ISJ002

00 ISJ02 Cover 16/9/04 13:38 Page 1
THE GLOBAL SECURITIES SERVICES INDUSTRY JOURNAL

Fund Structure; Information & Data Providers; Custody;
STP & Technology; Trading Services & Outsourcing;
Hedge Funds; Prime Brokerage; Settlement & Clearing;
INVESTOR Securities Financing / Lending; Legal & Compliance
S ERVICES
JOURNAL
VOLUME 2 - SEPT / OCT 2004
TIME FOR GROWTH?

SIBOS 2004 PREVIEW
TECHNOLOGY OUTSOURCING - READY FOR CHANGE
SECURITIES LENDING – TO DISCLOSE OR NOT?
CORPORATE ACTION STATIONS
AGENCY LENDING - THE THIRD PARTY
plus PENSIONS, HEDGE FUNDS, NORDIC and BALTIC REGION WWW.ISJFORUM.COM
InvSerJou 203x267 GB 22/06/04 12:50 Page 1
© Chris Ryan / GettyImages
Fund Structuring
Depositary/Trustee
Fund Administration
Custody & Clearing
Third Party Distribution Platform
Shareholder Services
Corporate Trust
Social Finance
Dealing Room Services
Securities Lending
INNOVATION
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InvSerJou20 001.XIELOK.PDF
Contents 16 Sept 16/9/04 15:43 Page 1
Editor’s Letter & Contents
INVESTOR Time for Growth?

The word growth can mean different things to different people. In the context of financial
S ERVICES services, its definition is one on which the entire financial community can concur. Growth also
JOURNAL constitutes the theme for this year’s Sibos event. However, the type of growth we need is in
communication and automation, now that financial markets may have found the safe havens they
VOLUME 1 - JULY / AUGUST 2004 enjoyed before 2001, financial institutions should focus on improving methods for communicating
with each other. Standardisation is the ultimate goal and hopefully SWIFT will instill this at Sibos.
ISJ welcomes a conference that will also tackle the automation demons that have haunted financial
INVESTOR
Securities Financing / Lending; Legal & Compliance
S ERVICES
JOURNAL
institutions. So relevant is automation that the entire community, including asset managers and
hedge fund managers, have turned their attention to matters in the ‘mid’ and ‘back’ office.
Communication between the front and back office has intensified, as evidenced by the number of
outsourcing deals that have been signed recently.
The timing of these deals is perfect: with hedge funds failing to deliver the returns of two years
ago, fund managers have to concentrate on making assets sweat. Consequently, they have no time
TIME FOR GROWTH?
SIBOS 2004 PREVIEW to worry about how they comply with Sarbanes Oxley, compliance or transfer agency issues. This
challenge puts custodians and fund administrators in an ideal position to win the business.
Service providers who offer securities lending, transition management and corporate actions
technology also have a lot to gain. Custodians have assumed their battle stations in order to take
over the front and middle office of large asset managers, forcing technology vendors to be more
ingenious in the way they provide their services. This should prompt more relationships between
custodian, fund administrator and vendor. Co-operation is the key.
Janet Du Chenne, Editor
Contents 6 News A selection of investor services news from
around the world
12 Getting the Standardisation will matter a great deal to the

Message financial community at this year’s Sibos event
17 Brand Identity White labelled software as a solution
21 Action Stations The World’s leading solutions vendors debate the

obstacles to successful corporate actions solutions
32 Automating Nat Sey of FT Interactive Data looks at the

Corporate Actions increasing role of data standards
34 Transfer Agency ISJ looks at the main concerns of transfer agency

Systems systems providers
36 Selling… selling… Hedge funds look set to continue to attract the

sold attention of service providers
WWW.ISJFORUM.COM
INVESTOR SERVICES JOURNAL 1

Contents 16 Sept 16/9/04 15:43 Page 2
Contents
INVESTOR 41 Hedge Fund Sector

Review
The hedge fund sector encountered headwinds in the sec-
ond quarter of this year
S ERVICES 42 Sweating harder Trustees are faced with the task of searching for revenue in
JOURNAL their schemes. Custodians can help
44 Against all odds The future for members of occupational pension funds
looks bleak, according to the NAPF
INVESTOR
S ERVICES
46 Staying afloat Simon Thomas of Thomas Murray analyses the custody
JOURNAL
ratings process
48 SWIFT Sibos Your Sibos pull out timetable
50 Time to Shine Mandate victories have increased as funds outsource

TIME FOR GROWTH?
SIBOS 2004 PREVIEW
51 Sorting the Wheat Institutional Investors are turning to transition managers
plus PENSIONS, HEDGE FUNDS, NORDIC and BALTIC REGION WWW.ISJFORUM.COM from the Chaff to help them save money
55 Talking Carol McGinn on the timeliness and

Disclosure transparency of securities lending information
58 RMA Securities Analysis of the securities lending industry for the second
Lending Industry quarter of 2004
60 Securities Lending Data Explorers provide high level summary in the

Performance Performance Explorer securities lending service
64 A loan on the Edge Securities lending is replaced as the scapegoat
69 Land of the Third- ISJ profiles Guild Global, one of the few the third party
party Lender agent lenders in the securities lending market
71 Breaking the Ice Global custodians are slowly entering the Nordic region
78 Estonia A profile of Estonia - the end of the rainbow?
80 CEE banking markets Central and Eastern Europe is still largely underbanked and
– growth gains key figures show the huge catch up potential against the
Western European benchmark
82 Singing their tune? ECSDA responds to the European Commission’s commu-

nication on clearing and settlement in Europe
84 Ready to take the The risks facing fund managers have become too impor-
leap? tant to ignore, writes RBC’s Mike Taylor
88 ISJ Education Continuing and further education in securities services
94 Directory Directory of investor services

WWW.ISJFORUM.COM
2 INVESTOR SERVICES JOURNAL

hsbc493_203x267_CNC 8/31/04 7:21 PM ›¶ 1
C M Y CM MY CY CMY K
01 ISJ02 13/9/04 19:20 Page 4
Letters
INVESTOR
S ERVICES
JOURNAL LETTERS TO THE EDITOR
Janet Du Chenne Costs of Compliance

Editor We hear a lot about the insidious growth in taxation, as a hedge fund administrator I
Janet.DuChenne@ISJFORUM.COM have been a victim of the equally insidious creeping cost of compliance. This has
grown with the near epidemic of EU regulations. We have witnessed – I don’t doubt for
Julia Svetlichnaja a moment, for very good reasons – the post-9/11 introduction of very much more dra-
News Editor conian anti-money laundering and “KYC” regulations, as well as the fall-out from
Press@ISJFORUM.COM Sarbanes Oxley. And now we have both the EU Savings Directive and some quite dra-
matic changes in accounting and audit protocols looming on the horizon.
Design Studio
The regulators who create these new laws appear to think that the cost of
Editorial@ISJFORUM.COM compliance is no concern of theirs. The fact is that every new regulation requires
the introduction of new procedures to be followed and that, in turn, usually requires
Contributors some software and /or systems modification. This often means more staff and more
Brian Bollen, Rekha Menon, training of those staff. All of this is very expensive. Indeed, compliance is now
James Wallace, Helen Yates probably the most expensive, unproductive aspect of the financial services industry.
And someone has to pay for it.
Justin Lawson In the hedge fund world, the administrator has been the one who has, for the most
Publishing Director part, absorbed these costs, but as they grow, I think it is unlikely that this will remain
Justin.Lawson@ISJFORUM.COM the case. It is inevitable that administrators will have to increase their fees to cover
their outgoings and, thus, it will, eventually be the investor who pays. In some cases,
Jon Dunham this will be ironic justice, as many of the regulations are designed to protect the investor
Executive Publisher
in the first place. But not all regulations are designed to protect investors. Take the EU
Savings Directive, which is not intended to protect investors from anything, but is
Jon.Dunham@ISJFORUM.COM
designed to get the financial services industry to assist in the collection of tax that may
Ann Diep be owed by EU citizens. The administrator of funds that accept all nationalities, will
Associate Publisher probably have to charge the fund as a whole for the costs involved in complying with
Ann.Diep@ISJFORUM.COM the EU Savings Directive. One finds it difficult to understand why a non-EU investor
should, effectively, pay towards the cost of collecting taxes from EU investors.
Heidi Mumford Of course, this is still academic, because, as yet, for the most part, it is still the
Associate Publisher administrator who foots these compliance bills. But this has to change – and despite
Heidi.Mumford@ISJFORUM.COM the very aggressive competition in the hedge fund administration industry, fees will
increase. You have been warned. - Dermot Butler, deputy chairman of the Alternative
Investor Services Journal Investment Management Association
11 B Fitzroy Square
London W1T 6BU, UK
Investor Services Journal, Launch issue
Overall I liked the look and feel of the magazine a lot. It also had a favourable
T: +44 (0) 20 7388 9000 reaction from Taylor Bodman, BBH Partner in Boston. The mag. was very relevant to
F: +44 (0) 20 7388 6699 BBH indeed. - Russ Gerry, River Rouge
Published by Investor Intelligence The first issue was excellent, so keep up the good work. - Graham Cope, Cleastream
Chairman Mark Latham
The new magazine looks really good - presentation, layout, range of issues dealt with.
© 2004 Investor Intelligence Limited Well done with how it's going! - Andrew Wilde, mj2 Ltd
All rights reserved. No part of this publi-
cation may be reproduced, in whole or in I saw the new magazine, good start. - Daniel Waeber, Baer Custodian Service, Bank
part, without prior written permission from
the publisher. Julius Baer & Co. Ltd.
Printed in the UK by Pensord Press.
Your new magazine looks very good! - Maria Classen, Bank of Bermuda GFS
ISSN 1744-151X
WWW.ISJFORUM.COM

0110_Investor_203x267_4c 08.09.2004 15:09 Uhr Seite 1
guidance
www.ing-bhf-bank.com
The success story continues:

ING BHF-BANK has rejoined the market as
a sub-custodian for German securities.
We would particularly thank The Bank of New York for the trust placed in us.
How can we help you navigate the challenges of custody business?
For further information please contact Cornelia Keth on +49 69 718-3738 or

at cornelia.keth@bhf.ing.com
01 ISJ02 13/9/04 19:21 Page 6
necessary systems,” he says. “But the availability Technology

News - EMEA of large outsourcing providers who are willing to Paris - DST International (DSTi), a provider of
take over these operations from asset managers business solutions for the investment manage-
hastens the contraction of the software vendor ment industry, has announced that AIB Global
market.” Datamonitor has revealed the findings of Treasury – the treasury business unit of AIB Group
its latest research on asset management technolo- plc – are upgrading to HiRisk, DSTi’s risk manage-
gy in Europe. The research captures the extent to ment solution. AIB Group is a leading banking
which custodians have expanded their traditional and financial services organization in Ireland.
Custody & Outsourcing custody business and have taken over the entire AIB have been using RiskBook, for a number of
Stockholm – *Exclusive* Northern Trust has pene- back office operations of large asset management years in Dublin, but HiRisk provides additional
trated the Nordic region by winning a prestigious firms in Europe. risk modeling modules.
custody mandate from Folksam Asset Kim Holloway, DSTi’s global sales director, said,
Management in Sweden. The mandate, which sees Oslo - The DnB NOR company Carlson Investment “We are pleased that AIB have adopted the latest
Northern take custody of $17bn worth of insur- Management AB has entered into an agreement version of HiRisk. It reinforces our strategy to
ance and mutual fund assets, marks the start of a with Swedish SkandiaBanken to take over the continue development of our risk management
significant servicing alliance between the Chicago bank's asset management operations. The agree- solution. Since our acquisition of the software,
giant and local agent Svenska Handelbanken, ment encompasses discretionary management of DSTi has spent over 40,000 man days in further
which will serve as trustee for Folksam’s assets. It assets for a total of SEK 2.5 billion for around 450 developing the software and integrating it into our
also marks the first time any global custodian has retail customers and small companies in Sweden. other best of breed solutions.”
entered the Nordic region through partnership Carlson Investment Management AB is a sub-
with a local trustee and the first time that a non- sidiary in the DnB NOR Group. DnB NOR Asset London – XSP, the software solution from
resident institution has been allowed to act as Management manages assets for a total value cor- XcitekSolutionsPlus, a provider of corporate
custodian for local assets in Sweden. The Swedish responding to NOK 490 billion for institutional actions automation, has been accredited with the
financial services authority has also granted clients and retail customers, offering both tailor- Gold Label in all three industry sectors – asset
Northern a trustee license. made solutions and mutual funds. Half of the management, broker/dealers, and custodians.
assets are managed on behalf of Swedish institu- Organised by CityCompass, an independent facili-
London - Threadneedle Investments, the second tional clients. tator of contemporary issues in financial services,
largest UK retail investment funds group, has the results of the B.I.S.S. (Benchmarking of
entered into a major retail administration lift-out Fund Administration International Systems and Services) Corporate
deal with the Bank of New York. The deal means London - JPMorgan has announced it has agreed Actions Systems & Information Services analysis
that from 1 October 2004, the Bank of New York to acquire Tranaut Fund Administration Ltd., a pri- revealed XcitekSolutionsPlus taking top honours
will manage Threadneedle’s existing Swindon- vately-owned hedge fund administration services based on various business requirements, technical
based retail client services operations, with the company. The acquisition of a hedge fund admin- functionality, and system maturity standards set by
operation and people becoming a key element of istration services company is a strategic addition the eight-member panel of corporate actions
their future European retail client service offering. to JPMorgan's comprehensive suite of services experts and Bloor Research.
Threadneedle will become the Bank of New York’s that is already offered to hedge funds and institu-
largest transfer agency client. Threadneedle was tional investors. "This acquisition represents a
advised throughout the selection and negotiation Regulation & Market
logical extension to the firm's servicing capabili-
process by, amongst others, Troika, the specialist ties and demonstrates our commitment to servic- Infrastructure
financial services management consultancy. ing a wide range of investment products on a Zurich - The SWX Group has rejected an offer
Threadneedle’s head of distribution, David global basis," said Conrad Kozak, head of strate- from the Deutsche Börse regarding the take over
Sachon said: “This deal stems from our analysis of gic business development, treasury & securities of the Swiss Stock Exchange. SWX has instead
the major changes that will occur over the next services. opted to remain an independent organization and
decade as supermarkets, aggregators and plat- be open to discussions on potential affiliations. At
forms increasingly form the bridge between fund a recent meeting, the SWX Board ruled out for the
managers and clients.
Securities Lending time being any sale, merger or total integration of
Oslo - The Banking, Insurance and Securities the SWX Group into another securities exchange
Commission (BISC), the regulatory body for the organisation. By arriving at this conclusion, the
Dublin - AIB/BNY Trust Company, the joint ven-
financial services industry in Norway, has clarified Board of the SWX Group is expressing its desire to
ture between Allied Irish Bank and the Bank of
the law which enables Norwegian insurance com- preserve the competitive advantage of the Swiss
New York, has ceased to offer Irish custody. Upon
panies to participate in securities lending. financial marketplace, as well as to maintain and
reviewing the trend and volume of Irish compa-
Previously, securities lending was prohibited under further develop the Swiss value chain. Hence the
nies which now list on the UK rather than the Irish
the 1985 Norwegian Securities Trading Act but was Board has confirmed its position, according to
market, together with the fact all dematerialised
later sanctioned in January 1997, following lobby- which the SWX Group desires to maintain its inde-
Irish equities are settled via Crest, the company
ing by custodian banks and other financial institu- pendence and, by means of partnerships, coopera-
has made the decision to centralise the settlement
tions. However, some institutions, including insur- tive undertakings, alliances or other financial
function for Irish equities within its global custody
ance companies and private pension funds did not interrelationships, play a key role in shaping the
network in The Bank of New York, London from
engage in lending their securities because it was consolidation process within Europe's securities
September 2004. “This decision acknowledges the
not clear that the applicable regulations allowed exchange landscape and thus achieve further gains
strategic trend of Irish companies which now list
them to do so. It was not until recently that the in the cost effectiveness and efficiency of the
on the UK rather than the Irish market,” said an
BISC undertook to review its securities lending Swiss financial marketplace.
official statement from the bank.
regulations again following calls for further clarifi-
cation of the rules. Following this move, service Brussels - Euroclear Bank will provide a new
London - Large-scale back office outsourcing,
providers like Northern Trust will be looking at choice of settlement location for Euronext
including transfer agency and other administrative
new opportunities to offer securities lending capa- Amsterdam trades, cleared by LCH.Clearnet, with
functions, by asset managers to global custodians
bilities to this sector of the market. “This is a great the launch of a straight-through, book-entry serv-
is a major source of worry for technology vendors,
example of how the BISC has recognised an ice for cross-border transactions. Dutch shares
says Daniel Lessner, financial services technology
opportunity to support and promote Norway’s traded on the London Stock Exchange, cleared by
analyst at Datamonitor. “The outsourcing trend
financial marketplace through working closely with LCH.Clearnet, may also be settled at this time by
erodes the addressable market for software ven-
key participants in the securities lending industry,” Euroclear Bank. Euroclear clients will be able to
dors, who prefer asset managers to keep their
said Andy Clayton, head of international securities settle their cross-border equity transactions on
transfer agency and other back office functions
lending at NTGI. three Euronext markets and the London SE.
inhouse so that they can provide them with the

6643 BIS Corp Ad ISJ Forum 18/8/04 4:53 pm Page 1
Partnership and Trust
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to deliver outstanding service through our partnership approach. Building on our success
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01 ISJ02 13/9/04 19:22 Page 8
News - Americas
Custody & Outsourcing stand-alone solution or as part of a Technology

Boston - Mellon Global Securities service that includes enhanced back- California - eSignal, a division of
Services (GSS) group was appointed to office capabilities. PFPC has been a Interactive Data Corporation and a
administer the middle and back office leading provider of back-office services provider of financial market data, news,
for a majority of Old Mutual to the global investment industry for analytics and decision support tools to
Investment Partners' managed over 30 years. All services are integrat- professional and individual traders,
accounts business in the United ed within the open, modular and flexi- today announced the immediate avail-
States. "We were impressed with ble technology architecture of PFPC's ability of QuoTrek 1.1. QuoTrek pro-
Mellon's experience, scalable infra- Global Enterprise PlatformSM (GEP). vides streaming quotes, charting and
structure and commitment to the sepa- Using this new service, investment analytics to wireless devices such as
rately managed account space," said managers can now remotely access BlackBerry Wireless Handhelds. FT
Kevin Hunt, executive vice president trade information, monitor trade flow Interactive Data, the operating sub-
and head of sales, marketing and prod- processing and view their position, sidiary of IDC and a leading supplier of
uct development for Old Mutual Asset profit and loss (P&L) and performance financial information and analytical
Management. Mellon's platform will reports online through flexible report- software to global markets, has
allow Old Mutual Investment Partners ing tools. This service transmits data released the first phase of its ISO
affiliates to gain further efficiencies in feeds quickly and accurately, while also 15022 service. The service is available
their managed account operations. providing direct feeds to clients' prime as an optional module within FT
Mellon GSS serves more than 50,000 brokers, custodians and/or other rele- Interactive Data’s FTS online desktop
accounts and $19 bn in assets under vant counterparties. portfolio administration tool.
administration.
Chicago - In its first quarterly decline Regulation & infrastructure
Boston - Brown Brothers Harriman has since a negative 3.9 per cent drop in New Jersey - Complying with Section
launched new subcustodian network Q3 2002, the Hedge Fund Research, 404 of The Sarbanes-Oxley Act will cost
management information products, Inc. (HFRI) Fund Weighted Composite public companies an average 62 per-
including QuickIntelliViews, a new Index, which measures performance cent more than previously anticipated,
research tool for securities market pro- across all hedge fund sectors, averaged according to a recent survey by
fessionals, and Special Focus analyses negative 1.0 per cent performance on Financial Executives International
that examine a specific topic across the quarter. In addition, after four quar- (FEI), the leading professional organi-
over 90 markets. BBH has also made ters in which asset inflows averaged zation serving Chief Financial Officers
significant enhancements to its nearly $21.2 bn per quarter, and never (CFOs) and other senior financial exec-
Network Management Global Update dipped below $19.6 bn, Q2 total utives. The increase in Section 404
(GUP) news service. All solutions are inflows slowed to $7.5 billion. HFR is a compliance costs stems from a 109
now available to clients via the BBH leading source of hedge fund informa- percent rise in internal costs, a 42 per-
WorldView website. QuickIntelliViews tion and performance data. cent jump in external costs and a 40
provide answers to the most frequently percent increase in the fees charged by
asked market intelligence questions in Securities Lending external auditors. In July 2004, FEI sur-
a user-friendly format. They present a Philadelphia – Worldwide assets on veyed 224 public companies with aver-
synopsis of market intelligence in a loan have increased by $276.48bn in age revenues of $2.5 billion to gauge
consistent interface that links with the the last year, from $509.49bn in the Section 404 compliance cost esti-
Market Practice Report for detailed second quarter of 2003 to $785.97bn mates. Results showed the total cost of
information on over 90 countries. in the second quarter of this year, compliance is now estimated at $3.14
QuickIntelliViews provide insight into according to the latest securities million, or 62% more than the $1.93
account opening and investment lending industry research from the million estimate identified in FEI’s
approval issues, market infrastructure, Risk Management Association. The January 2004 survey. The companies
trading and settlement practices, Quarterly Aggregate Data Survey, surveyed expect to pay their auditors
shareholder disclosure requirements, which features data provided by 21 $823,200 in fees for attestation of their
foreign ownership limitations, corpo- financial institutions is presented for internal controls, in addition to the
rate actions, proxy voting, and cash primary lending markets worldwide, annual audit fees. This compares to
payment systems and foreign exchange with cash-collateral reinvestment the $590,100 companies expected
characteristics of global markets. data aggregated to reflect reinvest- auditors would charge for attestation in
ment return, interest-rate sensitivity, January 2004. The survey was conduct-
Fund Administration liquidity, credit tiering and instru- ed the week of July 19, and distributed
Delaware - PFPC has launched a mid- ment types for both US dollar and to 3,088 companies, and drew a
dle-office suite of services for both tra- Euro currency collateral. Lending response rate of 13.8 percent.
ditional and alternative asset managers activity is also provided for all other
across Europe. Investment managers currency collateral converted to U.S. more news daily at
can take advantage of PFPC's trade dollar. Highlights of the research can
support and middle-office services as a be found on page 58. WWW.ISJFORUM.COM

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01 ISJ02 13/9/04 19:22 Page 10
News - Asia Pacific
Custody & Outsourcing to be selected as their solution of

Sydney - BNP Paribas Securities choice,” said Alastair Chisholm,
Services (BNP Paribas) has been managing director, 4Sight Financial
appointed by the financial services Software. “4Sight Securities Finance
businesses of MBF Australia Limited allows ABN AMRO to grow their
(MBF), ClearView Retirement business, the advanced functionality
Solutions and MBF Life Limited (col- will provide new trading opportuni-
lectively referred to as ClearView), to ties, and the automated front to back
provide a full range of custody and processing will improve the efficien-
investment administration services. cy and scalability of their operation”.
These services will include account-
ing, tax and statutory reporting, unit Technology
pricing and performance measure- Jakarta - DST International (DSTi),
ment. MBF is a leading provider of the provider of business solutions
health and financial protection prod- for the investment management
ucts and advice in Australia. MBF industry, is set to open an office in
expanded its financial services offer- Jakarta on 1 October. The office will
ings following the acquisition of include a sales team, a professional
ClearView from Insurance Australia services group and a support centre.
Group (IAG) in January 2004. John The professional services group is a
Cowan, group executive of Financial team of Indonesian and English
Services said: "The transition of speaking professional services con-
ClearView to MBF ownership has sultants. The Jakarta Support Centre
been extremely successful. An impor- and Help Desk is multilingual and is
tant component has been the selec- staffed with both experienced prod-
tion and appointment of a new part- uct and technical experts. Mike
ner to provide our unit pricing and Winn, DSTi’s CEO, said: “Now is the
custody requirements. The selection time for DSTi to take advantage of
process was conducted through a our already strong presence in
competitive market tender involving Indonesia. As leaders in the market,
major custody providers. BNP our Jakarta office will offer a com-
Paribas’ selection was a credit to the plete service to our Indonesia
speed and commitment in under- clients. It will not only have a sales
standing and meeting ClearView’s team, but also the support to back
requirements." The transition of them not only with a help desk, but
ClearView’s AUD 1.2 billion set for with a professional services group as
completion by August 2004. well. The consultants will implement
DSTi’s products. DSTi ensures that
Securities Lending only the highest-quality solutions are
Sydney - ABN AMRO Equities delivered to our clients. Our consult-
Australia has gone live with 4Sight ing services cover training, imple-
Securities Finance for its securities mentation, development, application
lending activities. 4Sight Securities support and technical consultancy.
Finance is 4Sight Software’s global We already have fully functioning
securities finance product and this Asian offices in Hong Kong,
installation marks 4Sight's launch of Bangkok, Shanghai and Singapore. ”
the product in Australia. In a little
over 3 months ABN AMRO and
4Sight have installed 4Sight
Securities Finance and developed more news daily at
interfaces to a number of ABN
AMRO’s existing systems. “ABN WWW.ISJFORUM.COM
AMRO performed a very detailed
search and we are extremely pleased

Acanthistius Brasilianus
Butterfieldus fundi servicium
Abudefduf saxatilis
Small enough to be quick.

Big enough to swim with the big fish.
There’s an ideal size for a fund administrator. At Butterfield Fund Services, we’re small enough to offer the rapid,
personal service you may not get from those at the top of the food chain. Yet with a well-established financial institution behind us,
we have enough weight to offer additional services like banking, custody, money market funds, lending, trust and foreign exchange.
You’ll find us in the well-regulated waters of Bermuda, The Bahamas, the Cayman Islands and Guernsey.
For more information, please contact:

Head Office - Bermuda - Andrew R. Collins
Tel: (441) 299-3954, E-mail: andrewcollins@bntb.bm
The Bahamas - Heather Bellot
Tel: (242) 393-8200, E-mail: heatherbellot@bankofbutterfield.bs
Cayman Islands - John C. Lewis
Tel: (345) 914-5592, E-mail: john.lewis@bankofbutterfield.ky
Guernsey - Patrick A. S. Firth
Tel: (44) 1481-737756, E-mail: patrick.firth@bfmgl.gg
Services provided by subsidiaries of The Bank of N.T. Butterfield and Son Limited.
www.butterfieldbank.com
01 ISJ02 13/9/04 19:23 Page 12
sibos 2004
The theme for this year’s Sibos event, “Time for

Growth” reminds us of another topic that currently mat-
ters a great deal to the worldwide financial community -
standardisation. While the community reflects growing
optimism about the economy, it is trying to devise a com-
mon platform on which to communicate. Quite apt
then that Sibos 2004 should examine message uniformity
against a backdrop of increasing risk and cost-conscious-
ness.
Over 6,000 executives and technology managers from
the worldwide banking and securities sector are expected
in Atlanta from 11-15 October.
This figure, according to Patrik Neutjens, head of Sibos,
represents the entire financial services community and is
higher than in previous years.
In addition to the opening and closing plenaries featuring
top industry figures, three plenaries bring financial and
Getting the Message technology thought leaders together to challenge the
financial community to move industry-wide issues for-
ward to resolution.
Strengthening trust and confidence in financial services
is a key conference theme, which will explore the issue of
how to restore customer trust and confidence in the finan-
cial services industry. Highly publicised financial scandals
have dented the public’s trust and confidence in corpora-
tions, as well as impacting the reputation of the financial
services industry.
Speakers on this subject will include John Bogle, founder
of Vanguard Group, Jill Considine, chief executive officer
of DTCC, Mitchel Lenson, chief information officer of
global technology and operations at Deutsche Bank AG,
and Thomas McCrossan, executive vice president of global
services management at State Street Bank.
“The panel will debate what actions should be taken and
which market players should take the lead in rebuilding
strong relationships with our customers,” says Francis
Remacle, head of Securities Industry
Division and Member of the execu-
tive committee, SWIFT, who will
moderate this session.
Leonard Schrank, chief executive
officer of Swift, expects that the
Rudolf Siebel SWIFT community will have fully
migrated to SWIFTNet by the end of
2004. “Now the benefits really begin,”
he added.
“Leveraging SWIFTNet to Grow
your Business” will update the Swift
community on how they can best
leverage the power of SWIFTNet,
thanks to new standards, value, and
competitive pricing.
The Thursday morning plenary,
“Integrating Logistical and Financial
Patrik Neutjens Supply Chains”, will explore how the
fit between the financial supply chain
can be better linked to the physical
supply chain. Corporate enterprises
have significantly automated their
logistical supply chains. The financial
supply chain has also evolved, but at
C
M
M
01 ISJ02 13/9/04 19:24 Page 13
sibos 2004
a more moderate speed. Yet, the physical head of Global Transaction Banking longer subject to the effects of SARS and
and financial supply chains are inter- Financial Supply Chains, HSBC. Johan other terrorist activities,” he says.
linked like the double helix structure of Kestens will moderate the session. “We are still receiving a number of late
DNA. This year, Swift is organising two special bookings, which indicates that the econo-
"In many cases, the financial supply initiatives around Sibos, to leverage the my is showing signs of recovery and peo-
chains moved faster than the physical presence of key financial industry players ple are thinking about expanding and
movement of goods 10 years ago,” says in one place at the same time. investing again. “
Johan Kestens, head of marketing divi- A special programme was launched to Neutjens explains the theme for Sibos
sion and a member of the executive com- attract investment management institu- 2004: “Time for growth is something we
mittee, SWIFT, who will moderate the tions to Sibos, for them to meet key play- are hearing across a large segment of the
debate. “Today, in some industries, that ers in the securities markets and to learn financial services industry. This sentiment
advantage is gone. Goods sometimes the benefits of using SWIFT for automat- will be discussed among our delegates,
move faster than financial information. ing their operations around which were also in attendance at previous
Information about logistical movements SWIFTSolutions. conferences in Singapore and Geneva.”
sometimes moves even faster." The plena- Furthermore, in its capacity as stan- Despite the number of delegates who are
ry will bring together key players to dis- dards convergence facilitator, SWIFT is attending this year’s SIBOS event,
cuss how to link the financial supply hosting a standards forum, which will Neutjens admits that post-9/11 confer-
chain to the physical supply chain. bring together senior standards experts ences have yet to mask the scale and
Charles E. Phillips, president and and practitioners from both inside and grandeur of the Geneva event in 2002.
Member of the Board, Oracle outside the financial services industry. "This is probably because after the cancel-
Corporation, and David Taggart, vice The aim is for them to explore ways of lation of 2001, people were very happy to
president and treasurer, Coca-Cola building momentum towards standards get back to business in 2002,” he says. “It
Company, will represent corporate enter- convergence and to assess ways to pro- is no surprise that Europe-based Sibos
prises. The banking sector will be repre- mote its benefits to all businesses. events tend to attract more attendance
sented by Ann Cairns, global head of According to Neutjens, the current shape because regional delegates find it easier to
business management, ABN AMRO, and of the financial services industry will attend for a couple of days.”
Iain Stewart, group general manager and make for a good conference. "We are no Apart from attendees, this year’s exhibi-
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01 ISJ02 13/9/04 19:25 Page 14
sibos 2004 Out Front?

