me. I had a leading people - in a simple,
summer free. I set up my own straightforward way - through
company, BTP Information something that was neither
Services, because I identified a straightforward nor simple,” he
market: law firms looking for explains.
technology expertise to help them Galant then went on to a
move from antiquated systems. I similar role at Smith Barney,
created my own job, to fit my where he feels he got to work
strengths and capitalise on things with great people from whom he
that I could do well. I was able to could pick up good habits. “I've
take what I knew, package it, price always been a collector of good
it, take a risk, fulfil it and make a habits, so I would watch them and
profit,” he explains. try to incorporate what they did
Galant remembers a particular instance during this period in my own personal style and demeanour. These leaders shape you
when he was forced into a make or break decision. “I remember if you're the type of person who is a constant learner,” he
having to buy equipment in order to fulfil a project. At the last contends.
minute, the client did not want to pay for the equipment on the He then refocused his career from fixed income, debt capital
agreed to terms. I was very young, and everything had been markets and derivatives to ecommerce, but kept true to his core
bought on credit. I had to take the austere measure of saying: strength: his ability to apply technology to maximise business
'that's fine; the boxes are going to be packed up. We're leaving.' opportunities. He also decided to surround himself with subject
That was a gutsy bet. Had he said 'fine', I would have owned matter experts in technology, application development, modelling,
equipment I couldn't pay for. And so I got to understand credit maths and trading in order to build a strong team: “I pulled them
and the importance of having a contract at a young age. These together to deliver as a team far stronger than any single one
formative, important experiences can't be taught. You have to live could. That's always come naturally. I enjoy it, and it never feels
through them. Incidentally, the person told me to put the boxes like a job to me - it always feels like an accomplishment.”

14 INVESTOR SERVICES JOURNAL

ISJ24 pp1-23 ML 6/9/07 2:34 pm Page 15
In the ecommerce space, rather than
putting the talents of his team towards a
single product or solution set, he decided
to broaden the perspective to the canvas of
the entire corporate bank. “Our project,
CitiVision, aggregated disparate data,
bringing together hundreds of data
sources for the benefit of the bankers and
I'm rooted in basic, strong business management principles. Some people call it
motherhood and apple pie; I call it the key element of driving our business
the firm. This became the front end for all
investment banking. While rolling it out
and training people to use it, I remember
saying: 'this is the future of eCommerce.
One day you are looking at this data, the
next, you have the ability to generate
actionable advice - and wouldn't it be
great if one day our clients could look at
the same screen we're looking at, and we
could interpret it for them?' And of
course, Bloomberg had done that, as an
agnostic solution. I wanted to do it by
delivering intellectual capital to clients
through a single source. Now I use
CitiVision everyday, and more than ten
thousand Citi colleagues use it everyday,
and I take tremendous pride in that,” he
says.
“Of course, when CitiVision took off, I
knew we had to build content for it, so I
started the CitiMedia group to deliver
video content, allowing other colleagues
to see and hear bankers talking about
public deals. This was so well received that
we started to interview clients as well.
eCommerce was a terrific experience,
because I got to understand how the bank
works, from end to end, and once I learned
its strengths, I focused on leveraging them
through connectivity, process and power,
and that was exciting,” he continues.
It is obvious that Galant is passionate
about his career, but he is also an ardent
fan of his firm: “All financial institutions
are not created equal. Citi has a brand that
stands for something far beyond profits;
it's a brand that stands for integrity, a
brand that stands for trusted advisor.
Intellectually and philosophically and
from my heart, I connect to that. And I'm
fortunate; if I wanted to, I could choose 10
careers without ever having to leave Citi
because of the exciting diversity of
business and the diversity of mind here.”
Galant's prime career motivation is to
ensure that he is challenged by his job:
“I'm not great in running things on a
business as usual basis. My strength, and
the part of my job I absolutely love, is
starting with something, seeing things as
they could be three years from now,
understanding what needs to be done and
then executing to get there.”
The CEO's challenge is to motivate, to
inspire, to capture the hearts and minds of
more than 27,000 people in more than 100
countries, to lead them all in the same
direction, says Galant. Communicating
and making sure people are focused on
executing the strategy and vision of the
company is both a challenge and part of
what makes the role of CEO so fulfilling
for Galant.
He is confident in Citi's senior
management and believes they provide
exactly the right level of support to the
organisation. “If I say to Chuck Prince,
Bob Druskin, or my boss, Michael Klein, I
want to build a ten billion dollar
transaction processing business, they
support that goal, not just with lip service,
which is easy, but by rolling up their own
sleeves and getting to work alongside my
team to help us get there.”
The competition is also to be respected,
says Galant: “Competition's very
important. I have tremendous respect for
our competitors. They are excellent.
They're smart. They're nimble. They keep
us on our toes. In my business, we deliver
for our clients through what I like to call
'partnertition', which is 'coopetition' -
collaborative competition - taken one step
further. When you can think differently
about your competitors and define areas
where you see them as complementary
partners, you can deliver unique value to
the market. Around the globe, some of the
fiercest competitors we come up against
are local banks that you've never heard of
- but they have strong executives who
understand their market inside and out.
CEO PROFILE - CITI
They're quite clever. They teach us a lot.
These are precisely the competitors I want
as partners.”
It might seem a bit counterintuitive,
admits Galant; why would you make one
of your strongest competitors stronger?
But he does it to enhance his business
through collaboration, bringing solutions
to their highly appreciative clients. “We
respect their relationships and we both
benefit,” he adds.
When asked to identify the most
innovative and groundbreaking change
that he has seen during his career, Galant
comments: “It has to be the absolute
incredible leverage we've received from
technology - the productivity, the flow of
information, our ability to become a
nimble society. Our ability to identify an
opportunity, terrestrial or electronic, and
to execute with efficiency, is monumental.
I also think that globalisation - which is
driven to a great extent by technology -
will carry this industry and its people into
an era that none of us can even imagine.”
Citi and Galant's focus over the next
year will continue to be on innovation,
which he considers to be the hallmark of
the organisation. There will also be a drive
towards further expansion in areas of the
market where Citi has identified strong
growth potential. However, Galant
believes that his back to basics mantra is
one of the most important areas of
business focus in the long term.
“I'm rooted in basic, strong business
management principles. Set a budget,
make your number, evolve your budget,
have a running forecast, be disciplined,
make more than you spend, train the best
people, uphold the brand, that's a 'back to
basics' approach. Some people call it
motherhood and apple pie; I call it the key
element of driving our business. Our
people are another important 'basic'
element. People are what business is
about. You know what the most valuable
assets are of my organisation? The same
people who go home every night and come
back the next day,” he concludes. ■
INVESTOR SERVICES JOURNAL 15
ISJ24 pp1-23 ML Edit 6/9/07 6:41 pm Page 16

CLEARING AND SETTLEMENT

Hard to
swallow?

This year has seen the introduction of the European Commission's

Code of Conduct, but how close is the industry really to removing the
Giovannini barriers to clearing and settlement? Virginie O'Shea reports
he removal of the 15 barriers to

T clearing and settlement, first

identified by the Giovannini
Group in 1996, has been a long time
coming, but it seems that there is light at
the end of the tunnel. The European
Commission's Code of Conduct for
Clearing and Settlement for example,
first announced in the summer of last
year and signed by market participants in
November, promises to help to break
down these longstanding barriers to
cross border clearing and settlement.
The voluntary guidelines have been
agreed by Europe's stock exchanges,
central securities depositories (CSDs)
and central counterparties (CCPs) and
are due to be implemented by January

16 INVESTOR SERVICES JOURNAL

ISJ24 pp1-23 ML 6/9/07 2:34 pm Page 17
2008.
The code has been hailed as a
preferable step towards achieving greater
interoperability than the introduction of
a specific directive by the Commission
because it is seen as a more practical
alternative. The final version of the code
was negotiated through joint meetings of
the Federation of European Securities
Exchanges (FESE), the European
Association of Central Counterparty
Clearing Houses and the European
Central Securities Depositories
Association (ECSDA). As such, it is
industry led and industry defined.
European Internal Market and
Services Commissioner Charlie
McCreevy conceded during a speech to
the European Economic and Monetary
Affairs Committee in July last year, that
regulation was not the way forward in
the area of clearing and settlement. “I am
convinced that if the Commission were
to propose any kind of a regulatory
measure, we could slow down, or even
block the restructuring process already
underway - possibly even for years,” he
said when he announced the intention to
draw up the code. Regulation would
distract market participants, he added,
and could lead to an outcome far less
optimal than letting things evolve and
then assessing what, if anything, was
necessary at EU level.
The industry, it seems, agreed and real
progress has since been made. Joël
Mérère, the chairman of ECSDA, on the
release of the access and interoperability
guidelines on 28 June 2007, commented:
“These guidelines are an important
landmark in the development of
securities settlement in Europe showing
that a market approach can be far more
effective than legislation in delivering
quick and effective change. The
guidelines should enable the delivery
over time of real competition between
settlement systems, through access and
interoperability, on an open and
transparent basis.”
Diana Chan, managing director, Citi
Global Transaction Services, agrees that
the idea of an industry led best practice
document is preferable to regulation
because it is quicker to implement.
However, she believes that it is too early
to say whether the code will deliver the
expected benefits to users.
Diana Dijmarescu, regional head of
securities markets issues at JPMorgan
Treasury and Securities Services,
seconds the notion that regulation may
take years to agree and to be
implemented, while the code was agreed
much quicker. “Until now, the
infrastructures have made significant
progress towards complying with the
first set of requirements, so we can
benefit from the results immediately and
not in five years from now. It is true that
these were the easiest requirements to
comply with. It is also true that being a
non-regulatory instrument, there are no
tools to ensure enforcement of the code,
other than 'name and shame',” she adds.
The ultimate aim of the guidelines is
to offer market participants the freedom
to choose their preferred provider of
services separately at each layer of the
transaction chain - for trading, for
clearing and for settlement. It is also to
make the concept of 'cross border'
redundant for transactions between EU
member states - these will instead be
considered 'domestic' to the European
area. Therefore organisations providing
post-trade services in equities clearing or
settlement should be able to access any
other organisation in the same or another
relevant jurisdiction to extend their
service provision to other markets or
products. The section is the code's main
vehicle for delivering user choice by
means of competition in the post-trading
marketplace, thereby improving
efficiency.
The drawing up of a code is an attempt
to accelerate the piecemeal and slow
I am convinced that if the Commission were to propose
any kind of a regulatory measure, we could slow down, or
even block the restructuring process already underway -
possibly even for years
progress of reform thus far. EU markets
are currently served by a multiplicity of
systems geared primarily to national
demands. As a result, cross border
clearing and settlement is often complex,
fragmented, and inefficient through the
chain of intermediation, and, can cost six
times more than domestic transactions,
putting the sector at a disadvantage in
competition with other world markets.
The code is currently limited to
CLEARING AND SETTLEMENT
equities, although it is due to be extended
to bond and derivatives trading at a later
date, and is considered by the
Commission to be complementary to
MiFID. Accordingly, MiFID in its
articles 35 and 46 states investment firms
should be able to freely choose the most
appropriate clearing and settlement
provider, independent of its nationality.
Investment firms are thereby expected to
have more freedom to select the most
appropriate clearing and settlement
location, thus falling in line with the
objective of the Commission's guidelines.
Moreover, the new regulated markets
or multilateral trading facilities (MTFs)
that are created under MiFID will have
to decide which post-trade access they
will grant to their market participants.
Existing market players will also likely be
forced into increasing the number of
post-trade options currently available to
their clients. The focus on best execution
and transparency in the directive is also
liable to be extended into the clearing
and settlement area, so that efficiency and
cost are taken into account.
A recent white paper by pan-European
regulated market Equiduct, set up in
accordance with MiFID, stresses the
need for fees to be transparent in this
context. “Ideally, pre-trade transaction
cost analysis (TCA) for the trading
member firms would be greatly
facilitated if the clearing and settlement
fee relating to a transaction in a
particular ISIN does not vary as a
function of which MTF or regulated
market delivers the executed trade flow
to the CCP. The trading member firms
will prefer a situation where it is easy to
prove that the fee is only a function of the
service delivered by the CCP and that the
fee for a 'like for like' service is the same,
independently of the MTF or regulated
market that provides the trade execution
and matching services,” the paper,
written by Willy Van Stappen, chief
operating officer of Equiduct, states.
The paper suggests therefore that



INVESTOR SERVICES JOURNAL 17
ISJ24 pp1-23 ML 6/9/07 2:34 pm Page 18
CLEARING AND SETTLEMENT
clearing and settlement efficiency and
cost must be taken into account under the
obligations for MiFID best execution.
Van Stappen concludes: “New platforms
that provide up-front lower fees for
execution services but that do not take
into account the reality of the current
clearing and settlement environment run
the risk of providing a poor service to
their customers, as the total cost of the
trade is likely to be bigger than on the
ostensibly 'more expensive' home market
that makes use of the existing 'clearing
and settlement liquidity'.”
The next phase of the Commission's
code is due to be implemented by the end
of 2007 and involves unbundling services
and separating the accounts of each
service segment. This will require a
It is too early to say whether the guidelines will work - the proof will come with actual
cases of infrastructures exercising their rights to demand access to each other
number of changes to be made by
exchange operators that use a vertically
integrated model for trade execution,
clearing and settlement.
The Spanish, German, and Italian
stock markets derive a substantial part of
their revenue from their clearing,
settlement, and custody activities, and as
such they are often described as following
the vertical silo model. The German
exchange for example, has been offering
both trading and settlement services
since the early 1990s and this 'monopoly'
continues today. These practices have
been criticised for impeding competition,
as customers are not given a choice of
provider for their post-trade services.
According to a recent report by the
International Monetary Fund, in 2006,
four of the main European exchanges
derived a significant amount of their
total revenue from these activities. By the
end of the year: Euronext had derived
1.3% of its revenue from these activities;
Spain's Bolsas y Mercados Espanoles
(BME) had achieved 21.7%; Borsa
Italiana gained a significant 35.7%; and
Deutsche Borse's revenues from clearing,
settlement and custody totalled a massive
37.8%. These figures indicate that any
significant changes to the clearing and
settlement landscape will have a serious
18 INVESTOR SERVICES JOURNAL
impact on many of these exchanges.
Citigroup's Chan comments: “It is too
early to say whether the guidelines will
work - the proof will come with actual
cases of infrastructures exercising their
rights to demand access to each other.”
To this end, LCH.Clearnet has recently
formally requested that Borsa Italiana
and Deutsche Börse provide it with a link
for electronic access. This will then allow
Europe's largest clearing organisation to
clear trades executed on the two
exchange platforms.
Roger Liddell, CEO of LCH.Clearnet,
has indicated that he is confident that
access will be granted. “These initiatives
should demonstrate that peer to peer
clearing links, where neither CCP pays
the other ongoing fees, can be established
across Europe, and will enable us to
complete the development of a similar
arrangement with x-clear for the London
Stock Exchange,” he says.
The recent agreement by the London
Stock Exchange (LSE) to purchase Borsa
Italiana will also have an impact on this
progress. LSE has already indicated that
it will be pursuing a “horizontal”
structure in which it owns no post-trade
services. What then, will happen to the
current clearing and settlement
arrangements under the Italian
exchange, given that LCH.Clearnet is
currently the sole clearer for LSE listed
stocks?
Despite widespread scepticism about
the effectiveness of the code and its
impact on the profitability of the
European exchanges, most have agreed
in principle with the idea of opening up
to competition. For example, Frank
Gerstenschläger, member of the
executive board of one of these
exchanges, Deutsche Börse, has publicly
pledged support for the code and its
goals. “Deutsche Börse Group fully
supports the Code of Conduct for
Clearing and Settlement of cash equities.
The code demonstrates the willingness of
trade and post-trade service providers to
work constructively toward an efficient
environment for cross border trading in
Europe,” he says.
This is no surprise, given that in June
Commissioner McCreevy warned he
would deal harshly with those that failed
to comply with the code. He commented
in a speech to FESE: “I want to hear
immediately if there is any anti-
competitive behaviour or unsavoury
practices.” Given his past stance with
regards to a lack of compliance by
market participants, this is a threat that
should not been taken lightly.
Accordingly, the German exchange has
already made a number of small
adjustments to its pricing structure
following a comparison with other
organisations in the EU area. But
complying with the requirement for
systems interoperability with other
bodies will take time. The links between
exchanges, clearing houses, CSDs and
CCPs will therefore require a great deal
of commitment from the players in the
market, of which there are around 60. It
also represents the first time that all
industry participants have agreed that
they should have a level of basic access to
each other.
The code is far from perfect, however,
as it does seem to have some structural
weaknesses, according to Chan. “For
example, there is no distinction between
core and non-core (competitive) services,
which is at the heart of competition
problems that could be caused by market
infrastructures leveraging their
dominance in core services to drive out
competition in the non-core services. The
market infrastructures are required to
unbundle services, but they are also
allowed to re-bundle. This represents an
endorsement of cross subsidising
competitive services with revenues from
core services,” she contends.
Regardless of its faults, the code does
represent progress and all of this could
not have been achieved without the
preliminary work of the Giovannini
Group. In its first report in November
2001, the group identified the 15 barriers
ISJ24 pp1-23 ML 6/9/07 2:34 pm Page 19
ISJ24 pp1-23 ML Edit 6/9/07 6:45 pm Page 20
CLEARING AND SETTLEMENT
to cross border settlement in the EU, and
in a second report in April 2003, it laid
out a strategy for their removal. The
European Commission has set up the
Clearing and Settlement Advisory and
The links between exchanges, clearing houses, CSDs and CCPs will therefore require a
great deal of commitment from the players in the market, of which there are around
60. It also represents the first time that all industry participants have agreed that they
should have a level of basic access to each other
Monitoring Expert Group (CESAME) to
monitor the progress of the removal of
the barriers in the private sector and it
has also set up the Legal Certainty group
and the Fiscal Compliance (FISCO)
expert group to tackle the legal and tax
barriers.
Overall, Chan is positive about the
work of the Commission thus far, but
more needs to be done: “A great deal of
progress has been made in the definition
of standards. However, implementation
is still to start and that may be the
hardest part yet. Adopting standards
means having to make changes, which
means competing for the time and
resources needed for the numerous other
priorities facing market participants. The
legal and fiscal barriers are difficult
because governments need to agree and
to take action. Changing legislation takes
time, and adopting more efficient fiscal
procedures also requires time.”
Six of the 15 barriers have been
assigned to the private sector to remove,
adds Mark Kirby, managing director,
Business Model and Harmonisation
Division at Euroclear. “One of the
barriers has been eliminated and
excellent progress is being made by the
private sector in addressing the
remaining five. The most complex of the
five relates to the harmonisation of
corporate actions, which has moved from
the planning and design phase to full
implementation across Europe. Trade
organisations such as ECSDA, ECSA, the
International Primary Market
Association (IPMA), the Association of
National Numbering Agencies (ANNA),
the European Securities Forum (ESF)
and Swift are to be commended for their
efforts in this regard.
20 INVESTOR SERVICES JOURNAL
However, Paul Bodart, executive vice
president, Bank of New York Mellon
Asset Servicing, does not have faith that
the CESAME working groups on legal
certainty and taxations will be able to
come up with final recommendations by
the end of the year, when the two groups
are expected to be dismantled. “The
barriers that are in the hands of the
public sector are not being addressed
with the required focus. Progress has
been slow. There is a growing view in the
industry that the private sector should
probably embark in a harmonisation
effort of the barriers in the hands of the
public sector and, with the support of the
European Commission, come up with a
series of precise recommendations. The
implementation of some of these
recommendations might require the
Commission to legislate,” he explains.
Despite his concern about the general
lack of progress towards removing some
of the barriers, Bodart is positive about
the work Euroclear has been engaged in
over the last year. He believes that in its
effort to build a new custody platform to
replace the former platform of Euroclear
Bank, Sicovam, Crest, Necigef and CIK,
Euroclear has undertaken a massive
effort to harmonise the market practices
of the markets that it covers. “This is an
important prerequisite for the successful
construction of the new platform. In my
opinion, most progresses towards
European harmonisation have been made
in the markets covered by Euroclear -
France, Holland, Belgium, UK and
Ireland,” he says.
Euroclear's Kirby adds: “In fact, in
2008, the Belgian, Dutch and French
markets will be the first in Europe to be
served by a single processing platform
operating under Giovannini compliant
harmonised market rules and practices.
Even though it is self-flattering to say,
the Euroclear group markets are very
advanced in driving forward change
within the spirit of the Giovannini
Group recommendations. We have set a
relatively fast pace of change for our own
markets in order to deliver harmonised
market rules and practices along with a
single, multi-currency processing
platform covering settlement, custody
and related functions. We aim to
complete the delivery of both by 2010,
with the achievement of several major
milestones during the interim period.”
ISJ24 pp1-23 ML 6/9/07 2:38 pm Page 21
ISJ24 pp1-23 ML Edit 6/9/07 6:49 pm Page 22
CLEARING AND SETTLEMENT
But this growth is not limited to these
countries, continues Kirby: “We also see
excellent progress in the two
Scandinavian markets (Sweden and
Finland), as they have embarked upon a
similar programme of platform
consolidation and market practice
harmonisation as we have at Euroclear.”
All countries have work still to do, says
JPMorgan's Dijmarescu, and the nature
of this work differs from country to
country. “Some have more to do on the
technical side, while for others, changes
to legislation are required. Sometimes it
is all about changing practices that work
well in the domestic context, but prevent
cross border trading, so the difficulty
resides in changing mentalities. The
registration process in Spain is a well
known example of a local specificity
which will be impossible to tackle in the
absence of changes to the legal
framework in Spain, and also agreement
from the domestic community to change
something that works well in the
domestic context,” she explains.
A great deal of progress has been made in the definition of standards. However,
implementation is still to start and that may be the hardest part yet. Adopting standards
means having to make changes, which means competing for the time and resources
needed for the numerous other priorities facing market participants
Another rather more controversial
proposal by the European Central Bank
(ECB) with regards to clearing and
settlement has been extending the
concept of the Target2 consolidated
payments system to securities. Dubbed
Target2-Securities (T2S), the plan
involves replacing the current private
sector domestic clearing and settlement
platforms with a single state run pan-
European platform.
The ECB conducted a feasibility study
last year, which estimated that the
introduction of T2S would reduce the
cost of settlement to 28 cents, thus
saving EUR300 million a year. However,
these estimates have since come under
fire due to the fact that they are based on
2006 prices but the system is not due to
go live until 2013, by which time prices
may have fallen by other means.
On 8 March 2007 the ECB's
Governing Council decided to launch the
current project phase, which consists of
22 INVESTOR SERVICES JOURNAL
preparing the T2S user requirements.
This phase involves market consultations,
which will then form the basis for
drafting the general functional
specifications of T2S. After the
completion of this next phase, which is
scheduled for early 2008, and in
conjunction with the commitment of
CSDs to join the project, the ECB's
governing council will decide on the
specifics of the development phase.
T2S will be developed and run on the
same technical platform as Target2.
According to the ECB, the four national
central banks - Deutsche Bundesbank,
Banco de España, Banque de France and
Banca d'Italia - are ready to develop and
operate T2S on the system via the single
shared platform. The ECB has also
clarified that T2S will be purely an IT
settlement service operated by the
Eurosystem and rather than being
competitive with CSDs, it will be used by
them for the benefit of their customers. It
therefore neither constitutes a CSD in
itself, nor is it planned that T2S will
become one in the future, the ECB states
in its recent update.
Citi's Chan elaborates: “T2S is a public
sector led project whose aim is to make
settlement more efficient, by providing a
single platform for CSDs to outsource
settlement processing. The T2S platform
will be non-mandatory for CSDs, CSDs
are free to choose to join T2S or not. T2S
will accelerate harmonisation of market
practices, bringing efficiency to the back
offices of market participants. T2S will
be a new way of working, and will create
opportunity for market participants who
embrace the change and are quick to
extend service offerings, target new
customers, and join with others to
provide superior new service
propositions.”
Due to the fact that T2S has been
pegged to only provide settlement
services, other services such as corporate
actions and issuer services will continue
to be provided by CSDs. “T2S will enable
and encourage the CSDs to compete with
each other and with custodian banks in
the provision of intermediary and asset
services. More competition is generally
accepted to be beneficial for users and
investors,” says Chan.
The separation of corporate actions
from settlement could, however,
represent a problem, adds Dijmarescu. “A
lot of the debate right now between
CSDs and the T2S project team is around
whether corporate action services can be
separated from pure settlement services,
without the need to duplicate data
maintenance and hence increase the
overall cost of the services. This is a
crucial aspect of T2S that will need to be
clarified as soon as possible.”
If approved, the launching of T2S will
most likely trigger further consolidation
in the securities industry, not only
among the CSDs, but also among the
market players, says Bodart. “For smaller
CSDs it might become difficult to
support the system developments
required to connect to T2S. T2S should
accelerate further reduction of
transaction fees. Margins in the asset
servicing business will be negatively
impacted and this should result in
further consolidation in a business where
scale matters,” he speculates.
Overall then, it seems that some
progress has been achieved by the
industry towards removing a number of
the barriers, but much is still yet to be
done. Projects such as T2S and the
Commission's code appear to represent
both threats and opportunities for
market participants, but the long term
effects of these initiatives have not yet
been fully revealed. Nonetheless,
Euroclear's Kirby is positive about the
future of the clearing and settlement
landscape: “We remain convinced
that removing the Giovannini Group
barriers will help significantly to
provide a much more efficient and
less expensive settlement infrastructure
for Europe.”■
ISJ24 pp1-23 ML 6/9/07 2:39 pm Page 23
ISJ24 pp24-41 ML 6/9/07 4:23 pm Page 24
ASIAN FUNDS
ttracted by Asia's booming
Sparking A
economy and ever more attractive
regulations in the region, hedge
fund investments are no longer the only
viable option for outside investors. A
interest greater increase of funds to the region is
causing a filtration of capital to
traditional sectors and a higher valuation
of the local currencies, thus developing a
Interest in Asian more stable Asia.
Despite the ups and downs of the
funds is creating Asian market, investment potential still
remains strong, as international firms as
huge capital inflows well as domestic funds are increasing
interest and capital in Asia. China and
into the region, India are the leaders for these capital
funds. However, the beating the Asian
reports Maria Trombly stock market took in August reminded
investors of the fragility of the
emerging Asian markets, and fund
managers' dependence on it.
By the middle of August, market
decline had caused losses across the
board. The Philippine index was down
4.1%; Indonesia's rupiah fell 0.4% to
9,400 per dollar to its lowest in more
than a year; the Malaysian ringgit
declined 0.3% to 3.4880, its weakest
point in four months; and the Singapore
dollar was at its lowest in six weeks when
it fell 0.6% to SGD1.5304, as nearly
every Asian equity index flopped. Japan
also suffered, as the yen fell from 155.95
24 INVESTOR SERVICES JOURNAL
to 154.45 per euro and 115.50 to 114.36
per dollar. China and Hong Kong fared
slightly better due to capital controls
protections.
Sparked by turmoil in the US sub-
prime mortgage market, where banks
lent to risky borrowers, the drop showed
how much investment potential and risk
there is in Asia. Asian markets remain
worried that their foreign investment
funds will be moved to offload shares
covering losses in the US and other
areas. Many investors, afraid of the
unknown, dumped what they could, as
the sub-prime shares offer reasonable
risks to their markets. There was a global
equities fire sale that erased more than
USD5.5 trillion of market value, before
the Federal Reserve's rally.
Just as quickly as things fell though,
recovery came and came strong, with
Hong Kong, China, Taiwan, South Korea
and Indonesia soaring more than 5% at
the start of the week after the Fed
intervention. The Nikkei 225 Stock
Average's 3% gain was the biggest in a
year, and the Hang Seng Index jumped
5.9%, the most in almost nine years.
Leading companies in Asia, such as
Canon, Samsung Electronics, China Life
Insurance and China Mobile, saw
significant individual gains.
Fund managers say that investments
ISJ24 pp24-41 ML 6/9/07 4:23 pm Page 25
in Asia must be prepared for these kinds
of jumps and drops. It is not unusual to
see gains or slides of 5% in Asia, due to
instability and a hungering market.
“Overall, investors are still confident in
Asia,” says James Colclough, a senior
partner at Austen Morris Associates, a
financial advisory company registered in
Hong Kong with many expatriate clients.
China's special economic zones,
Shanghai, Tianjin, Beijing, Chongqing
and Guangzhou, are allowing for more
flexible and traditional development
patterns. South Korea and Taiwan's open
policy is welcoming to foreign
investment and India's government and
restructuring policies have been
favourable for the global economy. Other
countries, such as Vietnam, Indonesia and
the Philippines, seem to be taking cues
from the larger centres of financial
attention and are doing what they can to
attract more sustainable businesses, with
wealth generating systems.
“Investors have become bullish about
the Asian economy,” Colclough states.
“After their interest in Eastern Europe
and Latin America, people who are
turning to Asia want less risky
investments in broad mutual funds, stable
blue chip shares and good companies.”
Others agree, as more funds have
gathered in the Asian market, inflows
have given rise to greater possibilities for
hedge funds, venture capital, equity funds
and pension funds, allowing for more
breakthroughs in alternative and
traditional fields and greater foundations
to the developing market.
Many investors, who had previously
avoided the Asia market, due to its
instability, are finding it hard to ignore
now. “Recently, we have seen a dramatic
increase in demand for Asian hedge funds
on the part of the fund of funds, so much
so that in nearly every meeting we attend
this topic is discussed at length. One big
reason is that the opportunities in the US
and in Europe are getting more difficult
to find, just as fund of funds themselves
have more money to put to use. This, in
turn, is caused partially by the rapid spike
in hedge fund interest itself, prompting a
tremendous number of hedge funds to
spawn and be funded,” explains Randy
Shain vice president at First Advantage
Investigative Services, a US-based
company whose business involves
researching backgrounds of hedge fund
managers.
“At this point, it is getting more and
more difficult for fund of funds to invest
their money in US and euro funds,
forcing them to look elsewhere. It is
therefore unsurprising that funds based
in Asia would rise to meet the huge
demand for their services,” he adds.
Funds have been popping up all across
Asia, as if following Starbucks'
expansion model. For India, only around
a dozen equity fund managers were
considered competitive in 2004, however,
now there are over 150 different fund
managers putting money to work,
according to a portfolio director with
CDC Group, a UK government backed
firm that invests in private equity funds
in India.
The market has also grown in China.
More than 90 hedge funds currently
invest in the greater China region,
managing roughly around USD12
billion, according to Eurekahedge, a
London-based hedge fund research
company. Asian hedge funds are already
worth USD150 billion a year and
significant growth is expected over the
next couple of years.
With China's average annual growth of
Despite the ups and downs of the Asian market,
investment potential still remains strong
8-10%, it's no surprise that there has been
a rise in number of new fund managers
and investments in the country. China is
a model of the new Asia, with a large
population with low penetration rates
and liberalising capital markets, says Lou
Gerken, founder of Gerken Capital
Associates, a San Francisco-based
alternative asset funds company. Gerken's
company, which has USD1.4 billion
under management, launched its greater
China hedge fund in 2005, and is
currently in the process of launching an
Indian hedge fund.
Other companies have also been
making adjustments to target Asia's
funds business. JPMorgan Hedge Fund
Services has hired two ex-Fortis
executives with intentions of expanding
its business in Asia.
Prudential's PRUPIM and LaSalle
Investment Management, two of the
world's leading property fund managers,
have joined up to form the Asia Property
ASIAN FUNDS
Fund, an open ended pan-Asia Pacific
fund for institutional investments and
pensions. They plan to provide buying
power to over USD1 billion by the year's
end. 3i Group is establishing an India
focused infrastructure fund, targeting
USD1 billion, and has indicated it will be
an unlisted vehicle. The group intends to
invest in power, ports, airports and road
projects early on, with mature
infrastructure operations planned for the
future.
Asia Alternative Asset Partners,
known as AAA Partners, an alternative
fund company, and CLSA Asia Pacific
Markets Group, a financial service
provider owned by France's Crédit
Agricole, has begun an endeavour to
provide global distribution to fund
managers focused on Asia. Together they
plan on investing USD150 million in the
next year, committing to a wide range of
investment strategies for Asia.
Deutsche Bank, Bank of Montreal of
Canada and the Belgian-Dutch group
Fortis Investments all have fund
management joint ventures in China.
And China's state investment agency has
invested USD3 billion in private equity
firm Blackstone.
Companies that serve these top funds
and their management infrastructures
have begun to follow the trend towards
moving into Asia so they can better
understand and serve the needs of their
clients in these new markets. Adventity,
an Indian-based outsourcing company
specialising in high end research and
analytics for top investment banks, hedge
funds, and private equity shops, has seen
an immense increase in interest in Asia
since its creation in 2004.
As of last year, a significant trend has
brought a proportion of deals from
technology media and
telecommunications markets into other
sectors, according to Joseph Chan, a
partner at law firm Pillsbury Winthrop
Shaw Pittman's Corporate and Securities
practice, which represents clients'
securities transactions, private equity and
venture capital investments. One such
company is the Shanghai-based Home
Inns and Hotel Management, founded in
INVESTOR SERVICES JOURNAL 25
ISJ24 pp24-41 ML 6/9/07 4:23 pm Page 26
ASIAN FUNDS
2002 to satisfy a customer base not as
interested in outer luxury, he says.
“It's in an area where growth and
innovation are important,” Chan says.
The hotel chain has opened 26 new hotels
during the second quarter alone and
revenues for the quarter increased 67.8%
year over year to USD30.6 million. Home
Inns' initial public offering last October
was at 7,900,000 American Depositary
Shares (ADS), each representing two
ordinary shares, priced at USD13.80 per
ADS.
Adventity's success is owed in a good
part to the growing Asian market. “The
market is driving intuitional
organisations, banks, and investors to
move into emerging markets and set up
payment solutions,” Patankar continues.
And it's not just the hedge funds that are
making the trend towards increasing
interest in Asian markets. “Venture
capital funds and private equity funds
have been increasing their portfolio
investments for the past few years,” Chan
explains. “For venture capital funds,
technology, media and
telecommunications remain the main
focus in Asia, although, increasingly, the
trend is to diversify to the traditional
sectors, including energy, health care,
medical equipment, pharmaceutical, even
auto services.”
This shift of attention to other sectors
of development is one of the effects of a
growing competitive imbalance on Asian
funds. Chan says investment into Asia is
comprised mostly of American capital,
where technology media and
telecommunications remain a key
developmental focus. However,
competition in this market has driven
valuation high. “With [companies like]
MySpace and social networking
emerging in Asia and demanding a huge
premium, high valuation equals high
risk,” says Chan. “Technology, media and
telecommunications is still strong, but
other areas are opening.”
Asian funds are also starting to move
out of the region more aggressively, with
the takeover of foreign brands bringing
increasing value to Asian markets.
Indian-based Tata Coffee recently bought
out Eight O'Clock, the third largest
coffee chain in the US, for USD220
million, similar to the way Tata Tea
bought Tetley Tea in Britain in 2000.
M&A growth is expanding, with India's
26 INVESTOR SERVICES JOURNAL
deals abroad worth USD3.68 billion in
the first half of 2004, USD25 billion in
2005, and aiming to pass the USD100
billion mark by the end of 2007.
“Any economic boom or growth in the
companies will go into banking sectors
and emerging markets,” says Adventity's
Patankar. “Banking sectors fuel other
developing areas. Case in point, look at
the global 500 list; starting from 2002 to
2007, you will see a lot of the emerging
market and Asian companies creeping up.
Sinopec and China Mobile are a part of
the trend. These companies have gained
market shares, and have ridden the
economic boom in their local markets.
Investors have been making a lot of
money, as the mix of the global fortune
will increase with confidence. Long term
view is that capital inflows will ultimately
lead to fundamentally strong companies
in the next few years.”
It is not unusual to see gains or slides of 5% in Asia, due
to instability and a hungering market
Asia has seen a substantial growth in
its infrastructure in traditional markets,
as countries try to keep a balance
between foreign and domestic capital in
their markets. The public listing of
domestic companies in traditional areas
fosters confidence in those market fields
that don't rely so much on technology
and foreign investment, according to
Austen Morris's Colclough. Investments
are entering Asian markets,
strengthening them domestically, leaving
the area and then bringing it back in,
giving stability to the region.
“Everyone has seen what happened
with the Asian financial crisis,” Colclough
says. “But countries are in a more stable
position with more foreign reserves
operating on an exchange system that is
more flexible.”
The greatest threat to the valuation of
the Asian currencies sits with the closely
tied relationship between the US dollar
and the Chinese yuan. China has
threatened to dump its reported
USD1.33 trillion dollars of foreign
currency reserves, while accumulating a
positive trade imbalance with the US of
around USD123 billion, averaging
around USD20 billion a month since the
beginning of the year.
Chinese regulators have taken a few
steps to stem the tide, as various pilot
programmes have been set in motion to
allow more of the country's foreign
exchange reserves to flow overseas. For
example, in July the government decided
to allow individual mainland investors to
directly buy Hong Kong securities. This
pilot programme while currently limited
to the industrial port city of Tianjin and
to USD50,000 per year per investor, is an
indication of the way things are going.
A bigger programme is the Qualified
Domestic Institutional Investors (QDII)
programme, under which banks, mutual
funds, pension companies, insurance
firms and other institutions receive state
quotas they are then allowed to invest
overseas. In May, the Chinese
government modified the QDII
regulations to affect where funds could
flow. Participating banks can now invest
in any overseas stock markets that have
signed a memorandum of understanding
with the mainland government. So far,
that is limited to just the Hong Kong
Stock Exchange, but experts predict that
other overseas stock markets will soon
sign similar agreements with China.
On 5 July, the China Securities
Regulatory Commission expanded the
programme to include securities and
fund management firms. However, as a
result of the fast growth of China's
domestic stock market, investors haven't
been as interested in international
investments as the government had
hoped. In fact, during the first half of
the year, government statistics show that
banks used only 26% of their total 50
billion yuan (USD6.6 billion) overseas
investment quota.
However, for the moment it appears
that Asia is faring rather better than its
western counterparts in the sub-prime
crisis, although it will not escaped
unscathed. It also seems that most of
the region's economies are much less
vulnerable to capital outflows than
they used to be and bank lending is
growing at a more controlled pace.
Overall, Asia's prudence over the last
10 years has paid off and this looks set
to continue.■
ISJ24 pp24-41 ML 6/9/07 4:23 pm Page 27

