ISJ23 Cover 24/7/07 5:03 pm Page 1

ISJNEWS.COM
GBP 25 - UK, ROW
USD 45 - America
INVESTOR EUR 35 - EMEA
VOLUME 4 No. 23 - 2007
S ERVICES
JOURNAL

NAVIGATING
DANGEROUS
WATERS
Hedge fund technology
in a risk averse world

CUSTODY FOCUS - FRANCE

FUNDS MARKET - MIDDLE EAST
TECHNOLOGY - OMS VS EMS
CEO PROFILE - PETER RANDALL OF CHI-X
BACK OFFICE ISSUES - OTC DERIVATIVES
ANALYSE THIS - REFERENCE DATA
PANEL DISCUSSION - NORDIC CUSTODY
PAYMENTS - US MARKET
THE GLOBAL SECURITIES SERVICES INDUSTRY JOURNAL
ISJ23 pp1-19 Final.qxd 23/7/07 1:15 pm Page 1

HARD COPY

INVESTOR Cutting edge?

S ERVICES edge funds and their influence Hedge funds, it would seem, have set

JOURNAL
VOL 4 No. 23 - 2007
H on the financial markets is a
topic that is rarely out of the
press at the moment. The recent news
the cat amongst the regulatory pigeons.
But it is not all bad news, especially for
the vendor community. Due to the
that the Securities and Exchange increased focus on due diligence, hedge
Commission (SEC) may provide tougher fund managers are spending more on
qualification standards for investing in technology. Our cover feature deals with
hedge funds and other alternative this very issue (see page 16).
investments, for example, has proved Derivatives have also been a sticking
particularly controversial. The move is point for the industry over the last few
part of a new anti-fraud rule under the years and it took the Federal Reserve
Investment Advisors Act, which applies setting specific targets for the reduction
to all pooled investment funds, of outstanding trade confirmations for
including hedge funds, private equity any progress to be made. We explore the
funds and mutual funds. successes achieved and the evolution of
The proposal, made in December, equity derivatives processing in our
would require “accredited investors” in feature on page 42.
private investment pools to have at least We also examine the renaissance that
USD2.5 million in assets, excluding the is happening in the French custody
value of their primary residence. market, the development of the Middle
Currently, investors need USD1 million Eastern funds market, the future of
in assets, including the value of their offshore outsourcing and the securities
home, to invest in private pools. The lending market in the Asian region.
legislation would therefore further Finally, Peter Randall, director of
restrict the eligibility of those able to Instinet’s pan-European equities
invest in these assets and comes as a alternative trading system Chi-x, took
dramatic blow to hedge fund managers. the time out to speak to ISJ about his
It seems that it was only a matter of career highlights so far.
time before the SEC got involved in the
lightly regulated world of hedge funds.
There have been numerous discussions
about the possibility of hedge funds
being mandated to register with the
SEC, but these were dismissed earlier in
the year. The meltdown of Bear Stearns’
hedge funds has also heightened the
concern about the impact of these funds
in a climate of financial instability –
would they have the potential to cause a Virginie O’Shea
serious market crash? Editor
INVESTOR SERVICES JOURNAL
Publisher: Justin Lawson (Justin@isjnews.com)
PPA MAGAZINE AWARDS Editor: Virginie O’Shea (Virginie@isjnews.com)
PUBLISHER OF THE YEAR Senior Reporter: Giles Turner (Giles@isjnews.com),
HIGHLY COMMENDED Reporter: Andrew Warburton (Andrew@isjnews.com)
MEMBER - PERIODICAL PUBLISHERS ASSOCIATION Contributors: Brian Bollen, Christine Senior, Alison Ebbage, Fabien Buliard
Publishing manager: Monique Theart (Monique@isjnews.com)
Account managers: Ben Katzler (Ben@isjnews.com),
Directory sales: Daniel Ryder (Daniel@isjnews.com)
Systems manager: Jon Gunnarsson (Jon@isjnews.com)
Operations manager: Sue Whittle (Sue@isjnews.com)
Sales administration: Kim van Berken (Kim@isjnews.com)
TOTAL NET CIRCULATION 11,188 Chairman: Mark Latham (Mark@isjnews.com)
Analysis for the Audit Issue Vol 3, No 14 distributed June 2006.
Source: AUDIT BUREAU OF CIRCULATIONS, www.abc.org.uk
Investor Intelligence partnership
16-17 Little Portland Street, London W1W 8BP
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ISJ23 pp1-19 Final.qxd 23/7/07 1:16 pm Page 2

CONTENTS

VOL 4 No. 23 - 2007 ■ Funds 48 Clearing and settlement

Consolidation, competition and the
code of conduct
20 Middle East
Update on funds and
administrators in the GCC region

24 Domiciles reports
The Bahamas and Guernsey

26 Fund profile
SWIP’s Islamic fund
Healthy prospects? 56
■ Custody
50 Sibos 2007
28 France A short guide to Boston and the
Has the new presidency set a key vendors exhibiting
16 precedent for change?
54 US Payments
32 Panel discussion Part of the process
This Month’s ISJ A focus on Nordic custody
■ Securities lending
Hedge fund technology: ■ Technology
How to retain that competitive
56 Securities lending in Asia
edge and survive 39 EMS vs OMS State of the nations
Are traditional OMSs cutting the
mustard? 60 Yield plus funds
Securities lending and cash
1 Hard copy 42 Derivatives processing management
Editor’s letter The state of the industry’s back
office OTC backlogs
■ Legal
4 Letters
Points of view 46 Offshore outsourcing
Is it really dead? 62 MiFID
Future imperfect?
■ News
6 Global snapshots
■ Regulars
Round up of securities services
63 Analyse this
headlines from isjnews.com
Reference data
10 News analysis
66 Mandates
Reading between the lines
68 Statistics
14 CEO profile
Peter Randall of Instinet’s
ATS Chi-x ■ ISJ Directory

■ Special Report 69 The directory of securities

Services providers
16 Hedge fund technology Renaissance? 28 ■ People Moves
Dangerous waters ahead

2 INVESTOR SERVICES JOURNAL

ISJ23 pp1-19 Final.qxd 23/7/07 1:16 pm Page 3

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ISJ23 pp1-19 Final.qxd 23/7/07 1:17 pm
LETTERS TO THE EDITOR
WORKING TOGETHER
ollaborative working and the
C effective integration of
communication technology are
key areas for development within the
financial services market and when
embraced, can provide institutions
with a competitive advantage.
Integration across various trade
communication tools is recognised by
financial institutions as being crucial
to driving productivity, improving
Voice and instant messaging tools are being used
in tandem to support the entire lifecycle of a
trade and firms require a flexible approach that
supports dynamic market conditions
client service and increasing trader
effectiveness. However, it has yet to
be adopted fully across the board.
Technology tools used in the trade
cycle are constantly developing to
deliver maximum efficiency, and
financial institutions need to keep
pace in order to deliver the most
competitive trading environment.
Voice and instant messaging tools are
being used in tandem to support the
entire lifecycle of a trade and firms
require a flexible approach that
supports dynamic market conditions.
However, the collaboration tools
currently available often operate
independently and use separate
networked technology that could have
ongoing cost and time implications
for financial institutions. Adopting a
unified communications approach to
encompass the use of voice, data,
instant messaging, video and email
on one platform can help answer this
challenge.
A large proportion of the market
also recognises that integrating these
tools will not only help drive
efficiencies, but can be critical in
maintaining relationships with clients
and counterparties. This will
ultimately lead to gaining the all
important competitive advantage and
ensuring future industry success.
There is no doubt that the adoption
of a unified communications
4 INVESTOR SERVICES JOURNAL
Page 4
approach and an emphasis on
collaborative working are set to
become key objectives for the future.
However, financial institutions have to
ensure these don’t become mere
industry buzzwords and that a unified
communication strategy is
implemented if they are to gain
additional market share.
Tim Furmidge, head of product,
BT Global Financial Services
CLASSIFICATION WOES
ith less than six months left
W to prepare for MiFID, many
financial firms are pulling out
all the stops to be compliant. In the
wealth management sector, where
individual private clients are
numerous, the regulatory impact of
client classification is particularly
time consuming. Validating all
contact details with current clients
and ensuring that contracts are
Many of the changes surrounding MiFID require
signed acknowledgments and policies on best
practice. If these were all paper-based
documents, managing the transition would be a
tedious process
signed and returned is only a small
part of MiFID compliance. While the
Financial Services Authority (FSA)
has invested heavily in educating the
sector about what needs to be done,
there still seems to be a lack of
practical advice about how to do it.
Dealing with these challenges can
be a daunting task with all the
administration and hours spent on
becoming compliant. Many of the
changes surrounding MiFID require
signed acknowledgments and policies
on best practice. If these were all
paper-based documents, managing
the transition would be a tedious
process. In the age of virtual
agreements and automated policies it
seems reasonable to assume the use
of electronic signatures is quickly
becoming a necessity for business
practices. The implementation of
MiFID presents a timely opportunity
to save administration hours and
paper (think of the carbon footprint)
by having virtual policies and
electronic signatures in place.
An example of how implementing
electronic signatures could help make
compliance with MiFID a less onerous
task is with regards to client
classification. This strict requirement
could be better handled by having all
parties classify clients online and
obtain confirmation in the form of an
electronic agreement.
When updating conflict of interest
policies, it is key for traders to
understand and adhere to policies to
build customer trust. The distribution
and acceptance of such policies
could be easily handled via
automated policy management
software, reducing the amount of
administration costs.
Dominic Saunders, operations
director, NETconsent
If you are affected
by, or have an
opinion
on, any aspect of
investor services please
write to us...
Virginie@isjnews.com
ISJ23 pp1-19 Final.qxd 23/7/07 1:17 pm Page 5
ISJ23 pp1-19 Final.qxd 23/7/07
NEWS
CUSTODY,
CLEARING & SETTLEMENT
New York – The Bank of New
York and Mellon Financial have
announced that they have
completed their merger to
form The Bank of New York
Mellon Corporation. The
new company trades on the
New York Stock Exchange
under the symbol ‘BK’.
“Today we are establishing a
global financial services
growth company without
peer,” said Robert Kelly, chief
executive officer of the
company. “We have
leadership positions across a
range of high growth
businesses, unmatched
product breadth, and the
ability to accelerate our
global expansion through
strategic investments. With
exceptional service and
performance as the hallmarks
of the new company, we will
foster a culture that rewards
winning through relentless
client focus, teamwork and
execution.”
London – Mellon Bank has
agreed to purchase ABN
AMRO’s 50% share in ABN
AMRO Mellon, the joint venture
(JV) company established by
the shareholders in 2003 to
provide global custody and
related services to
institutions outside North
America. The transaction –
which is subject to certain
6 INVESTOR SERVICES JOURNAL
1:17 pm Page 6
conditions, including
regulatory and other
approvals – is expected to
close during the third
quarter of 2007,
whereupon ABN AMRO
Mellon will become a part
of Bank of New York
Mellon, the new company
created by the merger of
Bank of New York and
Mellon Financial. Nadine
Chakar, chief executive
officer of ABN AMRO
Mellon, said: “This is a
landmark day for ABN
AMRO Mellon, which since
its inception has continually
raised the bar – and clients’
expectations – when it comes
to delivering service
excellence and product
innovation. As part of Bank
of New York Mellon, we will
continue to provide our
clients and staff with
exciting new opportunities
within the asset servicing
sphere. Following its
decision to merge with Bank
of New York, Mellon was
keen to explore the
possibility of taking full
ownership of ABN AMRO
Mellon. Both shareholders
are in agreement that such a
change of ownership is in
the best interests of the JV
and its clients. ABN AMRO
remains one of our most
important clients. We will
continue to be ABN AMRO’s
preferred provider.”
Frankfurt – Deutsche Bank and
Türkiye Garanti Bankasi have
announced that Deutsche
Bank has bought the
institutional cross border
custody business of Garanti
Bank. The acquisition
encompasses the Turkish
custody and sub-custody
services provided by Garanti
Bank to non-resident
financial institutions,
including institutional
investors. Werner
Steinmüller, head of
Deutsche Bank's Global
Transaction Banking
division, said: "Turkey is an
important growth market for
Deutsche Bank and we are
delighted to acquire Garanti
Bank's consistently top rated
custody franchise. We
welcome our new clients and
we will work hard to ensure
that the high level of service
that they have enjoyed with
Garanti Bank continues at
Deutsche Bank. Since the
launch of Deutsche Bank's
custody business in Turkey
in 2005, we have established
a strong local market
presence, which will be
complemented by this
transaction. It confirms our
continued commitment to
growing the sub-custody
business world wide."
Chicago – Northern Trust has
been selected by the State of
Tennessee to provide
investment services for the
Tennessee Consolidated
Retirement System and two
smaller public funds, the
Baccalaureate Education
System Trust and the Chairs
of Excellence Trust. The
USD29.3 billion in assets has
been transitioned to
Northern Trust custody.
According to Rick DuBray,
assistant to the Tennessee
State Treasurer for Support
Services: “Pursuant to a
thorough service
procurement and evaluation
process, Northern Trust
offered the Tennessee State
Treasury the best
combination of services and
value with their proposal for
FREE NEWS DAILY AT WWW.ISJNEWS.COM
asset custody, accounting,
investment risk and
analytical services and client
services, at a competitive
market rate.”
Chicago – Northern Trust has
successfully migrated the
non-portfolio management
related investment
operations of Vontobel Asset
Management to their
investment operations
outsourcing platform. It will
support Vontobel's
investment management
business by providing every
aspect of post-trade
execution support, trade
processing and settlement,
data management,
reconciliation, portfolio
accounting, client valuations
and reporting, foreign
exchange, post-trade
compliance services,
performance measurement
and composite management.
"As a fast growing asset
manager, Vontobel
recognised that time spent
focusing on enhancing their
infrastructure would take
away from working with
prospects and clients at the
activities they do best:
managing assets," said
Wilson Leech, head of
Northern Trust's Global
Fund Services. "In Northern
Trust, they have partnered
with an organisation that
brings a total solution for the
whole array of investment
management middle and
back office requirements.
Their decision making
process was extremely
rigorous across not only our
technology platform but our
operations unit. In the end,
their ability to talk to live
clients using our outsourcing
services gave Vontobel the




ISJ23 pp1-19 Final.qxd 23/7/07 1:17 pm Page 7

/PSEJD#BMUJD
&YDFMMFODF
SEB is the leading provider of custody and clearing services in the
Nordic/Baltic region.
Business is built on long standing partnerships with our clients.
Our commitments are efficiency, reliability and providing the highest
service quality.
For further information please contact: Global Head of Custody Services: Göran Fors,
goran.fors@seb.se. Head of Sub-Custody Client Relations: Ulf Norén, ulf.noren@seb.se.
ISJ23 pp1-19 Final.qxd 23/7/07
NEWS
assurances they needed to
select us as their partner to
enable their continued
growth."
London – JPMorgan has
announced that its Trustee &
Fiduciary (T&F) business
has more than USD1 trillion
in assets under trusteeship.
The business, which earlier
this year celebrated its 20th
anniversary, acts in a
fiduciary capacity for
European collective
investment schemes and is a
provider of services in
Dublin, Frankfurt, Jersey,
Luxembourg and the UK.
Tim Gandy, global head of
JPMorgan’s T&F business,
said: “Many factors play into
our tremendous growth.
Amongst these are the
quality and calibre of our
staff, our proactive approach,
industry thought leadership
and our geographic reach.”
FUNDS & ADMINISTRATION
Amsterdam – Delta Lloyd Group,
is to acquire the management
company Cyrte Investments
that manages the Cyrte Fund
I and Cyrte Fund II. Cyrte
Investments’ ambition is to
grow the two existing funds
into a broad investment
platform with focus on
several current and
developing themes. Delta
Lloyd Group’s acquisition of
Cyrte Investments increases
Cyrte’s power to accelerate
that growth. Alex Otto,
director of investments at
Delta Lloyd Asset
Management, is enthusiastic
about the opportunities
created by the combination
of Cyrte Investments and
Delta Lloyd Asset
Management: “Cyrte fits
perfectly with Delta Lloyd’s
successful strategy of
managing profitable funds
8 INVESTOR SERVICES JOURNAL
1:18 pm Page 8
with a distinctive investment
profile. This opens up new
opportunities to further
expand successful investment
concepts.”
London – Reuters is launching
JRisk On Demand, a tailored
risk management solution for
the hedge fund industry
delivering real time risk
management tools directly to
the individual manager’s
desktop. The product is
hosted in partnership with
GlobeOp Risk Services using
established Reuters JRisk
technology which can be
quickly deployed with
minimal upfront investment
and the ability to work
across any IT infrastructure.
As a hosted solution, users
benefit from the validated,
pricing and reference data
provided by Reuters. Andrew
White, global head of
Reuters Trade and Risk
Management, said: “JRisk On
Demand marks a major
milestone by providing
tailored risk management to
the hedge fund industry. We
are meeting the demand for
real time, cross asset risk
management coupled with
the reliability synonymous
with Reuters. As a hosted
solution it makes state of the
art risk management an easy
and immediate reality for
hedge funds.”
Toronto – CIBC Mellon has
announced its appointment
by Excel Funds Management to
act as custodian for the
company’s family of mutual
funds and the Excel India
Trust - a closed end
investment trust investing in
India. “Excel Funds
Management offers a series
of growth oriented mutual
funds, which are designed to
take advantage of the fast
paced growth of the world's
developing markets. We are
an innovative company and it
was important for us to
identify a partner who shares
this philosophy,” said Bhim
Asdhir, president and chief
executive officer of Excel
Funds Management. “CIBC
Mellon’s superior
technology, and global
service capabilities made this
appointment a logical next
step for us as we move into
the next phase of our
company’s growth.”
LEGAL & COMPLIANCE
London – Five leading trade
associations are jointly
releasing a set of non-
binding principles relating to
retail structured products.
They focus particularly on
the management of the
relationship between
providers and distributors,
from the perspectives of
firms performing either
function. The principles seek
to address issues that
financial services firms have
in practice found helpful to
consider when performing
these roles in connection
with the process of
delivering structured
products to retail investors.
They are intended to be
sufficiently broad in their
applicability to provide a
reference framework for
retail structured products
markets globally. The
chairman of the trade
associations’ working group,
Timothy Hailes, noted:
"These Principles have
arisen from the practical
experiences of firms active
in this growing product area,
and will also be of great
value in dialogue with
regulators around the
world."
MARKET INFRASTRUCTURE
Geneva – The SWX Swiss
Exchange has completed the
migration of trading in
international bonds to its
FREE NEWS DAILY AT WWW.ISJNEWS.COM
high capacity quote platform.
Participants in the
International Bonds segment
(the segment including all
bonds that have been
admitted to trading on SWX
that are not denominated in
Swiss francs) will now
benefit from the vastly
enhanced functionality of
the quote system, which is
already being used
successfully for the trading
of securitised derivatives.
Ueli Goldener, Product and
Services Management, noted
in this regard that: “Five
market makers are providing
liquidity in the international
bonds segment of the quote
system. As a result, a
significant improvement in
the bid and ask prices, as
well as a noticeable increase
in the size on both sides of
the market, has been
observed. In order to foster
an even more liquid market
for international bonds on
SWX, trading in those
instruments will incur no
exchange fees for the period
between 1 August 2007 and
31 January 2008. SWX
anticipates that the new
trading system, combined
with this fee waiver, will add
to the dynamic of trading
international bonds on
SWX.”
Paris – Telekurs and Fininfo
have signed an agreement
whereby Telekurs undertakes
to acquire Fininfo’s financial
information activities. Marc
Carletti, chief executive
officer, Telekurs, comments:
"The motivation of Telekurs
for such a deal was based on
the fact that we share
entirely the same analysis of
the market, we have the same
speciality and are confronted
by the same challenges. On
the side of Telekurs, it is a
very great opportunity to
enlarge our products and
services and to diversify." ■
ISJ23 pp1-19 Final.qxd 23/7/07 1:18 pm Page 9

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ISJ23 pp1-19 Final.qxd 23/7/07 1:18 pm
NEWS ANALYSIS
Less is
More
Is consolidation key?
ust when you thought the subject of
J consolidation in the financial services
industry couldn’t be more hackneyed,
a string of events takes place that
restores one’s faith in the timelessness of
this editorial gem. The last few weeks
have been just such an occasion – a dream
time, in fact, for a journalist who is
simply too lazy to dig for a story. First
the Bank of New York Mellon
announced the completion of its mega
merger. Then Mellon agreed to purchase
ABN AMRO’s share of ABN AMRO
Mellon. And then France’s Les Echos
newspaper reported that Société
Générale was looking to purchase their
larger rival, BNP Paribas.
Let’s take a look at the Bank of New
York Mellon merger, if only to see what
kind of precedent it’s setting. Currently
ranked as one of the largest global asset
managers in the world, it is also the
world’s leading asset servicer, with more
than USD18 trillion in assets under
custody. The immensity of the merger
speaks for itself, but chief executive
officer of the company, Robert Kelly,
described it in the following terms:
“Today we are establishing a global
financial services growth company
without peer.”
These two, seemingly innocuous words
10 INVESTOR SERVICES JOURNAL
Page 10
– ‘without peer’ – will clearly occupy the
minds of every global custody provider
that bids for a mandate against the giant
that is ‘Bony Mellon’. Is it any wonder,
then, that a rush of similar acquisitions
(if not in size, at least in name) has taken
place since the merger was first
announced? But what exactly is
happening with these other mega
mergers?
In the week that ISJ went to press, the
Royal Bank of Scotland consortium had
sweetened their original bid for ABN
AMRO, far outstripping Barclay’s
original USD80 billion bid. Barclays’
chief executive officer, John Varley,
responded by pointing out that the
consortium’s deal, which would split
ABN AMRO’s businesses among
separate banks, posed significant
regulatory risk.
The chief executive officer of BNP
Paribas, meanwhile, has repeated his
opposition to the BNP/Société Générale
merger, saying: “This is not on the
agenda. I have done lots of mergers and
this is one that I don't want to do. It
would destroy value.” Whether Société
Générale is making an offer for BNP
Paribas or not, they are clearly looking to
merge with someone. It came out last
month that they had made contact with a
handful of investment banks to talk
about a possible merger. The question
remains: who is it likely to be?
More consolidation is evidently on the
horizon, inspired by the Bank of New
York Mellon merger, but what kind of
institutional peer group will this flurry of
activity produce? One can only wonder.
Easy
Money
Another government
department for
Capgemini
he Financial Services Authority
T
(FSA), the UK’s statutory
regulator for the financial
services industry, has awarded a GBP6.5
million contract to design and build its
new Mandatory Electronic Reporting
(MER) system to Capgemini. This move
continues the relationship started last
August, when the FSA awarded
Capgemini a four year framework
contract for the development of new and
enhanced IT systems.
In theory, this new MER system will
enable the FSA and every business it
regulates to operate a clear, consolidated
reporting schedule – a required upgrade,
as the FSA has a regulatory remit of
approximately 28,000 businesses. The
new system will also aim to replace the
various legacy systems that the FSA has
inherited from its various predecessor
regulators.
Recent relations between government
bodies and IT suppliers have not been the
most efficient. The former Inland
Revenue attempted to switch IT supplier
in 2005 after it had rebranded itself to
HM Revenue and Customs (HMRC).
Worried that not enough competition
was forthcoming from the private sector,
HMRC spent GBP53 million, creating
the Acquiring Strategic Partners for the
Inland Revenue project. Eventually,
Capgemini won the deal and aims to
make profits of around GBP1.1 billion.
Profits of such magnitude bring into
question the necessity of outsourcing on
such a large scale. Undoubtedly, the
systems that need to be put in place in
such an important body as the FSA have
to be some of the best the industry can
offer. But with Liberal Democrat
Treasury spokesperson Vince Cable
stating that costs at HMRC were
“spiralling out of control” and “a
worrying picture of failure and
incompetence [was] being painted, with
ISJ23 pp1-19 Final.qxd 23/7/07 1:18 pm
IT projects running behind schedule with
big cost overruns”, care clearly needs to
be taken. While HMRC difficulties are
fought over and discussed in
Westminster, any failings or
misjudgements by the FSA will be met
with fierce criticism from the financial
sector. Of course, the scale of the project
at the FSA is somewhat smaller than at
the HMRC – only 60 people from
Capgemini’s development centre in
Mumbai will be working on the project –
and the FSA has achieved an
exceptionally positive reputation as being
one of the world’s best domestic
regulators, so let us hope that it avoids
similar problems.
Page 11
NEWS ANALYSIS
Are we
sailing?
Project Boat has been
causing ripples across
the exchange market
ast August, a consortium of nine
L investment banks – dubbed Project
Boat – decided to build a system
that would allow market participants to
report trades made off exchange. This
was a direct response to a European
Commission rule, which forced banks and
brokers to report off exchange trades to
a recognised trading venue.
One of the major goals of the original
‘gang of nine’ (ABN AMRO, Citigroup,
Credit Suisse, Deutsche Bank, Goldman
Sachs, HSBC, Merrill Lynch, Morgan Stanley
and UBS) was to compete with European
exchanges in the field of data provision. This
radical departure from the practices of the
traditional exchanges was inspired by the
new pre-trade and post-trade reporting
measures that will be introduced by MiFID.
In view of the fact that the main thrust of
MiFID is to increase competition, it certainly
seems to be working.
Project Boat aims to fund itself by selling
the market data that it receives to data
providers such as Reuters. This is, of course,
presuming that consolidation has left more
than two data providers in tact by the time
you come to read this. Of all the European
exchanges currently operating, the Nordic
exchange, OMX, reportedly earns the most platform TradElect, introduces stand alone
revenue from selling market data. If one services for trades conducted away from the
listens to Clara Furse, chief executive of the Stock Exchange Electronic Trading Service
London Stock Exchange (LSE), you might (SETS) order book, which is in direct
think that the consortium’s plans to rival such competition to Project Boat’s offering.
exchanges as OMX are based on less than It will be fascinating to see the outcome of
watertight foundations. She points out that such a collision. With its business operations
Project Boat will charge GBP82 a month, per run by Markit, its software platform provided
screen, for their market data. The real cost, by Cinnober Financial Technology and BT
believe it or not, is a mere GBP3.50. Radianz and Colt providing connectivity and
Whatever the real cost of data, the LSE is infrastructure hosting services, Project Boat
not letting Project Boat sail off into the does seem to have a significant proportion of
sunset without a fight. In June, the exchange the market on its side. Whether it will
stated that it was going to offer market continue to create significant changes in the
participants a new swathe of services in order market is something that only time will tell.
to become MiFID compliant. This new For now, it seems that it is fairly calm (or at
service, due to run on LSE’s new technology least very quiet) sailing.■
INVESTOR SERVICES JOURNAL 11
ISJ23 pp1-19 Final.qxd 23/7/07 1:18 pm
NEWS ANALYSIS
Reg NMS
Roundup
Boundaries are being
tested by US legislators
n 9 July, the US financial services
O industry implemented one of the
most important reforms of the
last 30 years. Regulation NMS (Reg
NMS), the Securities and Exchange
Commission’s latest rule, requires broker-
dealers to track large amounts of
financial data to obtain the “national best
bid offer” and then execute their
customers’ orders at the best possible
price. Heralded by some as a measure that
will strengthen and modernise the equity
securities market, Reg NMS is not
without its controversies.
In certain quarters of the US press,
concerns have been raised about the
pressures that will be placed on brokers.
Having to scan all 5,000 securities on the
10 US exchanges every time they make a
transaction is, they point out, a formidable
task to expect of them, especially
considering the near light speed at which
this information is processed. “Reg NMS
will take the securities industry into
uncharted territory, pushing trading
systems to carry out network processes
they’ve never tried before,” says Tom
Price, analyst at TowerGroup.
Brokers, on the other hand, do not seem
to share these fears. A recent test,
organised by Nasdaq on behalf of the
brokerage community, encountered no
major problems. Senior vice president of
Nasdaq, Brian Hyndman, commented at
the time: “The feedback from the brokers
is that they are well prepared. A lot of
functionality changes have been put in
place over the last year to ensure
compliance.”
Technology, it turns out, is perhaps a
more pressing issue at this time.
Increasing demand from financial services
institutions looking to adopt more
manageable ways of processing data
streams has been a significant driver for
technology providers. Brokerage firms, in
particular, have been implementing smart
order routing technology, which scans the
12 INVESTOR SERVICES JOURNAL
Page 12
market for price and liquidity. Many firms
have had to enlarge their computer
servers to cope with this increased load,
which has naturally led to an increase in
the power needed to operate them.
Despite these smooth developments,
many within the industry are less keen on
Reg NMS. “The passage of Reg NMS
was expected, but in our view it's not a
good thing," said one online broker, Vince
Phillips of CyberTrader. The main
objection, from small brokerage firms,
seems to be the cost of implementing it.
Some firms have been forced to overhaul
their systems to comply, leading
commentators to wonder when the next
round of consolidations will hit the small
brokerage firm world.
Other than this, the reality of Reg
NMS (its implementation and lead up) has
in no way equalled the fuss that was made
about it in the media. As soon as it was
launched on 9 July, the Securities Industry
and Financial Markets Association
(SIFMA) quickly pointed out that there
were no major flaws, a fact that is
testament to all those who worked on it.
Ira Hammerman, general counsel and
senior managing director of SIFMA,
marked the occasion thus: “We can
happily report that through the first day
of trading, we did not experience any
major disruptions or problems – a credit
to the hard working men and women who
have laboured to get this new system up
and running. The new Reg NMS order
protection and access rules have been a
major undertaking for firms and
exchanges, and their implementation is
the result of several years of work.”
Access
all areas
Swift joins the fight
against terrorism
A secret between two men is God’s
“ secret. Between three, it is all men’s.”
This was the old Spanish proverb that
sprang to mind last year when it was
discovered that the US government was
examining transactions processed within
the Swift network, hoping to uncover
hidden terrorist activity. Swift justified
the measures it had taken by pointing out
that it was subject, under the US
Treasury’s terrorist finance tracking
program, to compulsory subpoenas that
forced it to give data to the US Treasury.
On 28 June, the EU agreed a deal that
would allow the US government to
access transaction data processed
through the Swift network. European
privacy chiefs have told banks in the
region that they have until September to
notify their customers that their
transactions can be tracked. While the
implications of this agreement do
undoubtedly send alarm bells ringing, the
EU has assured its citizens that the US
government will only be able to collect
information for the purpose of
countering terrorism.
They will, furthermore, only be
allowed to store the data for a maximum
of five years. Franco Frattini, the EU
justice and security commissioner, said:
"The EU now has the necessary
guarantees that the US Treasury will
process the data it receives from Swift's
mirror server in the US in a way that
takes account of EU data protection
principles."
Whatever one thinks of this situation,
the fact remains that Swift were violating
EU law. Lest we forget, in February, the
European data protection supervisor,
Peter Hustinx, emphasised the fact that
Swift had “breached the trust and private
lives of many millions of people.” That a
representative of the European people
could accuse such a powerful institution
of this serious lapse of judgment is not
something we should forget in a hurry.■
ISJ23 pp1-19 Final.qxd 23/7/07 1:18 pm Page 13

BNP PARIBAS SECURITIES SERVICES

acquires the securities services division of
RBS International

With the acquisition of

RBS INTERNATIONAL
SECURITIES SERVICES
BNP Paribas Securities Services reinforces
its position in the UK offshore markets of

Jersey
Guernsey
Isle of Man
with its offering of global custody services,
fund administration and corporate trustee services
to fund managers and to managers of private
wealth clients.