Compared to previous years, the asset management community has seized on
Sibos 2004 to present its chief concerns about the securities industry.
Representing 75 members, including mutual fund companies, institutional fund
companies, asset management companies and more than EUR 980bn of assets
under management, Germany’s Bundesverband Investment und Asset
tion is more than 10 per cent larger Management Association is sending a sizeable delegation to Sibos to share their
than Singapore last year. “The interest- gripes with the industry.
ing aspect here is that we allowed "There is a lack of communication between the front and the back office of the
potential exhibitors to enter as late as securities industry," says Rudolf Siebel, head of Market and Service at the BVI and
August. In the past, the exhibition was chairman of the European Fund and Asset Management Association FEFSI fund
normally sealed and delivered a few processing standardisation committee. “We need further education on the work
months prior to the event.” When ISJ and needs of both communities. German asset managers, for example, reported
spoke to SWIFT in August this year, the huge inflows into their funds in the late 1990s and a significant interest in their
Sibos organiser was still expecting con- products. Costs were not a real issue and the back office was not of paramount
firmation from a number of exhibitors. importance for every organisation. Managers were more focussed on dealing with
The number of attendees is expected to large inflows, which often meant less standardisation and more manual interven-
increase by 25 per cent, compared to tion. But the prolonged downturn in the equity markets between March 2000 and
last year. 2003 prompted a focus on the actual management of the back office, including
For many years, SWIFT has tried to costs and efficiency. Automation became important and managers began to focus
convince the fund management com- on automating trade confirmation and settlement instructions.”
munity of the value in attending Sibos. These national concerns resulted in the creation of a German standardisation com-
These efforts appear to be paying off mittee, which was later emulated at a European level. The European fund manage-
and the event has attracted the German ment community now has a healthy obsession with optimising the interface
Fund Management Association (BVI) between portfolio manager and custodian as well as the trading of fund units or
and the European Asset Management shares.
Association. A special programme aims As chairman of EAMA’s fund processing standardisation committee, Siebel is
to attract investment managers by focused on the trading of these fund units and fund shares.
extolling the benefits of using SWIFT “German portfolio managers are reporting considerable interest in Luxembourg,
for automating their operations around Austria and the Nordic countries,” he says. “By using SWIFT interfaces we have
SWIFTSolutions. issued a new market practice for the flow of messages between asset manager,
Commenting on the focus on multiple broker dealer, custodian and administrator. This enables my member firms to stan-
communities, Neutjens says: “We are dardise their internal processes. Thanks to standardisation, there is no need to
asking infrastructures, large global cus- reinvent the fund accounting system for every new client going forward. We try to
todians and other SWIFT members to standardise front / back office processes through interconnectivity. We help our
invite their investment management members to be more cost effective and enable the service providers to offer prod-
clients to attend Sibos. We expect our ucts to more people without large modifications. Similarly, the broker dealers and
special program for investment man- custodians can rely on standardised communication formats and data messaging
agers to bring a lot of traction in terms for more than one client. This should improve the efficiency and cost effectiveness
of attendance. We have also organised a of all processes.”
standards forum and invite standardis- EAMA has worked with SWIFT to achieve an internationally agreed trade confirma-
ers from all over the world to discuss tion format, based on SWIFT format MT515. The format was initially prompted by
standards convergence.” EAMA’s members, which wanted a detailed breakdown of the commissions and
The relevance of SWIFT as part of a specification for sending settlement instructions. The association has added
solution for clearing, settlement and detailed breakdowns of broker commissions as well as specifications for sending
pre-trade functions is increasing. “We settlement instructions in the international securities market practice.
are not saying we are the solution, but “We have chosen MT515 for trade confirmations between broker dealer, asset man-
we do provide people with connectivity ager and custodian” says Siebel. “Broker dealers should be able to receive orders
and standardisation,” says Neutjens. and settlement instructions from the custodian and confirm trades, via MT515 for-
“The move to SWIFTnet and the avail- mats, to the fund manager. The fund manager can then convert the MT515 format
ability of a platform that allows much into an MT541 or MT543 format in order to instruct the custodian / depository
more bespoke business solutions within bank to settle the trade.” Custodians warned the asset management community of
particular industry segments to be built the prospect of increased settlement rates if they did not send instructions in an
is getting traction in the securities area.” MT541 or a MT543 format. “We are following these standards, which are only
SIBOS has broken its record for the important if they become market practice,” says Siebel. “Thankfully, our members
number of speakers at the event. “The have agreed to implement the necessary software measures by 2006.”
total of 145 speakers and panellists is a The MT515 format is currently only implemented by about seven asset managers,
good reflection of the attendance of which accounts for $116.2bn of assets. “50 per cent of our members have imple-
securities industry participants,” says mented MT541 and MT543 in order to communicate with the custodians and
Neutjens. “I expect the US and Canada depositories,” says Siebel. “16 large London-based brokers are actively working on
will send large delegations to Atlanta MT515 projects to meet our specification.”
and a lot of US exhibitors will make a Fund management associations have moved the securities forward in a short
splash as they are playing on their home space of time. “We are happy to involve the back office in our projects,” says
turf. The Europeans come to Sibos Siebel. “We have applied for BIC codes for all of our 75 members and about half a
wherever it is. I think we have the right dozen non-members, which are Kapitalanlagegesellschaften or KAGs, and the
combination here.” whole industry will have BIC codes by December of this year. We believe the deliv-
ery of standardised messages to all of our counterparts is important.”

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INVESTOR
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TIME FOR GROWTH?

SIBOS 2004 PREVIEW
INSECURITY LENDING?
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02 ISJ02 13/9/04 19:32 Page 17
Technology
Brand
Identity
Financial institutions are failing to deliver technologies, internally

and externally, citing software as the single biggest cause for concern.
ISJ investigates the problem and the latest solution.
T echnology has caused a rush to the market by

vendors and outsourcing providers, whose products
are intended to keep the client’s cost base in check.
Recent examples of technology outsourcing include
instances where companies buy technology to incorporate
Costa Christodoulou, CEO of CityNetworks a technology
vendor who won a major outsourcing deal from Mizuho
Bank. “Centralisation can refer to the creation of one
global centre or a regional infrastructure.”
According to Christodoulou, the need for volume
internally and where systems are handed over to the ven-
dor for improvement. The latest fad is white-labelling, the Advantages of FX white-labelling
process of buying external technology and offering it as
your own. Cost reduction; an average bank's annual investment in FX dealing and treasury
Wholesale banker ABN AMRO has admitted that technology is costly and often represents a drain on valuable resources. A strategic
‘white labelled’ software for foreign exchange (FX) alliance for FX provides access to the technology investment of a major global financial
applications can improve efficiency ratios by 50 per institution and the benefits of new technologies as they become available.
cent. “All small to medium sized banks providing FX Enhanced FX capabilities; through FX white labelling partners can access the 24
dealing services in today's increasingly competitive, low
hour liquidity, risk mitigation, treasury and processing services of a global partner with
margin and high technology cost market, should con-
FX trading capabilities in all major financial centres.
sider forming an FX white labelling strategic alliance,”
it said. "This is not about surrendering control of your Integrated wholesale banking solutions; FX white labelling also allows
business, but rather finding the optimal solution to banks to access other wholesale banking services of a strategic alliance partner, for
deliver premium FX products and services," said John holistic and cost efficient solutions including trade finance and working capital services.
Nelson, global head of foreign exchange markets in
ABN AMRO's Financial Markets business. resilient infrastructures has never been more prominent.
As financial institutions centralise their operations, their “Vendors want to get as many customers onto a processing
outsourcing proposition becomes more relevant, says hub as possible. The software itself should have multiple

02 ISJ02 13/9/04 19:33 Page 18
Technology
capabilities in order to support the customers and enable lines and efficient risk strategies should be able to min-
the provider to offer management information to those imise their capital reserves and make better use of their
customers. This entails high-level systems, which can oper- funds.”
ate on a 24-hour basis. The availability of data for the end Automatic Data Processing recently acquired the U.S.
user depends on the profile of the outsourcing provider. A Clearing and Broker Dealer Services divisions of Bank of
financial organisation may provide outsourced services to America Corporation.
a number of investor-based customers. In the case of a Commenting on the transaction, Arthur F. Weinbach,
fund manager / custodial type relationship, the service chairman and chief executive officer of ADP, stated: "We
provider will seek to add differentiation in the value it are pursuing a business process outsourcing (BPO) strate-
provides to its customers e.g. through exception manage- gy in response to market demand and in light of the
ment. When a customer has an exception, the software changing dynamics of the financial services marketplace.
should be able to facilitate an investigation and report to The acquisition, with revenues of approximately $85 mil-
the customer accordingly. Software should span the entire lion, positions ADP Brokerage Services Group to provide
value chain.” both retail and institutional broker clients an integrated
solution encompassing Brokerage Processing Services
“Most financial institutions have an outsourcing (Service Bureau), Operations Outsourcing and Clearing
Services. Our BPO strategy strengthens the value proposi-
model in place in order to remain competent.” tion of our offerings to the financial services industry
As a vendor, CityNetworks’ value proposition is based on while it also opens the small and mid-tier broker-dealer
business growth, which is achieved through efficiency of segment to ADP for future growth.
operation and STP. The vendor is launching CityNet "We expect that the transaction will be approximately
Inform, an alert notification tool for senior business man- $.01 to $.02 per share dilutive in the first two years during
agers of financial institutions. Inform allows the business the integration and the initial stages of the strategy adop-
to set predefined rules, aligned to their KPI's (Key tion and accretive thereafter."
Performance Indicators) which will enable an automatic ADP, with over $7 bn in revenues and approximately
alert to be generated on screen. 500,000 clients, is one the largest independent computing
As Sibos speakers prepare for lengthy debates on STP, services firms in the world.
vendors like CityNetworks praise the concept as driver of Its international software and services arm, ADP
efficiency and better risk management. “Effecting timely Wilco specialises in solutions to support institutional
exceptions, preventing losses and penalty payments con- and retail STP operations and outsourcing. According
tinue to be a central theme,” says Christodoulou. “Proper to Amanda Fisher, product manager, a paramount driv-
use of cash reserves by financial institutions will con- er of outsourcing is cost reduction. “Despite an
tribute to growth. Similarly, organisations who demon- increase in volumes,” she says, “the bear market has
strate to the regulator that they have best practice guide- emphasised variable cost models. As a result, most
financial institutions have an outsourcing model in place
The asset management technology vendor landscape in order to remain competent.”
ADP Wilco has reported a decrease in the periods for
return on investment in outsourced technology. The com-
pany can serve any firm that is involved in securities pro-
cessing and offers a white labelling product for clients who
want to focus on their core business. ADP Wilco is directly
impacted by client consolidation. “Larger firms are looking
to consolidate their processing centres, particularly if the
vendor operates in more than one space. On the hardware
front, more is being offered over the web as evident in the
online brokering industry.”
ADP Brokerage Services Group (BPS), a division of ADP
has launched its Fee Management System (FMS), a new
tool designed to handle the complex fee arrangements.
FMS allows clients to implement their fee-based strategy
seamlessly. FMS can be integrated into ADP's Brokerage
Processing Services (BPS) back office system and includes
Source Datamonitor
Note: This table is intended to give an overview of vendor coverage only and does
the ability to update fee schedules, set minimums and
not imply any ranking / rating of individual players

02 ISJ02 14/9/04 16:01 Page 19
Technology
maximums, prorate fees over multiple accounts and apply Relative growth of asset management technology speed by
discounts. The system's enables clients to customize their location, 2003-2006
fee structure to complement the way they do business.
The system is also designed to calculate the most com-
plex fee arrangements including managed account fees,
administrative, custody and trustee fees.
"We are committed to providing the best end-to-end
solution for back office processing as evidenced by the
addition of the Fee Management System to our suite of
products," said Marianne Brown, senior vice president and
general manager of ADP Brokerage Processing Services.
"The system automates the fee calculation process and
Source Datamonitor
allows our clients to focus on their core competencies and
growing their business." In the mid-1980’s, the Basle regime for operational risk was
Apart from cost-based outsourcing, technology vendors introduced to force an increase in the capital levels of the
have identified the pressures of increased regulation and turn- banking system. “Supervisors worldwide were worried about
ed them into compliance driven outsourcing opportunities. the erosion of capital after the recession of the mid-1970s and
SunGard, for example, has addressed increased regulation felt something had to be done,” says Rowe. “The regime had to
for hedge funds through its risk management arm, Reech be revised in a way that made the regulatory capital charge
Solutions. According to chief executive Christophe Reech, more genuinely sensitive to the risks, which banks were facing.
hedge funds are ill equipped to build infrastructures for Unfortunately, Basle I fell woefully short of this. That said, a
accounting and risk management analytics because their
core business is managing money. “Certain hedge fund “Banks cannot do everything on their own and
managers don’t have the critical mass to outsource to a
vendor and will outsource to a concentrator like the Bank
they believe that technology will provide them
of Bermuda,” he says. “Administrators are implementing with a competitive edge in terms of cost.”
more vendor-based technology while hedge fund man-
agers are outsourcing their portfolio valuation, net asset more sophisticated regime for credit risk and assessment
value calculations and risk management.” would mean a lower-implied capital charge for credit risk. In
The Bank of Bermuda Global Fund Services instructed effect what banks were charging as capital for credit risk was
Reech to build GFS Risk Plus, a white labelling tool, which covering many forms of risk. The original idea of an opera-
provides the hedge fund investor with independent valua- tional risk capital charge as a separate entity from the credit
tion for complex financial instruments. GFS Risk Plus also risk charge and market risk charge was very much a plug to
provides a regulatory and compliance solution as well as per- ensure capital levels were not going to decline. Someone
formance data. “The end user of this product receives a thought it would be a good time to scrutinise banking senior
homogenised risk management solution,” says Reech. management, which lacked certain internal controls, discipline
Reech considers increasing demand for hedge fund infor- and quality management lessons. A lot of the emphasis has
mation stems from various transparency initiatives. “On the shifted from qualitative analytics, calculations and capital to
other hand, making information public carries the risk of the nitty-gritty of banks’ ability to show that they are trying to
replication,” he says. “We provide information to ensure fund improve their control processes by having early warning indi-
compliance. Vendors are best suited to provide that informa- cators for when things go wrong.”
tion. Equally, if fund managers want the hedge fund industry Rowe finds outsourcing is also based on competitive pres-
to continue growing at today’s levels, they must have the sures. “For most banks, technology is not at the heart of
necessary governance and compliance functions in place. But what they do,” he says. “They are run by people with a finan-
at the end of the day, investors would rather know the value cial background. As technology becomes more automated,
of their investment, as opposed to the risks.” there is a sense that banks should hang on to it, or they
According to David Rowe, group EVP of Sungard Trading & might lose control. But the inherent barriers to the relation-
Risk Systems, the relentless application of risk- and compli- ship between vendor and bank have begun to fall. 9/11 was a
ance-based technology over the past decade has resulted in huge wake up call. Banks have realised the importance of
an interest in operational resilience. “Although the proposed back up systems and disaster recovery, but it is very expen-
operational risk capital charge suggested in Basle II has not sive. Disasters do not happen at the same place all over the
triggered the outsourcing trend, I wouldn’t say the two world. It begins to make sense to have shared facilities to call
developments are incompatible with each other,” he says. upon as and when they are needed. This results in a less

02 ISJ02 13/9/04 19:34 Page 20
Technology
onerous burden on the cost base. Competitive pressures on (including transfer agency and other administrative func-
cost and profitability have prompted banks to take back ups tions) trend is a major source of worry for technology ven-
more seriously. Disaster recovery can be a colossal headache dors. “The outsourcing trend erodes the addressable mar-
when considering back up, the costs, and the testing of sys- ket for software vendors, who prefer asset managers to keep
tems. It doesn’t get done as well as it should. But post-9/11, their transfer agency and other back office functions in-
people have realised it needs to be done. This gives us the house so that they can provide them with the necessary
opportunity to provide evidence that our banking clients systems,” he says. “But the availability of large outsourcing
have a good track record and an adequate level of opera- providers who are willing to take over these operations
tional risk management.” from asset managers hastens the contraction of the soft-
Despite the risk management progress affected by technol- ware vendor market.”
ogy vendors, there is still a lot of cleaning up to do. “This Datamonitor is to publish a report on asset management
has been a very good market for us in the last three-and-a- technology in Europe. The research captures how, over the
half-years,” says Roe, “Increasingly banks have begun to last couple of years, large American custodians have
realise the importance of capital adequacy. For a long time expanded their traditional custody business and have taken
over the entire back office operations
of large asset management firms in
“JPMorgan, State Street and the Bank of New York are Europe.
pressured to expand their custody business, to do so they The custody industry has become
have chosen to compete for the back office of large asset increasingly commoditised. “Banks
like JPMorgan, State Street and the
management operations.” Bank of New York are pressured to
expand their custody business,”
it seemed like a low probability distant event. But the Lessner says. “They have chosen to lift the back office of
urgency was not quite the same as it was post-9/11 - a cri- large asset management operations. Fund accounting out-
sis will always focus the mind. Banks cannot do everything sourcing in Europe is a new trend, while the market for
on their own and they believe that technology will provide transfer agency outsourcing is already established. While
them with a competitive edge in terms of cost.” outsourcing provides a threat for technology vendors, it
Sungard provides integrated software on a volume basis. also urges them to re-adjust their value proposition and
“We prefer not to lease software for internal use because we change their business models. Back office outsourcing can
loose control of the quality of delivery to the end user,” says be a good market for vendors too. But they have to change
Rowe. “Our relationships work better when we provide the the way they approach the market with pricing models and
full service down to what appears on the end user’s screen. dig deeper into the scalability and functionality of their
In the 1980s service bureaus sold standard applications to systems. Outsourcers require extremely scalable migration
the purchaser, which had to bend its usage to the restric- platforms to be able to take on many asset managers on the
tions of the application. People began to buy their own same platform. The established, best-of-breed vendors will
software, as they did not want to reshape their business take advantage of outsourcing.. “
requirements in order to meet the limitations of the soft-
ware. But object-oriented programming provides certain “Custodians have set their minds
elements of customisation, in order to meet specific needs. to making outsourcing work”
Today, applications can be customised to aid general use. In
addition, banks have accepted a limited amount of stan- Technology vendors and banks have entered into partner-
dardisation.” ships for example IFDS, the partnership between DSTi and
While recent terror alerts may have hastened the opera- State Street, is a provider outsourcing for transfer agency
tional risk management projects, the infrastructural impact services. This partnership demonstrates that vendors can
is only realised over a number of months. “It would not also take advantage of the back office outsourcing trend.
surprise me if technology outsourcing picked up as a result They can penetrate the market, instead of selling directly to
of the alerts,” says Rowe. “We saw an increase in this kind the asset managers. As Lessner states “Custodians have set
of thinking post 9/11. Outsourcing is a growing tendency their minds on making outsourcing work. Similarly, asset
in the wake of Basle II and increased focus on risk is likely managers are quite happy to hand over their operations to
to continue as a result of the spread of widely distributed custodians because it means one less thing to worry about.
economies of scale.” Bank of New York has just taken over the transfer agency
According to Daniel Lessner, research analyst at business of Threadneedle. This deal shows the level of
Datamonitor, the large-scale back office outsourcing commitment from outsourcing providers.” ISJ

02 ISJ02 13/9/04 19:34 Page 21
Corporate Actions Panel
Chair - Thomas L. Brown Jr., Senior Project Manager, Fidelity
ACTION
Investments Co-chair, ISITC-IOA Corporate Actions Working Group
Thomas has 25 years of brokerage, consulting and global custody
expertise. His SWIFT and industry involvement is extensive, including
current leadership as co-chair of the Corporate Action Working Group
for ISITC-IOA North America representative to the Global Securities
Market Practice Group and member of the Boston Investment
Manager SWIFT User Group.
Amanda Fisher, Product Manager, ADP Wilco. Amanda is responsi-

ble for Corporate Actions, Retail and Private Client Stockbroking
solutions and Custody. Prior to joining ADP Wilco, Amanda was a
director of TCA Synergo and was responsible for software develop-
ment and client delivery.
Gert Raeves, Director of Business Development, CheckFree

Software. Gert joined CheckFree Software (formerly HelioGraph Ltd)
in January 2001 as Securities Product Manager. Gert is an STP spe-
cialist with expertise in business development initiatives in the
securities industry and extensive knowledge of securities standards.
Nat Sey, Manager of Delivery and Infrastructure, FT Interactive

Data. Having worked in the data provision industry for 15 years, Nat
is currently responsible for ensuring that FT Interactive Data's prod-
uct delivery capabilities are in tune with the financial market's tech-
nology and standards' requirements.
Justin Chapman, Principal Consultant, Mondas plc. Justin is a

securities consultant at Mondas and heads up its Corporate Actions
Processing area. As well as working onthe Mondas financial prod-
ucts including the Corporate Actions solution, Radica CAP, Justin is
STATIONS
actively involved in the ISITC "Systems Group", which studies the IT
implications of market standards initiatives.
Keld Jaksland, Chief Business Consultant, SimCorp. Based in

SimCorp’s London office, Keld is the UK domain manager for corpo-
rate actions and an account manager. Keld has worked in the
financial services software sector for 17 years, originally joining
SimCorp in 1990.
Marco A. Strimer, Head Marketing & Network Management, SIS

Segaintersettle AG. Marco is a Member of the Executive Committee
of SIS Segaintersettle, he is responsible for sales, customer integra-
tion & relations, training & coaching. Marco is also responsible for
the Agent Bank Network and also chairs the SIS Consulting Group
and the International User Group.
Darryl Twiggs, Product Manager, SmartStream Technologies.

Darryl joined SmartStream Technologies in 2000 as Product
Manager, with responsibility for the SmartStream Reconciliations
product range. Darryl was an instrumental part of the product man-
C omplexity, cut-offs,
conflicts and the holy grail
of automation challenge
beneficial owners and their
agents within the Corporate
agement team, driving the development of SmartStream’s TLM®
Reconciliations solution. He has subsequently driven the product Actions (CA) arena.
design and development of TLM® Corporate Actions.
In an exclusive feature, ISJ invites
Brendan P. Farrell, Jr., Managing Partner, XcitekSolutionsPlus. a panel from the World’s leading
Brendan has direct responsibility for managing all aspects of the solutions vendors to debate the
XSP Corporate Actions Solutions Business at XcitekSolutionsPlus.
He has 20 years of experience in securities operations management main obstacles to successful CA
with an extensive background in automated data management sys- solutions and discuss how they
tems for the financial industry. can be overcome.

02 ISJ02 13/9/04 19:35 Page 22

INVESTOR
S ERVICES
JOURNAL CORPORATE ACTIONS PANEL 2004
Thomas Brown Amanda Fisher Gert Raeves Nat Sey Justin Chapman Keld Jaksland Marco Strimer Darryl Twiggs Brendan Farrell
TB: What are the main challenges / bottlenecks affecting the addressed for the industry to fully embrace automation within a
corporate actions industry? global environment. But the real question that should be asked is:
Are all participants in the process from the issuer to the investor,
AF: One of the main challenges is the conflict between the desire of and all parties in-between, adding value to the chain and if not
the corporate actions operations unit to process events in an orderly should the process be streamlined?
fashion well within any event deadline to minimize the risk of miss-
ing an instruction and the need to provide the maximum decision JK: The provision of adequate data at the right time and of the
window for the front office and clients in voluntary events. This often ‘right’ (processing) quality is a major challenge. According to some
results in a last minute panic to ensure that instructions are of our customers, custodians tend to provide this data too late. This
received by the custodians and confirmed before the cut-off time, is possibly because it is not their core job and may sometimes be
which is compounded by the number of links in the chain between given a lower priority. Data vendors who supply information can obvi-
the beneficial owner and the final receiving agent and the number ously only supply information on the event itself and typically in pro-
of markets in which the security is traded. prietary formats. However, when the new industry standard format is
fully deployed, it will be easier to deliver and process the data.
GR: The rate of adoption of new technology in CA remains low. The
risk profile of CA processing has not dimished, but there is still a DT: Traditionally one of the bottlenecks in automating corporate
perceived lack of external drivers/enablers. In other words, to some- actions has been access to standard, known data and defined life-
one who wants to improve their CA process, there is no a simple, cycle workflows. SWIFT's new ISO15022 messages, designed to sup-
self-evidnet route to take, as there is in other operational areas. If port corporate actions together with the publication, by SWIFT
you want to automate order flow for instance, you will be facing a Market Practice Groups (SMPG), of information exchange workflows
market that is converging on using FIX, and a large number of ven- provides an opportunity to automate one of the areas within the
dors supplying to this market. We are not yet at that stage in CA: back office. SmartStream Technologies has built messaging and
event processing software applications to deliver a complete life-
“According to some of our customers, custodians cycle solution for managing corporate actions. However, the
tend to provide data too late.” uptake of new messages and adherence to standards by the vari-
ous participants has been slow and at times confusing. Some
there is not a clear set of choices or paths everyone can agree on, firms are yet to start their participation and remain in the hardcopy
and this is reflected in the variation between the type of CA solu- information world. New messages for corporate actions, although
tions (software and services) out there. At the same time there is supported by a data dictionary and message design standards, are
more pressure to start doing 'something' , partially because regula- open to interpretation by the different participants, of custodian
tors and compliance officers are starting to build a picture of all banks, investment managers and broker/dealers. The construction of
operational processes that impact the operational risk profile of these messages is inconsistent and often unique to individual firms.
their organisation, and CA is the 'great unknown', because so many Participants are attempting to solve this lack of clarity with an
processes are undocumented, manual, and rely on individuals' emerging hierarchical approach to data attributes - depending on
expertise. the data block in which the data appears.
The challenge for an effective corporate actions application is the
NS: The main challenge lies in achieving automation. Whilst the ability to support soft configuration of message data, preferably
industry is starting to see measurable successes, there is still a supported by a data dictionary, and the ability to apply business
long way to go. Corporate actions are complex by their very nature. rules which link data attributes.
There are many different types so it can often be critical to correctly There is a requirement to improve the implementation of SWIFT
identify each component – indeed costly if one can't. In recent ISO15022 message designs so that all participants agree the data
times, it has been fashionable to suggest that corporate actions are content of each message. All the participants must converge on a
straightforward and that they follow set formulae, but we have to single common standard to improve information flow.
examine the realities. To process corporate actions often requires
many staff with linguistic skills to undertake many manual tasks. MS: Information gathering and distribution - with the ever increas-
ing complexity - particularly as far as voluntary corporate actions
JC: The main challenges facing the industry in order to achieve the are concerned - timely, accurate and swift information and distribu-
levels of automation realised by other areas such as the front office, tion channels are needed. Quality and completeness of information -
are more than just common processes, and cannot be summed up in in general, the information received is not complete and frequently
a single statement. Reports such as Giovannini and G30 highlight inconsistent. Information on general issues and regulatory and fis-
some of the legal and cross border issues, which need to be cal conditions is lacking and must be researched by all individual

ISO15022 - Investor Services 9/10/04 6:24 PM Page 1
Speaking your language

A corporate actions language fit for the global village
FT Interactive Data’s ISO 15022 global corporate actions FT Interactive Data is delighted to offer new and existing
service went live on 2 August 2004. ISO 15022 is customers immediate access to this new global service.
considered as a positive catalyst for corporate actions
processing and can help to reduce risk and increase Clearly speaking, FT Interactive Data is helping to lead
operational efficiency. the way in global corporate actions data.
FT Interactive Data has provided global corporate Take advantage of immediate access - please call Nat Sey
actions event data for over 30 years and has a wealth on +44 20 7825 8744 or email: ISO15022@ftid.com today.
of experience in gathering, updating, validating and
delivering this data. By mapping its corporate actions data
to the MT564 event types specified within ISO 15022,
FT Interactive Data is a leading provider of financial

information and analytical software to global markets.
FT Interactive Data is an Interactive Data company

02 ISJ02 13/9/04 19:36 Page 24
counterparties in the process chain. Processing of corporate actions curacies may still exist, no matter how much data is automatically
in operations - most corporate actions are still processed manually. processed. Harmonisation requires that the same types of events
The focus is deadline-driven. This is true for all intermediaries in the (both within a given geographic region and between regions) should
processing chain, starting from the company, lead manager or main be presented consistently. Such work is currently underway by the
paying agent up to the end investor. There is no common standard global Securities Market Practice Group (SMPG). Together with the
across markets. Nearly every market has its own standards and its templates that prescribe usage of ISO 15022 messages, the SMPG's
own operational rules. contribution will be critical to the whole process. The key is to
reduce the number of alternative means of saying the same thing.
BF: The industry is faced with ever-increasing corporate actions From the format point of view, ISO 15022 is making real headway
activity – both in the volume and complexity of events. When the and the interest surrounding data vendors' acceptance to the SWIFT
markets slowed down three to four years ago, the mergers and acqui- network has increased its profile further.
sitions (M&A) business – which drives a large percentage of corpo-
rate actions activity – also slowed down. In the last 12 months, M&A JC: The industry currently has an appetite to tackle the corporate
activity has increased tremendously, driving the corporate actions actions conundrum, and on the surface the building blocks to re-
volume to an all-time high. Since firms had cut back staff to the engineer the process, and automate the still manual operating envi-
bare minimum during the quiet periods, they are now faced with the ronment, are falling into place. The level of automation achieved in
challenge of recruiting highly-skilled corporate actions specialists to the industry is still low, although improving at a slow rate, and with
handle the peak in volume. Qualified staff are not only difficult to more success stories being announced the horror stories of the pre-
find, but it is likely that they may not be
available at all. Automation manages “In today’s marketplace, financial vious couple of years are beginning to
fade. This is mainly due to the experience
the peaks because it is insensitive to institutions can no longer ignore gained by the industry, and the evolution
changes in volume, thus allowing staff automation” of product offerings that have improved
to be reassigned to more complex proj- in their core functions, and which have
ects. In today’s marketplace, financial institutions can no longer also evolved to handle the issues in message and standards usage.
ignore automation in their quest for maximum operational efficiency The main barriers include consistency in countries market practices,
and reduced cost in the processing of corporate actions. return on investment with regard to automating CA and income pro-
cessing and consistency in interpretation of message usage. MT56X
TB: What are the barriers to automation and the latest moves to messages arguably do not cover all the requirements for automated
automate the industry? processing of all event types. There is only a partial adoption of
automation across market participants, which causes a breakdown
AF: Full end-to-end automation throughout the industry is difficult in cross company STP and continued support of legacy processing.
because it relies on each market segment in the chain and because
corporate actions can be very complicated. Inappropriate use of an KJ: There are three main barriers that are slowing down the process
ISO 15022 message by one member in the chain leads to a fall in of automation. One of the barriers is caused by the complex range
the level of STP. It can be relatively simple to automate the more of different types of corporate actions, which have made standardis-
straightforward event types e.g. cash dividends. However, full ing and system automation difficult. This is exacerbated by prob-
automation can be an expensive exercise and it can be hard to put lems with information availability. The second barrier is the incon-
together a business case that gives a high enough return on invest- sistency of different market practices and local taxation. The third
ment, particularly for smaller players who may not be able to realise barrier is the time and effort required to implement the new stan-
any staff savings. ISO 15022 is a key enabler of corporate actions dards as new interfaces have to replace bespoke and outdated ones.
automation, especially when communicating with custodians and This can be particularly difficult for firms with a multiple of dis-
CSDs that utilise ISO messages, and will become more so as other parate systems. However, more and more firms are now adopting the
central depositaries roll out ISO 15022. Moves by Crest in the UK to new standards. This is leading towards the critical mass needed for
introduce electronic voting and the publication of the Myners report further industry standardisation and automation.
earlier this year will drive further automation.
DT: The key barrier to automation remains the firms’ ability to auto-
GR: Inertia, budgets and lack of consensus on the right way forward mate the corporate actions process through the implementation of
are key barriers. Most institutions are 'going it alone', i.e. they are software solutions. These barriers have been slow to come down, the
trying to automate the way they do corporate actions. But this is not initial software vendor offerings did not live up to the sales pitch
necessarily based on an understanding of a more generic improved and even today not all vendors are able to deliver a complete end to
way of doing things. There has been the usual 'hype and slam' cycle end processing solution.
where people are making a lot of noise about CA automation being There are many nuances of understanding that have been built up
the next big thing, only to be disappointed that six months later it is in the expertise of the corporate actions officers - any automation
still business as usual. CA is a complex, difficult and time consum- solution must be sufficiently intelligent to replicate this expertise.
ing project.. Corporate actions applications need to be supported by sophisticat-
NS: Automation relies on systems integration, data format inter- ed business rules to trap exceptions and pass the event through the
operability and synchronised business logic. Once different systems correct processing workflow.
/ applications are talking to one another and data standards have The information, be it received messages, security masters, client
taken a real foot-hold, the last remaining piece to the automation holding, trade information or tax regulations must be readily avail-
jigsaw will be harmonisation between global issuers of corporate able to the software application when required, in order to correctly
action notifications. Without this, uncertainties and possible inac- process the event at or before critical dates.