I N N O V AT I V E T E C H N O L O G Y & S E R V I C E S O L U T I O N S F O R :

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• Data Management • Information Delivery

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ISJ24 pp24-41 ML 6/9/07 4:24 pm Page 28
DOMICILES REPORT
Channel funds
Still going strong
Guernsey's fund sector continues to
boom. The number of funds domiciled in
Guernsey has reached record levels and
the jurisdiction has issued an influx of
fund administrators who have recognised
the benefits of having a presence in the
island. The newest arrival approved by
the Guernsey Financial Services
Commission is Citco Fund Services.
This growth and attraction has largely
been propelled by the introduction of the
registered funds regime in February this
year. Funds under management and
administration have reached a record
high of GBP140 billion; which is a 26%
increase over the year.
Guernsey has also benefited from the
new generation of permanent capital
vehicles (PCV). Since KKR and Apollo,
there has been a shift of the PCV model
from private equity to the hedge fund
industry with the successful launch of
PCVs by Marshall Wace (MW Tops -
USD1.3 billion), Goldman Sachs
(Goldman Sachs Dynamic Opportunities
Fund - USD0.5 billion) and Boussard &
Gavaudan (Boussard & Gavaudan
Holding Limited - USD0.3 billion) and
the increasing use of AIM and London
Stock Exchange (LSE) listings.
The Harwood report was issued over
18 months ago and since this date, several
changes have occurred to make Guernsey
more attractive as a fund centre, the main
one being the registered funds regime.
The changes introduce registered, or
exempt, funds into the Guernsey product
range, which has a streamlined
authorisation approach - like the existing
qualifying investor fund regime, which
28 INVESTOR SERVICES JOURNAL
Guernsey and Jersey report
on their respective domiciles
has a three day regulatory approval
period - and no ongoing regulatory
monitoring.
Fund promoters or managers will soon
be able to choose between regulated or
unregulated vehicles, as long as they are
not distributing these funds to Guernsey
resident investors. Coupled with the zero
rate of corporate tax, it has been a
fundamental driver of new business to
the island.
The jurisdiction as a whole has detailed
knowledge and experience, specifically in
the alternative funds arena, and is one of
four offshore locations approved by
Euronext. It is for such reasons that
PCVs have increasingly been established
in Guernsey.
Peter Niven and Guernsey Finance
continue to support the growth of
Guernsey with a well structured
marketing campaign that has seen them
present at several conferences -
SuperReturn, GAIM and MIPIM with
road shows also planned to new
jurisdictions.
Peter Franks, partner and head of Asset
Management in the Channel Islands,
Ernst & Young
Specialist funds
The most recent quarterly statistics
provide yet further encouraging news for
the island's funds sector. Once again,
record levels have been reached, with the
net asset value (NAV) of funds under
administration in Jersey breaking
through the GBP200 billion milestone to
now stand at GBP210.4 billion, as at the
end of June 2007.
Of particular note is the continued
growth Jersey has seen in the specialist
funds area. The NAV of combined
specialist fund classes, including private
equity, alternative investment and hedge
funds, grew during the quarter to almost
USD110 billion, meaning that the sector
now accounts for well over half of the
total NAV of funds under administration
in Jersey.
The statistics are backed up by the
continued success Jersey is experiencing
in attracting hedge fund managers to
relocate to the island. A combination of
Jersey's high quality infrastructure, its
favourable regulatory regime, its fiscal
benefits and the lifestyle advantages of
living on the island have already
encouraged a number of hedge fund
managers and related service providers
to make the move to Jersey.
This is not to say that a presence in
Jersey is a prerequisite for doing business
in the island - increasing numbers of
fund managers are turning to Jersey for
their fund administration requirements
and fund administrators locally are
reporting a great deal of repeat business.
The regulatory regime continues to
evolve with the implementation of
additional changes anticipated for early
autumn. In a significant move, resulting
from close consultation between the
industry and the regulator, there will be a
shift from the regulation of funds to the
regulation of Jersey service providers, in
certain agreed circumstances.
This focus on specialist funds will be
emphasised at a funds specific event to be
staged by Jersey Finance, in conjunction
with the Jersey Funds Association, in
London on 3 October. Following on from
the success of last year's event, which
attracted more than 250 delegates, the
third annual Alternative Funds Debate
will be held at 4 Hamilton Place, Mayfair.
It will feature a range of speakers who
will offer an update and lead a discussion
on Jersey's progress in establishing itself
as a leading centre for specialist fund
administration services.
Andrew Wignall, member of the Jersey
Funds Association
ISJ24 pp24-41 ML 6/9/07 4:24 pm Page 29

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ISJ24 pp24-41 ML 6/9/07 4:24 pm Page 30
US CUSTODY
Keeping pace
Despite being the largest in the world, the US
custody market still has room to grow.
Giles Turner reports
ll hell is breaking loose across
A
global markets. Indices have
become more volatile than a
Molotov cocktail, and the financial press
has descended into shock and awe tactics.
However, for a mature market such as the
US custody market, the latest industry
wobble as a result of the sub-prime
mortgages crash will hopefully be no
more than a market correction, rather
than something more serious. At any
rate, it is something that the largest, most
dynamic market in the world should be
able to handle. The sheer size of the
market allows for periods of high
volatility to not be significantly
damaging, and while some may have lost
their shirt during the past few weeks, for
many in the US custody business, the
30 INVESTOR SERVICES JOURNAL
future will provide more opportunities
than obituaries.
According to Craig Dudsak, managing
director of Citi Global Transaction
Services, the North American market
represents more that 50% of the world's
wallet. It is therefore easy to presume
that the US custody business has little
prospect for growth because it is already
a large, mature marketplace. However,
such players as JPMorgan are forecasting
healthy increases within the market of up
to 15%.
Jay Martin, senior vice president, US
custody product executive, JPMorgan
Worldwide Securities Services, sees three
major factors spurring on this double
digit growth. Baby boomers now realise
they need to move fast to prepare for
retirement and recent US legislation has
made it easier for employers to
automatically enrol employees in 401(k)
plans, he says. “We are seeing an influx of
capital to the US by Asian and Latin
American countries that have relaxed
their restrictions on cross border
investment. The thirst for alternative
investments keeps growing and
JPMorgan has led marketplace initiatives
by creating JPMorgan Hedge Fund
Services and JPMorgan Private Equity
Fund Services. We will also continue to
expand services for derivatives, which we
began two years ago with the launch of
CommanD,” he continues.
It is the move to retirement that is
opening up one of the largest
opportunities in the US custody market.
The Pension Protection Act, signed by
President Bush on 17 August 2006, aims
to reduce the liability for employers
providing investment advice for
employees in their 401(k) plans. The plan
puts additional focus on plan funding, and
pension accounting changes will have a
significant impact on liability reporting.
Jeff Conover, senior vice president of
Corporate and Institutional Services and
head of North American institutional
asset servicing sales for Northern Trust,
states: “This brings on additional demand
for value added services, including
performance analysis
management. Plan sponsors are
and risk
reviewing their current providers and
finding that often they come up short in
being able to offer the depth and breadth
of services required to meet their
objectives.”
A major factor where businesses are
coming up short is that although
legislation has made it easier for
employers to automatically enrol
employees in 401(k) plans, businesses
that sponsor these plans are now at
higher risk from either class action or
employee lawsuits (or both if particularly
unlucky) due to the US government's
broader definition of fiduciary
responsibility. Those baby boomers that
discover that despite diligently saving for
30 years or more, their various
investment choices have not gone their
way and suing the company becomes a
simple choice. Therefore it will be
unsurprising to see a renewed interest
from this generational segment in the
ISJ24 pp24-41 ML 6/9/07 4:24 pm Page 31

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ISJ24 pp24-41 ML 6/9/07 4:24 pm Page 32
US CUSTODY
custody business, providing new
opportunities for growth for the
custodians themselves.
These changes in attitude, mainly due
to trial and error, mean clients are more
aware of the risks involved with their
pensions and other assets. Custodians
will be pulling out all the stops to ensure
they are seen as honest, well recognised
and trustworthy institutions that appeal
to the baby boomer demographic. Rather
a sensible but charming fund manager
than a brash and exciting hedge fund
manager (although some pension funds
are in the hands of both Cadillacs and
Corvettes). In addition, Dudsak states:
“The jobs of financial officers grow more
complex, leading them to look to their
custodian to be both the keeper of assets
as well as the provider of critical
information and to provide timely and
accurate information in a useable format
that requires no manipulations. As a
We are seeing an influx of capital to the US by Asian and
Latin American countries that have relaxed their
restrictions on cross border investment
result, clients can meet their twin
objectives of regulatory compliance and
internal cost management.”
Martin's third reason for double digit
growth is the sudden growth in
alternatives. Conover of Northern Trust
says the continued rapid growth of
alternative assets is a great challenge for
custodians: “Admittedly, the response has
been uneven thus far, given the
complexity and speed with which these
vehicles are being created.” He gives two
impacts for the varied responses. The
first is that custodians have had to
respond to existing client needs by
servicing and processing alternative
assets, for both the manufacturers of the
products and investors. The second is
that custodians have been forced to
become more proactive in anticipating
the needs of future clients that wish to
invest in these new asset classes. At
Northern Trust, this means the
development of reporting around private
equity partnerships and programmes to
help clients manage their collateral
requirements for OTC derivatives.
In order to maintain a strong position
32 INVESTOR SERVICES JOURNAL
in this vanguard of asset classes,
investment managers have to push the
envelope on the types of fund structures
they manufacture. New asset classes
create new demand and new service
challenges. JPMorgan has developed
JPMorgan Hedge Fund Services in order
to assist hedge fund managers,
combining and building on technology
from Paloma Partners and JPMorgan
Tranaut.
It also developed the industry's first
full service solution for derivatives
collateral management, back in 2005.
The military sounding JPMorgan
CommanD aims to help clients manage
the complexities of using collateral
against OTC derivatives trades, better
mitigate credit exposure and increase
derivatives trading cost effectiveness.
Complexity has driven this innovation.
Dudsak of Citi reckons the trade
lifecycle of a credit default swap is
profoundly more complicated that that of
a bond. ”This complexity needs new
skills, technologies and operating risk
management tools, he explains. “In
addition, the drive for greater returns has
resulted in asset managers trading in
more sophisticated, complex and higher
risk instruments like derivatives that
require risk mitigation and control
products.”
Predictably, there is often a belief that
some custodians will fall by the wayside
in the drive to keep up with the large
scale technological investment needed to
satisfy demand. Those who do not beef
up their technology budget will lose out.
This perhaps is why people continue to
predict the downfall of the wrong
custodians. “It is possible that some
custodians may fall by the wayside, just
maybe not the ones that people expect,”
Conover explains. “There is a smoke
screen of size equals scale in this
industry, but it is not the size of the
overall technology budget that will
determine a firm's success. How that
budget is strategically allocated is much
more important. For example, spending
to maintain multiple operating platforms
or cobbling together patches of
antiquated technology does not produce
value to the client. Technology
investment that continues to enhance and
produce leading edge solutions does add
value to clients. If the entire technology
budget is spent on applications that apply
directly to the client, that is a much better
investment.”
Undoubtedly, some of the technology
budget of the large custodians will be
spent on acquiring smaller boutiques.
The trend where smaller custodians and
service providers that lack the
professional, financial and technological
resources, which are so vital in an
increasingly complex market, are
consumed by their larger counterparts
will undoubtedly continue.
In Dudsak's view: “The continuing
pressure on costs driven by the need for
more sophisticated technology and staff
expertise is leading both to consolidation
of providers and to more joint ventures
and alliances. Expense pressures on asset
managers that have placed considerable
strain on pricing will continue. At the
same time, clients are putting much more
emphasis on the aspects of timeliness,
accuracy, proactiveness and
responsiveness of customer service. The
next wave of change will expressly aim
to deliver a clear value proposition
centred on performance and quality
service backed by a value for money fee
structure. In this new age, clients will
demand tailored solutions that provide
measurable results.”
It seems impossible not to talk about
size when talking about US custody, yet
size may not the be all and end all. As
Martin of JPMorgan states: “We expect
a new marketplace with two types of
providers - large, well established and
funded players and smaller, boutique type
firms that cater to a localised market. The
most successful providers in the future
will be the firms that can bring together
a truly integrated global end to end
range of services, or small firms that
have deep local experience. We look
forward to seeing the market progress.”
The main question, especially with the
current financial climate, remains: will
the financial behemoths consume
everything, or will the boutiques survive
on the new opportunities that exist in the
custody market? ■
ISJ24 pp24-41 ML 6/9/07 4:24 pm Page 33
ISJ24 pp24-41 ML 6/9/07 4:25 pm Page 34

PANEL DEBATE - CUSTODY AND TECHNOLOGY

Electric avenue
Our panel of experts ISJ
discuss the
technological
PANEL DEBATE
developments in the
global custody
Custody and
market Technology
Christian Hudson, Swiss American Securities Incorporated
With over 12 years of experience in the financial industry, Christian Hudson currently leads Swiss
American Securities Incorporated’s (SASI) Information Technology group as chief information officer. He
has been instrumental in SASI's e-business initiatives, from the formation of business and technical
plans to the launch of several new products.

Robert Mattsson, Nordea

Robert Mattsson is product development manager at Nordea's Securities Services and has over 18 years
of experience in financial services. He has worked in demanding positions in product development and
client relations for banks, broker-dealers and services providers. In his position prior to joining Nordea,
he was responsible for OMX Front Office products and offerings worldwide.

Jonas Modigh, Handelsbanken

Jonas Modigh is the head of Product and IT development at Handelsbanken Nordic Custody Services.
He has been with the company since 1997 and in custody since 2000. Prior to his present role, he
worked as the head of custody operations in both Sweden and Denmark.

Jan Penne, DnB NOR

Jan Penne is currently head of Securities Services and Global Custody at DnB NOR. He has been with
the group since 1985. He has held different positions within DnB/DnBNOR, including managing
director of DnB Investor, the mutual fund company for a number of years.

Göran Fors, SEB

Göran Fors is global head of Custody Services, Merchant Banking at SEB. He has worked in the
securities industry for 24 years and has spent the last 10 years with SEB. He has been actively involved
in a range of market initiatives during this period. He has been mainly responsible for services to global
financial institutions.

34 INVESTOR SERVICES JOURNAL

ISJ24 pp24-41 ML 6/9/07 4:25 pm Page 35

PANEL DEBATE - CUSTODY AND TECHNOLOGY

Which technological developments have most
affected the custody market over 2007?
Hudson: SASI continues to focus on a
number of technology enhancements in
order to support our customer centric
focus. These include outsourcing,
regulatory compliance, security and the
expansion of our range of markets and
services. I believe most major players in
custody have been busy in these areas.
One technology development that may
have affected the custody market this year
has been the industry’s willingness to
consider buy versus build options. In this
fast changing environment it has
sometimes become necessary to consider
best of breed external solutions, rather
than costlier, more time intensive in-
house builds. This has created another
technological phenomenon where
integration and implementation of core
systems and processes now can account
for a substantial portion of a business
group’s effort and budget.
Mattsson: Definitely the way of
communicating via XML messaging and
online information has started to catch up
the custody market. That has opened up
new possibilities and made it possible to
add more complex value added services
that could be tailored to individual
clients’ needs. And clearly, Swift’s new
XML standard messaging (MX) has been
an interesting topic in the industry. And
when that picks up speed, it will
definitely affect the industry, even though
I feel that it will take its time.
But my view is that changes in the
market have affected the technology
more than the opposite way around.
Areas like MiFID and the Giovannini
barriers, and the changes they have on
the industry should not be forgotten. In
the Nordic region, we have experienced
record volumes during the last year in the
sub-custody industry (a record growth of
almost 200% in transaction volumes since
January 2006 in Nordea alone), which
have put pressure on the industry to
further develop the technological and
infrastructural capabilities. On the other
hand, these volumes have been made
possible because of the high
technological capabilities we have in
place in the Nordic countries. It is
evident, that it is in everyone’s interest to
ensure the capacities are in place to deal
with any surprising fluctuations.
Modigh: Even though it may be difficult at
this stage to refer to them as
developments, I would say that the
discussions regarding Target2 Securities,
MiFID and Project Turquoise have had
the greatest impact on the custody
market during 2007.
Target 2 Securities, given that no final
decision has been made, has led to
uncertainty on what the future of the
European landscape for clearing and
settlement will look like, which has
impacted developments and investments
of systems and infrastructure. This is
especially true in our home markets,
where NCSD runs the depositories in
both Sweden and Finland and are
currently consolidating the activities of

