ANNUAL SURVEY: MEETING NEW DEMANDS
By Gordon Platt
Subcustodians focus on real-time data and safety of client assets.
The world’s leading subcustodians are investing in new systems to meet an increasing desire from global custodians for real-time information about their positions and to provide the best possible protection for client assets.
Global custodians would like to be in a position where, if a subcustodian fails, they can quickly reattach their portfolio and positions with another subcustodian. Although it remains difficult to achieve such portability, new regulations in Europe and elsewhere are forcing subcustodians to take a closer look at their custodial liabilities.
Meanwhile, certain emerging markets, such as India, have complex regulations and currency restrictions that require sophisticated software packages and major investments in technology. Clients are looking for a broader range of instruments and services, such as remote brokerage, support of over-the-counter derivatives and securities borrowing and lending. They are also considering a broader range of markets. In frontier markets the subcustodian provides critical information and risk-management services.
Subcustodians make cross-border investing possible and keep the process running smoothly. In our ninth annual survey of the World’s Best Subcustodians, we selected the institutions that reliably provide the best custody services in nine regions of the world and in 68 countries. Global Finance’s editors and reporters, with input from expert sources, selected the winners based on a series of objective and subjective criteria that included customer relations, quality of service, competitive pricing, smooth handling of exception items, technology platforms, post-settlement operations, backup systems and knowledge of local regulations and practices.
In selecting the winners, we also considered market share, commitment to the business, experience and number of staff, innovation, direct links to depositories, financial soundness and safety, and range of assets serviced.
Citi’s Global Transaction Services division has the largest proprietary custody network in the world, covering 61 markets, with the recent addition of South Africa and Panama, according to Lee Waite, global head of direct custody and clearing. “Investors, and therefore Citi, are looking at Africa to a greater extent than ever before,” Waite says. Citi now covers the continent from its operations in Egypt, Morocco, Nigeria and South Africa, which is a significant and important market, he says.
There is little custody coverage in Central America at the moment, Waite says, but Citi’s new operation in Panama will enable it to serve other countries in the region, such as Costa Rica. Citi is also seeing increased interest from clients in the Middle East, and frontier markets such as Mongolia and Cambodia are also in its sights.
The bank is also the leading subcustodian in the US, the world’s largest subcustody market. Its client base ranges from asset managers to broker-dealers and global custodians. In addition to custody and clearing, Citi also offers fund administration, securities financing and agency and trust services.
Citi’s relationship with its clients has evolved over the past few years from that of a vendor or supplier of services to more of a trusted adviser, Waite says. Although margins are always under downward pressure, subcustodians have to carefully consider the true value they can add to their client’s value chain. In Asia, for example, it is anticipated that more countries will allow remote trading and institutions will want to have access to these markets without a physical presence, Waite notes.
BNP Paribas is the leading provider of clearing, settlement, custody and back-office securities services in Europe, where it covers 98% of the MSCI Europe index. The Paris-based bank has a proprietary subcustody network in 22 countries. It had $6.66 trillion of assets under custody at the end of last year.
The European Commission has recently proposed to harmonize settlement systems across Europe. BNP Paribas has already outlined its service offering for Target 2 Securities, the new pan-European settlement platform to be introduced in 2013.
The bank is an expert in collateral management. As one of the largest derivatives-trading firms in the world, BNP Paribas handles more than 500,000 over-the-counter collateralized trades daily, with specialists based in Hong Kong, London and New York.
BNP Paribas offers securities lending and borrowing as principal and agent, cash management, financing, treasury and foreign exchange, and collateral management for investment managers and financial institutions. In October 2010 the bank introduced a client portal on the Apple iPad.
Standard Chartered Bank
Standard Chartered Bank provides securities services in 16 markets across 15 countries in Asia, with regional centers in Hong Kong and Singapore. Custody is a key business for the London-based international bank, which focuses on emerging markets. “We cover every investable market in Asia,” says Giles Elliott, global product head, investors and intermediaries, securities services, at Standard Chartered, who is based in Singapore. “We handle business for nine of the top 10 broker-dealers in the world.”
Standard Chartered has invested heavily in a compliance and regulatory platform in light of the increased focus on this area in the wake of the global financial crisis. “We are installing a more modern architecture in our platform, with new corporate-actions processing, as well as settlement and reporting capabilities in a single system,” Elliott says.
