World’s Best Sub-Custodians
Global Finance selects the winners in a specialized area of finance that enables global investing to exist.
Sub-custody involves a wide range of securities services, including clearance and settlement, safekeeping, cash management, record keeping, securities lending, client portfolio information and corporate-action notification.
Each country has its own peculiarities and challenges for international investors. This makes the selection of a good subcustodian with knowledge of local regulations and markets critical to the success of global custodians, brokerage firms, investment managers and other financial institutions that provide securities services to clients worldwide.
The biggest global custodians rely on networks of 100 or more sub-custodians, which provide the essential services that keep markets from Argentina to the United Arab Emirates operating smoothly. These sub-custodians are often hidden to end-users of custody services, but they deliver the products and information that enable investors in foreign countries to manage the risks inherent in cross-border investing. In recognition of the quality of service that these professionals provide, Global Finance has selected the Best Sub- Custodians in 2004 in 35 developed and emerging markets, as well as eight regions of the world.
Our criteria included customer relations, competitive pricing, timely management of exception items, technology platforms, post-settlement operations, business-continuity plans and knowledge of local regulations and practices.
“A good sub-custodian consists of a combination of people in client-facing functions and people in the operations side of the business,” says Kevin Smith, senior vice president, global custody operations, at The Bank of New York, repeat winner of the Best Sub-Custodian award in the US.Technology also is important, including telecommunications and messaging capabilities and client-reporting services, Smith says.The role of a sub-custodian is to provide the client base of global custodians and international broker- dealers with access to local market infrastructure, says Charles S. Cock, head of MDCC products, at BNP Paribas Securities Services.The French bank’s MDCC, or Multi-Direct Clearing and Custody unit, provides securities clearing, custody and outsourcing services in 10 domestic markets in Europe.“The sub-custodian is an indispensable switchboard with links to the central securities depositary and access to the central bank and the payments system,” Cock says. BNP Paribas was selected as the Best Sub-Custodian for Western Europe. It also is the country winner in France, the Netherlands and Portugal. “To be a good sub-custodian, you must know your customer, focus on the biggest and best cross-border investors and have the right product capabilities,” Cock says.“To remain in this business for long, you need a critical mass because of the cutthroat pricing environment,” he says. Clearing and settlement services have been commoditized to a large extent, forcing sub-custodians to compete in the area of value-added services, such as the reporting of corporate actions, investment accounting and tax reclamation.
But despite the introduction of international central securities depositories, or ICSDs, s u c h a s Euro c l e a r and Clearstream, Europe remains an extremely fragmented series of markets, according to Cock. The custody business is changing rapidly as computer records increasingly take the place of physical securities, and clearing and settlement cycles are speeded up. In the US, the Securities and Exchange Commission in June finished collecting comments from the industry on a potential mandate for the same-day affirmation of trades between brokers and their institutional customers. Earlier this year, the New York-based Depository Trust & Clearing Corporation upgraded its processing of corporate actions.About one million corporate actions take place worldwide each year, including rights issues, early redemptions, takeovers, mergers and dividend payments.
HSBC is the leading sub-custodian in the Asian region, where it provides consistently high-quality service across all of the markets in which it operates.The bank has the most-extensive sub-custody network in Asia of any financial institution.
Within the region, HSBC won Global Finance’s country awards this year for best sub-custodian in China, Hong Kong, India, Indonesia, Malaysia, the Philippines and South Korea. HSBC is the leading choice of global custodians, broker/dealers and fund managers in all of these countries, where it combines a local banking presence with an integrated system of custody and clearing services.
The bank’s fund-administration services include accounting, computation of net asset values, investment compliance and monitoring, and a wide range of reporting for regulatory purposes. Its securities-services operations are highly automated.
Knowledge of local markets and understanding of clients’ needs have helped HSBC to win a large volume of the sub-custody business in Asia, where it was founded in Hong Kong and Shanghai in 1865 to finance the growing trade between China and Europe.
Westpac Banking is the sub-custodian of choice in Australia, New Zealand and many islands of the Pacific. The Sydney-based bank has 1,000 offices across the Australasia region and holds a 60% interest in Westpac Bank of Tonga.