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ISJ24 pp24-41 ML 6/9/07 4:25 pm Page 36
PANEL DEBATE - CUSTODY AND TECHNOLOGY
the CSDs. With Finland being a euro
market and not Sweden, there are
questions on how this consolidation can
be done with Target2 Securities, which
will to our understanding initially aim for
the euro markets.
However, if Target2 Securities has
raised questions that have yet to be
answered there are other activities that
have compelled custodians to implement
and commence technological
developments. MiFID demands
structural upgrades and the high increase
in trading volumes is also an incentive for
providers to ensure that their systems are
top notch.
Project Turquoise is also interesting,
major banks have created a pan-European
trading platform with a set up for
clearing and settlement. This platform is
supposed to offer trading at lower cost
than the national exchanges. If the
project is successful we can expect
trading flows from the local markets to
move onto the Turquoise trading
platform.
Penne: The main issues here could be the
new Swift standards ISO 15022, the
significant Swift 2007 changes and the
implementation of MiFID.
Fors: I believe we have a number of areas
that have taken up most of the
technological developments during 2007.
Continuous development within the area
of corporate actions is a very major area,
the increasing demand for handling of
alternative investments is also
increasingly important and, of course,
the specific changes due to MiFID.
Are custodians spending more on technology
than ever before? What is driving this?
Hudson: Without question! This is driven
by the need to accomplish more with the
same resources. What I mean by this is
many custodians, SASI included, have
seen a dramatic rise in the amount of day
to day activities requiring administration
by the same amount of staff. For this
reason, other business units within the
company look to technology to do more
with the same number of people. By
spending more on technology and, in
turn, automating more processes, firms
are attempting to use human resources in
the most efficient way possible.
36 INVESTOR SERVICES JOURNAL
Competition, consolidation and
globalisation in the custody marketplace
are driving custodians to spend more on
technology in an effort to differentiate
themselves from their competitors.
Custodians are focusing on providing
solutions to their clients in the areas of
enhanced client servicing, risk
management and regulatory compliance.
Mattsson: Definitely, yes. The increased
service demands from clients, together
with tougher competition and lower
prices are driving the industry to greater
creativeness in finding solutions. The
increased requirements from clients on
further automation of corporate actions,
especially, are resulting in extensive
investments for custodians and we see
that this trend will continue to increase in
the near future. I also believe the record
volumes we have recently experienced
are an important driver for technological
improvements in this industry and are
forcing some players to spend more on
technology than anticipated.
Modigh: It is hard to speak for the market
in general, but I believe that high level
spending can be seen throughout the
markets. This is due to several reasons.
First and foremost it is because quite a
number of custodians run systems on old
platforms. With the increased
requirements for harmonisation and
adaptation to new products and
regulations, these old systems cannot
cope and need to be replaced. The costs
for such changes are high and this is the
main reason for the high spending on
technology we see today.
Two other factors behind higher
spending is the increased competition
among custodians and the search for
increased cost effectiveness, which can be
found in consolidation and the higher
efficiency of new systems.
Penne: Yes, we believe custodians are
spending more on technology, and that
there are several drivers for this. The
customers expect custodians to excel at
traditional custody services and provide
increasingly complex value added
services tailored to clients’ individual
needs, at lower and lower prices. This
requires custodians to improve their own
cost efficiencies, and build in flexibility in
their systems so that they can adapt to
the changes in customers’ needs.
Investments in technology are also
needed to continuously support new
market regulations and mandatory
market practice. Furthermore, the
ongoing restructuring in the financial
sector, M&A activity keeps many
organisations busy spending money on
technology. These are good reasons to
conclude that the custody business is
increasingly technology driven, being the
only way that custody organisations can
achieve the scale and the efficiencies that
they need to effectively service clients
and at the same time get the flexibility
benefits required to remain competitive
in this marketplace, in addition to
complying with new regulations.
Fors: Yes, custodians are spending more
on technology than ever and I believe this
will be a continuing trend. Custody is
becoming more and more complex with
an increasing number of markets and
more complex instruments. Our clients
invest more into alternative investments
and the demands from clients concerning
accurate information will continue to
grow. Clients will be looking for
compliance reporting as well as
performance reports. Risk monitoring
will be of increasing importance and this
means that custodians will have to enter
into to new fields in order to service the
clients.
Who is at the cutting edge of technological
development in this space and who dominates
the market? Why?
Hudson: The larger custodians have huge
budgets, big project teams and very
expensive systems. This can lead to very
advanced systems infrastructures, and it
can also lead to a level of inflexibility
that does not serve the client in an
optimal manner. I think you can
differentiate the players that are
primarily concerned with scale and those
that are concerned with the client – Swiss
American can be found in the latter
category.
Mattsson: In general, I don’t see that any
specific player is at the forefront of the
technological development in the custody
industry. Of course, different players
have different strengths in the industry
and it depends very much on the region
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ISJ24 pp24-41 ML 6/9/07 4:42 pm Page 38
PANEL DEBATE - CUSTODY AND TECHNOLOGY
you operate in. And in the end it’s about
matching price with functionality, quality,
and speed.
In the Nordic region, the markets are
fragmented and require in many ways a
local approach to assessing the
requirements for technological
development. Nordea currently runs our
own internally built custody systems in
all of our locations but with some
common processes, which we feel has
brought the full benefit to us to meet the
above mentioned requirements.
Modigh: From a custody provider
perspective I would say that the US
global custodians are the frontrunners
when it comes to technological
development. Mainly because they have
the highest spend on technology based
on their size as providers.
Penne: To date, the custody market has
been predominantly supported by
internally developed solutions, many of
which are over 20 years old. DnB NOR
made the decision to invest in an external
product and reviewed several solutions in
the market. After a very detailed and
extensive process we decided on
Information Mosaic’s product, converg-e.
We selected Information Mosaic as the
party that best served our needs to
support our business requirements,
volumes and extensibility for the future
based on their significant focus and
investment in the custody sector.
Fors: As I see it, there is no specific IT
company that is in the lead in the Nordic
region, within specific sectors you can
find dominating providers like SimCorp
and OMX.
How are M&A among banks with custody
operations affecting technology platforms?
Hudson: Consolidation has, in many
instances, led to opportunities for those
who remain cognizant of the
requirements of their existing and
prospective clients. Consolidations have
resulted in custodians having to change
their focus from customers to trying to
manage various disparate technology
platforms and processes. Additionally,
clients in many of these consolidations
have had to migrate from one offering to
another, at times offering a diminished
38 INVESTOR SERVICES JOURNAL
level of functionality. Another area of
client concern has been the fact that these
newly combined organisations have even
larger and more complicated
infrastructures, which do not lend
themselves to client level customisation.
Mattsson: Based on our own experience as
a bank formed by merging four local
banks with custody operations cross
border, we can say that local
infrastructures still are at the centre of
the demands placed on us. This in turn
has led us to emphasise a common
reporting layer to act as a regional
custodian. Good interfaces and
integration possibilities within a cross
border bank in four separate markets are
of utmost importance to ensure good
connectivity across borders. So,
technology providers that could supply
platforms with very good integration
possibilities will definitely have a great
The discussions regarding Target2 Securities, MiFID and
Project Turquoise have had the greatest impact on the
custody market during 2007
advantage. With that said, I believe
potential infrastructural changes like
Target2 Securities and Swift’s MX
standard will have an bigger impact on
the technology platforms than actual
M&A among banks.
Modigh: Hard to say, as Handelsbanken
does not have any experience with M&A,
but I would think that a merger between
two custody operations is an opportunity
to adapt the systems. There can be
several scenarios, either you can stay as
you are and build a link between the two
systems, you can use the better existing
system of the two banks, which can be
sensitive for the business ‘ loosing’ its
system, or you can take the opportunity
to invest in a completely new system. The
third option is probably the best
depending on the scale of the business.
However, it is also worth to note that
there is a backside to M&A. There is a
challenge with initially higher costs and
the risk that focus is taken away from the
business and much time and energy
instead given to the consolidation.
Penne: The constant move towards bigger
units in the financial sector keep a lot of
organisations busy finding acceptable and
workable solutions for the merged unit,
and hopefully concluding to migrate to
one common system. Although
economies of scale and increased
efficiency often are the key drivers in an
acquisition, we believe that in the initial
stage after an acquisition/merger the
organisations typically do not have the
time to develop and migrate to more
modern and flexible solutions. Therefore
is plausible to assume that the M&A
activity among banks slows down a move
towards more modern and flexible
solutions, while investments in
technology remain high.
Our experience is also that migration,
where both merging units have relatively
modern and flexible platforms are still
very costly and complicated, partly
caused by technological factors, but to a
large degree due to differences in how the
systems and data are set up
Fors: In the Nordic region, we have a very
limited number of mergers between
banks but those that have been have
resulted in a fairly slow consolidation of
platforms, I believe this will pick up
speed, as cost pressure and critical mass
will push for reduction of the number of
platforms. This is also affected by the
creation of more centralised operational
set ups and the cross border activities
that are very important today.
How is tighter regulation of the custody
market influencing technology platforms?
Hudson: Adherence to regulation is
obviously key to supporting our clients
and our business in general. Technology
provides the solution to changing
regulatory requirements by allowing
rapid adoption of the necessary changes.
It also allows us to work closely with our
clients to understand the regulations.
Lastly, clients can be confident knowing
that our cutting edge technology ensures
that we are always compliant with
changes in regulations.
There has been a heightened
ISJ24 pp24-41 ML 6/9/07 4:42 pm Page 39

PANEL DEBATE - CUSTODY AND TECHNOLOGY

requirement for access to a diverse set of
information on a timely basis. This
information is required internally and
also needs to be available at the client
level. This has added another level of
technological support across all
platforms to facilitate a new level of
regulatory compliance.
Mattsson: Tighter regulation naturally
increases the pressure for us to make sure
there are no technological loopholes.
Technology platforms both need to be
open and flexible enough so that different
regulatory bodies get the reporting that
they want. At the same time, systems are
required to be ‘closed’ in many other
respects. But regulation will always be an
important factor when considering all
kinds of development in the industry.
And tighter regulations usually add an
extra cost factor to both new projects to
the maintenance of systems, which goes
Nordea Bank AB (publ)
against the trend of continuous lowering
of prices in the industry.
Modigh: As mentioned in the first
question, I believe that tighter
regulations are one of the driving forces
for custodians and depositories to replace
Target 2 Securities has led to uncertainty on what the
future of the European landscape for clearing and
settlement will look like
old systems and invest in more modern
technology. Also for those with relatively
new systems, changes in regulation can
mean an increased cost for technological
development.
Penne: Increased regulation puts pressure
on the developments required to conform
to these changes. In an ideal world, tight
and predictable regulations could lead to
development of standards, protocols,
interfaces that the custody industry
would adopt and accept, and the vendors
would bring competing solutions to the
marketplace.
If, however, tighter regulation is
expected, but uncertainty prevails about
what regime of regulation would come in
place and how it will be implemented, the
opposite can very well be the case for a
longer period of time. You may say that
the Nordic region and also Europe have
been, and will be in this limbo position for
some time now. Therefore lots of money
has been and will be invested in building
flexibility and contingency into systems,
some of which will be well spent money,
but nevertheless, huge amounts will be

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ISJ24 pp24-41 ML 6/9/07 5:30 pm Page 40
PANEL DEBATE - CUSTODY AND TECHNOLOGY
money wasted. As we see it we do not
have a choice. Systems must be flexible,
as the new messaging and industry
standards are constantly placing new
demands on systems. In the future there
will not be less regulation but more.
Fors: Tighter regulation and
harmonisation of the infrastructure will
mean that we will see more and more
standardisation and that there will be
more platforms and they will be similar
to each other.
Is there likely to be consolidation in the
technology providers to the custody business
over the next few years? Why/why not?
Hudson: There is a natural cycle at work
here where innovation often takes place
in small, more nimble companies, much
like SASI, and is then either copied or
By spending more on technology and, in turn, automating
more processes, firms are attempting to use human
resources in the most efficient way possible
acquired by larger organisations.
The large providers will tend to get
larger because of the cost efficiencies
they are able to offer. The second tier
providers will probably have to assess
their offerings and make some strategic
decisions based on their value proposition
and how they want to differentiate
themselves. In the secondary spaces some
firms will most likely decide to specialise
in a certain market segment or product.
There is also the strong possibility that
certain strategic alliances will be forged
in the near term.
Mattsson: I see that the number of
custody providers in Europe will
decrease in the coming years. This will
undoubtedly in the end affect the number
of technology providers and cause them
to develop in the same direction.
Modigh: I think we today see consolidation
in all business areas in order to build on
scale and the technology providers for
the custody business will not be excluded
from this.
Penne: The recent taking private of
SunGard may mark the beginning of the
40 INVESTOR SERVICES JOURNAL
reconsolidation of technology sectors. At
the same time, a number of medium sized
vendors with strong industry focus are
experiencing high growth. We do not
have any strong views on this but tend to
believe that while there will always be
consolidation, we believe that buyers will
have more choice of vendors in the
future.
Fors: Yes, due to the standardisation and
need for cost efficiency we will see
consolidation between providers.
What will the technology sector of custody
business look like in five years’ time? Where is
the next area for growth?
Hudson: At present, we are looking at all
the client service areas that exist within a
normal custody business and attempting
to build better systems for each area. Fast
forward five years and my guess is,
instead of focusing on improving service
in an area like corporate actions, we will
be much more driven to integrate
business intelligence tools across all
areas to allow clients to access
information at whatever time, and in
which ever way, they need it.
In the next five years, there will be
even more standardisation and
globalisation and as a result custodians
will have to provide an even greater level
of client service and support. This
support will probably require a closer
relationship between the business and
technology groups in both provider and
recipient organisations. Technology will
be much more focused on providing
access to information and solutions to the
global process.
Mattsson: The greatest challenges are, in
my view, in the area of corporate actions.
But other services will also definitely
change, such as web solutions that
compete with Swift in communication
with clients. The constant pressure of
lowering costs will result in more
possibilities for solutions that facilitate
different service bureau services or acting
as member concentrators in Swift, and
possibilities to share infrastructure where
it is not seen as a competitive advantage
to have it in-house.
I also believe the road to success in the
next couple of years in the custody
business will be to be able to help our
clients in their whole business. This
includes other services packaged
together with custody and in many ways
further integration of systems with that
of the clients. And in order to do that the
technology needs to support integration
between these different systems and
services.
Modigh: I think that in 2013, we will have
come quite close to a harmonised
European platform for clearing and
settlement. Banks and brokers will be
able to connect directly to the
depository/operator of such a platform.
This means that the role of custodians
will change. More focus will be put into
specialised and regionalised products and
services, for example linked to servicing
hedge funds. This will also mean changes
for the technology providers and I think
that the market for systems related to
clearing and settlement may decrease,
while corporate action related systems
and systems related to management of
derivatives and other instruments of
interest for hedge funds will increase.
Penne: We selected a product that enables
us to run multiple business units from the
one platform, allowing us to look at our
business through internal growth but
also provides the potential for external
growth. We expect that some custodians
will provide a service to their clients to
manage their assets directly through a
service offering.
Fors: The sector will be growing and that
is mainly in the area of outsourcing
services, like fund administration, but
also services and products supporting the
increasing complexity of investments.
Investors will be looking for additional
reporting covering a wider area than
today. Products that will be able to assist
investors in monitoring risk will be of
crucial importance. We will also see
continuous pressure on efficiency and
cost reduction and that means that IT
development will be of great
importance.■
ISJ24 pp24-41 ML 6/9/07 4:43 pm Page 41

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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.
ISJ24 pp42-61 ML 6/9/07 6:30 pm Page 42

SWIFT IN 2007

s author Robert Gallagher once

A noted, change is inevitable (except

from a vending machine). This
year, Swift has certainly proved that
point. Not only has there been a
changeover in CEO following the
retirement of longstanding Swift veteran
Leonard Schrank in April, a number of
key executives have also stepped down
and a new organisational structure has
been put in place. It seems that another C
should be added to Campos's three Cs for
2007.
The new organisational structure is
built around four blocks centred on the
customer, explains Campos. These four
blocks consist of: the three geographical
regions (the Americas, Asia Pacific and
EMEA); the key Swift markets; products
and customer service; and the core Swift
messaging platform. The markets are
broken down yet further still into: banks
and payment market infrastructures;
broker-dealers; corporates; custodians
and securities market infrastructures;
global transaction banks; industry
programmes and the project
management office (PMO); investment
managers; and standards.
Various corporate functions support
the four blocks, and the heads of the
regions and the groups report into the
CEO, explains Campos. “By May 2008,
Swift plans to recruit an additional 400

Finding people worldwide in support of its goal

of enabling its customers to eliminate
inefficiencies in their operations and
provide them with a platform for business
growth,” he adds.

balance Regardless of these structural

New CEO Lázaro Campos has indicated that
Swift has refocused its energies on the three
Cs: compliance, customers and culture.
Virginie O'Shea investigates what
this means in practice
changes, Swift users such as JPMorgan
do not appear to be concerned that Swift
will radically alter its strategic vision.
Theodore Rothschild, JPMorgan global
business manager for Swift, says: “Since
Lázaro had considerable input to the
2010 plan in his previous role as Banking
Division executive, JPMorgan thinks
that the management changes at Swift
will not have a major directional change
on its strategy.”
Although Campos is certain that Swift
has loyal and valued customers, he admits
that Swift as an organisation is not
currently as customer centric as it could
be. “We have traditionally been quite
inward looking. Even our functional
organisation is inward looking. As a
result, both our relationship model and

42 INVESTOR SERVICES JOURNAL

ISJ24 pp42-61 ML 6/9/07 7:17 pm Page 43
our service model need to be revisited. As
we have expanded our product portfolio
and geographical reach, our customer
base has become much more diverse,” he
explains.
“Our traditional service model, for
example, has a significant impact on our
customers. As we moved to SwiftNet, a
lot of the responsibility for ensuring that
the technology worked as it should was
left to the customer. You want to connect
to Swift? You have to go to a network
partner to choose a network solution; you
need to go to a service partner for
integration. We should become a one stop
shop service. There are good historical
reasons for what exists, but we need to
revisit our service model,” he continues.
Campos is certainly qualified to make
this assessment: he joined Swift in 1987
and was appointed head of the Banking
Industry Division in 2003. Moreover, he
has over 20 years of experience in
international banking and financial
services and has held a number of other
commercial and product posts across
Swift, including market infrastructure
projects, product management, education
and standards. Former Swift CEO Lenny
Schrank also had high praise for Campos
on the announcement of his
appointment: “Lázaro is the customer's
CEO, even more than I was. He has spent
time with the customers, they know him
well and know how he thinks. Lázaro has
the vast experience, community backing
and the commitment to take Swift
forward.”
Campos explains that his focus this
year is on making the process of doing
business with Swift simpler. “After all,
fund managers don't want to 'connect' to
Swift. They just want the connectivity to
access our solutions. They have a back
office application to talk to their
custodians, prime brokers and broker-
dealers. They just want help to get
started and a number to call when things
go wrong. We don't give that experience
to our customers yet. Our major
customers are different again. They don't
even want to know there is a box,” he
elaborates.
He believes that Swift's core business
should include upgrades to the customer
interface and to avoid bombardment with
information, the only reason customers
should be told about a new release is
when there is a new message standard
their back office must know about.
Customer segmentation and targeting is
also being implemented through the
restructure. “Our new organisation
reflects customer centricity through
customer segmentation, with a value
proposition for each segment,” says
Campos.
JPMorgan's Rothschild is a proponent
of Campos's agenda: “Lázaro nicely
summed up the key execution agenda for
Swift: first, continue to manage and help
the industry understand Swift's role in
complying with regulatory requests of
all sorts, and second, to be more customer
focused as the Swift community competes
for more and different types of
customers. And that in turn suggests the
need to shape a culture that is quicker to
respond to competition, a little more
commercial in its nature and focus, and
continuing to ensure it's all about
'making it easier' for their customers.”
One of the key segments in his plan is
Swift's traditional area of focus: the
payments market. Geoffroy de Schrevel,
head of Payment Markets. Banking
Industry Division at Swift, explains that
with the ultimate goal of developing a
local presence in emerging markets such
as Brazil, Russia, India and China and in
accordance with the Swift 2010 market
initiative BRIC+, Swift is in the process
of opening several local offices. The aim
is to reach local customers and be as close
as possible to upgrades to market
infrastructures. “We want to provide and
share experience and expertise from
other markets. We would like to be the
financial community natural partner for
standardisation and network architecture
and also for supporting changes in
business models,” de Schrevel contends.
Despite the changeover in CEO, it
appears that the 2010 market initiatives,
released last year, are still at the forefront
of the Swift executive's minds. Swift's
work around the Single Euro Payments
Area (SEPA) was highlighted as one of
these initiatives at Sibos in Sydney, and
much progress has been achieved, says de
Schrevel. “In 2007 and the end of 2006,
we saw the European Payments Council
(EPC) come in with the final scheme
rulebooks for SEPA and the Payments
Services Directive (PSD) finally voted on
by the European Parliament. We
translated those protocols into machine
readable ISO standards,” he explains.
SWIFT IN 2007
Those 2010 market
initiatives in full
(and progress in 2007)
■ Corporate access: Swift's
enhanced corporate to bank
access model became live and
commercially available after a
three month pilot in January.
■ Trade services: JPMorgan and
BNP Paribas processed the
first live interbank end to end
transaction through the
SwiftNet Trade Services Utility
(TSU) in April this year.
■ Target2: The Eurosystem has
decided to use Swift
messaging services for the
communication between the
banking community and the
Single Shared Platform.
■ SEPA: Swift has announced
that by the end of December
2007, it will offer two new
SEPA directories. Six
automated clearing houses
will test compliance with SEPA
standards using the Swift
Testing Programme.
■ Giovannini and MiFID: Swift
published its final report on
the high level gaps in ISO
messaging, as part of its
continued commitment to
removing Giovannini Barrier 1,
in June this year. Swift
messages have also been
modified to ensure MiFID
compliance.
■ BRIC+ and market
infrastructures: Swift is in the
process of opening local offices
to get closer to local customers.
■ Remittances: Swift has begun
formally engaging with
remittances as a category of
cross border financial
transaction.
■ Securities: SwiftNet securities
traffic grew by 26.8% over the
period of July 2007. Swift has
indicated that it is working with
Omgeo to provide standards and
messaging services to the
securities market.
INVESTOR SERVICES JOURNAL 43
ISJ24 pp42-61 ML 6/9/07 6:30 pm Page 44
SWIFT IN 2007
“This defined an environment where
the protocols were specified, the
standards were defined and the legal
aspects of the SEPA project were
decided. But we quickly discovered this
was only a little part of the story - as we
go into implementation, a number of
issues have arisen,” de Schrevel adds.
These issues include the lack of the
capacity to reach an account after
debiting another one across Europe and
being able to send payments from one
bank to another. “This is crucial to SEPA,
without it you don't have SEPA. It was
seen by us as a major challenge - how to
get there,” he says.
The second issue Swift identified was
the requirement for sufficient
interoperability - the same
implementation of the same standards by
all parties. Lastly, was what de Schrevel
calls “switch-ability”: the capability of
banks to switch from one ACH to another
We would like to be the financial community natural
partner for standardisation and network architecture
at little or no cost. “There was no
guarantee the banks could reach other
banks, as each one of the 7,000 banks in
Europe had different views on how to
connect. There was also the risk that
some ACHs would introduce specific
implementation requirements and lock in
banks,” de Schrevel adds.
In reaction to these concerns, a number
of major financial institutions
collaborated to set up the SEPA Testing
Advisory Group and asked Swift to
provide support and guidance. The
group's remit is to look at how a bank can
implement SEPA and how the banks can
reach one another in a SEPA
environment. “We have close to 500
institutions that have registered to the
testing programme. We have the eight
biggest ACHs in Europe onboard. We
spent a lot of time defining and
identifying the hurdles to those problems
and we have provided documents that
describe solutions,” he explains.
Swift has also begun work on its SEPA
data registration programme, which
includes the BICPlusIBAN Directory
and the SEPA Routing Directory. The
benefit of the BIC/IBAN directory is
that the bank will be able to ensure the
BIC or IBAN they put on a direct debit
44 INVESTOR SERVICES JOURNAL
transfer is the correct one, says de
Schrevel. Swift is currently registering
all customer IBANs with their
corresponding BICs in the database. The
routing directory categorises through
which ACH or clearing and settlement
mechanism a bank can be reached.
According to de Schrevel, both services
are already available for the banks in the
testing programme and will be made
available to everybody on time for the
January 2008 SEPA launch.
SEPA will be one of the three major
elements at Sibos this year, says de
Schrevel: “There are many similarities
between outside Europe in payments and
in Europe, with Target2 and SEPA.
Everything we do for SEPA, we will be
able to adapt to the rest of the world.
The second major part of Sibos will be to
explain that what we are doing for SEPA
is also relevant for regions like Asia or
the Americas.”
Target2 is likely to be another key
discussion topic during the conference:
“We will have a new Europe-wide system
replacing the current decentralised
system with one technical platform. As
from November, all the central banks and
commercial banks will be able to use
SwiftNet to connect to Target2.” There
is also increasing convergence of high
value and low value processing, says de
Schrevel. “We are moving towards a
system where, in terms of processing, a
payment is a payment is a payment.
Between a card payment and high value
payment, banks choose a processing
model not according to the amount of
the payment, but because of features like
speed, security and price. You might
expect a few announcements regarding
low value initiatives in areas other then
Europe,” he elaborates.
Sibos will also include a corporate
forum this year, following last year's
discussions about getting more
corporates to attend the event. Swift has
obviously been pushing for further reach
into the corporate community with the
launch of its new corporate to bank
access model, SCORE, early this year.
Elie Lasker, Swift for Corporates,
solution manager, explains: “SCORE has
made great progress and is moving ahead
well, with over 150 financial institutions
(from 35 different banking groups) and
over 35 corporates registered since the
beginning of the year, when the service
went live. We have put significant effort
in awareness campaigns such as
participating in conferences, speaking at
industry or bank organised events. We
are also investing resources in easing the
on-boarding of corporates through
working with vendors and supporting
these firms to enable their applications to
work with Swift.”
The area of remittances, which was
also identified in the 2010 document as a
potential avenue for growth, has also
seen some progress over this year. “We
now have a group of major banks, which
together with Swift, are designing the
network architecture and defining a
number of rules all participants will
agree to. This group is established and
we will have the design of the
architecture ready for the end of 2007.
The discussion on rules will take a little
longer and we will do that in the first
half of 2008. We want to have a first
pilot towards the end of 2008. Doing
this global scheme in 24 months is a
major achievement. There's a real
appetite from the banks to do this and
candid support from local regulators,”
says de Schrevel.
Much progress has been made in the
area of payments it seems, but securities
is now as much at the core of Swift as
payments, contends Campos. If one looks
at the recent progress towards the 2010
initiatives (see box out on previous page),
many of Swift's achievements have been
in the securities services and alternative
investments market. JPMorgan's
Rothschild highlights Swift's work with
ISDA to transport FpML over the
network as a case in point: “Swift has
worked diligently with the industry and
with ISDA to add choreography to the
initial FpML schemas, and to create the
pilot and plans for evolution. We think
this bodes extremely well for the future.
How many people foresaw securities
messages encompassing roughly 50% of
Swift's traffic when they were first
considered in 1982?”
Swift has certainly had its fair share of
challenges this year but it appears that
despite the changing faces, for the time
being at least, it is business as usual.■
ISJ24 pp42-61 ML 6/9/07 6:30 pm Page 45

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ISJ24 pp42-61 ML 6/9/07 6:31 pm Page 46