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02 ISJ02 13/9/04 19:37 Page 26
The timeliness of this information is critical. Reference data also overall rate of automation, through various mechanisms. Obviously,
needs needs to be made available and as with any software appli- they are being used increasing on SWIFT between account servicers
cation, this reference data needs to be accurate. and accoutn owners. More significantly, they are being adopted by
Many firms are looking at outsourcing their corporate actions the originators and intermediaries of CA data: echanges and data
operation or using a bureau service to pass the operation to a third vendors. This is not perfect.
party. This type of operation will provide a standard processing
workflow, but with standardisation comes the issue of flexibility of NS: ISO 15022 / MT564s have proved to be excellent for their intend-
operational practice and support for the more exotic event types, ed content – namely corporate actions. Just as essential to the suc-
which are dependent on the availability of real time information. cessful outcome of automation, however, is the underlying reference
MS: In principle, the barriers to automation as identified in the data: the so-called 'static' data to which a processing system must
Giovannini Report (barrier 3: national rules relating to corporate refer in order to process the event. As ISO 15022 does not cater for
actions, beneficial ownership and custody should be harmonised) such content, other standards have emerged. Market Data Definition
are very important and require urgent attention. This task was Language (MDDL) has made strides in this area, but requires
assigned to the European Central Securities Depository Association. greater take-up to really deliver value in the automated processing
The costs involved in changing the national rules are a clear bar- chain. This is where the ISO Working Group 11 (WG11) comes in
rier to automation. Also, the question as to who will make the first with the creation of a data model against which all data standards
can then be compared to ensure completeness.
“There are many nuances of understanding that have been
built up in the expertise of corporate actions officers.” JC: 15022 and the new MT56X message set have sig-
nificantly enabled and kick started the CA automation
move to a new standard does not support this change process. With revolution, but they are not a panacea. The ISO standards data dic-
any new standard there are winners and losers. Losers are potential- tionary gives all of us a point of reference, and has been invaluable
ly those who will have to change their systems or procedures. Some in helping the industry tackle the complex task of CA automation.
market participants even argue that the inefficiencies of the current But the ambiguity between country standards and the companies
standards have a positive effect on their bottom line. interpretation of these guidelines, have moved the risk from entitled
The potential to automate the industry lies in the gathering and position identification, and the risk of missing an event to interpre-
distribution of information. The best sources of information are the tation or miss-interpretation of what should be standard messages.
agents/lead managers or the company itself. Each party in the This means that solutions need to handle the exceptions generated
processing chain must add and complete the information with the by these inconsistencies, which if these messages and standards
needs of its end investor in mind. Importantly, the market partici- were nailed down would not be necessary, and the industry would be
pant involved in the process should take full responsibility and be moving towards an even lower risk-processing environment.
liable for the added information. Lastly, there is clear opportunity to
change the common standard in Europe, whereby the different mar- KJ: Standardisation will be a key factor in streamlining the whole
ket rules on ex date and record date and compensation arrange- corporate actions messaging process. This in turn will facilitate
ments are of great importance. A common standard across markets straight through processing in this area of the business.
outweighs operating risks and the costs involved in building these Furthermore, the standards will enable more efficient development
technical capabilities. of interfaces. In theory, there should be shared logic across the cus-
todians and the data vendors, so the required interface logic should
BF: Financial institutions are beginning to realise the benefits of be the same. In practice, however, the standards still leave some
automation. Not too long ago, there were 20 or more third-party room for variations and some differences in the requirement of the
solution providers claiming to offer corporate actions systems. interfaces will be inevitable. But there will still be some economies
Today, realistically, there is only a handful. Firms will only entrust of scale to be gained.
their corporate actions processing to stable and solid providers with
excellent implementation records. The level of expertise and proven DT: ISO15022 has established itself as the standard for corporate
track record of a vendor provider is essential to financial institutions actions messages. First delivered by SWIFT, other data vendors now
making the decision to automate. Advanced technology, research have active projects to provide their data feeds as ISO15022 mes-
and development, and a team backed by strong and dedicated busi- sage designs. Many corporate actions participants have initiated or
ness and technical resources allow XcitekSolutionsPlus to continue completed projects to support SWIFT messages and up until the
leading the industry with the most widely-implemented solution in start of 2004 the focus has been on the delivery of the first notifica-
the marketplace. tion message (MT564 message type). The other SWIFT messages for
instructions (MT565) and confirmations (MT567 and MT566) are now
TB: Comment on attempts to standardise corporate actions being implemented. The strongest feature of the new message
messages. designs is the implementation of a data dictionary which defines
the message structures, data attribute definitions and permissible
AF: Market practise groups in the various areas are working to stan- data tags. The weakest feature of the design is openness to inter-
dardise the use of ISO 15022 corporate action messages, which pretation of the inclusion of data attributes, data sequences and
should help streamline the process. However given that these mar- data blocks. Different firms include some important data in different
ket practices are not enforced, there is nothing to prevent individual locations in a message or at times do not include the data altogeth-
market participants from introducing their own 'style' which will er. SWIFT must improve message validation rules to filter out poorly
make it more difficult and costly to fully automate corporate actions. constructed messages. The situation is improving and firms have
GR: The ISO15022 messages are a great opportunity to increase been responsive to feedback on their message structures.

02 ISJ02 13/9/04 19:37 Page 27
MS: Standardised corporate action messages are of key importance. more consistency in the way corporate actions are handled world-
The ISO15022 standard ensures that a common data dictionary is wide. This aspect of harmonisation is not that simple to achieve as
complete. Market participants incorporate these standards into their a lot of adoption costs are involved. While low costs may be the
system environments. SIS believes and has demonstrated for many best solution for one party, this might not be the same for large vol-
years that all corporate action processes can be automated and that ume providers. An optimistic result would therefore be a compromise
full STP is possible. By involving our customers in an automated between costs on the one hand and worldwide process efficiency on
value chain we are removing risks and have vastly improved the the other.
turn-around times between the receipt of information and the advice
to customers, which leads to considerably improved deadlines. DT: Failure to plan for systems evolution. When a firm decides to
implement an automation project budgets are drawn up and allo-
BF: While ISO 15022 messages provide a big step in the right direc- cated. Additional budget will be required beyond the completion of a
tion, these only facilitate intra-institutional communication and project implementation. Message designs and market practice rec-
firms still need to embrace other communication mechanisms for ommendations will evolve over the next five years and these reforms
non-SWIFT interactions. The standardisation of actual corporate and improvements can only be realised if firms provide funding to
actions announcements and their global processing requirements adopt them. If the changes are not adopted then status quo is
are very far off. In the absence of standardised processing, an auto- maintained.
mated corporate actions engine becomes increasingly important in “By involving our customers in
allowing participants to compile and process information from TB: Refusing to recognize
diverse environments. the benefits of automation an automated value chain we
for smaller operations? are removing risks.”
TB: What are the main threats facing the industry?
DT: Many firms have small corporate actions teams, which consist of
AF: One of the main threats facing the industry is that of vendor about one or two people. It would be short sighted to ignore the ben-
longevity. In the past two years the number of vendors has efit of automation even for very small teams. Automation not only
decreased not just in the corporate actions space but for securities improves operational efficiency, but it also centralises data, making
processing generally. This makes it essential that industry partici- it quickly and consistently available and reportable to interested
pants take account of the financial stability of any organisation with parties inside and outside the corporate actions team.
whom they place their corporate actions business. Corporate actions is one component of the back office and is a
From an efficient best practice governance standpoint the Myners participant in the complete trade workflow, from inception of a trade
report is putting more pressure on organisations to offer proxy voting to its settlement and securities movement. The deployment of
to their clients, against the threat of 'name and shame'. automation within corporate actions must participate in the com-
plete STP model for the back office as a whole. The output from a
GR: There are three threats: doing nothing, doing nothing, and doing corporate action event will create cash and securities movements,
nothing. FX trades and confirmations and cash management implications.
This output should be part of a wider information model that defines
NS: With the implementation of automation comes the critical need the complete information flow across the back office.
for data accuracy and quality. The demands on data vendors by
those within the asset servicing industry will inevitably be focused BF: The main threats facing the industry include ever-increasing vol-
on every aspect of data quality. umes, more complex offerings, multi-market processing nuances,
class actions and risk management.
JC: Apathy is a serious threat – work has only just started, and pro-
cessing improvements will only increase if the industry works TB: From a solution provider's perspective, what industry segment
together to deliver cost effective solutions that can be adopted is showing the most active push to automate corporate actions
across all market participants in a standard way. Corporate actions (i.e. custodian, IM, broker/dealer, etc). What segment is behind
automation is happening, but unless senior representatives across the curve? What approach are you taking to address the latter?
the industry back the current market initiatives, the evolution could
stutter and not realise its full potential. AF: The larger organisations are most active in seeking to automate
corporate actions processing. It can be more difficult for a small
KJ: We don’t see any major threats for the industry. However there operation to produce a viable business case, which delivers ade-
will be some risks and unwanted side effects. For example, a large quate return on investment. Looking at shareholder voting most
amount of time and effort is needed by customer and system vendor markets do not have the US type regulation, relating to pension
in order to adapt to the new standards. We expect that the full funds and mutual funds, and instead operate on a best practice
implementation of the standards across the whole industry and for basis. ADP Investor Communication Services is actively working
all event types to take years, but the benefits in terms of better with all areas of the market, including issuers and regulators, to try
information and more efficient processing will become apparent to increase the usage of proxy voting.
immediately as the standards are being adopted with the benefits
growing with the increased use of the standards. GR: The early adopters in the market were the investment banks,
because they had the requirements, and the teams required to
MS: We do not see any threats – the industry is on the right track. implement the projects. As the market matures, the emphasis
We actively support the current moves to create new standards etc. seems to have moved to asset servicers such as custodians, fund
that will help to remove risks and inefficiencies. The benefits may be administrators and insourcers.

02 ISJ02 13/9/04 19:38 Page 28
NS: The SWIFT migration during 2003 is sure to have provided a GR: Again, this validates the use of a shared data model, based on
healthy push to automate – certainly investment managers will now ISO15022. This will make it easier for firms to automate between
be much more familiar with the ISO 15022 standard. In general, different sources of CA information (custodians, data vendors,
data vendors have shown a keen interest in ISO 15022 developments exchanges). If all value-added processing (such as data validation,
and the establishment of the Market Data Provider User Group automated workflow processing, entitlements, notifications, settle-
(MDPUG) is proof that the vendors are willing to work together in ments, etc) can derive from a single normalised data model, it great-
order to ensure a consistent presentation of ISO 15022 to the market. ly reduces the external integration risk associated with CA projects.
It will be interesting to see which of the participating vendors will be
able to provide live services within a reasonable time-scale. NS: FT Interactive Data released the first phase of its live ISO 15022
JC: With the introduction of ISO15022 the key market participants, release on 2 August 2004 – the greatest benefit being the degree of
including custodians, investment banks and broker dealers, all transparency that the standard affords. The more progressive ven-
embarked on CA projects to migrate from ISO 7775 to ISO15022. dors such as FT Interactive Data are also in the process of estab-
These projects were mandatory, but in my view did not embrace the lishing a connection to the SWIFT network. Here the opportunities are
opportunity to re-engineer processes to deliver maximum benefit. ease of service implementation and the secure connection.
Currently it would appear that the earliest opportunity for complet-
KJ: The push comes mainly from the investment managers, who ing a connection will be within the mid-October time frame.
require better corporate action decision analysis support. They also
want support for decision transaction flow to enhance the selection JC: The advent of a propriety data vendor MT564 can only be good.
process for different corporate actions. In addition investment man- The new feed services allow clients to electronically compare apples
agers want to be able to process instructions, confirmations and with apples and in doing so, the industry can truly compare both
settlements more efficiently. As a first priority, we are developing market and proprietary data for both timeliness and accuracy. As a
support of the ISO15022 standard for the investment managers seg- software provider this allows us to take in data from vendors provid-
ment of the industry. We expect that the full implementation of the ing an MT564 without maintaining multiple proprietary mappings
standards across the whole industry and for all event types to take into our core product, which reduces both our development and sup-
years, but the benefits in terms of better information and more effi- port overheads and allows us to offer a much more aggressive pric-
cient processing will become apparent immediately as the stan- ing to our clients.
dards are being adopted with the benefits growing with the
increased use of the standards. KJ: The main advantages arise from the ability to get early and reli-
able delivery of corporate action notifications through a secure
platform. This will reduce the dependency on custodians deliv-
“What would help us even more, however, is if all ering notifications early. In addition, with the availability of
data vendors were forced to use ISO15022 and to take multiple sources, it is possible to have early validation of data
received from, for example, a custodian, thereby highlighting
responsibility for the information distributed..” any data inconsistencies.
MS: We generally support open interfaces and easy ways of distrib-

DT: Custodians are traditionally the first to implement solutions that uting information. What would help us even more, however, is if all
reduce their risk to claims. In the corporate actions arena custodi- data vendors were forced to use ISO15022 and to take responsibility
ans have followed this tradition and all have some level of automa- for the information distributed. The establishment of ISO15022 mes-
tion. It is the custodians' actions that have driven other partici- sage designs has been recognised by the market data vendors. Most
pants, particularly investment and asset managers to initiate senior vendors are involved in pilot projects with SWIFT to deliver
automation projects. The custodians are demanding SWIFT message their vendor feeds to an ISO15002 standard.
support. The broker/dealers are yet to make a significant move to
automate Corporate Actions processing. DT: The establishment of ISO15022 message designs as the de facto
message standard has been recognised by the market data vendors.
MS: SIS has been offering automated corporate action processing for As a result today we see most of the senior vendors involved in pilot
many years. In respect of increased functionality, accuracy, timeli- projects with SWIFT to deliver their vendor feeds to ISO15002 stan-
ness of information and deadlines, the strongest requirements come dard. The challenge of the market data vendors is to map their mes-
from customers who act on behalf of other professional market par- sage definitions, that is the event types and data attribute defini-
ticipants (hedge funds etc). tions to the ISO15022 data dictionary. Most market data vendors
have more event types than are supported by ISO15022, this is the
TB: Comment on the new opportunities that can be realised fol- first rationalisation step and will benefit the industry through a
lowing the admission of data vendors to SWIFT and what efforts common understanding of an event type. In return the market data
are underway to integrate this information with your products. vendors will apply for new data attribute definition to support better
description of an event.
AF: The SWIFT initiative should make it easier for institutions to SmartStream are supporting market data vendors in a number of
switch between data vendors without the need to build new inter- projects at different customer locations. Using the SmartStream
faces into their corporate action solution, and will make the market TLM® Corporate Actions software application data vendors are able
more open. We have a published API which is ISO 15022 compliant to map their messages into the software and track the automated
and enables our clients to take in whichever feed they wish to. processing of the data.

02 ISJ02 copy Janet 16/9/04 18:11 Page 29
BF: The admission of data vendors to SWIFT will contribute to its

efforts in establishing wider adoption and acceptance of ISO 15022
How far can you
messages as an industry standard. However, from our perspective,
it will have little impact on our processes as XSP currently supports
almost every major corporate actions data provider, over 30 unique
go with corporate
interfaces to date.
TB: Comment on current solution provider efforts to seek har-

actions?
monisation of disparate market practices (i.e. ISITC-IOA, Global
SMPG, country specific, and so on).
AF: The requirement to support disparate market practices is one of

the biggest challenges for any global solution and is not restricted
“The requirement to support disparate

market practices is one of the biggest
challenges for any global solution and
is not restricted to corporate actions.”
to corporate actions. We continuously monitor market practice
developments and incorporate these in our products when appropri-
ate in line with client demand.
GR: The initiative is a start, but it needs to be much more focused,

with a unifying set of objectives and timelines in order to make a
difference
NS: The initiatives being undertaken by these groups are of course

very welcome, but the large-scale benefits will only be realised when
their solutions are integrated and the global market has one set of
guidelines to follow. Subsequent to that, some form of regulatory
catalyst may be required to really kick start adherence to standard
practices.
> Event Calendar
JC: Mondas is represented in many of the leading industry groups
and has an insight into the issues that these organisations are try-
ing to tackle. But perhaps more important are the issues raised by > Proxy Voting
our live clients, which has meant that our solutions have to be flexi-
ble enough to be able to iron out any issues around non-adherence Workplace Portal
to standards. In many cases where standards do not cover the
issues raised, our solutions identify and control these exceptions to
avoid total breakdown of STP. > Voluntary Action
KJ: The work has come a long way. However, it is inevitable that a Workplace Portal
number of further revisions will be required. In the meantime, our
system will be adapted for the different nuances in market prac-
tices. > CAES Utilities
DT: SmartStream is an active participant in many domestic and
global work groups, including SWIFT, ISITC and SIA Corporate
Actions. SmartStream's strategy is to deliver a single architecture Our answer is: really far. And what’s more, you can go really far
platform to support the automation of all back office operations, without leaving your desk. For instance, you can proxy-vote
including corporate actions as a component in that architecture. with your Internet browser, no matter where the General Meet-
This approach rationalises the need for system and data redundan- ing is. You can rely on high quality corporate event messaging
cy. SmartStream is able to contribute to the discussion and deci- and streamline your notifications workload with multilingual
sions of these work groups, based on practical implementation of text blocks. And there’s so much more to CAES, Corporate
automated solutions to all the top and middle tier financial services
organisations over many years. Actions Enhanced Services, by SIS SEGAINTERSETTLE AG. Go for it.
BF: While it is extremely difficult for the industry to reach consensus

on such harmonisation, XSP has addressed these issues in its offer- Now you’re working state-of-the-art.
ings by investing heavily in providing flexible functionality that
allows our clients to seamlessly process data from all global mar-
kets. This encompasses multi-market rule sets, extensive security
cross-referencing, standing instructions, withholding rate process-
ing and other global nuances.
ISJ
Member of the SIS Group
SIS SEGAINTERSETTLE AG, Brandschenkestrasse 47, CH-8002 Zurich, Phone: +41-1-288-4511
Fax: +41-1-288-4512, office@sec.sisclear.com www.sec.sisclear.com
02 ISJ02 13/9/04 19:39 Page 30
Corporate Actions
Corporate Actions are

potentially a world of
pain or a world of
promise but are new
standards being
Standard
ignored and at what
cost? Rekha Menon
investigates for ISJ.
Foil
O ften seen as the last bastion takeovers, mergers, early redemptions
of manual processing, the cor- and dividend payments are just a few
porate actions industry is under examples. A single event may involve
intense pressure to get its house in order. hundreds of different market partici-
From the Giovannini Group to the G30, pants (including custodians, fund man-
corporate actions have been highlighted agers, broker/dealers and depositories),
with monotonous regularity among the ultimately cascading down to thousands
key areas that need remedial action. of investors. Each of these participants
faces high risk because
corporate action pro-
“Each of the participants faces high risk because corporate cessing is complicated,
deadline-driven, not
action processing is complicated, deadline-driven, not standardized, and, to a
standardised, and, to a large extent, still manual.” large extent, still man-
ual, according to the
report.”
Earlier this year, the US Depository Trust
& Clearing Corporation (DTCC) spon- SWIFT
sored a study by UK based economic Although it is unanimously agreed by
consultants Oxera to quantify the risks industry experts and practitioners that
associated with corporate actions pro- the need of the hour is to automate cor-
cessing. The porate actions processing, this is easier
research concluded said than done. Lack of standardisation
that the global remains one of the main obstacles to
securities industry achieving automation.
faces risk of multi- While SWIFT’s ISO 15022 message
Christopher Wyle billion-euros, and format is considered the defacto stan-
individual securi- dard for corporate actions and has been
ties firms face around for sometime, initially the take
potential risks that up was slow and it is it is only of late
could run into tens that financial institutions have started
of millions of adopting the format for corporate
euros from just one complex corporate action messages. “ISO 15022 is a very
action event. Christopher Wyle, VP of intellectually sound data model, but
Asset Services at The Depository Trust & actual physical take up has been limited.
Clearing Corporation (DTCC), states, Primarily because use of the standard
“Close to one million corporate actions was limited to the SWIFT network and
take place every year worldwide. Rights due to the inertia in the market. But
issues, tender offers, conversions, now we see it gain momentum,” com-

02 ISJ02 13/9/04 19:40 Page 31
Corporate Actions
ments Gert Raeves, business develop- products. It creates more work for us,” SMPG is to harmonise corporate actions
ment director at corporate actions solu- says Darryl Twiggs, Corporate Actions as much as possible and to document
tion provider, Checkfree (formerly Product Manager at SmartStream differences in individual market prac-
Heliograph). Raeves gives the example Technologies. Agreeing with him, Justin tices,” states Catherine Marks, Manager,
of London Stock Exchange which Chapman, principal consultant at corpo- Business Solutions and Securities
recently announced its decision to offer rate actions solutions vendor, Mondas Strategy at SWIFT, which acts as a facili-
corporate action announcements using points out another critical aspect tator to the SMPG.
the ISO15022 format. London Stock impacting corporate actions standards, SWIFT itself has initiated a corporate
Exchange is the first stock exchange to regional markets and their peculiarities. actions operations forum in April this
implement this standard and industry “There are over 250 countries each can year that includes the top global custodi-
reports suggest that other stock have differing market practices and tax ans, investment managers and
exchanges will follow suit. treatments as well as different usages of broker/dealers - the aim being to agree
In addition, market data vendors too the ISO 15022 standard. A standard on the interpretation of ISO 15022 mes-
are working towards implementing the becomes a non-standard when there are sages. Describing the work of the corpo-
15022 standard. At SIBOS in Singapore lots of variations.” rate actions operations forum, Marks
last year, Swift announced a market data Well aware of these issues, it seems says, “SWIFT is working closely with
pilot to allow commercial providers of that the securities industry is now work- large institutions directly focusing on
corporate action announcements to ing with a vengeance to resolve the prob- resolving the key operational issues
deliver data in the ISO 15022 format lems related to corporate actions stan- faced while processing corporate
over its SwiftNet network. Four data dardisation. According to Chapman, actions.” Often criticised for not getting
vendors, FT interactive Data, Reuters, there are currently no less than 14 differ- involved in the implementation of stan-
Telekurs and WM Datenservice, have ent working groups looking at this dards it creates, Marks says that this
already signed up to the pilot. whole standardisation issue! Wyle of effort proves that SWIFT is willing to get
DTCC says, ”Both the International involved.
Grey areas
Notwithstanding these developments,
the delayed take-up has created its own “A standard becomes non-standard when
set of problems. “Many firms are still there are lots of variations.”
printing out ISO 15022 messages and
manually typing the data into internal
systems. Also because there wasn’t wide- Securities Services Association and the
spread adoption over the last 18 months, Securities Industry Association in the Forecast
there are several different interpretations U.S. are promoting initiatives to provide With so many ongoing initiatives, will
of 15022 currently in the market,” points clear, consistent and uniform corporate the corporate actions industry’s woes
out Brendan Farrell, managing partner action information in prospectuses and soon come to an end? Not so soon, it
at XcitekSolutionsPlus, a technology proxies. Other organizations are also seems. While Marks of Swift is opti-
company that develops a corporate involved in this, while securities markets mistic, Chapman of Mondas states that
action processing system. So although groups all around the world are working only up to 80% of the differences will
two custodians might be following the to develop best practice guides for the get resolved in the next couple of years
ISO 15022 format, due to different inter- use of the ISO 15022 corporate action while the remaining could take much
pretations, there might be slight differ- message standards.” longer up to a decade to fully resolve.
ences on how they present the same data The problem can only be resolved by a
- one of the main disadvantages of a Group effort second wave of harmonisation, suggests
standard being too open. Industry With corporate actions one of its key Raeves of CheckFree saying that anom-
experts state that most of the leading focus areas, the SMPG along with its alies in corporate actions standards will
financial institutions that have adopted associated National Market Practice remain due to market differences. “These
the ISO 15022 standard for their corpo- Groups works to create globally har- are fundamental differences that are out-
rate actions systems, like Mellon, Bank monised market practices and is com- side the realm of operational processing
of New York and JP Morgan, have differ- mitted to the vision that standards in of securities, and can only be resolved by
ent interpretations in place. conjunction with defined market prac- legislators and financial authorities. The
tices will bring the industry closer to its need is for an organisation that has the
Different strokes goal of achieving STP. “It would be mandate or the desire to standardise leg-
“To resolve the subtle variations in unreasonable to expect to have a single islations and regulations between differ-
corporate action messages, we have to bible of corporate actions that is accept- ent markets.”
include additional business rules in our ed across all countries. The role of
ISJ

02 ISJ02 13/9/04 19:40 Page 32
Corporate Actions - FT Interactive Data
Automating Corporate Actions

- The increased interest in data standards
The business drivers for automating Messaging standards
corporate actions data are as relevant Data vendors need to standardise how data is described – and the format in which it is delivered –
to enable data from multiple sources to be compared more easily.
as ever, and the continued efforts of
the various industry participants – Data standards are all about improving current practices to increase efficiency in the financial
practitioners and users alike – have industry. As such, the successful implementation of a data standard depends on that standard’s
certainly ensured that it remains high ability to grow from the four essential building blocks that enable automation: an electronically
on the industry agenda. Nat Sey, understood format; sufficient coverage; high quality content; and a method of dealing with excep-
tions.
FT Interactive Data’s manager of
delivery and infrastructure, looks at In addition to this, the standard itself will consist of three components. Firstly, the formulation of
the increasing role of data standards a data dictionary containing a common and shared vocabulary that will reduce error and misun-
Often thought of as highly complex, corporate derstanding. Secondly, a data structure containing a hierarchy that adds depth and meaning to
actions automation can seem like a daunting the content. Thirdly, and perhaps most essential, industry acceptance – without this the end
task. Is the current means of processing the result would fall far short of the aspirations of a standard, and it could only be considered as just
data so bad anyhow? When one considers the another format. It is this industry acceptance that holds the key to the promise of increased effi-
drivers behind the increasing interest in data ciency.
standards, suddenly all becomes clear. Those
two compelling arguments of cost and risk Formats of old were written with very different priorities to those that we face today. Their aim
reduction form a very persuasive case. Cost was to convey the greatest amount of meaning in the smallest amount of space. This mass load-
reduction comes in the form of reduced over- ing of data items with content was remarkable given the limited storage and narrow bandwidth of
heads: if you can count on a machine to make the day, but it was a disaster in the waiting for usability and ease of interpretation. Times have
fewer errors than a human when processing changed. Now we can more or less forget about the technology and concentrate on the business
corporate actions data – and do it more quickly – needs – and that can only be a good thing.
then why not use the machine? The opportunity
for risk reduction comes from identifying the The main benefits of data standards such as ISO 15022 are often seen by the industry as increased
areas where the machine can be relied upon; it rates of STP, greater transparency and therefore reduced operational risk. Cited as one of the
also comes from diverting some of that previous- obstacles to automation in the Giovannini Group’s ‘Second Report on EU Clearing and Settlement
ly over-stretched resource towards the other Arrangements’, published in April 2003, the lack of harmonisation within the corporate actions
more esoteric and therefore risky event types. space has long been an area of industry concern. Many believe that industry standard data for-
mats can facilitate the path to harmonisation.
Such talk, however, assumes our willingness to
trust the machine in the first place. So what is ISO 15022
the bottom line? Are automated processing sys- ISO 15022 has already made a huge impact and continues to do so. Since its introduction in
tems able to process a worthwhile portion of January 2003, usage of ISO 15022 for sending and receiving corporate actions messages grew
corporate actions data? It is clear that the globally by 23 per cent up to September 2003 (from a presentation by SWIFT at STP Information
answer will depend greatly on the implementa-
Services’ event ‘Delivering Corporate Actions Solutions’, 27 November 2003).
tion in question – that combination of data con-
tent and software application.
The ‘Corporate Actions Automation Survey 2003’ published on 16 May 2003 by CityIQ, and jointly
commissioned by SmartStream and SWIFT, seemed to echo this in concluding: ‘Many within the
Recent analysis of FT Interactive Data’s corpo-
rate actions content shows that the event break- industry cited that they considered ISO 15022 a positive catalyst and a liberating force for corpo-
down is approximately 94 per cent income, 3 per rate actions processing.’ 53 per cent of respondents felt that ISO 15022 messages will have a sig-
cent capital change, and 3 per cent mergers and nificant effect on industry and business.
acquisitions. Closer inspection of those events
reveals that 99 per cent of income events, 98 Work undertaken with the Securities Market Practice Group (SMPG) created a set of templates
per cent of capital changes, and 75 per cent of that stipulate the correct usage of ISO 15022, and at last provide a tangible standard for corporate
mergers and acquisitions are fully coded. actions. Although the templates cover most eventualities, there is still some way to go: fine-tun-

02 ISJ02 13/9/04 19:41 Page 33
FT Interactive Data - Corporate Actions
ing will doubtless be required to derive the greatest benefit from greater degree of understanding of the standard for all con-
the standard. However, for the first time ever in the history of cerned and in the long run should result in far more robust
securities data processing, the degree of required interpretation implementations of ISO 15022.
will be significantly reduced. Of course the goal is to reduce this to
an absolute minimum: i.e. that which cannot be automated. ‘The result of all the enthusiasm for data
standardisation is that, in a landscape
FT Interactive Data has paid close attention to the SMPG tem-
where interpretation was once king, the
plates and since 2 August 2004 has offered an ISO 15022 service
based on the most frequently occurring event types . new governors will be quality, reliability
and added value’, Nat Sey
FT Interactive Data’s ISO 15022 service MDDL

Given that Market Data Definition Language (MDDL) is XML-
The first phase of FT Interactive Data’s ISO 15022 service based, clients are on the cusp of implementing a new technology.
became available on 2 August 2004 Consequently, they are moving forward in fits and starts. FT
Interactive Data is populating its data into the MDDL model based
This new ISO 15022 service is the culmination of significant devel- on client demand and is currently focusing on descriptive data
opment work by FT Interactive Data to map global corporate through a web services interface.
actions data from its proprietary formats to the MT564 event types
specified within the industry data standard. Releasing the facility FT Interactive Data is still very active in the development of the
as a module within its already popular FTS portfolio administration MDDL model itself and was a prime mover in the recently
service means that FT Interactive Data’s existing – as well as new announced versioning methodology for MDDL.
– customers can take advantage of the immediate access.
WG11
FT Interactive Data’s Nat Sey comments: ‘It is this outstanding Whilst the work on standards that has taken place over the past
degree to which our databases are fully coded that has resulted in few years is very encouraging and is likely to make the industry
the far speedier mapping of that content to the standard – ulti- much more efficient, there is a snag – and that relates to content
mately this has meant that we are able to bring this benefit to our not covered by standards.
customers at the earliest opportunity. Our ISO 15022 development
has been able to bypass the otherwise lengthy and costly ‘codifica- To deal with this issue, an ISO working group – WG11 – has been
tion’ phase. established to create a market data model against which existing
standards can be compared. WG11 has excellent industry represen-
‘We have participated in open standards forums for a number of tation and the gap analysis will therefore be a much more produc-
years and are pleased to report that standardisation in the indus- tive exercise. The output should provide standard bearers with a
try is alive and well. Initiatives such as the Market Data Provider clear view of their particular standard’s development path.
User Group, Reference Data User Group and ISO Working Group 11
are all contributing towards making an even playing field, with The desire for automation would appear as strong as ever. The
fantastic transparency upon which the more dynamic data ven- signs are all there: a standard messaging format via ISO 15022, the
dors can build real added value. Easier access to that added Giovannini Group’s framework for harmonisation, continued com-
value is achieved because the more vanilla offerings are easier petition between the solutions providers in streamlining processes
to process, and as a result, this frees up valuable resource to and providing workflow… With these developments the major bar-
concentrate on the integration and execution of those added riers to automation can be overcome.
value components.
‘We estimate that the volume of events that can now be output as FT Interactive Data, a leading provider of financial information and
MT564 messages on a daily basis is now in the high 90 per cent analytical software to global markets, has been a provider of corpo-
range and additional coverage will be added during the coming rate action event data for over 30 years and has a wealth of experi-
months.’ ence in gathering, updating, validating and delivering corporate
action data to back office environments
SWIFTNet FT Interactive Data is an Interactive Data company

SWIFT conducted its Market Data Vendor pilot throughout the
first six months of 2004, allowing vendors to connect their net-
work and users the opportunity to access normalised vendor www.FTInteractiveData.com
files created in ISO 15022. This initiative has led to the birth of
the MDPUG (Market Data Provider User Group) where data ven-
dors meet in order to establish principles of agreement on the
implementation of an ISO 15022 based service. This has led to a

03 ISJ02 13/9/04 19:45 Page 34
Analyse This... Transfer Agency Systems
What’s on the minds of TA systems providers lately? ISJ invites the comments:
Straight Talking Perfect Timing