Westpac Banking is committed to meeting the local clearing, settlement and safekeeping needs of global custodians, clearing houses, broker/ dealers and investment managers from around the world. It covers a wide range of investment instruments and has the largest amount of assets under custody of any bank in Australia.
Westpac strives to ensure that customers receive information in a timely and accurate manner. It advises all clients on dividends and corporate actions as they are announced to the Australian Stock Exchange and provides analysis of more-complex events.
The bank’s settlement performance is among the best in the world. It uses the ASE’s Clearing House Electronic Subregister System, or CHESS, for exchange-traded equities and SFE Austraclear for electronic settlement of debt and money market instruments.
Bank of Bermuda (HSBC)
Bank of Bermuda became part of British bank HSBC in February 2004 in a transaction valued at $1.3 billion. The acquisition will boost HSBC’s international fund-administration capabilities, particularly in the area of hedge-fund services. Bank of Bermuda has approximately $130 billion of assets under administration, of which about half is hedgefund business.
In November 2003, one month after HSBC announced its intention to acquire Bank of Bermuda, the latter opened an office in San Francisco to serve the hedge-fund industry on the US West Coast.The Bermuda bank’s New York office already was active in this business.
Bank of Bermuda provides a comprehensive range of custodial services, including an interactive network, which supplies market information and data.The bank specializes in customized services, such as the exception processing of nonstandard transactions. It recently expanded its relationship with Sun- Gard’s Reech unit to enhance its risk-management engine to better serve its hedge-fund clients.
CENTRAL AND EASTERN EUROPE
Vienna-based RZB, or Raiffeisen Zentralbank, acts as a custody gateway to Central and Eastern Europe, using its own subsidiaries as its subcustodians. RZB is a specialist in the brokerage, settlement and safekeeping of CEE securities, covering 16 markets in the region.
RZB’s e.Custody reporting tool gives clients online access to their securities accounts, as well as detailed fee information and an email newsletter. RZB’s corporate action notification, or CAN, service is fast and efficient.The bank’s aim is to deliver all relevant information within five minutes of receiving it.
RZB was one of the first Western banks to do business in the CEE region, and it is continuously working to improve its services. It recently introduced delivery versus payment transactions in Bulgaria.
RZB combines a regional product with local-market expertise and the backing of an international banking group.
Citigroup is the regional winner for Latin America, where it has more branches and covers more markets than any other sub-custodian. Global Finance editors selected Citigroup as the best sub-custodian in Brazil, Chile and Peru, and its Banamex unit as the best in Mexico.
From its Tampa, Florida-based regional operations center, Citigroup has electronic links to depositaries and exchanges throughout Latin America.With well-trained employees and smooth-working systems, it boasts fewer failed trades and more straight-through processing than its competitors.
For international and local clients alike, Citigroup is their advocate in the market. The bank is knowledgeable about local developments and recognizes that timely market information is important to its customers. Citigroup representatives sit on the boards of local clearinghouses and serve on technical committees.
Citigroup confirmed in September 2003 that it was exiting local custody operations in Bolivia and that it would refer clients in Ecuador to other third-party providers. The bank said it remains committed to maintaining its branch network in the region.
HSBC is the most widely represented international bank in the Middle East, where it has helped to open the region’s markets to foreign investors. It was the first foreign bank to sign a custodial agreement with the Dubai Financial Market in May 2001. HSBC is the only custody and clearing services provider in the Palestinian Autonomous Area.
HSBC Bank Middle East, founded in London in 1889, operates 29 branches throughout the UAE, Oman, Bahrain, Qatar, Jordan and Lebanon. HSBC Bank Egypt and HSBC-associated Saudi British Bank and British Arab Commercial Bank complete HSBC’s regional network.
By providing reliable and flexible service and keeping its customers informed about local market developments and infrastructure, HSBC has earned a reputation as the best subcustodian in the region. It has a diverse client roster, including international broker/dealers, global custodians and government agencies.
HSBC is the only international bank providing custody services in Saudi Arabia, where it is a leading fund manager.
Standard Bank is the leading provider of custodial services in South Africa, where it settles approximately 40% of all stock and bond market trades.The bank also has developed a regional custody network for sub-Saharan Africa. Since 1998, it has offered global custody services in an alliance with Bank of New York.
Standard Bank’s services include safekeeping and settlement for South African equities, bonds and money market instruments, corporate action and proxy services, securities lending, online trading and custody communications, investment accounting, compliance monitoring and performance measurement.