REAL-TIME REFERENCE DATA

The coming revolution

Marc Alvarez of Asset
Control looks at the
area of real-time
reference data

46 INVESTOR SERVICES JOURNAL

ISJ24 pp42-61 ML 6/9/07 6:31 pm Page 47
andering around Wall Street
W and the City these days, a
recurring topic that comes up
is the move to making data availability as
a utility. More often this statement pops
up, mainly in the context of reference
data and back office systems.
While the thought of moving away
from the batch-based processing and silos
of the past is compelling, the reality is
quite different. For starters, changing
data infrastructure is not easy and
involves a lot of risk. Experience shows
that it is easy to talk about, but devilishly
hard to implement. Therein lies a
fascinating paradox - business
increasingly requires improved
timeliness and full access (both critical
aspects of data quality), while
simultaneously being constrained by the
ability to make only incremental changes
to underlying technology infrastructure
and operations.
The demands of the emerging lines of
business point in one clear direction: data
content needs to be available across the
enterprise on demand - just like the latest
Harry Potter movie or the final Sopranos
episode. All content must be at hand,
fully ready for use on as up to date and
timely a basis as possible.
This means not only traditional real
time streaming data, but includes batch
oriented back office content as well.
Above all, changes to data at the field
All data content - whether reference or real-time - needs
to be brought into a single, seamless whole, complete
with full source attribution and audit trails
level need to be notified to subscribing
users as soon as the change is detected -
shipping files on a batch basis and forcing
the business application to figure out the
changes, isn't going to cut it.
Some of the drivers underlying this
shift are easy to identify. Automated
trading capabilities are voracious
consumers of data content in order to
support increasingly complex cross asset
and cross markets strategies. Throw in
the hedges that go with this strategies
and it is really challenging. Increased
regulatory demand and operational risk
management require improved
transparency over data content and usage
across the whole enterprise. There isn't a
single executive committee out there that
isn't taking a closer look - whether their
firms are actually regulated or not.
Increased transaction volumes across a
wider variety of securities put pressure
on today's operations. A far greater
variety of content needs to be ready to go
than ever before and the trend is for yet
more to come.
The good news is that there is already
a technology model out there for meeting
these requirements. Streaming real-time
services have been producing content for
use in this manner for decades. Now,
however, the universe of content that is
required is growing beyond the
boundaries of these systems to include
both reference data, as well as content
generated in-house. More importantly,
this content is coming from a variety of
sources such as web logs and other non-
traditional sources. To be useful it all
needs to get to the network and be
accessible to business users.
There is only one feasible answer: all
data content - whether reference or real-
time - needs to be brought into a single,
seamless whole, complete with full source
attribution and audit trails. In a nutshell,
the differences between real-time and
reference data are increasingly going to
evaporate. And in the emerging new
world, having to wait for the batch to
complete running in order to trigger
downstream operations, simply will not
meet the performance requirements.
For the most part, the technology and
infrastructure already exist to support
real-time data access in-house.
Technologies such as messaging, publish
and subscribe, and high performance
databases are already deployed to support
aspects of availability and performance.
It's only a matter of time, likely as the
result of some unforeseen regulatory
requirement popping up, before they are
turned to support enterprise wide
services.
REAL-TIME REFERENCE DATA
A real-time world is a pretty exciting
prospect. Some of the benefits that can be
expected include significantly improved
time to market for new applications to
support new lines of business as the
firm's full inventory of data content
becomes mission ready. Also notification
of data changes as they are received,
radically changing the basis on which
both trading and post trading activities
are conducted. More visibility and
transparency into precisely what data
content was used by specific applications
and staff, and improved risk management,
allowing for valuations and calculations
to be performed on the basis of changes
to data values, not the closing of some
arbitrary scheduled job.
As with all things in the IT and data
space, none of it will come for free.
Adapting to the availability of data in the
emerging real-time world will be
challenging. New state of the art, event
driven applications and capabilities are
going to be deployed alongside and, more
importantly, in cooperation with legacy
applications and business processes.
The obvious place to start is to compile
the inventory of data content available to
the firm and start planning to make it
available across the enterprise, subject to
appropriate permission. Shrinking
margins and the arrival of new
competitors mean this is not a decision
that can be put off for long. The benefits
to the bottom line will come not only
from eliminating the entrenched legacy
costs, but the far more interesting
prospect of new revenues from new lines
of business that can be undertaken
without having data content on the
critical path.
The forces pushing the industry
towards a real-time operating model are
very strong and likely irresistible over
the medium to long term. On the other
hand, the net benefits make it an exciting
prospect with many new opportunities.■
Marc Alvarez is vice president, Products
and Marketing at financial software
applications firm Asset Control and
author of the recently published Market
Data Explained: A Practical Guide to
Global Capital Markets Information
(Butterworth-Heinemann, a division of
Elsevier, www.books.elsevier.com)
INVESTOR SERVICES JOURNAL 47
ISJ24 pp42-61 ML 7/9/07 11:51 am Page 48
SIBOS 2007 - VENDOR PROFILES
Broadridge Financial Solutions, formerly ADP Brokerage Services
Group, is a leading global provider of technology-based
outsourcing solutions to the financial services industry. Our
international systems and services include global securities
processing, investor communications and a SWIFT bureau.
Broadridge's market-leading international securities processing
solutions deliver extensive market-proven functionality and
straight through processing for institutional and retail securities
operations. Broadridge offers comprehensive investor
communications and proxy processing services for international
banks and brokers, institutions, and for corporate issuers and
their agents.
EUROPE: +44 20 7551 3000
NORTH AMERICA: +1 888 237 1900
ASIA PACIFIC: +852 2869 6393
E: INFO@BROADRIDGE.COM
WWW.BROADRIDGE.COM
Sibos Stand: C29
Clear2Pay delivers globally applicable solutions for secure, timely
electronic payments. Clear2Pay's technology helps to reduce
transactions processing costs, and to deliver new, compelling e-
payment services in a competitive way. Clear2Pay's solutions
within the Open Payments Framework (SOA) offer Banks the ability
to process payments through a centralised payments engine that
utilises a library of re-useable business services across all
payment types.. Clients include financial institutions such as ING,
SEB Kort, VISA, MasterCard, ABN AMRO, Nordea, Abbey National,
Fortis Bank, ANZ and Commonwealth Bank. Headquartered in
Belgium, Clear2Pay operates out of 11 offices around the world
and currently employs over 240 staff.
CLEAR2PAY NV S, SCHALIËNHOEVEDREEF 20A
2800 MECHELEN, BELGIUM
T: +32 15 79 52 00, F: +32 15 79 52 01 E:
INFO@CLEAR2PAY.COM WWW.CLEAR2PAY.COM
Sibos Stand: G29
48 INVESTOR SERVICES JOURNAL
CB.Net is dedicated to the delivery of reference data
solutions, to the global banking and corporate communities.
CB.Net is the official provider of the European Payments
Council SEPA Register of Participants and the Euro Banking
Association Priority Payments Scheme Central Repository.
BankSearchPlus incorporates them and The S PA Directory
(available as a separate module) to offer a completely
integrated database, including IBAN2BIC to validate and link
IBANS to payment routing BICs. BankSearchPlus, is the
definitive international payments directory, delivering critical
operational data in one source – either as a web-based query
tool or data feed – directly into back office systems.
CB.NET LTD
MARKET HOUSE
124 MIDDLESEX STREET LONDON E1 7HY
T: +44 (0)20 7522 6094 F: +44 (0)20 7522 6100
Sibos Stand: A39
DST International provides software solutions and services to
700+ clients in 55 countries, meeting the complex, multi
asset-class requirements of fund managers, wealth
managers, dealers, settlement staff and custodians. Every
area of the business is provided for, from front office portfolio
and order/execution management, through data
management, risk management and performance
measurement, to investment accounting and corporate
actions. Our latest solutions address complex initiatives such
as derivatives processing, asset liability matching and best
execution.
DST HOUSE
ST. MARK’S HILL
SURBITON, SURREY, KT6 4QD
+44 (0) 20 8390 5000 INFO@DSTINTL.COM
WWW.DSTINTERNATIONAL.COM
Sibos Stand: F03
ISJ24 pp42-61 ML 7/9/07 11:51 am Page 49
Financial Tradeware provides integrated portfolio management
and SWIFT messaging solutions as well as cost-effective SWIFT
connectivity through EGP/FT services. Financial Tradeware has
developed a suite of modules covering front-office order entry,
middle and back office administration, accounting,
compliance, clearing and settlement. These modules can be
integrated to provide automation and management for the
entire trade life cycle for small to medium sized investment
management firms, fund managers and hedge funds.
■ H-Fund: the hedge fund portfolio management solution, now
also available online as an ASP ■Ultra.net: the investment
manager and broker portfolio and fund management solution ■
S-Messenger: the financial message broker to generate,
transform and transport messages ■ Cost-effective MA-CUG
registration and SWIFTNet Member Concentrator connectivity
CONTACT: GRAHAM BRIGHT FINANCIAL TRADEWARE, 31 DOVER
STREET, LONDON, W1S 4ND, UNITED KINGDOM
W: WWW.F-TRADEWARE.COM E: G.BRIGHT@F-TRADEWARE.COM
T: +44 (0) 20 7493 2773 F: +44 (0) 20 7495 4858
Sibos Stand: B11
ING Wholesale Banking Securities Services: Deep knowledge
of local markets, trusted advisor, flawless execution of
service, tremendous lobbying effort for further market
development.
ING Wholesale Banking Securities Services is part of ING
Group and is specialised in asset related services such as
local and regional custody and settlement.
ING Wholesale Securities Services is the largest foreign
provider in terms of assets and number of foreign clients in
Central & Eastern Europe. ING is committed to the
securities business, providing Custody Services in this
region since 1994
ING WHOLESALE BANKING SECURITIES SERVICES
LOCATION CODE BV 07.0, VAN HEENVLIETLAAN 220
1083 CN AMSTERDAM, THE NETHERLANDS
T +31 20 7979 435, F +31 20 7979 617
E LILLA.JURANYI@MAIL.ING.NL
Sibos Stand: B06
SIBOS 2007 - VENDOR PROFILES
GlobeTax is the world's pre-eminent withholding tax recovery
and market data specialist. GlobeTax's SWIFT based services
include TRSB - the Tax Reclaim Service Bureau providing
intermediaries with Virtual Straight Through Processing or
"VSTP" of tax reclaims using ISO15022 corporate actions
messages and FileAct. GlobeTax also provides withholding tax
market reference data over SWIFT's Data Distribution
platform. The firm benchmarks efficiency at over a million
reclaims a year. GlobeTax covers over 230 markets worldwide
with a zero fail rate and market beating recovery times. For
more information visit GlobeTax.com.
CONTACT: USA: LEN LIPTON, 90 BROAD STREET, NEW YORK,
NY 10004 TEL. +1 (212) 747 9100. EMAIL
LEN_LIPTON@GLOBETAX.COM
ROW: ROSS MCGILL, L33 25 CANADA SQUARE, CANARY WHARF,
LONDON E14 5LQ TEL. +44 20 7268 3962 EMAIL
ROSS_MCGILL@GLOBETAX.COM
Sibos Stand: A34
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
Sibos Stand: G31
INVESTOR SERVICES JOURNAL 49
ISJ24 pp42-61 ML 7/9/07 11:51 am Page 50
SIBOS 2007 - VENDOR PROFILES
Invest Northern Ireland is the economic development agency
for this region of the United Kingdom. It offers businesses
setting up there a flexible and comprehensive service and
incentives to accelerate growth, maximize profitability and
facilitate recruitment, training and R&D.
Northern Ireland attracts global financial services firms
such as Citi, the Allstate Corporation and Liberty Mutual
because of its labor pool of skilled people, competitive costs,
favorable macro-environment, sophisticated infrastructure
and existing cluster of synergistic businesses.
To find our more about what Northern Ireland can offer,
meet us at Sibos (booth B24) or visit our website:
WWW.INVESTNI.COM/INVEST
Sibos Stand: B24
OpenLink’s Findur is a front- to back-office, cross-asset
trading, risk management, and operations software solution.
Serving today’s capital markets, treasury & asset/liability
management, and metals/commodity markets, Findur’s
straight-through-processing functions includes hundreds of
standard security and product types and an embedded risk
foundation allowing users to evaluate risk in market, credit,
and operational exposures against various asset classes.
Findur quickly manages cash forecasting, profit/loss
attribution, reserve calculation and distribution, regulatory
reporting, tax calculations, balance generation and financial
settlement details. Findur is FAS 133 & IAS 39 compliant.
CONTACT: GARY KOCHE +1 (516) 227-6600
OPENLINK, 1502 REXCORP PLAZA, 15TH FLOOR – WEST
TOWER, UNIONDALE, NY 11556
WWW.OLF.COM
Sibos Stand: C08
50 INVESTOR SERVICES JOURNAL
Building on more than 21 years of successful presence in
capital markets with over 200 clients and 20,000 users
worldwide, Murex has developed an unmatched competence
in the design and implementation of cross asset integrated
trading, risk management and processing solutions for the
world’s top financial institutions, hedge funds, asset
management companies and corporations.
A team of over 800 specialists, located in America, Europe
and Asia are dedicated to providing clients with the best
support in the industry.
FOR FURTHER INFORMATION ON OUR COMPANY AND
PRODUCTS OR TO SCHEDULE A MEETING WITH OUR
REPRESENTATIVES, KINDLY CONTACT US AT
SIBOS@MUREX.COM.
Sibos Stand: D33
RBC Dexia Investor Services offers a complete range of
investor services to institutions worldwide. We are a joint
venture equally owned by Royal Bank of Canada and Dexia
and rank among the world's top 10 global custodians, with
USD 2.4 trillion in client assets under administration.
RBC Dexia Investor Services provides clients an extensive
range of innovative solutions including: global custody, fund
and pension administration, shareholder services,
distribution support, reconciliation services, transition
management, investment analytics, compliance monitoring
and reporting, securities lending and borrowing, treasury
services and commission recapture.
CONTACT: 77 KING STREET WEST, 35TH FLOOR, M5W 1P9,
TORONTO, CANADA
T: +1 416 9553560 F: +1 416 9556554
E: ANNIE.BLOUIN@RBCDEXIA-IS.COM
W: WWW.RBCDEXIA-IS.COM
Sibos Stand: B10
ISJ24 pp42-61 ML 7/9/07 11:51 am Page 51
SEB is the leading provider of Custody Services in the
Nordic/Baltic Region measured in AuC-, Transaction- and
Quality terms. SEB holds Custody Assets exceeding EUR
500 BN and offers services in more than 70 global markets.
SEB acts as sub-custodian in 9 markets in Northern and
Eastern Europe (Denmark, Estonia, Finland, Germany,
Latvia, Lithuania, Norway, Sweden and Ukraine). SEB offers
a full set of services in the Settlements, Asset Servicing and
Reporting space. We continuously develop products and
services through dialogue and partnership with our clients
and will always recognize that the Custody business more
than anything else is a peoples business.
CONTACT: GÖRAN FORS, GLOBAL HEAD OF CUSTODY SERVICES,
GORAN.FORS@SEB.SE
ULF NORÉN, GLOBAL HEAD OF SUB-CUSTODY CLIENT
RELATIONS, ULF.NOREN@SEB.NO
Sibos Stand: B22
Société Générale Securities Services offers institutional
investors, asset managers and financial intermediaries a
comprehensive range of financial securities services:
custody, clearing & trustee services, fund administration,
asset servicing and transfer agency. SGSS currently ranks
3rd European custodian and 9th worldwide custodian
(Source: Globalcustody.net) with EUR 2,448* billion in
assets held and valuates 4,140* funds representing assets of
EUR 365* billion. (as of March 2007)
CONTACT: SEBASTIEN 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
Sibos Stand: C42
SIBOS 2007 - VENDOR PROFILES
SmartStream Technologies provides enterprise-wide, real-time
Transaction Lifecycle Management (TLM®) solutions that
deliver sustainable ROI through non-disruptive business
transformation. Using SmartStream’s solutions clients can
tackle the barriers to STP and create more efficient,
customer focused, cost-effective, compliant operations.
At Sibos, SmartStream will be demonstrating the latest
versions of their TLM applications, workflow and integration
technology that deliver visibility and control the transaction
lifecycle. This includes solutions for:
■ Cash Management ■ Compliance Management
■ Corporate Actions ■ Exception Management
■ Reconciliations ■ Trade Finance
■ Trade Process Management
WWW.SMARTSTREAM-STP.COM
Sibos Stand: C17
UniCredit Markets & Investment Banking (Bank Austria
Creditanstalt & its affiliates) through-out Emerging Europe
(Central and Eastern Europe and South-Eastern Europe) is
recognised as one of the leaders in the specialised provision
emerging market Custody. The group offers both Custody to
both domestic and foreign investors or their agents in 14
markets across the region.
CONTACTS:
MICHAEL ASCHAUER, GROUP HEAD OF CUSTODY, CEE
DAVID PENSTONE, HEAD OF SALES & BUSINESS DEVELOPMENT
ANDREAS PETZL,
HEAD OF GROUP SALES & RELATIONSHIP MANAGEMENT
ATTILA SZALAY-BERZEVICZY,
HUNGARY, LOCAL HEAD OF CUSTODY
BEATA SZÖNYI, HUNGARY SENIOR RELATIONSHIP MANAGER
MIROSLAV VELIKOV, BULGARIA, LOCAL HEAD OF CUSTODY
Sibos Stand: B14
INVESTOR SERVICES JOURNAL 51
ISJ24 pp42-61 ML 6/9/07 7:03 pm Page 52
CORPORATE ACTIONS
Is it done yet?
Corporate actions remains on the STP to do list,
but how much real progress has been made?
Jamie Darlow investigates
he increasing use of technology
T in financial services, across all
offices and all areas of business,
has undoubtedly brought advancements
and money making potential to many. Yet
it is has also brought to an end some of
the traditional ways of turning a profit -
no longer can a margin trader doing
scores of trades a day hope to compete
with the latest algorithm conducting
scores a second. Investment banks are
feeling mounting pressure to streamline
their processes by cutting costs and the
processing of corporate actions events
could be the next area of focus.
The recent white paper from the
Association of Global Custodians (AGC)
draws a bleak picture of parts of the
current scene. It states that progressive
change at every stage of the
communications stream is urgently
needed and that reliance on non-uniform
or paper-based methods of
communication imposes unnecessary and
substantial direct and indirect costs for
the parties involved.
David Kane, global custody operations
executive at JPMorgan, agrees with the
paper and believes its main message is
that there is room for improvement in
every area, although some aspects of the
overall process are better than others.
52 INVESTOR SERVICES JOURNAL
The beginning stage of an event is where
omissions in the corporate actions event
chain appear most acutely with issuers, as
serving agents typically begin events
with non-standard paper-based
communications.
“When an issuer is announcing the
details of a corporate action, that's still
very manual and at early points of the
process, the vendors and the custodians
are having to gather the corporate action
information manually and convert the
data into an electronic format,” Kane says.
“What the industry is looking for is more
automation at that front end, so when a
prospectus is issued, a data summary for
automation can also be included.”
Kane's thoughts are echoed by Swift's
senior business manager for its North
American securities industry division,
Linda Bookheim. “There are some
custodian banks that have completely
overhauled their systems, but they need
their counterparties to receive the cleaner
data themselves and have the standards in
place to do that - everyone has to get
engaged,” she says.
However, the latest capital markets IT
spending priorities survey from Aite
Group suggests sell side firms and hedge
funds aren't prepared to spend to keep
pace with the community. Respondents,
13 sell side firms and 12 hedge funds,
ranked corporate actions processing
fourteenth in their list of priorities for IT
initiatives this year - equal last place with
imaging and document production.
Bookheim and Kane's views are -
perhaps unsurprisingly, given the
relationship of Swift to its owners - in
synch, but their close relationship also
highlights the lack of a similar
relationship between issuer and
custodian. This is reflected in the
composition of securities association's
boards, like the Securities Industry and
Financial Markets Association (SIFMA)
and International Securities Association
for Institutional Trade Communication
(ISITC), where corporates are not
represented. Individual banks are making
efforts to improve their automated
communications with corporates, such as
BNY Mellon, Morgan Stanley Citigroup,
which all have projects in this space, but a
concerted effort industry-wide remains
tantalisingly out of reach, either by
design or omission.
Scrubbing data is one way around the
problem and does offer a reliable and
comprehensive fix for corporate actions
notifications. But this approach tackles
the symptoms rather than the root causes
- cleaning up the problems rather than
ISJ24 pp42-61 ML 6/9/07 7:03 pm Page 53

When it comes to trading,

slow doesn’t win the race
When you’re trading, you need fast, accurate information on corporate actions to make the right
decisions. In fact, according to a recent study by Oxera, a U.K. economics consultancy, such data is
essential to take advantage of short-term trading opportunities caused by even routine corporate
actions.

DTCC’s Global Corporate Action Validation Service collects and quickly distributes complete
information on almost 1 million other corporate action events from more than 150 countries
involving 1.5 million securities. No one else offers broader, better global coverage.

Trading is tough enough even when you know what’s going on. You need every advantage
you can get.

For more information, contact DTCC Solutions LLC at gcainfo@dtcc.com

or by phone at: GCA Sales: New York Phone: +1 212-855-4144
GCA Sales: London Phone: +44 (0)20 7650 1501
GCA Service Center: Shanghai Phone: +(86 21) 3220-4710 x8021
For a free downloadable copy of the Oxera report, go to
http://www.dtcc.com/Publications/oxera2006.pdf The Logical Solutions Provider
ISJ24 pp42-61 ML 6/9/07 7:03 pm Page 54
CORPORATE ACTIONS
tackling them at their corporate source.
Seeking to lay the finger of blame is
unrewarding however, but understanding
where problems lie is essential to cutting
out the difficulties.
Gary Wright, CEO of BISS Research
in the UK, advocates providing
regulatory incentives to corporates and
adding competition to the market. “At the
moment, there is no incentive whatsoever
for corporates to get involved and clean
up their corporate actions,” he says. “The
generic view of corporates is, they pay
firms to do that for them and effectively
delegate the responsibility. What I've
been working on is providing an incentive
to them from regulators. Second, we need
open up the system to competing
networks to create competition. Swift is a
bank network and creaking at the seams”
In the meantime, automating and
cleaning up corporate actions is a must.
JPMorgan's project, dubbed
Announcement Capture, aims to
completely automate the collection,
checking and verification of a golden
record for a corporate action, before
passing them on to its clients. According
to JPMorgan, this required a major
investment in terms of technology and
people, but then it can afford to invest
large sums. With USD600 million spent
annually on the global custody and
securities business - a “sizable
percentage” of this goes to corporate
actions, the bank says.
Announcement Capture is essentially a
reconciliation engine which takes the
factual components of a corporate action,
between 10 and 20 in number, and
automatically matches them. If they do
match from the five data feeds JPMorgan
uses for this service, a golden record is
generated and issued to clients by Swift
formats, chiefly ISO 15022. If a match is
not made, the announcements are put into
a repair queue and the bank must
manually clean them up.
The project is both an in-house
development and a vendor project,
integrating Information Mosaic's
software with the bank's existing systems
and fitting the bank's new requirements
in. At present, JPMorgan is
implementing and introducing the
programme into the live working
environment and making sure it works.
“We are doing some of the relatively
straightforward activities, reconfirming
54 INVESTOR SERVICES JOURNAL
that the vision is being delivered and
there's complete integration with all
other platforms,” explains Kane.
“Through the course of the rest of this
year we can really expand and by the end
of 2007, we will have the full programme
up and running.”
JPMorgan's goal here is to ensure
accurate corporate actions events are
always put out to clients in a timely
manner - the automated nature of the
programme ensures speed of delivery for
clients to act upon that information, while
reconciliation or further manual checking
ensure accuracy. “We have an 80% STP
At the moment, there is no incentive for corporates to get
involved and clean up their corporate actions
rate, leaving 20% fax - it's good but it
could be better,” says Kane.
Yet the US bank certainly isn't making
money from this project, it is simply
breaking even in terms of development
costs versus efficiency savings. So why
bother? Corporate actions is one of the
areas where JPMorgan can most
differentiate itself as a leading global
custodian, Kane answers. “Many custody
activities are becoming commoditised and
most firms can achieve a fairly high
standard, but in areas like corporate
actions - particularly in emerging
markets and in large scale debt
restructurings - that's an area at which
you have to work very hard to
differentiate.”
As long as banks continue to use
corporate actions processing to compete
with one another, there remains a
problem with corporate actions
processing. How long this process goes
on for is largely dependent on the players
themselves. The industry has now settled
on Swift's ISO messaging as the preferred
standard for messaging and take-up has
been steadily rising over recent years.
“The standard is as good as the industry
chooses to make it, so it is in all our hands
to make it succeed or fail,” comments
Robin Kneale, product manager at
transaction services vendor Broadridge.
The ISO 15022 standard has been
generally accepted as the industry
standard for passing corporate actions
messages and the community does seem
to be witnessing unspectacular but steady
take-up. From January to June 2007,
Swift saw volumes rise 19% to over 33
million messages and expects this rise to
continue. Traffic volume was at 17%
growth for the same period last year, with
28 million messages.
Meanwhile, the total number of
corporate actions, as recorded by the
DTCC, has remained flat over recent
years. Last year there were fewer than
900,000 corporate actions messages, the
year before there were 825,000, while
2004 saw 900,000 actions. “The number
of Swift corporate actions has increased,
so it's not organic growth in the number
of corporate actions events, but
institutions switching to ISO standards,”
Bookheim explains.
Nevertheless, a sizable proportion of
parties to the corporate actions chain do
not yet use Swift, and the sheer number of
interested parties with differing
requirements complicates the issue.
“There continues to be two main barriers
to overcome in the complete automation
of the corporate action business event
cycle,” explains Amy Harkins, senior vice
president, BNY Mellon Asset Servicing.
“The first is the large number of
intermediaries involved in the lifecycle of
a corporate action. For example: the
offering agents and transfer agents; the
securities depositories; custodian banks;
and the investors who are represented by
large institutional investment managers.
Each player or participant in the process
has their own messaging and business
and operational process requirements.”
Harkins listed the cost of maintaining
a corporate actions engine as the second
barrier, where the engine must be ISO
15022 capable and providing vendor and
depository interfaces - for the both
receipt and the instruction of the
corporate action information - and be
flexible and customisable. But adoption of
ISO 15022 will never reach critical mass,
as the majority of firms sending and
receiving corporate actions data perform
so few as to make the investment costs
prohibitive. The Swift network can
reduce costs if more people use the
service, but small time corporates won't
ISJ24 pp42-61 ML 6/9/07 7:03 pm Page 55

Take
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Corporate Actions
workflow and integration technology
allow you to control transactions that cut
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through organisational silos, connecting
processes and people, bringing real-time

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Trade Process Management

Compliance Solutions
By building automated scalable and flexible
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your business.

To find out more, please call:

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info@smartstream-stp.com www.smartstream-stp.com
ISJ24 pp42-61 ML 6/9/07 7:03 pm Page 56
CORPORATE ACTIONS
move until costs are lower, a classic
Catch-22. Wright says Swift is not the
panacea of the problem, not least because
the number of corporates connected to
the Swift network fall well below 50% of
the market.
Even if adoption of ISO 15022 were
100% among all users and issuers of
corporate actions data, there would still
be problems. Late and inconsistent data
among the players is still a large issue for
the industry. This is especially true where
Swift users are not using the standard
properly - a long running bone of
contention among the receivers of the
information who have to clean it up, like
the DTCC.
James Femia, managing director for
DTCC's Global Corporate Actions area
explains that the DTCC deals with
thousands of ISO corporate action
messages each week, from more than 140
custodians worldwide. This presents two
problems, he says: “Around 40% of the
event categories, the highest level of the
corporate message, are marked as 'other' -
anytime you do that, it requires manual
intervention. Second, ISO 15022 does not
include all the data fields that many
customers require to process corporate
actions efficiently. At the DTCC, this
requires us, in addition to the ISO
publication file, to continue to publish in a
proprietary format as well. Later next
year, we will be offering customers a
Ideally, everyone would have the same standard, but in
practice, it's just not possible. It's like herding cats
robust XML format of the data as well.
We have talked to Swift about the promise
of ISO 20022, but launch and take-up still
seems to be many years away.”
Euroclear has been working towards
producing commonly agreed definitions
and classifications for the bond market,
due to be delivered through the ISO
20022 standard. Euroclear expects the
project to break some of the barriers and
produce a complete STP chain from
issuer to investor. “We have embarked
upon a market initiative to standardise
and harmonise processes in the
international market to reduce risks and
provide cost savings - standardisation
will also help to absorb ever increasing
volumes,” says Yannic Weber, managing
director and head of Euroclear's
56 INVESTOR SERVICES JOURNAL
Commercial division.
Weber explains the international
Eurobond market - for which the new
standard was created - presented even
more problems than regulated markets,
with increasing numbers of structured
assets and no standardisation. “The
Eurobond market is extremely innovative
and booming and allows for the issuance
of operationally complicated securities,”
he says. “The operational challenges are
exacerbated by the fact there is no
product standardisation.”
A coupon payment, unknown at the
time of issuance and linked to swaps,
illustrates the complexity, explains
Weber. “The collection of that
information is very difficult without a
standard,” he says. “An ISO standard and
an agreement on the information
collection process will help automation.
At the moment, the information format is
different every time.”
Continues Weber: “For domestic
securities, each local market has created
its own set of standardised operational
practices. But at least there is one unique
way of processing transactions in these
regulated markets. Moreover, with the
support of the Euroclear Group markets,
we have harmonised these domestic
market practices in view of moving to
our single platform.”
The International Standards
Organisation (ISO) approved the creation
of the standard last year, after Euroclear
submitted the business justification for
the new messages. Euroclear discussed
the proposal with the agent banks of
issuers. The newly defined ISO messages
are due to be registered by the end of the
year and delivered through the new ISO
20022 standard. The issuer will then be
able to electronically communicate the
corporate actions message to the central
securities depository (CSD). Weber says
this is not a difficult change for the
involved parties: “All the securities are
already with the securities depositories,
so structurally, there will be no change,
except for streamlining and automating
existing processes.”
Euroclear has set up a working group,
which held its inaugural meeting in late
June, bringing the community together.
“There is very good momentum, as
people have come to realise there are
better ways to reduce both the cost base
and the risks,” Weber says. “If we tried to
do this on our own we would not succeed:
we need the backing of the agent bank
communities, the issuers, the broker
dealers and the legal experts.”
Across the pond, the Asset Managers
Forum (AMF) Corporate Actions
Committee has also not been idle. It has
been publishing recommendations for
standardising the information in
corporate actions announcements - rather
than the message format itself - to reduce
the risk of misinterpretation and resolve
some of the shortcomings of ISO 15022.
AMF, SIFMA CA Division and ISITC
have formed a joint working group to
develop sample templates, which can then
be used by custodians and issuers.
The templates are to be based on the
information identified in the event
identification grid (EIG), and will be
harmonised with the SMPG and DTCC
to ensure industry coordination. The
AMF Corporate Actions Committee is
currently gathering feedback from asset
managers to decide which corporate
actions types are most high risk or high
volume, and should therefore be tackled
first.
Can we reasonably expect
improvements from these industry
efforts? Standards and messaging
protocols have been put on a pedestal and
promoted as the saviour of corporate
actions, but have often proved a damp
squib. ISO 15022 was launched over five
years ago, but adoption is not universal
and the standards are not uniformly used.
ISO 20022 may in the not too distant
future revolutionise the way we conduct
corporate actions, as it will use the XML
format, making it easier for corporates to
connect.
Currently however, the old adage that
standards are great because there are so
many to choose from remains
depressingly true for corporate actions.
“Everyone that manages data at some
point puts up the standards flag and runs
with it, but they don't carry it very far,”
explains Adam Honore, senior analyst at
Aite Group. “Ideally, everyone would have
the same standard, but in practice, it's just
not possible. It's like herding cats and no
one wants to do that.” ■
ISJ24 pp42-61 ML 7/9/07 3:28 pm Page 57