David White, marketing director, Mutual Fund Technologies Ciarán Whooley, European support manager,
Global Investment Systems
Over the past 18 months particu-
lar attention has focused on two key There has been a noticeable trend
areas of developments: Workflow over the past number of years
and Straight Through Processing whereby fund promoters and invest-
(STP). GFAS, Mutual Fund ment managers are demanding not
Technology’s global transfer agency just far greater access to informa-
system for retail and institutional tion but in a much more timely and
back and front-office administration, tailored fashion.
has developed an integrated mod- Administrators that have not
ule, called Workflow. It enables upgraded their technology are strug-
users to streamline their business gling to meet these demands, and
processes, delivering improved efficiency, customer quality and are losing business where reporting flexibility, streamlined dis-
higher confidence in data accuracy. bursement and web capabilities are not in place. While there has
MFT’s STP module, GFAS Message Exchange, enables automat- been a slow ramp up period within the industry on utilisation of
ed processing of trades without the need for human intervention. the web, the benefits it brings with real-time information access are
The module enables the STP of ISO 15022 SWIFT FIN message now considered key for any transfer agency service provider.
formats, to and from GFAS. MFT has built message adapters to Being in a position to provide investors and broker / distributors
handle SWIFT message formats sent via Clearstream’s Vestima with secure on-line methods of order entry, inquiry and report
and Euroclear’s Fundsettle platforms, as well as providing the abil- download brings much added value. Investment managers also
ity for distributors to deal direct via SWIFT. Upcoming develop- benefit from real-time access to key information in relation to
ments include the migration to SWIFTNET, which places GFAS in pending orders and cash estimates.
an ideal position to extend message development to the new XML Another challenge faced by administrators is providing a single
message formats that SWIFT are promoting. platform, with flexible outputs, for the full range of funds in a pro-
GFAS administers in excess of 7 million accounts, over 5000 moter’s portfolio. Many promoters who have had the traditional
funds and over US$ 200 bn on behalf of over 60 fund groups. mix of mainstream fund types (money markets, open ended,
closed ended etc.) are now looking to add alternative investment
Is Big Really Better? funds (e.g. hedge funds with complex performance fees) to their
fund portfolios. In a highly competitive market, TA administrators
Mark Culham, client and sales manager, FundSoft are feeling the need to adopt a defensive strategy in taking on this
business rather than turning it over to one of the alternative invest-
Being a new niche provider in a ment specialist administrators.
market where the domination of the The considerable range of regulatory requirements would appear
bigger players and pressure to offer to be increasing exponentially each year. Anti-money Laundering,
better services at lower costs cer- the EU Savings Directive, tax reporting and a myriad of other
tainly brings it’s challenges, but reporting dependant on domicile of the TA, fund and investor each
there is another side to the story. present their own individual challenges. Having the maximum
Since its conception in January level of automation and controls is proving key to administrators in
2004, Fundsoft has fought against their constant battle against increased headcount.
the trend of outsourcing to keep its
inherited client base.
That said, the company has man-
Changes
aged to stabilise its client base and is starting to pick up an Bill Hookings, managing director, Retail Funds Services,
increasing number of enquiries from clients of outsource providers The Bank of New York
who are disillusioned with their quality and cost of service.
As a niche player, overheads are generally lower than the bigger
My involvement in the transfer agency market started in 1991.
players. We don’t pay for new business and we don’t have huge
In those days we received deals and queries via the telephone
expensive offices. In a word, we watch our costs very carefully as
and post, had separate systems with sub-registers for PEPs and
any healthy business should do.
savings schemes. Settlement was via cheque.
Subsequently, we are able to pass on these savings to the clients
Thirteen years later things have changed radically. The best sys-
by offering ‘tailored’ solutions to suit the their businesses at some
tems now support all mainstream UK products (Open Ended
25 per cent cheaper than other providers and on more flexible
Investment Companies, Unit Trusts, PEPs, ISAs, Investment
terms.
Trusts, Equities, etc.). They have STP support for Internet access.
This ethos doesn’t impede our quality of support either. We
They also provide consolidated investor reporting. The take up
don’t have any staff turnover in our service support teams, which
of electronic communications is slow and paper still dominates.
gives us stability. Fundsoft’s recipe for the future is simple: best
Therefore integration of the TA system with Image and Workflow
service, best cost with best solutions.
is essential. We like to think that BNY, with our RUFUS platform,

03 ISJ02 13/9/04 19:45 Page 35
Analyse This... Transfer Agency Systems
pioneered a number of these changes. requirement to invest in technology is even greater than in
Where is the UK now? We the UK market. Support is required for the European Union
still haven’t solved the settle- Savings Directive, SWIFT, Clearstream’s Vestima, Euroclear’s
ment problem, but more of Fundsettle, OTC trades, FX, the National Securities Clearing
that later. The TA world has Corporations (NSCC), etc.
become more complex. BNY are already TAs in the UK, Dublin, Luxembourg and the
Increasing regulations, more Channel Islands. We see the benefits of providing a single
distribution channels and even Pan-European system and have invested in our RUFUS plat-
more products have con- form so that we can provide this capability to our clients
tributed to this. All of this today.
increased complexity has Let’s come back to settlement. A lot of excitement has been
meant that investment in tech- generated by the new SWIFT XML message set for funds and
nology has been substantial BNY agrees that it provides a good opportunity to standardise
and continued investment into the future is essential. and increase the level of STP which can be achieved.
What about the wider European market? Many fund man- However, it still does not resolve the settlement issue in the
agers have fund ranges domiciled across the major offshore same way as NSCC achieves in the US.
centres and domestic markets. These are often outsourced to This is the major challenge for Europe. In our view this will
separate TAs running different systems. Sadly the fax machine only be solved with the major TAs working together to create
is an integral part of the TA operating environment. The and deliver such a solution. We look forward to this challenge.
T A Systems Key Feature Review

To help in the comparison of Transfer Agency Systems and their applications and review current client feedback, including on
those discussed opposite ISJ publishes Barrington Partners ‘Systems Key Feature Review’.
SYSTEM KEY FEATURES
PROVIDER: Database Type Multi- Offshore Mkt EU US User Comments

SYSTEM NAME Domain /Equalization Market Market
BONY: Microsoft SQL Server CC CC Clients overall commented that RUFUS is a ‘great system’ offering ‘comprehensive functionality’
RUFUS version 2000 in a ‘user-friendly’ manner. Clients also noted that support is very good and proactive.
ENVISION: Microsoft SQL Server CC CC Clients liked the overall flexibility and user-friendliness of the system, commenting that Envision’s
PowerAgent version 2000 or strategic initiative of partnering with experts to gain additional functionality and ‘best of breed’
approach is the right direction to be focused on.
Sybase
GIS: Interbase 7.0 SQL CC CC CC CC Overall, GIS clients interviewed cited vendor flexibility as an asset. Clients commented that
MSHARE Database or Oracle 9i GIS staff was responsive and diligent and were also pleased with the strength and effectiveness
of their relationships with the vendor.
SQL Database
IGEFI : Oracle 9.2.0.3 CC CC Clients generally commented that Multifonds was a “very powerful tool” believed the modern
MultiFonds TA Enterprise Edition and flexible technology/architecture behind the system to be sound and scalable. Overall,
IGEFI staff was commended for ‘strong relationships, responsive support and
consultancy, with appropriate escalation as necessary’.
IFDS CANADA: Progress 9.1 Database CC CC Clients generally observed that vendor viability and credibility were key strengths.
iFAST or SQL Server or Processing reliability and scalability, in combination with IFDS staff knowledge and
performance were also noted strong points.
Oracle
KOGER: Sybase SQL Anywhere CC CC Clients generally considered NTAS ‘extremely open and flexible, user-friendly, with a highly
NTAS or Microsoft SQL serv- evolved equalization capability and transfer agency functionality’. Some clients expressed
the opinion that the system has more functional points than any other licensable system. In whole,
er
clients saw the system as an equalization system that also supports transfer agency.
MFT: DB2/400 Database CC CC Several clients commented that the system is highly scalable and commended its processing through-
GFAS put capabilities. A number of clients also noted that from a benchmarking standpoint, the system is
‘substantially above all of the others that are available in the marketplace’. One client commented that
MFT as an organization provides very good support and has always responded when needed.
RIVA: DB2 Version 5.2 of CC ID CC As the system is not yet in production, Barrington Partners was unable to conduct client interviews
RIVA TA iSeries OS which form the basis of a system’s overall strengths and weaknesses.
SILICA: Oracle 9i or Microsoft CC CC Clients commented that Silica is flexible and helpful to their clients. It was observed that the
FISCUS SQL Server system is very stable. The first user reports almost no downtime and a new client who is
finalizing their contract to use Fiscus reports that the firm was well organized, very professional
and methodical throughout the selection process.
TRANSFER Microsoft SQL Server CC CC Clients consistently used the word ‘flexible’ to describe functions such as establishing a fund, a fund
SOLUTIONS: 7.0, or SQL Server family, shareholder, dealer and representative requirements for fees, reporting and access. Overall
system users found the system itself stable and problem-free in operation and upgrades.
VisualFAST 2000 (Enterprise Ed),
CC - Current Capability Source: Barrington Partners
ID - In Development

03 ISJ02 13/9/04 19:45 Page 36
Hedge Fund Administration
Selling… style that is here to stay and recognise that it is playing an

increasingly important role in the global financial markets. If
financial institutions are interested in these developments,
Selling… Sold. which invariably they will be, then they will be interested in
getting more involved in the hedge fund market and one way
of doing that is by acquiring a hedge fund administration busi-
Love them, hate them or fear them, it ness. Administration may be a relatively low margin business
but when performed well it does provide the opportunity for a
seems hedge funds will be around for a full back office outsourcing service to hedge fund managers.
long time attracting interest from service With a typical staff compliment of less than 10 people, hedge
fund managers are inclined to outsource as much non-core
providers. activity as possible.”
Five years ago, financial institutions were loath to the idea of
Retailisation
net asset value and regulatory compliance. Nowadays, however,
Punters have for long held the view that alternative invest-
increased regulatory provisions for hedge funds have prompted
ment funds will someday befit the tastes of the retail investor.
these firms to wake up and smell the alpha. Financial institu-
But service providers prefer to reserve this kind of stargazing
tions are writing cheques for hedge fund administrators and
until various structural issues have been addressed. “Single
speculation about further deals continues to escalate. The main
strategy hedge funds mostly do not offer full transparency to
reason for these deals is so that institutions can gain expertise
investors,” says Smith. “Also, the underlying funds into which a
in the alternative arena. Previous acquisitions of Hemisphere by
fund of funds is investing are unquoted securities and the
Bisys, the Bank of Bermuda by HSBC, Forum Financial by
underlying asset managers can be unregulated institutions.
Citigroup and Tranaut by JPMorgan.
These factors tend to make hedge funds appear
more risky and as such do not hold major
Whereas traditional funds are liquid and publicly appeal for the public sector in their current
traded, many alternative instruments lack liquidity form. If the industry wants to move into the
retail sector they have to begin to address some
and are, therefore, difficult to value.” of those deficiencies. Authorities should allow
people to short stock in order to pursue hedge
Acquisition
strategies. Once the infrastructure has been built, there is no
Why are fund administrator acquisitions so important? The
reason why these funds shouldn’t be made available to the retail
short answer to this question lies in the variety of hedge funds
investor.”
that have appeared on the radar screen, compared with the
The possibility of retailisation is somewhat thwarted by top
supply of administrators who can service them.
indices, which have reported negative returns and a slowdown
The hedge fund industry is full of start-up managers, who
in the rate of assets moving into alternative funds. Hedge funds
have one or two products each. The Bank of Bermuda, for
produced a negative return of -1.26 per cent in July, bringing
example, provides services to over seven hundred hedge fund
the 2004 year to date return to +0.97 per cent for the
managers. The client to product ratio is lower in the hedge
Hennessee Hedge Fund Index. All of the specialist market
fund administration industry, whereas traditional fund
indices suffered declines for the month (see pages 40-41).
administration may involve one client and as many as 40 or 50
Thousands of funds now manage a record $850 bn in assets
different products. One of the most significant changes for
but their image as guaranteed generators of absolute returns
administrators as a result of the growth in hedge funds, is the
has taken a serious knock. However, Smith remains upbeat
increasing importance of client relationships. The industry is
about the near future. “If enough money chases an arbitrage
moving fast and the rate of proliferation of products is grow-
opportunity, that opportunity disappears and the return tends
ing rapidly. “Administrators will also be required to service
to the norm,” he says. “The sustainability of hedge funds is a
more varied product types apart form traditional bonds, cash
question of the growth in markets and investment opportuni-
and equity funds,” says Paul Smith, head of global fund servic-
ties on a global basis. Stock markets will continue to grow and
es at the Bank of Bermuda. “Alternative funds include private
pricing inefficiencies will occur. There will always be opportu-
equity, fund of funds and hedge funds. Hedge funds them-
nities for managers to maximise in the global markets. That is
selves range from long-short equity to mortgage-backed secu-
at the core of hedge fund or alternative investing. It’s about
rities. Whereas traditional funds are liquid and publicly traded,
allowing smart people to do clever things.”
many alternative instruments lack liquidity and are, therefore,
Despite his chipper outlook, Smith believes that nothing lasts
difficult to value.”
forever: “I can predict, with absolute certainty that the growth
The acquisition of Bank of Bermuda has set the agenda for
rates of the last few years will not continue into the indefinite
institutions, which are beginning to question what the large
future,” says Smith. “That is unsustainable. The last 18 months
asset manager of the future will look like. Will it resemble a tra-
have been great but growth will slow.”
ditional asset management company, a hedge fund manager or
a hybrid of the two? Smith explains: “The reason major organi-
Information
sations like HSBC are buying fund administrators like Bank of
Nowadays, hedge funds expect their administrators not only
Bermuda is that they perceive the asset management world to
to provide traditional services like shareholder registration and
be changing. They regard hedge fund asset management as a
fund accounting, but also to offer the trade order management,

03 ISJ02 13/9/04 19:46 Page 37
risk analysis, performance measurement, regulatory compli- latory authorisation, oversight and supervision. The Act
ance, and other functions originally provided by the prime bro- requires hedge fund managers with 15 or more investor clients
kers. But who should provide the information to enable in a fund and more than $25 million under management to
investors to make an educated decision about whether to get register under the Act, to examine a fund and count each
into hedge funds? Initially posed by Alan Greenspan, chairman investor in a fund or fund of funds as a client. According to
of the US Federal Reserve, this question highlights the unregu- Ernesti, the Act will drive many fund managers to outsource
lated nature of the hedge funds industry, including managers parts of their business to third party administrators.
and their products. “The information that is available requires "Outsourcing provides transparency for their investors, who
mining and it can often be confusing in the way it is present- draw comfort from having a third party independently value
ed,” says Smith. “There are no data standards as yet and retriev- their portfolios. With the anticipated registration requirements
ing information involves liaising with the custodian, adminis- of the SEC, it is anticipated that many fund managers will out-
trator and fund manager. There is no standardisation or central source their back offices to independent administrators."
exchange of information. There are possibly two ways of recti- Prior to their acquisition, Forum Financial’s hedge fund port-
fying this situation a) regulate the fund manager or b) legislate folio was slightly shy of $5bn of assets under administration.
the fund. The SEC is currently collecting information because That figure has doubled following the acquisition by Citigroup.
they want to understand the market and control the effect “We are also cross-selling to heritage Forum Financial the
hedge funds can have on the market. So they are probably breadth of Citigroup’s capabilities and solutions,” says Ernesti.
going to be slightly disingenuous in some of the ways
they approach the information gathering exercise.”
There is little doubt that as more hedge funds fall under
“I can predict, with absolute certainty that
the regulatory microscope, the role of the administrator the growth rates of the last few years will not
in ensuring the sustainability of these funds and protect-
ing the investor will also be questioned. “The administra- continue into the indefinite future,”
tor of a hedge fund- is not required to have a high profile
compliance function,” says Smith. “Most alternative investment In purchasing Forum Financial, Citigroup acquired a 15-year
products do not have overly stringent investment restrictions. track record in hedge fund servicing and a thorough under-
Hence the administrator’s role is recordkeeper, rather than standing of the various investment structures. “We understand
fiduciary. This characterises the bulk of hedge fund – adminis- the complexity of servicing hedge fund vehicles,”
trator relationships in legal terms. Administrators will obvious- explains Ernesti. "New structures are constantly being intro-
ly take a different spin on how they discharge their duties. As duced which require administrators to work with lawyers,
hedge funds become more retailised, then more onerous accountants and tax consultants in order to properly service the
responsibilities will be placed on all parties to ensure adequate vehicles. It is important to understand how to service the asset
transparency, reporting and investor protection.” managers. I expect there will be further consolidation within
the hedge fund administration industry. The integration of
Multiple strategies Forum’s capabilities into Citigroup was smooth and efficient, as
Hedge funds themselves have also begun to follow multiple we didn’t have these capabilities prior to the purchase."
prime broker strategies for financing purposes. This trend pres- Apart from a fledgling hedge fund administration capability,
ents many opportunities for fund administrators. If trades are Citigroup can, through its prime broker wing, offer fixed
executed with multiple prime brokers, or risks are spread across income and equity liquidity to hedge fund managers and also
several counterparties, the fund administrator can provide a act as a clearing prime broker.
risk management solution that covers the entire portfolio. Once appointed as administrator, Citigroup works with the
The multi-faceted Citigroup will have no doubt thought investment manager to fully understand the fund’s investment
about this when it bought Bermudan administrator Forum style, strategy, pricing requirements and subscription redemp-
Financial in December last year. Citigroup Alternative tion set up,” explains Ernesti. "In a stand alone hedge fund
Investment Group services both stand-alone hedge funds and structure, we work with the prime broker to ensure that the
fund of funds structures in the alternative investment industry. reconciliation process between ourselves and the prime broker
"We entered the growing hedge fund administration space to works efficiently. In a fund of funds structure, we set up proce-
further service our clients in this area," says Richard Ernesti, dures with the underlying fund’s administrator to ensure that
global head for alternative investment administration at we receive the NAVs on a timely basis."
Citigroup. "We work with every prime broker and large hedge Hedge fund experts say the growth of the market will be driv-
fund manager in the market.” en by new investment by endowments, foundations and both
Citigroup is focused on servicing both onshore and offshore private and public pension plans. These investors are looking
fund structures as well as structures in Bermuda, Cayman and for reassurance through transparency. “Ultimately, the fund
the British Virgin Islands. The organisation is hoping to enter manager is responsible for educating the consumer of the
the market in Germany, Luxembourg and Dublin towards the investment style, strategy and investment returns of the fund,”
end of 2004. says Ernesti. “A certain level of transparency can be achieved by
The forces driving Citigroup’s Forum acquisition include pre- hedge fund managers outsourcing hedge fund administration
vious growth in the hedge funds industry and increased regula- and valuation work to an independent third party administra-
tion for these funds. The Securities and Exchange Commission tor such as Citigroup. As administrator, we are not involved in
has proposed the adoption of a rule under the Investment the education process, but what we can do is assist to provide
Advisers Act, which will subject hedge fund managers to regu- transparency.”

03 ISJ02 13/9/04 19:46 Page 38
Small scale ice providers to diversify,” he says. “The growth in hedge funds
The latest multinational to announce an administration buy- has been far more rapid than in mutual funds. When Bisys
out is JPMorgan, which is set to take full ownership of Tranaut acquired Hemisphere in 2002, institutional investors were
Fund Administration, a hedge fund administration services interested in hedge funds but many were nervous about prior
company. The acquisition of the company, thought to have cost scandals and fraud stories. As hedge funds become more main-
JPMorgan about $25 million, is a strategic addition to the stream we are seeing greater institutional backing for these
organisation’s services that are already offered to hedge funds funds and more appetite for alternative investments from insti-
and institutional investors. These include clearance, collateral tutional investors service organisations now deem it necessary
management and cash management. to build or acquire hedge fund administration expertise in
Commenting on the Tranaut purchase, Conrad Kozak, head order to meet the new demand of their clients.”
of strategic business development for Treasury and Securities Some organisations deem it necessary to acquire hedge fund
Services at JPMorgan says: “We identified a significant gap in administration expertise in order to hang on to their clients.
our hedge fund service offering that was administration. From “There are still risks associated with servicing hedge funds and
a pure operating services model, it would be difficult to say you providers have to be aware of the pitfalls,” says Daly. “Hedge
are committed to the hedge fund segment if you can’t offer funds are often difficult to value and they can stretch an insti-
administration services. We have looked at entering this side of tution’s technology to the maximum. They often invest in com-
the business for the last year or so. We decided that, given the plex derivative instruments, which are being created on an
ongoing basis. The proliferation of these over the
“With the anticipated registration requirements counter instrument types present serious chal-
lenges for an administrator’s systems and process-
of the SEC, it is anticipated that many fund es.”
managers will outsource their back offices to Administrators like Bisys, which has about $95
bn of hedge fund assets under administration, are
independent administrators." confident that alternative funds will be around for
the long term. Daly explains: “However, the indus-
availability of an appropriate company, we would rather buy try might be better served using more specific terms such as
than build because it’s a faster, more dependable way of getting long-short funds, global-macro funds and convertible arbitrage
into the market. Tranaut has an excellent reputation as far as funds rather than the generic label of hedge funds. It would
client service is concerned and culturally, we felt they would be now be difficult to imagine a market without hedge fund
a good fit for our business.” strategies because of their ability to make money in varying
JPMorgan was reluctant to fully-assimilate the business of market conditions.”
Tranaut and instead decided to cross-leverage the strengths of With a few months lead on the US, the UK regulated hedge
both entities. “We want to leverage our relationships, brands, funds before any major scandal could blemish the industry.
purchasing power, systems, processing capabilities and main- The UK Financial Services Authority is often referred to as flex-
tain the identity of what is essentially a compact company,” says ible in its approach to UK hedge funds, which are more robust
Kozak. thanks to the FSA’s rules. Administrators will play an important
Out of 300 administrators in the market, JPMorgan shortlisted part in educating the investment management community and
about 10 names to aid the purchasing decision. Although three guiding them through ongoing regulation. But Daly points out
of them satisfied screening procedures, Kozak admits that pre- that regulation also presents opportunities for administrators.
vious acquisitions in the market made the decision slightly dif- “Administrators will play an important part in educating the
ficult. “Many administration firms, which were acquired over investment management community and guiding them
the last 12 months were among the best and we found the mar- through this ongoing regulation,” he says.
ket extremely tight,” says Kozak.
JPMorgan is confident of sustainable growth in the hedge Opportunity
funds industry, despite what indices may suggest. “There will In July 2002, State Street purchased International Fund
always be demand for accounting and NAV services for funds Services, which is located in Dublin and New York. The acqui-
that are more complex than long short funds, fund of funds sition was fuelled in part by the mainstreaming trend toward
and strategies that do more than just buy stocks,” says Kozak. hedge funds by institutional investors, who allocated between
In acquiring Tranaut, JPMorgan has the ability to ensure hedge two and five per cent of their assets to these funds. "In 2001, we
funds are compliant with their strategies. “If that is a service observed the trend of hedge funds moving from the purview of
required of the administrator either by the fund manager or rich and famous and into the mainstream," says Gary Enos,
the regulator, we are only too happy to provide it,” says Kozak. executive vice president and head of alternative investment
services for State Street. "By 2002, demand was heating up and
Setting the trend extending beyond the surplus that would have been available in
Hemisphere was one of the first hedge fund administrators to the market place. Administrators were faced with a build or
be acquired by a major organisation, namely Bisys. According buy decision related to the types of systems, which needed to
to Ronan Daly, co-president of Bisys Hedge Fund Services, be built in order to accommodate the growing market.”
growth in hedge fund servicing has surpassed the mutual fund Transparency initiatives in the US mutual funds industry
industry, which is suffering from reduced asset levels. "Mutual focussed on the ability of administrators to separate the rela-
fund service providers have been hurting, whereas hedge fund tionship between fund and broker. State Street’s purchase of
assets have been growing and providing opportunities for serv- IFS allowed it to provide transparency without disrupting this

03 ISJ02 13/9/04 19:47 Page 39
relationship. “This is a great opportunity for administrators, "Onshore, the purchasing drivers are investment return and
while prime brokers continue to offer administrative services asset allocation. The offshore/-onshore decision does not have
for their own accounts. But in a competitive institutional arena, much to do with hedge funds. Dublin was one of the first juris-
the demand for a proven administrator will have an advantage dictions to put a custodian between the prime broker and the
to win the day." fund. Luxembourg is following that model and is a centre of
According to Enos, the freedom bestowed upon fund man- choice for offshore funds. The Channel Islands is seeking an
agers to use more than one prime broker does not impact easier way to do business and compete with these jurisdictions.
directly on the administrator. "State Street can interact with This has as much to do with strategy as it has to do with
almost any prime broker, but the reality is that the top three or options for registering offshore funds."
four prime brokers already cover about 80 per cent of the
transactions," he says. "But giving the manager the
freedom to pick best execution is what the industry “Giving the manager the freedom to pick best
wants, especially in light of increased regulatory
scrutiny.” Regulatory calls for increased informa-
execution is what the industry wants, especially
tion concerns most hedge fund managers and fol-
lows a proposal for fund manager registration.
in light of increased regulatory scrutiny.”
"The information flow comes from the hedge fund manager, Who will be next?
while the fund has a fiduciary and reporting requirement to As financial institutions focus on the philosophy of “bigger-
uphold," says Enos. "The information gap is a result of is-better”, speculation about the next administration takeover
increased reporting requirements, which do not pertain directly looks set to continue. Punters have suggested that it won’t be
to the hedge fund manager, but exist to protect the investors. long before Dutch bank and administrator Citco is made an
Meanwhile, one of the main goals of the regulators is a better- offer. But when contacted, the company’s spin-doctors refused
educated buyer. This is why fund-of-funds have become popu- to comment on the likelihood of a takeover. With assets of
lar. These are registered funds that are easy for buyers to under- about $200 bn under administration, it is believed that Citco
stand and the reporting requirements are there to provide carries a price tag of between $800m and $1bn. While further
information." acquisitions are expected, recent consolidation has meant that
In many instances, the choice of hedge fund domicile is large- the options are now few and far between.
ly dependent on taxation principles. ISJ
"People buy offshore funds for tax reasons," says Enos.
providing confidence through performance
Q: Why do fund managers worldwide

outsource their administration
to Trident Trust?
A : Aresponsive,
proven 25-year track record of providing
accurate and personal service
by dedicated and knowledgeable personnel.
For information please contact: Europe: Gavin Lief +44-20-7935-1503 • glief@tridenttrust.com

www.tridenttrust.com
Americas: Mario Novello +1-212-840-8280 • mnovello@tridenttrust.com
BA H A M A S • BA R BA D O S • B R I T I S H V I R G I N I S L A N D S • CAY M A N I S L A N D S • C Y P R U S • G U E R N S E Y • H O N G KO N G
ISLE OF MAN • JERSEY • MAURITIUS • SWITZERLAND • UNITED KINGDOM • UNITED STATES • U.S. VIRGIN ISLANDS
03 ISJ02 13/9/04 19:47 Page 40
This Table shows the value of Hedge Fund Assets Under Management contrasting Q2 2003 with Q2 2004. In Q2 Distressed Securities
and Mortgage-Backed strategies lead the pack; Macro and Emerging Markets strategies experience reversals of fortune.
Increase / Increase /
Q2 2003 Q2 2003 Q2 2004 Q2 2004 (Decrease) (Decrease)
Index Industry Assets Inflow/Outflow Industry Assets Inflow/Outflow Industry Assets Inflow/Outflow
HFRI Convertible Arbitrage 40,032.51 996.825 48,477.29 745.54 0.17 (0.25)
HFRI Distressed Securities 29,987.50 -1,337.18 39,149.37 818.85 0.23 (1.61)
HFRI Emerging Markets (Total) 17,318.44 797.377 25,412.37 1,235.04 0.32 0.55
HFRI Equity Hedge 211,979.07 -150.383 256,193.31 1,643.28 0.17 (11.93)
HFRI Equity Market Neutral 21,152.94 2,116.89 19,531.16 -677.983 (0.08) (1.32)
HFRI Equity Non-Hedge 28,903.94 562.223 37,803.56 842.225 0.24 0.50
HFRI Event-Driven 83,977.77 2,072.42 109,081.49 890.765 0.23 (0.57)
Source: Hedge Fund Research, Inc - August 2004

HFRI Fixed Income: Arbitrage 15,236.66 789.937 18,990.65 -19.19 0.20 (1.02)
HFRI Fixed Income: Convertible Bonds 501.279 -145.924 755.254 33.728 0.34 (1.23)
HFRI Fixed Income: Diversified 12,713.68 -238.6 15,650.40 -243.569 0.19 0.02
HFRI Fixed Income: High Yield 1,895.56 142.815 3,308.79 69.609 0.43 (0.51)
HFRI Fixed Income: Mortgage-Backed 17,529.16 1,211.96 23,086.33 550.661 0.24 (0.55)
HFRI Macro 78,973.81 9,311.68 104,693.83 42.515 0.25 (1.00)
HFRI Market Timing 4,472.08 77.181 3,719.82 -75.571 (0.20) (1.98)
HFRI Merger Arbitrage 12,325.59 -455.984 14,192.14 89.801 0.13 (1.20)
HFRI Regulation D 900.089 -80.85 1,346.91 166.5 0.33 (3.06)
HFRI Relative Value Arbitrage 86,067.96 5,632.36 104,769.84 1,722.80 0.18 (0.69)
HFRI Sector (Total) 37,884.51 -778.786 37,817.45 -384.375 (0.00) (0.51)
HFRI Short Selling 1,933.62 -79.276 1,923.74 70.912 (0.01) (1.89)
HFRI Fund Weighted Composite 703,786.15 20,444.68 865,903.71 7,521.54 0.19 (0.63)
HFRI Fund of Funds Composite 243,733.27 17,227.68 317,368.72 4,480.27 0.23 (0.74)
more pressure on getting investment managers to

register. Singapore is also very open to the indus-
Hedge Funds - Asia-Pacific View try, but wants to keep it regulated.
*Is there enough information out there in the industry
Centre the Dragon for investors to make a decision on whether to invest

in hedge funds and who should provide this informa-
tion (fund manager, custodian or administrator)? -
Traditionally, hedge funds have not been keen on pro-
viding a lot of disclosure on their portfolios. But there
The hedge fund industry in Asia gained over $3bn of new is a trend towards greater transparency. Many of the
assets in the second half of last year. Andrew Dipkin, smaller investment managers are more willing to pro-
manager of Citco Fund Services in Australia, talks to ISJ vide this information to garner and keep assets. A
Fund's board of directors is obliged to ensure the
about growth in the region. proper operation and the timely disclosure of infor-
mation. Administrators play a role by independently
*Comment on the growth of hedge funds in the Asia Pac region and how they affect services validating the operations of the fund and are a source
providers. - Over the past year there has been a lot of growth in the region. In the second half of information for investors. Administrators cannot be
of last year, Asia gained over $3bln of new assets. But growth slowed in the first half of 2004 the sole source of fund information. More of the insti-
due to the turbulent markets tutional investors are expanding their due diligence to
include all aspects of a hedge fund instead of solely
*What types of alternative investment funds are most popular in Asia Pac at present (from an looking at the trading activities. I'm not convinced the
asset servicing perspective)? - Mostly long short equity as well Asia-ex Japan, but there is also a average retail investor, on its own, could digest full
lot of interest from Korea, Taiwan and China. These emerging markets are not as turbulent as disclosure. Its better that they rely on investment pro-
others are but trading them can be difficult if you don't have the proper relationships. We are fessionals or institutions to help them understand
starting to see more sophisticated trading strategies like risk arbitrage and derivative trading. hedge funds.
Australia is also starting to show signs of maturation with more multi strategy, fund of funds
and fixed income vehicles being offered. *Going forward, what role will service providers like
Citco play in ensuring the future of hedge funds and
*Comment on the extension of the investment threshold to make hedge funds more accessible protecting the end investor in Asia Pac (i.e. tax, regu-
to the retail investor. - Australia is trying to bring hedge funds to the retail investor. The lation, compliance)? - Citco already has the systems
Australian banks are offering them through their retail banking platforms and superannuation in place to accommodate the increasing sophistica-
plans are offering them as part of their investment mix. tion of Asian based funds. Our global approach gives
*Are there any moves afoot to regulate the Asian hedge funds industry? - The Australian fund us the backbone to ensure regulatory compliance in
industry is regulated by the Australian Investment and Securities Commission, which is all jurisdictions. In tax , we are constantly monitoring
very focused on protecting small investors. A good example is the amount of detailed the landscape and expanding our pool of tax profes-
disclosure in an Australian Fund's Public Disclosure Statement, the compliance regime sionals to help ensure our clients remain informed.
these funds require and the requirement of a Responsible Entity. Hong Kong is putting ISJ