The bank has invested significant capital in developing its custody product offerings and is continuing to invest to maintain its leading position. It is active in a dozen sub-Saharan African nations.
While many European banks have been abandoning the sub-custody business in recent years, BNP Paribas has been on an international expansion spree.The French bank’s Multi- Direct Clearing and Custody, or MDCC, line of business provides securities clearing, sub-custody and outsourcing services in 10 domestic markets in Europe. MDCC’s services are also available in Turkey through a cooperation agreement with GarantiBank.
With €2.1 trillion of assets under custody as of December 31, 2003, BNP Paribas offers operational benefits resulting from scale and its large market share. MDCC’s services are aimed at international broker/dealers and global custodians.
BNP Paribas Securities Services also offers global issuer services to corporations and financial institutions, including local paying agent services and global corporate trust. Its International Investors Services unit delivers global custody and asset-servicing products to institutional investors. The bank provides global liquidity management services to support clients’ securities-related activity.
BNP Paribas uses common clearing and custody platforms and a secure Internet-based communications system to enable real-time trade-status updates and fast delivery of corporate- action information.
HSBC has spared no effort in building up its first-class custody operations in Buenos Aires. The bank has extensive contacts with local regulators and stays on top of market developments.
RZB’s custody assets grew by 42.5% in 2003 to €128 billion. The bank achieves fast notification of corporate actions with its technology platform, which is being implemented by other banks.
Citigroup is the leading custody provider for foreign investors in Brazil, where it has been active in the securities-services business since 1975. The bank maintains electronic links with local depositaries and clearing houses and has an admirable settlement record.
RBC Global Services is the leading sub-custodian in Canada, where it serves an extensive range of clients. Part of Royal Bank of Canada, that country’s largest bank, RBC offers specialized custody, investment administration and transaction- processing services.
Since 1989 Citigroup has been offering custody services in Chile, where its brokerage subsidiary is a member of the two major stock exchanges. The bank offers a full range of securities services, including safekeeping in its own vault and in the country’s Central Securities Depositary.
HSBC is one of three foreign banks to receive approval from the People’s Bank of China to provide custodial services for qualified foreign institutional investors. Previously, it was the only foreign bank providing onshore B-share custodian services.
Ceskoslovenska Obchodni Banka (CSOB)
Ceskoslovenska Obchodni Banka, or CSOB, owned by Belgian bank KBC, is the leading custodian in the Czech Republic. As the exclusive partner of CzechInvest, a government agency, it is well positioned to serve corporate customers seeking to do business in the country.
BNP Paribas is the leading subcustodian in France, where a new regulatory body, the Autorité des Marchés Financiers, or AMF, was created in December 2003. The bank’s clearing and custody service offers direct access to the major European markets.
Deutsche Bank acquired €200 billion of custody assets from Dresdner Bank in October 2003, boosting its lead as custodian and securities administrator in Germany. Deutsche Bank is also a leader in global depositary receipts and in supporting complex debt structures.
National Bank of Greece
Global custodians turn to National Bank of Greece to handle their custody and settlement requirements in this sometimes-difficult market.The bank offers automated processing of settlement messages and a high degree of accuracy.
HSBC has been serving foreign institutional investors in Hong Kong for more than 50 years and controls more than half of the market for custody and clearing services.The bank has valuable local contacts and expertise.
HSBC was the first foreign bank in India to offer custodial services to foreign institutional investors and is the largest participant in this market. The bank offers a product that is tailored to local conditions and regulatory reporting requirements.
HSBC serves global custodians, fund managers and broker/dealers in Indonesia with a highly automated and responsive sub-custody product. Services include settlement, corporate action and safekeeping, as well as administration of securities.
Bank Hapoalim, Israel’s largest bank, is also its largest brokerage house.As a member of the Tel Aviv Stock Exchange, it accounts for about 20% of the volume of trading. The securities division is attuned to the needs of global institutional investors.
IntesaBCI offers an efficient and competitively priced sub-custody service, and the bank is the market leader in Italy, where it understands the country’s complex regulatory structure. Its main focus is on servicing mutual funds, hedge funds and pension funds.