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ISJ24 pp42-61 ML 6/9/07 7:06 pm Page 58
PROXY VOTING
The SEC is
attempting to tackle
the tricky area of
proxy voting, explains
Jamie Darlow
ootball fans famously bought
F Barcelona Football Club in 2006,
and now investors vote every four
years to decide the club's president -
something still denied to many individual
investors in the US. However, this is now
up for review under the latest proposals
from the Securities Exchange
Commission, which could see investors
enjoying greater control in how public
companies are governed.
At present, shareholders do not have
the option to vote 'no' to board seat
nominations, leaving the only feasible
option to opposition an expensive
lobbying campaign. The SEC issued the
new proposals after a federal appeals
court questioned the long standing policy
that allows companies to keep critical
shareholder resolutions away from proxy
ballots. The rule as it stands permits a
company to exclude a shareholder
proposal from its proxy materials, the
logic being it prevents the circumvention
of other proxy rules, providing investors
with adequate disclosure of elections.
The SEC is currently considering
comments from the industry on the rules
58 INVESTOR SERVICES JOURNAL
Scoring a
touchdown?
changes, and will be until 2 October.
Early responses have been mixed, with
some investors condemning any change,
while others suggested a form of
qualified representation, with investors
who hold a certain percentage of stock
being empowered to nominate board
members.
Past history does not inspire
confidence in the success of the latest
proposal, however. An SEC initiative four
years ago to open up the process of how
a company is run was crushed after
corporate America protested against a
change in the fundamental structure of a
company. The latest developments mark
the sixth time since 1976 that regulators
have attempted to change the way
corporate board members are elected and
each time, an impasse has been reached.
But it seems the mood may have
changed in the US since 2003. The scales
could be about to tip in the direction of
the investor, after a separate rule from the
SEC introduced an amendment to the
notice and access rule, also termed the e-
proxy rules. The notice and access rule
change will empower investors, according
to Attila Bodi, Partner at New York law
firm McDermott Will and Emery, which
counsels clients on corporate matters,
including securities law compliance and
corporate governance. “The e-proxy rules
will make it easier for activist
shareholders to wage proxy contests or to
otherwise oppose issuer nominated board
candidates because it greatly reduces the
procedural burdens and the related costs
in an insurgent campaign,” he says.
The rule change, which came into force
on 1 July, marks efforts by the SEC to
substantially decrease the expense
incurred by issuers when soliciting
involved parties. This is particularly
important in North American markets
where issuers pay for the services, says
Diana Bourke, president and chief
operating officer of technology vendor
Swingvote.
“The cost of printing and mailing and
getting returned mail scanned in is
significant,” says Bourke. “A package of
material could be USD15 and in many
cases people are not doing anything with
the material, but they must by law
distribute it. The savings there are
ISJ24 pp42-61 ML 6/9/07 7:06 pm Page 59
ISJ24 pp42-61 ML 6/9/07 7:06 pm Page 60
PROXY VOTING
significant, especially as these are
available online for an individual when
voting.”
Yet there will be little impact on
investors and none for institutional
investors, according to Chuck Callan,
senior vice president of regulatory affairs
at Broadridge. “For the most part, their
votes are electronic today and they will
continue to use this medium to vote,” he
explains. “In the 2007 proxy season that
just concluded, 89% of the votes we
processed were cast by electronic means.
Across all shareholders - for institutions,
it's higher.”
Similarly, Pete Friz, vice president
global voting and transaction processing
services at ISS Proxy sees nothing
changing for the institutions, which
already vote electronically. Instead,
individual investors will feel the effect, he
says: “So the mechanics for e-voting have
been widening and ISS has clients
ranging in size from small to large.”
Continues Friz: “Currently, the SEC
allows electronic delivery of ballots,
annual reports and proxy statements, but
this option could only be utilised if the
investor requested e-delivery. The new
SEC proposal reverses this arrangement
The e-proxy rules will make it easier for activist
shareholders to wage proxy contests
with electronic delivery (or, more
accurately, access via the web) of annual
reports and proxy statements becoming
the default, forcing investors to request
hard copies.”
Cost savings for the average investor
may have been the intended purpose of
the e-proxy rule change, but many have
speculated an increase in participation
would follow. Surely the rationale goes,
make it easier, quicker and simpler to vote
and more will do so. Perhaps not, Bodi
suggests: “If I am a small shareholder
and I receive my proxy materials by mail
for a public company's annual meeting,
whether or not I am going to vote will
likely depend upon my historical interest
in the company. Receiving the materials
and voting through the internet may or
may not change that - it's just too early to
tell.”
If the e-proxy rules are successful in
dragging voting procedures into the 21st
60 INVESTOR SERVICES JOURNAL
century, greater investor involvement
through technology could halt the recent
trend from boards adopting unused
shareholder votes. The theory was that
equities were called equities because
owning one entitles you to the same
rights in a company as another investor
with one share. Not so anymore it seems,
as some investment trust management
companies have been awarding
themselves the voting rights of
shareholders who deign not to take them
up.
JPMorgan began the trend, using the
votes of shares held within their savings
plans if their owners did not exercise
their rights. BlackRock, Jupiter and
Allianz Global Investors have been quick
to follow the lead and plunge the issue
into a contentious grey area.
While many of the groups have said
they won't use their new powers to vote
on contentious issues, or where a possible
conflict of interests might occur, the new
powers are causing some unease. In
practice this will - rightly or wrongly -
distort the representation of votes and
could lead to 10% of investors deciding
the fate of all 100%. The New York Stock
Exchange (NYSE) has plans to preclude
this practice in the US, however, with the
adoption of Rule 452, expected in
January 2008.
Bodi's view is that the position of the
individual shareholder is strengthening.
“The upcoming adoption of revised
NYSE Rule 452, the two recently
proposed SEC shareholder proxy access
proposals, the recent AIG case regarding
director nominations by shareholders, the
majority voting movement, recent
successes in poison pill bylaw annual re-
approval provisions (such as the one
Disney recently adopted) and the
emergence and continuation of hedge
fund activism in general, one could say
that the e-proxy rules will be another
arrow in an activist shareholder's quiver,”
he explains.
Institutional investors' proxy service
providers also withstood regulatory
scrutiny this year as the US Government
Accountability Office (GAO) investigated
the practice whereby advisory firms make
recommendations to institutional
investors about how to vote. The GAO
found no major conflict of interest after
the nine month inquiry for Congress.
Critics had suggested corporations could
feel obligated to retain the consultancy
services to obtain favourable vote
recommendations, but the report found
investors do not overly rely on the
service. The report's findings paved the
way for the continued practice of
electronic proxy voting services.
Meanwhile Europe is experiencing the
same kind of reforms seen in the US,
albeit at a slower pace. In comparison to
Europe, the US has held a strong
tradition of shareholders being able to
vote by proxy. There is a mature private
proxy solicitation industry in the US
helping companies garner votes,
something that doesn't really exist in the
European markets. The next few years
may see this change, however, after the
formal adoption by the European
Commission in June of the corporate
governance directive on shareholders'
rights. The European Council and the
European Parliament made the directive a
European law and member states now
have two years to implement it into their
national laws.
The directive introduces minimum
standards to ensure shareholders have
timely access to all relevant information
ahead of the general meeting and simple
means to vote at a distance. This makes
the provision of electronic proxy voting a
reality across all 27 member states. The
directive also abolishes share blocking
and introduces minimum standards for
the rights to ask questions, put items on
the meeting agenda and table resolutions.
As is often the case in financial services,
the UK and US are further ahead than
their continental European counterparts.
It would be premature to expect full
adoption across the continent, says
McDermott Will and Emery's Azis:
“Although electronic voting is taking off
in jurisdictions like the UK, where the
legal environment is now established to
facilitate it (and where the proxy
solicitation industry is sure to grow),
without full implementation of the EU
directive and observance by continental
European companies, the take up will be
slow.” ■
ISJ24 pp42-61 ML 6/9/07 7:06 pm Page 61

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ISJ24 pp62-79 ML 7/9/07 10:44 am Page 62

EUROPEAN PAYMENTS

hy does Europe need 24

W clearing houses? Does the

market really need separate
infrastructures for high and low value
payments, and yet another system for
cards? Do banks really need to maintain
different systems for domestic, cross
border, euro and non-euro payments? Do
we wish to accept the cost of maintaining
27 different national payment systems?
These are the questions that Charlie
McCreevy, European Commissioner for
Internal Market and Services, posed to
the delegation at this year’s Single Euro
Payments Area (SEPA) conference for
public administrations in Brussels.
McCreevy drew attention to the cost
saving potential of SEPA during his
speech and stressed the need for banks to
realise the long term goals of the project.
“As a former finance minister, I believe in
this project as it is a way of freeing up
capital in the economy. Of course, I do
not deny that that there will be some cost
for banks to bear at the outset. But I
would encourage them to think of it as
like getting an injection: mildly painful
and inconvenient at the time, but highly
beneficial over the longer term,” he said.
Given that the legal foundation of
SEPA, the Payments Services Directive
(PSD), was delayed this year and will not
be implemented in national law until
November 2009, the long term view is
the only view possible. The delay
essentially means that SEPA direct debit
products will not be available before the
end of 2009, which makes the European
Payments Council’s (EPC) ambition of a
critical mass of SEPA instrument users
by 2010, unachievable. Moreover, only a
few member states have so far declared
their intention to phase out their
domestic payments systems and adopt
SEPA.
The delay to the PSD has, however, had

Poised for entry

The European payments landscape is
experiencing a period of dramatic change in
the lead up to the introduction of the Single
Euro Payments Area, Virginie O’Shea reports
the more positive side effect of allowing
banks to focus on the launch of the SEPA
credit transfer at the end of this year.
The delay was caused by a disagreement
among member states about how far the
directive should extend. Countries
including France, Spain and Italy were
concerned about the impact of the PSD
on their traditional domestic banking
industries due to the introduction of
further competition. Issues such as the
regulation of non-bank payment entities
were also contentious and a source of

62 INVESTOR SERVICES JOURNAL

ISJ24 pp62-79 ML 7/9/07 10:44 am Page 63

Sibos 2007 Boston

1-5 October 2007

Regional Solutions
for Global Payments
This October, once again the payments community
gathers for the annual SWIFT conference. We are
now quite a few years into the discussions around
strategic change on a global and regional level and
now face a period of adoption and implementation,
which carries its own challenges.

Whereas consolidation and standardisation are global phenomena; on a regional level they can mean completely
different things when it comes to adoption and implementation. In principle the drivers behind SEPA and Check21
are similar – regulation, but the implementations will differ significantly. Moreover, although the majority of
payments issues are the same, the devil is always in the detail; the last ten percent will make the difference
between success and failure, between enhanced revenue and additional cost.

At Clear2Pay we recognise these issues, since we live through them in projects we execute around the world. Our
teams in Europe, the Americas and Asia Pacific all work off the same roots and technology: our SOA based Open
Payment Framework (OPF), a truly global platform. In recognition of the differing requirements around the globe,
Clear2Pay has developed many regional solutions to local market problems. All of these solutions are derived from
the OPF which utilises our flexible, scaleable and open IT environment.

Clear2Pay will be present at Sibos, with its local teams of sales and payments experts
at stand G29. We are at your disposal to address a wide range of topics with you from
SEPA to CNAPS to Check21, Remittance and other payment services. It goes without
saying that our prime Open Payment Framework will be on show, together with our
Software Development Kit, which enables banks to quickly enhance the solution in-house.

We would be delighted to meet with you in person in Boston, so feel free to pay us a visit.
Offices: Amsterdam, Brussels,
Experience tells us that pre-booking meetings works well for both parties, it saves you
Boston, London, Melbourne,
time and we can ensure that the right expert is available in view of you particular
Madrid, Singapore, San Francisco,
Shenzhen, Sydney, Warsaw interest. Please email us with your availability and requirements and we will be in touch
within one working day.
Headquarters
Schaliënhoevedreef 20A
In the meantime we wish you an excellent business kick-off for the second
B-2800 Mechelen, Belgium
P: +32 15 79 52 00 half year and look forward to meeting you at Sibos.
F: +32 15 79 52 01
E: info@clear2pay.com
W: www.clear2pay.com The Clear2Pay Sibos team Clarity in Payments
ISJ24 pp62-79 ML 7/9/07 10:44 am Page 64
EUROPEAN PAYMENTS
debate during the 16 month period of
discussions.
This lack of national buy-in was, in
fact, the reason for this year’s SEPA
conference. McCreevy spoke of the need
to instil a sense of “momentum and
dynamism” to drive SEPA forward and
indicated that member states that fail to
implement on time will face action from
McCreevy spoke of the need to instil a sense of
“momentum and dynamism” to drive SEPA forward and
indicated that member states that fail to implement on
time will face action from the Commission
the Commission. “The public sector
needs to give a clearer commitment to
the banking sector that it is prepared to
take up and use SEPA products.
Assuming the performance requirements
we all expect can be assured, then the
public sector should be early adopters of
SEPA. It is not helpful to those making
investments in developing SEPA
products if the public sector cannot give
a reasonable degree of assurance on
SEPA take-up. The Ecofin Council has
already made it clear what its price and
quality requirements are as far as SEPA
products are concerned,” he explained.
McCreevy charged the banking sector
with designing SEPA products that are
attractive to customers, competitively
priced and that retain, at the very least,
the levels of performance that current
national products have. He also spoke of
the need to ensure that there are adequate
governance structures in place to manage
SEPA. In this vein, the EPC published
the rulebooks for SEPA instruments at
the end of 2006, which detail the
specifications for how to build SEPA
payment instruments.
Gertrude Tumpel-Gugerell, member
of the executive board of the European
Central Bank (ECB), also spoke at the
conference and explained the reasons
behind the introduction of SEPA to the
assembled public sector delegates. “The
current fragmentation of retail payment
infrastructures has so far prevented
competition between service providers of
different regions in Europe.
Fragmentation has also hampered the
development of innovative solutions,
especially in the field of cross border
64 INVESTOR SERVICES JOURNAL
payment services,” she said. All of these
hurdles to European integration will be
tackled by SEPA, which will foster
competition and innovation in the
banking industry by removing the
barriers that formerly protected national
markets. SEPA will create a single set of
rules, equal access conditions and equal
treatment across the continent, so that
banks will be able to offer efficient
services in new markets, she explained.
Alan Buckland, vice president, Global
Product Management, the Bank of New
York Mellon, believes that many are
underestimating the amount of work
that needs to be done in order to fully
realise SEPA. “Firstly, we need to
recognise that SEPA is the largest
payments project ever undertaken in
Europe, and as such it is highly
complicated. There is no single industry
body that could provide support across
the whole SEPA project spectrum, and
with anti-competitive and monopolistic
considerations at the EU political level,
no single body could actually be formed
for that purpose,” he says.
The EPC has taken an industry role
that is specifically restricted to setting
down agreed standards for
harmonisation in the non-competitive
space and as such, it is limited in its
scope. Furthermore, the council
comprises representatives from only 70
out of the potential 8,000 European
banks, and there is no corporate or
consumer representation. “So even
though the EPC is nearest thing that we
have to a payments industry body, its
representative scope is actually quite
narrow,” Buckland contends.
The lack of a single body is largely
why the interoperability element of the
clearing and settlement infrastructure
across Europe is still quite poorly defined
at present, says Buckland. “Any further
industry cooperation in terms of, say,
designing the interoperability space
could have been deemed by the EU to be
anti-competitive. As such, the clearing
and settlement infrastructure is being
allowed to develop freely, driven purely
by market forces. It is still evolving and
there is an element of competitive
secrecy in terms of early disclosure of
precise service capabilities and costs,” he
explains.
From a corporate perspective, the cost
of migration from existing systems to
SEPA standards may be dissuasive
compared to the perceived longer term
advantages, adds Alan Koenigsberg,
JPMorgan Treasury Services’ core cash
product executive for EMEA and the
Americas. The initial resistance of banks
to the idea is understandable; the
changeover to SEPA instruments will
involve high costs and investment in IT
infrastructure and the project will
introduce greater competition into
domestic markets. However, SEPA is
meant to represent a positive change for
corporates and the very fact that the
group that is due to benefit the most from
the project is not fully behind it is telling.
It seems that many of the parties that
will be worst affected by SEPA are taking
it seriously, but their exact level of
readiness is rather hard to determine.
Buckland explains: “Many of the major
banks say that they are ready and the
technical interfaces are indeed being
tested. It is however, still quite difficult to
extract a full SEPA proposition,
including definitive pricing and detailed
service levels. There seems to be little
doubt that banks will be technically able
to handle SEPA Credit Transfers as from
1 January 2008. An interesting question
will be to what extent the market will
actually take up the new credit transfer
service in its early days.”
JPMorgan’s Koenigsberg agrees that
from the perspective of the credit
transfer scheme, the larger players are
moving towards becoming SEPA ready,
or they will be by early 2008. “However,
many smaller players do not appear to
have registered the need for change or
are delaying undertaking the necessary
work. For SEPA Directive Debits there is
still considerable work to be undertaken
and without this functionality SEPA
remains only a partial reality,” he
continues.
According to EBA Clearing, the
company owned by around 70 Euro
Banking Association (EBA) member
banks that owns and operates the EBA
ISJ24 pp62-79 ML 7/9/07 10:45 am Page 65

40 years on and nothing

much has changed in the
payments industry.

Until now.

On 2 July 2007, VocaLink launched a new Euro

Clearing and Settlement Mechanism (€CSM)
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across the Single Euro Payments Area (SEPA).
This means that you can select the lowest cost
or fastest execution for your transactions.

VocaLink’s €CSM epitomises the SEPA vision

– to drive down costs and improve customer
service. In addition, we have a roadmap
of value added services that will deliver you
new revenues and cost savings. These services
include corporate access, direct debit mandate
management and a routing and reformatting
service for both SEPA and non-SEPA transactions.
Some of Europe’s leading banks have already
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At the heart of the transaction

ISJ24 pp62-79 ML 7/9/07 10:45 am Page 66
EUROPEAN PAYMENTS
payment systems Euro1, Step1 and
Step2, more than 100 banks are currently
preparing for or already participating in
the company’s testing process for the
SEPA Credit Transfer Service on the
Step2 platform. Daniel Szmukler, head of
communications and corporate
governance at EBA Clearing, indicates
that about 30 of these banks have also
signed up for testing the Step2 SEPA
Direct Debit Service at this stage.
Furthermore, a number of banks,
including Deutsche Bank and JPMorgan
Chase, have announced that they will use
the Step2 platform as their single channel
for all SEPA payments, at both a national
and a cross border level, says Szmukler.
In June 2007, EBA Clearing announced
that it would be ready to process intraday
euro payments on 1 January 2008 in
compliance with the Priority Payment
Scheme via Euro1, its clearing and
settlement system for individual and high
value payments. The EBA Priority
Payment Scheme is an open standard,
non-proprietary value added service open
to all banks in SEPA.
On 30 July 2007, EBA Clearing
announced that Step2’s credit transfer
service would begin receiving
transactions on the 25 January 2008,
with the first settlement on the morning
of the 28 January. Szmukler elaborates
on the details of the scheme:
“Participation in the scheme guarantees
the end to end processing of single credit
transfers within four hours and will
thereby enable banks to offer urgent,
intraday credit transfers in euro to their
customers. Participant banks are free to
send their scheme compliant messages
through any processing channel that is
able to handle priority payments.”
EBA Clearing’s system is seen as
possibly the only current viable
contender for the pan-European
automated clearing house (PE-ACH)
moniker. The concept of a PE-ACH is
based on two major pillars: the ability to
reach all banks in SEPA and a country
neutral governance structure. A PE-ACH
is expected to perform clearing and
settlement functions for both SEPA
direct debits and SEPA credit transfers.
Accordingly, Step2 is a country neutral
system that has indicated that it will
extend its reach in the euro countries,
with the objective of extending this
coverage to all banks in Europe.
66 INVESTOR SERVICES JOURNAL
Szmuckler stresses that in order to
fully realise the benefits of the PE-ACH
platform and to successfully deal with the
complexity of the transition process
from today’s legacy payment landscape to
the new SEPA environment, all players in
the market must work together. “Neither
EBA Clearing nor the individual banks or
payment providers are in a position to act
as isolated players in the payments
market,” he adds.
The attempt to compete in the PE-
ACH environment has not been limited
The current fragmentation of retail payment
infrastructures has so far prevented competition between
service providers of different regions in Europe
to EBA Clearing’s efforts, however. “We
currently see the domestic ACHs
adapting their service offerings to handle
SEPA payments and the larger ACHs
have been aggressively pitching for
business from banks beyond their
domestic markets,” says Koenigsberg.
“The problem any ACH has is to provide
full reach across Europe. The domestic
ACHs rely on the EBA to reach into
other markets, but the EBA relies on the
domestic ACHs to reach smaller players.
For the long term success of SEPA we
have to find a way to merge these
operations into fewer entities, with a
corresponding reduction in overheads for
the industry.”
Buckland adds: “So far we’ve seen two
different reactions to SEPA by the
domestic ACHs. The Dutch and German
ACHs have effectively merged and will
offer SEPA settlement services via the
new Equens PE-ACH. Similarly,
VocaLink in the UK announced that it
would offer SEPA PE-ACH services,
using the same platform that is used to
support BACS. On the other side of the
coin, CEC the Belgian ACH has
announced that it will close.”
Evidently, SEPA makes for a very
threatening environment for the current
domestic ACHs. Antonella Vanara,
payment systems marketing manager at
SIA-SSB, EBA Clearing’s technology
partner for Step2, explains: “With regard
to the payment processors, the main
challenge is related to the enhanced
competition arising from the
standardisation of interbank payments in
the euro zone: in a common technical and
legal environment, the banks will have
the freedom to choose between multiple
providers or will be able to connect easily
to other payment institutions directly.
The ongoing concentration process of
European payment infrastructures
fosters a fast rationalisation and
industrialisation of all interbank
payments. The commoditisation is a
consequence of the harmonisation of the
various national payment instruments,
but the prerequisite for achieving this
long term goal is the transposition of the
PSD into all national laws and the full
migration of all banking communities,
that are starting from different basis.”
The prospect of consolidation has led
many to speculate that Europe’s ACH
landscape may begin to resemble that of
the US. Over recent years, the US market
has rationalised from 30 ACHs to two as
a result of scale economies. With the
onset of SEPA, similar market forces will
prevail in the euro zone, says Martin
Wilson, chief marketing officer at UK-
based ACH VocaLink. But regardless of
the similarities, there are some key
differences between the two markets,
which indicate that this high level of
consolidation will not be experienced in
Europe.
“There is greater strength and cultural
cohesion within the national ACH
European communities, underpinned by
factors such as language differences,
which may result in a slower
consolidation process and an enduring
number of regional players. Already, a
small number of leading ACHs is
emerging and most have developed value
added services to maintain
competitiveness, for example in payment
capture from corporates, electronic bill
payment and processing, back office
processing and e-invoicing. In the United
States, many of these services remain the
responsibility of banks, and are provided
by commercial third party organisations,”
he explains.
ISJ24 pp62-79 ML 7/9/07 10:45 am Page 67
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ISJ24 pp62-79 ML 7/9/07 10:45 am Page 68
EUROPEAN PAYMENTS
According to Wilson, the successful
infrastructure providers will be those
who are able to embrace new standards,
offer best pricing, the highest quality
customer service and complementary
value added services. Some of these
infrastructures will be derived from
former ACHs, while others will be wholly
owned by individual global banks, he
SEPA will create a single set of rules, equal access
conditions and equal treatment across the continent
contends. In order to stay competitive
they will need to walk a fine line between
cooperation and competition with other
providers. The successful players will be
those that can differentiate their services
through price, quality and value to their
customers, he adds.
The European ACHs are beginning to
consolidate in order to achieve synergies
and cost reduction, says Vanara, and this
is because it is difficult for domestic
players to achieve enough scale to
compete in the new SEPA environment.
“It’s quite likely that this trend will lead
to the existence of a handful of players
in 2010-2012. Nevertheless, so far,
almost all European domestic ACHs are
bearing the initial investment costs in
order to adapt their platforms to the new
SEPA products,” she says.
In this vein, SIA-SSB will offer the
banks in Italy SEPA credit transfer and
direct debit processing services through
the technical platform of EBA Clearing,
Step2. “The collaboration with EBA
Clearing will guarantee banks a SEPA
compliant service and full distribution
capability to all European counterparts
within SEPA. The shared platform
approach will facilitate the Italian banks’
migration to SEPA, allowing them to
maintain access to the two settlement
systems BI-COMP, operated by the Bank
of Italy, and Euro1, operated by EBA
Clearing, and minimising the cost and
organisational complexity resulting from
the period of duality, during which the
new SEPA instruments will coexist
alongside the current domestic
instruments,” she explains.
As well as negative reactions from
domestic ACHs, there was also
considerable resistance by banks to the
creation of SEPA when proposals were
68 INVESTOR SERVICES JOURNAL
first discussed six years ago, says
Koenigsberg. However, the industry is
witnessing a much greater willingness to
work together from all the major banks
across Europe. The big test is how the
smaller, primarily domestic players
respond to the changes needed to achieve
full interoperability. For them there is no
economic case for moving away from the
domestic systems, standards and
processes, he explains. “We are sure that
the industry will have to impose agreed
dates for during off the current systems
to force change for some of the very low
volume players.”
The bigger question today is how
banks can work with large volume
customers to migrate their business to
the new SEPA products, Koenigsberg
adds. At the moment, this is being
worked on a competitive basis. “As you
are probably aware, the European
Commission has also encouraged the
public administrations to undertake
cost/benefit analyses for the migration
to SEPA. As these large payment users
report back, we believe it will become
much clearer whether enough work has
been undertaken at industry level or
whether more centralised functionality is
required,” he says.
The EPC has taken an industry role that is specifically
restricted to setting down agreed standards for
harmonisation in the non-competitive space and as such,
it is limited in its scope
Hans Cobben, chief operating officer
at SunGard’s AvantGard, agrees that the
greater challenge for the banks will be to
help their customers get ready. This will
involve the banks focusing on achieving a
consolidated infrastructure and
becoming more flexible in their
offerings, says Cobben. “The biggest
issue here is to realise that a solution that
solves today’s challenges must be capable
of helping to change tomorrow as well.
Meaning that if you put in a solution
that simply meets the requirements
today without the ability to literally
configure or modify that solution as time
goes on, you are always going to be
chasing the pack,” he explains.
The main issue for corporates relates
to technical requirements for sender and
beneficiary International Bank Account
Numbers (IBANs) and Bank Identifier
Codes (BICs) to be present on all SEPA
credit transfer and SEPA direct debit
transactions. SEPA will not be viable
until the various domestic ACH schemes
have each been migrated and all parties
in the payments process to boot.
Moreover, the most significant roadblock
to migration is the requirement to
‘enrich’ all historic transactions with
BICs and IBANs.
“This effectively means that every
corporate in Europe that accesses ACH
services today, will need to contact their
customers and counterparties to obtain
IBAN and BIC information. For
multinational enterprises such as
telephone and utility companies, this
effectively means that they will each need
to enrich up to hundreds of millions of
historic direct debit instructions, at a
huge potential cost. Naturally, those
companies are baulking at the perceived
cost of SEPA compliance,” explains
Buckland.
“One solution could be for corporates
to use an appropriate software
application to convert domestic account
numbers to IBANs. This is, however,
complicated by the fact that since 2003,
the EPC has decreed that only the
account holding bank is authorised to
generate IBANs for its customers. This
means that any vendor software
generated IBAN would in effect be
‘unauthorised’, and would still need
individual validation with the account
holding bank. One way around this
would be for software vendors to market
their conversion applications, subject to
accreditation by the EPC, to ensure that
the conversion rules used to derive the
IBAN were correct,” he concludes. ■
ISJ24 pp62-79 ML 7/9/07 10:45 am Page 69
A different perspective
orporates are fed up with the lack
C of standardised ways
communicate with their banks and
have created global alternatives, says
to
Hans-Maarten van den Nouland, director
of international treasury services for
Europe at corporate Merck. They have
finally been able to define an overall
strategy for standards, demanding more
efficient treasury services from their
banks. And some corporates are even
starting to get what they want.
A lack of common communication
capabilities between banks and their
clients has plagued the corporate
community for years. The
communications channels themselves
have been maddeningly complicated,
making it hard for corporates to switch
banking providers. Swift’s first attempt
to smooth the process was in the form of
the Member Administered Closed User
Group (MA-CUG), which allowed
messaging through the SwiftNet
network, but the service didn’t go far
enough. While it is possible for
corporates to connect to multiple banks,
as Shell does with hundreds of different
MA-CUG connections, there is a cost
burden for each instance.
Swift’s Standardised Corporate
Environment, known as SCORE, makes
it cheaper and easier to open new access
points and is now being adopted by
pharmaceutical firm Merck & Company.
The corporate plans to send all treasury
messages via XML standard ISO 20022,
which can then be bundled into SCORE.
One of biggest causes of complaint from
corporates has been the lack of free
movement between banking providers.
Corporates are taking the upper hand in their
banking relationships, demanding more from
those who serve them, reports Jamie Darlow
SCORE aims to allow a corporate onto a
closed user group with access to many
other financial institutions, where
corporate to bank SwiftNet messaging
and file transfer are supported, but it has
been a long time coming. SCORE
supports messaging format MT101 and
FileAct envelopes, where corporates like
Merck put their payments instructions.
The lack of any kind of unifying
standard has come about due to the
bespoke services banks offer their
corporate clients, as Thomas Bergqvist,
executive vice president and treasury
product manager for Wall Street
Systems, explains. “The banks are still
very much into building customised
solutions to create stickiness,” he says.
“There are so many different standards
out there because the banks have been
providing tailor made solutions. Much of
the standardisation that should have
happened was stopped by the banks to
make it special. Creating high levels of
stickiness makes it more difficult to
change – the big cost is not to change
accounts but the invoices and templates.”
It is a misnomer that banks have
created stickiness with the intension of
trapping corporates into using their
services, argues Ed Glassman, chief
information officer, transaction banking,
ABN AMRO. There are places the banks
cooperate and there are places they
compete, so while the basic bank
offerings are similar, banks must
differentiate and create their own services
by specialising in a particular field.
“Corporates can choose between quite
a wide number of offering banks and this
is clearly the competitive area,” agrees
CORPORATE SUPPLY CHAIN
Olivier Brissaud, general manager,
Volkswagen Group Services. “On the
other side though, everybody should be
able to access standard payment
services.”
Glassman says the standards by which
information is transferred have the
biggest impact on automating the
physical and financial supply chain,
whether that is over the internet or
through proprietary systems. “If the
standards are rich and ubiquitous it’s
easier to move from bank to bank and you
can see examples where those standards
have been driven in a particular market,”
explains Glassman. “The German market
has produced MultiCash, an industry
standard multi-banking platform. Then
there are the French specific standards
and Echanges Telematiques Banque-
Clients (ETEBAC). SEPA has the
potential to do the same thing on a much
broader scale across Europe.”
ETEBAC does exactly what it says on
the tin, connecting French banks with
their corporates and Germany’s
MultiCash follows a similar model. Yet
large corporates have never operated in
just one market and these truly global
firms are growing in number as more and
more small corporates are conducting
their business overseas. A domestic
standard won’t do anymore. “It’s not
about the best format, it’s about uniting
around one format,” says Bergqvist,
pointing the industry towards Swift.
There are now over 60,000 trans-
national corporations worldwide, with
690,000 foreign affiliates. “The most
important service a bank provides to a
corporate is as a high quality executor of
INVESTOR SERVICES JOURNAL 69
ISJ24 pp62-79 ML 7/9/07 10:46 am Page 70
CORPORATE SUPPLY CHAIN
cash management, including good cash
management and reliable internal and
external payment processing,” says
Martin Boyd, managing director, Europe,
for SunGard’s AvantGard. “On top of
that the bank has to provide up to date
bank account data.”
Corporates, whether large or small, are
all struggling with two problems – they
have less staff and they are looking to
globalise, explains ABN’s Glassman.
“The trends are confirmed from our
conversations with clients, where we have
a large business servicing domestic
clients in the Netherlands and the rest of
Europe, the US and Brazil,” Glassman
explains. “We see those clients
demanding a portfolio of services that
used to be requested by, and designed for,
our larger scale multinationals. The
world is moving towards globalisation,
adding complexity to the financial and
physical supply chain.”
Complexity is managed, but also added
to, by the practice of multiple
relationship banking, where firms use
more than one bank – corporates
typically have several and large firms
have upwards of 10. Merck had around
100. Parth Desai, CEO of Ace Software,
says this process helps them mitigate risk
as corporates get a fuller, more reliable
service from local banks.
“For example, a corporate performing
business in Eastern Europe might get a
better service from a local bank,” Desai
explains. “They need to balance this –
banks are global but not truly global in
the services they offer; they use other
banks’ services. The risk comes from not
being able to execute a payment.”
The problem arises because each bank
has a different platform for
communicating with its client. When the
two parties exchange information, the
format is often different. This complexity
is added to because the corporate may
conduct many different services with that
bank that are not rationalised onto the
corporate’s common platform.
Bergqvist explains the increased
interaction between banks and corporates
adds to the complexity. There is more for
the bank to take care of, the bank can be
running the pension fund of the
corporates, for example. Part of the
corporate’s pension fund may be
outsourced to a fund manager and run it
themselves, for which they need custodians.
70 INVESTOR SERVICES JOURNAL
Merck’s solution to multiple
relationship banking is radical yet very
simple: get rid of it altogether. The firm
has cut the number of banks it uses down
to just two for cash management, where
before there was business for over 100.
“For our credit card collections service in
the US we have Bank of America,” van
den Nouland says. “For all cash
management we will have two banks that
have local presence around the world –
HSBC and Citigroup.”
Merck will now use just one interface
for all payments across the globe, after
telling HSBC and Citi proprietary
interfaces would not be acceptable. Wall
Street Systems sits between the banks
and Merck, displaying the corporate’s
cash positions and allowing it to action
all treasury services. There is effectively
one pipe in, one pipe out, and one
rationalised common platform. “We said
to the banks; we never want to determine
whether to use the BIC or BBAN,” van
den Nouland says. “It is the banks that
have created the myriad of formats and a
problem they should own. They have
created a problem for themselves and we
have pushed it back to them. I just don’t
think it’s an issue a corporate should have
to deal with.”
Bergqvist sees this as a realisation by
the corporates of their increasing
power. “They know how much FX
exposure they have on a global level,
they know the transactions they do,” he
explains. “They can use this to bargain
with the banks as they can go with a
bigger wallet to the banks.”
Merck is in the testing stage at the
moment, but will be live in Mexico and
parts of Europe in October, with the ISO
message format for Asia, Europe and the
US defined and validated by the banks by
the end of November. The rest of the
world will be brought onboard by the
second quarter of 2008. It has taken less
than 12 months to reach this stage, with
the banks falling into line after initial
protestations at the complexity of, and
short timeframe allowed for, the task. Van
den Nouland thinks Merck will lead the
way for other smaller corporates with
less influence than Merck.
“The reason why we are telling people
about this is we want other banks to make
this available as well,” he explains. “There
has to be a rebuild anyway under SEPA,
so why not just build it once and then it’s
done. You use one model and then you
don’t have to change anything again.”
What Merck has done is to take the
ISO 20022 standard as a basis and agreed
with Citi and HSBC which fields to use
and how to use them. The requirement
for corporates to have to decide what data
to provide - the X/OR logic - has been
removed, bringing down the total
number of ‘usable’ fields from 942 to less
than 90. “I asked why it was I can make a
mobile call from anywhere in the world,
to a nine digit number, and be connected
in seconds, irrespective of networks, with
instantaneous billing?” says van den
Nouland. “Compare this with sending
money to someone, where you need 942
fields and a couple of days’ wait.”
More important than the standards
themselves is the interoperability
between them, something, which will
improve with XML-based ISO 20022.
The European Association of Corporate
Treasurers (EACT) and standards body
Twist have taken the message onboard
and announced last November they
would collaborate over the
implementation of SEPA and EACT’s
market initiative Corporate Action on
Standards (CAST). The bodies agreed to
provide a framework of cooperation
between them and said in a
memorandum of understanding:
“EACT will not develop new standards,
rather, as a result of CAST projects, will
deliver recommendations on existing
standards and requirements for new
ones in areas such as supply chain and
trade financing. Twist will be able to use
these requirements in designing new
standards in a flexible and non-
proprietary way.”
The standards that EACT, Twist and
Swift have produced indicate that
corporates are realising they wear the
trousers and can push through change.
Some of the larger organisations are
already seeing that transformation. “We
are not completely there yet and simply
having one pipe to Swift does not give a
corporate one integrated set of messages
around the world,” says Glassman. “But
it’s a good start - SCORE and the
standards work that goes along with it
aims to change that. The high value
messages are more integrated, while
there is still a lot of work to be done for
the low value, but we are making some
good progress.” ■
ISJ24 pp62-79 ML 7/9/07 10:46 am Page 71