03 ISJ02 13/9/04 19:47 Page 41
Hedge Fund Sector Review
HEDGE FUND ing the confluence of market conditions

during the quarter that were particularly · The $23 billion Fixed Income:
SECTOR ENCOUNTERS adverse to the many hedge fund invest- Mortgage Backed Securities cat-
ment strategies. Despite an overall egory posted more solid results,
decline in performance during the sec- up 1.8 percent on the quarter
HEADWINDS IN ond quarter, the HFRI Fund Weighted and 5.2 percent so far this year.
Composite still measures 2.7 percent Based on the continued health
SECOND QUARTER year to date while total asset flow into of the mortgage industry, this
the Industry stands at $30 billion. category has now notched seven
2004 consecutive quarters of positive
“Less-than-ideal trading conditions for growth, and has had only had
hedge funds were characterized by sud-
den reversals in market trends and low one negative quarter since Q3 of
levels of pricing differentiation between 2000.
Negative One Per Cent assets,” said Joshua Rosenberg, presi-
Quarterly Sector-wide dent of HFR. “With the majority of asset · The $105 billion Macro cate-
classes moving in a highly correlated gory, which makes leveraged
Performance of HFRI bets on anticipated price move-
fashion during the quarter, and in an
Composite IndexRepresents environment of historically lowlevels of ments of stock markets, interest
First Retreat in Six volatility, it was difficult for hedge funds rates, foreign exchange and
Quarters. to find pockets of opportunity. Given the physical commodities, saw a
difficulty of these market conditions, we performance return of negative
take it as a good sign that the industry 3.3%, its first down quarter
only gave up one per cent.” since Q3 2000. Despite the
After Five Strong Quarters Asset loss, the category is still up
Inflows Slow Considerably 0.34 per cent year-to-date. The
category also saw a notable cool-
In Q2 Distressed Securities and Top Category Stories ing of asset flows, with only $42
Mortgage-Backed strategies lead the million in new money for the
pack; Macro andEmerging Markets A close examination in the data quarter, bringing year-to-date
strategies experience reversals of fortune. available in the Q2 2004 HFR inflows to $3.5 billion. This rep-
report reveals a number of inter- resents a significant decline
esting trends from across the 19 from the hefty 2003 pace,
Hedge Fund Research, Inc. (HFR) distinct categories of hedge
released its analysis of the hedge fund which saw just over $28 billion
funds that HFR tracks. of inflows into the strategy.
industry for second quarter 2004. In its
first quarterly decline since a negative Please note that all performance
3.9% drop in Q3 2002, the HFRI Fund · The $25.4 billion Emerging
Weighted Composite Index, which meas- figures are based upon the HFRI Markets sector, which invests in
ures performance across all hedge fund Monthly Performance Indices. foreign securities or the sover-
sectors, averaged negative 1.0% per- eign debt of developing coun-
formance on the quarter. In addition, · The $39 billion Distressed tries, saw a steep 5.0 percent
after four quarters in which asset Securities category, lead all decline in Q2, its first quarterly
inflows averaged nearly $21.2 billion per hedge fund categories in the decline since Q3 2002. The per-
quarter, and never dipped below $19.6 quarter, notching a 3.2 percent formance, which HFR attributes
billion, Q2 total inflows slowed to $7.5 return in Q2. Year to date, the to the cooling of the Chinese
billion. Combining these inflows with the category is up 8.2 percent, also economy and the market turbu-
slightly negative quarterly performance leading all others. HFR attrib- lence caused by Indian elec-
resulted in hedge fund assets under utes these results to the singu- tions, represents a sharp reversal
management increasing slightly to larly strong quarterly perform- of the 39.4 per cent perform-
$865.9 billion, up from $864.7 billion at ance of high yield bonds that ance gain achieved in all of
the end of Q1. were somewhat more immune 2003 and the strong 9.7 per
from the interest rate risk cent gain in Q1
According to HFR, these results can be affecting the investment grade
seen as modestly benign when consider- debt market. ISJ

03 ISJ02 13/9/04 19:48 Page 42
Pensions
Sweating lateral; the custodian bank will then take that collateral
and invest the sum in a cash vehicle at, for example, a 2
per cent rate of return. The custodian negotiates with the
investment bank, at the time the loan is agreed, a rate of
Harder interest, which, for example, is 1.5 per cent. The differ-
ence between the two figures is the profit.
In this example, a profit of 50 basis points is achieved;
this then is split between the custodian and the pension
fund. While the split does vary on a case-by-case basis,
the lion’s share of this profit is always earned by the pen-
The pressures on pension funds are sion fund.
Benjie Fraser, managing director, head of sales at The
well documented: high exposure to Bank of New York says the growth of securities lending is
equities during falling markets coupled encouraging. He says: “Whereas five years ago there was a
lot of theory talked about securities lending, we are now
with increased longevity. The combina- seeing more and more pension funds actively engage in
tion is guaranteed to dampen any securities lending programmes.”
Margaret Harwood-Jones, head of global sales and rela-
scheme surplus. tionship management at BNP Paribas adds: “Within
Trustees are now increasingly faced securities lending two main models are competing: the
agent model, more widely used in the UK, and the prin-
with the unenviable task of searching cipal model, more common in many continental
for additional revenue in every compo- European markets where the global custodian acts as sin-
gle counterparty for the fund.”
nent of a scheme’s portfolio in a bid to
cut scheme deficits. And now that Commission Recapture
Commission Recapture has been coming into fashion
search is extending to custody man- since the Myners Report. It is a service used to recover
dates. James Wallace reports. commissions paid to brokers. In a commission recapture
programme, clients direct their managers to trade with
The backdrop in the custody industry is one of market specified brokers who rebate a percentage of the commis-
change. Custody as a stand-alone business is dead. The sion back to the client’s account. Clients can then use
“plain vanilla” core custody offering – comprising safe- these rebates to simply reinvest back into the fund.
keeping of assets, settlement of trades, collection of Peter Williams, head of international marketing at
income, reclaiming tax, corporate action processing, vot- Northern Trust says: “Commissions are often recognised
ing proxies, reporting and accounting – now accounts for as assets of the fund and that it is a fiduciary’s responsi-
only a handful of the services offered by custodians. bility to manage these fund assets. Most commissions are
Put simply, client-driven demand has seen custodians’ bundled – that is, they include a charge for both trade
services multiply. And importantly, some of these com- execution and investment research. The research, howev-
ponents generate revenue to help sponsoring employers er, may not benefit all clients equally, so some clients may
tackle pension scheme deficits. In this respect, custodians subsidise others.
have three key tools at their disposal. They are: “Commission recapture allows a client to unbundle
commissions and pay only for execution. Proactive man-
- Securities lending agement of this asset can help to maximise investment
- Commission recapture returns while increasing cost efficiency by converting
- Cash management commission expenses into cash inflows.”
Each of these components is now part of a standard Cash management

custodian brief. So how do they work? The final component to generate revenue to help slash
scheme deficits is cash management. The process of cash
Securities lending management can vary considerably across different pen-
Essentially, securities lending involves collateralised sion schemes. Some pension funds look to custodians to
loans of eligible securities to specified borrowers in administer cash and provide a panel of cash funds to
return for a fee. Borrowers are mainly investment banks invest in on a triple-A basis.
that need to borrow securities in order to settle their Some pension funds want the custodian to provide a
trades. The process attempts to increase revenue from cash management service by providing a standalone
dormant securities through lending in exchange for col- short-term investment fund (STIF). Finally, some pen-
lateral, typically in either US dollars or euros. The collat- sion funds simply want the custodian to be very active in
eral is usually worth between 102 to 105 per cent of the working the fund managers, making sure they under-
value of the securities. stand exactly what is available in terms of cash and be
Pension funds are protected because they have the col- proactive in securing the best returns possible.

03 ISJ02 13/9/04 19:48 Page 43
Pensions
Jeff Conway, managing director at web-based reporting, compliance moni-

State Street, says: “We will not – through toring and regulatory reporting across
these three components – solve the multiple currencies, multiple asset class-
underfunding problem over night but es and multiple investment managers are
that is not to say we can’t significantly something custodians specialise in.
enhance pension fund returns. But secu- Taking this pressure off the client allows
rities lending, commission recapture and them to save money and allocate
cash management are increasingly com- resources elsewhere.
monplace. In this way, pensions funds Here the line between custodian serv-
are starting to act more and more like ices and investment management servic-
asset managers in their valuation of how es begins to blur. Those custodians
to achieve highest returns.” which have fund management sub-
Harwood-Jones says Above Benjie Fraser (left) and Peter
its role as global custo- Williams,
dian allows it to virtual-“Whereas five years ago there was a lot of theory below Jeff
Conway and
ly aggregate the bal-
ances of its clients into
talked about securities lending, we are now Margaret
a master cash pool seeing more and more pension funds actively Harwood-
Jones.
which than receives an
attractive interest return
engage in securities lending programmes.”
for the consolidated
long position. sidiaries also offer passive investment
She adds: “Alternatively we can offer management as part of its overall holis-
our clients to sweep cash into a STIF tic solution.
with a triple-A rating which has specific Conway adds: “Our investment manage-
cut-off times which facilitate our global ment arm is highly complimentary to
custody clients’ cash movements. These the custodial services that we offer to the
STIF funds may generate returns close to market. We see this as part of the overall
the Euro Overnight Index Average.” solution that we offer to pension funds.”
Aside from revenue generating custo- Increasing regulations across Europe is
dial services, pension schemes can also forcing pension funds to consider corpo-
look to make significant costs savings by rate governance issues. As a result,
increasing efficiency within their admin- according to Haywood-Jones, we are see- Second Quarter
istration. ing an increasing demand for proxy vot- Pension Fund Performance / Returns
Widespread underfunding, a signifi- ing. Alongside this is often an increased
cant increase in capital requirement by awareness of conflicts of interest WM All FUNDS
some of the regulators and increased between asset managers, broker dealers
transparency requirements by the and global custodians. “Nowadays 60% INVESTMENT ASSET RETURNS % RETURNS %
employees has led to strong performance of the pension fund investors have CATEGORY MIX % LATEST QTR YTD
pressure and the need to cut costs in implemented structures where the asset
UK Equities 37 2 2.8
administrative areas of the pension management is properly segregated from
funds. the global custodian. Brokerage is typi- Overseas Equities 28.8 0.6 2.3
Harwood-Jones says in this context cally not yet ‘guided’, in most European North America 8.7 2.9 2.1
pension funds are looking at centralising markets but we see a trend triggered by
their assets in order to increase report- Myners, and currently being picked up Europe 9.1 3.8 1.4
ing and risk management capabilities, by many regulators, to ask for full trans- Japan 4.3 -1.6 10
and also in order to increase their ability parency on the transaction cost.” Pacific (ex Japan) 3.2 -5.3 -1.8
to change asset managers.
She adds: “Appointing a global custo- Conclusion Other International 3.4 -4.1 -0.1
dian provides a lot of flexibility to deal All savings in relation to the running UK Bonds 13.1 -1.2 0
with underperforming asset managers of a pension fund are modest compared
Overseas Bonds 2.6 -0.8 -1.2
by facilitating either rebalancing of the to the overall savings which could be
portfolio or the otherwise cumbersome made through dramatic reductions in UK Index-Linked 8.9 -0.4 2.3
move to change the asset manager.” employer contributions or switching for Cash/Other 3 2 3.3
Schemes can also look to make sub- DB to DC. But that is not to under esti-
stantial cost savings when changing fund mate the importance of these compo- Total Cash 1.8 1.2 2.5
managers by appointing the existing nents. In an environment where trustees Other Investments 1.2 3.4 5.1
custodian to run the transition manage- are calling on equity and bond managers Total ex-Property 93.4 0.8 2.3
ment. In addition, custodians can also to to make their portfolios sweat more,
help alleviate some of the administrative every extra counts. Custodians, it seems, Total Property 6.6 4.9 7.9
burdens on pension schemes. Daily, are also starting to feel the heat. Total Assets 100 1.1 2.6

03 ISJ02 13/9/04 19:49 Page 44
Pensions
With the National pensions bill currently running

through UK Parliament, it is clear that these concerns go
to the top of the political tree as well.
Despite the best intentions of the Bill, the National
Association of Pension Funds (NAPF) in the UK is con-
cerned about the effect that current changes to the regula-
tory regime are likely to have on the future provision of
any form of ‘defined benefit’ (DB) pension. By DB we
include all forms of pension provision where an employer
shares some of the risk with an employee. The term
includes hybrids, where there is an element of a defined
benefit in the overall pensions deal; cash balance arrange-
ments; and career average schemes.
Our view is that current changes to the regime, all well
intended in their own right, risk the perverse consequence
of discouraging and disincentivising any form of future
DB provision and reducing innovation in the workplace
pensions market. We spelt out the reasons for this view in
our paper “Defined Benefit Pension Schemes and the Law
of Unintended Consequences”.
The paper identified five areas of change which, taken
Against all odds together, could lead to these unintended consequences:

the new scheme funding regime; the likely stance of the
new Pensions Regulator; the expected behaviour of
trustees; the expected behaviour of scheme actuaries on
funding issues; and the impact the Pension Protection
Fund (PPF) will have.
The government’s original proposals to replace the mini-
mum funding requirement (MFR) with scheme specific
funding have been undermined by the European Pensions
Directive which is likely to lead to tougher and less flexible
funding standards.
Pension protection
The PPF has obviously garnered a
lot of attention since its announce-
ment with most in the industry keen
for a system that could help those
Christine Farnish employees whose pension schemes
have folded with significant deficits.
However, the eventual impact of the
PPF could ultimately be to reduce
rather than increase security and long
term provision of pensions. This is
because the PPF will impose a new
burden on schemes as they have to find extra resources to
The past few years have seen pay the levy. And the worse a scheme’s funding position or
an explosion in awareness of the more risky its investments, the higher the levy. Further,
the schemes on which the risk-based levy will fall are likely
pension issues among the to be a (possible rapidly) declining group.
As a consequence, schemes that can afford to will
public. According to Christine inevitably look to minimise the levy they pay by investing
Farnish, chief executive of the more conservatively. The associated increases in costs will
put further pressure on employers to close schemes alto-
UK NAPF, the perception is that gether or wind them up if they can afford the buyout
costs. Even then, closed schemes will still have to pay the
the future for members of PPF levy.
occupational pension funds Regulation
looks bleak. Added to this will be the expected role of the new
Pensions Regulator. The new Regulator will have access to

03 ISJ02 13/9/04 19:49 Page 45
Pensions
all recovery plans, disagreements £25,000 cap would help ensure the PPF bolster fund revenues.
between trustees and scheme sponsors, is affordable and sustainable going for- The issue of council tax use is a major
and reports of material failures in con- ward. Second, the new regime should be problem for our local authority mem-
tribution schedules. It will be able to sufficiently flexible to allow recovery bers, battered by items in the newspa-
dictate the contribution scale and action plans to be set on realistic and afford- pers over growing pension deficits and
plans relating to the scheme and even if able timescales. Third, the solvent tax-payers having to cover the liabilities.
it intends to take a mediatory role, it is scheme buyout policy should be Local authorities are acutely aware of
very likely that the Regulator will ulti- reviewed and appropriate alternatives, the risk of escalating the growing back-
mately impose funding requirements such as a statutory commitment to pro- lash from council taxpayers over
that target solvency of benefits on a vide benefits, should be considered. increased tax levels required partly to
buy-out basis. The danger here is that Fourthly, where are the meaningful fund the local government final salary
once the Regulator is known to have incentives for sponsoring employers? If pension scheme and the use of capital
exercised such powers there will be a government wants to encourage pen- assets, resulting in possible abandon-
tendency for them to be regarded at sions where there is a degree of risk ment of capital projects.
least as best practice, if not creeping sharing between companies and their But a 100 per cent funding level is not
prescription. workers, then current incentives should a requirement, and the NAPF encour-
There will be increased pressure on be redesigned to achieve that objective. ages funds to take a longer-term view
trustees of DB schemes
to adopt funding
arrangements at the
extreme of the range,
“There will be increased pressure on trustees of
where prudence ‘Defined Benefit’ schemes to adopt funding arrange-
becomes overtaken by
fear of litigation and ments at the extreme of the range.”
extreme caution.
Employers who want to keep their DB The NAPF believes that pension models and to look at other investment options.
arrangements could find themselves fac- based on risk-sharing, delivered through
ing increased financial burdens. This is the workplace, are highly desirable in Enthusiasm
likely to lead to a dramatic acceleration public policy terms because of the cost- One area where the public sector has
in the pace of existing schemes closing, effective and relatively secure way they been ahead of the game, with some
as employers become unwilling to pro- deliver valuable benefits to mass market honourable exceptions, is that of share-
vide occupational benefits when they consumers. holder activism. Enthusiasm for corpo-
feel funding power is being controlled It is not just private sector schemes rate governance seems to be growing
by a combination of ultra-cautious that face hardship – although for most exponentially, with local authority pen-
trustees and a regulator driven by the public sector schemes the fall in returns sion funds leading the debate in some
objective of protecting the PPF. from the market over the last few years areas.
and rising costs will be borne by the Companies should benefit from the
Outcome taxpayer. active and interested participation of its
All of these factors will operate to the Recent research from Watson Wyatt shareholders; and corporate governance,
same outcome, with increased pressure suggests that in the public sector as a as an investment discipline, addresses
on trustees’ fiduciary duty leading to whole, liabilities stand at some £580bn. the gap between the interests of share-
conservative funding arrangements. Unless unfunded public sector schemes holders as part owners of companies
Sponsoring companies will probably reduce the level of benefits paid out in and the interests of directors who con-
close their schemes to future accrual future, it is likely that taxation will have trol these same companies. As most
and show little interest in starting up to rise to meet the costs. At recent NAPF readers will be aware, the NAPF sup-
career average or hybrid schemes (which Local Authority Forums, funds ports Derek Higgs’ recommendations
will also be subject to the tough new expressed concern over how funds into the role of non-executive directors
funding regime and the PPF). should deal with “the bad news” that (NEDs). It is important for independent
would emerge from the 2004 valuations. NEDs to represent shareholder interests
Solutions One suggestion is that a 2 per cent more effectively.
However, there are possible solutions offsetting increase now would smooth Although we are not yet in the crisis
to this situation. There are several the hike but some others were keen to that many commentators suggest, it is
actions the government could take to obtain an extension allowing capital clear that, in both the public sector and
promote a climate in which modern contributions to pension funds to meet especially in the private pensions sector,
pension scheme designs - where risks deficits. the industry, politicians and the public
are still shared between employer and This is, of course, not a painless
employee but where the costs are option, as capital receipts used to bol- maintain a watchful eye on events to
affordable - could flourish. ster the pension funds are then not ensure that what has been the UK suc-
Firstly, setting PPF benefits for all available to finance new capital invest- cess story of the 20th century may still
scheme members – actives, deferred and ment, and there is the obvious political be the envy of the world in the 21st.
pensioners – at 90 per cent, with a risk of turning towards council tax to ISJ

03 ISJ02 13/9/04 19:50 Page 46
Pensions
Corporate sector occupational schemes

Defined Benefit Pension will be affected by a sustained period of
schemes will continue to low profitability which most companies
suffer funding shortfalls. are now experiencing. The financial con-
Quite apart from the im- dition of the corporate sponsor could be
materially affected by any significant
pact of recent and future increase in contributions to meet its pen-
political interference, sion fund obligations, which would fur-
attempts to eliminate ther expose the pension fund. The
deficits will be negatively impact of oil price rises and higher inter-
est rates would suggest stock market
impacted by other factors, growth is unlikely to provide any assis-
writes Simon Thomas, tance to meet deficits in the foreseeable
CEO & chief ratings offi- future. Turning to the state sector,
cer at Thomas Murray. increases in public sector pension bene-
fits will need funding into the future
from central or local tax increases. In the
STAYING
UK, rate capping is likely to affect the
ability of local authority to meet their
pension fund obligations. In all, a most
unhappy state of affairs currently exists
which is not going to change for many
years.
AFLOAT Corporate lifeline

This raises the question from which
quarter will relief be found? It won’t be
from asset managers who one assumes
have been doing their best already. It
won’t be from increases in stock prices.
Major global custodians

and specialist investor
services suppliers have
much to offer trustees
to help bridge pension
Simon Thomas fund deficits by sup-
porting alternative
investments
Corporate sponsors may not be able to
offer timely relief. Trustees could help by
easing the investment restrictions (e.g.
alternative investments), sweating fund
assets harder (e.g. stock lending) and by
acting decisively in areas which they can
directly achieve cost savings (e.g. custodi-

03 ISJ02 13/9/04 19:50 Page 47
Pensions
an arrangements). reducing in terms of the number of sup- long term and valuable relationships.
Against this background, major global pliers more competitors are entering the Switching behaviour from one custodi-
custodians and specialist investor servic- market to support core custody, and an to another reduced to a trickle
es suppliers have much to offer trustees alternative niche suppliers are emerging between 1999-2002. Surplus cash avail-
to help bridge pension fund deficits by to support alternative investments. able to trustees to support custody
supporting alternative investments, stock Secondly, stock lending revenues offer a reviews has not been available and other
lending and keeping fees and other unique additional level of income to more pressing priorities exist. Since 2003
charges/spreads within acceptable ranges. those funds authorised to lend. the number of full custody reviews has
However, trust between fund and suppli- Depending on a fund mix, the amount increased significantly and will continue
ers needs to be rebuilt and maintained. A could represent 2-4 basis points of aver- unless the suppliers launch active
period of re-engagement is essential right age fund assets. Suppliers will run account reviews to repair the damage
across the pensions and investment indemnified or unindemnified programs done in the preceding years. If they do
industry. The complication is near and may even guarantee certain levels of not, we expect an increase in the level of
term performance targets and weak stock lending fee income. Fee splits will custody reviews. The solution to avoid
results in recent years across the banking vary but are generally around 70:30 in future breakdowns in trust lies in the pri-
sector have not created the right environ- favour of the funds. Trustees should vate rating of custodians and relevant
ment for senior management to launch reassess the benefits of stock lending as a performance and fee benchmarking.
proactive initiatives or indeed even con- potential means to extract additional Currently Thomas Murray has over
sider improving their service offerings. I reviews from their assets. £250 billion of institutional assets under
suspect the word has been to
sweat existing institutional
clients and try to hold exist- The solution to avoid future breakdowns in trust
ing ground whilst the horrors lies in the private rating of custodians and relevant
of the first few years of this
century affecting the financial
performance and fee benchmarking
services sector settle down.
The result has been that many pension These and other revenue sources to monthly private custody ratings and sur-
funds have suffered excessive fee levels, custodians may represent material costs veillance for approximately 40 per cent of
poor service and little proactive support. or opportunity cost to pension funds and the top 40 pension funds in the UK.
Many suppliers have cut costs and peo- act as a drag on performance. Perhaps Surveillance under this mechanism
ple. Understanding and trust has broken the most significant is foreign exchange enables periodic review meetings
down across much of the industry. It is carried out on behalf of the pension fund between the pension funds and their
time for suppliers to review relationships by their custodian. This is an area, which respective custodians to take place and
and proactively work to support the pen- can represent a major cost saving if prop- these should be able to iron out issues
sions fund industry. erly monitored to avoid excessive spreads before they become major relationship
The benefits to the pension funds being taken. problems. If surveillance is well done, we
could be substantial and are worth fully expect switching behaviour to
briefly examining. Firstly, in general fee Trust reduce again and active surveillance to
levels within the global custody industry The breakdown of trust across much of become the norm. The jury is out. It is
have reduced over the last three years by the pensions industry and their various up to the trustees to monitor their custo-
up to 50 per cent. This is an immediate suppliers is actually a tragedy because it dian’s arrangements and for the suppliers
benefit that trustees could ask custodians was avoidable and foreseeable. to be more sympathetic to the current
could pass on. These savings could Transparency of fees has become the new issues facing the pensions industry.
amount to one or two basis points per mantra for many pension funds when Senior executives within the global custo-
annum for an average fund. If custodi- assessing the services and related fees. dians have the authority to better sup-
ans do not ensure that current clients This contrasts with a traditional bundled port the pension fund industry and with
have sensible fees, it will trigger full cus- approach to pricing services. Providing pressure easing on the banking industry
tody reviews by the pension funds, which support to the beleaguered pensions they will do so with trustees support.
will crystallise these savings as new cus- industry is a gift to senior executives
todians are appointed. The reality is that within custodians. It represents an ISJ
far from the global custody industry opportunity to re-engage and establish

ISJ’s A Glance at Georgia - Guide to the Industry and SWIFT Sessions at Sibos 2004
Georgia Trivia: Area, 58,876 sq mi (152,489 sq km). Pop. (2000) 8,186,453, an 26.4% increase since
‘Time for Growth’ the 1990 census. Capital and largest city, Atlanta. Statehood, Jan. 2, 1788 (4th of the original 13 states to
ratify the Constitution). Highest pt., Brasstown Bald, 4,784 ft (1,459 m). Nickname, Empire State of the
South. Motto, Wisdom, Justice, and Moderation. State bird, brown thrasher. State flower, Cherokee rose.
State tree, live oak. Abbr., Ga.; GA.
Sibos teaser: Which pop diva was born in Atlanta and has won several Grammy awards?
A: Whitney Houston
Monday Tuesday Wednesday Thursday
2pm – 3:30pm 9am to 10:30am 2pm to 3:30pm 9am – 10:30am 2pm – 3:30pm 9am to 10:30am
Securities session Industry session Industry session Industry session Cross market session Securities session
The future of securities Is securities STP really Strategic outsourcing – What's next in Basel II done! What's Securities Standards
trading technology - dead? How can the return to core securities? The view next on the regulatory
where's the payback for processing efficiencies competencies from the US agenda?
automating the front support growth?
office?
2pm – 3:30pm 9am to 10:30am 2pm to 3:30pm 9am – 10:30am 2pm – 3:30pm 9am to 10:30am
Payments session Industry session Payments session SWIFT session Cross-market session Payments session
Payment system reform – Real-time information Payments services in Real-time Nostro Making Standars Work Win-win propositions for
making emerging markets – is legacy getting in the digital world – are account information - corporate treasurers -
safer, more open to invest- the way? you getting what from reporting to what do they need from
ment and responsive to you pay for? reconciliation the financial system?
the needs of all users
2pm – 3:30pm 9am to 10:30am 2pm to 3:30pm 9am – 10:30am 2pm to 3:30pm 9am to 10:30am
SWIFT solutions session SWIFT solutions session Industry session SWIFT session Industry session SWIFT session
The future of the SWIFTNet migration Innovative Trade Exceptions and
SWIFTNet – The Value SWIFT connectivity – foreign exchange phase 2 - the what, Services investigations manage-
beyond migration Enabling SWIFT growth market - key drivers why and how ment - a real source of
Page 48
spurring growth value for the banking

industry
19:51
2pm – 3:30pm 4pm to 5pm 2pm to 3:30pm

Securities Session SWIFT solutions session SWIFT session
13/9/04
Automation of asset Delivering value to SWIFTNet Bulk

servicing – a dream investment managers – Payments Standardising
INVESTOR or reality? the benefits of SWIFT end-to-end ACH
S ERVICES payments processing
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04 ISJ02 13/9/04 19:54 Page 50
Mandates
Time to Shine
a national financial services leader and the premier
Service providers noted a busy retirement system for higher education and research
August as a number of employees.
“After a thorough due diligence process, State Street
significant deals were reported. emerged as the provider with the most robust servic-
As the front office takes es to fulfill our needs,” said Gary Chinery, vice presi-
dent and treasurer for TIAA-CREF. “The company’s
advantage of the benefits of global scale, corporate action processing system and
outsourcing, service providers strong client service professionals were also key fac-
tors in our decision.”
will continue to prosper. Down under, BNP Paribas Securities Services (BNP
The most notable victory came from Northern Trust, Paribas) was appointed by the financial services busi-
who recently won a prestigious custody mandate from nesses of MBF Australia Limited (MBF), ClearView
Folksam Asset Management in Sweden. Northern Retirement Solutions and MBF Life Limited (collec-
Trust has managed to tap into the Nordic region by tively referred to as ClearView), to provide a full range
winning the prestigious custody mandate from of custody and investment administration services to
Folksam. The mandate, which sees Northern take AUD11.2 bn worth of assets. These services will
custody of $17bn worth of insurance and mutual include accounting, tax and statutory reporting, unit
fund assets, marks the start of a significant servicing pricing and performance measurement. MBF is a
alliance between the Chicago giant and local agent leading provider of health and financial protection
Svenska Handelbanken, which will serve as trustee products and advice in Australia. MBF expanded its
for Folksam’s assets. It also marks the first time any financial services offerings following the acquisition
global custodian has entered the Nordic region of ClearView from Insurance Australia Group (IAG) in
through partnership with a local trustee and the first January 2004. John Cowan, Group Executive
time that a non-resident institution has been allowed Financial Services said "the transition of ClearView to
to act as custodian for local assets in Sweden. MBF ownership has been extremely successful. BNP
Across the Atlantic, State Street has been appointed Paribas’ selection was a credit to the speed and com-
by TIAA-CREF to provide custody and securities lend- mitment in understanding and meeting ClearView’s
ing services for $110 billion in assets. TIAA-CREF is requirements."
Month Winner Client Location Assignment Mandate Size

September Northern Trust Folksam Sweden Custody $17bn
September Vanguard Teleflex, Inc. US RecordKeeper -
August Nationwide RS City of LA US RecordKeeper $30m
August Front Capital City of JHB SA Software -
August DSTi MOSERS US Software ASP -
August State Street MPS UK Investor Services £460m
August State Street TIAA-CREF US Investor Services £110bn
August BNY Threadneedle UK Lift-out deal -
August Watson Wyatt NEXT UK Consulting -
August Capita Hearts. NEXT UK RecordKeeper -
August BNP Paribas MBF Australia Australia Investor Services -
August Fidelity Univ. of Calif. US RecordKeeper $8.4bn
August TKP Pension SPUW Global RecordKeeper -
August Citistreet Oregon PERF US RecordKeeper -
July BT Funds Man. Sims Grp Aus Custody -
July Goldman Sachs FRR Global Transition man. -
July ANZ Trust Co. Aus Australia Investor Services -
July Kas Bank Norcos Global Investor Services -
July Aus. Admin. Christian Sup. Global RecordKeeper -

04 ISJ02 13/9/04 19:54 Page 51
Transition Management
Transition management - moving ness. Not only were there more transitions
in 2003 - and set to be even more in 2004 -
invested assets from one port- they were worth more money. The reason
for all this is very simple. If a transition is
folio to another - is nothing new. not managed, it is likely to be very expen-
sive. ‘A transition is driven because we need
What is new is its phenomenal to switch money managers for some rea-
growth. As institutional investors son,’ explains Mark Keleher, President of
Mellon Transition Management Services.
increasingly turn to transition ‘We don’t know what that reason is but we
do know that it’s going to be a very expen-
managers to help them save sive process, and we need to have some-
money on the process, competi- body who is going to reduce the costs of
trading, reduce the risks, reduce all the
tion between managers has operational costs, while reducing opera-
tional risks.’
grown, as has the demand for A number of studies have shown that
service standards and price unmanaged transitions can cost as much as
one or two per cent, says Nick Bonn, Global
transparency. Head of Transition Management at State
Street. ‘I think the main challenge is to take
Helen Yates reports. that one to two per cent cost that would
happen if you didn’t manage it and bring it
down to something like the average returns
that we see over a large number of transi-
SORTING THE WHEAT FROM tions, which is something between 15 and

25 basis points.’
While saving money is the overriding rea-
THE CHAFF son plan sponsors will use a transition

manager, a series of factors have led to it
becoming such a burgeoning business. For
a start, various trends such as underfund-
Over the last year there has been a mas- ing, mutual fund scandals, and facing up to
sive increase in the number of transitions poor performance has led to an overall
around the world, and no where more so increase in transitions in recent times. The
than in the US. Pension funds, or plan US especially was particularly badly hit in
sponsors, dealing with underfunding issues the pension funding arena, and that pres-
and market timing scandals have increas- sure has meant more difficult decisions
ingly looked to move their assets from one when it comes to underperforming man-
money manager to another. Those with agers.
savvy know they need a good transition ‘I think transition management has got a
manager to lower both the costs and risk lot of focus and a lot of press recently
involved in that process. because plans are no longer overfunded,’
Kevin Hardy, global head of transition believes Keleher. ‘A few years ago when the
management at Northern Trust Global markets were going up 20 or 30 per cent a
Investments thinks that the increase in year everyone was comfortable with their
transitions is down to a massive change in assets versus liability structure. Now many
the investment arena: ‘The fall from favour plans are underfunded and people are very
of balanced fund managers sparked an concerned.’
unprecedented shift in the mindset of pen-
sion scheme trustees. Transferring pension Tricky transitions
fund assets to passive managers remained Another big evolution has been the
measured throughout the event - and also increasing complexity of transitions. Once
brought to the fore the efficiencies gained upon a time transitions only involved equi-
through having the event managed by spe- ty portfolios, and while the process was by
cialist transition managers.’ no means straightforward, today’s multi-
asset class portfolio transitions have pre-
Fuelling the growth sented a new era of complexities and chal-
Whether it is provided by brokers, dealers, lenges. Add to this a mass of new entrants
custodians or consultants, transition man- into the market, vying for business and
agement has become a huge growth busi- ensuring clients they can take on these

04 ISJ02 13/9/04 19:54 Page 52
Transition Management
new challenges, and you have a very com- Transition management is a complex
petitive and lucrative business. game, especially for the client. A satisfied
In earlier times it was mainly custodi- client is one which sees a smooth transi-
ans and investment managers competing tion, in a timely and risk-controlled fash-
for a smaller number of mandates. Now, ion, at an acceptable price. Getting to that
as the magnitude of transitions has point is the confusing part. Even the most
grown and the money involved has educated plan sponsor can become
increased, unstuck trying to make sense of costs,
many broker- risks, and pre-trade bids. ‘As with many
A number of studies have shown that dealers decid- services available to clients today the
unmanaged transitions can cost as ed to grab a
slice of the
choice can be bewildering,’ concedes
Hardy. ‘It is not our intention to add to
much as one or two per cent action. the complexities but to clarify the options
‘Throughout and assist clients in their understanding
the 1990s we of the function and benefits of transition
were able to go about our business with- management products and services.’
out a tremendous amount of competition For any one potential transition, a plan
- there were three or four known com- will often find that potential suitors will
petitors and we all just fought it out,’ come back with completely different rec-
recalls Bonn. ‘But as we got the message ommendations. This is often due to the
out about the benefits of transition man- trading strategies different managers rec-
agement, it began to get a little bit more ommend when coming up with a tailored
noticed and a lot of firms realised that solution for the client.
they were missing out on some business.’ ‘We may come up with two different
Tough transitions
Kevin Hardy, global head of transition management, Northern Trust Global Investments
‘We recently managed a very large assignment of several billion pounds. The client
was moving from many balanced managers to a smaller number of specialist man-
agers. Given the size of assets involved, the numerous moving parts, complexity and
Kevin Hardy multiple asset classes handling this themselves would have been a logistical nightmare;
not only this, but had word got out that this was happening the market may have been
moved against them. Working with NTGI as a single partner in an agency capacity
removed conflict and reduced information leakage. NTGI was responsible for all com-
munications between all the relevant parties; client; consultant; custodians; legacy and
target managers throughout the duration of the event. We were very careful to main-
tain strict contact with all these parties to ensure that the event passed without error,
without undue exposure to impact performance and to the total satisfaction of the
client.’
Mark Keleher, President of Mellon Transition Management Services
‘A client came to us with around £350m in assets. They had an equity portfolio and
were given a very short timeframe to switch that 100 per cent equity portfolio into a
global balance mandate - they were actually given about two days to do that. They had
Mark Keleher not even found the money managers that they wanted to hire, however they needed to
get out of equities. So what we did is we took them from this equity portfolio into a
synthetic MSCI EAFE portfolio and global bond portfolio, and hedged out the various
market risks and currency risks by trading a combination of local equity futures and cur-
rency forwards. Once we had that in place, we were able to control the benchmark risk
for the client and give the client time to find and select their money managers. At that
point where they had selected their money managers we were able to complete the
physical transition. That went extremely well - we were able to reduce the overall risk of
the transaction by a tremendous amount through our hedging, and get them from
point A to point B in a very cost-effective manner.’