BNP Paribas Securities Services.

The closer, the better.

BNP Paribas Securities Services and its subsidiaries shall not be liable for any errors, omissions or
opinions contained within this document. This material is not intended as an offer or solicitation for the
purchase or sale of any financial instrument. Additional information is available on request.

BNP Paribas Securities Services is a French entity regulated by the AMF and the Banking Commission;
each of its foreign branches and subsidiaries are regulated by the country where it performs the activity.

BNP Paribas Securities Services is authorised by the Banque de France and regulated by the Financial
Services Authority for the conduct of its UK business.
www.securities.bnpparibas.com
ISJ23 pp1-19 Final.qxd 23/7/07 1:18 pm Page 14

CEO PROFILE - CHI-X

The Chi-x Effect

Peter Randall, director of Instinet Chi-x Limited, the equity alternative
trading system, talks to ISJ about his past, present and future

n the 16 April this year, Instinet

O Chi-x, the pan-European equity

alternative trading system (ATS),
announced that it was successfully
trading, clearing and settling the
component stocks of the AEX 25 (Dutch)
and DAX 30 (German) indices. Using
Credit Suisses’s advanced execution
service to provide an externally routed
order flow, Chi-x is set to offer trading and
clearing services that bypass Europe’s
existing exchanges and central
counterparty infrastructure. Thus far,
BNP Paribas has been approved as a
general clearing participant and GL
Trade has announced that it will offer
direct connectivity to the Chi-x system.
Chi-x is due to be authorised as a
multilateral trading facility (MTF) under
MiFID and the system is based on the
firm's existing Continuous Block Cross
(CBX) platform, which is currently used in
the US domestic equity market. It has
been redeveloped for the European market
to help sell side firms address the best
execution requirements stipulated by
MiFID. Instinet boasts internal
benchmark tests that show the new
platform to potentially be 10 times faster
and significantly cheaper than Europe's
traditional equity exchanges.
Leading this innovative expedition is
Peter Randall, director of Chi-x. Educated
at Oxford University and the London
School of Economics, Randall started his
career as an analyst at James Capel
Investment Management. It was at James
Capel that he was fortunate enough, in his
own words, to become “an analyst rated by
Euromoney.”
Shortly after, he moved to the Far East
with James Capel and, following a period
of five years, moved to the investment
bank, BZW. After just one year with BZW,
Randall was asked to run their soft dollar
firm Thamesway, which was later sold to

14 INVESTOR SERVICES JOURNAL

ISJ23 pp1-19 Final.qxd 23/7/07 1:18 pm
Instinet. He remained with Instinet for a
couple of years, before starting up his own
business as a consultant, advising sell side
players in the fields of electronic
connectivity and automated trading
strategies. He also served as executive
director of FIX Protocol. In 2005, he
rejoined Instinet, with the specific remit of
Any analytical experience is highly valuable when scoping out the requirements
necessary to addressing a changing marketplace. I combined this with my experience
at Instinet, a firm that has pioneered electronic trading for nearly 40 years
launching Europe’s first order driven pan-
European ATS, the aforementioned Chi-x.
A variety of experience has been key to
Randall’s success. He states: “Any
analytical experience is highly valuable
when scoping out the requirements
necessary to addressing a changing
marketplace. I combined this with my
experience at Instinet, a firm that has
pioneered electronic trading for nearly 40
years. I also drew on my experience in
South East Asia, dealing with the complex
market and regulatory challenges. I am
certainly grateful that I have these
experiences under my belt.”
It is the experience that Randall gained
in Asia that seems to have been most
invaluable to his career development. “At
that particular time, the South East Asian
markets were enveloped by regulatory
requirements that presented many
challenges for Instinet. Introducing new
technology in this environment
(remember, these were pre-internet days)
required us to be nimble and pick our way
through the many regulatory hurdles that
governed domestic and international
trading,” he explains.
The introduction of new technology,
however, will perhaps be the deciding
factor in the establishment of Chi-x as a
dominant force in the European market
sphere. Randall’s experience of
establishing new technology systems
within complex environments must come
as great help in the running of the ATS.
He comments: “It is easy to underestimate
the impact of regulatory change and of
commercial challenges when designing
and launching a trading destination to
challenge market inefficiencies all within a
Page 15
set timeframe.”
When asked to describe the most
challenging aspect of his current role,
Randall focuses on the importance of
expanding his team to ensure that
participating firms can connect to Chi-x’s
liquidity. The team grew in March this
year, when Michael Bundy was hired to
fill the position of chief technology
officer. Another ex-Instinet member,
Bundy oversaw the complete
redevelopment of Instinet CBX, an
upstairs matching system, or dark pool,
whose underlying technology serves as
the foundation for all Instinet’s matching
engines, including Chi-x.
A strong team, with significant
experience in the right areas, is a must for
a paradigm shifting operation such as
Chi-x. Furthermore, it is encouraging to
note that the biggest issue that concerns
Randall is the massive inefficiencies that
exist in many parts of the European
infrastructure. It will be interesting to see
whether Chi-x (which finds itself in a
similar position to Island’s in the US in
the late 1990s) will be able to
fundamentally change the rather
overpriced and sometimes ponderous
European market.
Randall is very positive about the future
of Chi-x in the post-MiFID market: “The
total cost of trading equities in Europe is
significantly higher than other major
markets competing for investor capital.
Europe needs competition, not
consolidation as this leads to innovation,
more liquidity and lower costs. Chi-x will
provide institutions with a true high
speed, low cost alternative for trading
European equities, and our partnership
with Fortis, who offer compression,
netting and significantly lower costs, will
ensure competition throughout the entire
equities trading process.”
A series of latency and throughput
tests were carried out by software vendor
TransactTools earlier this year and
indicated that Chi-x’s roundtrip latency
CEO PROFILE - CHI-X
was 10 milliseconds. Over 95% of
messages sent to the ATS were responded
to in an average of 10 milliseconds,
including client side infrastructure
latency involved on either side of the
transaction. The fastest response time
was recorded at four milliseconds.
For high volume throughput testing, in
which five million messages were
generated in total, Chi-x maintained an
average roundtrip latency of 18
milliseconds while handling 16,000
messages per second. Furthermore, the
system’s internal latency, which is a
measure of message processing in the
system’s core, was recorded at 890
microseconds.
“Based on Instinet’s internal system
performance measurement statistics for
average direct market access order routing
speed to the incumbent European stock
exchanges, we believe Chi-x is more than
10 times faster, when compared to
TransactTools’ results,” comments
Randall.
When scoping the requirements for
Chi-x, Randall and his colleagues
examined the success criteria behind the
US Electronic Communication Networks
and identified two key components:
standardised connectivity and rebate
pricing. Chi-x will, in fact, reward
participants for their liquidity through
rebates, says Randall. Market data will be
available free of charge and a flat fee will
be charged for transaction reporting.
Apart from the evolving exchange
landscape, the most innovative and
groundbreaking change that Randall has
seen in his time in the financial services
industry is the introduction and evolution
of the FIX protocol. Randall sees FIX as
the new lingua franca for front office
communications, enabling electronic
trading to dominate the global trading
industry. FIX, in turn, has provided a level
of standardisation and connectivity that
allows for market innovation, such as the
development of Chi-x itself.■
INVESTOR SERVICES JOURNAL 15
ISJ23 pp1-19 Final.qxd 23/7/07
HEDGE FUND TECHNOLOGY
Navigating
dangerous waters
Technology spend by hedge funds is on the
rise as they attempt to stay at the cutting
edge and stave off the ‘high risk’ moniker.
Virginie O’Shea reports
16 INVESTOR SERVICES JOURNAL
1:19 pm Page 16
he hedge fund community is
T coming under attack on a number
of fronts. For one, regulatory and
public scrutiny is on the rise. Rarely a
day goes by without some media
attention focused on the risks posed by
the hedge fund community to the wider
financial market. There has even been
speculation that the hedge fund boom
may be a bubble about to burst. Some
economists have released forecasts that
indicate hedge fund meltdowns could
slow the US economy. Turmoil in credit
markets could therefore push up
borrowing costs for businesses and
consumers and cause a ripple effect
across the market.
The woes of Long Term Capital
Management (LTCM) drew attention to
the operational risk posed by hedge
funds and were partially responsible for
the labelling of these funds as ‘high risk’.
As Nick Tyler, chief operating officer of
Adelphi Capital, notes: “The publicity
surrounding LTCM has shaped the
perception of what constitutes a hedge
fund manager but this idea of running
operations off the back of a ‘fag packet’
is not correct in the climate of strict due
diligence procedures that exist today.”
Tyler believes there are a number of
reasons why the high risk moniker is
incorrect. The business model of hedge
funds is simple and scalable, he says. For
example, you don’t need to rework
controls and systems if you scale up
from GBP2 billion to GBP20 billion.
The availability of technology for start-
ups and existing businesses is a benefit,
as well as the fact that the commercially
successful environment attracts a high
level of staff in the front office. Third
party service providers also now have 10
years of experience in providing services
to hedge funds and this means that they
are better able to meet their needs, Tyler
adds.
Conversely, as well as being labelled as
high risk, hedge funds are also being
touted as the solution to the market’s
problems. Due to their low correlation to
major stock and bond markets, hedge
funds are considered by some to be
independent markets of their own. As a
result, many major investors perceive
hedge funds as an insulated investment
vehicle that protects assets when more
traditional markets experience a
downturn.
A recent example of the success of
this strategy of betting against
traditional markets is the returns that
hedge funds betting on falls in bonds
linked to US sub-prime mortgages
experienced early in July. Hedge funds
employing this strategy were estimated
to have achieved returns of around 40%
and a USD2 billion fund run by Paulson
ISJ23 pp1-19 Final.qxd 23/7/07 1:19 pm
& Co was the single best performing
fund, rising 39.9% after fees in June.
Moreover, testament to the faith in the
performance of hedge funds is the fact
that the largest US pension fund, the
USD245 billion California Public
Employees’ Retirement System
(Calpers), has approved plans which
could see it double investment in hedge
funds as it seeks to reduce market risk.
The fund has indicated that it will
increase allocations to corporate
governance and hedge funds from USD5
billion to more than USD10 billion.
Calpers established its hedge fund
programme in 2002, when it invested
USD50 million in five hedge funds.
Regardless of whether the dire
predictions come to fruition in the long
term or the future is rosy, all of this
means that hedge funds are faced with
the short term problem: how to assure
investors that their money is safe. This
problem is compounded by the fact that
larger hedge funds are also becoming
more institutionalised and the boundary
between traditional asset management
and hedge fund management has been
significantly blurred. The extent to
which transparency should be imposed
on hedge funds is up for debate and this
could have a potentially negative impact
on the ability of these funds to retain
their competitive edge.
As Fabian Vandenreydt, acting head of
the Securities Industry Division and
Laurent Desnouck, market manager, FX
and Derivatives, at Swift, explain,
investors must recognise that the high
return potential has a price. Putting too
much pressure on hedge funds to
increase transparency will inhibit their
risk taking and therefore their potential
for extraordinary returns. Hedge funds
are, after all, investment vehicles that are
good for competition and helping to
drive growth, Vandenreydt says.
Srikant Sharma, senior director of
Financial Services at Interwoven, adds:
“The scrutiny of the regulators has been
a strong motivating factor for hedge
funds, as well as for the market as a
whole. No one wants to have regulation
imposed upon them, and so the threat of
this alone has, to some extent, spurred
the industry on to look at ways of
minimising their operational risk
through technology.”
David Smithers, head of IT for Hedge
Page 17
Funds in Fund Services, UBS, feels that
the influence of public pressure on hedge
funds is not the prime motivating factor
for the renewed focus on risk. “The more
likely cause is the investment manager’s
desire to tightly control risks and
exposures, given that the pursuit of
alpha can lead to potentially difficult
waters without the right information at
hand,” he explains.
Despite the somewhat negative press,
hedge funds continue to proliferate.
According to recent estimates, hedge
fund managers have launched 40% more
funds in the US in the first half of this
year than in the same period in 2006.
The biggest US launch in the first half
of 2007 was Carlyle Group's Carlyle
Bluewave, a multi-strategy fund that
began trading with an estimated USD2
billion.
However, it is becoming increasingly
difficult to set up a hedge fund due to the
barriers imposed by higher legal and
compliance costs. Furthermore, due to
the focus on risk, it seems that investors
may even be spending more time
analysing hedge funds’ risk controls than
their investment strategies.
Smithers explains: “Hedge funds are
no longer regarded as too ‘exotic’ or
ultra high risk and the explosion of
growth of assets proves this fact.
However, the large institutional investor,
who can invest anywhere from tens to
hundreds of millions in a single fund (if
not billions in the case of some huge
global pension funds) has dramatically
increased the level of due diligence that
Conversely, as well as being labelled as high risk, hedge
funds are also being touted as the solution to the
market’s problems
is being performed on potential
investment targets prior to any
investment being made.”
He believes that the medium sized and
larger hedge funds with well established
internal controls frameworks are coping
admirably with these requirements, but
that some of the smaller players may
struggle in this regard. “It should also be
noted that due diligence has
strengthened the case for complete
HEDGE FUND TECHNOLOGY
independence between the hedge fund
and the administrators. Self
administration is currently very tough to
sell to investors,” he notes.
Bhagesh Malde, head of JPMorgan
Hedge Fund Services in EMEA and Asia
Pacific, agrees that the demand for
increased information and transparency
from investors is driving the increase in
technology spend. This requirement for
more information translates to more
frequent valuations, for example the
move from monthly to weekly and daily
valuations, and the use of more
independent pricing sources. “Hedge
fund managers, partly driven by their
investors and regulators, do require
more timely risk management
information. A number are increasingly
relying on third party services for risk
analysis. Service providers, like
JPMorgan Hedge Fund Services, are
designing their systems to output
information in a variety of formats for
different risk management services and
tools,” Malde says.
Steve Miller, senior product manager,
SmartStream Technologies, believes that
a proportion of the technology
investment by hedge fund managers has
moved from the front office to the middle
and back office functions. This is
particularly apparent in obvious areas
such as derivatives, he says: “Major
exposures in derivatives, if not
understood sufficiently, can lead to
disaster, and one of the biggest and least
understood areas of risk in this respect
is the loss of data quality post-trade that
still affects large parts of the derivative
spectrum.”
However, one of the other impacts of
the blurring of boundaries between the
traditional funds and hedge funds is that
a number of hedge funds are now
attempting to cut their financing ties
with prime brokers. This process is
achieved by raising their own permanent
capital, building in-house reporting and
administration capabilities and running



INVESTOR SERVICES JOURNAL 17
ISJ23 pp1-19 Final.qxd 23/7/07 1:19 pm
HEDGE FUND TECHNOLOGY
their own trading platforms. This
decision also inevitably requires a
significant investment in technology
platforms and systems.
Don Finucane, vice president of
marketing and product management for
Interactive Data Real-Time Services,
sees a definite increase in spending in the
front office in particular. “I can't speak
for the industry as a whole, but can say
that we have seen an increase in
spending by hedge funds, particularly on
the real time services side over the past
year, and mostly in the area of the front
office where our low latency data feed is
used in electronic trading applications.
We believe this increase in business is
directly related to the increase in
demand for low latency data as the
Regardless of whether the dire predictions come to fruition in the long term or the future
is rosy, all of this means that hedge funds are faced with the short term problem: how to
assure investors that their money is safe
electronic trading markets have become
more competitive and latency sensitive,”
he says.
Jon Anderson, head of risk and
operations at BlueMountain Capital,
explains: “Technology spend by hedge
funds has been getting higher every
year. There are two reasons for that.
Technology has become ever more
important as the volumes and types of
trades have been increasing. The real
growth in the hedge funds is coming not
from the small ‘mom and pop shops’,
rather the larger hedge funds are
achieving economies of scale by creating
more efficient processes. This is the
same across Europe and the US.” There
is no geographical division in spend but
there is a division in terms of the focus
of the fund, says Anderson. “Where you
are going to be seeing the most
investment, which is reflecting our own
biases, is in the credit and interest rate
managers, as it is the most expanding
area,” he adds.
This increasing technology spend was
highlighted by a recent Datamonitor
report, which estimates that global
hedge fund IT spend could reach
USD3.3 billion by 2009. UBS’s Smithers
18 INVESTOR SERVICES JOURNAL
Page 18
comments: “This spending is across
several areas and varies from fund to
fund depending on size, strategy and
asset classes being traded. For some
funds, better internal back office
processing systems is the focus, whereas
for others, risk management is the
primary concern. Enhanced derivatives
processing is also on many chief
technology officers’ radars.”
Tim Murphy, managing director, Bank
of New York Mellon, does not think the
amount spent on technology by hedge
fund managers has significantly
increased over the last year. “I think it’s
a broad category to characterise. The
way hedge funds spend money on their
infrastructure varies from one house to
another. So I think their spending has
been probably about the same as it was
last year. I don’t think there is anything
particularly extraordinary going on in
terms of new spend,” he says.
Murphy does acknowledge that there
may be different houses changing their
focus one year to the next from front to
back, but that this depends on which
hedge fund you’re talking about. The
funds that have invested are generally
doing it out of a desire to control
everything in the trade lifecycle from
beginning to end, as opposed to facing
regulatory scrutiny. He adds: “It’s all
very individualised so it’s hard to make
general comments, but at the end of the
day, if regulatory scrutiny or
institutional capital comes in, they’ll do
one of two things: they’ll either invest in
their back offices and try to do it
themselves or they’ll go and leverage
their back office providers and look for
more service. Those are the two ways
they’re going to react, and of course
there’s going to be some combination in
the middle.”
Swift’s Vandenreydt agrees that
spending varies according to the type of
hedge fund that is being discussed but
contends that overall spend has
increased, largely in the front and
middle office areas. Large independent
hedge funds have sophisticated and well
organised operations and are able to
handle the entire lifecycle of their trade,
relying on the prime broker mainly for
financing purposes, he explains. Among
this group, investments are rising and
strong efforts are being made to provide
true front to back office automation. At
the opposite end of the spectrum, small
and medium hedge funds tend not to
consider operations as being in the
competitive space and will also rely on
their prime brokers for all downstream
processes.
“A substantial and increasing number
of hedge funds have become part of
large financial consortiums and rely on
shared infrastructures to handle their
post-trade services. Technology
investments are made at the group level
and shared throughout the business
lines. The front office, however, remains
a core competence and specific
investments will be made to handle the
specific requirements from the hedge
funds arm(s) of these finance
supermarkets,” Vandenreydt continues.
BlueMountain Capital’s Anderson
believes that there is a move towards
building more mature systems and that,
by definition, is taking what might have
been systems from the front office and
building out back office processing and
risk management platforms. “If you take
a mature market, 20% of the spending
on systems is on the sexiest up-front
part and 80% of it is the back for the
‘heavy lifting’ that requires risk
calculations or transaction processing.
As hedge funds are maturing and
becoming more business-like entities, as
opposed to trader expertise focused
shops, they become more like multi-
purpose hedge funds and processing
becomes more important. The focus on
development in technology is moving
toward middle and back offices. That is a
ISJ23 pp1-19 Final.qxd 23/7/07 1:19 pm
natural process. You could have said the
same thing about interest rate swaps
when that happened 20 years ago. The
initial spend was on working how to
trade this stuff and the real money was
spent on building the integrated STP,”
he explains.
However, given the diversity of the
funds community, how can one platform
hope to successfully meet the needs of
It is becoming increasingly difficult to set up a hedge
fund due to the barriers imposed by higher legal and
compliance costs
all? Anderson explains his experience of
outsourcing at BlueMountain Capital:
“The short answer to whether one
platform can meet all hedge fund
managers’ needs is no. But the first
question is then: how close can you get?
And what do you focus on first? There I
think our experience is not the norm, as
we are a derivatives heavy shop and we
have focused a lot on investing in our
processing of derivatives. We have a
tendency to rely on more established
systems for the processing of our more
traditional securities products. In our
case there is a twofold reason for this:
the real volumes lie in our derivatives
products but also the systems around
derivatives have never been as well
developed. The systems around equity
and bond trading have been around for a
long time and there is therefore no
reason to reinvent the wheel.”
There is a natural tendency as hedge
funds become bigger in size to bring
core competencies in-house, says
Anderson. If you are smaller you might
rely on your prime broker or your
administrator to help you with
operational support and risk
management, for example. As you get to
a certain size, those risks become more
scalable inside the business. “As we got
bigger, we brought in collateral
management, confirmations, a lot of
trading and STP. We established direct
links with our prime brokers too. But
that is not to say that administrators
don’t provide an attractive way to take
advantage of their scale for lines outside
of your core competence,” he adds.
According to Vandenreydt, Swift
Page 19
doesn’t believe one single outsourced
platform will be able to cope with all of
a hedge funds very diverse requirements:
“We’ve seen attempts at providing such a
platform, but the level of customisation
is very limited and hedge funds therefore
typically have to complement these with
other systems to cope with their specific
requirements. But one has to think about
what activities would be better
undertaken collaboratively rather than
in competition. What really creates
competitive advantage?”
Swift therefore asserts that front office
tools, including the ability to model
complex algorithms, as well as risk
management systems, will remain
specific because they do create
competitive advantage. On the other
hand, some middle and back office
functions could become more generic.
The closer the trade gets to settlement,
the more generic the platform could be,
says Desnouck. If such a generic
platform were feasible, it would drive
down costs thanks to economies of scale
One of the other impacts of the blurring of boundaries
between the traditional funds and hedge funds is that a
number of hedge funds are now attempting to cut their
financing ties with prime brokers
and scope. In addition, users of such a
platform would be more agile in meeting
new requirements. This ‘collaborative
space’ is where Swift focuses its efforts.
“We aim to deliver solutions that deliver
very tangible benefit our entire
community, without levelling the
playing field,” he adds.
Murphy is quick to assert that this
process of collaboration and
standardisation in the processing space
will happen over a period of years rather
than months. “You’ll find some
particular service niches that will have a
wider potential subscription from
people, but there are no magic bullets.
HEDGE FUND TECHNOLOGY
The development of platforms, the
development of standards, is a
relentless, small step march towards
that,” he explains.
SmartStream’s Miller adds: “The key
lies in agile combination of suitably
engineered generic components.
Productised solution offerings with
quick time to market based on common
process layers, rather than engineered in
code from scratch, stand the greatest
chance of success.”
One of the primary areas to tackle in
terms of both collaboration and
standardisation, says Vandenreydt, is the
industrialisation of service level
agreements (SLAs). This can be done
through the adoption of market
practices and a common minimum SLA.
JPMorgan’s Malde, on the other hand,
feels that formalised SLAs are not
needed in the triangular relationship
between the hedge fund manager, the
prime broker and the hedge fund
administrator. “All three parties should
be professional enough to work together
to achieve their objectives. An SLA is not
required if each party has clear
responsibilities which are well defined
by the contracts that are in place with
the fund: the administration agreement,
investment management agreement and
the prime broker agreement,” he says.
Rather than the imposition of an SLA,
Malde believes that communication is
the key to strengthening the relationship
between the three parties. “A common
messaging format should be agreed and
standards should be put in place
regarding responsibilities and
deliverables. Furthermore, technology
can ensure that the passing of data
between all parties is both efficient and
secure. The more integrated the three
parties are from a technology
perspective, the more time human capital
can spend on value added tasks,” he
concludes. Evidently, even in the
competitive field of hedge fund
administration, it is good to talk.■
INVESTOR SERVICES JOURNAL 19
MIDDLE EASTERN FUNDS

ne of the first things that

O financial journalists ask of

individuals in the Middle East
market is: “Can the Gulf Cooperation
Council (GCC) region support three
competing financial centres?” This
Western preoccupation with portraying
the Gulf as an area fraught with
competition between Dubai, Bahrain and
Qatar, is not something easily avoided.
But what do participants really think?
The extreme politeness that
characterises the region – and the
unwillingness to engage in combative
tactics – has meant that the truth has not
always been that easy to reach.
The fact that investment levels remain
high across the region makes it all the
more difficult to judge who is emerging
as the financial leader. While Kuwait
appears to be the fastest growing
economy, with its GDP growth rate
reaching 20% over the last five years, the
already well established centres of
Bahrain, Dubai and Qatar have reported
solid growth rates between 13% and
16%. It is difficult, in this light, to say
who is the out and out winner.
If you look at the market capitalisation
of the centres, relative to GDP, Dubai
comes out as the leader of the pack, its
110% growth per annum dwarfing the
12.5% equivalent of Bahrain. Qatar may
have the highest literacy rates, and
Bahrain the most university students, but
Dubai, it seems, can still claim the most
financial clout.
Tahir Jawed, of law firm Maples and
Calder, comments: “The Dubai
International Financial Centre (DIFC)
was the first of the centres to begin
operations and therefore is now the most
Wealth from the established. A combination of good
regulatory framework, transport links
Middle East is and lifestyle in Dubai will make it
difficult for the other centres to compete.
splashing across the Bahrain and Qatar are, in themselves,
significant markets and should still be
globe. But how much successful, but the DIFC seems to have