Standard Chartered is a top-four custodian in such markets as India, Indonesia, Thailand and South Korea. Its business in Asia continues to expand rapidly in both assets under management and number of staff. “Our overall teams have grown by 10% in the past year and handled a 26% rise in transaction volume,” Elliott says.
In Hong Kong, the bank works closely with the authorities in developing the investment infrastructure. It is a member of a working group that plans to implement a scripless market in Hong Kong over the next two to three years.
Citi has the broadest capabilities and proprietary custody network in Latin America, where it covers the eight biggest markets, which account for 97% of the region’s market capitalization. Citi entered most of these markets decades ago, and it serves a wide variety of investors. The bank won the majority of the deals for which it bid last year. Citi has more mandates in terms of numbers and revenue generation in Latin America than all of its competitors combined.
Citi works closely with securities market regulators and depositories and is represented on every market infrastructure board in the region. In Argentina it is leading a project to improve straight-through processing with direct links to the central depository. In Brazil the BM&F; Bovespa Exchange selected Citi as local depositary agent for the Brazilian Depositary Receipt (BDR) program. Citi’s Mexican subsidiary, Banamex, helped the Mexican derivatives exchange, MexDer, to implement a facility to support remote access by nonresident clients. Citi also offers a new service whereby it will automatically lend securities to a client to keep that client from failing to deliver on an agreement and incurring a penalty.
The Trinidad and Tobago Stock Exchange is the leading exchange in the Caribbean, with a market capitalization of about $13 billion. Although the energy sector is the main driver of the local economy, conglomerates and financial institutions are the main listed companies on the exchange. Many of the agencies that provide securities-related services are subsidiaries of the commercial banks.
Republic Bank, based in Port of Spain, is one of the largest banks in the Caribbean region. It began offering custody services to nonresident investors in 1992. Republic Securities, its full-service brokerage subsidiary, works closely with the bank’s trust department. Another subsidiary, Republic Finance and Merchant Bank (Fincor), offers broker-dealer services on the Eastern Caribbean Securities Exchange, based in St. Kitts.
Central & Eastern Europe
Milan-based UniCredit has consolidated its position in the wealthy countries of Austria, Germany and Italy and has developed the leading banking franchise in Central and Eastern Europe. Within the CEE, it has $110 billion of deposits and 3,800 branches out of its total network of 9,600 branches.
UniCredit’s Global Securities Services has created the leading custody network in the CEE, with a direct presence in 14 countries. The bank ensures the highest level of service across the region with a group-wide platform for custody. It has a 70% market share in Austria, the hub for its CEE operations.
“The single-market custodian, especially in Europe, is unlikely to survive with the growing change in regional infrastructures,” says Attila Szalay-Berzeviczy, global head of securities services at UniCredit. Cross-border exchange mergers and the expected takeover of LCH Clearnet should start a further round of consolidation elsewhere in the world, he says.
The delivery-versus-payment (DVP) model is the logical way forward because it is a low-risk model, Szalay-Berzeviczy says. With the advent of pan-European settlement, Austria, Slovenia and Slovakia, at the minimum, will adopt the central-bank payment model, which gives finality to stock and cash transfers simultaneously, he says.
UniCredit is the leading provider of remote clearing services in Austria and Poland, and it recently extended these services to a major client in Hungary. The bank plans to expand its remote clearing and securities lending services into additional countries whenever market developments justify.
With more than $712 billion of assets under custody, Stockholm-based SEB is the leading provider of subcustody services in the Nordic region. “The bank’s unified online system delivers consistent high-quality services throughout the region,” says Göran Fors, global head of custody services at SEB. Estonia, Latvia and Lithuania in the Baltics, as well as Russia and Central and Eastern Europe, are also served by SEB’s custody network.
The fragmentation of the European securities settlement and clearing system is gradually ending, Fors says. “How the future market will look is at the discussion stage, but there will be a new model of subcustody,” he says.
Single-market providers will not be able to cope with the coming regionalization, and there will be further consolidation in the business, according to Fors. Subcustodians will need to make significant investments in systems and delivery channels to keep up with the changes, he says. SEB has identified asset servicing as an area it would like to focus on as the new system evolves. This service includes collecting dividends and interest payments, processing corporate actions and applying for tax relief from foreign governments on behalf of clients.