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ISJ24 pp62-79 ML 7/9/07 11:00 am Page 72

SECURITIES LENDING IN THE US

Joining the firefight

Advances in technology continue to aid
the ever expanding securities lending
business, with around 80% of Northern
Trust’s securities lending loans executed
The US securities lending market has been automatically, says Grinsven. “This
allows us to continue to grow the
hit hard by the recent market volatility, business, while focusing traders on
extracting the best value for securities in
Brian Bollen reports highest demand. Investment
technology allows agent lenders to
in
he sudden bout of severe

T
deterioration in sub-prime mortgage
volatility that hit international increase business flows without
loans and certain related securities has
financial markets in the summer corresponding increases in risk or
greatly exacerbated current equity
of 2007 threw the spotlight on securities expense.”
market and credit jitters,” she comments.
services in general, and on securities Northern Trust uses EquiLend’s
“The magnitude of the resulting flight to
lending in the US in particular. For Dividend Comparison functionality to
quality and the illiquidity in the asset
pessimists, immediate concern focused on collect outstanding claims from those
backed commercial paper and asset
the possibility of reduced fee income as firms also using that function he
backed securities markets hasn’t been
asset values fell. For optimists, attention continues. The bank also uses EquiLend’s
seen in more than a decade. Although
switched quickly to the opportunities that automated loan recall and return
conditions soon began to normalise and
the changing market conditions might functionality – this allows both
we expect them to continue to do so,
present. borrowers and agent lenders to
revenue from this asset class should
It’s not the first thing that investors electronically communicate the return or
remain strong throughout the balance of
tend to ask as a portfolio drops in value, recall of a loan without the need for
2007.”
but eventually and inevitably they come phone calls or faxes.
Looking beyond short term volatility,
round to it. The custody market “Implementation of agency lender
Mark Van Grinsven, head of Global
correlates to market performance because disclosure in the United States was
Securities Lending at Northern Trust,
custody fees are generated by market smooth and we have not experienced any
identifies a number of other big issues
values. If a market goes down, that can impact on our trading activities with
affecting the US securities lending
obviously have a negative impact on borrowers, Grinsven says. “Through the
market. “Benchmarking and
securities lending opportunities. information now supplied by agent
transparency have become very
But volatility can mean there are more lenders, borrowers have the necessary
important as lenders seek to better
short positions that people need to data to support their credit and capital
understand how revenue is generated and
borrow for, creating a benign regulatory requirements. In March 2007,
at what level of risk, Grinsven says. “The
environment for securities lending. The Northern Trust began sending detailed
use of data providers has become more
underlying outlook for securities lending loan and collateral information to some
prevalent, as agent lenders look for ways
remains strong, recent market turbulence Canadian borrowers. We are currently
to provide this insight to their clients.
notwithstanding. As markets become testing how to adapt the US agency
The growth of hedge funds and new
more sophisticated, more capital is lender disclosure files for the global
strategies, such as active extension, has
deployed on the short side of the market, borrowing community. In that vein,
fuelled growth in the market, leading to
which is good for securities lending. Northern Trust is participating in a trial
higher levels of securities on loan for
Kathy Rulong, executive vice president group with several borrowers.”
lenders. Active extension, such as a
responsible for global securities lending Bill Smith, managing director and sales
130/30 strategy, has become more
at BNY Mellon Asset Servicing, is on the executive for JPMorgan’s US securities
attractive in the market as investors look
side of the optimists: “The ongoing lending business, draws attention to the
for new ways to add alpha.”
possible fallout from the merger of the
Bank of New York and Mellon Financial
as a key factor in the further development
of securities lending in the US in the
short, medium and long term. “You have
two bulge bracket players becoming one
bigger bulge bracket; there must be some
fallout that we can capitalise on,” he says.
He takes a novel view, too, of the
changes that might take place as a result
of the recent market volatility, changes
that could well enhance further the role
that the large well capitalised financial
Glass houses? institutions will play in the securities
lending market. “Volatility of that

72 INVESTOR SERVICES JOURNAL

ISJ24 pp62-79 ML 7/9/07 11:00 am Page 73

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ISJ24 pp62-79 ML 7/9/07 11:01 am Page 74
SECURITIES LENDING IN THE US
degree creates distractions from the day
to day business of lending securities for
clients, and we’ve had to spend a good
deal of resources on discussing the
markets,” he observes.
Smith continues: “Everyone can see
the importance of a large, strong
balance sheet, and the value of
indemnification against broker default. It
changes the way you look at the role of
the agent. Moreover, the sheer size and
scale of JPMorgan means that we have
subject matter experts in just about
every area of the markets you can think
of. If we have questions about short
term asset backed commercial paper, we
can go right to the relevant staff who
have the broader experience to educate
and comfort clients.”
In short, when markets are calm, the
depth of thinking is shallow, and
concentrates on easily earned
incremental income. In choppier waters,
thinking has to deepen. “We evolve from
being a vendor to being much, much
more,” he says. “There is safety and
comfort in having a big, strong multi-
faceted bank as your agent.” But then, of
course, he would say that, wouldn’t he?
On a more technical note, Mike
McAuley, senior managing director and
chief product officer for State Street’s
Securities Finance division, describes the
changes to the rules for lending on behalf
of US private pension funds as the most
significant regulatory event affecting the
US lending market in recent years.
In late 2006, the US Department of
Labour (DOL) issued prohibited
transaction exemption (PTE) 2006-16
under the Employee Retirement Income
Security Act of 1974 (ERISA), McAuley
explains. The new PTE, which allows
pension plans both to lend securities
outside the United States as well as
accept certain foreign collateral, became
effective on 2 January 2007.
This new class exemption includes two
key provisions, he notes: US pension
plans can now lend directly to certain
broker-dealers and banks outside the
United States, specifically in the UK,
Canada, Japan, Germany, the
Netherlands, Sweden, Switzerland,
France and Australia. Prior to the
exemption, pension plans could lend only
to US borrowers, except in a few
instances where the DOL granted
individual exemptions. Plans can now
74 INVESTOR SERVICES JOURNAL
accept certain foreign collateral, as well
as an expanded list of US collateral
linked to SEC Rule 15c3-3. Prior to the
exemption, pension plans could accept
only US cash, US Treasury securities and
letters of credit issued by US banking
institutions.
For pension plans to lend to borrowers
in permissible jurisdictions other than
the UK and Canada, the exemption
requires plans to have a borrower default
indemnification (indemnity) from a US
bank or broker-dealer lending fiduciary.
For the UK and Canada, borrowers must
agree to submit to US jurisdiction,
appoint an agent for service of process in
the US and agree to settle disputes
exclusively in US courts; otherwise, an
indemnity from a US bank or broker-
dealer fiduciary is also required.
Lending to foreign borrowers will
increase utilisation and revenue for US
pension plans. For example, prior to the
new PTE, pension plans that had
portfolios of foreign fixed income
securities, such as sovereign bonds, had
little or no opportunity to lend those
securities due to a lack of demand from
US borrowers. This asset class should
now generate additional lending revenue
due to increased demand as pension plans
add foreign borrowers to their list.
The new collateral requirements are
linked to SEC Rule 15c3-3, expanding
ERISA’s original collateral limits to
include, in part, certain debt securities
issued by US governmental agencies
(such as Fannie Mae), CMOs, asset
backed securities and corporate debt.
Also, four types of foreign collateral are
permitted under the new class
exemption: debt securities backed by a
multi-lateral development bank
(European Bank for Reconstruction and
Development or Asian Development
Bank, for example); highly rated foreign
sovereign debt securities; cash in euros,
British pounds, Canadian dollars, Swiss
francs or Japanese yen; and letters of
credit issued by a foreign bank meeting
specified criteria.
These broadened collateral rules not
only allow pension plans to participate in
more loans, but in many cases, plans can
also realise marginally more lending
income, State Street’s McAuley adds.
“This income will be a result of
borrowers no longer needing to go
beyond their inventory as frequently
when obtaining and financing the
necessary collateral for a securities loan,
as well as reducing the cost of any such
financing. In addition, plans will in many
cases be permitted to accept collateral
denominated in the same currency as the
foreign securities they are lending. This
will eliminate the foreign exchange
component of the collateral process. It
may also provide new cash collateral
investment opportunities.”
He continues: “Prior to this exemption,
US plan sponsors faced more restrictive
securities lending requirements than
foreign plans, which in many cases were
limited only by potential cross border tax
concerns. Thus, in addition to new
opportunities for greater utilisation and
increased revenue, the new exemption
also provides US plan sponsors with a
more level playing field versus foreign
plans and allows them to compete
globally for lending opportunities.”
Furthermore, in 2006, Congress
rewrote parts of ERISA itself, adding a
new service provider exemption.
“Practitioners are still debating the scope
of this new provision,” McAuley says.
“However, once some of the issues
surrounding its requirements are
clarified, many believe it will provide
plans with a statutory exemption that
will be easier to comply with and allow
most types of securities lending
transactions, including transactions not
currently permitted under the new class
exemption.”
In the interim, because the DOL’s
class exemption is more detailed in its
language and requirements, pension
plans are more likely to use it as their
regulatory map until the requirements of
the service provider exemption are
clarified, reckons McAuley. “That is not
to say pension plans will not
immediately benefit from the ERISA
revisions. Even with the DOL exemption
as their regulatory map, pension plans
will still have the new statutory
exemption as a reassuring ‘safety net’ of
authority for their broader lending
practices. The new opportunities
presented by these regulatory changes
will cause plan sponsors and fiduciaries
to seek out global service providers with
the most experience working with
foreign broker-dealers and dealing with
cross border legal, tax and operational
concerns,” he concludes. ■
ISJ24 pp62-79 ML 7/9/07 11:01 am Page 75

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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
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ISJ24 pp62-79 ML 7/9/07 11:01 am Page 76
CLASS ACTIONS
Paying investors their dues
Stephen Everard of GOAL Group discusses
why tax reclamation and class actions should
be firmly on the agenda for fund managers
and custodians
ince the late 1990s, equities
S investment has been through
significant peaks and troughs.
Hyped to unsustainable values in the
dotcom boom, the post-millennial stock
market crash then wiped billions off
portfolio values, reaching an absolute
nadir in the early part of 2003. Since that
time, equities have recovered, although
only passing the December 1999 high of
USD39.6 trillion in the same month in
2005. Growth in 2007 is once again
steady, despite the wobbles caused by the
recent credit crisis, but apparently more
sustainable and based on solid results
rather than unrealistic futures.
Institutional investments, which fled
into fixed income instruments during the
stock market crisis, have now rebalanced
their portfolios back into equities, using
the fairly steady growth since 2003 to
offset at least some of the losses they
sustained in the previous couple of years.
However, investors now require a greater
element of short term gain from their
equities holdings – in the form of
dividends – in contrast to the heavy
reliance on capital gains that typified
equity returns from before the
millennium.
Rise of the dividend
A watershed moment arrived in 2003
when Microsoft announced its first ever
dividend. Since then, dividend payouts
have steadily increased in popularity.
Standard and Poor’s recently reported
strong dividend growth in the US and
expects it to continue, with one senior
analyst quoted as saying, “We expect a
continuation in both dividend increases
and initiations among S&P 500
constituents, resulting in another double-
digit gain in dividend payments.”
A couple of years ago, research by
Dresdner Kleinwort Wasserstein
76 INVESTOR SERVICES JOURNAL
delivered some key figures that firmly
puncture the popular notion that long
term equities gains come from capital
growth. The bank’s study told us that: in
Europe since 1970, 70% of total equity
returns have been derived from dividend
yield; and between 1950-2000, the
average contribution by Europe
(excluding UK) of dividend yield to total
equity returns has been 62%. The
research then goes on to state that the
bank sees dividend yield once again
becoming the greater proportion of
equity returns in the future. Awareness of
the importance of the dividend to long
term equity earnings is now receiving
regular mention with, for instance, one
commentator recently remarking,
“Indeed, dividends remain a key pillar of
support for out-performance of
European equities. On average, European
dividend income is still higher than the
2.5% short term interest rate currently
targeted by the European Central Bank.”
Cross border investing
Not only are equities back in fashion, but
interest in cross border investing is also
on the rise. Around 43% of UK-based
pension and insurance funds are in
foreign securities. Some hedge funds
deliver their high yields through
exclusively investing in more exotic
markets.
So cross border shareholdings have
risen at something approaching double
the market rate, showing that fund
managers have increased the proportion
of foreign shares in their portfolio. The
market capitalisation of the global
equities markets (excluding investment
funds) is currently around the USD57
trillion mark. The overall average
proportion of foreign shares in a fund
manager’s equities portfolio in the region
of 20-25%.
Rise of class actions
The other major trend in securities
returns is the rise of successful class
actions by holders of overseas stocks
and shares. The phenomenon is mainly
prevalent with US listed securities, but is
increasingly taking hold in other
geographies such as Australia.
A securities class action suit is an
action that arises when an investor or
group of investors lose funds in the
stock market as a result of an allegedly
fraudulent act or omission by a
corporation. Companies who have been
the subject of such actions include not
only the famous corporate
misdemeanours of the early 21st century
– Enron and Worldcom – but also a wide
range of otherwise upstanding
companies. Lufthansa settled a class
action for alleged collusion over charges
in the cargo market. BA has faced
allegations of cartel activities resulting
in a number of class actions. Infineon,
the German semiconductor company, has
found its investors mounting a class
action accusing a former chairman, and
Peter Fischl, current chief financial
officer, of chip price manipulation
through arrangements with competitors,
which harmed investor interests.
Some of Australia's biggest corporate
names, such as Telstra, the
telecommunications operator, are among
about 50 companies facing class actions.
The country's federal court opened the
gates to class actions in 1992, providing
for the first time a legal regime in which
a group of consumers or shareholders
could aggregate their common grievance
against a particular company.
For the first few years most of cases
related to asbestos, product negligence
or tobacco. But that changed in 1999
with a landmark ruling against GIO, an
insurer that had rejected a takeover
approach only to collapse soon after.
More than 68,000 shareholders alleged
that the company had misled them, and
eventually settled proceedings for
AUD112 million.
Investors whose securities dropped in
value when the true facts were disclosed
may wish to sue for damages. In order to
ISJ24 pp62-79 ML 7/9/07 11:01 am Page 77
achieve this without further financial
risk, they may use the class action tool.
This action is also known as an “asset
recovery vehicle” and is primarily an
American process. Each action needs to
be dealt with on a case by case basis due
to the complexity and individual
circumstances of each class action.
Although each case is different there are
standard claim procedures that are used
throughout the industry.
How do they benefit shareholders?
The securities class action tool gives the
disadvantaged shareholder the
opportunity to recover lost funds
without further financial risk. As a lead
plaintiff (usually one of the largest
shareholders who has incurred a loss)
the shareholder can enforce corporate
governance on a company found to be
guilty of corporate wrongdoing. Under
US legislation, all disadvantaged
shareholders are included in the class
membership of a class actions case. If a
case is successful and settlement is made,
funds are set aside for class members
who then only have to complete a proof
of claim form to receive the funds due to
them.
Investors whose securities become the
subject of a class action mainly assume
that their fund manager or custodian is
set up to automatically trigger the
complex series of administrative and
legal moves which help entitle that
investor to a share in any settlement or
judgement. Sadly, this assumption is still
mainly erroneous. Most investment
management and administration
organisations are not set up to
automatically trigger and process such
claims. One of the leading US lawyers in
securities class action reclaims has been
quoted as saying: “Every year, hundreds
of millions of dollars are lost simply
because they go unclaimed.”
In terms of recent trends in class
actions in the US, one expert
commentator has noted that the actual
number has declined somewhat between
2004 and 2006. But at the same time
another commentator also notes the
inexorable rise in ‘mega settlements’
resulting from such actions. Moreover,
the spread of geographies and
legislatures in which class actions are
gaining traction suggests that the global
picture will increase as we move into the
next decade. For fund managers and
custodians, there is evidently a need to
implement automated client services that
ensure investors’ right to claim is
properly and promptly managed.
The reclamation gap
There is another major area of potential
investor loss. Dividends on foreign
shares and yield from foreign bonds are
subject to withholding tax. This is a tax
on earnings that the country’s tax office
(the country in which the share or bond
is issued) deducts at source, a proportion
of which can be reclaimed by the owner
of the shares/bonds.
However, our new research shows that
around 25% of that reclaimable tax is
left unreclaimed. This amounts to some
USD10.5 billion of shareholder returns
that are being wasted – left unreclaimed
in a foreign country’s tax system. This
represents an 81% increase in the annual
amount wasted compared with 2003,
when GOAL last conducted an analysis
of the situation.
With the increasing popularity of
both dividend payments, and cross
border securities, this unreclaimed tax
will continue to rise unless fund
managers’ service providers – often
custodian banks – improve reclamation
levels. Increasingly savvy investors, in
markets where high yield investments
are harder to come by, are putting the
fund management community under
growing pressure to maximise their
investment returns. Nowadays there
really is no excuse for non-reclamation -
technology now exists to automatically
perform the highly complex task of
reclaiming tax, a process that has to
incorporate up to date information,
formats and procedures from a
multiplicity of different legislatures
around the globe.
In fact, leading custodians have
recognised the market opening
represented by effective tax reclamation
services, both for their fund manager
clients, and as an interbank services
opportunity. Automated reclamation
facilities have now made the provision of
such services highly profitable, in a
market climate where other revenue
streams are declining. Our research
shows that the global market for
withholding tax reclamation services by
custodian banks is worth USD863
CLASS ACTIONS
million (EUR698 million).
Pressure on hedge funds
The search by investors for high yield
investments has led not just to an
increased willingness to invest in foreign
markets, but is also behind the enormous
growth in hedge fund popularity. The
industry has grown from just USD40
billion under management 15 years ago,
to over USD1.5 trillion today. Hedge
fund managers face a particular challenge
regarding the reclamation of
withholding tax on foreign investments.
Custodian services may be engaged to
go beyond execution into portfolio
services of this kind. However, hedge
fund investors often require the kind of
anonymity which is impossible to obtain
through banking services – simply
because the regulator’s quite correct
demands for investor transparency
overall spills over into this area,
demanding that the investor be
individually identified. However, the UK
FSA has opined that withholding tax
reclamation is not an area that it intended
to sweep up in its very important drive
for overall transparency. Therefore,
hedge fund managers are now tending to
turn to outsource tax reclamation
specialists – who, unlike the banks, are
unregulated – to perform this service.
Reclamation takes place at the fund level
rather than the investor level, and the
considerable sums currently left
unreclaimed, can now be efficiently
retrieved.
In conclusion, investors are becoming
increasing rigorous in their scrutiny of
investments and are putting pressure on
fund managers to provide greater
transparency. In turn, fund managers,
pension funds and hedge fund managers
are becoming increasingly aware of the
existence of automated systems to enter
class action suits and to reclaim
withholding tax, whether in-house or on
an outsource model, and are beginning to
include the requirement for such facilities
as a standard part of their custodian
services RFPs. With the rise of
dividends and overseas investing, legal
claims and tax reclamation is likely to
become an even more essential element of
cross border investment services. ■
Stephen Everard is managing director of
GOAL Group
INVESTOR SERVICES JOURNAL 77
ISJ24 pp62-79 ML 7/9/07 11:01 am Page 78
REGULATION
Opportunity knocks
The old adage “every challenge is
an opportunity” has been turned on its
head for fund managers this year,
says Andrew White of Acquin Components
he opportunity to trade across the
T EU that UCITS III now offers,
along with the increasing use of
the 130/30 approach to boost returns,
has collectively given the fund
management industry a wider world to
play in across products and countries.
The regulation will transform the fund
management industry over the next few
years and those expected to benefit most
from this transformation are the funds
that fully exploit the changing trading
landscape.
But these opportunities are also
challenges. The search for alpha has led
fund managers toward increased use of
complex and riskier instruments, while
UCITS III has increased regulatory
exposure for those funds operating in
multiple geographies. If the potential
benefits are to be realised, the rules and
risks must be understood clearly and
concisely.
OTC – OTT?
The murky risk exposure that
collateralised debt obligations (CDOs)
hold has been touted in the media around
the world for a number of years and yet
– when the true risk became clear – there
were clearly some organisations that had
78 INVESTOR SERVICES JOURNAL
not got a grip on their position. This has
affected players globally, both large and
small, demonstrating the real challenge
that complex derivatives can present,
even to very experienced professionals.
The sub-prime crash is just the latest
example of the difficulty that asset
managers face when dealing with
complex instruments.
The buy side business is in the
unenviable position of being at the end of
a sales process and in no sales process
does a product get talked down at any
point. Being talked up at some stage is
almost inevitable. This simple truth is
reason enough for fund managers to
consider their risk management
capabilities to be their most important
resource. An even more compelling
reason to support this is the
opportunities that strong risk
management can present for growth –
across products and geographies.
Almost inevitably, clients pushing for
alpha lead to interest in riskier and more
complex products. This is not necessarily
risk that is understood either – CDOs
could be considered, to quote Donald
Rumsfeld “unknown unknowns”, as the
complex structure and over the counter
nature of the product makes their risk
profile difficult to measure. This may well
lead to the holder of a security taking on
risk without being aware of it. As such,
the risk management function is no
longer simply a box ticking exercise but
an integral part of the ability to expand
into what could be a profitable market –
once the sub-prime debt issues are
resolved.
Scope of regulation
On the compliance side, regulation in the
form of UCITS III has pushed towards
opening up borders as a market by
providing a framework for players to
operate in different geographies across
the EU using complex instruments for
the purposes of investing rather than
purely for hedging. However, as with
every ‘standard’, even in the case of law,
there are variations in implementation,
meaning, for example, that Germany and
Ireland will have implemented the
regulation in different ways.
Regulation is also a moving target –
there have been variations in
implementation across different countries
but also, following a plethora of
discussion and debate, a directive has
been mooted to come into play in the EU
for July 2008 to clarify the assets that a
UCITS III compliant fund can use.
Geography is in fact a considerable
challenge for any fund manager
operating across countries, as numerous
modifications to the regulations and
directives imposed upon the industry are
multiplied when different legal
jurisdictions are taken into account. For
fund managers that are working across
these regions, the compliance challenge is
a significant burden.
An example of this is the insistence
that a fund must be run via a risk model,
with the UCITS III product directive
stating that: “The management or
investment company must employ a risk
management process which enables it to
monitor and measure at any time the risk
of the positions and their contribution to
the overall risk profile of the portfolio.”
However, the required model may vary
between legal jurisdictions – one may
insist on value at risk testing (VaR), while
another may require a different metric. In
the case of the UK and Ireland for
example, the latter limits the VaR for a
fund running an absolute return model to
5%, while the former leaves the decision
of what is appropriate to the discretion of
ISJ24 pp62-79 ML 7/9/07 11:01 am Page 79
the fund.
If a fund is using derivatives, the VaR
model is required, and to adequately
calculate this will mean the risk
management function uses the right
process in-house to measure the broad
range of risks that are present in all of
the instruments traded – not easy in the
case of OTC derivatives.
To ensure a system is not going to
result in non-compliant trades, firstly, the
organisational structure must be
correctly deployed to monitor the trading
process. The fund’s senior management
should establish an appropriate
supervisory structure, involving a
dedicated risk management team. They
must ensure that the products used are
Almost inevitably, clients pushing for alpha lead to
interest in riskier and more complex products
fully understood by the fund manager
and that the system deployed to monitor
these products use is also suitable.
The separate roles of risk and trading
functions should be clearly delineated.
Where complex securities are being used,
the monitoring system may require the
utilisation of new data feeds that support
an internal – or at least independent –
verification of pricing. Data from the
product supplier is not sufficient. When
one considers that MiFID will also be
coming into play as of 1 November 2007,
price formation may be further
challenged. The likely fragmenting of
liquidity that will occur as off exchange
trading begins (or increases depending
on the country) also creates a challenge
for buy side firms that have relied upon a
few trusted data sources for dealing in
equities.
The removal of the concentration rule
makes off exchange trading possible
across the EU and thus the prices at
which trades occur will be found in an
increasing number of locations, giving
fund managers the headache of
aggregating this data. The regulatory
environment will also likely drive
innovation in product development and
fuel cross border competition, as asset
managers move into the space
traditionally dominated by hedge funds
and the hedge funds themselves are able
to sell products to the retail environment
that they were previously not permitted.
United risk and compliance
Taking these factors into account, it
would make sense that the risk and
compliance departments work together
in order to establish a trading position
that rarely sees non-compliant trades or
delays due to uncertainty. Less than half
of fund managers have combined these
two departments and instead are
working on the tasks separately.
Analogously, this is like two people
trying to row a boat without
communicating – working on risk
without a rules-based approach gives the
fund manager an uncertain position,
while appearing to move forward.
Aquin’s MIG21 system combines the
two challenges and provides a single
interface for gathering and pooling this
information. Tied to any preferred
supplier of market data, MIG21 enables a
fund manager to establish their real
position, while maintaining an up to date
grip on the very latest regulatory
situation. With its Lawcard service,
Aquin offers a team of dedicated
individuals that feed relevant regulatory
changes and decisions to MIG21’s users
as a compliance news feed including rule
changes in the compliance system, thus
removing the challenge of non-
compliance while supporting the risk
area of the fund.
The potential benefits of this are two-
fold. First, it assists the risk manager in
understanding what may be subtle
variations in regulatory approaches
between countries and develop a risk
management approach that is
appropriate. This is vital if the fund is to
trade acceptably in an environment in
which it is not domiciled. Where a fund is
interested in moving into new
jurisdictions such rapid adaptability is
vital as it reduces training requirements,
sourcing requirements and potentially
difficult legal situations – plus associated
costs.
Second, the improvements to risk
management give a fund manager the
confidence to trade complex products
across these geographies, which,
REGULATION
following the sub-prime crash, will be a
welcome relief.
A few years ago, risk management was
not a ‘favoured son’ for buy side firms, yet
now it may prove to be the breadwinner,
providing resilient to hard knocks and
offering its fund the chance to take each
commercial opportunity as it appears. ■
About Aquin
The Aquin Group (www.aquin.com)
is the expert in investment
compliance. Our goal is to provide
solutions, which increase the
efficiency and competitive position
of our clients, enabling them to
provide comprehensive client
services and maintain prudent
operational and regulatory controls.
Aquin’s reputation has been built
on the combination of financial
business knowledge, IT expertise
and long term client relationships.
MIG21 is the market leading
investment compliance and risk
monitoring software. MIG21
optimises ex-ante and ex-post
checking and administration of
legal, contractual and internal
investment guidelines for asset
management companies, advisors,
custodians & insurance
companies. With MIG21 LawCards,
customers are always in full
compliance with latest changes in
the world's major investment
jurisdictions, including UCITS III
and SEC 1940.
Aquin services a blue chip client
base including the world’s leading
investment management
companies including, among
others, CACEIS Bank/Fastnet,
Citigroup, Credit Suisse and State
Street, as well as five of the top
six German asset managers:
Deutsche Bank/DWS, Allianz
Global Investors,
Commerzbank/ComInvest,
HVB/Pioneer Investments and
Union Investment.
The company has its
headquarters in Frankfurt am
Main and subsidiaries in Zurich,
Paris, Luxembourg, London,
Dublin and New York and will
open up an office in Boston at
the end of this year.
INVESTOR SERVICES JOURNAL 79
ISJ24 pp80-99 ML 7/9/07 12:49 pm Page 80

MIFID

MiFID in focus
With the November deadline looming, ISJ asks key industry figures
who is ready and who is likely to benefit the most from MiFID?