Liquid
of it is helping the
markets back home?
established itself as the regional hub.”
Despite these doubts about the
region’s ability to sustain numerous
financial centres, the amount of money

Rush
flooding in as a result of high oil and gas
Andrew Warburton prices leaves one wondering: “Why on
earth not?” The evidence suggests that
investigates the separate centres could survive in the
long run by offering platforms for
complementary services.
As Nigel Sillitoe, director, Business
20 INVESTOR SERVICES JOURNAL

Development, the Bank of New York
Mellon, points out: “In time, each centre
will specialise in a different area. In my
opinion, the DIFC will become the main
hub, as they’ve attracted over 400
hundred companies already. But it’s quite
possible that Qatar will specialise in
project finance, Bahrain will specialise in
Islamic finance, and the DIFC will cover
a broad field of private banking, asset
management and Islamic finance.”
Dr Nasser Saidi, chief economist of
the DIFC, is also aware of the tendency
A combination of good regulatory framework, transport
links and lifestyle in Dubai will make it difficult for the
other centres to compete
to portray the Middle East centres as
competing. But he is quick to point out
that the region needs more, rather than
fewer, financial markets, especially
considering the growth that has been
witnessed in the past five years (market
capitalisation has increased from under
USD200 billion to no less than USD1
trillion today). “Average market
capitalisation, compared to GDP, is
running at around 70-75%. That
compares to an Organisation for
Economic Cooperation and Development
(OECD) average of around 130%. So the
scope for the markets to grow, to attract
more companies – particularly family
owned companies – is great,” he explains.
Saidi also agrees with the notion that
the Gulf financial centres can
complement each other, instead of
merely competing for slim external
interest. “When people look at Bahrain,
Qatar or the DIFC,” he says, “they
wonder whether or not they will be
competing with each other or completing
each other. In each case, particularly in
the case of Bahrain and Qatar, they are
deepening their roots in the local
economy. Qatar needs to grow its market,
but it is likely to become an important
economy. It has a very strong national
resource base, but remains highly
specialised. They are going to look
towards diversifying their economy, and
the markets will have to be there to
support that economic diversification.”
He continues: “The primary focus is
going to be project finance, infrastructure
finance and growing the financial
markets for Qatar itself, as opposed to a
more international mission, which is the
goal of the DIFC. The DIFC is not
looking to be a local player in terms of
the United Arab Emirates (UAE)
economy or the Dubai economy, or even a
regional economy. Our ambitions are
very straightforward – to become the
international capital market for the
Middle East, on a par with London, New
York, Hong Kong and Singapore. So I
think the scope is there for the markets to
complete each other and complement
their activities, rather than to compete.”
The DIFC has itself been a major
influence on the other financial centres in
the region, setting the benchmark for
financial standards by introducing
detailed investment rules for collective
investment funds. The Collective
Investment Law of 2006, sponsored by
The region needs more, rather than fewer, financial
markets, especially considering the growth that has been
witnessed in the past five years
the Dubai Financial Services Authority
(DFSA), sets out a regulatory framework
for the funds market and allows for the
operation of various types of fund in the
DIFC, including property funds, Islamic
funds, hedge funds, fund of funds and
private equity funds. Although the other
Middle East centres have begun to
introduce similar legislation, Dubai’s first
mover status has given it a great
advantage.
“This package of legislation,” says
David Knott, chief executive of the
DFSA, “follows extensive consultation
between the DFSA and the managed
funds industry. The result is a tailor made
regime that will meet demand for a
modern, well regulated centre for funds
management and administration within
the Middle East. By allowing for
flexibility and innovation within a
MIDDLE EASTERN FUNDS
prudent regulatory framework, the DIFC
is now established as an ideal operating
environment for the managed funds
industry.”
One concern associated with the
relatively high number of financial
centres in the region is that it will burden
investors with overly complex processes
and regulations. Distinct legislation in
each of the separate territories means
that funds cannot always be marketed in a
lucrative, region-wide manner. “Logically,
there should be some sort of passport
system, as there is in the European
Union,” says Sillitoe. “This would allow
you to market your funds everywhere in
the GCC without having to have your
funds approved in every single territory.”
The Middle East currently supports
over 30 private equity firms, most of
which have pursued high profile ventures
in Europe and the US. Excessive liquidity
in the region, combined with high
demand for investment opportunity
outside the Middle East, has meant that
funds cannot be launched quickly enough.
A number of transactions by Middle
Eastern funds have hit the headlines of
late, including the much talked about
purchase of Madam Tussaud’s by Dubai
International Capital. With the
rumoured future sale of Sainsbury’s
making ripples in the British financial
press, this year is set to be no different.
Some commentators have tried to point
out that funds are, in fact, beginning to
operate within the Middle East. This has
been encouraged partly by an overly close
scrutiny of Asian money overseas and
partly by an increasing willingness on
the part of Middle East governments to
pour surplus money into infrastructure.
George Sauberer, regional manager for
the Middle East at SmartStream, points
out: “During the last decades, the oil
producing countries realised the need for
strong banking systems and they
enhanced the infrastructure. Among
those countries, UAE seems to be the
most advanced, as they applied an e-
government solution that enhanced the
INVESTOR SERVICES JOURNAL 21
MIDDLE EASTERN FUNDS
payments within the country.”
Improvements to infrastructure appear
to have had little affect on the clients of
major institutions, however, as they
continue to look elsewhere for their
investment opportunities. The
phenomenon of domestic investment is
not proving particularly viable for most
institutional investors and has largely
been isolated to small private firms. The
major reason for this is that none of the
territories within the GCC have yet been
placed on the MSCI Emerging Markets
Index. Until this happens, most of the
liquidity in the region will continue to go
elsewhere. “Only once they’re part of a
benchmark can our portfolio managers
even consider the Dubai financial market
or the Abu Dhabi stock exchange,” says
Sillitoe.
While this may sound clear enough,
some commentators refuse to rule out the
domestic market completely. One such
individual is Saidi of the DIFC, who does
not side with Sillitoe’s prognosis. “What
we’re seeing,” he explains, “is
institutional investors coming into the
market, and that, for us, is very
significant, because those are the
investors that can support long term
growth. We’re seeing the insurance
industry starting to come in, and in
addition to that, there is an increasing
growth of private equity funds. Hedge
funds are becoming active also, so
interest is really being seen from across
the investment industry spectrum.”
According to Saidi, the Collective
Investment Law was designed to give
this interest an appropriate instrumental
outlet. “We know that there’s a great deal
of appetite from international investors
to invest in the region. What has been
missing are the appropriate vehicles, and
we believe that mutual funds, collective
investment vehicles and trusts, are the
appropriate vehicle for foreign investors
who want to have a diversified portfolio.”
Judging by the response to the
USD1.25 billion sukuk, which the
investment arm of the DIFC issued
recently, Saidi could be right. Not only
was it the largest sukuk to have ever
come out of the region, it attracted up to
40% of its investment from Europe and
30% from Asia – enough to suggest wide
international interest.
Although some commentators are
keen to point out that local firms are
22 INVESTOR SERVICES JOURNAL
investing closer to home, especially in
the form of local private equity, the
success of asset managers, such as the
Bank of New York Mellon, suggests that
the attraction of the local market has not
yet eclipsed opportunities in the rest of
the globe. A number of foreign asset
managers, including Schroders,
Goldman Sachs and Barclay’s, are
lapping up liquidity that their Middle
East counterparts can only dream of. “If
you look at the DIFC website,” says
Sillitoe, “you will find lots of blue chip
names that have set up here within the
DIFC or Bahrain or Qatar, so it shows
that there is still growing interest in
local firms looking to invest overseas.
You’ve probably seen what has happened
with some of the local government
institutions here, buying into ports or
hotels in the US. Every day there is an
announcement about a local firm buying
operations abroad.”
So, how will Middle Eastern finance
develop from here? The influx of
petrodollars means that governments
are still receiving increasing reserves,
while the three biggest institutions
manage somewhere in the region of
USD900 billion in assets – a far bigger
sum than just a few years back. The
underdeveloped nature of the Middle
East market, however, means that
liquidity has nowhere to go but out. Saidi
explains: “If you look at the wealth that
has been generated in the region, one
measure of it is the cumulative current
account surpluses of the GCC countries
over the past five years. It’s running at
USD880 billion, which is a great deal of
new wealth and a great deal of liquidity.
Part of that is being invested locally, in
the form of investments in
infrastructure. At the latest count, we’re
talking about USD1.1 trillion worth of
infrastructural investment. Up to 50% or
60%, however, is being invested abroad.
Of this, I think you’ll see much more in
terms of direct investment – the
Madame Tussaud’s type – and also,
portfolio investment.”
Whatever one has to say about the
value of investing in the Middle East,
the local markets have a long way to go
before they can compete with the world’s
emerging markets. In the meantime,
however, more and more liquidity will
pour across the globe from its source in
the oil rich nations. ■
Launch of the Dubai
Mercantile Exchange
History was made on 1 June 2007
when the Middle East’s first
international energy futures and
commodities exchange was
launched by the Dubai Mercantile
Exchange Limited. A joint venture
between Tatweer (a member of
Dubai Holding), the New York
Mercantile Exchange and the
Oman Investment Fund, its
significance was described by Dr
Nasser Saidi, chief economist of
the DIFC: “For the first time, the
region is pricing its own natural
resources. Dubai and Oman, and
increasingly, all the countries of
the region, are going to use the
pricing on the DME to price their
exports. So it really is a significant
event and a fascinating
development.”
The DME boasts a state of the art
trading floor, located in the Dubai
International Financial Centre. Its
two storey high, 500 square metre
floor is the first of its kind in the
region and brings together a broad
range of local, regional and
international participants. It is
equipped with the latest trading
technology to electronically
transact energy futures contracts
and manage their risk.
The initial three contracts that
were traded on the DME were the
physically delivered Oman Crude
Oil Futures Contract, a Brent-
Oman spread contract and a WTI-
Oman spread contract. The first
daily settlement price of the Oman
contract was USD64.09 and was
the first price used by the
Sultanate of Oman’s Ministry of Oil
and Gas in calculating its official
selling price. The Ministry’s pricing
formula will be the arithmetic
average of the Oman Crude Oil
Futures Contract’s daily settlement
prices over each calendar month.
Dubai will also adopt forward
pricing of its crude oil, based on
the daily settlement price of the
DME’s Oman contract. The
Sultanate of Oman made a similar
commitment to price transparency
late last year.
DOMICILES REPORT
Sunny prospects
Double boost
In the past few weeks Guernsey’s fund
industry has received two major boosts:
the value of funds under management
and administration in the island reached a
new high of more than GBP140 billion;
and Citco, one of the leading providers of
hedge fund services in the world,
announced that it is to start operating out
of Guernsey.
Citco Fund Services has been licensed
by the Guernsey Financial Services
Commission (GFSC) to provide fund
administration in the island. Citco has
over 30 years of experience in hedge fund
administration and currently administers
more than 2,000 funds with net assets in
excess of USD500 billion, including five
of the world’s 10 largest hedge funds.
The addition of Guernsey to the Citco
service offering reflects the increasing
importance of the island as a domicile for
investment funds. William Keunen,
director of Citco Fund Services, said:
“Guernsey is an established fund domicile
with an internationally recognised but
pragmatic regulatory environment which
we believe will continue to make it a
jurisdiction of choice for many hedge
funds and funds of funds operators.”
The decision by such a world renowned
hedge fund services provider as Citco to
establish a presence in Guernsey is a real
boost for the island’s funds offering. On
the one hand, it adds yet another facet to
our administrative capabilities that should
prove particularly attractive to promoters
and sponsors. On the other, it is an
endorsement of the existing environment
that is attracting record flows of business.
Indeed, figures released by the GFSC
show that the value of funds under
24 INVESTOR SERVICES JOURNAL
Guernsey and the Bahamas report on
their respective domiciles
management and administration reached
GBP140.4 billion at the end of March, an
increase of GBP10.2 billion (7.8%) from
the GBP130.2 billion recorded at the end
of 2006 – the previous high – and a rise of
GBP29 billion (26%) year on year.
The introduction of a registered closed
ended funds regime has helped propel the
island to the new record. It has been
operating since 1 February and eight such
funds received consent in the two months
to 31 March, with a further 24 following
suit, taking the total to 32 in the first five
months.
The registered regime is a development
of the qualifying investor funds (QIFs)
regime that was introduced early in 2005
to significantly reduce the authorisation
times for experienced investors. It has its
roots in the Harwood Report, which made
a series of recommendations to enhance
the environment for conducting funds
business in the island and the remainder
of which will come on-stream later in
2007 and into early 2008.
Peter Niven, chief executive of
GuernseyFinance
Legislative refinement
Under the legislation of private trust
companies (PTC), a Bahamian PTC, will
not require regulatory approval. The
PTC need only arrange its affairs with a
regulated Bahamian service provider,
such as a bank or trust company, or a
licensed financial and corporate services
provider approved by the central bank,
for the provision of these services. This
feature distinguishes the Bahamian PTC
from those that are available in other
jurisdictions and allows for exclusive
interaction between the client and its
service provider without additional
regulatory involvement. As a result,
client information need only be delivered
to the offices of the service provider.
The PTC can act as trustee for trust
settled by persons related by blood or
other family relations. These trusts can
be established to benefit a wide class of
beneficiaries and hold the full range of
investments, whether they are operating
companies or any type of asset class.
The amendments to foundations
legislation provide for the appointment of
a foundation agent with responsibilities
similar to those of a registered agent of
an IBC, make a foundation council
mandatory in the event that a foundation
agent but no officer is appointed and
makes provision for the foundation agent
to be excused from all liability except
fraud. The amendment ensures
consistency of a beneficiary’s access to
information to provisions of the Bahamas
Trustee Act and aligns the access to
information on the founder and
foundation council with that of the
settler of a trust. It also provides for
greater consistency for record keeping
requirements with that of an IBC.
The introduction of the Bahamian
Foundation in 2004 was considered a
milestone for the financial services sector,
as the Bahamas became the first premier
common law jurisdiction with legal
provision for foundations.
The purpose trust amendment clarifies
that persons can benefit from an
authorised purpose trust irrespective of
whether they are connected or associated
with any of the authorised purposes; this
clarification ensures that the authorised
purpose trusts meet commercial needs.
The introduction of the Bahamian
Foundation in 2004 was considered a
milestone for the financial services sector
because the Bahamas became the first
premier common law jurisdiction with
legal provision for foundations.
Wendy Warren, CEO and executive
director of Bahamas Financial Services
Board
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FUND PROFILE - SWIP GLOBAL ISLAMIC EQUITY
ISJ takes a look at Scottish Widows Investment Partnership Global
Islamic Equity Fund
Very New Money
aunched in December 2005, the
L Scottish Widows Investment
Partnership (SWIP) Global
Islamic equity fund has increased its
assets by 300%, according to Suhail
Arain, the fund’s manager and
investment director at SWIP. Available
to both UK retail investors through a
unit trust and international investors via
a Luxembourg SICAV, the fund has
outperformed the MSCI World index by
close to 2% so far this year.
“Islamic funds tend to be put in the
same box as socially responsible
investments (SRI),” he says. “But
although there is a good deal of overlap
with generic SRI funds, there are also
differences. It’s a bit like a venn
diagram.”
Although both have certain
prohibitions (tobacco companies, arms
or arm manufacturers and media
companies involved in pornography),
the Islamic fund also prohibits
investment in companies with any
relation to pork or pork products or
alcohol and related products.
But by far the biggest exclusion
pertaining to the Islamic fund lies in the
financial sector. Islamic law does not
allow companies that have an
involvement with making money
through charging interest, so a vast
proportion of the financials sector is
simply excluded. Arain thinks financials
probably come to about 25% of the
MSCI World index but that only 2.5 or
3% of the sector conforms to Islamic
investment principles.
The screen does not only apply to
activity. The way that a company
organises its finances is also scrutinised.
For example, the way a company
structures its borrowing can exclude it
from the fund even if its business
activity is compliant. In the case of
structured borrowing, the cap is 30% of
total market share. The amount of
interest bearing liabilities and the
proportion of non-liquid assets are also
26 INVESTOR SERVICES JOURNAL
factors that are closely looked at.
In addition, dividend payments need
to be monitored . The fund manager has
a software system that allows him to
divide out the proportion of dividend
payment that has been derived from
non-halal sources. The custodian, State
Street, then strips this out and payments
are made to six charities chosen by the
fund’s trustees on a quarterly or half
yearly basis. The rest of the dividend is
reinvested in the fund.
The fund has outperformed the MSCI World index by
close to 2% so far this year
So, given the sector and financial
screens, what is actually left? Do the
fund’s investors get an oddly skewed
portfolio or do diversification levels
remain acceptable?
Taking the case of the financial
sector, the remaining 23% that cannot be
invested, Arain says, is split between
other sectors, notably oil and gas,
materials and technology. “Energy takes
up 9.6% of the MSCI World index, but
accounts for some 16% of our fund. I
think around 70% of the MSCI Global
index is available and that this accounts
for something in the region of 1,100
stocks,” he says.
However, Arain is also keen to point
out that the fund is not benchmarked
against the MSCI World index, rather
against the FTSE Global Islamic index,
thus allowing investors to compare like
with like.
Once this top down screen process has
been competed, the fund’s stocks are
then selected on a bottom up basis.
Arain says the company has over 40
analysts, each producing detailed
templates with a buy, sell or hold
recommendation on the stocks they
cover, so that the investment managers
can handpick the stocks they want for
each fund. Recent successful picks have
been Apple and Marathon oil plus a
more recent addition, Slour, a US
construction company.
“The Islamic fund tends to hold
around 60 stocks and we check regularly
to make sure that the fund is not
digressing from its mandate and
remains compliant,” says Arain.
He cites a case where a company may
have had 4.5% of its activity in non-
compliant areas in one quarter, but this
may have then tipped over the 5%
boundary the next. “Clearly then we
need to sell the stock in question, but we
have a period of time to sell it, rather
than needing to get rid of it
immediately, no matter what the
consequences,” he says.
Indeed, his outlook for the fund is
positive. In the year to date the fund has
returned some 16.34% compared to the
FTSE Islamic index at 14.2% and the
MSCI index at 15.96%.
Arain says this is down to the poor
global performance of financials due to
rising interest rates and the strong
performance of energy and materials, a
trend he thinks is set to continue.
“The oil price is driven by both supply
and demand and, given that economic
growth is robust, so is demand.” He adds
that demand from growing economies
like China and India looks set to
continue, as does their consumption of
materials used to build their
infrastructures. “The oil price, for
example, still has good upside potential
and could rise to USD45 or USD50,” he
thinks.
Technology is another area he sees as
performing well for the fund,
with companies such as Cisco and
Intel both enjoying great performance at
the moment.■
 FRENCH CUSTODY

The sixth republic?

Custody in
France is set for
a renaissance.
Giles Turner
reports

28 INVESTOR SERVICES JOURNAL


The French people have chosen
“ change, and it is change that I will
implement.” It is with this
thunderous sentence that Nicolas
Sarkozy, France’s new president,
announced the beginning of his reign
after defeating his Socialist opponent,
Segolene Royal. He announced that he
would “break with the ideas, habits and
behaviour of the past” and promised to
“get France moving again.” One of his
major aims is to change the way that
people work. By encouraging people to
work more than the standard 35 hour
week with incentives such as tax breaks,
Sarkozy is aiming for a more
transatlantic France. This is to enable it
to compete with hard working financial
centres, such as London and New York,
rather than the old France, of student
protests and oppressive union power.
But is France really as bad as Sarkozy
is making out? Out of the three biggest
investment banks in Europe, two of
them, BNP Paribas and Societe
Generale, are French. France is also seen
as a miracle in the trading lifecycle. A
report by Omgeo asked a representative
panel of French front and back office
professionals working for institutional
investors why a trade might fail. Nine
percent of the respondents refused to
give an answer. You might think that
they may not want to give away such
ideas to the rest of the industry, but the
real reason is that many French
professionals believe that there should be
no errors in the trading cycle. This
surprising confidence, dryly named “The
French Exception”, makes clear the faith
the industry has in its present systems.
When asked to identify the main sources
of error, computerised systems failure
was never mentioned. Compare this to
the British, German and French
respondents, who ranked systems failure
as third, behind human error and
erroneous data.
Sarkozy, an industrious politician, has
already signalled his interest in the
financial sector. Alain Closier, global
head of Societe Generale Securities
Services (SGSS), explains: “The French
government has recently decided to
recognise the financial services industry
as a major pole for innovation and
development (pole de compétitivité).
This newly acquired status, that the
association Paris Europlace has clearly
advocated for some time now, has the
objective of strengthening the position
of Paris as a major centre for investment
banking and asset management in
Europe and is a recognition of the pools
of talent that exist in the market.”
So while Sarkozy can busy himself by
putting his own stamp on the financial
fabric of France, the custodians not only
seem to have faith in their industry, they
are also setting the example for the rest
of Europe. This depth of expertise
stretches back 20 years to 1981, when
the situation was perhaps one of the
worst in Europe. However, sometimes
things have to be impossible before they
can become fully realised.
The method to clear shares before the
dematerialisation of securities was near
impossible to say the least. The solution,
Custodians became exceptionally efficient, which poses a
problem to those trying to penetrate the French market
in the name of the Perouse report,
recommended nothing more
groundbreaking than simplifying market
transactions by hitting two birds with
one stone. Instead of having a cash
market and a deferred settlement market,
an options market was created, which
ceased anachronistic broker regulations.
These included having to walk up from
the Paris Brongniart open outcry pit
with the written order, all the way to the
third floor of the same building, a
tradition dating back to the 19th century.
From these relatively simple changes,
French custodians became exceptionally
efficient, which poses a problem to those
trying to penetrate the French market.
This is the dominant industry trend, for
in order to penetrate a market you now
have to consume and absorb smaller
existing players in that market, not just
in France but in Europe as a whole. Five
years ago, there were at least a dozen or
so large players operating within the
French custody market. Now, only
CACEIS, BNP Paribas and SocGen
remain. Everyone else has been
subsumed into one financial behemoth or
another. The acquisitions are not
confined to France alone. Last year
SocGen gobbled up the custody arm of
Italy’s Unicredit Group for USD690
million. BNP Paribas also acquired the
FRENCH CUSTODY
third party securities clearing and
settlement activity of Bankhaus Carl
Plump, a private banking and asset
management firm that is part of MM
Warburg Group.
Perhaps it was imperative that
France’s two biggest banks expanded
and established themselves as big
international players and derivatives
houses, for their domestic retail
franchises seem to have a negative effect
on their share prices. In the fourth
quarter of 2006, French retail revenue
for BNP Paribas had grown marginally
by 2.6% year on year. SocGen posted a
slightly higher growth of 3%. This is
not positive growth or a European trend,
as Spanish banks are reporting ever
improving margins. Although retail
banking makes up around a quarter of
net income for both banks, it is
investment banking that holds growing
importance for a European and global
player.
There is good news, however, for
custodians and fund managers that want
a piece of the French fund management
pie. Earlier this year the French state
pension reserve fund, the Fonds de
Reserve pour les Retraites, announced its
intentions to diversify its EUR31.3
billion buffer fund by allocating a
EUR150 million private equity mandate
to Axa Private Equity Europe. It has
increased its interest in this topical asset
class by allocating a further: EUR500
million North American brief to
Lehman Brothers International Europe;
a EUR50 million European private
equity brief to Pantheon Ventures; and a
EUR300 million small and mid-cap
European mandate to Access Capital
Partners. With the fund aiming to find a
commodity index provider by the end of
the year and possibly investing in the
property and infrastructure markets, the
fund management industry may well see
a lot more opportunities in France in the
coming year.
Regarding regulation, the financial
front is never quiet. The French financial
regulator, Autorite des Marches
Financiers (AMF), is investigating cases
INVESTOR SERVICES JOURNAL 29
FRENCH CUSTODY
where hedge funds are being used as a
façade for buy-out firms. The AMF
suspects that activist funds forced
various companies to be put up for sale,
however private equity groups may have
been given the option to buy stakes in
these companies.
Such scandal never serves the hedge
fund or private equity industries well,
especially when the press and
governments across Europe have been
especially hostile. French regulators, on
the other hand, have made life
particularly difficult for hedge funds,
albeit through consequence rather than
direct action. Because the regulator’s
attitude towards the role of the trustee
depositary bank are stringent to say the
least, it has been difficult to find a
relationship between the prime broker
and the depositary that suits the
servicing of the hedge fund. A number
of French asset managers have had to
launch hedge funds abroad in the
Cayman Islands and Ireland as a result.
On the whole however, the AMF is
doing a good job, and as Closier states:
“It is committed to the concept of ‘better
regulation’. This implies that the balance
between consumer protection and
flexibility for industrial innovation is
moving in favour of removing a certain
amount of red tape that previously
handicapped the French players in
comparison to certain neighbouring
markets.” Sophie Gautié, EU
representative, General Secretariat at
BNP Paribas Securities Services, agrees
with the positive nature of the
government’s new policies: “The
objective that the government has
announced is to simplify regulation and
legislation where possible, they are
pretty open to reviewing the current
legal situation and also looking at how to
ensure companies can develop and grow
in a competitive global financial market.”
On top of this review and progression
of domestic legislation, the importance
of European legislative development is
of equal if not greater importance. Most
notably, this includes the development of
new stock exchanges, partly as a result of
MiFID. Closier explains: “MiFID is an
example of a key development that goes
both ways, that is to say that it favours
European harmonisation, which in turn
favours consolidation in terms of
applicable law. But is also leading to
30 INVESTOR SERVICES JOURNAL
fragmentation of the trading and
clearing layers of our industry’s
infrastructure through the suppression
of the rule of concentration of liquidity
on the ‘official’ stock exchange. Chi-x
and Turquoise are examples of the
possible fragmentation of liquidity pools
that MiFID will induce.”
It is Project Turquoise that seems to
be of particular interest for French
There is good news, however, for custodians and fund
managers that want a piece of the French fund
management pie
custodians at present. According to the
French daily La Tribune, SocGen is in
“very advance talks” to purchase a 3%
stake in the standalone stock trading
platform. BNP Paribas has already taken
a 3% stake, announced by CEO Baudouin
Prot at the beginning of July.
The project, implemented by seven
investment banks, aims to cut market
trading costs, and has been made
possible as a result of the introduction of
MiFID. Moreover, due to the
introduction of this directive, many
banks will need to find ways of saving
money, Prot has already stated that
MiFID will cost BNP Paribas “dozens of
millions of euros” to implement before
the start date in November.
So while the market becomes more
liberalised and French banks continue to
expand abroad – most recently with the
50:50 joint venture between Indian
brokerage Geojit Financial Services and
BNP Paribas – it remains difficult to talk
about French custody without talking
about the possibility of domestic
consolidation. The elephant in the room,
the possibility of the merger between
SocGen and BNP Paribas, is getting
bigger by the day.
Back in 1999, Paribas, then a proudly
independent bank, looked like it was
going under the hammer to SocGen.
BNP, big but not nearly as dynamic as
Paribas, protested and, as an objection,
put in a bid for SocGen. SocGen
promptly fled from the scene and BNP
claimed Paribas as recompense. Note
that all the actors in this little turn of
the century drama are French. While the
French may be more than happy to
purchase assets abroad, a foreign bank
has little chance of buying such an
institution as a global French bank.
Political pressure must be one of the
reasons behind this trend, for a bank
such as SocGen – a global expert in
international fixed income and credit
derivatives, but not as large as other less
innovative banks – should theoretically
be a tasty target in this age of easy loans
and large scale consolidation. UniCredit,
the Italian bank, recently eyed up an
offer for SocGen, only to cast its eyes on
Capitalia and the Ukrainian bank
Ukrsotsbank. Rumour has it that the
French authorities or the central bank
has expressed a desire for French banks
to stay French. According to the
business newspaper Les Echos, the
impetus is with SocGen, suggesting a
bid for its long term rival BNP Paribas.
The head of Morgan Stanley in France,
Patrick Ponsolle, has already extradited
himself from the possible furore by
telling BNP Paribas’s CEO that the
bank is not acting as an acquisition
consultant for SocGen, according to
weekly Magazine Challenges. This goes
against earlier claims made by Les
Echos. Throughout, SocGen has
stoically declined to comment.
Whatever happens with the latest
French banking duel, the French
custodians look set to grow. This will
not only happen abroad, as the current
economic and political domestic climate
looks highly favourable for growth. The
35 hour week has been highly damaging
for the hope of Paris being an economic
as well as cultural centre. These policies
have led to high unemployment,
something that Sarkozy aims to
decrease. Yet despite of this, over the
past 20 years (1986-2006), France has
achieved a higher rate of productivity
growth (2.0%) than the US (1.7%). After
some relatively poor economic
management from the political sphere,
new guidance may allow France to be
the European high flyer it has always
promised to be. The custody business
will no doubt be one of the main
beneficiaries.■
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PANEL DEBATE - NORDIC CUSTODY

ISJ
Evolution
Our panel of experts
PANEL DEBATE
debate the changing
face of the Nordic
Coping with
custody market Consolidation
Bente Hoem, DnB NOR Bank
Bente Iren Hoem has been head of global relations and network at the Norwegian provider of securities
services DnB NOR since December 2003. Prior to that, she worked as a project leader in DnB within
the securities services area. She spent 15 years at Christiania Bank og Kreditkasse within the custody
business where she headed International Securities Services.