04 ISJ02 13/9/04 19:55 Page 53
answers for two different clients even number of trading days will increase the
though the transition is very similar,’ opportunity to cross the assets both inter- Transition Management
explains Keleher. ‘If we’re moving from a nally and externally. This does however
plan that has say £400m and we’re mov- introduce increased timing risk (opportu-
ing it to a £200m portfolio that is a sig- nity cost). Crossing should be an integral
nificantly different type of transition than component of the transition service, but
if we’re moving a £200m portfolio to a it should not hold up completion of the
plan that’s got £20bn. The risk that the assignment and thus introduce additional
£20bn plan may be able to take is very (avoidable) risk.’
different. So we need to focus on the
client, find out exactly what they need, A standard of service
what their unique goals are and come up As transition management has grown
with a custom-tailored solution.’ and plan sponsors have become better
educated about the processes involved
Walking the tightrope and performance measures involved, this
While transition managers focus on the has led to increased pressure on transi- Nick Bonn
risk, plan sponsors focus largely on the tion managers to provide service stan-
costing. Transitions have both explicit dards. Requests for proposals (RFPs),
and implicit costs. Explicit costs include otherwise known as ‘beauty parades’ to
commission, taxes, stamp duties and any those in the business, have become com-
exchange fees that may apply, and these monplace. These RFPs are becoming
tend to be hard to control as they are a increasingly more detailed as clients aim
direct function of the construction of the to really scrutinise managers and sort the
original and new portfolios. But there are
known in advance. Implicit costs can
only be estimated before trading and are ‘You have to identify the trades that are
a function of the liquidity of the portfo-
lios, the timing of the trade, and the size going to cost you money, and those
of the transaction.
A transition manager will add the most
are generally liquidity problems.’
value in designing an appropriate execu-
tion plan, and this will involve balancing wheat from the chaff. And these are not will somehow marginalise State Street’s
the cost of delay with the cost of liquidi- the only measures of performance. transition business. But I think that
ty. This balancing act between opportuni- Industry benchmarks are becoming more awareness is growing that some of those
ty cost and transaction cost is, believes frequently utilised, such as volume trading techniques are wholly inappropri-
Bonn, at the heart of managing the costs: weighted average price (VWAP) and ate for a transition manager and this has
‘You have to identify the trades that are implementation shortfall. But there somewhat alleviated my fears.’
going to cost you money, and those are remain many different approaches to a The growing requirement to act as a
generally liquidity problems. You don’t formal ranking of the business and play- fiduciary - i.e. giving a commitment that
trade when you want to, you trade when ers are not in any agreement as to which you will only act in the interest of your
you can. The liquid securities can be benchmarks are the most accurate. client and will always put the interest of
traded more at your will, so you trade Those who are serious about transition your client before your own - is some-
those in an intelligent fashion, to reduce management are in agreement that thing Bonn believes will become one of
your benchmark risk. So it’s that exact increased scrutiny and regulation can the telling factors one of the factors. ‘I
optimisation that gives you the cost sav- only be a good thing. With concern that note that when (a fiduciary) becomes one
ings.’ some of the newer, and less rigorous, of the requirements in an RFP the
While the decisions a manager will service providers could have a detrimen- amount of our competitors drops by
make are strongly linked to the type of tal affect on the reputation of the busi- about half, because there is a significant
transition being made, they are also influ- ness as a whole, many are hoping to see group of competitors who will not sign
enced by the client’s expectations. Hardy an industry shake up. ‘I’m concerned that fiduciary paperwork. The requirement to
believes that the time it takes to complete there are many different ways to get a act as a fiduciary has been another major
the trading element of a transition should transition done, and some of those factor I think in some firms deciding that
be kept as short as possible, except where processes, some of those trading tech- this business isn’t suited for them.’ The
there is a strong focus on explicit com- niques earn quite a bit more money for consensus from most service providers is
mission costs. ‘Some users are thus pre- some of my competitors,’ explains Bonn. that the future of the industry lies in
pared to have the assignment span a ‘I’m concerned that if they’re allowed to developing standards that will benefit the
greater number of days. Increasing the continue with those practices that they client, not the provider.
E X PA N D YO U R V I E W
PEOPLE, PRODUCTS, TECHNOLOGY
Custody | Securities Lending | Fund Services | Treasury | Outsourcing
A member of RBC Financial Group
RBC BENCHMARK ™ Analytics | Transition Management | Online Services
www.rbcglobalservices.com/iis
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A667 UK Irish Pens_isj 9/10/04 3:29 PM Page 1
GLOBAL ORGANISERS OF INSTITUTIONAL

FINANCE & INVESTMENT CONFERENCES
THE 4TH ANNUAL

UK AND IRISH
PENSIONS AND
INVESTING SUMMIT
18-19 OCTOBER 2004
FOUR SEASONS HOTEL
DUBLIN, IRELAND
Sponsors Include:
IN COLLABORATION WITH THE IRISH
ASSOCIATION OF PENSION FUNDS
About the Conference:

We are delighted to be hosting our 4th Annual UK & Irish Pensions & Investing
Summit in Ireland’s capital city, and home to our joint hosts the Irish Association of
Pensions Funds (IAPF). The IAPF have worked closely with us in developing a topical
investments focussed agenda, and have integrated their winter benefits conference
into an additional, benefits focussed track of programming on the first afternoon of
the conference.
This year’s programme offers its delegates the opportunity to learn from and
network with experts in the financial management industry including institutional
investors, advisory groups and many of the world's most innovative fund management
professionals. Our esteemed speaker faculty will discuss the current market and
regulatory developments, providing a greater understanding of the challenges and
global opportunities that lie ahead for the UK and Ireland’s institutional investor in
achieving their goal of pensions excellence.
We hope that you will join us for what promises to be another thought provoking
and productive event.
Featured Speakers:
Steve Bee
Head of Pensions Strategy,
SCOTTISH LIFE
Lindsay Tomlinson
Chairman,
THE INVESTMENT MANAGEMENT ASSOCIATION
Alan Pickering For programme information contact:

Chairman, Richard Valmarana
EUROPEAN FEDERATION FOR RETIREMENT PROVISION
Phone: +44(0)20-7779-8044
(EFRP)
Fax: +44(0)20-7779-8396
Gerry Ryan E-mail: rvalmarana@imn.org
Secretary, For ticket and sponsorship information contact:
EIRCOM SUPERANNUATION FUND & Chairman, Imran Vohra
THE IRISH ASSOCIATION OF PENSION FUNDS Phone: +44(0)1772-760232
(IAPF) Fax: +44(0)1772-760232
E-mail: ivohra@imn.org
IAPF members are asked to please register for the event directly with the IAPF
by contacting Diane Mulrennan at the IAPF on: Phone: +353 1 661 2427 / Fax: For More Information, Please Visit:
(+353) 1 662 1196 / E-mail: info@iapf.ie / IAPF, Suite 2, Slane House, 25 Lower
Mount Street, Dublin 2, Ireland. www.imn.org/a667/isjm/
04 ISJ02 13/9/04 19:55 Page 55
RMA - Agency Disclosure
The failure of broker/dealer MJK Clearing Inc.

in 2001 and its subsequent bailout by the
Securities Investor Protection Corporation
(SIPC) sent shockwaves through the stock
lending community in the United States.
Carol McGinn looks at efforts to address the
timeliness and transparency of securities lend-
ing information from agent lenders as a
means of preventing broker/dealer default.
The liquidation of Minnesota-based MJK, which cleared for 65 intro-
ducing broker/dealers and had approximately 175,000 customer
accounts, cost the SIPC more than $110 million, representing the largest
bailout in its history.
In the wake of MJK’s failure, the Securities and Exchange Commission
(SEC) and the New York Stock Exchange (NYSE) examined broker/deal-
ers’ securities lending businesses. In the course of these reviews, the SEC
became concerned with the long-standing practice in the industry of
Talking Disclosure
recording agency securities lending transactions at the agent level with
the borrower having little or no detail regarding the book of business
open with each of the underlying principals in the lending program. The
SEC’s concerns included proper books and records of principal loan
activity with each lender, monitoring of credit exposure with each lender,
and proper regulatory capital calculations of exposures to each lender.
The regulators looked to the securities lending industry to come forward
with a process to address the timeliness and transparency of securities
lending information from agent lenders, who already keep accounting
records on a customer-by-customer and loan-by-loan basis, to
broker/dealers.
Consequently, in autumn 2003, the SEC and the NYSE engaged the
Securities Lending Division (SLD) of the Securities Industry Association
(SIA) and the SIA Capital Committee in discussions on disclosure of
information relating to agency lending transactions. Discussions between
regulators and the industry, including agent lenders represented by the
Risk Management Association (RMA), began in January 2003 and con-
tinued throughout the year. Following the drafting and approval in
December 2003 of a document outlining the industry deliverable, a more
formal industry taskforce, the Agency Lending Disclosure Taskforce, was
formed in January 2004, consisting of representatives from the SLD of
the SIA, the Bond Market Association, and the RMA Committee on
Securities Lending. In May, the taskforce engaged Capco, a global con-
sulting and solutions firm, to act as project manager.
According to Gene Picone, incoming chairman of the RMA Committee
on Securities Lending and a member of the taskforce, “There was a failure
in the mark-to-market, or cure, process. Also, MJK did not have a good
process around ‘know your customer.’
“In addition, the SEC took a look at the dealer’s agreements and deter-
mined that it’s not enough to know on a high level who your counterpart
is; you need to book on a trade-by-trade basis. So if I did a loan today
and there were five counterparts in that loan, because of the queuing
methodology, I’d have to do five separate loans with the dealer. There had
to be a better way.”
“The inconsistency between the agency lending agreements and the
absence of any detail in the hands of the broker/dealer borrowers regard-
ing securities loans at the principal level was the central issue that con-

04 ISJ02 13/9/04 19:56 Page 56
RMA - Agency Disclosure
cerned the regulators,” adds Leslie S. this effort. What we’re hearing in our What’s Next?
Nelson, managing director, Goldman meetings is that the data that the agent As part of the project, the taskforce
Sachs & Co., New York, and a taskforce lenders will be providing may not neces- developed an infrastructure schematic for
member. “Their view was that we did not sarily be housed within one system. The credit and capital process flows as well as
have the appropriate level of information agent lenders will need to determine from business requirements for credit prequali-
and detail in order to manage this busi- which systems the required data elements fication. The taskforce also conducted a
ness, specifically to monitor credit expo- will come and how to bring it all in for survey to determine the size and scope of
sure on a daily basis as well as to do the transmission to their borrowing counter- the daily data transfer requirement. Next
required regulatory capital calculation and parties.” on the agenda are running “blind tests of
take regulatory capital charges that might “Industry discussions have focused on daily regulatory capital files to ensure their
result from those calculations at the prin- having agent lenders provide data that will feasibility (three tests are already in
cipal level.” permit broker/dealers’ credit and regulato- progress, and additional simulation tests
Taskforce agenda ry departments to monitor credit exposure are to be conducted), finalising the busi-
In addition to the document summaris- and calculate regulatory capital require- ness requirements for regulatory capital
ing the industry deliverable to ensure ments based on transactions with the computation and concentration monitor-
agreement with regulators, a project plan underlying principal lenders for securities ing, confirming assumptions with the SEC
and NYSE, developing functional and
“Under the comprehensive approach, there are technical specifications with vendors
and the DTC, developing use cases for
requirements in Basel II that address the haircuts and testing, conducting testing, and, finally,
the taking of collateral for these types of transactions,” phase-in implementation.
“I think our biggest challenge may be
and timeline have been developed. These loans executed with agent lenders,” says to get the dealers to understand that there
were recently reviewed with the SEC, the Bradly Smith, managing principal, Capco. is a strict time schedule on this project,”
NYSE, and the Federal Reserve Bank of “While the transmission of this data will adds Nelson. “It’s crucial to stay focused
New York. The project plan calls for the not require broker/dealers to book the and keep making progress. Firms appear
project to be completed by the end of individual loans by principal lender, the to be gearing up and are beginning to
February 2006. At that point, agent lenders records provided are to be retained by bro- involve their technology staffs in the proj-
would be transmitting daily transactional ker/dealers in accordance with existing ect. This effort is so complex and compre-
details at the principal loan level, and bro- regulations applicable to books and hensive that it’s a mistake to wait until
ker/dealers would be expected to be utilis- records.” next year to begin to take this seriously.”
ing this data for credit and capital purpos- “It’s all about communications,” adds
es. Implementation of the system is Basel II Foster. “It all goes back to why we needed
expected in first-quarter 2006 - leaving "The capital charge calculation is a very so many industry associations involved.
just over a year for developing the techni- complicated process, and one that requires What we were after here is a change in the
cal specifications, developing use cases for that a broker/dealer calculate exposure amount and type of information that
testing, conducting testing, and so forth. with the principals with whom it is doing flows on a daily basis from the lenders of
“Dealers have a significant amount of business. In those situations where it is the securities through the vendor systems
work to do to accommodate this project, collateralised and has an exposure greater to the borrowers so they can calculate
and much of this work will involve tech- than 105 per cent to that counterparty, appropriate capital charges and evaluate
nology development,” says Nelson. “The dealers are required to take a regulatory for concentration limits and so forth. We
specific technology development will vary capital charge that recognises the risk posi- were trying to reach out to an industry on
from firm to firm and will depend on the tion they have with respect to that coun- an issue that impacts 1500 or more partic-
degree to which a firm relies on vendor terparty," explains Eric L. Foster, vice pres- ipants in the marketplace, and some of
versus proprietary systems. Each firm that ident and associate general counsel, the these initiatives need broad buy-in from
uses vendors, such as Loanet or EquiLend, Bond Market Association, and a member all participants. Typically, the most active
should be talking to them to determine of the taskforce. participants, such as Goldman Sachs, are
how much internal technology develop- The level of detail of information very involved in leading the efforts.”
ment will be required and to plan that requested by the SEC for this project may Adds Picone: “This is a classic example of
development. Getting out ahead of this be daunting, but as Foster and other task- industry groups working together, speak-
quickly is going to be required if force members point out, it is information ing from the same sheet, doing something
broker/dealers are going to what the regu- broker/dealers and agent lenders will need to benefit the industry.”
lators expect us to do, which is to monitor to comply with the Basel II Accord that Taskforce members also believe that the
credit exposure and do the capital charge was approved in June 2004. SEC, NYSE and others involved will be
calculations at a principal level. It is an “Under the comprehensive approach, monitoring the situation closely to avoid
aggressive - yet achievable - schedule. there are requirements in Basel II that any slippage in the schedule. Based on the
“It’s a combination of work on the part address the haircuts and the taking of col- desire that the regulators have expressed to
of the vendor and the end user, or the bro- lateral for these types of transactions,” keep in close communication with the
ker/dealer, and the agent leader who is adds Foster. “Broker/dealers would be taskforce, the industry can be certain that
providing the data,” adds Nelson. “This is addressing these issues for that project if the SEC will be watching..
not a lay-up on the agent lender side of they weren’t now for agency disclosure.” ISJ

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04 ISJ02 13/9/04 19:57 Page 58
RMA SECURITIES LENDING COMPOSITE - Comparison Quarter 2 2003, Quarter 2 2004

securities lending ISJ continues its’ year-on-year snapshot of the Securities Lending industry worldwide. -
Lendable assets refer to the value of loanable securities. -On loan vs. cash collateral refers to the value of securities
on loan in return for cash. -On loan vs. non-cash collateral refers to the value of securities on loan in return for non-
cash collateral
LENDABLE ASSET ON LOAN vs. CASH ON LOAN vs. NON-CASH TOTAL ON TOTAL ON
US Dollar $ ($MM) COLLATERAL ($MM) COLLATERAL ($MM) LOAN ($MM) LOAN (%)
2004 2003 2004 2003 2004 2003 2004 2003 2004 2003
North American Treasuries/Bonds 1,355,537 1,086,937 347,649 218,729 75,122 54,626 422,771 273,355 31% 25%
U.S. Treasuries/UST Strips 331,505 254,788 196,849 121,561 62,556 46,261 259,405 167,822 78% 66%
U.S. Agencies 162,591 177,544 56,353 39,118 7,205 8,188 63,558 47,306 39% 27%
U.S. Mortgage Backed Securities 153,556 N/A 26,641 N/A 3,083 N/A 29,724 N/A 19% N/A
U.S. Corporate Bonds 692,371 645,889 67,076 57,234 1,358 87 68,434 57,321 10% 9%
Canadian Bonds (Gov't & Corporates) 15,514 8,716 730 816 920 90 1,650 906 11% 10%
North American Equities 2,372,650 1,711,888 169,375 114,664 16,496 2,271 179,804 116,935 8% 7%
U.S. Equities (includes ADR’s) 2,349,998 1,693,613 168,590 114,051 15,462 1,871 177,985 115,922 8% 7%
Canadian Equities 22,652 18,275 785 613 1,034 400 1,819 1,013 8% 6%
European Equities 666,503 433,772 76,010 59,065 36,801 16,297 112,811 75,362 17% 17%
French Equities 80,409 58,447 26,234 20,816 5,748 3,495 31,982 24,311 40% 42%
German Equities 57,068 33,992 12,795 11,433 4,009 3,294 16,804 14,727 29% 43%
Italian Equities 28,382 20,909 9,348 10,520 2,654 1,533 12,002 12,053 42% 58%
UK Equities 272,517 204,717 1,304 1,729 9,353 4,245 10,657 5,974 4% 3%
Scandinavian Equities 38,404 26,503 8,911 5,853 1,440 839 10,351 6,692 27% 25%
All Other European Equities 189,723 89,204 17,418 8,714 13,597 2,891 31,015 11,605 16% 13%
Pac-Rim Equities (Includes Australia) 264,763 156,293 21,195 13,114 10,093 6,529 31,288 19,643 12% 13%
Japanese Equities 176,753 97,803 15,604 9,574 6,985 4,429 22,589 14,003 13% 14%
Hong Kong Equities 19,082 11,644 1,638 984 795 508 2,433 1,492 13% 13%
Australia 46,073 33,482 2,661 1,968 1,361 871 4,022 2,839 9% 8%
All Other Pac-Rim Equities 22,855 13,364 1,292 588 952 721 2,244 1,309 10% 10%
All Other Equities (Not Previously Listed) 6,631 3,357 215 368 49 74 264 442 4% 13%
Total Equities (Aggregate Total) 3,310,547 2,305,310 266,795 187,211 63,439 25,171 324,167 212,382 10% 9%
EURO Denominated Sovereign Bonds 86,823 54,792 1,363 1,598 6,094 2 7,457 1,600 9% 3%
French Sovereign Bonds 19,413 11,847 42 40 1,282 0 1,324 40 7% 0%
German Sovereign Bonds 26,019 17,259 529 703 1,920 1 2,449 704 9% 4%
Italian Sovereign Bonds 10,238 7,619 508 233 714 0 1,222 233 12% 3%
Spanish Sovereign Bonds 4,593 3,943 51 86 243 0 294 86 6% 2%
All Other EURO Denominated Sovereign Bonds 26,560 14,124 233 536 1,935 1 2,168 537 8% 4%
UK Gilts 63,058 66,646 69 343 7,926 7,759 7,995 8,102 13% 12%
Emerging Market Eurobonds** 7,691 9,247 1,964 1,638 24 86 1,988 1,724 26% 19%
Eurobonds 154,538 77,172 11,469 8,581 3,757 12 15,226 8,593 10% 11%
All Other Sovereign Bonds † 45,613 19,851 4,211 3,734 2,156 1 6,367 3,735 14% 19%
Total Bonds (Aggregate Total, inc. US) 1,713,260 1,314,645 366,725 234,623 95,079 62,486 461,804 297,109 27% 23%
TOTALS 5,023,807 3,619,955 633,520 421,834 158,518 87,657 785,971 509,491 16% 14%
Average Number of Lending Markets 15 *(Reported in Aggregate) **(Latin America & E Europe) †(Not Listed Above)
ANALYSIS - QUARTER 2 2003 AGAINST QUARTER 2 2004 $62.86bn. European equities were slightly more active than their US
The last year has proved to be an eventful one for securities lending counterparts, increasing their assets on loan by $37.44bn, from
with the amount of assets on loan increasing significantly from about $75.36bn in the second quarter of 2003 to $112.81 bn in the second
$212.38bn in the second quarter of 2003 to about $324.17bn in the quarter of this year. Surprisingly, the value of European equities on
second quarter of 2004. North American treasuries / bonds outshone loan, as a percentage of the lendable assets for the second quarter of
their fellow US asset classes. Treasuries and bonds, incorporating US 2003, remained the same for the second quarter of 2004. Assets on
treasuries, agencies and mortgage backed securities, increased by loan in Euro denominated sovereign bonds showed a remarkable
$149.41bn, from $273.35 in the second quarter of 2003 to $422.77 in increase, from $1.6bn in the second quarter of 2003 to $7.45bn in the
the second quarter of 2004. North American equities (including US second quarter of 2004. Pacific-Rim equities also increased their lend-
equities, American Depository Receipts and Canadian equities) were ing activity, from $19.64 bn in the second quarter of 2003 to $31.28 in
less active and increased their stake in securities lending by only the second quarter of 2004.
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Trademark of The Bank of Nova Scotia. The Scotia Capital trademark represents the corporate and investment banking businesses of The Bank of Nova Scotia,
Scotiabank Europe plc, Scotia Capital Inc. and Scotia Capital (USA) Inc. – all members of the Scotiabank Group and authorized users of the mark. Scotia Capital
Inc. is a member of CIPF. The Bank of Nova Scotia is incorporated in Canada with limited liability. Scotia Capital (USA) Inc. is a U.S.-registered broker-dealer, an
indirect wholly owned subsidiary of The Bank of Nova Scotia (BNS), acting as agent for BNS for various financial products in the U.S. The Bank of Nova Scotia,
Scotiabank Europe plc and Scotia Capital Inc. are each authorized and regulated by the Financial Services Authority (FSA).
04 ISJ02 13/9/04 19:58 Page 60
Securities Lending
Securities Lending
Performance Summaries
(Figure 2 - bottom of page): The Group Results
ISJ examines SL benchmark recorded on graphs such as the one in figure 2 aim
data - These examples are to provide a sense of where the securities lending
market trades, which securities have value and those
provided in a summary of the that are most in demand.Essentially what activity
key outputs from the Data has occuredin which particular assets.
Explorers Limited’s From the graph for August it becomes clear that the
Performance Explorer service, percentage of securities lending utilisation for
bonds, particularly government bonds, was signifi-
and represents a high level cantly higher than other asset classes, making use of
summary of the data distrib- 23.51 per cent of EUR1.41trn lendable assets for
securities lending. Assets in exchange traded funds
uted, via the internet, on a generated the highest return from securities lending,
weekly basis to our growing with a return of 16.97 basis points over a loan of 47
days. Revenue share for equity lending was 97.49 per
client base that includes cent, compared to just 56.58 per cent for bonds.
beneficial owners, asset As the total income generated by a security can be
managers, agents and princi- split in two:
- the amount generatedfrom the fee charged
pal borrowers. - the amount generated from reinvesting any cash
collateral
Such information is used to benchmark a securities
lending providers' performance; Management Performance Explorer tabulate Securities by total
Information System (MIS) analysis; ensuring best return both in bonds and equities, thus showing the
execution; evaluating portfolios; quantifying the securities generating the largest income through a
opportunity cost of any restrictions; understanding combination of the two components.
trends; validating transaction level pricing;
Further examples are given overleaf on page 62.
(Figure 1 example):
Key Performance Explorer Statistics The tables for Equities and bonds, Top 10 securities
by Total Return showcase securities that have gener-
ated the largest income through the amount gener-
EN
ated from the securities lending fee charged and the

IM
amount generated by reinvesting any cash which is

EC
received back as collateral. Sanofi-Synthelabo SA was

SP
the hottest equity pick at 18 August 2004, whereas

Thus the total value of securities on loan at 18 August Ford Motors' bond activity proved the best source of
2004 was EUR614 bn revenue for bond lenders.
EN
IM
EC
SP

InvSerJou 203x267 GB 22/06/04 12:50 Page 1
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04 ISJ02 13/9/04 19:58 Page 62
Securities Lending
The Tables
EN
IM
EC
SP
The tables detail the Top Securities by Fee within
two bands of total balance on loan. For example in
August 2004 ST Assembly Test Services equities were
the highest fee generators for every tenth of
EUR100m on loan, whereas Sammy Corp equities
generated the highest fee for the total balance on
loan. Finmeccanica Finance SA bonds were the high-
est fee generators for every tenth of EUR100m,
whereas Tenet Healthcare bonds generated the high-
est fees for the total balance on loan. The US treas-
ury bonds were the favourite fee generators for for
every tenth of EUR100m, while Belgium government
bonds generated the highest fees for the total bal-
ance on loan.
The Graphs
EN
IM
EC
SP
In these examples the graphs show the Returns

generated by Securities Lending as a product of the
utilisation and weighted average fee related to the
assets available to loan. These graphs show how
these measures of return have changed over the last
year. The average securities lending fee for equities
peaked in May this year, whereas the utilisation of
these assets has remained fairly constant, with steady
increases from January this year. The total return to
equities reached over 9 basis point assets in May this
year, and dropped to just under 4 basis points in
mid-June 2004. Bonds, on the other hand, managed
constant returns of about 3 basis points from August
2003 to June 2004.

05 ISJ02 13/9/04 20:02 Page 64
Securities Lending
A number of points loom large Securities Services: “As an industry, we

in conversation with leading have come through that time in pretty
players when taking the temper- good shape and the recognition has
ature of the securities lending grown that this is an important value
market, reports added product. There’s no complacency,
a loan on the edge Brian Bollen.