HSBC is one of the most experienced and widely represented international banks in the Middle East, where its subcustody and securities clearing business operates in 10 countries. “Our custody model is customized to meet the requirements of local markets,” says Arindam Das, regional head of subcustody and clearing at HSBC Securities Services, who is based in Dubai. “HSBC has been involved in capital markets in the region ever since they were in their infancy in the mid-1990s,” he says.
Recent moves by the UAE and Qatar to introduce the DVP model of securities settlement will reduce the risk profile of these markets, according to Das. Payment and change in ownership of shares will happen nearly simultaneously. The new DVP rules will no longer require the separation of custody and trading accounts, although such dual accounts may be used at the request of customers.
“Exchanges in the region are moving toward international best practices, and the regulatory environment is becoming stronger,” Das says. Changes in listing rules and increases in the amount of floating stock available for trading will also be required to stimulate a major increase in trading volume, he says. “Market procedures and technology will need to be upgraded, as well as regulations on custody,” Das says.
In one of the most significant deals in the subcustody business in recent years, Standard Chartered Bank acquired Barclays’ custody business in Africa in 2010 and now provides securities settlement and custody services in 16 markets on the continent.
“We took the entire Barclays team across operations and integrated all of the markets on our platforms at the same time in the fourth quarter of 2010,” says Giles Elliott, global product head, investors and intermediaries, securities services, at Standard Chartered. “We have retained 95% of staff and 97% of the clients that Barclays had.”
The London-based bank has been a trailblazer in African subcustody. It was the first to provide custody services in Malawi and Tanzania, for example. Standard Chartered offers a pan-African securities service with a single point of entry in Mauritius, where all settlement instructions and confirmations, as well as reporting, are channeled. At the end of the first quarter of 2011, the bank had $8 billion of African assets under custody. In addition to global custodians and broker-dealers, the bank serves the majority of the Africa-based funds and asset-management companies that are investing in the resource-rich continent. Standard Chartered has had a significant presence in sub-Saharan Africa for more than a century.
“What excites us about Africa is how underdeveloped the capital markets are,” Elliott says. “Investments are now going into stock exchange systems to meet the growing international demand for exposure to the fast-growing markets in Africa.”
|Argentina: Citi||France: BNP Paribas||Luxembourg: BNP Paribas||Slovakia: CSOB|
|Armenia: Prometey Bank||Georgia: Bank of Georgia||Malaysia: Citi||South Africa: Standard Bank|
|Australia: HSBC||Germany: Deutsche Bank||Mexico: Banamex||South Korea: KEB|
|Austria: UniCredit||Greece: Eurobank EFG||Netherlands: BNP Paribas||Spain: Santander|
|Bahrain: HSBC||Hong Kong: Standard Chartered Bank||New Zealand: HSBC||Sri Lanka: Citi|
|Belgium: BNP Paribas||Hungary: UniCredit||Nigeria: Stanbic IBTC Bank||Sweden: SEB|
|Brazil: Citi||Iceland: Íslandsbanki||Norway: Nordea||Switzerland: Credit Suisse|
|Canada: CIBC Mellon||India: Deutsche Bank||Oman: HSBC||Taiwan: Standard Chartered Bank|
|Chile: Banco de Chile||Indonesia: Standard Chartered Bank||Peru: Citi||Thailand: Bangkok Bank|
|China: ICBC||Ireland: HSBC||Philippines: HSBC||Turkey: Deutsche Bank|
|Colombia: Citi||Israel: Bank Leumi||Poland: ING Bank||UAE: HSBC|
|Croatia: Zagrebacka Banka||Italy: Intesa Sanpaolo||Portugal: Banco Espírito Santo (BES)||Ukraine: Raiffeisen Bank Aval|
|Cyprus: Marfin Laiki Bank||Japan: Sumitomo Mitsui Banking||Qatar: HSBC||United Kingdom: HSBC|
|Czech Republic: CSOB||Jordan: HSBC||Romania: ING Bank||United States: Citi|
|Denmark: SEB||Kazakhstan: HSBC||Russia: VTB||Uruguay: Itaú Unibanco|
|Egypt: Commercial International Bank (CIB)||Kuwait: HSBC||Saudi Arabia: SABB||Venezuela: Citi|
|Finland: Nordea||Lebanon: HSBC||Singapore: DBS||Vietnam: HSBC|