Johan Wennerberg, Handelsbanken

Johan Wennerberg is head of relationship management and is vice president at Handelsbanken. He has
been with the company since 1984, working as head of the Nordic desk with Handelsbanken in Asia
and prior to that as head of network management at Handelsbanken – Nordic Custody Services.

Ulf Noren, SEB

Ulf Noren is global head of sub-custody client relations spanning SEB's sub-custody franchise in nine
markets – Denmark, Estonia, Finland, Germany, Latvia, Lithuania, Norway, Sweden and the Ukraine. He
has been with SEB since early 2004 and has a total of 23 years of custody experience.

Carl Magnus Broström, Swedbank

Carl Magnus Broström is responsible for the Client Relations team at Swedbank Custody. His team's role
is to keep existing clients happy and attract new clients. This includes developing Swedbank’s service
offering and being involved in the department's various projects.

Bob McDowall, TowerGroup

Bob McDowall is senior analyst at TowerGroup and covers the principal challenges and opportunities
affecting the European banking, securities and investment management markets.
He has worked for a number of institutions including Merrill Lynch, Pru-Bache, Syntegra and Singer
and Friedlander.
32 INVESTOR SERVICES JOURNAL

What have been the main drivers for growth in
the Nordic custody market in the last five
years and what do you see as the major
challenges facing Nordic custody providers in
the near future?
Hoem: The consolidation of the trading
infrastructure has had an effect on the
number of remote members and their
increased market share in each market.
This has again, of course, had an effect
on the Nordic custody market and the
service it provides to the investment
firms. The Norwegian securities market
has been successful in its strategy and has
developed strengths in special sectors
such as energy and shipping, which again
has attracted many new listings of
foreign companies at the Oslo Børs. In
Norway, the growth in public wealth has
increased investment both in equities and
mutual funds. A well performing market
has attracted new market participants
and led to an increase in volumes of
investment. In addition, algorithmic
trading has also contributed to a
considerable increase in volumes.
The main challenges for the future are
still to adapt to new regulations such as
MiFID, Basel II, Target2-Securities, the
EU Code of Conduct and local changes
in legislation and infrastructure.
Increased competition, margin pressure
and overcapacity in the Nordic region are
also challenges.
Noren: The global investment trends and
need to invest cross border have been
excellent contributors to growth. We
have seen an explosive growth in the
number of remote members in the four
Nordic exchanges, following OMX’s
successful implementation. We are also
continuously seeing variances on how
those memberships are administered,
spurring a growth in triparty
arrangements over the past 18 months.
The Nordic markets have also offered
better returns than comparable European
markets consistently over a period of
several years, further contributing to
growth. Both Finland and Sweden are
heavy on cyclical shares, where
overweighting has been evident lately,
and the Norwegian lists’ dominance of
energy shares has attracted a lot of
additional interest.
For us specifically, we have benefited a
lot from the global trend of regionalising
PANEL DEBATE - NORDIC CUSTODY
providers. In a win/loss relationship of
approximately 7:1, it has helped us in
building considerable market share in
Norway, Finland and Denmark and, at
the same time, defending our very strong
Swedish position.
Challenges are manifold. What will be
the liquidity effects upon a successful
implementation of the MTFs like
Turquoise and Chi-x? Any sub-custodian
working with non-scalable business
models must potentially address
situations with much weaker transaction
revenue levels. Any provider dependent
on revenues from only one sub-custody
market will get into profitability
problems, following margin pressure
earlier than regional providers, as a result
of economies of scale issues. To continue
investing and developing quality services
under current extreme margin pressure
is a challenge. So will addressing issues
following the shift in the European
securities markets, where development
during decades has been market driven
and now is driven by either political or
regulatory forces.
Wennerberg: We have had strong markets,
and listed companies have shown healthy
profits. This has attracted substantial
interest from investors and brokers on a
global basis and we see record volumes
when it comes to transactions in all the
Nordic markets. Also pension funds and
fund companies are growing
substantially and currently, we note that
there is a growing interest in hedge
funds.
It is with regard to servicing the
growing number of hedge funds that I
see the greatest challenges. There is a
growing demand on a great variety of
instruments and more or less exclusive
markets.
Broström: The major drivers continue to
be stock market development, expanding
use of derivatives products, continued
growth in structured products, OTC
derivatives and securities lending. Hedge
fund activity should also be a headliner
on the list of drivers. These products and
services have been growth factors for a
number of years, but the interesting
angle is the innovative ways they’re being
used today and the complexity of the
services associated with them.
The challenges we face in the Nordic
region are most likely similar to the
challenges of custody providers all over
the world. Regulatory changes are
keeping us busy, as is finding more
efficiency in our business models.
Standardisation and increased
automation for new products and services
is always on the agenda.
McDowall: In terms of growth drivers in
the medium term for the Nordic market,
I think a lot is hanging on OMX, Nasdaq
and Dubai. I think that the conclusion of
this will be a driver. An association with
Dubai would be preferable to Nasdaq
because Dubai has greater funding and,
probably, flexibility, in the way that the
funds could be used for development.
Dubai will certainly be looking for the
technology efficiencies that OMX has in
abundance, and it could bring the Middle
East and Scandinavian markets together
very successfully. They also don’t have
the heavy leverage that Nasdaq does. So
it does, to a great extent, depend on the
outcome of the bid for OMX.
How will Target2-Securities (T2S) affect the
Nordic clearing and settlement region?
Hoem: It is very hard at this stage to
predict the impact on the Nordic
countries, as it will not have any
immediate effect. In addition, the Nordic
countries have a very different approach
to the EU. While Finland has adopted the
euro, Norway is not even a member. This
means that T2S will affect the Nordic
countries in different stages and in
different ways. We believe that the Code
of Conduct will prove to affect the
Nordic Market more.
Noren: It is a bit too early to say. What can
be said at this stage is that T2S certainly
is a formidable force for consolidation in
Europe and that is certainly a feature that
SEB is welcoming. Whether or not T2S
is the right answer for Europe remains to
be seen. At this time in the project, we
have a number of concerns. Multi-
currency functionality is of utmost
importance and need to be integrated in
all principles and proposals for T2S.
Support for the end investor account
structure is of vital importance for the
Nordic countries. Lack of functionality
and support for this market model would
lead to a need to maintain duplicate
INVESTOR SERVICES JOURNAL 33
PANEL DEBATE - NORDIC CUSTODY

setups in the end investor markets, thus
increasing costs and making these
markets worse off compared to markets
with omnibus account structures. One
important aspect to take into account in
this context is the need for liquidity and
how this liquidity is provided. The T2S
system should not increase the need for
central bank money for the settlement
activity.
There has to be a level playing field for
all of the markets joining the T2S setup –
a view that has been shared by ECOFIN
and accepted by ECB representatives.
Additional costs due to a local currency or
a different account structure cannot be
accepted.
A high level of harmonisation is
important to achieve the financial
efficiency of T2S and it should not be
jeopardised by local regulatory actions.
Harmonisation of market rules and
regulations is a key factor for the success
of the T2S model. We support only one
set of rules, processes, practices and
deadlines that would be commonly
drafted and agreed by all CSDs and
participants in the T2S.
We support direct access to T2S for the
participants. Compulsory routing
through CSDs would lead to duplication
of the process. Also, matching of
instructions should take place directly in
the T2S lifecycle management and
matching module and any additional
layers or rules for matching in local CSDs
should be avoided. Direct access is
important to ensure minimal delays in
instructing to, and receiving reporting
from, T2S.
We have considerable need for further
clarification of the business case as our
calculations end up at higher numbers,
even before taking decommission costs,
delays and traditional cost excesses into
account.
Wennerberg: NCSD continues to build on
its vision of a Swedish-Finnish
depository, and there has been some
progress. If T2S is implemented, it will
most likely make it more difficult, if not
impossible, for NCSD to build a
consolidated platform for settlement,
since Finland is a euro country that will
be included in T2S and Sweden is not. At
a later time, it might be possible to settle
non-euro currencies in T2S and then
there will be possibilities for SEK and
DKK.
Broström: It’s too early to tell what the
effects will be and exactly how the T2S
will be set up operationally. One big factor
is how many currencies will be covered; if
the Swedish, Danish and Norwegian
krona (SEK, DKK, NOK) are not included
in the project, it will have a somewhat
limited impact on the local non-euro
marketplaces in the Nordic region. We
will have to wait and see.
McDowall: This is very interesting. We
must remember that T2S is confined to
the euro zone, and most of the
Scandinavian countries reside outside of
the euro zone. As yet, I see no indication
that they will be joining it. Obviously, if

The leading provider of Custody and Clearing Services in Norway

DnB NOR your Nordic Partner

Offering: Commitment, Knowledge, Experience and Excellent Service

For further information please contact:
Head of Securities Services - Jan B. Penne: jan.penne@dnbnor.no
Global Relations and Support - Bente Hoem: bente.hoem@dnbnor.no
e-mail: custody@dnbnor.no • www.dnbnor.no/custody
Nordic Custody & Clearing Alliance: Swedbank, Sweden – Amagerbanken, Denmark – OKOBank, Finland

the Scandinavian securities were traded in
euros, it would give a slightly different
complexion to the issue. T2S is five or six
years away. That is if it runs to time and
gets the funding and approval that is
required by the relevant ECOFIN
ministers and national central banks. It
also needs to be successful and get the buy
in, not only from the European central
bank, but the major international banks,
which may participate in the project in an
advisory or investor role. This could
perhaps erode or dilute some of the
competitive elements that the Nordic
custody market currently has. At this
stage, I am slightly sceptical about T2S –
its scope and the point at which it is going
to be implemented. So yes, it could be a
problem, but it is a way off – perhaps
seven years.
How have consolidations or alliances affected
your respective businesses?
Hoem: Consolidation has mainly been on
the trading infrastructure and this has
had a positive effect on volumes,
investment and interest in the Nordic
region. Whether consolidation and
alliances happen or not, in the long run,
the best way to position yourself to
compete successfully, is to have an
efficient organisation and flexible systems
that can easily adapt to changes and new
products. It is naturally very important to
deliver a premier service at all levels.
Wennerberg: We have a strategic
partnership with Northern Trust, which
is very successful. Our combined offering
consists of the best of both worlds – the
connections and local market presence of
Handelsbanken and the strengths of
Northern Trust’s global custody product.
This strategic relationship has led to
innovations on both sides. We have, for
example, developed a very sophisticated
trustee service, which is outstanding in
the marketplace.
Broström: Recently, they have affected us
very positively, since one of our major
clients acquired a large asset management
company, which brought a very attractive
portfolio under our custody. This type of
transaction will continue, which basically
means a ‘win a few, lose a few’ situation for
the custody providers in the region.
There is much more consolidation
PANEL DEBATE - NORDIC CUSTODY
ahead of us in this market across all areas
of the securities infrastructure. Along the
same lines, we will probably see an
increase in outsourcing deals in the
domestic marketplaces, as well as cross
border.
McDowall: If we see more banking
consolidation, it clearly affects the custody
business. If it’s between Nordic banks, it
probably strengthens the position. If a
Nordic bank is acquired by, let’s say a
European or American bank, then,
candidly, the issue is whether custody is
one of their core services or not.
How well are Nordic custodians competing
with their global counterparts who have
entered the local markets?
Hoem: As long as the market is very
fragmented with different infrastructures
The global custodians’ previous lead in technology and
systems has decreased significantly in the last few years
and very different laws and regulations, I
do believe that the Nordic custodians
have advantages vis a vis their global
counterparts, except for the plain vanilla
settlement and clearing. The Nordic
markets are still quite small compared to
the rest of Europe. It is fair to say that
the global counterparts have as yet, not
acquired a strong foothold in the Nordic
countries. In the future however,
increased harmonisation in all aspects of
the markets will lead to easier access for
non-Nordic participants.
Noren: For sub-custody, Nordic custodians
are standing up very well and there are
no recorded successes by any global
competitor in that field. In global custody,
global counterparts have been very
successful in the tier one client segment
where Nordic custodians have a much
weaker position. In all other client
segments, it looks like Nordic custodians
are standing up well and the local market
position, understanding of, and assistance
with local regulatory and tax issues and
language should not be underestimated.
Wennerberg: For us this has meant an
opportunity to develop, with Northern
Trust, a competitive range of products
and services that have so far been very
successful.
Having said that, some of the major
mandates in the region prefer a local bank
to provide global custody, and we
recently won a EUR10 billion mandate in
Finland.
Broström: The global custodians’ previous
lead in technology and systems has
decreased significantly in the last few
years, when local providers have invested
in technology and new product offerings.
The local banks’ flexibility, knowledge
and presence are arguably more
interesting for the growing number of
niche players and many times smaller
start-up hedge funds and other more
‘exotic’ mandates. Smaller fund managers
do not have resources, technology or
critical mass to be interesting to the
larger foreign custodians.
McDowall: I think they still compete well. I
think the overseas banks, which have
entered that market, are actually just
extending their reach into Scandinavia on
behalf of their existing customers,
rather than actually competing.
How have custody fees fared over the last few
years and do you see these greatly changing
in the foreseeable future?
Hoem: Substantial increases in
competition, the willingness to buy into
new markets and the increased
efficiencies derived thereof have
contributed to cutting fees substantially
in the Nordic markets. However, the
CSDs have not followed the trend to the
same extent. In addition, we believe that
there has been a general shift in clients'
focus from quality to cost saving.
INVESTOR SERVICES JOURNAL 35
PANEL DEBATE - NORDIC CUSTODY
Noren: Custody fees have gone down,
down and down, and we see no shift in
this trend. We believe that increased
transparency and unbundling of fees and
services will be a natural effect if this
trend continues to remain strong.
It is very difficult to predict how a merger between these
two organisations will affect the Nordic market
Wennerberg: There is continuous pressure
on the fees and we think that this will
continue as volumes continue to grow.
We also see a trend towards unbundling
of fees, showing greater transparency on
what generates the cost for the client.
Broström: There has been pressure on fees,
both on transaction-based costs and fixed
costs. However, increased investments in
operational efficiency, resulting in higher
levels of STP, combined with larger
business volumes and value of
underlying assets, have offset this
pressure. Going forward, I feel that less
and less of custodian revenues will come
from the traditional transaction and
safekeeping fees, and instead will be
derived from other services that
accompany asset servicing. We already
see this trend; in that custodians are
widely offering services such as risk
management and reporting, compliance,
performance measurement and fund
management services.
McDowall: Custody fees haven’t come
down that much per se over the last few
years, although specific institutions,
through bundling services, may have seen
a reduction, relative to the volumes that
they put through their custodian banks.
The other point to mention is that if
there is more unbundling of clearing and
settlement services, one wonders
whether that will ripple on to the
custodian business as well and produce
more unbundled price services. That may
give people the opportunity to do strict
price comparisons, but, at the end of the
day, these fees tend to be delivered as part
of an overall package, rather than as
individual elements. It really depends on
competition, and more importantly,
competition within the region, rather
than from competitors from outside the
region.
On 25 May 2007, the board of directors of
Nasdaq and OMX announced that they have
entered into an agreement to combine the two
companies. How do you see this affecting the
Nordic market?
Hoem: It is very difficult to predict how a
merger between these two organisations
will affect the Nordic market and more
specifically, the Norwegian market. This
is due to the fact that Norway will not be
part of the merger as they are not within
the OMX group.
Noren: First it must actually happen.
There are several pros and a few cons on
this particular deal. It would indeed
create a leading global securities
exchange. It will become a very strong
provider of exchange technology and
issuers will strengthen their visibility.
The OMX and Nasdaq deal highlights
strategic opportunities (on which we
agree) and significant synergy effects
(that we have difficulties in seeing). As
the exact shape of the integration, to a
great extent, remains unknown, some
possible cons that might remain relate
mainly to the risk of the Nordic markets
becoming too Americanised. Most
worries in this respect are tied to the fact
that the US is overregulated to an extent,
and neither issuers nor exchanges see
true growth potential and seek listing
elsewhere (issuers) or expansion outside
of the US regulatory borders
(exchanges).
Wennerberg: We do not see any clear
benefits with this transaction. There are
no signs that this transaction will lead to
reduced transaction costs in the markets,
and there is also a concern that Nasdaq
will implement US rules in the OMX
markets. This will, of course, mean a
challenge for the local banks to adapt to
such regulation.
Broström: There is a lot of uncertainty
around that merger, so I’m afraid it’s too
early to see the effects of the transaction.
It certainly will be interesting to follow
the development.
McDowall: I think that because of Dubai it
is not a question that needs to be
answered within this narrow context, as
it looks as if it is going to become more
competitive.
Is it likely we will see one consolidated CSD
serving the entire Nordic region?

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
Is your custodian
focused on you?
We are.
Swedbank Markets
Custody & Banking Service - Stockholm, Sweden

Neal Meacham Carl-Magnus Broström

tel + 46 8 5859 3491 tel + 46 8 5859 3627
neal.meacham@swedbank.se carl-magnus.brostrom@swedbank.se

Part of Nordic Custody Alliance: Swedbank, DnB NOR, OKO Bank, Amagerbanken
 PANEL DEBATE - NORDIC CUSTODY

Hoem: Consolidation of the CSDs has
been and still remains a challenge. The
NCSD, which was between two countries
only, has experienced difficulties reaching
agreements and has not made much
progress since merging. I believe that the
NCSD, the Danish and the Norwegian
CSD are more likely to wait and see what
will happen, in respect of T2S and other
European initiatives.
Noren: From being a very optimistic
organisation when it comes to the
chances of Nordic consolidation on the
CSD side, we have now turned into
realistic negativists on this topic. It
certainly would have been a necessity,
and still is, as it would have provided
Europe with an alternative, representing
market driven and risk free consolidation.
Now we stand in front of two or maybe
three options that from the outset look
less attractive.
This includes a politically driven
Nordea Bank AB (publ)
consolidation that would still have too
many question marks in too many areas,
not least the cost benefit side. Also, it
could be a consolidation with less clear
borders between utility and commercial
sides of the post trade infrastructure. A
standstill situation could occur where
further consolidation is not encouraged
and where infrastructure costs will not
fall as quickly as the market would like
them to. Development would be put on
hold, as stakeholders would be reluctant
to invest in structures that might not
exist within normal investment horizons.
This could have looked very different if
three major factors had not weighted in.
The announcement of the intention to
create T2S arrived in July 2006 and has
influenced willingness to invest in
intermediate consolidated solutions
negatively. The unwillingness of
Denmark and Norway to participate in
NCSD for financial, protectionist and
political reasons has had an impact. It
also includes the missed opportunity of
the OMX Group to include the three
Baltic CSDs in a similar deal as in
Finland and Sweden, and thereby create a
signal effect where five EU countries
operated under one CSD umbrella.
Wennerberg: Even though we would like
to see further consolidation between
depositories in the region, we cannot see
anything pointing in that direction at the
moment. It is a wait and see situation.
Broström: Probably, but not in the
foreseeable future. At this point, the only
possibility for one CSD to serve the
entire Nordic region is if an external
entity moves into the region and opens
shop. Previous ‘internal’ attempts
certainly haven’t gotten very far.
McDowall: I don’t personally think
this will happen. If Dubai and OMX
come together, it could trigger something
like that, but that would be highly
speculative. ■

Spot-on custody services.

Do you need custody services in the Nordic region?
Or are you looking to take advantage of market conditions
in Denmark, Finland, Sweden or Norway individually?
Then it pays to talk to Nordea.
We are the leading financial services group in these
countries and provide you with in-depth knowledge and
custody services in each market as well as the entire region.
We offer comprehensive services and a single point of entry
to the Nordic region through a dedicated relationship
manager supported by a Nordic team of specialists.
If you want to capitalise on our experience, please contact
Ms. Anne-Lise Kristiansen
tel +47 2248 6238
email: anne-lise.kristiansen@nordea.com

