Grappling with new technology and regulatory pressures, securities services must keep pace with rapid change or be swept away.
The world is changing at whirlwind pace for the securities services industry, forcing small and large providers alike to reassess their approaches in light of new regulations, disruptive technology, rising costs and thinning margins. As these forces drive consolidation, barely a handful of even the strongest global players are likely to remain in the securities services business.
That’s why Global Finance has created a new award recognizing leaders among the world’s securities services providers. Our seven categories encompass the full breadth of securities services at the global level—global custody, collateral management, prime brokerage, securities lending, corporate trust services, depositary receipts and DR capital raising. The global winners were selected based on their reputation for customer service, knowledge of local markets, range of services and solutions offered, market standing, key financials, safety and security, and history of regulatory and legal compliance.
An industry in which leaders and laggards alike used to reap more than half of their earnings in flows has given way to feverish automation and heightened efficiency. In this low-interest-rate environment, the value of money has fallen close to zero.
“The current problem with securities services is that they are under significant pricing pressure because core products like custody are becoming commodities,” says Antonio Rivera, a consultant at Boston Consulting Group in New York.
Global Finance’s global awards include our 14th annual listing of the world’s best subcustodians, the institutions that most effectively handle securities portfolios in regional and local markets on behalf of global custodians and investors. We have selected the most reliable subcustodians in eight regions and 82 countries. The winning firms are the safest securities services providers and have the most in-depth knowledge of local markets and regulatory regimes.
Many emerging markets nations have improved regulations and eased access to their markets for foreign investors, with the advice and support of these leading banks. Global Finance’s editorial board made use of market research, input from expert sources and entry information from banks to select the winners. Criteria included customer service, competitive pricing, smooth handling of exception items, advanced technology platforms, post-settlement operations, business continuity plans and commitment to the business.
BEST GLOBAL CUSTODIAN
Although its $6.2 trillion in assets under custody are just one-fifth of the approximately $29 trillion that BNY Mellon and State Street each claim to administer, this Chicago-based bank is still large enough to be an oil tanker. Yet thanks to its client-centric culture, Northern Trust is nimble enough to target lucrative markets around the world, serving pension funds in Nordic countries as well as the sovereign-wealth Future Fund of Australia. In the Middle East, the bank opened new offices in Riyadh, Saudi Arabia, and Abu Dhabi, United Arab Emirates, in 2013. Stemming from its legacy as a private bank, Northern Trust maintains a high level of “personal touch” with its clients, providing them with customer relationship officers who answer questions about every aspect of its services. During the first quarter of this year, custody and fund administration fees increased by 3%, to $286.4 million, from the same quarter in 2015.
BEST GLOBAL COLLATERAL MANAGER
JPMorgan Chase provides clients with a central view of the assets they hold at the Wall Street bank and other custodians. In addition, JPMorgan Chase forecasts obligations to efficiently deploy that collateral and minimize the need for collateral transformation, a process that involves turning relatively risky assets into safer ones. Clients manage their collateral using the bank’s Collateral Central data analytics service, which is designed to accommodate fluctuations in trading volumes, adapt to changes in financial regulation in countries around the world and support additional counterparties in transactions involving the collateral. Launched in 2013, this scalable technology includes Virtual Global Longbox, which integrates data from multiple custodians and counterparties.
BEST GLOBAL PRIME BROKER
Morgan Stanley’s prime brokerage service earns high marks from clients as a comprehensive product set, the delivery of which is embedded in a needs-based, customized partnering culture. Customer-facing technology includes a custom dashboard with flexible content and a risk management tool with “what if” functionality that uses the same proprietary models and data as the Wall Street bank’s internal risk systems. The portfolio reporting tools highlight cash flows, net positions, trade breaks and mark-to-market valuation. As a result, Morgan Stanley’s share of the global market for prime brokerage swelled last year to include 24% of the world’s hedge funds, second only to Goldman Sachs Group, according to Preqin. In 2015 rising demand for Morgan Stanley’s prime brokerage service drove an 18% increase in equity sales and trading net revenues, to $8.2 billion, compared with 2014. Prime brokerage continued to grow in the first quarter of this year even though equity sales and trading net revenues were actually lower than in the same quarter of 2014.
BEST GLOBAL SECURITIES LENDER
One of the world’s largest securities lenders, State Street wins kudos for offering its clients insights and trends on borrower demand and distributing customized portfolio assets across its five global trading desks. Among the Boston-based bank’s advantages over its peers is its “enhanced custody” service: an innovation that allows end users to borrow stocks or bonds directly within a segregated custody account. In this type of account, a corporate client’s assets are not pooled with those of other clients, as they would be in a traditional prime broker model. This differs from State Street’s agency lending program, in which the bank lends securities indirectly to end users through intermediaries or other prime brokers. Demand for this service, which clients know as “prime broker lite,” helped drive up revenue from securities lending by 37% during the first three months of this year from the first quarter of 2015, and up by 5.5% from the October-December quarter. Agency lending also helped grow revenue.
BEST GLOBAL CORPORATE TRUST SERVICES PROVIDER
BNY Mellon, the world’s largest provider of debt capital market services, wins kudos for providing its clients with the processing infrastructure and technology they need to comprehensively service all of their corporate trust needs from issuance to maturity. In particular, the New York-based bank is known for its expertise in the issuance of catastrophe bonds, Qualified School Construction Bonds in the US, and bonds issued to finance debt restructuring around the world. From January to March this year, higher money market fees in corporate trust helped increase BNY Mellon’s issuer services fees to $244 million, from $231 million in the first quarter of 2015 and $199 million in the fourth quarter of 2015.
BEST GLOBAL BANK FOR DEPOSITARY RECEIPTS
BNY Mellon leads worldwide in depositary receipt programs, with a 58% market share of all sponsored programs. As it continues to connect companies and investors across borders, the bank has placed social finance at the center of its business strategy. It was among the first depositories to recognize the growing importance of environmental, social and governance factors to global investors and to provide them with relevant corporate data and insights.
Already acting as depository for more than 2,600 American and global depositary receipt programs (ADRs and GDRs) for companies from more than 65 countries, the bank continuously adds new programs. In March it was appointed by Raia Drogasil, the largest drugstore chain in Brazil, as depository for its sponsored ADR program in the US over-the-counter market. The bank is also a major participant in the unsponsored DR market. It was the sole depository for more than half of the 59 OTC unsponsored programs established last year.
BEST BANK FOR DR CAPITAL RAISING
Bank of America Merrill Lynch
Pharmaceuticals and healthcare were by far the most active sectors raising capital via depositary receipts in 2015. Bank of America Merrill Lynch was a joint book-running manager for Israel-based Teva Pharmaceutical Industries’ $3.7 billion follow-on DR capital raising on the New York Stock Exchange, the largest such issue last year.
The bank played a similar role for India’s HDFC Bank’s $1.3 billion ADR and Telefônica Brasil’s $476 million ADR, both on the NYSE. That meant that BofA Merrill Lynch co-managed three of the four largest DR capital raisings of 2015. A total of $11.5 billion was raised through 46 DR programs last year, down from $37.3 billion raised through 55 programs a year earlier.