One is the air of
normality that per-
though. While it’s an obvious cliché, to
me securities lending is a bit like a
shark. It has to keep moving to stay
vades an industry that has spent much alive. We have to keep innovating in a con-
of the past year and more under per- structive way to meet client and borrower
manent siege. Where the air was once needs while keeping the risk management
full of denunciations about the inap- process as robust as can be.”
propriateness, the wrongfulness, even
the sinfulness of securities lending, it Acceptance
Paul Wilson,
‘Customers are wishing to more fully exercise their head of securities
lending, Europe,
corporate governance responsibilities and this has at JPMorgan
an impact on the ability to lend securities around Chase, tackles
many of the
corporate events and proxy voting.’ issues single-
handedly.
now appears to have been replaced as the “Lending is becoming more widely
world’s favourite scapegoat for all finan- accepted and mainstream as evidenced
cial ills, the hedge fund (cue loud booing by the number of new customers com-
and hissing from the cheap seats). Two is ing to the market, especially pension
the long-predicted increase in use of the funds. Within the market itself this
product as pension funds and fund man- new supply, coupled with tax changes
John Arnesen agers finally embrace the possibilities that in some countries (that are reducing
it presents for raising extra, much- the earnings potential on what used to
needed, revenue at little or no extra be the most profitable loans) has
risk. Three, a rise in demand. Four, the meant participants are seeking alterna-
continuation of spread compression, tive ways to maintain spreads/revenues
the effects of which are to some extent and reduce costs. We are seeing lenders
(in theory at least) mitigated by the consider a broader range of collateral
rise in volumes and relentless advance types (including equities) and we are
of technology. Five, the growing inter- seeing some lenders reducing collateral
est in third-party lending. Six, a con- levels (to 100 per cent). Further, cus-
sideration of the corporate governance tomers are wishing to more fully exer-
Andy Clayton cise their corporate governance respon-
obligations placed upon fund managers
and pension funds, and the accommo- sibilities and this has an impact on the
dation that lenders, or would-be ability to lend securities around corpo-
lenders, must reach in the event of a rate events and proxy voting. We are
contentious vote. Seven, as already seeing customers placing more focus
hinted in item four, the rise and rise of on understanding the revenue potential
technology and automation. Eight, the from their assets and understanding
growing flexibility with regard to non- how revenue has been earned and what
cash collateral. risk has been taken to achieve that. We
“Securities lending has been subject find that most customers still however
Fred Francis to a fair amount of regulatory time and want the minimum amount of risk
intellectual rigour in the recent past,” first, and within that constraints the
says John Arnesen, head of securities maximum level of earnings.”
lending, Europe, The Bank of New Arnesen also paints a rosy picture:
York. Adds Richard Thompson, head of “We’re seeing so much interest from
agency securities lending, BNP Paribas beneficial owners, coming from plan

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05 ISJ02 13/9/04 20:03 Page 66
Securities Lending
sponsors or consultants. Their revenue tion about whether you [as a custodi- fit from revenue has to be weighed
estimates have doubled in the past an] allow for the automatic recall for against this. The worst case scenario is
twelve months. The market has been votes. This is being thrown out as a that pressure to vote on absolutely
speaking for a number of years about challenge but I don’t see it being fully everything will cause mass withdrawals
how investment managers will achieve implemented. There is a balance to be of securities from the market around
the yield they need to target; it is now struck between the earnings ability of a voting dates.” As Fred Francis sum-
coming to pass. Investment managers portfolio and voting. Securities lending marises it, clients are grappling with
who might have dismissed securities revenues arise from security of supply. the most effective way to assert their
lending in the past because they were If you have fluctuating inventory, there fiduciary duties with respect to voting
afraid it might distract them from their is the potential to disrupt revenues. and lending. “We expect this to con-
overall objectives are finding that it Myners places the responsibility on the tinue.”
increases liquidity.” plan sponsor and then the fund manag-
“We have seen a massive increase in er who need to make an informed deci- Technology
volume on both the demand and the sion on the contentiousness of a vote As securities lending’s followers and
supply side,” says Andy Clayton, head set against any related lending rev- chroniclers continually update their
of international securities lending at enues.” Says Ed O’Brien, executive vice first drafts of the industry’s history,
Northern Trust Global technology con-
Investments. “Clients are tinues to demon-
pushing us on revenue There is a balance to be struck between the strate its place at
and demanding cus- the heart of secu-
tomised solutions.” He earnings ability of a portfolio and voting. rities lending
has no doubts about today, and
where the new supply is going: “The president and head of State Street's tomorrow. “This business has to
hedge funds are back, and back with a securities finance business: “We do of become so efficient that it requires less
vengeance.” course work with our clients to facili- intervention,” says Arnesen. Traders
Fred Francis, vice president of securi- tate any circumstance when they do in should be working with higher value
ties finance and global product at RBC fact wish to vote any given proxy. This strategies rather than simply booking
Global Services in Toronto, elaborates is clearly a process whereby we take transactions, he argues, which will
on the destination of the new supply direction from, and work directly with, increase volume exponentially. These
and its implications: “The growth of our clients to support their investment strategies bring extra operational pres-
hedge funds is one in that we have strategies, but we do not believe this is sures. “Without STP you are dead in
obviously seen exponential growth. as big a concern as it is being made out the water,” says Arnesen. “Transactions
While it is true many hedge funds fall to be in some quarters. Not every need to settle at sub-custodian level
by the wayside, there are even more shareholder wants to vote every stock without any manual intervention.”
new funds coming up to replace them. on every particular little issue. But Says Fred Francis: “Operational effi-
In the past it would have been a bro- clients who have elected to enroll in a ciency, STP, continual transaction cost
ker-dealer’s proprietary book or client securities lending programme have pre- reduction and new regulatory require-
book that drove the demand – today, sumably made a decision that the eco- ments are key drivers in the push for
however, broker-dealers probably only nomic benefit to the plan is more securities lending improvements and
account for 50 per cent of overall enhanced by the revenue from the loan we anticipate that investment in the
demand for stocks. It should be noted, than by voting for the new outside business will continue to grow as a
however, that at the same time, the auditor. ” result. The winners in lending will be
growth in demand has come to out- Says Tim Douglas, managing direc- the ones that invest in the right choices
strip the growth in supply, and for me tor, securities lending, at Citigroup rather than doing things right.
that is what is sustaining lending Global Transaction Services, New York: Increased efficiency, specifically in the
returns at such healthy levels.” “There has clearly been a change in the form of point-to-point integration
way that corporate governance is between those with supply and those
Myners Report viewed in the capital markets. I don't with demand, is also a trend for the
In the long wake of the Myners subscribe to the view that securities future. Although it will take time for
Report, the industry finds itself faced lending is playing a big role in the new point-to-point integration to take a
with devising ways to help crystallise dynamic; in fact, securities lending is hold of the market, I believe it is
the trade-off between enhanced rev- only a tiny element in the overall cor- imperative to the reduction of costs.”
enue and obsessive corporate gover- porate governance debate.” O’Brien adds: “You need to service
nance, notes Richard Thompson. “RFPs Arnesen adds: “There is an inability more transactions with a wider range
are now beginning to include a ques- to vote on lent securities, and the bene- of collateral in different denominations

05 ISJ02 13/9/04 20:13 Page 67
Securities Lending
in a growing number of conflicting solutions.”

jurisdictions around the world. The The technology that has helped cus-
market has become so competitive and todians adapt and evolve over the past
clients so demanding that technology decade could also raise other interest-
has become an even more crucial coming (if remote) new possibilities. A thin
ponent of quality service delivery than warning comes from Chris Fay, chief
it was before.” executive officer of SecFinex, the inde-
“The industry is striving to eliminate pendent automated securities lending
cost and the efficient use of technology marketplace in which Fortis and
is one way this can been achieved,” says Société Générale have both taken a
Wilson. “The growth in the volumes of shareholding.
transaction undertaken via Equilend is “Securities lending has grown up over
testament to this. Technology is an a long period from its origins in the
expensive commodity and only those back office, and hasn’t changed much
players committed to technology during that time,” he says. “A growing
improvements will remain at the fore- number of third party agents are pro-
front of the industry.” Adds Andy viding competition to custodians,
Clayton: “For firms to maintain a going after their business with more
competitive edge, technology will have pro-active desks and aggressive trading
to play an even greater role. Not just strategies.” This will force lenders to
in addition to industry solutions like wake up, he argues. “The traditional
Equilend; individual proprietary tech- lack of transparency in pricing is bad
nology will have to advance in order for the owner of the asset. By listing
to meet the demand for customised prices, we are bringing transparency to
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05 ISJ02 copy Janet 15/9/04 17:31 Page 68
Securities Lending
the equity finance market, allowing a

lender to know it’s getting the true
market value for its stock. If people can
see the cost of borrowing is pre-
dictable, they are more likely to involve
themselves in the business.”
Custodians have traditionally been pas-
sive and reactive, says Chris Fay, but
“There is an inability to vote on

lent securities, and the benefit from
revenue has to be weighed
against this.
they will have to adjust their outlook to
take account of the way the market is
evolving. “They have had it their
own way for too long,” he says. “The
classic argument against custodians is
that they have vast pools of assets in an
oversupplied market, and each client
only receives a small allocation of
demand. Agent lenders, with smaller
portfolios, achieve more value for indi-
vidual customers. With around E10bn
of business a month, we believe we have
5-10 per cent of the market in the UK.”
Others, though, issue words of warn-
ing in turn to SecFinex. While it
increases transparency, the magic word
is liquidity. And SecFinex is still seen as
an imperfect market, one where users,
or would-be users, are wary of forfeit-
ing spread partly because of the imma-
turity of the service and question
marks over whether it has enough vol-
ume. That will only come when custo-
Chris Fay dians bring greater volume, and that
will not happen until SecFinex presents
a compelling proposition or addresses
concerns about important issues such
as spread compression. Question marks
are being raised, however, about just
how far its business model can take it.
“For the moment, the only thing they
can say is that you’ll see more demand
for assets, spreads will come down but
volumes will go up,” says one occasion-
Ed O’Brien
al niche user. SecFinex is a classic
chicken and egg situation. And I wish
them well.”
Brian Bollen is a freelance writer, editor and
media consultant (brian.bollen@virgin.net)

05 ISJ02 13/9/04 20:13 Page 69
Guild Global, Third Party Lender - Securities Lending
Guild Global Securities Limited is incor- the industry must be careful not price itself out of
the market.
porated and established under the laws of I wouldn’t do this again, the amount of stress
Ireland to provide dedicated, independent involved in building something like this company is
Third-Party Securities Lending Agency phenomenal. We will be aligning ourselves with a
services for Equities and Fixed Income large partner in America and will become distributor
of international equities. While our operations will
instruments to Institutional Asset remain the same, the product offering will be wider.
Managers, Pension Plans, Mutual Funds, I set up one of the main stock lending options in
Life Assurance Companies, Government Ireland with Commerzbank and have helped to devel-
op some of the UCITS guidelines here. Securities
Agencies and Commercial Banks in the lending participants include AIG, Bank of Ireland,
European Union. Irish Life and the National Treasury Management
The three shareholders of Guild Global are Friends Association.
First Holdings Limited, www.friendsfirst.ie, with 35
per cent, FBD International Financial Services
Limited, www.fbd.ie, with 35 per cent, and Hans J.
Beckmann, www.guildglobal.ie, with 30 per cent.
Until the creation of Guild Global, there were two
Land of the
main routes available to the Securities Lending mar-
ket for an Asset Manager, enter the market through
the Global Custodian lending approach or through a
Self-Lending program directly to a Prime Broker.
Third-party Lender
Guild Global, as a specialist Third-Party Securities
Lending Agency services provider, is selected in the
Guild Global - The Business
same manner as a Manager would be selected, as
Securities Lending today is a key competitive and Securities lending - a Risk or a Common Practice?
strategic advantage for Institutional Asset Managers. Risk is inherent in any financial activity and
Guild Global competes head-on with the main two Securities Lending is no exception to that. The fact is
alternative approaches, the Custody Agency or In- that securities lending is one of the most conserva-
House Agency Lending program. Guild Global distin- tive, lowest risk, fee earning products in the invest-
guishes itself from these types of programs by focus- ment banking business with its own conventions and
ing on one core competency - Securities Lending, rules. In Securities Lending transactions, risk has the
delivering a far superior performance than any same two potential components as each one of us
Custody or In-House lending program. This mode of face in our daily lives, uncertainty and potential
Securities Lending brings together the most advanta- exposure. If neither of them exist, there is no risk.
geous characteristics in the areas of Securities Institutional Lenders join the market because they
Lending trading and structuring, collateral control, are informed about the potential areas of risk and
transparency, compliance, tailored-reporting, market because they have mitigated and virtually eliminated
knowledge and competitive fee sharing arrangements. these through prudent, diligent policies, procedures
and control mechanisms to ensure that fund assets
Will third party agent lending reach the sky? and portfolios are protected and to maintain the
No. A company called Independent Agency Services integrity of the securities lending program at all
had the same concept as us, but the company fold- times. It is probably the lack of education and expla-
ed. Strategically, they were aligned with the wrong nation of the reasons why there is such a global
partner - a brokerage firm. There were too many over- demand for equities and fixed income securities and,
heads and no branding. I have built this company more importantly, why an institution would want to
over the last four years. My partners are lenders and, borrow securities that has, in the past, led to confu-
strategically, they are the right partners from an edu- sion and misunderstanding among lenders, prevent-
cational and client point of view. To set up a compa- ing them from entering into this business. Given the
ny like this is expensive. It would be very tough for lack of transparency in the global securities lending
somebody to enter the market as they would need a and borrowing business, it has been hardly surprising
certain economy of scale within a very short period of and there clearly is a case for greater transparency
time. Costs have to be managed carefully and lenders and market data to be made available to investors
should be diversified. The custodians have begun to around the globe. The fact is, that in efficient capital
see my company as a threat. But they have the bal- markets around the world, securities lending is an
ance sheets and the capital to throw into securities integral part and essential for timely settlement, mar-
lending operations. The worrying thing is that custo- ket-making and arbitrage purposes. Securities
dians may offer fee-sharing arrangements to their Lending leads to a convergence of spot and future
clients. That is not sustainable. Securities lending is share prices, stabilising markets and dampening
a value added service and requires certain expertise – volatility.

05 ISJ02 13/9/04 20:14 Page 70
Securities Lending - Guild Global, Third Party Lender
What are the key issues affecting the securities lending has been successful seem simple – a far superior
industry? performance, a philosophy toward full transparency
The need to further increase transparency for and fairness for Lenders and a focused lender and
lenders and unlock further supply. The industry has borrower servicing approach.
to be reinvented through more sophisticated forms of
equity financing transactions, including total return Trends
swaps, fixed term collateral financing and transac- As the securities lending business evolved in the
tions. 1980’s and 1990’s, the main securities lending of
London, New York, Hong Kong and Tokyo, created
Guild Global distinguishes itself by the view that size and volume was everything. This
view still seems to exist among custodian banks,
focusing on one core competency - without a thorough understanding a lender’s require-
ments and, equally important, the demand for securi-
Securities Lending, ties and the market’s dynamics. This inevitably
delivering a far superior results in a lack of transparency and performance for
lenders. In reality, the securities lending product is a
performance than any Custody local business, as local rules and regulations for the
lender and borrower stand at the forefront, and a
or In-House lending program. quality, ethical and compliance driven business. In
the future, emphasis will shift toward wealth protec-
The industry must support the opening up of new tion rather than wealth generation. There will be a
markets e.g. Taiwan, India, Eastern Europe, Middle flow toward bond funds from equity funds and a shift
East as the major lending opportunities have virtually toward capital guaranteed funds beyond downside-
disappeared in Europe. I used to live in Hong Kong protected funds. While it cannot be denied that
for four years and did a lot of stamp duty lobbying in hedge funds have been the victim of misunderstand-
Singapore, Malaysia and Hong Kong. The latest mar- ing and confusion among investors, perception of this
kets are South Korea and Taiwan. But you cannot asset class will change and investments in the hedge
transact straight loan transactions in some of these fund sector will increase with continued flows into
markets. You have to go in via swaps. The industry the main offshore centre in Europe, namely Dublin.
should lobby harder to open up those markets. There The exchange traded funds industry is set to boom.
are some emerging markets in Europe e.g. Greece Europe, the most fragmented of markets, has the
and Israel where the industry should make more of largest number of products even though its assets are
an effort. The mainstream arbitraging opportunities in smaller than those in the US. Hedge funds that rely
Europe are virtually dead. Now is the time to look for on the controversial activity of naked short-selling
new markets where those arbitrage opportunities will fail to attract new investments. Rather than
present themselves. Before we began operating, the investing in such one directional funds, which are a
Irish daily loan balance for equities was EUR 200m. risky trading strategy due to a limitless loss potential,
Today that figure is about EUR1.1bn per day. South investors will be piling funds into multi-strategy
Africa is a good example of how an industry has funds which limit risk through diversification and
developed and evolved. But collateral restrictions trading strategies which are aimed at protecting capi-
continue to stifle the market for securities lending. tal invested. The outsourcing of selected business
Ireland is more open about the forms of collateral areas such as operations, transfer agency and securi-
one can take. ties lending will become a growing trend in the asset
management arena. The drivers for this can be
What are the key challenges? grouped into four main categories.
The key challenges include transparency, the edu- -The need to reduce operational costs to maintain
cation of investment managers; market data and reg- and increase profit margins.
ulation; and opening up of new markets with new
arbitrage and hedging opportunities. -The need to reduce administration costs in a con-
tinuously changing regulatory environment.
Who participates? -The need for product diversification through alter-
The main competitors to Guild Global are the large native fee generation at low costs.
custodian banks such as Northern Trust, Citibank, -The need to focus on a Firm’s core product(s).
State Street, Brown Brothers Harriman & Bank of New
York. Since the establishment of Guild Global as an These trends will continue to support the evolution of
independent third-party agency securities lending a transparent securities lending industry in Europe in
operation in 2000, some large custodian banks seem the years ahead.
to regard the Guild Global business model as a real
threat to their business. Today, Guild Global remains
the only independent, specialist offering in Europe for
institutional lenders. The reasons why the company

05 ISJ02 13/9/04 20:14 Page 71
Nordic Report
Exclusive (10 Sept) - In a world first for global download these instructions from Dimension and pass them
custodians, Northern Trust has penetrated the onto the sub-custody markets.”
The Nordic region has also become more involved in virtual
Nordic region by winning a prestigious custody matching utilities such as Omgeo. Companies in the region
mandate from Folksam Asset Management in are looking to custodians such as Northern Trust to link into
Sweden. The mandate, which sees Northern take these matching utilities to pick up security trade instructions,
custody of $17bn worth of insurance and mutu- which have been confirmed by both the client and broker.
al fund assets, marks the start of a significant Other value added services are those that can generate rev-
enue and provide clients with greater efficiency or perform-
servicing alliance between the Chicago giant and ance statistics. These include securities lending, commission
local agent Svenska Handelbanken, which will recapture, compliance monitoring of investment guidelines,
serve as trustee for Folksam’s assets. It also accounting and performance services.
marks the first time any global custodian has “There is a huge appetite for securities lending programmes,”
entered the Nordic region through partnership says Winge. Anything that will improve the downward trend
in revenues is most advantageous in the Nordic region.
with a local trustee and the first time that a non- Nordic players have also discovered that their portfolios are
resident institution has been allowed to act as of huge interest to the market. Some pension funds have
custodian for local assets in Sweden. The move decided to wait until the market stabilises, but in the main
proves that entry barriers to the brutally com-
petitive Nordic market are beginning to soften.
The Swedish financial services authority has
granted Northern a trustee license. On top of its
visible presence in the UK, Northern Trust is
Breaking the Ice
heavily committed to Europe.
In January 2004, the UK Financial Services Authority autho- they do participate. Northern Trust Global Investments, the
rised its status as UK bank, allowing it to market its services investment management arm of Northern Trust, has wel-
more broadly across continental Europe. comed the recent clarification by the Banking, Insurance and
“We began to research potential opportunities in the Nordic Securities Commission (BISC), the regulatory body for the
region towards the end of the 1990s,” explains Anne-Lise financial services industry in Norway, which enables
Winge, head of European business development for Northern Norwegian insurance companies to participate in securities
Trust’s institutional asset servicing business. “There are rela- lending. Following this move, NTGI will be looking at new
tively few but very large opportunities in each Nordic coun- opportunities to offer its securities lending capabilities to this
try, particularly in the insurance and pension sectors. We sector of the market.
have appointed people who have the skill sets and the ability According to Winge, the Nordic lending pool has increased.
to sell into the region.” “In general, Nordic companies feel more comfortable with
Aside from its latest partnership announcement, Northern securities lending and want to participate in these pro-
Trust has provided services to Nordic clients for a number of grammes,” she says.
years. One of its first major victories in this region came in Northern Trust has competed head-to-head with local play-
2001 when AP3 (one of the Swedish national pension funds) ers over the last couple of years. But commenting on their
appointed Northern Trust to provide custody services. advantage, Winge says: “These custodians are smaller in
As the largest Nordic country, Sweden presents the most stature and for them, the investment in technology is huge.
opportunities. “Our primary focus in the Nordic region is on Therefore, alliances have occurred for technology reasons.
the pension and insurance sector,” says Winge. The Nordic client base has also become more sophisticated
According to Winge, the Nordics have a very attractive client and more demanding. Clients need operational efficiency and
base in terms of their needs. “Companies are few and far that means STP technology. They have decided that they
between and therefore very competitive,” she says. “They are don’t have to custody their local assets with a local player.
diversifying their investment strategies in order to achieve They will invite us to tender for their business if we can com-
higher revenues and better performance in the front office. In pete on the local front as well.“
the back office they are looking to increase their operational Until recently, Swedish mutual fund companies have been
efficiency. These organisations consider it vital to partner limited to working with a local custodian for trustee services.
with a custodian who can provide automation and help them By partnering with a local player, Northern Trust has devised
to become more operationally efficient.” a solution to this problem. “Alliances are one way of getting
In selecting a custodian, Nordic clientele are likely to choose around the local regulatory challenges, which global custodi-
those providers who can interface with their systems. One of ans face when entering the local market,” says Winge. “We
the biggest vendors in the region is Simcorp, which has an have aligned with a Nordic player to provide a solution to a
estimated 85 per cent share of the market for technology local need. We recognise that clients are becoming more
solutions. “A link to Simcorp’s Dimension is vital as it saves diversified in their investments. They want a solution, which
the client the hassle of manually re-keying instructions into enables them to be more efficient and to generate additional
the custodian’s system,” says Winge. “The custodian can revenue through value added services.”

05 ISJ02 13/9/04 20:15 Page 72
Nordic Report
While Northern Trust develops its Nordic offering, the pan- timent for regionalisation of the Nordic region." Norex is an
Nordic custody alliance of Sweden’s Swedbank, Norway’s alliance between the Nordic and Baltic exchanges in
DnB NOR and Finland’s OKO Bank will introduce Denmark Denmark, Finland, Estonia, Iceland, Norway, Latvia and
at the end of this month. According to Neal Meacham, head Sweden.
of custody at Swedbank, the creation of OMHEX, which According to Noren, the possibility of further interest from
recently changed its name to OMX AB, and the merger of the foreign players in the region is stronger than ever. “The most
VPC CSD in Stockholm and the APK CSD in Helsinki have likely scenario is that potential new entrants will await the
impacted heavily on the bank’s trading and settlement plat- consolidation of the infrastructure and then consider enter-
forms. “There is a probability of further consolidation among ing the region more seriously,” he says. Consolidation will
CSDs, which presents interesting challenges and possibilities,” reduce entry costs as players won’t have to enter the region
he says. If the four Nordic CSDs were to merge, we could set- four times over.”
tle trades in all four countries. This would reignite the drive European agents with ambitions in the Nordic region, cur-
for a Nordic central counterparty, which has been placed on rently have to pay separate entry fees for five Nordic markets.
the back-burner.” But the criteria will change and stock exchanges align them-
According to Meacham, the continued involvement of for- selves further. Local agents will be forced to reinvent them-
eign players in the Nordic market is inevitable. “A major selves as even the most value added of services are already a
mandate involves any number of global players,” he says. “But given.
I doubt whether they will set up shop when there are “Even in well-developed markets like Sweden, the appetite
for value added services like securities lending
is steadily increasing, but the willingness to pay
As the largest Nordic country, Sweden presents for those services is decreasing,” admits Noren.
the most opportunities. “If agents can deliver value-added services they
will get the business but not necessarily at an
increase in revenue.”
providers here who can provide them with clearing and sub- SEB and OMHEX are currently proposing the creation of a
custody services.” Nordic processing utility (NPU), which aims to re-shape the
Swedbank provides services to those institutions, which Nordic post-trade environment. The decision on whether to
have invested in hedge funds and mutual funds. “Investing develop the utility or not will be announced in mid-October.
institutions display a healthy corporate attitude,” says “We want to create a utility that will drive efficiency, elimi-
Meacham. “Clients want to know what custodial services we nate operational costs and improve the quality and control of
can offer to hedge funds. Although many of these hedge core processing operations,” says Noren. “The utility aims to
funds are small, a lot of the major ones around the world be the back office of the market and will help to eliminate
today began on a small scale.” some inefficiencies in the value chain. Nordic and EU players
Apart from the Nordic region, Swedbank has increased could outsource some of their processing functions to the
interest in the Baltic markets and would welcome their incor- NPU. Banks will be able to focus on their clients and their
poration into a wider Nordic region. “It would help us if the product development, while the NPU handles their opera-
Baltics were integrated within the Nordic region,” says tions. The mandatory costs would be shared.”
Meacham. Swedbank already owns 60 per cent of Hansa Apart from the Nordics, SEB is also an active sub-custody
Bank in Estonia. “When we approach clients about our pan- player in the Baltic market. The Bank regards the region’s
Nordic alliance, they ask if we can serve the Baltic area too,” quality workforce and its entry into the EU as a good busi-
says Meacham. “Clients regard the Baltics as being part of the ness case in itself. “As a consequence of the creation of
Nordic region.” OMHEX, the Baltics will begin to use the SAXESS trading
As Sweden’s largest agent bank, SEB is no stranger to the platform and will possibly consolidate into Nordic-Baltic
impacts of consolidation. "Agents banks, issuers, exchanges infrastructure,” says Noren. “This wouldn’t be a far-fetched
and broker dealers are aligning their strategies,” says Ulf assumption.”
Noren, head of client relations. “Issuers have taken a helicop- Apart from the banks, the stock exchanges have a signifi-
ter view of the region and have started to look at where liq- cant influence in the Baltics. OMHEX took ownership of
uidity is more evident. Owing to the consolidation of stock Lithuanian stock exchange in May this year, adding to its
exchange systems, home market liquidity is very good at the ownership of the Riga and Tallinn exchanges. Norex is an
moment. Issuers have begun to look at the efficiency of their alliance between the Nordic and Baltic exchanges in
listings outside of their home market and have actually Denmark, Finland, Estonia, Iceland, Norway, Latvia and
brought liquidity home. This is a primary objective for the Sweden.
Norex stock exchange, which is the only exchange alliance in Inspite of industry consolidation, SEB is confident of its
Europe that does not take liquidity away from smaller partici- position and its mandate to provide OMHEX with back
pating exchanges. The rate of consolidation has increased office services will further insulate the Bank.
since the creation of the SAXESS trading system (created by Commenting on the state of the market, Noren says, “We
Norex), which will be implemented in Finland in September. haven’t seen the end of consolidation among service
The merger of the APK and VPC will take care of about 70 providers and if we believe the signs in the sky, things are
per cent of volumes in this region. Denmark has considered looking good for us. Continued margin squeeze will drive
the possibility of joining the alliance, whereas Norway has further consolidation as well as profit reduction among the
been more reluctant. We have an extremely strong client sen- agent banks. Investment requirements will also drive consoli-

Nordic Excellence
Securities Services is the leading provider of custody and clearing services

in the Nordic 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: Head of Securities Services: Mikael Björknert,
mikael.bjorknert@seb.se. Investor Services Global Clients: Göran Fors, goran.fors@seb.se.
Global Client Relations: Ulf Norén, ulf.noren@seb.se. Global Securities Lending: Kristian
Stångberg, kristian.stangberg@seb.se
C2_seb_nordic-exc_203x267_isj.indd 1 2004-08-27 13:33:30

05 ISJ02 13/9/04 20:15 Page 74
Nordic Report
dation as Finland prepares to implement the Exigo settlement tional asset managers are seeing more of an interest in hedg-
system into its CSD. This will require further mandatory ing and derivatives."
investments in infrastructure. There will be regulatory Once Denmark is on board, the pan-Nordic custody
requirements that will further reduce the number of agent alliance will focus on the Baltic region. "We are providing a
banks in the Nordic region. The region is not large enough to regional custody solution in exactly the same manner as a
sustain seven providers. The majority of providers will not large global custodian offers global custody to their clients,
survive in the long term and all new business will be regional. and our clients should feel comfortable that they are getting
Self-clearing may emerge as a serious agent bank competitor established agents in each market,” says Quinn.
for local business.”
A league of their own
“There is a huge appetite for securities lending Danish sub-custodian Danske Bank has for
the last year stated that it would not become
programmes.” involved in pan-Nordic alliance. Instead, the
provider has opted for a presence in each
In anticipation of further Nordic consolidation, the pan- Nordic country. This position is enhanced by the Norex
Nordic custody alliance has strengthened its resolve by incor- alliance of stock exchanges. "Thanks to the consolidation of
porating Denmark. Alliance partners are currently focused on trading platforms, we are now looked upon as a region,
developing systems and communications through ISO 15022 which is further enhanced by the addition of the Baltics,” says
standards. According to Bente Hoem, head of client relations Søren Eberhard, head of Securities Services at Danske Bank.
and business development at DnB NOR, the merger of the “While each Nordic country has its own stock exchange, we
APK and VPC CSDs translates into further opportunities, are all operating on the same trading system. Previous proj-
even though it will take some time to implement. "The infra- ects, including S4, have tried to consolidate the four Nordic
structure, law and regulations are very different in the CSDs, but to no avail. We are hoping that the Danish and
Finland and Sweden and it will take a while before they are Norwegian CSDs might join the existing alliance between
operating on the same system, " she says. Sweden and Finland to create one Nordic platform for clear-
In comparison to individual pan-Nordic banks, DnB NOR ing and settlement. Sweden and Finland account for about 70
has a different view on how to offer a pan-Nordic product. per cent of the Nordic markets that will be covered in the
“We thought it would be best to establish an alliance with new alliance. The Danish CSD is committed to this alliance
players who are already in the market and who have the and we would very much like to participate in a Nordic CSD.
appropriate infrastructure in place. We considered the possi- The Norwegian CSD, on the other hand, does not see the
bility of satellite offices in each region, but these offices are point in joining. A Nordic CSD would make it cheaper for
small operations and can be fairly vulnerable " CSDs outside of the Nordic region to link in."
Richard Quinn, client manager at DnB NOR, adds: "Setting Danske Bank launched its Swedish sub-custody offering in
up a presence in Sweden, with a couple of people running the June this year and is finalising similar plans for Norway and
operation, would be a very risky strategy. Winning local Finland. "We will be able to offer Nordic sub-custody in all
clients would be difficult, as you need a solid, domestic client four countries by the middle of next year," says Eberhard.
base if you want to stay in this business. The big custodians "We are already part of the infrastructure in those countries
should ask them-
selves if there are
enough remaining "The Baltics have been on our agenda for about 10 years."
clients of interest in
the Nordic region to warrant spending the time and and we are enhancing our sub-custody offering to cover the
resources on setting up an office," he says. "They will have remaining Nordic markets."
success, but it will be very measured. A strategic alliance with Like his competitors, Eberhard believes that the consolida-
a local player is the route that the large global custodians tion of Nordic CSDs will increase the probability of foreign
must prefer." entry into the market. "It is a huge task to link up to four
Although the Norwegian regulator has amended the securi- CSDs with four different infrastructures, laws and legisla-
ties lending law, it has been criticised for placing too many tion," says Eberhard. "When the Nordic CSD is formed it will
demands on how lending programs are operated. "They reg- be more interesting for people outside of the region to join
ulate how much of the portfolio a fund can lend and how in. But a letter of intent has been signed and Finland will start
many players the portfolio should be divided amongst," says the formation of a Nordic CSD, followed by Sweden. It will
Hoem. become easier and cheaper for foreign players to enter the
A Norwegian pension fund is entitled to lend 50 per cent market when other CSDs join the alliance.”
of its value in sections of five per cent. In doing so, the fund According to Eva Tärnström, managing director of institu-
must identify 10 Norwegian counterparts to borrow these tional custody services at Svenska Handelsbanken, it is
sections. "It is a lot of administrative work and very cumber- important to have a presence in each market but technical
some, and for what is still very small marketplace, the fund and operational functions could be conducted in one country
will see little return," says Quinn. "But we expect that more and resources could be centralised. “A rationalised IT infra-
pension funds will become interested in hedging products. structure gives us room to look at new products,” she says.
Those of us with pensions have seen our assets decrease “Product rationalisation leads to further opportunities."
because they were invested in long only funds. Many institu- Tärnström says the potential for global custodians in the

A4_Custody_services_kirjat 31.8.2004 12:38 Sivu 1
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05 ISJ02 13/9/04 20:16 Page 76
Nordic Report
Nordic region should not be ignored. "Global custodians holders held today in Stockholm.
have entered the market with state-of-the-art systems, which An important result of the company's new brand strate-
we have never seen before, " she says. “ Thus we cannot gy is a simplified brand structure, with all operations
ignore them and if we can´t beat them, the alternative might now affiliated to one master brand, OMX. The simplified
be to join them.” brand structure aims to make it easier for the market at
Despite a growing appetite for securities lending pro- large to understand OMX's complex operations and the
grammes, certain companies are still not allowed to partici- value and benefits the company brings the industry.
pate. According to Tärnström, it is the custodian’s responsi- OMX's business is organized into two divisions:
bility to ensure this changes. "They have to secure funds for - OMX Exchanges
fund owners," she says. "Custodians should also be aware of operates the Nordic and Baltic stock markets
the rules and be able to demonstrate that there are no risks - The Stockholm Stock Exchange, Helsinki Stock
involved." Exchange, Riga Stock Exchange, Vilnius Stock Exchange
Ongoing discussions to integrate the Baltics within the and Tallinn Stock Exchange as well as the Central
Nordic region are centred on providing both regions with Securities Depositories (CSDs) in Finland, Latvia and
greater liquidity. "The Baltics have been on our agenda for Estonia.
about 10 years," says Tärnström. "The liquidity of these coun- All these exchanges and CSDs will retain their busi-
tries will increase if they join the Norex alliance." ness names, but will not be marketed as separate
It appears that for the truly Nordic players in the region, the brands.
ISJ
“Clients want to know what custodial
services we can offer to hedge funds.
impacts of consolidation are limited. "We expect full consoli-
dation of the clearing and settlement systems in another five
to 10 years time," says Sveinung Dyrdal, head of custody at L to R from top:
Nordea. Anne-Lise Winge, Bente Hoem,
With an integral involvement in the merger of APK and Eva Tärnström, Neal Meacham,
VPC, Dyrdal is an outspoken supporter of the consolidation Richard Quinn and Sveinung Dyrdal
of the Nordic infrastructure. "Consolidation is important for
the Nordic capital markets in order to attract international
investors and to increase liquidity in the region," he says.
Pan-Nordic providers such as Nordea are currently proposing
a vertically integrated infrastructure of stock exchanges and
CSDs in the region. The stock exchanges share the same trad-
ing system but they are separate legal entities. "The CSDs will
hopefully adopt the same strategy," says Dyrdal. "They will
exist separately as depositories in each Nordic market, but
hopefully they will adopt the same clearing and settlement
system."
Foreign influence in the Nordic region looks set to intensify
as the stock exchanges and CSDs in the region consolidate
over the next five to 10 years. “The global custodians are try-
ing to create a niche in the Nordic market and they are tar-
geting, among other markets, mutual funds,” says Dyrdal.
Nordea is also represented in the Baltic region, despite a small
market capitalisation. “The large US custodians would like to
buy a custody offering that covers the Nordics and the
Baltics,” says Dyrdal. “It is therefore very important to cover
the Baltics and to have a regional approach to asset servicing.”
Apart from its own backyard, Nordea is also active in the
eastern European banking market. “Poland is interesting, but
far too competitive in terms of custody,” says Dyrdal.
STOP PRESS - OMHEX changes name

As part of a new brand strategy, OM HEX AB - owner
and operator of Northern Europe's largest securities
marketplace – has changed name to OMX AB, following
a decision by an Extraordinary General Meeting of share-

05 ISJ02 13/9/04 20:17 Page 77
Nordic Statistics
Swedish Investment Snapshot 2004

NET ASSETS 2004-03-31
Number of
Euro= 9,2635 USD= 7,5650 funds SEK million EUR million USD million %
EQUITY FUNDS 728 502,122.2 54,204.4 66,374.4 52.6
Equity funds based in Sweden 336 465,320.3 50,231.6 61,509.6 48.7

investing only in Sweden 105 126,428.9 13,648.1 16,712.3 13.2
investing in Sweden and abroad 41 166,365.4 17,959.2 21,991.5 17.4
investing abroad 190 172,526.1 18,624.3 22,805.8 18.1
Equity funds based abroad 392 36,801.8 3,972.8 4,864.8 3.9

investing only in Sweden 8 2,023.5 218.4 267.5 0.2
investing in Sweden and abroad 1 272.8 29.4 36.1 0.0
investing abroad 383 34,505.5 3,724.9 4,561.2 3.6
BOND AND MONEY MARKET FUNDS

203 251,246.1 27,122.2 33,211.6 26.3
Bond and Money Market funds based in Sweden

91 97,176.7 10,490.3 12,845.6 10.2
investing in Sweden 87 96,600.3 10,428.1 12,769.4 10.1
investing abroad 4 576.4 62.2 76.2 0.1
Bond and Money Market funds based abroad

112 154,069.3 16,631.9 20,366.1 16.1
investing in Sweden 24 145,412.0 15,697.3 19,221.7 15.2
investing abroad 88 8,657.3 934.6 1,144.4 0.9
BALANCED FUNDS 122 154,223.2 21,333.1 26,122.8 16.2
Balanced funds based in Sweden 93 129,878.2 18,705.0 22,904.7 13.6

10-29% equities 4 709.3 76.6 93.8 0.1
30-45% equities 7 2,265.5 244.6 299.5 0.2
46-60% equities 25 50,001.5 5,397.7 6,609.6 5.2
61-90% equities 17 38,881.1 4,197.2 5,139.6 4.1
others 9 9,484.9 5,708.5 6,990.2 1.0
Generation funds 31 28,535.9 3,080.5 3,772.1 3.0
Balanced funds based abroad 29 24,345.0 2,628.1 3,218.1 2.6

10-29% equities 1 8.5 0.9 1.1 0.0
30-45% equities 5 14.9 1.6 2.0 0.0
46-60% equities 12 14,134.6 1,525.8 1,868.4 1.5
61-90% equities 10 10,105.9 1,090.9 1,335.9 1.1
others 1 81.2 8.8 10.7 0.0
Generation funds - - - - -
Hedge funds
Hedge funds based in Sweden 43 44,130.7 4,763.9 5,833.5 4.6
Hedge funds based abroad 8 2,862.7 309.0 378.4 0.3
TOTAL 1104 954,584.8 107,732.6 131,920.8 100.0
Excluding Sjunde AP fondens Premiesparfond, 38 929,2 SEK Million.