Making it possible
ISJ23 pp39-60 Final 24/7/07 2:31 pm Page 39
A case of pick
and mix?
ver the last 10 to 15 years, trading
In a world where
technology can make
O has evolved from a phone intensive
activity to an increasingly electronic,
speed-driven business. This has been driven
by the development of direct market access
all the difference, are and algorithmic trading, demanding new
capabilities and performance levels from the
traditional OMS technology infrastructure of buy side firms.
As a result of these trends, the industry has
systems keeping up been debating whether the buy side's
traditional order management systems
(OMS) are capable of handling the speed and
with the times and high volumes of new trading behaviours
and, consequently, whether execution
how seamlessly are management systems (EMS), which were
built for real-time trading, are going to
they combining with replace them.
However, while the development of
new EMS offerings? electronic trading and the expected increase
in liquidity fragmentation certainly
Fabien Buliard encourages the adoption of high
performance execution solutions, the need
investigates for traditional OMS functionality has not
gone away.
EMS VS OMS
There is even increasing convergence and
overlap between the two types of platforms,
with both OMS and EMS products
expanding their functionality. Some vendors
have gone down the integration road, with
efforts to build comprehensive platforms
encompassing both an OMS and an EMS,
while others advocate a stand alone, best of
breed approach.
According to most experts, there has been
a fair level of confusion around the definition
of both systems in recent years, especially as
the overlap between the two increases.
However, most industry specialists agree
that OMS and EMS initially deal with
different areas of the trading cycle. The
OMS was initially created to replace paper
blotters and automate workflow from the
portfolio manager to the trader, acting as a
central trading hub for many firms. It
gradually expanded its functionality to
include portfolio modelling, risk
management and compliance capabilities.
"Once the fund manager's portfolio and
INVESTOR SERVICES JOURNAL 39
ISJ23 pp39-60 Final 24/7/07 2:31 pm Page 40
EMS VS OMS
orders have reached the execution desk, the
EMS kicks in," says Bertrand Rassat,
managing director at EMS vendor
Flextrade. "It looks at potential market
impact, liquidity and volatility risks, routes
different orders to brokers, performs post-
trade analysis, and generates a number of
benchmarks to see if best execution has been
achieved." He adds that OMS and EMS are
not opposed to each other, but
complementary. "Most of our clients use us
as a layer that comes on top of their internal
OMS layer," he says.
For Eric Goldberg, chief executive of
EMS vendor Portware, the confusion around
the terminology was fuelled in part by
vendors trying to protect their turf. "OMS
vendors have spun the functionality into
something very specific and very basic," he
says. "People have a vested interest in
confusing the client base. OMSs are trying
to keep their desktop presence. But who
cares about the terminology, about whether
you need something called an OMS or an
EMS? You have to list the functionality that
you need and find the system or set of
systems that supports this."
Indeed, the need for sophisticated, real-
time trading functionality varies from firm
to firm, as do the compliance and portfolio
modelling requirements addressed by OMSs.
For the investment strategies of fund
managers taking a long term approach and
trading infrequently, an OMS is likely to be
sufficient. Firms with higher frequency and
more complex trading strategies, however,
tend to require sophisticated execution
management functionality.
"An EMS is only pivotal for those firms
that are trading very actively," says Sang
Lee, managing partner at research firm Aite
Group. "Others will rely on their traditional
OMS, which is more than sufficient."
Several initiatives are looking to offer all in one
platforms, often as a result of corporate mergers
Conversely, not all firms have an equal
need for OMS functionality. For Kyle Zasky,
president of EMS vendor EdgeTrade, the
need for an OMS or an EMS isn't necessarily
correlated to the size of the firm, but to its
specific requirements. "If you think about a
hedge fund, for example, that may not have
many compliance requirements or a large
portfolio, but is very interested in real time,
rapid execution, and sourcing liquidity in a
fragmented environment. Their job is to
create alpha in the trading process," he
40 INVESTOR SERVICES JOURNAL
explains. "The only way to do that is with an
EMS. So, they might forgo the OMS
altogether.”
Meanwhile, the overlap between OMS and
EMS platforms has been increasing in recent
years, with both sides trying to incorporate
one another's functionality to meet client
demand. "We are guided by our clients," says
Flextrade's Rassat. "Today, we have a very
successful EMS, but we realised that, in
order to completely meet client
requirements, we also needed to develop
some OMS functionality. We do not want to
replicate a whole OMS, because there are
certain aspects, like compliance, that are
outside our core business. But we developed
things around the merging of orders or
allocation bulking to improve straight
through processing in our platform, because
we realised that that was how our clients
wanted to use it."
While the two types of platforms are
definitely converging, it remains to be seen
whether that convergence will take the form
of fully integrated products, or a modular
approach with stand alone products
communicating through the FIX protocol.
An advocate of the modular approach,
EdgeTrade's Zasky contends that despite his
company's EMS having some OMS
functionality: "The reality is they serve such
different purposes that it is unlikely that one
or the other can really serve the client as an
all in one solution. I think that has a lot to do
with the architecture and the intent of those
systems to begin with." For him, the solution
lies in communication between the two
systems through FIX to support each other
in their respective roles, which are both
necessary to most firms.
"In an ideal world, everyone wants
simplicity and everything on one screen,"
Zasky says. "However, we have noticed that
the more proactive firms are all seeking best
of breed for whatever tools they are using.
None of the attempted all in one applications
come even close to that. In an environment
where all these tools can play nicely together,
through staging and FIX, for example, you
can get best of breed with a very smooth
workflow and not have to sacrifice certain
functionality just because you want a single
system."
Portware's Goldberg does not believe in
the OMS vendors' ability to create real
integrated EMS functionality. "OMSs are
not made to do this," he says. "We have all
heard the stories about OMSs crashing on
algorithmic trading because they can't
handle the volume of executions coming
back. They were designed to maybe handle a
thousand orders a day, and now they're
getting a thousand a second."
Yet several initiatives are looking to offer
all in one platforms, often as a result of
corporate mergers. This includes the
acquisition of OMS provider Macgregor by
broker and investment technology provider
vendor ITG, and the creation of BNY
Convergex on a similar model by Bank of
New York, OMS vendor Eze Castle Software
and private equity firm GTCR Golder
Rauner.
"We are seeing attempts to get that all in
one solution," Zasky says, "but even if an
OMS provider owns an EMS provider, they
are still two distinct applications that serve
two distinct purposes. Unless they are going
to re-architect everything from scratch, all
they are doing is melding together two
pieces that don't really belong together."
A change in architecture is precisely what
is going on at BNY Convergex, one of the
proponents of an integrated platform, which
sees execution management as a "natural
extension" of OMS platforms.
"The original, legacy architecture OMSs
were designed to do different functions, such
as modelling and real time P&L, while an
EMS was designed to interact with the
market in real time" explains Jeff Shoreman,
chief operating officer of Eze Castle
Software. "What we did to make the
integration happen was re-architect our
systems. It was built on our new service
oriented architecture that will optimise both
the OMS and EMS functionality."
The vendor started rebuilding
components of its systems one piece at a
time 18 months ago. Once the process is
complete, the whole platform will have been
rewritten in C Sharp. At the end of July, the
company will release the latest version of its
OMS, which includes an EMS functionality,
so far limited to global equities, with other
asset classes being added over time.
Meanwhile, rival ITG has been working
on the consolidation of its Triton EMS
product into the Macgregor OMS. "We have
a first release now in the field," says Mark
Wright, ITG's global head of products. "We
view it as a multi-year project, because it
reflects both the integration of the two
products and a big reinvestment in the core
OMS technology, with a major generational
upgrade."
Yet, until the market decides whether it
ISJ23 pp39-60 Final 24/7/07 2:31 pm Page 41
prefers a best of breed approach or an all in
one platform, companies developing the
latter model will need to continue to support
connection to third party EMS and OMS
platforms via FIX, to avoid alienating some
of their users.
"The fact that we are going to have this
functionality does not mean in any way that
we will stop working with third party
providers to the same extent that we do
today," says Tom Gavin, president of Eze
Castle. "While we are going to bring out our
own solution, if a client finds something in
another system that they like to use, we will
still work with everybody. As an OMS
provider, we have to remain a neutral third
party that will allow clients to trade with
whoever they want and use whatever tools
they want to use."
ITG's Wright also insists that his
company remains vendor neutral. "Our
OMS is going to link with multiple EMS
vendors and conversely, our EMS product
will continue to link with other OMS
platform," he says.
Beyond simplicity, there are other
arguments in favour of integrated solutions.
Indeed, the linking of disparate systems can
potentially result in a higher cost of
ownership, while integration via FIX can
potentially result in errors or latency issues.
"There are certain issues inherent to an
OMS/EMS integration via FIX, as it takes a
lot more steps to get the trades done," says
Aite Group's Lee, "thereby increasing the
chances of error, and adding latency in
terms of overall trading activity."
Eze Castle's Gavin insists that, rather than
a best of breed option, clients want to have
"a one system alternative" that will save
them 10 clicks and several seconds. "They
are dealing with multiple seconds being
wasted, staging orders from one platform to
another and lacking certain functionality," he
explains. "An OMS allows you to check
compliance and positions, while an EMS
does not, and having the option of a
seamless workflow is extremely appealing in
today's market."
While he considers it will take some time
for users to adopt as a standard the EMS
capabilities bundled within their OMS,
ITG's Wright says he strongly believes that
the fact of having separate systems "is just a
historical accident." He explains that when
OMSs first surfaced 15 years ago, designed
to bring process automation, the take up of
electronic trading was still limited and
EMSs grew around the specialised needs of
certain firms. "Now, both those functions
have matured and the idea that they would
remain separate simply does not benefit the
There are several possible paths to putting together an
integrated platform, from non-exclusive partnerships to
full on mergers
customer," he continues. "It has just been a
matter of OMS and EMS vendors getting
enough scale and technology to put them
under one roof."
There are several possible paths to putting
together an integrated platform, from non-
exclusive partnerships to full on mergers.
However, Eze Castle's Gavin insists that full
code level integration only really works
within a single entity. Indeed, in 2002, his
company worked on a combined solution
with Goldman Sachs, trying to integrate the
bank's EMS, REDI, with Eze Castle's OMS.
But the initiative proved unsuccessful.
"You really cannot pull this off with two
separate companies," Gavin explains. "You
can create tight relationships with multiple
third parties, but you cannot really achieve
this type of integrated system as separate
companies without having intellectual
property issues. You reach a point where you
are looking at each other across the table,
asking for source code. It has to be a single
system, with a single code, and it has to be
one corporate entity bringing these
applications together."
While no one seems to be denying the
growing convergence between OMS and
EMS functionality, opinions differ as to
whether stand alone products will continue
to exist in the long run, or whether the two
systems will become indistinguishable.
Gavin says that none of the OMS vendors
are assuming that stand alones systems will
go away. "There will always be folks who
don't care as much about the workflow
benefit and prefer to use two separate
systems and have them talk to each other,"
he says. "However, we are assuming there
will be a significant subset of the population
that is looking for and will benefit greatly
from this type of single system solution."
In fact, most stand alone players admit
that single application could eventually
become the norm, but many of them insist
that it will take a long time until they are
really on a par with a best of breed approach
in terms of functionality. "I think there is
going to be more progress each year by both
the OMSs and the EMSs," says EdgeTrade's
Zasky. "Eventually, and I don't envision this
in the next three years, some of the single
application approaches could get to the point
where they are acceptable, but they are really
far from that, right now."
EMS VS OMS
He continues: "It is a huge undertaking to
serve the execution side of the business in a
dynamic changing environment that is all
electronic, with direct access, algorithmic
trading, and a new exchange or dark pool
springing up every two months. It is not
something that can be approached lightly by
the OMS providers just because they want to
get into the execution game."
The fact is that true stand alone products
may become increasingly hard to come by, as
several independent EMS vendors have
already been acquired by brokers or OMS
providers, with more consolidation expected
to take place this year.
"I think independence is key," says
Flextrade's Rassat, "especially in the context
of MiFID, where asset managers should
really invest in broker neutral technology
that will not affect their capacity to
objectively judge the brokers they are going
to use. It is rumoured that many of our
competitors are targets for acquisition. If
some of these stories prove to be true, we
will be able to position ourselves as one of
the last independent technology vendors and
gain market share."
Yet, given the variety of buy side firms
and trading strategies, and despite
widespread adoption of electronic trading, it
seems unlikely that a one size fits all solution
will ever surface. Several models should
continue to coexist for the foreseeable future,
but no matter how they are distributed, both
OMS and EMS functionalities will be needed
by a majority of firms, simply because they
serve different purposes.
"OMSs won't go away," says William
Butterfield, analyst at TowerGroup. "One
will not be used to the detriment of the
other. Ten years down the line, you will still
see both OMSs and EMSs. Some players are
trying to merge the functionality, but I'm not
so sure that we will necessarily see it happen
across the industry."
He adds: "As with any technology,
investment managers are really concerned
with getting the functionality that they need.
Is it all going to come from one system?
Probably not. Every firm has different
requirements. They don't all have the same
trading strategies, resources, or
infrastructures. Some firms will employ just
an OMS, or just an EMS, others will employ
both or a multiple of both." ■
INVESTOR SERVICES JOURNAL 41
ISJ23 pp39-60 Final 24/7/07 2:31 pm Page 42

DERIVATIVES PROCESSING

Following its
successful
clean up of
OTC credit
derivatives
back offices,
the Fed has
now turned its
focus on the
Putting your house OTC equity
derivatives

in order space. Virginie

O’Shea reports
42 INVESTOR SERVICES JOURNAL
ISJ23 pp39-60 Final 24/7/07 2:31 pm Page 43
n 15 May 2007, the Federal
O Reserve Bank of New York
released a statement that
welcomed the commitments announced
by 18 major market participants to tackle
the outstanding trade confirmations in
the global equity derivatives market. This
announcement follows on from the
successes achieved by the Fed last year in
The Fed acknowledges that executing industry standard
MCAs and transitioning fully to electronic platforms
requires significant time and resources
the OTC credit derivatives space and
builds on the equity derivatives actions
that were outlined by the major market
participants in November 2006.
Since the November agreement, the 18
market participants have met their
commitments to reduce equity derivative
confirmation backlogs by 25% by 31
January 2007. This included improving
the foundation for automated processing
by increasing the coverage of
standardised master confirmation
agreements (MCAs) and expanding the
use of electronic processing platforms.
However, this is just the beginning of
the process and there remain significant
challenges to automating the equity
derivatives infrastructure. The market
participants – Bank of America, Barclays
Capital, Bear Stearns, BNP Paribas, Citi,
Credit Suisse, Deutsche Bank, Dresdner
Kleinwort, Goldman Sachs, HSBC,
JPMorgan Chase, Lehman Brothers,
Merrill Lynch, Morgan Stanley, Royal
Bank of Scotland, Societe Generale, UBS
and Wachovia – therefore have a way to
go before the Fed is satisfied with the
state of their back offices, as equity
derivatives are still predominantly
processed via paper confirmations due to
the limited adoption of standard trade
documentation and MCAs.
The Fed acknowledges that executing
industry standard MCAs and
transitioning fully to electronic platforms
requires significant time and resources.
But it has drawn attention to the fact that
dealers have not maintained the backlog
reduction levels achieved in January and
indicated that this must be dealt with by
setting further targets in other key areas.
As a result, the Fed has set further
targets to reduce confirmation backlogs
and a target of 31 July 2007 for client
onboarding.
Henry Hunter, chief marketing officer
at derivatives trade data information
network SwapsWire, believes that
important lessons have been learnt from
the process of clearing up credit
derivatives last year. “The buy side were
not heavily consulted in the lead up to the
credit default swap (CDS) initiatives, and
learning from that, there has been a
deliberate effort to engage the buy side in
cracking the equity derivatives problem,”
he explains.
In the area of credit, interest rate and
commodity derivatives, the Fed has also
recently welcomed the industry’s steps to
release OTC derivatives processing trend
charts to the public on a quarterly basis.
This is in addition to the praise the 14
major dealers received for the work done
last year in the credit derivatives markets
to reduce the backlog of outstanding
trade confirmations and the progress
towards achieving a T+5 standard for
confirming vanilla transactions. An
integral part of this process was the
industry adoption of the International
Swaps and Derivatives Association
(ISDA) 2005 Novation protocol.
Julian Day, policy director at ISDA,
comments: “Since the regulators
expressed an interest, the number of
outstanding confirmations has reduced
significantly. It’s worth noting that ISDA
had been working with the industry to
address confirmations since late 2003, but
the first commitment to the regulators
was back in 2005 around credit
derivatives. The world has moved on
since then and the most recent effort
centres on equity derivatives – both
redressing the backlogs of outstanding
items but, probably more interestingly,
committing to levels of automation for
the future. It is a two pronged approach.
If you’ve got a certain amount of
outstanding items, the challenge is to
DERIVATIVES PROCESSING
Promises, promises:
The commitments made by the 18
participants on equity derivatives in the
15 May 2007 letter include:
■ To process: a minimum of 55%
of eligible trades, which are
defined as confirmable events
for index and single name
options and variance swaps in
the US, Europe and Japan,
between major dealers through
electronic platforms during the
months of June, July and
August; a minimum of 70%
during September and
October; and a minimum of
80% from November onwards.
■ Working with ISDA, SIFMA and
MFA on MCAs and to execute
the current published ISDA
MCAs for eligible trades.
■ Working with ISDA, SIFMA and
MFA to prepare a plan that
outlines a broader client
onboarding strategy by 31 July
2007, which will increase
client usage of electronic
derivatives processing
platforms
■ To reduce the equity
derivatives trade confirmations
outstanding over 30 days by
40% as of 30 June 2007 and
by 55% as of 30 September
2007.
■ To provide sufficient
operational, technology and
legal resources to achieve the
goals outlined.
■ Outline plans to achieve
longer term objectives, such
as market standard
confirmation processing
guidelines, by 30 September
2007.
reduce that number on a sustainable basis
but also to introduce automation in such
a way that the backlog doesn’t reoccur.”
The Fed’s recommendations have
already had an impact on the industry. As
Hunter notes: “The number of equity
derivatives trades booked on SwapsWire
has been growing rapidly in recent
INVESTOR SERVICES JOURNAL 43
ISJ23 pp39-60 Final 24/7/07 2:31 pm Page 44
DERIVATIVES PROCESSING
months as dealers look to meet their
commitments around adoption of
automation for equity derivatives.”
Day believes that the 15 May 2007
letter sets out a broad range of very
taxing targets and that one of the main
contributions from ISDA is to focus on
accelerating the publication of MCAs.
The equity market is different to the
credit world in as much as there is a
bigger array of product types and you
have variations across the four main
global regions, he says. ISDA’s principal
role working with the G18 is to negotiate
and publish on a prompt timescale.
Attached to the May 15 letter is a
prioritised list of the next MCAs to be
negotiated and finalised. “Once these are
published and once firms sign up to them,
they can be loaded onto the automated
platforms and then you’re in a position
where you can conduct the confirmation
activity in an automated fashion. It was
always going to be a bigger challenge in
the equity world because it is client-
based, versus credit where it is
predominantly interbank, so you have a
bigger population of participants and
actors in the market to penetrate in terms
of automation. It’s a more complicated
picture and it builds to quite a complex
matrix of variables that you’re trying to
take account of. It will necessarily
therefore be slower but the firms are as
committed to this as they were to credit,”
Day adds.
Gary Wright, CEO of analyst firm
Benchmarking International Systems &
Over the seven years that FpML has been around, it has
proven that it can evolve to keep pace with the
innovations in the financial products being traded
Services (BISS) Research, believes that
ISDA has played a key role in working
with regulators to find solutions and
increase knowledge of derivatives
products in the market. “An XML-based
derivative solution is clearly the
electronic language for a solution most
likely to succeed long term. There needs
to be a faster track to implementing these
solutions that the regulators could assist
in, if they understood technology more,”
he explains.
44 INVESTOR SERVICES JOURNAL
According to Wright, ISDA has
succeeded with Financial products
Markup Language (FpML) because it
fills a void in the industry and it’s easier
to make a dramatic impact where there is
nothing to replace or enhance. He
believes the future development of
FpML is vital, but expects progress to
slow in the short term future, as market
consolidation and take up of FpML is
given more breadth and depth.
“ISDA should focus on progressing
XML-based solutions and creating a
technical directory of products,
proprietors and agents in the market.
This directory should form the basis of
new OTC products in the future and be
part of an industry recognised code of
practice approved by regulators. The
technical directory should fall short of
trying to create a standard OTC as this
would take forever and probably not
succeed as the industry continues to
innovate and create new products,”
Wright explains.
SwapsWire’s Hunter believes that the
main strengths of FpML are the
product definitions, namely the ability to
represent rates, credit and equity
derivative trade structures in electronic
form. Over the seven years that FpML
has been around, it has proven that it
can evolve to keep pace with the
innovations in the financial products
being traded and in the changing legal
documentation mechanisms being
developed by ISDA in conjunction with
market participants, he says.
Karel Engelen, head of FpML at
ISDA, explains how the association is
working for the good of the industry:
“One of the things that we do is to take
different products for different derivative
asset classes and translate all the
products into XML. You take an interest
rate swap and you translate that into an
XML format. Additionally, we look at
different business processes that people
apply, for example, trade confirmation.
We look at the different steps you would
go through, the different messages people
would send to each other. Obviously,
because this market has been a manual
paper-based market for a long time, there
historically wasn’t an awful lot done in
standardisation of these processes. With
the growth in the market and also with
the new technologies that are available,
vanilla OTC products have, over time,
had to standardise.”
Steve Miller, senior product manager
at SmartStream Technologies, believes
that from a technologist’s point of view,
FpML is an extremely complex use of
XML, but then it has to be because the
domain itself is complex. It has moved
from being the de facto standard in
exchanging trade data to standardising
the business processes in which these
messages are used. “I have no doubts
whatsoever that it will prove technically
flexible enough to keep pace with the
level of innovation, but all concerned
must guard against making the process of
adoption too onerous and the cost of
adoption too high,” he warns.
Engelen reckons that the market
reaction to FpML has been positive: “If
you look in the confirmations spaces at
the different providers that you have, like
SwapsWire, DTCC Deriv/SERV and T-
Zero, they all use FpML as the
underlying standard to communicate
trade information. So from that point of
view it has been very successful. We also
have a project ongoing to transport
FpML over SwiftNet and there has been
a lot of interest from the investment
management community and custodians
because they have only recently begun to
look at automation of their derivatives
trades and processes.”
Miller believes that the DTCC has
played a significant part in reducing
outstandings by providing a centralised
confirmation matching function, in the
form of Deriv/SERV. However, he feels
that its major value going forward is
likely to be the Trade Information
Warehouse, a database containing a
golden copy record of each credit
derivatives contract that is accessible to
all participants, as confirmation utilities
become more commoditised. SwapsWire
and Swift are already encroaching on this
space, he says.
BISS Research’s Wright agrees that
the DTCC is one of the driving forces
behind the industry’s success so far in
ISJ23 pp39-60 Final 24/7/07 2:31 pm Page 45
this area. “They have had good success in
the markets they serve, but this is still a
small part of the industry global
problem. They could be more open to
working cooperatively internationally
rather than instilling their own solutions
and standards,” he contends.
But it is not just Deriv/SERV that has
had an impact on the area. SwapsWire
Equity derivatives processing is split between SwapsWire
and the DTCC, both of which require a dedicated internal
line and system
launched its OTC equity options
capability in 2005 and its confirmation
service captures deals and allows them to
be verified and confirmed electronically.
The first product supported on
SwapsWire was interest rate swaps
(IRS). Over the last five years, market
volume in IRS has grown massively. The
combination of this market growth and
widespread adoption of SwapsWire by
dealers, inter-dealer brokers, and the buy
side has meant that volumes on network
have been close to doubling each year.
According to SwapsWire’s Hunter, the
volume of trades booked on the network
on one day last week was the same as the
entire volume booked in the first five
months of operation. There are many
who believe that the IRS market would
not have been able to sustain this pace of
growth without SwapsWire, which is
now a core component of the swap
market infrastructure, he adds.
Equity derivatives processing is
therefore split between SwapsWire and
the DTCC, both of which require a
dedicated internal line and system. Given
that the maintenance of these may be
costly in the long term, will the industry
remain satisfied with supporting two
processors in the long term?
Hunter believes that this is not a
possibility in the near future: “There is no
single processing infrastructure for the
combined underlying markets which
derivatives are based on. One might
argue that the delivery characteristics
and regulation of securities instruments
preclude that possibility, and the same
doesn’t apply to derivatives instruments.
But I think it is not likely that in the
foreseeable future it is realistic to
envisage a single infrastructure for
derivatives across all asset classes. Not
only are there too many moving parts,
but it’s not clear that the marketplace
would like to put all its eggs in one
basket.”
Jerome Thouvenot, back office
manager at Sophis, adds: “The market
has seen the emergence of several
specialist platforms, such as Omgeo, T-
Zero and DTCC, but it is not likely that
they will all consolidate into one single,
global platform. In the current market it
is impossible for there to be one unique
platform as there is no unique desk.
Presently, desks are specialised and
therefore require specific tools for
processing.”
ISDA’s Engelen agrees that there is
room for several players in the
confirmation area, the settlement area
and the pre-trade area. “However, it is
difficult to say how many there will be
and who exactly will be there in five
years’ time,” he continues.
DERIVATIVES PROCESSING
Wright feels that it would be great if
consolidation could happen, but believes
that, realistically, it will not. “There is
too much competition in this market for
any single institution to provide a
central processing capability. You might
find the DTCC has a pivotal position in
the US, but they will struggle
internationally. Such an industry
solution likely needs to be a cooperative
not for profit business and this does not
look like any present entity. More likely
there will be a continuance of
developing agreed international
standards and a wider take up of
existing technology at the buy and sell
side firms, with closer cooperation
between international clearing houses
and other infrastructure providers,” he
says.
Regardless of whether there is a
single processor or a number of them in
the long term, what is clear is that the
regulators are taking the issue of
Sweeping reforms?
outstanding derivatives confirmations
very seriously. This is good news in the
short term for processors and the
numerous niche vendors that have
sprung up in the area. As Engelen notes:
“Increased regulatory scrutiny has
meant that the pace of investment in
technology has accelerated. Financial
institutions are now assigning more of
their budgets to derivatives processing
technology than ever before.”■
INVESTOR SERVICES JOURNAL 45
ISJ23 pp39-60 Final 24/7/07 2:31 pm
OFFSHORE OUTSOURCING
Going global
What are the major drivers of offshore
outsourcing? Andrew Warburton reports
46 INVESTOR SERVICES JOURNAL
Page 46
espite claims to the contrary, a
D recent survey by Deloitte has
shown that offshore outsourcing
is far from dead. In the last year alone,
the industry has made savings of
approximately GBP4.5 billion from
outsourcing business to overseas firms
or setting up offshore subsidiaries. This
is up from GBP2.5 billion the year
before.
The large increase in savings is a
consequence of the ever more eager
attitude towards offshore outsourcing in
the financial services industry. While
some have suggested that the
manufacturing industry’s readiness to
outsource has eclipsed that of the
financial services industry, a study by the
London Business School and the Capco
Institute has shown that offshore
outsourcing – or ‘global sourcing’, as it is
now known – is a well established
practice. In fact, the study shows that
firms that used to deliberate over
outsourcing are adopting ever more
complex strategies, integrating multiple
vendors in many different regions.
“Nearly 25% of the respondents
reported that they already use a
combination of resources, onshore and
offshore, in-house and outsourced,”
explains Dr Phanish Puranam, assistant
professor at the London Business School.
The splitting of vertical business
processes across territories that
specialise in those processes has become
standard economic sense. Not only is it
the most practical way to organise a
business, it is also cheaper. The Deloitte
survey shows that firms that stick to the
simple model of outsourcing one or two
business processes save, on average, 20%
less than those that outsource over five
processes.
Chris Gentle, associate partner,
financial services at Deloitte, comments:
“The industry’s star performers have
successfully deployed aggressive
offshoring strategies, transferring more
than 5% of group headcount offshore
and achieving bottom line savings of
over 40%. In some cases, the savings are
equivalent to 3% of the total cost base.
The best performing institutions
offshore around 12% of group headcount
and, on average, save 55% on each
business process. The companies whose
offshoring programmes are suffering,
offshore less than 5% headcount and
ISJ23 pp39-60 Final 24/7/07 2:31 pm Page 47
typically save 32% per process. The most
efficient offshorers take just 15 months
to migrate each process, compared to
around 25 months for poorer
performers.”
Until recently, the uptake of
offshoring was mainly driven by the
desire to cut expenditure through taking
advantage of labour arbitrage. Whether
this remains the main source of savings
for financial services institutions – or
whether splitting business processes has
This is not to say that labour arbitrage is the only driver of offshore outsourcing. A
number of reasons to outsource one’s business exist side by side with the initial driver
eclipsed it – is still being hotly debated.
Jeremy Smith, director of Z/Yen,
believes that labour arbitrage is the most
crucial advantage to be gained. “I’ve
worked in this business for many, many
years,” he says, “and I’ve seen different
business models – the vertical versus the
horizontal. You don’t get huge savings
by doing that. You might make 10% one
way, 10% another way, but in my view, of
the savings you get from moving to
India, 90% is cost of staff.”
This is not to say that labour arbitrage
is the only driver of offshore
outsourcing. A number of reasons to
outsource one’s business exist side by
side with the initial driver. One is the
availability of staff: it is a fact that a
large number of graduates are available
in both India and China. Second, if a
business process is based around the end
of the European or US business day,
advantages can be gained from situating
a process within a certain time zone. The
final advantage is that institutions can
provide additional services that may not
be possible from a base in the UK or the
US, whether due to lack of funds or staff
availability. Basing a function overseas
can, in this way, mean added value.
The London Business School and
Capco Institute survey supports the
notion that labour arbitrage is being
surpassed by other quality led concerns.
“Other factors,” it states, “are emerging
as important drivers.” Furthermore, it
shows that over 40% of respondents
mentioned quality improvement as a key
objective when deciding to outsource,
while 25% claimed that increased
flexibility was an equal priority.
Guillermo Kopp, executive director of
analyst firm TowerGroup, stresses the
importance of these ulterior motives for
outsourcing: “It used to be labour
arbitrage. Now it’s business process
optimisation that makes for a winning
strategy. It’s all about operational
efficiency. Through best practices, an
offshore provider can fulfil a function
more efficiently, and with better quality,
than an ongoing operation in the UK.
That way, not only do you have attractive
differentials, you have the benefit of
higher quality. It enables the adoption of
best practices and, if you wish, the
highest possible productivity.”
Whatever the main driver of offshore
outsourcing is, these factors have,
together, resulted in an overall increase
of 1,800% in the number of people
employed overseas in the last four years.
Peer Mohamed, chief operating officer of
the software development company
Financial Objects, points out that
productivity has increased
comparatively. “What we have now is
much greater productivity. We can afford
to employ so many more people on the
coding [of products] and, more
importantly, the testing, that we can be
more sure that products produced are
right first time, so that we don’t have to
spend money sorting out bugs after
release. We have 30 to 35 people just
doing testing: we simply couldn’t afford
to do this in the UK,” he says.
For all these reasons, India remains
the outsourcing capital of the world.
With its highly skilled, English speaking
workforce, its strong education system
and low cost natural resources, it rose to
dominance towards the end of the 1990s
and remains there to this day. Although
globalisation has been advancing for
some time, wages in India are still, on
average, five times lower than in the UK.
An American firm that outsources to
OFFSHORE OUTSOURCING
India can expect to reap cost savings of
up to 49%. The fact that the region is
still used so frequently is testament, not
only to the reliability of its resources,
but to the low cost of its workers, whose
average wage of USD685 per annum
compares particularly favourably with
the USD1000 average of Indonesia and
the USD2,700 average of Thailand.
Mike Mathias, director, Banking and
Financial Services Consulting, Tata
Consultancy Services, comments: “The
‘toe in the water’ phase has since evolved.
There is enough factual evidence to
suppose the idea that outsourcing to
India is here to stay. In fact, it is even
snowballing, as market leaders start
gaining competitive advantage through
‘right sourcing’. This is putting pressure
on competitors to follow suit and
survive.”
As for the types of business processes
that are being outsourced, the Deloitte
survey shows that offshoring has marked
many functions within the financial
services industry. Uptake has been
particularly concentrated on back office
processes, however – such as transaction
processing and payments – but its
influence has also been felt in
administrative functions. The splitting of
business processes has mainly occurred
between customer facing processes and
non-customer facing processes, with
those processes that involve limited
customer interaction being outsourced.
Mark Seaman, principal consultant of
Etheios Consulting, explains: “A fund
company might scan in customer
correspondence in the UK, and send the
images offshore for processing, with the
resultant customer confirmations
printed and despatched from the UK.”
The increased industry focus on
compliance and reputational risk has, of
course, had an impact on some
outsourcing agreements, as well as the
influence of regional politics. But it seems
that, for the moment at least, offshore
outsourcing remains alive and well. ■
INVESTOR SERVICES JOURNAL 47
ISJ23 pp39-60 Final 24/7/07 2:31 pm Page 48
CLEARING AND SETTLEMENT
Consolidation
and the code
Pierre Francotte of Euroclear
talks to ISJ about his
European perspective
t’s rare to look at an entire business
I sector and find the same result:
Europe’s financial markets are
booming – everywhere. In fact, our capital
markets are growing faster than the
world’s GDP. The Federation of European
Stock Exchanges (FESE) reported that
during March 2007, the value of equity
trading on European stock exchanges was
close to EUR5,600 billion, a 30% increase
compared to the same period last year. The
equity market capitalisation of FESE
member exchanges reached a record level
of EUR11,800 billion, a 13% increase in
one year. The value of ETF trading in
March 2007 was almost 65% higher than
in March 2006. Similar growth is seen in
our derivatives markets and bond markets.
This growth is obviously to be
welcomed. After all, the growth in trading
volumes means greater liquidity in, and
depth of, our markets. In turn, this means
more efficient markets that benefit all
investors and issuers, as well as a more
efficient allocation of capital and risk.
Securities settlement systems are
responsible for seamlessly processing the
results of all this trading activity, be it
driven by fund managers, hedge funds,
algorithmic black box trading, or retail
investors investing through their broker
or online. As a consequence, Euroclear’s
business has also experienced huge rises in
volumes. The value of securities
transactions that the Euroclear group
settled in 2006 was EUR452 trillion, an
increase of 25% from EUR361 trillion in
2005. And the number of transactions that
we settled increased by 14% to 145 million
in 2006, compared with 127 million in
2005. Euroclear is regularly reviewing the
scalability of its systems and keeps
investing in anticipation of future volume
growth so that clients’ business can be
handled without disruption.
48 INVESTOR SERVICES JOURNAL
Competition &
consolidation
‘Competition’ and ‘cons-
olidation’ may seem contradictory
themes to pair together; but
actually they are natural
corollaries. The growth in
trading and the opening up of
competition across financial
markets globally has led to
increasing competition for all
market participants – competition
that is both national and global,
thanks to the liberalising effects of
technology.
Increased competition has put pressure
on margins, often prompting the
outsourcing of non-core services to
external providers. Pressure is also applied
to the traditional value chain of financial
markets. In particular, fund managers are
enjoying increasing bargaining power over
other securities intermediaries and are
achieving more direct control of their
trading activities, driving a transformation
of the traditional business model of
broker-dealers and exchanges.
Such competition leads to inevitable
consolidation, as witnessed across the
globe’s financial markets. For instance, 25
of the largest banks in the world now
account for 40% of the industry (up from
25% a decade ago) and they all seem to be
making record profits. Stock exchanges
are also merging, for example the NYSE
and Euronext, Deutsche Börse and the
International Securities Exchange (ISE),
and invariably more deals lie ahead.
Central counterparties (CCPs) and central
securities depositories (CSDs) are also
acutely aware of the economies of scale
and scope of their businesses. Just look at
the merger of LCH and Clearnet, and the
mergers within Euroclear of the CSDs of
Belgium, France, Ireland, the Netherlands
and the UK with the international debt
and equity business of Euroclear Bank.
Euroclear’s aim is to create a single
settlement platform across five European
markets by 2010. This will lead to cross
border settlement that is as cheap and
efficient as domestic settlement – a true
domestic market for Europe. The five
capital markets served by the Euroclear
group stand to save around EUR300
million per year thanks to this
consolidation of technical platforms and
harmonisation of processing practices on
the single platform. And if this single
platform was applied to the whole of
Europe, the savings would grow to
EUR700 million per year, if not more.
Euroclear’s consolidation and
harmonisation initiatives are designed to
deliver more efficient and lower cost
services to investors and issuers. And it is
occurring against a background of
increased competition in Europe, helped in
part by our regulators.
A prudent approach
Commissioner Charlie McCreevy,
speaking in March, commented: “The
world today is interconnected, wired up
with frisky capital.” Capital is indeed more
mobile now than at any time before, and
that means regulators and policy makers
need to tread carefully. The Commissioner
further noted: “Markets need a balance
between a regulatory framework that
guides peoples’ actions and the economic
freedom that allows them to innovate,
experiment and take risk.”
Recent indications from the SEC seem to
indicate that they too have realised that the
US may need to adapt and change their
regulatory perspectives in order to keep
the US markets competitive. They appear
to be listening to the markets, particularly
regarding some of the more onerous
provisions of the Sarbanes-Oxley regime.
And it is interesting to note the similarities
between the recent Regulation National
Market System (Reg NMS) regulations in
the US and the Markets in Financial
Instruments Directive (MiFID) in Europe.
They are similar with almost identical
implementation dates, although the pre-
existing market situation differed
significantly. Some level of competition for
trading had already allowed alternative
trading platforms to thrive in the US.
MiFID actually goes one step further than
Reg NMS by requiring pre-trade
transparency for alternative trading
venues and by defining best execution not
only in terms of price, but also cost, speed
and likelihood of settlement.
The ‘better regulation’ agenda adopted
by Commissioner McCreevy is the right
approach for Europe. The Financial
Services Action Plan (FSAP) was a
mammoth legislative initiative, which the
market is still digesting. Our policy makers
should focus on ensuring that the FSAP is
implemented effectively, fairly and
consistently across Europe without
unnecessary ‘gold plating’ by domestic
regulators. Any new legislative initiatives
must be carefully reviewed to ensure that
ISJ23 pp39-60 Final 24/7/07 2:31 pm Page 49
an objective assessment is made of
whether a legislative or non-legislative
approach is the best way of delivering the
required change. The commission seems
to be doing just this; no new regulation
has been proposed for hedge funds or for
credit rating agencies and the proposed
company law framework reforms have
been simplified. Furthermore,
commissioner McCreevy recently said
that he would not seek to require
reporting of bond trades, as no market
failure has been identified.
Most noteworthy for the European
securities industry as a whole is the
market led code of conduct for clearing
and settlement, which is currently being
implemented. If successful, it will lead to
benefits and cost reductions across the
industry far quicker than any directive
could ever have achieved.
Recognising the challenge, and the
opportunity, that the code presents to our
industry, we must be pragmatic and
focused. Meeting the aggressive deadlines
and the need for all stock exchanges, CCPs
and CSDs to agree on, and implement, the
code’s provisions consistently will be a
formidable and complex task, but it is
achievable.
It is encouraging that the industry is
rising to this challenge, not least because
we realise that if we do not, the threat of
a detailed intrusive directive hangs over
us.
The first part of the code (requiring
price transparency) has already been
largely implemented. Euroclear, as part of
the settlement market infrastructure, is
working to deliver greater comparability
of pricing to enable users to understand
and compare exactly what they are paying
to different providers across Europe.
Furthermore, action is advancing on
delivering a meaningful protocol to deliver
access and interoperability between the
three layers of the value chain (stock
exchanges, CCPs and securities settlement
systems) by the end of June 2007. So far,
the most progress has been achieved at
settlement level. And lastly, the industry is
starting to consider how best to deliver
unbundled services and accounting
segregation, as laid down by the code, by
the end of this year.
What the code demonstrates is that
‘better regulation’ does not have to mean
new laws. It can mean flexibility,
proportionality and self regulation.
In a sense, the code does for the clearing
and settlement industry what MiFID will
do for investment firms and stock
exchanges. It will open up competition
between clearing and settlement providers
and drive down prices of cross border,
post-trade
services. The provisions on access and
interoperability in the code will (once
implemented) deliver the framework that
will support those articles in MiFID (34,
35 and 46) that allow investment firms,
MTFs and stock exchanges to choose
their clearing and settlement location. The
two are complementary initiatives, and are
vital to the delivery of an integrated
European capital market.
Drivers of post-trade
reform
Driven by a combination of pension
under-funding and the rise in algorithmic
trading, exchanges are compelled to invest
in technology to deliver greater speed and
trading capacity. In turn, this has a knock
on effect on the post-trade industry that
also needs to be able to manage growing
volumes. As transaction volumes increase,
traders are becoming increasingly keen to
see this growth drive their profit margins,
which in turn helps to explain the
considerable pressure that broker-dealers
are putting on stock exchange fees. We
recognise this pressure at the post-trading
level as well; for example, in 2005 and
2006, the Euroclear group responded by
delivering more than EUR90 m in rebates
and EUR68 m tariff cuts to its clients.
Today, the market finds itself in the
midst of fundamental reorganisation.
Trading activity is being redefined as
exchanges face not only increasing
competition from rival international
exchanges for their blue chip stocks, but
also domestic competition for domestic
business through MiFID in Europe and
Reg NMS in the US.
There is no crystal ball as to how
Europe’s markets will react to MiFID. In
fact, it raises more questions than it
provides answers. Should investment
firms compete directly with exchanges
and look to internalise more trading
activity? Should firms create their own
MTFs like Project Turquoise? Or should
they become users of a new breed of
commercial MTFs like Equiduct or Chi-x?
One fact is undisputed: MiFID gives
users a range of strategic options and
opens up competition at trading level.
Stock exchanges, particularly those with
CLEARING AND SETTLEMENT
concentration rules, need to be prepared
for either fragmentation of liquidity or for
sustained downward pressure on pricing.
Or probably both.
But how does this affect settlement
systems? Exchanges are very important
sources of transaction flows, and hence
revenue, for all settlement systems. As the
trading markets become more competitive
and, as liquidity potentially fragments, it is
only those CSDs that can invest to handle
the volume increases and adapt their
services to serve both the consolidation
trends (for example, NYSE Euronext) and
the fragmentation trends (for example,
Project Turquoise) that will be successful.
Settlement systems must be able to serve
multiple trading venues so that the
exchanges and the MTFs can provide
their own customers with the choice of
clearing and settlement location in line,
not just with MiFID, but also with
customer demand.
Will combinations like NYSE Euronext
lead to post-trade transatlantic
consolidation? This is probably unlikely in
the near term. The NYSE Euronext
merger is a specific case, with distinct
listing venues, trading platforms and
regulatory environments, all very
different from previous consolidation
trends, which aimed to deliver a single
trading platform and a single rule book,
such as the Euronext markets.
Furthermore, exchange consolidation was
a significant factor in the mergers of the
Belgian, Dutch and French settlement
systems within Euroclear, and the delivery
of a single settlement solution for these
three Euronext securities markets is
scheduled for mid-2008. The implications
at post-trading level may not necessarily
be ‘consolidation’ but rather increased
‘cooperation’ between DTCC and the
Euroclear group to support NYSE
Euronext, particularly in settling dual
listed securities.
To a great extent, consolidation and/or
fragmentation of the trading landscape
does not matter much from a post-trading
perspective. What matters is that post-
trading providers can handle whatever the
front office serves up. Choice and open
access is vital, allowing natural
competition to deliver what we all want:
service providers that offer the best value
at the best price. Unless we have both, the
cost of cross border trading, clearing and
settlement will never fall to the levels that
we can, and should, expect. ■
INVESTOR SERVICES JOURNAL 49
ISJ23 pp39-60 Final 24/7/07 2:31 pm Page 50