Member states were required to transpose

MiFID in their national legislation by the
end of January 2007, a deadline effectively
fulfilled by only two member states - the
UK and Romania. To allow market
participants to put in place the practical
arrangements required to be compliant
with the directive and member states to
effectively transpose the directives, the
application date of MiFID was postponed
until 1 November 2007. There is concern
that further delay in the application of
MiFID due to failure to resolve
interpretative issues would send the
wrong political signal and damage the
credibility of the Lamfalussy framework. It
could also entail significant opportunity
costs and create potentially damaging
legal uncertainty for market participants.

Readiness
It is not completely clear which parties are ahead in terms of preparation due to the wide ranging
implications of MiFID. However, we, like most large organisations, are on track for the 1
November 2007 MiFID implementation. Various articles in the press have indicated that half
the firms are behind schedule.

Domestic regulators
The UK Financial Services Authority has been the most proactive regulator in Europe. However,
the guidance on certain aspects of MiFID, especially on best execution for securities lending,
have been less specific than hoped for. Regulator hosted Q&A sessions with the regulated
entities on specific products and services would assist in providing clear guidance on MiFID
applicability.

ALAIN LESJONGARD, HEAD OF Goals

INTERNATIONAL COMPLIANCE In time, the MiFID goals will be realised and it will have a positive impact. However, 1 November
AT THE BANK OF NEW YORK 2007 is just the start of MiFID and 12-18 months post-MiFID implementation will be equally
MELLON important in highlighting the benefits and impact to the industry across Europe.

Opportunities
MiFID compliant organisations will be able to passport their products and services and expand in Europe. Also, the increased
market competition resulting from the creation of systematic internalisers will reduce the cost of obtaining best execution.

80 INVESTOR SERVICES JOURNAL

ISJ24 pp80-99 ML 7/9/07 12:49 pm Page 81

Is your custodian
focused on you?
We are.
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Part of Nordic Custody Alliance: Swedbank, DnB NOR, OKO Bank, Amagerbanken
ISJ24 pp80-99 ML 7/9/07 12:49 pm Page 82

MIFID

Readiness
It is certainly true to say that firms are currently getting MiFID-ready, with numerous projects
underway to ensure they are MiFID compliant. The majority of these projects are ongoing and
while most firms will be compliant by 1 November, work will continue beyond this. It is
unlikely that on 1 November, there will be a big bang and a sudden, visible difference in the
way this industry operates, but over time, we have already seen and will continue to see the
landscape is evolving and reacting to this new legislation. Firms who are leading the way are
those that are innovative and technologically advanced.

Goals
There is already evidence that many of MiFID's objectives are being achieved - multiple
DAVID STEVENS, CEO venues, best execution and enhanced product offerings - and at ITG, we believe MiFID will
OF ITG IN EUROPE have a positive effect on the industry. We hope it will level the playing field, enabling
technology to provide best of breed markets. Furthermore, greater competition, more trading
venues and more valued products will mean that asset managers and end clients are likely to
benefit from a more efficient marketplace.

Opportunities
MiFID brings with it a wide range of opportunities and we have experienced heightened interest in a number of our
products due to best execution requirements. We have seen record volumes in POSIT, ITG's dark pool of liquidity, as
investors look at multiple venues. Best execution has also accelerated the demand for, and the development of, ITG's suite
of algorithms and the requirement to measure and monitor trading costs has resulted in increased interest in our pre-,
intra- and post-trade analytical tools.

Readiness
It's relatively clear to us that the UK is leading the market in terms of both legislation and
guidance to market participants, even though it wasn't the first to transpose. In terms of
market participants, we have seen several conflicting surveys indicating either that the market
isn't ready and everyone will have to pay fines during 2008, or alternatively that most of the
market is ready for MiFID. Our clients appear to be spread across the spectrum, there are
some that are clearly ready and have been planning their MiFID response for some time;
others that appear to be doing the minimum possible to be just about compliant enough to
avoid the wrath of the regulators; and yet more that have done nothing at all.

Domestic regulators
In our opinion, the market regulators could be giving more concrete guidance. For instance,
RICHARD GISSING, we were expecting the Committee of European Securities Regulators (CESR) to define in
CHIEF TECHNOLOGY detail the content of pre-trade and post-trade transaction reports in its Level 3 clarification.
OFFICER, GISSING But it hasn't. This leaves open the possibility that each local regulator will make its own
SOFTWARE specification, and these could be different. This again raises the spectre of 30 slightly
different sets of rules for market participants to comply with.

Goals
There is a real risk that the goals of MiFID will not be realised, and certainly not immediately. The Lamfalussy process has
the advantage of involving the market in the implementation of the legislation, but by not being at all prescriptive in its
requirements it increases the complexity and frustrates clarity. The other extreme would be a wholly prescriptive process,
such as the US Reg NMS, but this leaves no room whatsoever for creating competitive differentiation and attracting new
clients and liquidity based on differentiated service offerings and prices. Rather than creating a single transparent
European market in equities, it is possible that MiFID will simply bog all the market participants down with increasing
regulation and bureaucracy, increasing the costs of participating while reducing the rewards. This may both drive
participants out of the market and encourage fragmentation of liquidity.

Opportunities
There are definitely some opportunities. The big investment banks can extend their prime brokerage services to include

82 INVESTOR SERVICES JOURNAL

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MIFID

MiFID compliance in several areas. If some market participants decide there's no longer enough margin in equity trading
or broking, there will be more business to be won by the remaining participants. MiFID may, inadvertently, speed up the
process of consolidation in the European financial markets, so those firms looking to grow by acquisition may find more,
and more willing, targets. And those firms prepared to use technology to provide a better quality of service to clients, such
as using real-time price discovery and venue selection as part of their best execution policy, will attract clients from those
firms who will select a single venue and ask their clients to sign up for this every year.

Readiness
From a Chi-x perspective, we can see that many firms are busily addressing their MiFID best
execution requirements. We have a busy pipeline of firms keen to get connected to Chi-x,
especially given we are live and trading UK, German and Dutch stocks. They tell us that they
are encouraged by our early volumes and that prices on Chi-x are often better than those on
the incumbent European exchanges. Core to the best execution requirement is the need to get
the best possible result. In July, for example, the average price improvement for the trades
executed inside the primary market spread was 2.17 basis points, which represents real price
improvement for our clients and their end investors.

Domestic regulators
Chi-x is regulated by the UK Financial Services Authority, which has been nothing but
PETER RANDALL, supportive in our efforts to launch the first live order driven equities alternative trading system
CEO, CHI-X (ATS) in Europe.

Goals
We firmly believe in the benefits that MiFID will bring. The removal of the European concentration rules open up the
market to greater competition and this will bring two key benefits to the European equities marketplace. First, it will bring
competition. We firmly believe that it will be competition and not consolidation that will drive down the cost of trading in
Europe. Second, we are already seeing that our cheaper costs of trading, clearing and settling European equities,
combined with our high speeds (round trip latencies of 2 milliseconds) and high capacities (we can handle some 30,000
transactions per second) are attracting new liquidity to the European marketplace. High frequency traders who have been
frustrated by the speed and capacity limitations of the incumbent market infrastructure are now beginning to bring their
business to Europe and trading on Chi-x.

Opportunities
MiFID brings many opportunities. It opens up the playing field for competition, allowing new pools of liquidity offering
more competitive pricing, higher speeds and greater capacities. Trading technology enables brokers to connect easily (FIX
4.2) and smart order routing technology facilitates simultaneous price comparison and execution, enabling brokers to fulfil
their best execution requirements.
We firmly believe that the new MiFID world will bring greater transparency, lower trading costs and greater competition to
the pan-European equity trading landscape.

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
INVESTOR SERVICES JOURNAL 83
ISJ24 pp80-99 ML 7/9/07 12:49 pm Page 84

MIFID

Readiness
The leaders are a very small number of major investment banks - maybe a dozen or two out of
the more than 2,000 broker firms in Europe. In some cases they have been working on their
systematic internaliser projects for over two years, while the vast majority of broker firms have
been just hoping that MiFID might go away. A small number of firms are already looking to
take commercial advantage and first mover advantage of MiFID. Most firms are merely looking
to achieve the minimum level of compliance this year, and some of the remaining larger firms
expect to develop new trading platforms (as systematic internalisers or in cooperation, as
multilateral trading facilities) in 2008.

CHRIS PICKLES, MANAGER,
INDUSTRY RELATIONS, BT
GLOBAL FINANCIAL SERVICES
Domestic regulators
Not all market regulators have been giving serious or adequate support to investment firms in
their countries. The UK's FSA and France's AMF stand out as examples of regulators taking an
active role in working with their domestic investment community. In some cases, market
regulators have not been supported adequately by their own governments in terms of
resources and finances in order to assist investment firms. Many regulators, even from major
EU member states, could do much more than they are doing today.

Goals
MiFID has been created to ensure a better environment for investors through encouraging competition. The result should
also be a more efficient and competitive financial services industry in Europe. This doesn't mean that the industry will be
the same shape or that there will be the same players, or as many players as there are today. We are already seeing
consolidation in the industry of banks, brokers, exchanges, and data vendors. We're also seeing new execution venues that
are producing better prices and that are attracting serious order volume. The world is about to change - things grow or die,
but they can't stand still.

Opportunities
There are opportunities to gain commercial advantage from providing new execution venues that are more profitable for
clients and for investment firms. There are opportunities to provide clearing and settlement services to new customers who
could not access them before. There are opportunities to collect and distribute market data that wasn't distributed before.
There are opportunities to build new market indices to meet the needs of a single pan-European market. There are
opportunities to create stronger and more competitive exchanges and investment firms through mergers and acquisitions.
Survival can also be considered as an opportunity: not taking advantage of MiFID is not a recipe for survival.

Readiness
From a legal point of view, most of the banks in Europe will respect the MiFID deadline.
However, to be ready from a legal point of view does not mean that all the opportunities
created by the MiFID will be set up for the 1 November 2007. Some new products could
appear only a few months after the MiFID deadline. Concerning the banks' organisation, they
will have different levels of automation of their processes, depending of the volume and the
nature of their services. This level of automation could vary in the future according to the
demand of services and the market evolutions.

ERIC DE NEXON, HEAD OF
STRATEGY FOR MARKET
INFRASTRUCTURE, SOCIÉTÉ
GÉNÉRALE SECURITIES SERVICES
Domestic regulators
The regulators support the industry. One of their rules in the Lamfalussy procedure was to
implement, as soon as possible, the MiFID provisions to give time to the banks to adapt their
processes. They tried to do so, but most of the regulators did not succeed and did not respect
their MiFID deadline (which was the 31 January 2007 for regulators). The industry had
therefore less time to adapt their organisation in order to be fully compliant with MiFID. The
regulators should take into account the fact that the deadline for the industry was then
shorter than initially agreed.

Goals
MiFID should increase the competition in Europe. It will impact the banks but also the trade and post-trade
infrastructures, as it will be possible for the stock exchanges, to choose their CCP and their CSD for the clearing and
settlement of their trades. It will also be possible for the brokers, to choose the place of their settlement, if the

84 INVESTOR SERVICES JOURNAL

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MIFID

infrastructure links exist and are efficient. In France, the French obligation of concentration of orders on the stock
exchange will disappear. The banks will be allowed to internalise the orders or to use multilateral trading facilities (MTFs).
This competition should be positive, especially if the liquidity remains important and if the possible fragmentation of the
market is linked with a good level of transparency (pre-trade, but above all post-trade transparency).

Opportunities
The new platforms as Turquoise or Chi-x can offer opportunities, in term of prices for example. The banks will also be able
to offer new services to the clients, and they will try to simplify, as much as possible, the consequences for the clients of
the possible fragmentation of the markets. New opportunities will appear as a consequence of market evolution. Banks
would be able to provide services to market professionals that do not have access to the liquidity or that cannot afford the
costs induced by implementing the directive, regarding for instance pre- and post-trade transparency and reporting to
clients and regulators. Concerning the funds industry, the depositaries will be able to propose to asset managers to in-
source part of their MiFID obligations, in, for instance, adapting their reporting to the categorisation of the final client of
the asset managers (retail, professional or eligible counterparties). The asset managers will therefore be able to stay
concentrated on their core mission, which is the creation and management of funds.

MiFID sets out more detailed requirements

governing the organisation and conduct of
business of investment firms, and how
regulated markets and MTFs operate. It
also includes new pre- and post-trade
transparency requirements for equity
markets; the creation of a new regime for
‘systematic internalisers’ of retail order
flow in liquid equities; and more extensive
transaction reporting requirements.
The directive improves the ‘passport’ for
investment firms by more clearly
describing how to allocate responsibility
between home state and host state for
passported branches and generally
clarifying some of the jurisdictional
uncertainties that arose under the
Investment Services Directive (ISD).
Most firms that fall within the scope of
MiFID will also have to comply with the
new Capital Requirements Directive
(CRD), which will set requirements for the
regulatory capital a firm must hold. Those
firms newly covered by MiFID will be
subject to directive-based capital
requirements for the first time.

INVESTOR SERVICES JOURNAL 85

ISJ24 pp80-99 ML 7/9/07 12:50 pm Page 86
ANALYSE THIS - FUND DOMICILES
Domicile Debate
How will proposed changes
to Jersey's fund
regulations simplify the
existing regulatory
regime?
FRANCIS KATAMBA, CORPORATE AND COMMERCIAL ASSOCIATE,
APPLEBY
Since 2003, the Jersey Financial Services Commission has
been integrating Jersey's existing regulatory laws into the
Financial Services (Jersey) Law 1998, as amended, in order
to provide a simpler regulatory framework.
The Commission's current intention is to carry out these
changes to the funds regime in two stages, with the first
stage aimed at easing the administrative burden on funds
and their functionaries. In a similar vein, it is proposed that
an exemption from the requirement to obtain Control of
Borrowing Order consent where a fund has been issued
with a permit under the Collective Investment Funds Law
is also introduced.
Another important aspect of the reforms is the proposed
introduction of the concept of fund services business into
the Financial Services Law. This will mean that all those
who conduct fund services business will have to be
registered under the Financial Services Law, in addition to
which it also is intended that all existing unclassified fund
functionary permit holders (other than companies issuing
shares) will be “grandfathered” into the Financial Services
Law.
Once the first stage of the reforms has been successfully
completed, the Commission will also issue codes of practice
for fund services businesses and these are currently being
drafted with the help of industry sources.
The second stage of the implementation process should
introduce a certification regime in respect of unclassified
funds as a result of which the company issuing units,
trustee and general partner will be required to hold a
certificate in place of a permit. Once completed, these
amendments should mean that the law governing Jersey
funds is more transparent and in particular, the regulations
concerning unclassified funds holding certificates will be
more clearly distinguishable from those governing
recognised funds which will continue to be controlled by
permits as before.
86 INVESTOR SERVICES JOURNAL
Is Malta the next big thing
for hedge funds?
DERMOT BUTLER, CHAIRMAN, CUSTOM HOUSE
In the context of hedge fund domiciles, the new star in the
firmament that has risen over the past couple of years has
been Malta. At the same time, the Channel Islands has had
some success in promoting both Jersey and Guernsey as
viable hedge fund centres, but it has to be said, Malta is, in
my opinion, a more attractive domicile on a cost basis, as
well as the fact that its regulatory approach is firm but
flexible. Malta has also, since May 2005, been a full member
of the European Union. As such, their natural competitors,
other than the Cayman Islands, are Luxembourg and
Dublin - but both of those are very much more expensive,
not only as jurisdictions in which to establish funds, but also
places to operate the funds, once established.
The Cayman Islands have, over the past couple of decades,
managed to establish themselves as the jurisdiction of
choice for many hedge fund managers, particularly US
hedge fund managers, and recently broke through the
10,000 funds barrier. As such, the Cayman Islands seem
unassailable - but so did the Bahamas, Bermuda and
Curacao in their hey day - all of which have now been
relegated to second or third choice domiciles.
Despite the current entrenched positions of the Cayman
Islands and, indeed, Dublin and Luxembourg, attitudes and
sentiment can and do change and Malta could well be the
next jurisdiction of choice for many hedge fund managers
and promoters. However, before getting carried away, I
should point out that recently not only has Luxembourg
relaxed its registration process, but so has Dublin,
specifically for Qualifying Investor Funds (QIFs).
I expect that, notwithstanding the sub-prime related
problems, this growth will be the long term trend to the
benefit of all jurisdictions.
Finally, attitudes to firmer regulation have also become
more positive in the past few years and therefore the
perception that EU Regulation adds gravitas to a fund
should further benefit Malta.
ISJ24 pp80-99 ML 7/9/07 12:50 pm Page 87

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ISJ24 pp80-99 ML 7/9/07 12:50 pm Page 88
ANALYSE THIS - FUND DOMICILES
Luxembourg Specialised
Investment Funds provide
an onshore, regulated
alternative
PIERRE DE BACKER, TRANSACTION MANAGER, EQUITY FUND
SERVICES
With more than EUR2 trillion in assets under
administration in investment funds, Luxembourg has been
very attractive to investors worldwide for a long time. Due
to increasing competition from offshore centres, the
legislator recently has introduced a new vehicle for the
institutional, professional and well informed individual
investors. Although supervised by the financial authority in
Luxembourg (CSSF), the new vehicle is only lightly
regulated and its flexibility and tax efficiency spur it as an
onshore alternative to existing Cayman or BVI funds.
Introduced in Luxembourg in February 2007, the
Specialised Investment Fund (SIF) replaces the
institutional investor fund structure. As SIFs are reserved
not only to institutional and professional investors but also
to individuals, less investor protection is required.
Therefore SIFs may invest in any type of assets, such as
securities, derivatives, currencies, deposits, traditional funds
or hedge funds, real estate, private equity, claims,
receivables, but are required to spread risk -a recent CSSF
circular imposes a maximum of 30% of the funds' asset in
any security. However, derogations are possible, for instance
if the underlying investment is sufficiently diversified.
SIFs may be set up either in a corporate form, as a public or
private limited company or a partnership limited by shares,
or in a contractual form, as a unit trust. As for supervision,
the directors of the SIF or management company (trustee)
have to demonstrate their reputation and skills (financial
and industry experience) to the CSSF. However, no prior
approval or assessment of the promoter or the investment
manager is required. A SIF will even be able to start its
activity without CSSF approval, provided the application is
filed in the month following the set up of the fund.
Finally, a SIF structure can also prove to be highly tax
efficient, as it is exempted from dividend capital gains,
corporate and wealth taxes. The only levies due are the
capital duty of EUR1,250 upon incorporation and an
annual subscription tax of 0.01% on the net assets of the
fund. Currently, a SIF incorporated as a company can
benefit from tax treaties concluded by Luxembourg.
Launching a SIF generally takes the same time as setting up
a similar Cayman or BVI structure. Already it seems that
SIFs are becoming a successful structure, with close to 300
vehicles approved and one structure on average being set up
each day since February this year.
88 INVESTOR SERVICES JOURNAL
Jersey focuses on
specialist funds as it aims
to be the European
jurisdiction of choice
BEVERLEY LE CUIROT, DIRECTOR OF MARKETING, JERSEY FINANCE
Jersey continues to experience success as it drives forward
as an international centre for funds business and this can be
attributed to a number of factors. The island's reputation
for its appropriate and proportionate regulation is one
major factor, as is its proximity to London and ability to
operate across numerous time zones - a feature few other
jurisdictions can match.
Jersey benefits from a wealth of experience and
professional expertise, having administered financial
products for over four decades. This includes a first class
supporting infrastructure of lawyers, accountants and the
Channel Island Stock Exchange. Tax neutrality for funds
also remains vital alongside the island's stable political and
economic environment.
While optimism is high, Jersey seeks to remain innovative
to retain its leading position within a hugely competitive
environment. The launch of the Expert Funds regime in
2004 was a clear signal that Jersey was willing to adapt the
regulatory environment to accommodate the changing
needs of fund administration. Expert Funds have seen
acceleration in take up as the 'light touch' regulatory
approach has found wider recognition amongst fund
promoters, professional investors and advisors.
In recent years, the pattern in Jersey has been for an
increasing number of specialist funds to be launched,
including property, hedge funds, private equity and other
specialist vehicles and recent regulatory developments have
supported this. As at March 2007, the net asset value (NAV)
of 'specialist' funds accounted for over half of the total
NAV of funds under administration in Jersey.
The next stage in the evolution of the funds sector in Jersey
is likely to be based on the regulation of the service
provider, rather than the fund itself. The regulator
recognises that it is not a one size fits all approach and that
regulation needs to be balanced and appropriate.
Moreover, Jersey is developing a reputation as a credible
alternative for hedge fund domiciliation and servicing.
Some hedge fund managers and related service providers
have already moved to the island, emphasising that Jersey
remains very much open for business and responsive to the
changing international marketplace.
While the funds business is growing between Jersey and
emerging markets, London remains a key market.
ISJ24 pp80-99 ML 7/9/07 1:50 pm Page 89
ISJ24 pp80-99 ML 7/9/07 12:50 pm Page 90
ANALYSE THIS - FUND DOMICILES
How useful are template
side letters?
ROB MCINTYRE, MANAGING PARTNER, BVI OFFICE,
MAPLES AND CALDER
As the popularity of offshore hedge funds with institutional
investors has grown in recent years, the managers of these
funds have come under increasing pressure to offer
investors preferential terms. This has led to the increased
use of the side letter, a written agreement with a particular
investor that sets out terms different from those offered to
other investors in the same fund.
The general question of whether a side letter is enforceable
will depend on both the terms of the side letter and the
specific terms of the articles of association of the fund in
question. It will also depend on the specific disclosure made
to investors in the offering document for the relevant
shares. It is therefore not possible to state with any
certainty whether the terms of a template side letter will or
will not be enforceable under any circumstances.
Side letters should always be customised to reflect the
particular terms of an investment. Template side letters
rarely achieve what the parties really intended with
precision. Because of a particular fund's structure or
articles of association, it may be necessary to reach the
desired outcome by different means. An improperly
structured side letter, or one that is inconsistent with other
side letters, is more likely to be unenforceable. For example,
some side letters contain gating provisions that are so
complicated that construction of the agreement in the side
letter becomes an issue. In other cases, at a time of crisis, it
becomes clear that every investor has a preferential gate
position and the fund in question simply cannot administer
all of its side letters. Mass redemptions will trigger any
number of contractual rights, putting the fund and the
investment manager in breach of obligations under other
side letters.
While side letters are very often useful tools, which allow a
fund to bring institutional investors on board without
amending the fund's base documentation, they should
always be tailored to the specific investment that is to be
made. To be truly effective, side letters should give due
consideration to the general terms set out in the offering
documents and articles of association of the fund in
question. Fund managers should be aware that the template
side letters that are often presented to them by potential
investors, while helpful at the initial drafting stage, are no
substitute for a bespoke product.
90 INVESTOR SERVICES JOURNAL
What makes the Cayman
Islands the leading
offshore jurisdiction?
CHRISTIE WALTON, ASSOCIATE, MAPLES AND CALDER,
CAYMAN ISLANDS
The Cayman Islands are generally regarded as the leading
offshore jurisdiction for investment funds. The Cayman
Islands Monetary Authority (CIMA) reported that as of
the end of 2006, 8,134 active funds were regulated by
CIMA, with an additional 1,060 funds having been
registered/licensed by CIMA in the first half of 2007. This
number is said to represent as much as 80% of the world
market. There are in addition, a significant number of
private equity and other unregistered funds domiciled in
Cayman that fall within the available exemptions.
Although many perceive the most important benefit of
domiciling a fund in the Cayman Islands to be the lack of
direct taxes of any kind, the domicile offers a number of
other important advantages.
The legal system in the Cayman Islands is based primarily
on English common law and some key English statutes.
Funds may be structured as companies, partnerships or unit
trusts, or in multiple fund structures - a combination of
these vehicles. The stability of the government and the
consistency, flexibility and familiarity of its laws makes the
Cayman Islands attractive for fund managers and investors.
Lack of exchange control restrictions or regulations means
that funds can be freely transferred to and from the Cayman
Islands.
Unlike many of its offshore counterparts, the Cayman
Islands can boast a large number of resident industry
professionals providing the full range of legal, accounting,
audit, fund administration, custodial, independent director
and trustee services. Not only are there numerous resident
professionals to establish and operate funds, qualified
forensic accountants, liquidation and litigation specialists
are also available to assist funds that are experiencing
difficulties. Fund managers, therefore, have a wide variety of
service providers to choose from to service their funds'
specific needs. Investors may also benefit from the range of
service providers - in terms of retaining separate legal
representation, competitive fees and independent director
services that may afford greater investor protection.
Notwithstanding the number of resident service providers,
Cayman Islands domiciled funds are not required to appoint
local directors or local service providers - aside from
needing a local registered office, and, with respect to CIMA
regulated funds only, appointing an approved local auditor
to sign off on audited accounts.
ISJ24 pp80-99 ML 7/9/07 12:50 pm Page 91

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Leading the way with

Offshore Investment Funds...
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offshore financial structures for over 40 years.
Our clients range from the large institutional
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Whatever your Cayman, BVI, Irish or Jersey
investment funds needs are, we will more than
meet your expectations.