Sumitomo Mitsui Banking
Sumitomo Mitsui Banking offers first-rate custody services, including online reporting of confirmations of transactions and quick corporate-action information.The bank also responds promptly to specific inquiries and requests.
HSBC Bank Malaysia Berhad
For more than 30 years, HSBC has offered custody and clearing services in Malaysia, where it has developed a keen understanding of the local market. The bank’s office in Kuala Lumpur provides a high level of service to global custodians.
Banamex, which is owned by Citigroup, is the top provider of custody services for foreign investors in the Mexican market, with a market share of approximately 88%. This high concentration of global custodians and broker/dealers using the bank enables it to settle many trades via book transfer entries.
Sub-custodians in Belgium, France, Portugal and the Netherlands are expanding beyond their traditional national borders as Euronext integrates markets in these countries. This harmonization has enabled BNP Paribas to make major inroads into the Dutch market.
Citigroup has captured 80% of the market for custody and clearing services for foreign institutional investors in Peru. Citibank’s Lima branch is a direct secondary participant within the Central Securities Depository, giving it the information it needs to accurately process client instructions.
HSBC has the largest client base and trade-settlement volume for custody and clearing services in the Philippines. The bank offers online trade settlement with the Philippine Central Depository, as well as safekeeping of securities and proxy voting and nominee services.
Warsaw-based BRE Bank, owned by Commerzbank of Germany, is a leading Polish investment bank and a favored sub-custodian. BRE Bank Securities is one of the largest brokerage houses in Poland.
Euronext Lisbon introduced Clearnet as the central counterparty in Portugal in November 2003, paving the way for a central clearinghouse for all Euronext markets. This has enabled BNP Paribas Securities Services to increase its pan-European coverage with standardized services.
ING Bank (Eurasia), part of Netherlands-based ING, is the largest custodian in Russia. The bank deserves credit for persevering in Russia’s chaotic market. It enhanced its position in 2002, when it acquired Credit Suisse First Boston’s local custody activities.
DBS, Singapore’s largest bank, is also its leading sub-custodian. Global custodians and institutional clients praise the bank for its customer focus and high level of service. DBS has exhibited a strong commitment to the business.
HSBC is the largest foreign custodian in the South Korean market, which it entered in 1992. In July 2003 it acquired a majority stake in Asset Management Technology Korea, which has $27 billion of funds under administration.
Santander Central Hispano
Santander Central Hispano leads the sub-custody market in Spain, with more than €200 billion in custodial funds. The bank has demonstrated its commitment to the business with significant investments in technology.
account manager to each custody client.The account manager monitors the entire transaction process from instruction to settlement, paying special attention to exception items or the need for security loans.
Credit Suisse is the leading subcustodian in Switzerland, where it provides a reliable core service and flexible optional services. Clients use the bank’s Internet platform to monitor the status of their settlement instructions.
Citigroup is the largest foreign bank in Taiwan, where it has a strategic partnership with the Fubon Group of companies. Citigroup announced in late June that the partnership is ending but that the US bank will seek to expand in Taiwan.
Standard Chartered Securities Services in Thailand employs 36 fulltime staff members who are crosstrained to support any sudden surge of trading volume.With a rigorous approach to quality management and proven systems, the bank provides excellent service.
GarantiBank, the leading sub-custodian in Turkey, has a cooperation agreement with BNP Paribas Securities Services.The Turkish bank inherited the first-rate custody operations of Ottoman Bank from its 2001 merger.
UNITED ARAB EMIRATES
In July 2000, when the UAE market opened to foreign investors, HSBC was the first provider of custody and clearing services. The bank’s custody platform offers an array of standard and customized reports, as well as fast notification of corporate actions. Based in the UAE, HSBC Financial Services (Middle East) provides international stock trading and research services.
HSBC Global Investor Services is facing competition from some new entrants in the UK sub-custody market, including Brown Brothers Harr iman of the US. With its experienced staff, efficient systems and broad product range, HSBC is the leading provider of UK sub-custody services.
Bank of New York
With more than $8 trillion of assets under custody, Bank of New York is one of the world’s largest financial custodians. Its $2 billion acquisition of Pershing in 2003 made it the largest provider of agency brokerage, clearing and financial services outsourcing. BNY aims to help Pershing gain even more custodial assets. The bank’s own sub-custodian network reaches 101 markets worldwide.