SIBOS 2007

Sibos @ F
rom its humble beginnings in 1630
– when Puritan colonists from
England founded the city on the
Shawnut Peninsula – Boston has risen to
giddy heights. However, its zenith may be
the Boston Massacre, the Boston Tea
Party and the Battles of Lexington,
Concord and Bunker Hill.
It may also be worthwhile noting that
in 1838 the Boston and West Worcester

Boston due to arrive in October, when the

networking extravaganza that is Sibos
will be taking place at the Boston
Convention and Exhibition Centre. This
Railroad became the first railway to
charge commuter fares – perhaps the first
regional case of ‘added value’?

2007 year, the theme is ‘gaining momentum’,

the aim of which is presumably to
evaluate how far the industry has
travelled since the last Sibos in Sydney.
Delegates will hail mainly from Europe
As Boston, and New York I suspect, which will be
pleasing for those less enamoured of the
Massachusetts, prospect of a marathon plane flight.
This will be the first Sibos in a city
prepares for the famed for its ‘firsts’. In 1635, the Boston
Latin School became America’s first
2007 Swift public school. In the following year,
Harvard became its first college. Boston
International also built the first underground system in
the US, the first post office, the first
Banking public library, the first newspaper and the
Operations first lighthouse. On top of this, many
delegates will be fascinated to know that
Conference - the sewing machine was invented in
Boston in 1845.
Sibos, ISJ profiles The city that pioneers education,
infrastructure and automated knitting
the host city will be well suited to host the annual
Sibos knees-up. History may even fuel
some financial conflicts at the conference,
this, after all, is the city that witnessed
To do
If you get a few spare hours from your
busy schedule of meeting and
greeting, one activity that comes highly
recommended from personal
experience is the Boston Harbour
whale watch cruise. A trip up the New
England coastline provided me with a
wonderful sight of a humpback whale
swimming beneath the bow of the
boat. This could provide you with a
welcome, camera friendly interlude to
the plethora of inebriated colleagues
you’ll be photographing in the
evenings.
Getting there
The General Edward Lawrence Logan
International Airport, one of the 20
busiest airports in the US, serves the
Boston area. Coaches will be provided
from the airport to the official Sibos
hotels on the 29 and 30 September and on
the morning of 1 October.
See you there!

Anyone for a tea party?

50 INVESTOR SERVICES JOURNAL

ISJ23 pp39-60 Final 24/7/07 2:31 pm Page 51
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
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
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
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 51
ISJ23 pp39-60 Final 24/7/07 2:32 pm Page 52
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
52 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
ISJ23 pp39-60 Final 24/7/07 2:32 pm Page 53
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 53
ISJ23 pp39-60 Final 24/7/07 2:32 pm Page 54
US PAYMENTS
The US payments system has been
Work in experiencing a legislative and structural
revamp over the last year or so. Virginie O’Shea
progress
he domestic payments market in the US has been
T experiencing a year of significant change, not least of
which is the introduction of a new standard entry class
for electronic cheque conversion, dubbed back office conversion
(BOC). The US has long suffered under the burden of paper
processing due to the consumer predilection for payment by
cheque. It has only been recent work by the US electronic
payment association Nacha to encourage movement from paper
processing to automated clearing house (ACH) processing that
has made any significant progress in reducing the paper
mountain.
The BOC initiative was launched in March 2007 and enables
the conversion of cheques into ACH debits at the point of sale
(POS) and over the counter remittance. US consumers are
estimated to write several billion cheques at the POS each year,
which then typically take two to seven days to clear through
traditional paper processing networks. According to the
association, the banking industry has the potential to save
approximately USD320 million over the first five years of BOC
adoption.
BOC is being touted as an alternative to Nacha’s point of
purchase (POP) standard entry class, which was launched in
September 2000 but failed to revolutionise the ACH
environment. The reason for its lack of significant take up
could be that POP requires merchants to invest in technology
to scan, capture and convert cheques at each checkout lane.
Furthermore, in the process of capturing and converting the
cheque data, the item is voided and an authorisation slip is
issued for the consumer to sign, which involves having to
explain this requirement to customers. This therefore has the
54 INVESTOR SERVICES JOURNAL
provides the details
potential to create queues and a certain amount of customer
dissatisfaction, whereas BOC’s customer process is exactly the
same as writing a cheque.
Michael Bellacosa, vice president, Global Payments Product
Management at Bank of New York, believes that BOC is part of
a wider step forward for the market. “Moving 11,000 banks and
300 million people toward e-payments is a significant challenge
for the US. The first step, underway, is eliminating paper
clearing between banks. As the incentive for using cheques, in
the form of float decreases, new opportunities for e-payments
should begin to increase,” he explains.
Roy DeCicco, senior vice president, JPMorgan Treasury
Services, is a proponent of Nacha’s progress thus far in this
area. “The results speak for themselves – the STP rates in the
US ACH payments market are outstanding. Nacha plays a
central role in establishing the standards and rules for the ACH
processing infrastructure in the US. The decisioning model
employed by Nacha is open and inclusive. All key stakeholders
have a voice and the standards and rules proposals are fully
vetted before decisions are finalised,” he says.
Nacha has an ongoing process to review formats to meet
changing market needs, says Geoffroy Deschrevel, head of the
Payments Market at Swift. Through its councils, specific needs
such as a global payment format or reference data are reviewed
and studied. But despite this hard work by Nacha, it will be a
challenge to finally toll the death knell for the cheque.
Jacob Jegher, senior analyst at Celent, explains: “The
stickiness of the cheque in the US is striking. Most developed
countries have achieved nearly 100% e-payments usage rates
over the past decade, but use of e-payments in the US has just
ISJ23 pp39-60 Final 24/7/07 2:32 pm Page 55
hit 60% of total non-cash payments. The
adoption that has occurred over the past
15 years has primarily been driven by
financial institutions promoting card
payments and direct debit/deposit ACH.
Given the US e-payment adoption
trajectory, e-payments should gain three
to five percentage points annually. The
last 20 percentage points will be the
toughest to realise and will require
weaning small businesses off the cheque
and on to ACH.”
However, it is not just Nacha that is
working to modernise the US domestic
payments market. In 2006, the Federal
Reserve Banks and the Clearing House
Payments Company conducted research
that concluded that the two US dollar
wire transfer systems were in need of an
upgrade. Fedwire and CHIPS needed to
be enhanced in order to be viable options
for the migration of some business to
business cheques to wire transfer
payments.
The main problem highlighted by the
research is the format of the current
limited and unstructured remittance
information fields, which mean that it
would effectively be impossible to
automate the receipt of a wire transfer.
Deschrevel explains: “Large US
corporates want additional reference
information to be included along with
the large value payment instructions to
facilitate invoice reconciliation.
Corporates are also asking for uniform
payment initiation standards. Existing
Fedwire and CHIPS payment formats
have limited fields for reference
information.”
The process has been somewhat
delayed by the fact that no technical
format has been chosen, as ISO 20022
and STP 820 are still being evaluated.
ISO 20022 is becoming the global
standard in technical formatting, but
STP 820 has been proposed as a US
standard. An ongoing evaluation is
therefore weighing the benefits and
drawbacks of each option. Both
organisations are also in the process of
upgrading their existing proprietary
networks from older technology to IP-
based technology.
JPMorgan’s DeCicco adds: “If STP
820 becomes the preferred choice, it will
be because it can be implemented more
quickly and adopted more broadly in the
US. And yes, the US will align with
European ISO 20022 standards. Any
development with the STP 820 will be
done in a way that is compatible with
ISO 20022 standards.”
DeCicco believes that an upgrade to
the US dollar wire transfer systems that
creates uniform standards with other
market infrastructures has long term
benefits for the industry and is a worthy
objective. But he does not feel that the
process should be rushed: “I think that
the US market will get there in a
timeframe that works best for the wire
transfer system operators and their
participating banks.”
Regardless of which format is chosen
in the end, this upgrade is part of the
driver within the payments system to
more effectively serve corporate
customers and tackle commoditisation in
the market. “Commoditisation means
that we need to deliver products that
provide greater value to our clients. It
makes client service and product quality
the key points of differentiation for
banks. Institutions that successfully
The process has been somewhat delayed by the fact that
no technical format has been chosen, as ISO 20022 and
STP 820 are still being evaluated
differentiate their capabilities will view
any potential commoditisation more as
an opportunity than a threat,” says
DeCicco.
Bellacosa adds: “The US market has
seen substantial price compression for
pure payment processing. Third party
service providers have driven down
pricing, and scale processing like cheque
conversion to ARC have also forced
pricing down as banks have needed to
build volume to offset investment in
these new processes.”
While it is clear that it is becoming
more difficult for banks to differentiate
their services, the large providers are
adding more value added services to
attract and keep corporate customers.
These services are springing up around
the area of data mining or through
packing disparate information into
actionable data. Differentiation is a
question of how to leverage new
technology to meet the business
US PAYMENTS
requirements of end customers. “If US
banks fail to do it, it is highly probable
that newcomers will fill the gap,” warns
Deschrevel.
“We see that a number of banks are
going one step further in the relationship
with their corporate clients. They do not
limit themselves to servicing their
clients anymore. They are helping them
to better manage their relationship with
their own customers and suppliers. This
can take several forms and requires a
stronger business relationship and
trust,” he continues.
Bellacosa is wary that this may still
not be enough to retain customers in the
future: “Scale, price advantage and
tailoring are important to retaining
corporate customer loyalty. However,
even having superior products may not
be sufficient, when other factors such as
extension of credit may influence
customer retention.”
Despite globalisation, DeCicco does
not believe that significant competition
will come from outside of the US
domestic market. It is not easy for non-
domestic players to establish the scale
necessary to be a major competitor in the
US market, he explains. Deschrevel
seconds this notion in the short term:
“The US payments market is still
dominated by the indigenous banks. In
the short term we see no major threat to
that business model. But there is a
number of large non-US financial
institutions that have demonstrated their
ability to innovate and that would be
interested by opportunities in the US
market.”
In short, it seems that the US domestic
is making significant progress towards
ridding the paper from the processing of
payments and better meeting corporates’
needs. However, in a commoditised
market, how long can paper continue to
be processed if volumes of cheques
decline sharply? Moreover, how long can
banks fend off the advances of the new
entrants to the payments market? ■
INVESTOR SERVICES JOURNAL 55
ISJ23 pp39-60 Final 24/7/07 2:32 pm Page 56
SECURITIES LENDING IN ASIA
Natural remedy?
The securities lending market in Asia is on
the mend, explains Brian Bollen
56 INVESTOR SERVICES JOURNAL
t hardly seems a decade ago since a
I virulent strain of financial Asian flu
knocked the living daylights out of
the region’s economies, but it is. The
calendar says so, and the calendar never
lies. But what a difference the passage of
10 years can make, economically,
politically and socially.
The most recent evidence of the
advances back towards ‘normality’ in the
region came in the form of a complete u-
turn by Malaysia on what is regarded as
one of the ultimate totems of a modern
free market. Malaysia banned securities
lending 10 years ago, making it the
scapegoat for its economic troubles.
Today, it has returned to the fold, older,
wiser, and, the world would hope, more
convinced of the underlying arguments
in favour of the practice.
The rehabilitation of securities
lending in Asia has mirrored the
growing up, opening up and the fuller
development of individual economies
that make up the region. Liberalisation is
the watchword everywhere.
“Continued growth, and liberalisation
in the sense of the introduction of
different platforms, are progressing
across Asia,” says Lawrence Komo, Asia
Pacific region head of Securities Finance
at Citigroup in Singapore. “A number of
countries are working hard to make their
markets more user friendly for overseas
investors. Malaysia introduced a
securities lending programme in
January, the Philippines announced one
in February. And we’ve held client
conferences in Singapore, Thailand and
the Philippines, where the president of
the stock exchange, Francis Lim, only
recently authorised short selling.
Malaysia’s provisions are similar to
Korea’s; inevitably, perhaps, in the
beginning it is rigid and proscribed, but
in time we hope it will become more
flexible. As people become more familiar
with securities lending, it should develop
into a more relaxed system. In Manila,
the combination of short selling with the
provisions, announced in February, will
bring a new vitality and depth to the
securities borrowing and lending
market. The market is opening up more,
offering structures that will attract
liquidity, and that is a major positive
move for overseas investors.”
Why is this happening? The general
consensus is that a growing awareness of
ISJ23 pp39-60 Final 24/7/07 2:32 pm Page 57
the benefits that securities borrowing
and lending can bring is a ‘category one’
driver of change. “At the time of the
Asian financial crisis, the markets simply
weren’t deeply enough developed to cope
with the degrees of volatility they
faced,” adds Komo. “Exchanges have
continued to broaden and deepen their
markets in terms of the number of
The increasing size of the Chinese – and to a lesser
degree, the Indian – market, as well as the emergence of
the Japanese market from economic doldrums, lays an
excellent platform for continued securities lending
growth in Asia
players and the activities they undertake,
and securities borrowing and lending
falls into that category. Now the
authorities want to strengthen their
local capital markets and take advantage
of increased global liquidity. Securities
borrowing and lending is a means to an
end to encourage the introduction of
more sophisticated instruments such as
derivatives and futures. Once you accept
that derivatives stabilise a market, you
need short selling and securities
borrowing and lending to enable you to
hedge those instruments and attract
foreign capital.”
He warns readers, however, not to
overplay the impact. “The reality is that
in the early stages, transaction volumes
are relatively small. This is not
unexpected given the lack of depth of
experience of local players, and their
lack of familiarity with the product. We
don’t expect people to jump in with both
feet overnight, as this is an evolutionary
process. But the longer you wait, the
longer it will take. You need to start
somewhere.”
Is the future bright, even rosy? He
believes that it is, that economic growth
and vibrancy will continue to be the
norm across the region, with even the
likes of Vietnam doing well in the
shadows cast by India and China.
Technology will, of course, play a key
role, and developments that have already
been seen in the US, UK and continental
Europe, in terms of liquidity, IT and the
outsourcing of non-core functions, will
be emulated in Asia. “It is all part of the
same wave, creating new opportunities
for banks with ambition to expand their
operations further,” he says. In the
meantime, one should probably add,
securities lending in Asia is dominated
by hedge funds looking to implement
new trading strategies, and by the major
international prime brokers, who service
their requirements. Goldman Sachs,
Morgan Stanley, Merrill Lynch,
Lehmans, Deutsche Bank and UBS
feature regularly as houses that are
active on the prime brokerage front.
Asia is booming, states Trevor Amoils,
head of Securities Lending and FX, Asia
Pacific, RBC Dexia Investor Services.
“Annual rates of growth in the major
east, south and southeast Asian
economies last year ranged from 10.9%
in China to 4.2% in Thailand. No wonder
fund managers based in Europe and
North America are looking not only to
invest in the region, but also to distribute
funds within it. The bull run in
commodities and resources and the
massive private equity appetite for assets
has also resulted in increased M&A
activity. All this activity creates an
excellent environment for traditional
securities lending and equity finance.”
He continues: “A considerable amount
of work has been done with regulators
and exchanges to introduce a securities
lending model that recognises the
requirements of both international
lenders and borrowers. To date, the
major focus when opening new emerging
market lending capabilities has been the
protection of the local market. The
demand for short exposure and the
relative lack of acceptable securities
lending infrastructure in some of the
emerging markets has resulted in a move
away from traditional lending and a rise
in popularity of synthetic products.”
He warns, though, that while the
SECURITIES LENDING IN ASIA
Asian securities lending market looks
lucrative because of high fees and
unexplored arbitrage opportunities that
have become increasingly difficult to find
in mature markets, lenders should
beware of a number of risks. This
includes political, economic, financial,
fiscal, legal, regulatory, rules driven and
procedural risk, and, especially,
infrastructural risk. And while some
markets in Asia still do not allow
securities lending at all, fund managers
can overcome these restrictions by using
swaps on their long positions, and prime
brokers can then sell the long positions
on behalf of the hedge fund to generate
the short position.
Having said that, the increasing size of
the Chinese – and to a lesser degree, the
Indian – market, as well as the
emergence of the Japanese market from
economic doldrums, lays an excellent
platform for continued securities lending
growth in Asia. “It is clear that various
Asian markets for securities lending are
at different stages of their development,”
Amoils continues. “The Australia, Japan,
and Hong Kong markets are more
advanced. They have become more
familiar with securities lending and also
allow short selling. Korea and Taiwan
are following suit, having updated their
legal framework to facilitate securities
lending. The markets in India and the
Philippines are moving toward greater
openness for foreign transactions more
cautiously and in small steps. It is not
clear though whether China will proceed
in the same direction.”
Northern Trust’s Sunil Daswani,
director for Securities Lending, Asia, and
the current chairman of the Pan-Asian
Securities Lending Association, has
remained consistently optimistic about
the prospects for securities lending in the
region. He points to the increase in the
number of corporate actions and other
events in local markets, coupled with
new index and statistical arbitrage
opportunities for securities lending that
continues to create greater demand.
“Asia’s markets are still in a boom cycle,
which is helping to continue to create
great opportunities,” he says. Moreover,
people are lending who didn’t lend
before, and people who actively want to
lend are questioning why they can’t lend
in certain markets.
Markets such as Taiwan, Korea and
INVESTOR SERVICES JOURNAL 57
ISJ23 pp39-60 Final 24/7/07 2:32 pm Page 58
SECURITIES LENDING IN ASIA
the Philippines are gradually moving to
‘developed market’ status in terms of
securities borrowing and lending. We are
seeing, as a result of this, greater
allocation of investment in these
markets than ever before. Securities
borrowing and lending has definitely
been one of the factors to drive this
increase.
But markets shouldn’t try to run
before they can walk, he warns. There is
still a lot of work to do before the
ideological and practical battles can be
regarded as having finally been won.
Markets cannot change overnight.
Industry involvement and participation
in the early days of setting up the right
framework will reap many benefits for
these markets in the long run.
In this environment, technology is the
key to everything, concludes Francesco
Squillacioti, the Tokyo based senior
managing director and regional business
director for State Street’s securities
finance division in the Asia Pacific
market. “It produces transparency, price
discovery, ease of settlement, ease of
loan maintenance, inventory
management, and tools for distribution,
risk modelling and reporting. Regulators
are recognising the benefits of securities
lending — it improves liquidity in their
markets — and are taking steps to
implement systems.”
He continues: “That said, some
markets are, quite naturally, following a
measured and cautious path. There are
supporters and detractors everywhere,
but again, as markets grow and mature,
we tend to see the adoption of some kind
of lending framework. The fact that not
every nation allows for lending, points to
the potential of lending in this region.
There is an abundance of growth
opportunity and indications are that it
will. As institutions around the region
develop to significant sizes and are
allowed to have increased cross border
investment (and participate in securities
lending), we feel the inherent benefits of
securities lending will make it very
compelling for other countries to follow.
We view all of the moves in this
direction as positive and support this
trend. If a lending agent is not
constantly reinvesting in technology
then it will not be here tomorrow.”■
58 INVESTOR SERVICES JOURNAL
Déjà vu or something new?
An industry view from AlasdairHaynes, CEO of ITG International, a specialised agency
brokerage and technology firm, on the mating dances and manoeuvrings taking place in
Asia’s financial markets and exchanges.
I had a flashback the other day. No, not a residual effect of a misspent youth, but a feeling
of having been through this before. The recent announcement that the Tokyo Stock Exchange
(TSE) had bought a significant stake in the Singapore Stock Exchange (SGX) prompted
widespread speculation on M&A activity amongst Asian stock exchanges. This situation has
clear similarities with the European landscape in late 2004 when the news of Deutsche
Borse’s initial bid for the London Stock Exchange (LSE) hit the wires. Sure enough, that was
the trigger point for a wave of deal activity, encompassing both US and European
exchanges, which still rolls on.
In Asia, the players are lining up. Like a school sports lesson, no one wants to be left
getting picked last, and we’re seeing the more developed exchanges boosting their
credentials as global financial centres in terms of attracting listings, adapting regulation
and developing technology. In much the same way as European exchanges used technology
to position themselves as global market leaders to lure US suitors, so we’re seeing
technology development form the backbone of many Asian exchanges’ strategic initiatives.
Indeed, the Asian financial market faces the same pressures as markets elsewhere in the
world. Growing competition from advanced alternative trading venues has put pressure on
exchanges to raise their game and driven consolidation. In addition, the buy side is
becoming increasingly empowered with direct market access tools and algorithms that open
up different sources of liquidity. Stock exchanges, once the unchallenged bastions of each
country’s financial infrastructure, now need to evolve. As pension funds and asset managers
construct diverse global portfolios, investing across multiple regions, so trading is
transcending national and regional borders.
Many comparisons can be drawn between the recent announcements in Asia and the trend
for stock exchange demutualisation and consolidation, which started nearly 10 years ago in
the US and Europe. This has lulled many industry commentators into talking yet again about
Asia as a trend follower in the financial markets – the ‘last cab off the rank’ in a global
wave of trading evolution. Certainly, the financial development challenges that Asia faces
as a region should not be underestimated. Even to talk about Asia as a homogenised region
is a misnomer. Encompassing many countries at different stages of evolution, language,
time zone and regulatory factors alone make it almost impossible to ensure consistency.
Nevertheless, what we are seeing is that technology is the key to uniting these differences.
The significance of this is the speed of change in trading technology across Asia. What has
taken years of development in other markets is now being achieved in Asia in far shorter
timeframes - clever market leaders are customising existing technologies to fit the nuances
of the different countries and market structures. Electronic trading, algorithms and
execution management systems are being made available to domestic investors as well as
those global houses now building businesses in Asia. Likewise, the exchanges are assessing
their options and building strategies to compete in the global race.
The TSE, which was only two years ago experiencing significant issues due to poor
technology infrastructure, is one of the exchanges now aiming to trail blaze for Asia. Clearly,
significant investment is essential, but if that occurs, as these countries are assuring the
world they will, I believe that what we are seeing now in the Asian trading landscape is not
so much a déjà vu continuation of a pattern established in other markets, but more a sea
change that heralds wider impact. True globalisation is not simply the creation of advanced
systems in the US, which are then deployed bit by bit around the world from west to east.
The current activity of Asian stock exchanges is an indicator of bigger things to come. The
speed the trading markets are ‘catching up’ may soon level the global trading playing field,
helping Asia shake off its reputation as an emerging market and become a world leader in
this sector rather than a follower.
ISJ23 pp39-60 Final 24/7/07 2:32 pm Page 59