www.maplesandcalder.com
ISJ24 pp80-99 ML 7/9/07 12:50 pm Page 92
ANALYSE THIS - FUND DOMICILES
Although Cayman Islands domiciled funds may pay marginally
higher registration, annual and other government fees than
funds domiciled in other offshore jurisdictions, the statistics
suggest that many fund managers have determined that the
advantages of domiciling a fund in the Cayman Islands
outweigh potentially increased costs. For the foreseeable future,
the availability of industry professionals, flexible fund
management and a stable legal system will continue to make the
Cayman Islands an attractive and practical option for fund
domiciliation.
What makes Bermuda
attractive to hedge funds?
PHILLIP GEE, IMPLEMENTATION MANAGER, DUNDEE LEEDS
Bermuda's hedge fund sector continues to grow, with over
1,200 registered funds and a combined net asset value of
roughly USD200 billion. As well as its proximity to the US,
recent legislative changes and initiatives ensure that
Bermuda maintains its reputation as a quality and business
friendly jurisdiction.
The Investment Funds Act 2006 came into effect earlier
this year, and has codified and standardised its predecessor,
the Collective Investment Schemes Regulations (1998). The
Act makes Bermuda an increasingly user friendly
environment for fund managers by streamlining operations,
creating a three tier classification of funds. Administered
funds must be serviced by a Bermuda licensed
administrator, and have a minimum investment threshold of
USD50,000. Institutional funds must maintain a
USD100,000 threshold, and are targeted at qualified
investors. All other funds are classed as standard funds.
The Act also requires administrators in Bermuda to obtain
a license from the island's independent financial regulator,
the Bermuda Monetary Authority, which establishes codes
of conduct and ensures the proper level of governance of
each fund serviced. While Dundee Leeds already has
superior operational controls in place, the license sets
standards which all administrators in Bermuda must adhere
to, reinforcing its position as a leading jurisdiction in the
fund administration industry. The license is a timely
addition to Bermuda's quality regulatory framework, as
92 INVESTOR SERVICES JOURNAL
increasing institutional investment necessitates the need for
greater operational transparency.
Launch 'n' List, a new initiative introduced in partnership by the
Bermuda Stock Exchange and the Bermuda Monetary
Authority, also streamlines processes for hedge funds doing
business in Bermuda. Managers are able to submit paperwork
simultaneously to the island's financial regulator and the
Bermuda stock exchange, which speeds up turnaround times for
listing to as short as two weeks. Additionally, listing on the
exchange adds a layer of transparency to funds, as listed shares
are considered liquid assets, and are monitored by the exchange
to ensure good governance.
In summary, Bermuda is a jurisdiction of choice for managers
and institutional investors seeking a quality and transparent
regulatory environment. Constant vigilance by the Bermuda
Monetary Authority maintains the island's credibility and
reputation, raising the bar for offshore jurisdictions. Bermuda's
flexible approach towards innovation continues to make it a
more user friendly place for managers to do business.
Which fund domicile is
right for you?
MARK PORTER, HEAD OF FUND SERVICES, UBS GLOBAL ASSET
MANAGEMENT, UK
The question should perhaps be: which fund domicile is
right for the product, the investors and the manager, at this
particular time? These factors must all be considered before
deciding on fund domicile, but is this what happens in
practice?
The choice of domicile has become increasingly difficult, as
offshore regulators continue to demonstrate their flexibility
and onshore markets, particularly in Europe, allow for
products with more diverse investment powers. But in
reality, how much of the decision is based on what has gone
before?
Historically, one could broadly map the scale of regulatory
supervision in offshore centres from the lighter touch
Caribbean islands through the Channel Islands, Isle of Man
and Bermuda up to the relatively heavier touch of Dublin
and Luxembourg. Inevitably, Cayman as an early mover into
the hedge fund domicile space became the domicile of
choice for this product and arguably continues to be so
(with Dublin following suit for products launched by
European managers), versus Luxembourg as a preferred
domicile for products with pan-European cross border
distribution. So does the early mover always catch the
proverbial worm?
ISJ24 pp80-99 ML 7/9/07 1:34 pm Page 93
ANALYSE THIS - FUND DOMICILES
This certainly seems to be the case for the increasingly popular
asset class, private equity, where Guernsey is emerging as a
domicile of choice for new funds in the European time zone,
both as an early mover and for demonstrating regulatory
flexibility and innovation. So does this make Guernsey the right
choice or just the easiest one? One suspects that convenience
and familiarity play a significant part in the decision, and why
not, one might ask?
The demand for high quality, scaleable expertise available to the
principal service providers -administrators, lawyers and
accountants, is presenting capacity issues for some of the
offshore domiciles where there is a limited population and in
some cases, high turnover. The importance of accessibility and
communication at a time when alternative products are moving
towards more frequent valuation and reporting, places
increasing emphasis on having access to service providers in the
same time zone.
The industry continues to innovate, underlying the importance
of reassessing the options for each new product. Capital flows
are coming from different sources; onshore regulators continue
to remove restrictions previously preventing broader access to
alternative asset classes; the institutional investor, typically the
pension funds, are increasing their allocations to alternatives
but still demanding higher levels of regulatory oversight,
perceived or real, from the domiciles in which their assets are
supervised. This will force the onshore centres to create
opportunity and capacity for products previously only available
to offshore domiciles.
The flexibility to administer a fund from any domicile in a
location convenient to the client is becoming an increasingly
valuable quality of the administrator. The alignment of fund
domicile to place of service provision is likely to become more
disconnected over time; the winners in the industry will be
quick to respond to this change.
Hedge fund performance
fees and the Channel
Islands
PAUL BRATCH, DIRECTOR, MORSE, JERSEY
In the Channel Islands, the administration of hedge fund
performance fees is being poorly managed. Many firms are
using high risk manual solutions, such as Excel
spreadsheets, to tackle a complex problem. The good news
is that appropriate models are now readily available for
those prepared to invest in meeting market demand for
quality services.
93 INVESTOR SERVICES JOURNAL
Investor level performance fees are a thorny issue but it
doesn't have to be this way. Both the size of these fees,
normally 20%, and a fear that investors will default on the
payment, have led to a highly complex administrative
environment in order to manage the process. Performance
fees were originally calculated as a single value at the fund
level with all investors paying a certain portion of the fee
regardless of their circumstances. In the current climate
where transparency is king, the fees are calculated at the
investor level to ensure there is clear and fair treatment for
all. The straightforward dealing registration function has
therefore mutated into a labyrinth of complexity.
To address these challenges, the US market devised a
solution. They created the Series method, which is a
performance fee equalisation technique. This works well
under a US partnership or capital accounting model.
However, the solution works less successfully in Europe, as
funds are structured on a unitised basis. Force fitting the
Series method is challenging for the investor servicing
industry, giving rise to difficulties with Series identification,
Series consolidation processing, investor reporting and
multiple stock exchange listing overheads.
Alternatives to this method were proposed for the unitised
accounting world, but they too all suffered from a range of
the same challenges. The main problem was the sheer
difficulty in understanding the methods, which led to
difficulties in reporting the complex calculations to
investors. Without an appropriate platform, administrators
typically struggle along using high risk, manual
calculations with manual reporting. This makes any strong
controls around reconciliation, auditing and management
information virtually impossible. These difficulties are
compounded by additional complexities associated with
tracking High Water Marks, applying simple Hurdle rates
or variable Hurdle rates.
The good news is that there are appropriate solutions
readily available for those prepared to invest in meeting
market demand for quality services. The most realistic
solution requires understanding the details of each of the
commonly used arithmetic methods through an education
programme. It also requires moving away from the use of
manual spreadsheet solutions toward an appropriate
investor servicing platform.
In the European market, the mainstream global players are
investing heavily in this area. They have recognised that the
'retailisation' of the hedge fund industry will lead to an
industrialisation of administration, including the
challenges associated with performance fees.
The market in the islands has been slow to address these
challenges to date, leading to a situation difficult to rectify
in today's resource challenged climate. Although there is
evidence of firms trying to move forward, it has been with
insufficient vigour.
It is quite clear that failure to make the necessary
investment is not sustainable, as business will ultimately go
elsewhere in search of quality solutions. However, those
who do make the investment will reap the tangible benefits.
ISJ24 pp80-99 ML 7/9/07 12:50 pm Page 94
PEOPLE MOVES
MOVING & SHA KING
London - State Street has appointed
Nick Wright to senior vice president
and chief operating officer of State
Street's investment servicing business
in the United Kingdom, Middle East
and Africa (UKMEA). Wright will be
responsible for managing operations
and infrastructure for State Street's
investor services business for the
UKMEA region. He joins State Street
from Investors Financial Services
(Investors Trust
Europe), which
was acquired by
State Street on 2
July. Wright,
who will be
based in London,
will report to
Michael Walsh,
senior vice
NICK WRIGHT president and
managing
director of State Street's investment
servicing business for the UKMEA.
London - UBS has awarded current
chairman and chief executive of its
Latin American business, Andre
Esteves, the reins of its fixed income
division, less than 15 months after he
joined as the bank's youngest regional
head. UBS bought Banco Pactual,
where Esteves was managing partner,
in May 2006. Esteves, then 37 years
old, became the youngest regional
chief executive at UBS and joined the
group managing board on the back of
the acquisition. The purchase of
Banco Pactual was UBS’s largest in
more than five years and is a
cornerstone to the group’s plans to
grow its emerging market fixed
income and equity business. Esteves
will relocate from Brazil to London to
take up his new role, replacing Simon
Bunce. Esteves will continue to report
to Huw Jenkins, chairman and chief
executive of UBS’s investment bank.
London - Citi has appointed Naveed
Sultan head of Global Transaction
Services (GTS) in Europe, Middle
East and Africa (EMEA), effective
from 1 October. He reports to Paul
94 INVESTOR SERVICES JOURNAL
Galant, CEO of
Global
Transaction
Services, and Bill
Mills, CEO, Citi
Markets and
Banking in
EMEA. Sultan
brings diverse and
NAVEED SULTAN extensive
experience in
relationship management, corporate
banking, product management,
operations and technology to his new
role, Citi says. In his former role as head
of Cash Management in EMEA, he
presided over the turnaround of the
European Cash business at the time
when the euro was introduced.
New York - The Bank of New York Mellon
has appointed Dominick Falco as
managing director and head of broker-
dealer services in Asia. Falco, who will
be based in Hong Kong, will be
responsible for managing the Company’s
growing broker-dealer servicing
business in the Asia Pacific region and
raising the visibility of its collateral and
trust services, global collateral
management, derivatives margin
management and international clearance
products. He will report locally to
Andrew Gordon, executive vice
president and head of client
management for North Asia, and
globally to James Malgieri, executive
vice president of collateral management.
Chicago - Northern Trust has appointed
executive vice president Gregg Behrens to
head of Asia
Pacific for its
Corporate and
Institutional
Services (C&IS)
business. He will
relocate to
Singapore from
Chicago to be
responsible for all
GREGG BEHRENS of Northern
Trust's businesses
and operations in the Asia Pacific region,
including Australia, Bangalore, China,
Hong Kong, Japan, New Zealand, and
Singapore. Behrens now reports to
Timothy Theriault, president,
Corporate and Institutional Services,
Northern Trust. “As our substantial
client base in the region continues to
grow, our long term commitment to
the Asia Pacific institutional
marketplace has never been stronger,”
says Theriault. “Gregg is an
experienced and seasoned leader
within our institutional business, and
he brings the right mix of energy,
talent, and business acumen to this
vital new role. Our Asia Pacific clients
and prospects will benefit greatly
from Gregg's appointment.”
London - The Alternative Investment
Management Association (AIMA) has
appointed Andrew
Baker, to the
newly created
role as deputy
chief executive.
Baker has joined
AIMA from
Schroder
Investment
Management
ANDREW BAKER Limited where
he was chief
operating officer for alternative
investments. This role has been
created to strengthen the senior
resources available to the association
at a time of unprecedented growth in
the alternative investment industry,
AIMA says. Baker's focus will be on
AIMA's operations and organisational
structure, UK affairs and regulation
and tax.
Hong Kong - Bear Stearns has
appointed John Moore as its first chief
executive for Asia, part of the bank's
drive to increase its presence in the
region. Moore, to be based in Hong
Kong and Tokyo, will report to
Michael Peretie, head of Europe and
Asia. Moore joined Bear in 2001 as
global head of agency capital markets
in New York. He moved to London in
2004 to manage fixed income sales
and trading and was named co-head
ISJ24 pp80-99 ML 7/9/07 12:51 pm Page 95
of fixed income for Europe last year.
Bear does not break down its
revenues by region but said about
20% of second quarter revenues came
from outside the US, up from 14% the
previous year. The US investment
bank has offices in Tokyo, Hong
Kong, Beijing, Shanghai and
Singapore.
Boston - DTCC executive managing
director for business management,
strategy and marketing, Michael
Bodson, has joined the Omgeo’s board
of managers, replacing Jill Considine.
Considine, former chairman and CEO
of DTCC and board member, has
retired from her DTCC and Omgeo
positions but continues to serve as a
senior advisor to the DTCC board of
directors. Omgeo's 12 member board
of managers is responsible for
governance and industry oversight of
the organisation and for representing
the interests of
all Omgeo's
clients. Bodson
joined DTCC in
early 2007.
Reporting
directly to
Donald Donahue,
DTCC chairman
and CEO, he is
primarily
MICHAEL BODSON
responsible for
all product
management, strategic planning,
relationship management and
marketing. This includes oversight of
DTCC's core clearance and
settlement businesses for equities and
fixed income, its custody and asset
servicing businesses, and the
processing support provided to the
mutual fund and insurance sectors, as
well as DTCC's role in automating
the post-trade processing of OTC
derivatives.
Vienna - Johann Strobl is to join the
managing board of Raiffeisen
Zentralbank Österreich (RZB) in a
newly created role as executive risk
management officer, effective 1
October. “In winning Johann Strobl, we
have gained a manager whose experience
and professional profile match RZB and
our managing board optimally,” says
RZB chief executive Walter
Rothensteiner of his new fellow board
member.
Boston - Eagle Investment Systems - owned
by Bank of New York Mellon - has
appointed Robert Leaper and Robert Erman
to its senior management team, to
further extend
global business,
Eagle says. Leaper,
senior vice
president of
global sales, will
be responsible for
extending the
reach of Eagle's
business globally
ROBERT LEAPER around its
investment
accounting, data management and
performance measurement products. As
senior vice president of professional
services for Eagle, Erman is charged
with expanding Eagle's professional
services business. “We are very pleased
to be able to expand the breadth of our
senior management team with
individuals who have extensive
experience in our market,” says John
Lehner, president of Eagle, a unit of
BNY Mellon Asset Servicing. “Both have
very strong entrepreneurial, consulting,
and global investment industry
backgrounds, which will help to further
propel Eagle's continued success.”
London - BNP Paribas Securities Services
has hired Barbara Crane to its Global
Corporate Trust business, reporting to
Alex Pashley, senior sales manager.
Crane spent six years at HSBC, most
recently in the role of client relationship
manager for corporate, asset manager
and hedge fund clients. At BNP Paribas,
Crane will be responsible for Corporate
and Issuers Sales, working within the
London investment bank community,
focusing primarily on the Western and
Southern European, Asia and
Australasia sectors.
PEOPLE MOVES
London - Northern Trust has hired
Allan Watson, head of Derivatives
Operations EMEA, from Bank of
America where he was manager in
the exotic
rates middle
office. At
Northern
Trust,
Watson is
responsible
for managing
the teams that
administer
ALLAN WATSON OTC and
exchange
traded derivatives (ETD), and
provide collateral management
services, for investment manager and
pension fund clients who outsource
these activities to Northern Trust.
He is based in London and reports to
Stephen Andress, global head of
Derivatives Operations.
Moscow - Lehman Brothers has made
two senior appointments in Russia,
as the bank looks to roll out full
investment banking services and hire
60 staff by the end of 2007. Lehman
has recruited Stan Raskin, previously
director of investment banking at
Troika Dialog, as director, and Irina
Volkova, previously a vice president at
Merrill Lynch in Russia, as chief
administrative officer. Raskin and
Volkova are the first senior
appointments by Nicholas Jordan,
who joined Lehman in April as vice
chairman and head of the
investment banking business for
Russia. Raskin, who worked for
Lehman in New York from 2000 to
2002 advising IT companies, will
assist Jordan in developing
investment banking services. Jordan
is understood to have been coaxed
from Deutsche Bank by an annual
package worth more than
USD7 million. Lehman, which had
been serving its Russian clients from
London since leaving Moscow after
the 1998 financial crisis, moved
into new offices near the British
Embassy in July.
INVESTOR SERVICES JOURNAL 95
ISJ24 pp80-99 ML 7/9/07 12:51 pm Page 96

MANDATES

MANDATES AWARDED IN JULY AND AUGUST 2007

Month Winner Client Location Assignment Mandate size
August BNY Mellon Banca PopdiMilan Milan Custody Services n/a
August BNY Mellon EBS Build Soc Dublin Custody Services USD4.2bn
August BNY Mellon Spa ETF Europe London Custody Services n/a
August Barclays Russell Investmts London Fund Administration GBP2bn
August ABN AMRO Bedrijfspensioen Utrecht Custody Services EUR1bn
August State Street National Pension Seoul Custody/Sec Lending n/a
August JPMorgan ICI Spec Chems London Custody Services GBP400m
August RBC Dexia Titan Funds Toronto Custody Services n/a
July RBC Dexia Quebec University Quebec Custody/Sec Lending CAD2.3bn
July RBC Dexia First State Invest London Custody Services n/a
July RBC Dexia Treasury Group Sydney Custody Services n/a
July JPMorgan 3 pension funds New York Custody Services USD680m

BNY MELLON SCOOPS AUGUST; RBC DEXIA WINS JULY

BNY Mellon Asset Servicing has been appointed by Banca Popolare di Milano (BPM) to provide custody services to the Italian
cooperative bank. BNY Mellon was also given a mandate by Dublin-based EBS Building Society to provide custody
services for its global portfolio, valued at USD4.2 billion.

Earlier in August, BNY Mellon was named custodian bank by exchange traded funds (ETFs) provider Spa ETF for full
European custody and administration services. Spa ETF Europe is due to launch a service this autumn to allow global
private and institutional investors access to ETFs based on MarketGrader indices. BNY Mellon will provide full sub-
advisory services, including global custody, trustee, fund accounting and fund administration.

RBC Dexia Investor Services has been selected by Titan Funds to provide custody, fund valuation and investor recordkeeping
for the company's new proprietary mutual fund family, launched on 13 July and to be sold across Canada exclusively
through Partners in Planning Financial Services. RBC Dexia has also been appointed by: Universite du Quebec’s CAD2.3
billion pension fund, to provide custody and securities lending services; First State Investments to provide global custody,
fund administration and shareholder services (transfer agency) for the First State European Diversified Infrastructure
Fund FCP-SIF; and Treasury Group Limited to provide global custody, fund administration and shareholder services for
its TG Treasury Asia Fund, domiciled in Dublin.

Barclays Bank UK Retirement Fund (BBUKRF) has been appointed by Russell Investments to design and manage a GBP2
billion portfolio of third party high alpha global equity managers. BBUKRF will build a tailored multi-manager portfolio.
As well as selecting managers, Russell will be responsible for ongoing additional portfolio implementation matters such as
cash equitisation, foreign exchange execution and transition management.

JPMorgan has secured contracts with three new custody clients, representing a combined USD680 million in assets.
JPMorgan said the firm's Commercial Bank helped win the deals, which resulted from a new campaign to expand
relationships with mid-sized companies, which have up to USD1 billion in assets.

State Street Corporation has been appointed by the National Pension Service (NPS), South Korea's social security system, to
provide global custody, securities lending and related services. In March, State Street announced that it was appointed by
Bank of China to jointly service the foreign currency insurance funds of China Life Insurance Company Limited, the
largest life insurance company and one of the largest institutional investors in mainland China.

JPMorgan Worldwide Securities Services has been named custodian for the ICI Specialty Chemicals Pension Fund. JPMorgan
already provides custody services for the ICI Pension Fund, which provides pensions for ICI employees who work for a
different part of the company. In addition to custody, JPMorgan will also provide investment accounting services to the
ICI Specialty Chemicals Pension Fund, which has GBP400 million of assets.

96 INVESTOR SERVICES JOURNAL

ISJ24 pp80-99 ML 7/9/07 12:51 pm Page 97
ISJ24 pp80-99 ML 7/9/07 1:44 pm Page 98

STATISTICS

“A bank is a place that will lend you money...

if you can prove that you don't need it.”
Bob Hope (1903-2003)

Securities lending
and borrowing NUMBER
statistics show
increased activity and
CRUNCHING
a significant rise
in volumes,
ISJ analyses data from
Data Explorers

It has been another year of flux for

the securities lending market.
Increased activity by hedge funds and
the search for alpha by the more
traditional players in the market has
caused securities lending volumes to
rise at a significant rate. The high
level of mergers and acquisitions has
also acted as a catalyst to this growth.
This year’s figures by Data Explorers
indicate that the value on loan in the
spring was USD3.5 million. Analyst
firm Aite Group has estimated that the
global lendable asset market is USD16
trillion and the actual lending market
is nearly USD4 trillion.

98 INVESTOR SERVICES JOURNAL

ISJ24 pp80-99 ML 7/9/07 1:44 pm Page 99

New topics include:

s )NSURANCE LINKED SECURITIES
s !LTERNATIVE ALPHA
s  FUNDS
s %VENT DRIVEN STRATEGIES
s #URRENCIES
27 - 29 November 2007, Park Hyatt, Zürich, Switzerland
s $ISTRESSED DEBT 10th anniversary
s 6OLATILITY ARBITRAGE
s 0RIVATE EQUITY

Thought leading investor and

expert speakers include

Peter Thiel
President
Clarium Capital

Christoph Gort
Deputy Head of
Hedge Fund Investments
City of Zürich Pension Fund
Leading the way for the world’s most
Alexander Ineichen
Senior Investment Officer, sophisticated investors!
Alternative Investment Solutions
UBS Global Asset Management Hedge Funds World Zürich is designed as an investor-driven platform examining
the emerging trends, opportunities and challenges of hedge fund investing.

By attending this event you will:

Rob-Roy Roedel
Chief Executive Officer s Be the first to hear the most advanced portfolio solutions before anyone else
Plenum Family Office s Hear from the world’s leading hedge fund managers together with
Switzerland’s most prominent investors
s Dramatically increase your knowledge and understanding of the most
Luc Estenne promising investment strategies and asset classes
Chief Executive Officer
Partners Advisors
Gold sponsors

Christian Raubach
A S S E T M A N A G E M E N T LT D
Managing Partner GUERNSEY

Wegelin & Co.

Silver sponsors Organised by

Peter Hegglin
Investment Consultant
Mercer

Response form Fax Back to +44 (0)20 7242 1508

: Yes! Please register me for the conference : Yes! Please send me the conference brochure : Yes! I am interested in sponsorship opportunities

Name:............................................................................................................................................................................................................................................

Job title: ........................................................................................................................................................................................................................................

Company: ......................................................................................................................................................................................................................................

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Tel:..........................................................................Fax: ..............................................................................Email: ......................................................................

Event code: 1316/ISJ

www.terrapinn.com/2007/zurich
ISJ24 pp100-112 ML 7/9/07 4:27 pm Page 100

– Presents –

16 - 17 OCTOBER 2007
THE BURLINGTON HOTEL • DUBLIN, IRELAND

14th Annual
Beneficial Owners’ Securities
Lending & Repo Summit
FEBRUARY 3-6, 2008 • FOUR SEASONS AVIARA • NORTH SAN DIEGO, CA

For More Information, Please Visit

www.imn.org/isldublin/isjm
ISJ24 pp100-112 ML 7/9/07
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
4:28 pm Page 101
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 101
ISJ24 pp100-112 ML 7/9/07 4:28 pm Page 102

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.

102 INVESTOR SERVICES JOURNAL

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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 (SGSS) offers institutional investors, asset
managers and financial intermediaries a comprehensive range of financial securities
services: custody, clearing & trustee services, fund administration, asset servicing
and transfer agency.
SGSS currently ranks 3rd European custodian and 9th worldwide custodian
(Source: Globalcustody.net) with EUR 2,580* billion in assets under custody and
valuates 4,354* funds representing assets under administration of EUR 405* bil-
lion. (Figures at end 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 103
ISJ24 pp100-112 ML 7/9/07 4:28 pm Page 104

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

104 INVESTOR SERVICES JOURNAL

ISJ24 pp100-112 ML 7/9/07 4:28 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
Adrian Maher
E: amaher@swiss-financial.ie
T: +353 51 351180
F: +353 51 871595
Swiss Financial Services (Ireland)
Ltd.
Units 5/6 Tramore Road Business
Park
Waterford
Ireland
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@customhouse-
group.com
C: david.blair@customhouse-
group.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 105
Société Générale Securities Services (SGSS) offers institutional investors, asset
managers and financial intermediaries a comprehensive range of financial securities
services: custody, clearing & trustee services, fund administration, asset servicing
and transfer agency.
SGSS currently ranks 3rd European custodian and 9th worldwide custodian
(Source: Globalcustody.net) with EUR 2,580* billion in assets under custody and
valuates 4,354* funds representing assets under administration of EUR 405* bil-
lion. (Figures at end 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 domiciled
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 a specialist hedge fund administrator and was the first and only
one to be awarded a Moody’s Management Quality Rating.
Custom House provides advice and assistance in the organization of hedge funds,
together with the provision of a full administration service, which covers all aspects
of the day-to-day operation, including shareholder services.
Custom House now offers a global “24/7” service through offices in Dublin, Chicago
and Singapore.
Custom House is authorised by the Irish Financial Regulator under Section 10 of the
Investment Intermediaries Act, 1995.
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 105
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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.

106 INVESTOR SERVICES JOURNAL

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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
4:30 pm Page 107
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 107
ISJ24 pp100-112 ML 7/9/07 4:30 pm Page 108

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.

108 INVESTOR SERVICES JOURNAL

ISJ24 pp100-112 ML 7/9/07
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
4:31 pm Page 109
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 109
ISJ24 pp100-112 ML 7/9/07 4:31 pm Page 110

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.

110 INVESTOR SERVICES JOURNAL

ISJ24 pp100-112 ML 7/9/07
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
4:31 pm Page 111
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 111
ISJ24 pp100-112 ML 7/9/07 4:31 pm Page 112
HINDSIGHT/FORESIGHT
How have investment management strategies evolved over the
past five years, with the benefit of hindsight?
We believe that, conceptually, no new investment management
strategies have appeared on the market over the past years.
However, the industry has developed at a very rapid pace,
mainly on the back of increasingly complicated strategies and
structured products. Only six or seven years ago, a structured
product was a simple combination of a bank bond and an option,
easily understandable for any student. But to understand the
current offers, you have to consult a specialist with a PhD.
How have the lessons learnt impacted on the development
of new and innovative strategies?
All the abbreviations, such as CDS and CDO, that have appeared
over the recent years have become an important field of hedge
fund operations.
With the benefit of hindsight on market conditions and
volatility, what would you do differently?
The past years have seen a pronounced decline in volatility, cre-
ating a disadvantage for funds whose performance depends on
asset price fluctuations. Our company Parex Asset Management
have no hedge funds under direct management. However, from
the experience of our cooperation partners – international fund
managers, we have learnt that many historically tested strate-
gies do work under low volatility conditions.
112 INVESTOR SERVICES JOURNAL
Zigurd Vaikulis, head of Parex Asset
Management’s Analytical
Department, continues our series of
asset manager’s views on the past
and the present
FORESIGHT
Are hedge funds still alternative?
The term hedge fund has somewhat devalued over the recent
years, along with their growing popularity and accessibility to
retail investors. Rather often, an investment pool is registered
somewhere offshore as a hedge fund only because a mutual fund
would not be able to operate there due to investment restric-
tions or lack of liquidity, or the difficulty to assess the asset
price. Unfortunately, during the past few years, investments in
hedge funds came together with a risk to stumble upon an over-
leveraged buy and hold strategy in structured debt or emerging
markets, which does not deliver any protection in case of a mar-
ket crisis. There are managers and strategies that are still living
up to classic hedge fund values – the ability to earn profit under
any conditions; however, the investor needs to be able to differ-
entiate between a hedge fund in form and a hedge fund in fact.
Over the next few years where will the largest returns come
from?
In our opinion, the most interesting opportunities arise from
strategies based on fundamental factors in underdeveloped
financial markets, for example, the Caspian Sea region.
What is the biggest risk you face?
The biggest risk for the hedge fund industry is a trust crisis,
some indications of which have appeared over the past few
weeks as a result of the failure of several multi-billion hedge
funds. Unfortunately, this summer’s credit crunch has left a
negative influence not only on sub-prime funds. Quantitative
and traditional strategies (long/short, arbitrage) have
also shown significant drawdown. This has led to a rather
peculiar situation: over the recent years, hedge fund returns
declined, since they were unable to place the huge incoming cash
inflows; however, now their performance is threatened by cash
outflows to traditional assets.
ISJ24 Cover Final ML 7/9/07 5:01 pm Page 3
ISJ24 Cover Final ML 7/9/07 5:04 pm Page 4

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.

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