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ISJ23 pp39-60 Final 24/7/07 2:32 pm Page 60

YIELD PLUS FUNDS

n just a few years, enhanced cash ‘yield

I plus’ investment pools have emerged as a

daily liquidity cash management
complement to money market funds, governed
by the Investment Company Act rule 2a-7.
Yield plus funds are a segment of the larger
enhanced cash sector, which has been roughly
defined as the market space of fund offerings
between Securities and Exchange Commission
(SEC) rule 2a-7 money market funds and short
term bond funds.
These funds, which are also known as ‘cash
plus’ funds, appear to be the most
conservative funds in this sector, seeking to
provide slightly higher returns for investors
than money market funds, while maintaining
a stable net asset value with daily liquidity.
Although the enhanced cash market also
includes other segments, the focus of this
article is on yield plus funds, as they may
present the most appropriate complement to
money market fund investments for securities
lenders and other institutional investors.
The total assets under management (AUM)
in the enhanced cash sector was recently
estimated to be over USD850 billion. Of that,
the yield plus or cash plus market was
estimated through March 2007 to be USD194
billion. By comparison, the total AUM of
money market funds was estimated to be
USD2.5 trillion as of the end of the first
quarter 2007.
Money market funds, first invented in 1970
by Bruce Bent, CEO of The Reserve
(formerly The Reserve Funds), and offered to
the public in 1971, are typically used by
institutional cash management executives to

Best in
maximise returns on their short term cash
pool. In order to be allowed to use the
amortised cost method of securities
valuation, which assists in the maintenance of

show?
Are enhanced cash
a stable NAV (an essential feature of money
market funds), these funds must meet the
credit, maturity and diversification
requirements of rule 2a-7.
‘yield plus’ funds the These include, generally, a prohibition on
acquiring any instrument having a remaining
securities lender’s new maturity of more than 397 calendar days, not
cash management maintaining a dollar weighted average
portfolio maturity of more than 90 days, and
complement to money investing in only ‘eligible securities’. These
market funds? are defined, generally, as a security that has
received a rating in one of the two highest
Frank Bonanno reports short term ratings categories by nationally
recognised statistical ratings organisation, or
is of comparable quality as determined by the
board of the fund or its delegate.
The amortised cost method allows
securities to be valued by reference to their

60 INVESTOR SERVICES JOURNAL

ISJ23 pp39-60 Final 24/7/07 2:32 pm Page 61
acquisition cost, with adjustment for
amortisation of premium or accretion of
discount, rather than their value based on
current market factors. The use of a stable
NAV assists cash managers in simplifying
the evaluation and management of
potential overnight returns on their
investment allocations. It allows them to
focus on the current stated yield or return
Only time will tell if yield plus funds become a true complement to, or perhaps even a
replacement for, money market funds for securities lenders’ and institutional investors’
short term cash management
of a fund, and not be as concerned with a
change in the principal amount of their
investment.
Since 1971, only one fund has broken
that stable USD1.00 NAV and been forced
to liquidate, although a number have
avoided ‘breaking the dollar’ only by an
infusion of capital from their fund
managers. In 1994, Community Bankers
US Government money market fund, a
small fund which invested in risky
derivatives on behalf of the parties that
managed it, liquidated when its NAV fell to
94 cents. The difference to investors was
made up so no one lost principal. There are
also several examples where sponsoring
companies have sustained faltering
MMMFs, primarily by buying or
otherwise supporting troubled fund assets.
Because these occurrences have been so
few and far between, cash managers have
been able to become comfortable that
stability of principal is a fundamental,
though not guaranteed, part of their cash
strategy of overnight investment in
money market funds.
Money market and enhanced cash funds
generally invest in the following securities:
US Treasury securities and direct
obligations, backed by the full faith and
credit of the US Treasury, including short
term (three and six month) Treasury bills
(T bills) and repurchase agreements
collateralised by T bills; US government
agency securities, backed by the moral
obligation of the US government and
including the obligation of agencies such
as the Federal National Mortgage
Association and the Small Business
Administration; short term repurchase
agreements, in which an investor agrees to
purchase securities from the borrower
today and the borrower promises to
repurchase the securities at a specified date
and price; certificates of deposit, which are
short term, actively traded instruments
issued by banks or thrifts; and lastly,
commercial paper, a form of unsecured,
short term corporate debt.
The overall enhanced cash market,
although it may invest in similar securities,
differentiates itself from money market
funds by focusing on relative value among
the various alternative asset classes, using
some or all of the following investment
strategies: more active trading, extending
single issue and weighted average
maturities, allowing for greater price
volatility, and holding more illiquid
securities, with a very few using leverage
as well. Certain enhanced cash funds, but
not yield plus funds, also have increased
credit exposure. Active trading may mean
more frequent selling than money market
funds, which very often buy and hold to
maturity. Certain instruments that may
have greater price volatility may also have
a premium attached because of that
increased volatility. Those types of
investments can include mortgage-backed
or asset-backed securities.
Enhanced cash funds are primarily
composed of private entities structured in
the form of separate accounts, limited
partnerships, and limited liability
companies, and, on rare occasions, may also
be formed as a business trust that is a
publicly registered investment company.
These types of entities may be formed in
the US under the laws of states such as
Delaware and New York, or offshore in
jurisdictions as diverse as Ireland and the
British Virgin Islands.
While yield plus funds do not adhere to
rule 2a-7 and therefore must be careful not
to characterise themselves as ‘money
market’ funds, they do seek to demonstrate
that they offer investment strategies that
are much closer to rule 2a-7 than many
other enhanced cash funds. For instance, in
a manner similar to money market funds,
yield plus funds should also seek a stable
NAV and offer daily liquidity, and therefore
must structure their portfolio investment
strategies appropriately in order to achieve
such goals. This may eventually
differentiate yield plus funds from other
YIELD PLUS FUNDS
funds in the enhanced cash segment, as
they seek to be a potentially higher
yielding investment than money market
funds while offering what they hope is
acceptable incremental increased risk.
While certain enhanced cash investment
pools allow for single instrument
maturities of up to seven years, a yield plus
fund such as the reserve yield plus fund
(the first registered yield plus fund offered
to institutional and retail investors that
also seeks a stable USD1.00 NAV)
currently has a limit of 24 months. This is
much closer to the 13 month limit on most
securities prescribed by the money market
fund rule. The overall enhanced cash
market issue maturity limit appears to be
approximately 38 months, based on the
data available. In addition, many enhanced
cash funds do not offer daily liquidity at all.
Lastly, a yield plus fund would seek to limit
WAM to as close to 90 days or less as
possible (the 2a-7 limit) in order to assist
the fund in maintaining a stable USD1.00
NAV. This is unlike other cash plus pools
that have WAM limits of up to 180 days.
Maintaining a low WAM can help to
manage interest rate risk, NAV stability
and the competitive posture of the fund,
because instruments with longer
maturities may not readjust their
associated interest rate as quickly as the
market does.
Some yield plus funds also seek top tier
credit ratings from respected ratings
agencies in order to further assure
investors. In order to obtain such a rating,
a fund must meet certain requirements,
such as only investing in securities that
receive a certain level of ratings from
credit ratings agencies.
Only time will tell if yield plus funds
become a true complement to, or perhaps
even a replacement for, money market
funds for securities lenders’ and
institutional investors’ short term cash
management. In only a few short years, the
success of these funds has proven that at
least some market participants perceive the
possible added risk is worth the potentially
better return.
Frank Bonanno is vice president of
marketing al t The Reserve
INVESTOR SERVICES JOURNAL 61
ISJ23 pp62-68 Final 24/7/07 2:59 pm Page 62
MIFID
Mutual Mis-understanding?
iFID - everyone has heard of it
M right? Most people in the
financial markets arena are
aware of its key principles, despite being
confused about the details. But what is
perhaps more interesting is the fact that
many think it has little to do with them
or how their businesses work. Some fear
it; others can’t wait for it to start.
For investors, MiFID should drive a
highly competitive European
marketplace, in which choice, efficiency
and transparency are obvious benefits.
But for financial service providers,
MiFID presents a significant number of
challenges in the areas of best execution,
transaction reporting (particularly for
the sell side), record keeping, client
classifications and business conduct.
According to a number of surveys by
financial regulators and IT firms, over
two thirds of the European banks are not
expected to meet the November 2007
MiFID implementation deadline. What is
not yet clear is the impact on non-
compliant firms. Perhaps this will mean
fines from the regulators, or even loss of
market share to MiFID first movers?
While most financial firms recognise
the potential to turn the MiFID
compliance requirements into an
opportunity for wider business process
improvement, the extent of overlap
between MiFID implementations and
other compliance tasks, as well as the
potential to create transferable benefits,
remains hazy.
MiFID presents a fundamental
challenge to all financial service business
models, moving investment services from
a national or country basis to a pan-
European one. There has been a heavy
focus on the technology aspects of the
new market structure, particularly in
areas such as pre- and post-trade
transparency. Much debate has
62 INVESTOR SERVICES JOURNAL
Does the industry really understand
the true implications of MiFID?
Paul Kennedy investigates
surrounded the amount of tick data that
may have to be captured and stored.
However, the real impact will be on the
business models of the firms involved.
Determining the right business model
for any institution will have a tremendous
knock on effect on the technology and
business practices of that institution.
Deciding what constitutes best execution
will influence how much data needs to be
stored to establish if a trade was indeed
executed correctly. Client classification, a
key area to address in terms of the
conduct of business rules, could make life
easier if an institution wanted to only
deal with professional clients rather than
the more extensive requirements of
retail clients.
Only by having a coherent business
plan on how to address MiFID will firms
be able to put in place the required
technologies to support their businesses.
That said, even with MiFID due to start
in November, the final resolution on key
data issues is still unclear and the market
in general will need to resolve these in
order to be ready.
While there will be a wider choice of
trading venues, MiFID’s emphasis on
best execution, pricing transparency and
auditability means financial institutions
will have to choose venues that support
their best execution polices. Will firms
continue to support the national
champions such as the London Stock
Exchange or Deutsche Borse, or will
liquidity and order flow move to new
MTFs such as Equiduct and Chi-x? Or
will the big banks move order flow
internally as systematic internalisers?
Despite the uncertainties surrounding
MiFID, what remain clear are the
challenges posed by the growth of data
for trading purposes and the expansion of
data storage for reporting requirements.
Another is the need for unique identifiers
for counterparties, instruments and
trading venues. A third challenge will be
the ability to pull data from disparate
systems located throughout the
institution, centralise it, consolidate it
and ensure its quality for use across the
organisation. To meet the required
transparency, there will be an increasing
need to link reference data pertaining to
customers or counterparties with
instruments traded and transaction data,
such as positions held.
Counterparty data is another key issue
that continues to focus industry attention
on the need to resolve data quality and
standards. While a number of vendor
offerings have come to market, there is no
clear standard for identifying
institutions. With an ISO for business
identifiers still some time off, a number of
workarounds will be required to support
this style of data. All of these pragmatic
choices and the business practices to
support them will have to be in place by
late summer to allow enough time to test
and bed down systems.
The European investment climate will
be significantly different in three to five
years post-MiFID. The ability to manage
a firm’s client, trade and reference data
using an efficient and pan-European
process that can also be used to support
other compliance requirements will enable
the better prepared firms to take the lead
in what is becoming an increasingly
competitive trading landscape.
In today’s enterprise, the management
of information is recognised not just as a
technology issue, but as a business
priority too. Those firms already well on
the road to putting in place a strategy for
the management of all the data required
to support their MiFID business goals
and objectives, will undoubtedly emerge
as winners in the new investment
landscape. ■
ISJ23 pp62-68 Final 24/7/07 2:59 pm Page 63
Dominating Data
Why reference data
distribution is critical to
successful enterprise data
management
JOHN RANDLES. CEO, POLARLAKE
As data volumes have increased, so has the burden on the
financial markets industry to get the right data to the right
systems at the right time. This has remained a constant, if
increasingly tricky, challenge.
The emergence of enterprise data management (EDM) in
the last few years has led to great strides being made in the
move towards taming the torrent of reference data currently
flooding the industry. The key effort surrounding this has
been on centralisation, in an attempt to capture and
cleanse data before making it available to fund managers.
Typical data management projects spend 44% of their time
on the data acquisition process, 20% on scrubbing and
36% on reference data distribution, according to research
by analyst firm TowerGroup.
The average number of systems within financial markets
firms containing client and counterparty reference data is
44. The average number of systems containing instrument
reference data is 37. So when you achieve a ‘golden copy’
the job is still not done. Getting the reference data to the
fund manager can still be a momentous task.
The scale and number of the systems involved means to
modify each system in order to access reference data is too
big and onerous a task for anyone to take on. The
combination of home group, commercial, unsupported
commercial and obscure systems, means organisations are
often afraid to interfere with them because they work (even
though not to maximum efficiency) and are mission critical.
So, regardless of the investment made in the
centralisation of reference data, the ROI promises of EDM
can only be delivered when the centralised is decentralised
and the myriad of downstream systems benefit from the
golden copy.
ANALYSE THIS - REFERENCE DATA
What have been the key
developments in the
Russian reference data
services over the last few
years?
NIKOLAY EGOROV, DIRECTOR, THE RUSSIAN NATIONAL DEPOSITORY
CENTRE
It’s obvious that all participants must have validated,
accurate data, consistent throughout the whole
infrastructure, as information disparity may cause
transaction breaks. Since Russia has been integrated in the
world market infrastructure, the improvements – followed
by a rise in the quality of the reference data used by financial
institutions (their front, middle and back offices) – are
closely connected with the capital market efficiency, as well
as operational risk and expenditure reduction.
The National Depository Centre (NDC), the biggest Russian
settlement depository, is actively involved in developing
common reference data standards. Thus, in keeping with
the resolution of the ANNA Board of Directors, in 2006,
NDC started to perform the complete range of functions of
the National Numbering Agency for Russia. Nowadays,
NDC allocates ISIN (ISO 6166) codes to Russian securities
and other financial instruments. Instrument identification is
fundamental, but not, in itself, sufficient, as it is unique at an
issue level, but not at an instrument level. NDC also
allocates CFI Codes to securities in accordance with the
ISO10962 standard, supports data description methodology
for Russian securities and provides ISIN and CFI daily data
update to the ANNA database.
Today, Russian issuers should disclose corporate
announcements via information providers such as news
agencies, as well as posting them on their company’s
website. There is no primary information provider in Russia
and corporate information is pretty much decentralised.
Therefore, the third barrier identified in the Giovannini
Report – inefficiencies in corporate action processing – is a
very actual one for the Russian infrastructure. But corporate
actions remain, not only Russia’s, but one of the world’s
most complex, risky and inefficient processes.
INVESTOR SERVICES JOURNAL 63
ISJ23 pp62-68 Final 24/7/07 2:59 pm Page 64

ANALYSE THIS - REFERENCE DATA

An effective framework for straight through processing data
on corporate actions will appear when the Corporate
Information Centre is established on the basis of the CSD.
Nevertheless, NDC has already worked on the barrier
removal by implementing announcement standards. All the
reference data from the issuer and registrar are immediately
verified and reformatted to an electronic form, before being
disclosed in both Russian and English on the NDC’s
website. As for NDC’s clients, certain corporate
announcements are mailed to them directly.
As a conclusion, I should underline that reference data
unification remains a key driver in the global integration
processes for the whole international financial community.
trader may only need a few fields, he or she may need more
depth – the kind of data that drills down, not only to the
issuer, and the issue, but to the exchange level too. The
settlement department may need more breadth, but may
not have the database structure to be able to determine
whether a trade occurred on the LSE or the NYSE, creating
an interesting settlement challenge if the ex-dividend dates
are different.
So, how can we move closer to ‘nirvana’? Often, a trader
will hear of a correction first, and make a change to allow
them to execute with time sensitivity. How that change
finds its way back into corresponding datasets in other
applications, and back to the master databases, while
preserving data integrity, is critical. Recognising the fact
that a piece of data that comes into the organisation needs
to be treated as an asset and tracked (where it goes, how
it is stored, and who can change it), is a vital component
to achieving automation.

Is reference data
automation a case of
Why is reference data
‘nevermind’ or nirvana?
such a hot issue? Because
it’s never been the hot
MICHELE KELSEY, SENIOR VICE PRESIDENT, PRODUCT BUSINESS topic
OWNER, REUTERS DATASCOPE PRICING AND REFERENCE DATA

Most data and technology experts agree that virtually

anything in the data realm can be automated: it’s a LYN MARCRUM, MANAGING DIRECTOR, CAMINO CONSULTING
function of priority, time and investment. There are ways to
work on mapping symbols or dealing with disparate
Fifteen years ago when the industry began recognising STP
databases and so on. Of course, everybody wants to
as an efficiency goal in its own right, a minority said:
automate. So what are the barriers to achieving it?
“That’s all well and good, but what about the basics?” At
Our clients consume and process enormous amounts of
that time, the basics were a reasonably accurate client
data in their normal course of business, including
database, a semblance of an SSI database and a security
identifiers, terms and conditions, data models, corporate
master file primarily for equities.
actions, and of course, pricing data. Organisations often
Ten years ago, when the Global Straight Through
want to take the best of class data from several sources.
Processing Association and other similar initiatives were
This creates mapping and normalising challenges. If you
coming to the forefront as a way to reduce risk, as well as
look at even a few standard data fields across
achieve efficiency, the same minority said: “Great, but what
organisations, more often than not, they don’t match. It
about the basics we need to support it and the rest of our
also creates timing challenges, making it critical to
business initiatives which are growing at an
understand when and how each source updates their data.
unprecedented rate?” However, by this point, the basics
It’s not enough to have the data alone, however. It needs
had grown to include a more extensive client database, a
to live somewhere – in software and platforms. When
solid SSI database and one or more securities master files
providing data to their downstream clients, financial
for equities and fixed income.
institutions seek to build a competitive advantage by
Around eight years ago or so, corporate actions (rightly)
differentiating and bringing reference data out of the
became the hot topic as custodians sought to mitigate
commodity realm. This often introduces proprietary
their risk. The minority grew a little bit larger, but also a
middleware.
little crankier, saying: “Now we really need all those basics,
The data then needs to be brought to life, via applications
including a way to link securities to clients and to track
that fuel the business, whether that is trade, risk
relevant events on the right securities.”
management or settlement. At this stage, legacy
The years since have been a blur of hot topics including
applications and databases often exist to do very specific
outsourcing, derivatives, AML and other regulatory
things and are structured accordingly. For example, while a

64 INVESTOR SERVICES JOURNAL

ISJ23 pp62-68 Final 24/7/07 3:03 pm Page 65
requirements. Nearly all of these hot topics have at their
core the intent of risk reduction and mitigation. However,
the basics are no longer so basic, and include the need to
capture and maintain pricing and other market data and
contract data, as well as all of the above. It is imperative to
maintain accurate client data, securities attributes, market
data, corporate actions information and contract specifics,
as industry players can no longer simply resubmit a trade
for processing when it fails due to the lack of a contract
being set up in the system in a timely manner. This can
take hours or even minutes, these days. The liability and
reputational risk are too great.
Much industry discussion currently centres around
distributed versus centralised versus outsourced reference
data management, primarily looking at the monetary costs
of each. From a risk management perspective, the answer
will be different for every organisation and should be
determined through deliberate thought and analysis,
rather than cutting corners on cost or attempting to fit an
existing, older solution developed for equities onto an ever
changing derivatives initiative. Perhaps reference data’s
day in the sun has arrived.
Is reference data a beauty
or a beast?
RICHARD NEWBURY, HEAD OF PRODUCT SERVICES, TELEKURS
FINANCIAL
Data vendors and solutions providers are often pilloried
either for not providing innovative solutions, or for
proposing solutions that are too complex. But which view
is right?
The answer is the key to understanding why there are
fewer enterprise data management (EDM) projects and
even fewer successful EDM projects than might otherwise
be the case. So what is the answer?
The answer is that both views are right. As beauty is in the
ANALYSE THIS - REFERENCE DATA
eye of the beholder, so is the beauty of a total data
solution. Some find it a beautiful idea, but when faced
with waking up in the morning to a data management
system that does not fill a particular department’s
business need, why should that business head continue
to flirt with a beautiful idea when what is really needed is
a plain old workhorse of an idea – a beast. Other
companies might find that the beautiful idea works
perfectly for them.
What am I waffling on about? Looking from the outside,
the need for an EDM solution is obvious. In any
organisation, outsiders can see many departments
collecting, cleansing and storing the same information
each day as each other. Why not do this only once, but
give access to everyone? It’s a great idea.
From a vendor’s viewpoint, data is now provided on a
licensed basis, so there is no benefit in providing multiple
feeds when one can be provided. But what happens when
you have an EDM project managed from the US that
includes French, German and UK business units and is
implemented in India? Unless it is very well managed, a
lengthy and often messy project ensues.
European business units are unlikely to be able to get any
new business requirements implemented quickly while
what is normally a multi-year project is underway. What
happens is that each business unit will again go away and
begin to source additional data feeds to be implemented
alongside the EDM solution. As most resource is taken up
in the main project however, the data implementation is
sometimes piecemeal.
Naturally, when asked, a data vendor or solution provider
is happy to help any client who needs any additional
solution, as well as working on an EDM project. What this
means is that we do indeed have solutions that are too
complex for the smaller project and, at the same time,
others that are too simple for an EDM project. However,
this range of solutions is one of the strengths that data
vendors and solutions providers play to.
Innovations such as ISO15022, risk solutions, new
counterparty data, implementing MiFID solutions and
responding to other regulations take resources to bring to
life in data solutions. Making sure that solutions are
available for any type of project that clients are running is
the bread and butter of any successful solutions provider.
We are proud to be able to offer solutions that, depending
on your viewpoint, are both innovative and complex, while
also mundane and simple.
ISJ23 pp62-68 Final 24/7/07 3:17 pm Page 66

MANDATES

MANDATES AWARDED TABLE 2007

Month Winner Client Location Assignment Mandate Size
June BNY Bank Sarasin London Custody Services GBP2 million
June BNY Casa4Funds Luxembourg Custody Services n/a
June BNY Everbright Bank China Custody Services n/a
June BNY Allianz Bank Vienna Custody Services n/a
June Northern Trust Gottex London Custody Services USD91 million
June State Street Baron Funds New York Fund Administration USD18 billion
July JPMorgan 5 Pension Funds London Custody Services n/a
July AXA HSBC London Fund Administration n/a
July SocGen KBC Group Madrid Custody/Sec Services EUR2 billion
July Citi Nexum Luxembourg Fund Administration n/a

BANK OF NEW YORK GOES FROM STRENGTH TO STRENGTH

The Bank of New York (BNY) has been appointed by Sarasin Chiswell, the London-based specialist investment management
firm that is 75% owned by Bank Sarasin, to act as global custodian for GBP2 billion of client assets. BNY has also been
appointed by: Casa4Funds to provide Luxembourg depository bank and global custody for its new UCITS III
Luxembourg Sicav; China Everbright Bank as global custodian for its qualified domestic institutional investor business in
China; and Allianz Investment Bank in Vienna to provide global custody services for the Allianz Group's Austrian funds
business.

Northern Trust has been selected to provide custody and fund administration services to the USD91 million Gottex Market
Neutral Trust, a fund of hedge funds. Gottex, a Guernsey registered, closed ended investment company, trades on the
London Stock Exchange. It has a global focus and seeks to achieve its investment objective through investing in
underlying, independently marketed neutral hedge funds. Sue Baines, sales manager, Global Fund Services, Northern
Trust, says: "We're delighted to be working with Gottex Fund Management as we continue to grow our alternative fund
administration business. This is the first listed fund to be established under the recently introduced Guernsey registered
closed ended investment fund regime, which enables regulatory consent to be granted within 72 hours of the application
being submitted."

State Street Corporation has announced that it has been appointed to provide custody, fund accounting and fund
administration services for approximately USD18 billion in assets for the Baron Funds' US mutual funds.

JPMorgan Worldwide Securities Services has announced that it has been awarded mandates for custody and related services by
five UK mid-size pension funds. The pension fund sponsors include ArvinMeritor, House of Fraser, Kingston
Communications, Lend Lease and Pilot's National Pension Fund. Pilot has consolidated its assets under custody with
JPMorgan.

AXA Investment Managers has funded a GBP550 million mandate by the HSBC Bank Pension Trust. The mandate, managed by
AXA IM's sterling fixed income team based in London, will look to outperform a non-gilt benchmark. The consultant
advising HSBC Bank Pension Trust was Watson Wyatt.

Société Générale Securities Services (SGSS) has announced that its Madrid office has been appointed as agent bank by KBC
Group for all its Spanish assets: equities, public and private fixed income products. Previously served by Exel Bank, the
mandate given to SGSS Madrid covers the assets of KBC Bank and KBC Securities, which amount to more than EUR2
billion. This new success reinforces SGSS’s position as an agent bank on the Spanish market, where SGSS offers a wide
range of products: sub-custody, global custody, trustee and fund administration services to resident fund managers and to
international banks, brokers/dealers and financial institutions.

Citi has announced that it has been appointed by Nexum to service its Luxembourg domiciled hedge fund. Citi will act as
fund administrator, transfer agent, and custodian and provide prime brokerage services and compliance monitoring. The
solution is live and all assets have been successfully migrated onto Citi's common funds administration and custody
platform in Luxembourg.

66 INVESTOR SERVICES JOURNAL

ISJ23 pp62-68 Final 24/7/07 3:07 pm Page 68

STATISTICS

Analysis of the key indicators from Hedge Fund Research

“People cannot live by

lending money to one
another.”
John Ruskin (1819-1900)
English art critic

It is a good thing Ruskin kept his day

job and left fund management alone.
Emerging markets seem to be showing
the greatest possibility for a high rate of
return. A recent investment research
report by Morningstar singled out
emerging markets as a positive
investment opportunity with average
returns of around 9.7% in the second
quarter of 2007. Strong energy markets
in Russia and Brazil, combined with the
growth of Chinese funds, helped boost
many emerging market funds.

68 INVESTOR SERVICES JOURNAL

ISJ23 pp69-80 Final 24/7/07
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
4:38 pm Page 69
ISJ Directory of Services
Asset Servicing
GOAL is the widely-acknowledged industry leader in providing creative products,
services and solutions to automate and optimise the global reclamation of withhold-
ing tax and class action compensation. Our research has shown that in excess of
US$6 billion of withholding tax remains unclaimed each year by the rightful owners
and beneficiaries and the amounts for class actions is even larger.
To establish your potential ability to reclaim over-withheld taxes and/or class action
compensation GOAL provides a free proof of concept analysis. We simply require details
of the income entitlement(s) and/or trade details together with the type and domicile of
the underlying beneficiaries. We do not need the name(s) of the beneficiaries.
Our Products include GTRS, Class Actions, GQI, e-Reclaim, GOAL TaxBack, DMS
and Bespoke Software Development.
Consultants
Z/Yen helps organisations make better choices. Our name combines Zen and Yen -
“a philosophical desire to succeed” - in a ratio, recognising that all decisions are
trade-offs. Z/Yen’s mission is to be the foremost risk/reward management firm.
In the financial markets Z/Yen conducts numerous research projects on a variety of
wholesale and retail issues, as well as providing technical strategy, support and
prediction systems. Z/Yen’s renowned annual studies include:
i. Global cost per trade benchmarks on equities, money markets and foreign
exchange;
ii. Operational performance of broker ratings;
iii. Operational performance of client (buy-side) ratings.
Custody & Clearing
BHF-BANK is one of Germany's most prestigious private banks. Its roots date back to the
year 1854. As an advisory, service and sales & trading bank, we offer our discerning clientele
a comprehensive array of customised solutions. BHF-BANK combines the strengths of a pri-
vate bank with a long track record of capital market competence.
Trust, an individual approach and impartiality - these qualities are at the very heart of the
long-term guidance and advice we provide for our clients. Our bank's activities are grouped
within the divisions Asset Management & Financial Services, Financial Markets & Corporates
and Private Banking.
The bank's longstanding experience in the German securities services market goes hand in
hand with a corporate culture that values prompt acknowledgements and short decision-mak-
ing channels.
BHF-Bank offers tailor-made custody services to meet its clients' particular requirements.
It's reporting services include a comprehensive SWIFT reporting matrix as well as its
Internet-based reporting tool cds@web. Assets under Custody: EUR269 bn No of funds: 328
CACEIS is an Investor Services company with six offices across Europe. Owned in
equal parts by Crédit Agricole and Natixis, CACEIS provides Custody, Fund
Administration and Corporate Trust services to demanding Corporate and
Institutional clients. We have considerable expertise in Cross-Border Fund
Distribution Support as well as Alternative Investment and Private Equity servic-
ing.
Our staff have the language skills and industry knowledge to develop business
relationships into strong partnerships and our powerful IT systems are constantly
updated to ensure high levels of process automation.
CACEIS is responsible for over EUR1.75 trillion held under custody, and over
EUR850 billion under administration.
DBS offers a full range of custodial services including securities safekeeping, settlement
of trades, corporate actions and market information updates. These services are
available in Singapore, Hong Kong, Indonesia, India, China (A-shares) and other select-
ed markets. DBS also offers short-term, highly liquid overnight facilities for its clients'
accounts to earn daily interest on any excess funds.
With over 20 years of experience in the custody business, DBS' strengths lie in its ability
to provide quality services, in depth knowledge and expertise of the Asian markets, as
well as customized business solutions to support clients’ businesses. Its clientele
comprises the global custodians, international central securities depositories, broker-
dealers, financial institutions, insurance companies, investment managers, private banks
and corporate.
69 INVESTOR SERVICES JOURNAL
ISJ23 pp69-80 Final 24/7/07 4:38 pm Page 70

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

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

Nordea is the leading financial services group in the Nordic and Baltic Sea region
and operates through three business areas: Retail Banking, Corporate and
Institutional Banking and Asset Management & Life.
- The leading financial services group T: +47 2248 6238
- A world-leading Internet banking and e-commerce operation Contact: Anne-Lise Kristiansen
- The largest customer base of any financial services group in the region Head of Sub-custody and
- A leading asset manager in the Nordic financial market Clearing
- The most comprehensive distribution network in the region E: anne-lise.kristiansen@nordea.com
Nordea is the leading custody services provider in the region. Nordea provides high
quality, tailor-made custody services for local and foreign investors dealing with
Nordic, Baltic or global securities.

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

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

Santander is Spain’s leading financial institution and the largest bank in the euro zone
by market capitalization. Our commitment and contribution to the securities industry is
well established after more than a century of providing services in this field. T: Europe: (34) 91 2893932 / 28
T: USA: (1212) 350 39 02
W: santanderglobal.com
Santander’s cutting edge technology enables it to offer a comprehensive array of inno-
E: globalsecurities@
vative services in a broad range of markets. Santander currently has full local capabili- gruposantander.com
ties in Iberian and Latin American markets along with a franchised presence in many
others. Santander`s experience and product range ensures that every aspect of the
securities business is fully contemplated.

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

70 INVESTOR SERVICES JOURNAL

ISJ23 pp69-80 Final 24/7/07
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
A:Standard Bank
Financial Asset Services
3rd Floor
25 Sauer Street
Johannesburg 2107
T: +2711 636 6615
E: adam.bateman@standard-
bank.co.za
W: www.standardbank.co.za
C: Neil Daswani,
Global Head, Securities Services
T: +65 6517 0022
E: Neil.Daswani@sg.standard-
chartered.com
W: www.standardchartered.com
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
E: neal.meacham@swedbank.com
A: Stockholm SE 105 34
Sweden
Institutional Assets under Custody: USD 70 billion
No. of Institutional Clients: 110
T: +43 50505-58510
F: +43 50505-58579
C: Andreas Petzl , Head of Sales
and Relationship Management
E: Andreas.petzl@ba-ca.com
W: www.hvb-custody.com/
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
4:38 pm Page 71
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
Financial Asset Services is the custody and investments-servicing division of
Standard Bank, providing a unique suite of services to sophisticated investors in
South Africa and eight sub-Saharan markets.
Standard Bank has assets under custody to the value of ZAR1.56 trillion and an
overall market share of approximately 40%.
Standard Bank's unique selling point lies in its consultative approach to
relationships combined with the bank's commitment to custody and investment
administration services.
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.
- ISO9001:2000 quality certification.
- Swedbank Markets Online (SMO) internet information and reporting toolfor
Custody and Securities Lending.
- Nordic Custody alliance with DnB NOR (Norway), OKO Bank (Finland) and
Amagerbanken (Denmark) to offer regional custody product.
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.
Brand diversitiy under which the group operates (Bank Austria Creditanstalt, HVB,
Bank BPH, Bank Pekao, Zagrebacka Banka and International Moscow Bank), has its
roots in local market presence and knowledge, contributing into a single unified
product across the region. In 2006 the group was recognised by no less than 3
independent surveys as being the best region custodian
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.
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 comprise: FT Interactive
Data, ComStock, CMS BondEdge and eSignal.
FT Interactive Data provides global securities pricing, evaluations, dividend, corporate
action and reference data designed to support financial institutions’ and investment
funds' pricing activities, securities operations, research and portfolio management. FT
Interactive Data collects, edits, maintains and delivers data on more than 3.5 million
securities, including daily evaluations for approximately 2.5 million fixed income and
international equity issues. FT Interactive Data specialises in ‘hard-to-value’ instru-
ments and ‘hard-to-get’ information from emerging markets.
INVESTOR SERVICES JOURNAL 71
ISJ23 pp69-80 Final 24/7/07 4:38 pm Page 72

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

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

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

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

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

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

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

72 INVESTOR SERVICES JOURNAL

ISJ23 pp69-80 Final 24/7/07
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
4:38 pm Page 73
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
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 73
ISJ23 pp69-80 Final 24/7/07 4:38 pm Page 74

For further information,

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

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

International Finance Centres

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

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

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

Payments & Settlement

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

74 INVESTOR SERVICES JOURNAL

ISJ23 pp69-80 Final 24/7/07
A: Europe/Asia/Africa
42 New Broad Street
London EC2M 1SB
United Kingdom
T: +44-207-588-1100
F: +44-207-588-1155
A: Americas
30 Montgomery Street Suite 501 ing in countries outside the U.S. that have established Real Time Gross Settlement
Jersey City, NJ 07302
T: +1-201-946-1100
F: +1-201-946-1313
VocaLink
Drake House
Three Rivers Court
Homestead Road
Rickmansworth
Hertfordshire
WD3 1FX
T: +44(0)870 1650019
F: info@vocalink.com
W: www.vocalink.com
W: www.dataexplorers.com
T: +44 (20) 7392 4000
F: +44 (20) 7392 4004
A: 155 Commercial Street,
London E1 6BJ United Kingdom
London: Julian Pittam
T: +44 (20) 7392 5018
E: jp@dataexplorers.com
Boston: Tim Smith
T: + 1 (617) 973 5099
E: tim.smith@dataexplorers.com
T: +1 212 901 2224
C: Michelle Lindenberger
E: Michelle.lindenberger@equi-
lend.com/info@equilend.com
A: 17 State Street, 9th Floor
New York NY 10004
T: +44 20 7743 9510
A: 54 Lombard Street
London EC3V 9EX
W: www.equilend.com
T: US- +1 617 204 4500
T: UK- +44 (0)20 7469 6000
C: Dan Ahern
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
T: +41 (0)44 218 14 14
F: +41 (0)44 218 14 18
E: info@finace.ch
A: COMIT AG, Buckhauserstrasse
11, CH-8048 Zurich, Switzerland
W: www.finacesolution.com
4:39 pm Page 75
Fundtech's payments solutions automate all aspects of the funds transfer and cus-
tomer notification process, enabling straight-through-processing (STP) of payments.
Fundtech also offers payments solutions for continuous linked settlement (CLS), nos-
tro account management and enterprise-wide payments management.
Global PAYplus - The enterprise-wide payments management solution for global
financial institutions.
PAYplus RTGS - A fully integrated, multi-currency payment system for banks resid-
(RTGS) standards.
PAYplus USA - The leading payments solution for financial institutions in the US.
Voca is the provider of payment services. We pioneered electronic
payments four decades ago and the world's top banks have been relying on
our services ever since. Our utterly reliable processing for domestic
and international automated payments has the scale and flexibility to
meet the demands of the new payment landscape. On a peak day our
customers trust us to process over 80 million transactions with
comprehensive reach throughout the SEPA and beyond.
Voca is your payment partner. Our unmatched experience means we can
offer you a range of low risk, value-added services that leverage our
know-how and technical capabilities.
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.
Over the past six years, the company has auctioned more than USD 1 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. More information about
eSecLending can be found at www.eseclending.com.
FINACE® is the only fully integrated solution today which supports the future busi-
ness model within the area of Securities Finance and Collateral Management. The
architecture of FINACE® is based on a stable, leading edge technology platform,
which was developed with performance and robustness as the focus of design. With
flexibility at its core, customer-driven extensions and modifications can be quickly
and easily applied to the standard component set.
INVESTOR SERVICES JOURNAL 75
ISJ23 pp69-80 Final 24/7/07 4:39 pm Page 76

Securities Lending .
JPMorgan's Securities Lending program is unparalleled due in no small part to the New York: William Smith
Firm's breadth of capability, financial strength, professional expertise and seamless T: 212-623-5664
operations. E: william.z.smith@jpmorgan.com

Our program enables investors to access a broad spectrum of lending markets, with a London: David Mitchell
diverse borrower base, offering a broad indemnification against borrower default, T: 44 207 7420055
while achieving very competitive bids for their securities - all of this in an environ- E: david.mitchell@jpmorgan.com
ment designed not to compromise the activities of their fund managers. .As one of
the founding members of EquiLend, a global automated platform for borrowers and Sydney: David Brown
lenders, JPMorgan is at the forefront of technology and is ideally placed given its T: (61-2)92504606
integrated lending, custody and accounting platforms. E: david.ldn.brown@jpmorgan.com
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
continue to improve their businesses using Advent’s suite of integrated investment
A: One Bedford Avenue,
management solutions. Advent Software EMEA is part of Advent Software Inc. London WC1B 3AU, UK
(Nasdaq: ADVS), a global organisation that has been providing solutions to the W: www.advent.com
world's leading financial professionals since 1983. Firms in more than 50 countries
using Advent technology manage investments totaling more than US $8 trillion.

Aquin Components ranks among the leading IT solution providers to the international
asset management and fund industry. Its core competency comprises investment Annette Lindinger
compliance and risk monitoring; trade and order management; data management; press@aquin.com
customized reporting; custodian reconciliation and management of software T: +49 69 21 93 66 600
integration projects. F: +49 69 21 93 66 650
Mainzer Landstr.
Aquin’s clients include the best-known asset management companies and custodians 199 60326
in Europe and the USA. They benefit from substantial cost savings derived from Frankfurt am Main
automation of investment management processes supported by the choice of Germany
stand-alone products or integrated solutions. The company has its headquarters in W: www.aquin.com
Frankfurt am Main and subsidiaries in Zurich, Paris, Luxembourg, London, Dublin
and New York.

76 INVESTOR SERVICES JOURNAL

ISJ23 pp69-80 Final 24/7/07
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
W: www.f-tradeware.com
T: +44 (0)20 7493 2773
F: +44 (0)20 7495 4858
C: Alberto Fontana
E: info@f-tradeware.com
A: 31 Dover Street
London W1S 4ND UK
4:39 pm Page 77
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.
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
joint contributions and experiences within the group of leading market traders, busi-
ness analysts, financial services professionals and skilled Microsoft Certified pro-
grammers. The company has developed a suite of applications that integrate and
Straight Through Process (STP) real-time trading, back office administration,
accounting and compliance. Ultra.net®, S-Messenger® and H-Fund® are the com-
pany's flagship products all based on Microsoft.NET infrastructure. In addition the
company offers a Member Administered Closed User Group (MA-CUG) service for
SWIFT connectivity. For more information see: www.f-tradeware.com
INVESTOR SERVICES JOURNAL 77
ISJ23 pp69-80 Final 24/7/07 4:39 pm Page 78

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-
house development team. T: +44 (0)20 7100 9280
enquiries@fingertip-
Flexibility does not stop with the software, our commercial terms offer adaptable
developments.com
pricing to suit present and future requirements for all sizes of organisation.

IGEFI is the foremost provider of software solutions for international fund

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

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
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laborative manner and sees clients as partners to help meet all the demands in today’s New Broad Street House
marketplace. The xanite product suite offers a highly configurable, flexible and fully 35 New Broad Street
integrated, browser based, comprehensive front to back solution that complies with mes- London EC2M 1NH
sage standardization and settlement harmonization. Deployed as a single application or T: +44 (0) 29 20 402200
integrated as components into your existing platform. Each of the xanite modules can de E: info@peterevans.com
delivered via an ASP or self-hosted. Covering: wealth management, custody corporate W: www.peterevans.com
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,
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78 INVESTOR SERVICES JOURNAL

ISJ23 pp69-80 Final 24/7/07
T: +44 20 7220 0961
F: +44 20 7220 0977
C: Rupert Perry
E: rupert.perry@pirum.com
A: Pirum Systems Limited
37-39 Lime Street
London, EC3M 7AY
W: www.pirum.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
4:39 pm Page 79
Pirum provides a full suite of automated reconciliation and straight through process-
ing (STP) services supporting Operations within the global securities finance
industry. The company's on-line SBLREX service encompasses daily contract
compare, monthly billing comparison, mark-to-market & exposure processing,
pending trade comparison, income claims processing and custody reconciliation.
Subscribers to Pirum’s services significantly increase their operational efficiency
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.
These automated processes are more scalable and risk controlled too, allowing
significantly higher volumes to be managed without corresponding increases in
operations headcount.
Princeton Financial® Systems, a wholly owned subsidiary of State Street
Corporation, is a leading provider of investment management and accounting
systems and ASP services for global institutional investors.
Its flagship PAM® investment management systems provide comprehensive STP-
ready functionality that can be licensed for in-house use or accessed via the
Internet. PAM® systems are currently used worldwide by over 275 leading invest-
ment managers, insurance companies, mutual funds and unit trusts, pension funds,
hedge funds, endowments, banks and corporation, which manage combined total
assets over US $3 trillion.
Princeton Financial has offices located throughout the United States, United
Kingdom, Belgium, Australia, Singapore, Amsterdam and Canada. Form more
information, visit Princeton Financial’s website.
Sectech Limited, established in 1998, provides comprehensive solutions
for Custody, Settlement and Securities Back office automation to meet the
needs of custodians, fund managers, asset managers, and pension funds
managers.
The Custody 2000 suite of applications is a powerful and feature rich system
that automates all areas of a securities back office operation. The system
is based on a multi-currency, multi product, and online real-time platform.
Modules include settlements, corporate actions, cash management, order
execution, compliance monitoring, performance measurement, investment
accounting, certificate management, MIS, SWIFT messaging, email reporting,
client billing, client query tracking and Market Interfaces.
SimCorp Dimension is a powerful, comprehensive and truly seamless investment
management system. It can handle NAV and other calculations, with complete
related accounting, for a huge variety of fund structures and product types, including
regional specialities. Support for broader functions, such as performance attribution
and risk management, are particular strengths of the system.
SimCorp Dimension has been designed from scratch as an enterprise-wide system,
handling all aspects of the investment management process, consistently. Data is
recorded into a core database so that reporting is made easy, there is no
reconciliation of data and no duplication of procedures.
Over 100 Capital Markets firms worldwide rely on Singularity to achieve step-change
improvements in efficiency and cost-effectiveness. Across front, middle and back office
operations, Singularity's clients are improving performance by automating process and
leveraging their human capital most effectively. Our process automation solutions com-
bine deep knowledge and long-standing capital markets experience with award-winning
technology. Clients include JPMorgan, Bank of Tokyo Mitsubishi UFJ, Raymond James,
Prudential, Invesco, BNPParibas, Morgan Stanley, American Express and M&G.
-By cutting latency in securities processing, our clients are recognising new efficien-
cies, reducing costs and increasing throughput
- By streamlining their customer on-boarding processes, our clients are gaining faster
access to fees, increasing customer satisfaction & gaining greater cross-sell opportunities.
- By automating their KYC & other compliance processes, our clients & reducing risk.
- By improving collaboration in their client reporting cycle, our clients are providing
more timely and insightful investment performance information.
Training and Education .
FinTuition is an international training company based in London specialising in the
securities finance business: securities lending, equity finance, hedge funds, prime
brokerage, repo and collateral management.
FinTuition offers a regular schedule of open-enrolment courses from introductory to
advanced levels as well as tailor-made in-house training and consulting. We have
course locations in Asia, Europe and North America.
FinTuition training relies heavily on exercises, role plays and case studies to pro-
mote a better understanding of securities financing and trading concepts through
contextually reinforced learning.
For more information about our courses, course dates and course directors, please
visit our website www.fintuition.com
INVESTOR SERVICES JOURNAL 79
ISJ23 pp69-80 Final 24/7/07 4:39 pm
PEOPLE MOVES
MOVING & SHA K ING
London – The Bank of New York Mellon
has appointed Steve Langton as vice
president, hedge fund product manag-
er, to its London-based hedge fund
services team. Based in London and
reporting to David Aldrich, managing
director, Langton will further develop
the bank’s capabilities for servicing
hedge funds managed by Europe-
based managers. Langton joins from
SS&C Fund Services where he was
responsible for building the fund serv-
ices business and developing brand
awareness in the European, Middle
Eastern and African hedge fund com-
munities. Prior to this, he was sales
director at Macgregor, and senior
account manager at Omgeo, where he
successfully identified the hedge fund
sector as a new market segment,
establishing Omgeo as a leading serv-
ice provider in this space. Aldrich
says: “Steve will be a valuable asset to
the hedge fund team, helping to solve
the evolving problems faced by man-
agers of alternative products in
Europe. His knowledge and experi-
ence underscores our commitment to
our European clients and our dedica-
tion to providing a strong and consis-
tent framework to support the
growth of their business.”
London – HSBC Investments has
appointed Julian Lyne to the new posi-
tion of head of global consultant
relations. In this role, Lyne will work
closely with the regional consultant
relationship management teams of
HSBC Investments to bring increased
focus on the global consultants and
on further developing HSBC’s institu-
tional asset management business.
Mark McCombe, chief executive offi-
cer of HSBC Investments, says:
“Julian's appointment reflects the crit-
ical role played by the major consult-
ants worldwide in intermediating
institutional client business. It also
reflects the importance we attach to
well coordinated management of our
relationships with consultants in all
the markets in which we operate.
Julian will work closely with all our
80 INVESTOR SERVICES JOURNAL
Page 80
regional teams to ensure that we apply
the necessary pace, clarity and focus in
our dealings with the global consultants.
This is one of a series of investments
we are making to ensure strong momen-
tum in the growth of our institutional
business.”
London - The Bank
of New York has
appointed Marc
Russell-Jones as
managing director
and head of sales
for alternative
investment servic-
MARC RUSSELL-JONES es in Europe.
Based in London,
Russell-Jones will report to David
Aldrich, managing director and
European business manager of the
bank’s alternative investment services
division. Russell-Jones joins from
Northern Trust where he spent two
years as vice president for alternative
investment sales across Europe.
Previous to this, Russell-Jones had been
at the Bank of New York for three years
where he was responsible for sales of
hedge fund and exchange traded fund
(ETF) services. He has 16 years of
experience in business development,
sales and product management in
European financial markets.
London – Northern Trust has made two
senior promotions within its Investment
Risk and Analytical Services (IRAS)
team in response to growth in its client
base and an increasing complexity of
demands and
emphasis on this
suite of capabili-
ties. Jim Trotter has
been named global
deputy head of
IRAS, while Simon
Willcox has been
promoted to lead
the international
SIMON WILLCOX IRAS product
management team
for Europe, the Middle East and Africa
(EMEA). Paul d’Ouville, global head of
IRAS at Northern Trust, says: “We
are delighted to announce these new
appointments. It is part of our strate-
gic aim to recognise talent and ensure
our clients can benefit from the expe-
rience and skill of key individuals.
Both of these appointments reflect
the increased demand for, and sophis-
tication of, our IRAS group. They are
also in line with our strategy to fur-
ther enhance our capabilities in this
area as a key differentiator in the
solutions we provide to our institu-
tional and investment manager
clients.”
Boston – IGEFI has announced the
appointment of Terence Faherty as
managing director of the Americas to
support its international growth.
IGEFI is the foremost provider of
software solutions for international
fund promoters, third party invest-
ment fund service providers and fund
managers. With over 170 expert staff
supporting clients from six offices
worldwide, IGEFI is growing its US-
based operation to better serve its
North American client base and grow
its North American presence.
London – Halbis, the asset manage-
ment specialist of the HSBC Group,
has appointed Tarne Bevan as head of
trade execution. Her role will be to
enhance performance by better inte-
grating trading strategies and capa-
bilities with Halbis’s investment deci-
sions. Bill Maldonado, head of both
alternative investments and trading at
Halbis, says: “This is a key role for
our business as we aim to achieve a
more seamless alignment between our
trading strategies and our investment
processes.” Bevan has worked in both
investment banking and asset man-
agement since joining the industry in
1996. Prior to joining Halbis in 2007,
Bevan was the head of program and
algorithmic sales for HSBC. She
brings a wealth of sell side experi-
ence from prior roles at WestLB
Panmure and Nomura International
and she has also previously worked on
the buy side as a dealer for F&C.
ISJ23 Cover 24/7/07 6:49 pm Page 3