Source: Svensk Fondstatistik

05 ISJ02 13/9/04 20:16 Page 78
Baltic Europe - Estonia
ESTONIA - the end of the rainbow?
Estonia acceeded to the European Union on legal framework was established and privatisation process
launched. Estonia's success in attracting foreign investment
1st of May 2004. Since then noteably Nordic has been a continuous feature of the transition process.
service and infrastructure groups have taken As a result of the transition to a new economic system,
a keen interest in every sense. ISJ gains Estonia's gross domestic product (GDP) decreased
sharply in the years 1991-1994. By 1995, the recession
some background on the Baltic Star. phase was over. However, due to a crisis in the financial
Estonia lies along the Baltic Sea, just south of Finland sector, derived from the Russian crisis, foreign demand
and has a climate of icy, snowy winters and long light began to decline in 1998. As a result, Estonia's GDP
summers. It is a country about the same size as the slightly decreased in 1999.
Netherlands, and is sparsely populated with around In 2000, the growth rate of Estonia's economy again
1.4m people. Tallinn, Estonia's capital city, is about 80 increased rapidly, to 7.1%, largely driven by economic
km or 50 miles south of Helsinki, across the Gulf of integration with EU Member States. Estonia's economic
Finland. Sweden is Estonia's western neighbour across performance continued to show resilience in the face of
the Baltic. Russia lies to the east, Latvia to the south. slowdown in its major EU trading partners in 2001.
Estonia is the leading country for internet connections GDP growth slowed moderately to 5.0 per cent in 2001.
per capita among the accession members of the The budget registered a small surplus of 0.2 per cent of
European Union (with 64.7 internet hosts per 1000 per- GDP in 2001. The current account deficit stabilised at
sons in 2002). In August 2002 it ranked ahead of many 6.1 per cent of GDP in 2001 and was entirely covered by
EU Member States, including the UK, Germany, Belgium strong foreign direct investment inflows.
and France. The country code is ".ee". The Government Important exports from Estonia are machinery and elec-
has lead the way to E-Estonia, changing its cabinet meet- trical equipment, wood and textiles products. Tourism
ings to paperless sessions using a web-based system back and transit trade also make important contributions to
in March 2000. Election laws will include an e-voting the economy. Finland and Sweden are amongst Estonia's
option from 2005. Estonia has a parliamentary democra- biggest partners in business, investment and tourism.
cy state. Estonia continues to be what the IMF describes as "an
outstanding performer among the transition economies",
The economy with continued commitment to market based reforms,
In Estonia, the transition from a planned economy to a pursuit of sound macroeconomic policies, emphasis on
market economy started at the beginning of the 1990s. institution-building, and a commitment to transparency.
Reforms carried out after monetary reform in 1992 were In May 2001, the owner of the Helsinki Stock Exchange,
comprehensive and systematic. HEX Group, acquired a majority holding in the Tallinn
In June 1992, the Estonian national currency was taken Stock Exchange. The integration was completed in
into use and became the legal currency of Estonia. February 2002, with the creation of a common trading
Monetary stability was one of the most important pre- environment for securities listed on the Helsinki and
conditions for carrying out reforms in other areas. Most Tallinn bourses.
prices were liberalised by 1992: the government only However, Estonia will continue to face a number of chal-
maintains control over the price of energy, certain serv- lenges in the economic field over the coming years, such as
ices and rents. continuing to lower unemployment (especially long-term
In order to restructure the business sector, an appropriate unemployment), and ensuring the balanced regional

05 ISJ02 13/9/04 20:17 Page 79
Baltic Europe - Estonia
development of the country. In particu- Estonia in figures

lar, the oil-shale sector located in the
north-east of the country still needs sig- Population: 1.36 million(2002),
nificant restructuring. 80 per cent citizens of Estonia, 7
per cent citizens of other countries
Estonia-EU Background 13 per cent stateless.
In August 1991 the European
Community recognised the Republic of
Estonia after it had regained its inde- Life expectancy Male: 64.7 (2002);
pendence. The following year the Female: 76.2 (2002) Statistical
European Commission accredited the Office of Estonia.
Estonian Ambassador in Brussels. The
European Commission officially opened Area 45 227 km
its Delegation in Tallinn in 1996. Density 30 inhabitants per km2
Relationships between the Republic of Distribution 67.4 per cent urban
Estonia and the European Communities population, 32.6 per cent rural pop-
are regulated by the following agreements: ulation.
* Europe Agreement, i.e. the association Neighbouring states bordering

agreement between the European Estonia - Latvia (339), Russia
Communities and its member states and (294) (border in km).
the Republic of Estonia, which was con-
cluded on 12 June 1995 and entered into
force on 1 February 1998.
Estonia is the leading country for internet
connections per capita among the accession
* Free trade agreement is incorporated
into the Europe Agreement (concluded on members of the European Union
18 July 1994, entered into force on 1
Ethnic profile:
January 1995).
Estonians (67.9 per cent), Russians
These agreements provide a basis for regu- (25.6 per cent), Ukrainians (2.1 per
lar discussions on specific issues, high- cent), Belorussians (1.2 per cent),
level meetings of senior officials, and the Finns (0.9 per cent), others (2.3
implementation of pre-accession assis- per cent).
tance. They also function as an umbrella Estonian is the official state
for Estonia's preparations for EU mem- language, Russian and English are
bership. also widely spoken
Estonia submitted its application to Religions - Predominantly Lutheran,
accede to the EU in November 1995 and Orthodox.
started negotiations in March 1998. These GDP/capita - 4,500 EUR (2001)
were concluded at Copenhagen in 9,800 EUR (2001) in PPS
December 2002. More information on the Currency - 1 EEK = 100 cents
negotiations can be found here. (15.65 EEK = 1 EUR)
The draft Accession Treaty was approved National Budget - 2003 budget
by the Estonian Government on 8 April foresees revenues of 38.434 bn
2002. President Arnold Rüütel and kroons (2.46 billion EUR).
Foreign Minister Kristiina Ojuland partici- Expenditure totals 38.758 kroons
pated in the signing of the Treaty in (2.48 billion EUR).
Athens on 16 April 2002.
Trade with EU - Exports to the EU
A referendum on Estonia’s entry into the
EU was held on 14 September 2003. The in 2003:
ballot carried first of all the text of the new 3 billion EUR (69 per cent of total
“Third Act” to the Constitution, establish- exports)
ing legal basis for accession. It was fol- Imports from the EU in 2003: 3
lowed by the question: "Do you support billion EUR (56 per cent of total
accession to the European Union and imports)
adoption of a law of amendments to the National holidays 24 February
constitution of the Republic of Estonia?" (Independence Day)
and two answers: "Yes" and "No." 66.84 20 August (Day of Restoration of
per cent of the voters supported EU acces- Independence)
sion. Turnout was 64.02 per cent. 23 June (Victory Day)

06 ISJ02 13/9/04 20:20 Page 80
CEE - Banking Market
A recent study by RZB in Austria shows that

the banking market in the 20 markets of
Central and Eastern Europe (CEE) is growing.
Following an increase of 3.5 per cent in 2002, the balance
sheet total grew by 10.1 per cent to EUR 572 billion in
2003. Whilst in 2002 the contraction of the balance sheets
in Poland and the Czech Republic, the growth engines for
2003 proved to be Russia (+15.6 per cent), Hungary (+19.9
per cent) and the second wave accession countries (+13.1
per cent). The balance sheet total of new EU member
countries came to only 0.8 per cent. This total is influenced
CEE banking markets by exchange rate losses, especially of the Polish Zloty, and
the shrinking balance sheets of the Polish and Czech banks.
- growth gains However, the international banks in the CEE region grew
significantly faster than the whole market.
Leverage
"Central and Eastern Europe is a banking market with
continuous high growth potential. The region is still large-
ly underbanked and the most important key figures show
the huge catch up potential against the Western European
"Central and Eastern Europe benchmark", says Herbert Stepic, deputy chairman of RZB
and chairman of the managing board of Raiffeisen
is a banking market with con- International Bank-Holding AG (Raiffeisen International).
In 2003, the balance sheet total amounted to only 59 per
tinuous high growth potential. cent of the CEE countries' GDP (2002: 56 per cent). "In
The region is still largely contrast to Western Europe, the accelerated economic
growth results in an additional leverage, which positively
underbanked and the most effects the development of the banks in CEE,” says Stepic.
In 2003 the economic growth in CEE was 5.5 per cent,
important key figures show the compared with forecasts of 5.9 per cent in 2004 and 5 per
huge catch up potential cent in 2005.
An examination of the CEE banking market (in the slides
against the Western European attached) shows the different stages of development within
the single markets. These include the new EU member
benchmark" countries, the second wave accession countries, the South
Eastern European (SEE) transition markets, the Ukraine,
Belarus and Russia.
Retail banking
Net loans increased by 14.7 per cent in 2003 (2002: 12
per cent), while the level of household credit increased by
23.8 per cent (2002: 19.4 per cent). The net loans
increased from 20 to 23 per cent. "Due to the undersupply
in these customer segments, retail banking promises par-
ticularly high growth rates", says Stepic. Despite the rapid
distribution of Internet banking, the need to build up a
branch network will remain important in order to success-
fully serve customer potential. Raiffeisen has expanded its
network from 100 to 800 branches in the last five years.
Deposits
Credit growth and increasing consumption in the new
EU member countries caused the growth rate to shrink
from 7.6 to 2.6 per cent. Growth is weakening in the second
wave accession countries, albeit on a higher level (8 per cent
after 13.5 per cent), whilst the increase in the remaining
markets is steady at roughly one fifth. "This development
shows the growing trust in the banks", explains Stepic. "It is
positive for the economic development when people take

06 ISJ02 13/9/04 20:21 Page 81
CEE - Banking Market
their money out from under their mattresses and put it Raiffeisen Int.
back into circulation through their banks." 3.9% HVB/BACA
4.9% Erste Bank
4.2%
Shrinking interest rate spread KBC UniCredito
The average interest rate spread i.e. the difference between Top local banks
4.5% 4.2%
the interest rates for deposits and loans, decreased in recent Sberbank (RU) 5.9%
PKO (POL) 3.1%
Société Générale
2.6%
years, owing to decreased country risks on the one hand NLB (SLO)1.3% (KBC min.)
BCR (RO) 0.8% Banca Intesa
and increased competition on the other. "Good banks Citigroup 3.0%
won't have a problem with offsetting the shrinking margins Others
2.3% OTP
through broader product ranges and volume expansions. 63.1% ING
3.0%
The others will fall behind", says Stepic, who supports the 1.5%
GE Capital
universal banking approach. 0.6%
Hypo Alpe Adria
Commerzbank
Russia accounts for 30% of net loans 0.7%
1.3%
International banks
International banks are of utmost importance to the CEEC20: POL, CZE, SLK, HUN, SLO, LIT, LAT, EST, ROM, BUL, CRO
S&M, B&H, ALB, MAC, MOL, KOS, RUS, UKR, BLR
Source: Company Data, National Banks
development of the CEE banking market. Their market
entry was not only a significant incentive for other compa- BANKING MARKET SHARE IN CEE AS A
nies' direct investments, but primarily causes a sophisticat- PERCENTAGE OF NET LOANS
ed banking system and stronger competition. "The interna-
tional banks are an important driver of the CEE banking
system's further development,” says Stepic. “They fulfill an
important role, which is especially reflected in more stable Raiffeisen Int.
banking markets, new products and lower prices for cus- 8.7% BACA (HVB
Group)
tomers." 7.4%
Whilst Raiffeisen, Creditanstalt, Citigroup and ING were Others
Erste Bank
among the first to tap into the CEE markets, in the last 35.9%
4.7%
years KBC, Unicredito, Société Générale, Erste Bank and
Intesa BCI have joined and have quickly gained market
UniCredito
shares through the acquisition of former state-owned 16.8%
large banks.
Hypo Alpe Adria
Societe Generale
Disinvestment, consolidation and privatisation 4.5%
5.4%
KBC recently sold its banking subsidiaries in Lithuania ING
1.1% OTP Banca Intesa
and the Ukraine. Bayerische Landesbank has also exited the 3.0% Citigroup 11.7%
Czech Republic and Croatia and Société Générale and 0.7%
2nd wave countries: ROM, BUL, CRO
Rabobank have withdrawn from Hungary. Other banks
Source: Company Data, National Banks
have seized on these events. Polands PKO Bank and BCR,
Romania's largest credit organisation are going to be priva- BANKING MARKET SHARE IN 2ND WAVE
tised. COUNTRIES AS A PERCENTAGE OF NET LOANS
According to its balance sheet total, KBC is the largest
international bank in CEE followed by Erste Bank, the
Unicredito Italiano, the HVB/BACA-Group and RZB's sub-
Largest bank in
sidiary Raiffeisen International. Erste Bank, BACA, Central Europe
Raiffeisen, Hypo Alpe Adria and the Österreichische Assets Loans Deposits Branches
Volksbanken AG (ÖVAG) are part of CEE’s largest 16 inter- Poland PKO

Bank Gospodarki
18391 8168 15207 4812
3549 1621 2736 244
national banks. Slovenia Nova Kreditna 2360 1271 1782 91
Considering the overall net loans of all CEE banks, KBC ownes
34% stake
Nova Ljubljanska 7246 3369 4791 325
Romania BCR No.1 in Romania 4333 1963 2972 282
Austrian Banks have a share of roughly 14 per cent. Italian CEC 973 171 843 1500
and Belgian banks come in second with 8 and 5 per cent Croatia HPB 710 n.a. n.a. n.a.
respecitively. The Russia’s Sberbank has the largest market Bulgaria First Investment 570 368 312 8
Serbia Komercijalna bank 644 351 498 321
share with 5.9 per cent. Delta bank 643 263 483 120
1500 Vojvodjanska bank 586 307 263 113
branches
Société Générale and Raiffeisen take the lead Jubank
Postal Savings bank
220
190
132
59
88
102
85
17
Thanks to the takeover of the Czech KB, the France’s AIK bank Nis 176 132 29 6
Société Générale takes the lead for annual total asset

… also Russia, Belarus and Ukraine offer privatisation potential
growth over the last four years, followed by Raiffeisen and
Erste Bank. Raiffeisen has a presence in 15 markets in the PRIVATISATIONS TO COME? - BANKS WITH
CEE region. With 1,318 branches Unicredito has the most MAJORITY STATE INTEREST
banking outlets among international banks in CEE. Erste
Bank is No. 2 (1.207), followed by HVB/BACA (904), KBC Source RZB
(795) and Raiffeisen (789).

06 ISJ02 13/9/04 20:21 Page 82
Clearing & Settlement - EU
services. The distinctions proposed by the Commission
Singing between an Issuer Securities Settlement Systems (the serv-

ices of which are defined as broadly uncontestable) and
the Investor SSS (the services of which are defined as con-
testable) are artificial and underestimate the competitive
their tune? nature of many services offered by domestic CSDs.

Regulatory principles should be firmly based on the risk-
based functional approach to regulation, which ensures
that similar functions are treated consistently by the regu-
lators according to their risk profile and regardless of the
institution offering those functions. The Commission
ECSDA responds to the should ensure that any directive is consistent with the
standards of the European System of Central Banks and
European Commission’s the Committee of European Securities Regulators.
The Commission seeks to define core and added value
communication on clearing and services. But the concept of what in each jurisdiction and
settlement in Europe. for each security class could be regarded as a core or value
added service, differs to a significant extent. The proposed
accounting separation of these services by CSDs/ICSDs
The European Central Securities is unnecessary to address legitimate questions regarding
Depositories Association (ECSDA), compris- non-discriminatory access and open competition, and
ing 19 members, including central securities risk mitigation. The Commission’s concerns at the
potential future abuse of the dominant position occupied
depositories (CSDs) and international central by CSDs can be handled by existing national and
securities depositories (ICSDs), has welcomed EU competition law.
the European Commission’s communication
Competition
on clearing and settlement in Europe. Settlement is a broadly competitive market with services
According to the Association, the majority of costs in provided by agent banks, ICSDs and to a lesser but more
cross-border settlement are caused by the fragmentation of recent extent in respect of cross-border settlement, CSDs.
legal, fiscal and regulatory regimes in Europe. The This competitive environment has become more pro-
Commission’s primary aim should be to remove the barri- nounced since the introduction of the euro in 1999,
ers which cause this fragmentation and which were identi- because of the need of market participants to have access
to settlement services across European markets and not
fied by the two Giovannini reports in 2001 and 2003.
just domestic settlement services. The historical line
In this context, ECSDA welcomes the appointment of between domestic and cross border activity and between
the Advisory and Monitoring Committee which it recom- fixed income securities and equities is blurring. For
mends focuses on the co-ordination of the removal of all instance, CSDs have sought to maintain their cost efficient
of the Giovannini barriers, including those that fall to the domestic activity by expanding to foreign securities the
public sector to remove. We also believe that there is a role services offering to their domestic clients, and also by
for this Committee to provide guidance to the attracting foreign firms on a remote access basis. The cost
Commission on all aspects of the Commission’s proposed efficiency of CSDs in domestic settlement has been accept-
directive. The ECSDA has welcomed proposals to estab- ed even in the first Giovannini report in 2001. The CSDs
lished specific technical groups to examine, and promote have sought to establish operational links between each
the removal of, the legal and fiscal barriers. other in accordance with ECSDA's ambitions and with the
The Association proposes that the Commission should, encouragement of the regulators. Where such links exist
prior to publication of a formal proposal for a directive, they provide an efficient and reliable alternative for cross-
publish a full quantitative analysis, which justifies the need border settlement.
for the legislation proposed in the Communication and its ICSDs have sought to replicate for equities transactions
costs and benefits for the industry. (which are typically traded on exchange), the low cost and
A limited framework directive focusing on rights of efficient settlement services they have developed for cross
access and passporting rights supported by home country border fixed income transactions such as Eurobonds and
supervision for CSDs (both branches and subsidiaries) government bonds (which are traded on an over the
would be of assistance in creating a regulatory level play- counter basis).
ing field, but it will not reduce greatly the cost of cross- Agent banks, that have continued to settle the large
border settlement, nor in the short term will it increase majority of cross-border equity and a significant part of
efficiency. fixed income transactions, have worked to expand their
Further harmonisation of the regulatory regime for services beyond their domestic securities by offering
those entities involved in the provision of clearing and set- multi-market services to their customers.
tlement services is essential, but must recognise the com- The expansion of activity by CSDs and ICSDs, driven by
petitive nature of many asset servicing and settlement user demand, has lead to a greater public debate about the

06 ISJ02 13/9/04 20:22 Page 83
Clearing & Settlement - EU
services which national CSDs and ICSDs offer. While the the average costs will fall significantly until some of these
CSDs have sought to enter into cross-border settlement barriers are reduced.
and compete with the ICSDs and custodians in the market
there is currently no regulatory level playing field between The barriers
the three channels identified by the Commission. We wel- As we pointed out in the ECSDA position paper on the
come the fact that the Commission recognises that the Giovannini II Report a year ago (30 May 2003) there are
provision of cross-border settlement services is a very clear parallels with the Commission’s proposal for address-
competitive business within the EU, although we are dis- ing the legal issues within the EU and the on-going project
appointed that the Commission has not undertaken on a global level within the Unidroit. ECSDA welcomes
greater quantitative analysis of the perceived problems, these initiatives. However difficult the task may seem, we
which the Communication is attempting to address. As the are convinced that the heart of the problems with cross-
FSAP Securities Expert Group reported in May 2004, “reg- border transactions is to be found in the legal and tax
ulation requires justification in order to avoid over-regula- fields. ECSDA therefore strongly endorses the
tion. Underlying policy making must be evidence based Commission’s proposal to set up a group of experts to
and subject to regulatory impact analysis.” The ECSDA address these issues. We also strongly recommend that the
urges the Commission to heed this advice when preparing experts should be given a precise mandate as to the goal of
its proposal for a directive harmonisation but
and welcome commitment The Association proposes that the quite a large freedom
expressed to this effect by of choosing appropri-
the Commission in the first Commission should, prior to publication of ate means to get there.
meeting of the Advisory and a formal proposal for a directive, publish a ECSDA offers to fur-
Monitoring Group.
We note that, while the full quantitative analysis, which justifies the nish the proposed legal
and tax expert groups
Commission correctly iden- need for the legislation proposed in the with experienced and
tifies three main channels Communication and its costs and benefits competent expertise
for cross-border securities from its members. The
settlement, there is no com- for the industry. Experts Group should
prehensive analysis recogniz- follow closely the
ing the costs and risks related to 7 each of these channels. Unidroit work and should report directly to the
Consequently, although (by their own admission) around Commission, probably via the Clearing and Settlement
90 per cent of cross border equities business is currently Monitoring and Advisory Group.
handled through the books of agent banks, the
Commission’s proposals for intervention are largely Like-for-like?
restricted to measures (including radical proposals for the The (European) Parliament also asked the Commission
unbundling, and accounting segregation, of certain servic- to study the US example in the field of clearing, settlement
es) targeted solely at the CSDs and ICSDs in Europe. and custody. We believe that contrasting European and the
US Clearing and Settlement Systems in terms of efficiency
Fragmentation in Europe is not very constructive for the development of the
The fragmentation of the legal, fiscal, regulatory and European approach. The circumstances that created the
market practice regimes in Europe have been commented necessary conditions to lead to the unification process in
on at length in other publications; most notably the two the USA are not present within Europe.
Giovannini reports in 2001 and 2003. The existence, and First, US represents a single domestic market with one
success of agent banks in Europe, is the direct result of this only supervising authority whether Europe is characterised
highly fragmented structure of European settlement, by various domestic with cross-border connections and
which imposes direct costs on all market players who, several authorities.
unless they want to manage multiple interfaces to multiple Secondly, the US may boast a high level of harmonisa-
settlement systems, must outsource the management of tion though UCC Article 8 in particular that cannot be
such interfaces to agent banks. As the Centre of European compared with the current European circumstances. The
Policy Studies concluded in 2001, only around 5 per cent Commission has addressed the lack of harmonised sub-
of the total costs of cross-border settlement can be attrib- stantive law as one of the barriers for efficient cross-border
uted to (I)CSDs. settlement while at the same time recognising the difficul-
The vast majority (65 per cent) is attributed to back- ties harmonisation.
office costs caused by the fragmented state of European Thirdly, the US is characterised by the existence of one
legal, regulatory and fiscal practices. A recent study by culture and one language that is far from being the case at
NERA Economic Consulting for the City of London of the present in Europe.
Corporation concluded in a similar fashion that “many The importance of the homogeneity of the financial
non-domestic settlements are still settled externally markets in any unification process cannot be over-empha-
through an ICSD or through an agent bank at a relatively sised. Consequently, we think that investigating the US
high cost”. These high costs are, in our view, predominant- experience may not be particularly useful to find realistic
ly a result of the legal, regulatory and cultural barriers to solutions that fit the European environment.
cross-border settlement. Therefore, we do not believe that ISJ

06 ISJ02 13/9/04 20:22 Page 84
Regulation Risk - RBC
Outsourcing back-office functionality On the flip side, consider those areas in which investment man-
agers are better off not being involved, from a legitimacy perspec-
is on the rise as the risks facing tive. For example, there is a debate raging within many investment
investment managers become too management firms about the extent to which they should be focus-
ing on their own back-office governance issues. This is an interest-
great to ignore. ing question. Given their central responsibility to clients for pro-
ducing investment returns, should they allow themselves to be dis-
It has been a tough few years for the investment management tracted by the significant effort required to maintain back-office
industry. Scandals have rocked the markets, putting the manner in governance practices that are in-step with industry best practices?
which investment managers run their back offices under a micro- Is this distraction substantial enough that it represents a conflict of
scope. 9/11, combined with legislation like the Sarbanes-Oxley Act, interest for investment management firms? These issues make it
which focuses on corporate governance, financial disclosure and critically important for investment managers to take a proactive
public accounting practices, has forced investment managers all look at their business to determine, not only if they are operating
over the world to think carefully about the way they do business. In as efficiently as possible, but that these operations are free from
the risks that could have a negative impact on their client relation-
Ready to take the leap? ships, and ultimately, their business..
The risks
There are six key areas of risk that, together, are leading invest-
an environment where, more than ever, investment management ment management firms to outsource back-office functions.
executives are focusing their attention on risk management, many
are critically reviewing their own operational infrastructure to 1. Reputational risk. One of the most critical reasons that managers
ensure that they have minimized financial and reputational risks. decide to outsource is reputational risk. Like any business, reputa-
They are asking key questions: Do I have a proper infrastructure in tion lies at the core of quality client relationships and business suc-
place to mitigate risk? Is my organisation well positioned to man- cess. By outsourcing the back-office functions, the investment
age risk? How can we better manage risk? The answers to these manager can successfully transfer much of the risk of errors to a
questions are what have been driving a shift towards outsourcing third party. This insulates the manager from blame and the
back office functionality. Governance issues, technology, poor mar- inevitable loss of business that often accompanies missteps of this
ket performance, consolidation and the need for a disaster recovery nature within their own organisation. Utilising the skills and
plan now mean that the risk of retaining services like trade sup- expertise of a global leader in this field significantly reduces the
port, fund accounting, reconciliation, performance measurement errors and incidents that can occur in the back office. By outsourc-
and compliance monitoring in-house has simply become too large ing the management of reputational risk to a third party, it affords
to ignore. a firm the luxury to focus on its core business functions..
“Investment management executives are executing a 2. Regulatory compliance.

There is significant potential
review of their entire risk management framework. for a provider to assist with the
They are asking the big questions like - management of regulatory fil-
ings. Investment managers can
Is my organization well positioned to manage risk?” have access to a provider’s in-
house regulatory expertise and
feel safe knowing that provider must keep abreast of and up-to-
Why outsource? date on all regulatory compliance requirements for themselves
There are a variety of important reasons why investment man- and its clients. While compliance is always ultimately the
agers are making outsourcing a part of their business plan. Cost responsibility of the investment manager, the opportunity to
savings plays a factor in the decision, but it cannot be the sole pass on some of this operational risk is invaluable. It allows the
consideration in deciding whether or not to outsource. There investment manager to turn their attention to more critical com-
must be a business case that recognises that the true value of pliance and control issues.
outsourcing lies in the expertise and capabilities that the
provider can add to an investment manager’s operations. 3. Technology. Another reason managers are turning to outsourcing
Fundamentally, the argument comes down to an over-riding is to shed the responsibility of keeping up with the evolution of
need on the part of the investment manager to focus on and technology. A leading provider, with a large client base, will have
enhance core competencies. Isn’t achieving positive fund per- the most up-to-date technological systems and be committed to
formance more important than the actual task of monitoring ensuring that these systems reflect the industry’s, and in turn
fund performance? As long as an investment manager can pro- client’s, needs.
vide its clients with returns, it will attract and retain business.

06 ISJ02 13/9/04 20:23 Page 85
Regulation Risk - RBC
4. Disaster recovery. Never before was the ing client. Outsourcing providers must invest in management business, said McPherson.
importance of quality technology so obvious people. It is the people who perform the back The future
than during 9/11 and more recently, last year’s office functions for clients that are crucial as The need to differentiate products within an
power failure along the Eastern U.S. and they represent the revenue stream for outsourc- increasingly competitive marketplace will lead
Canadian seaboard. Outsourcing a disaster ing providers. Providers must ensure that they to greater focus on specialization by investment
recovery system, an operational and system are well positioned to meet the ever-evolving managers. In turn, it will require managers to
risk, is not only more cost efficient and effective client requirements by investing in more effec- consistently assess their products and services
than maintaining it in-house, but it also shifts tive and efficient human capital for these back and consider new strategies to continually
the burden of updating technology to a third office functions. This reduces the long and evolve their infrastructure. It will be these driv-
party. short-term risks associated with people. ers that fuel the growth in outsourcing, encour-
aging the redefinition of business focuses by
5. Consolidation. Where the marketplace is dra- Finding the best-of-breed provider
investment managers all over the world.
matically consolidating, investment managers So how does an investment manager find the
Given today’s changing market environment,
are looking to realise the benefits of integrating best provider to oversee their back office?
operations quickly, efficiently and with low risk. The ideal provider will be focused on exceed- the move towards outsourcing back-office func-
Those investment managers that have out- ing client expectations, and possess the ability tionality shows no signs of slowing down. What
sourced back office func- will it look like in five years?
The trend towards out-
tions are often better posi-
tioned to reap the rewards
“Typically, the most significant cost of sourcing functions such as
of their acquisitions because maintaining a back office lies in its people.” fund accounting, pensioner
benefit payments, perform-
they can more effectively
integrate asset management functions while to adapt to the ever-changing needs of the ance measurement, investment analytics, risk
allowing the outsource provider to integrate the investment management industry. The provider measurement and compliance monitoring will
back office functions. Better outsourcing will position itself as a partner that not only only continue as investment managers adopt
providers typically have scaleable, flexible service oversees administrative responsibilities, but models that more effectively manage risk.
models that are capable of amalgamating and also contributes to operating and building a Despite all the indicators that point to the fact
streamlining back office operations more effec- better investment management business. that outsourcing back-office functions will con-
tively than investment management houses. Globally, the ideal provider will have to meet tinue to be a growing trend, some investment
these criteria, and in addition, understand the managers will retain their back offices. They will
6. Human capital. Typically, the most significant challenges and concerns facing managers in dif- invest heavily into scaleable, flexible and effi-
cost of maintaining a back office lies in its peo- ferent markets and address the cultural needs cient operations, with solid risk-management
ple. The ability to deliver accurate, timely data of their clients. infrastructures, all the while appreciating the
is directly related to the quality of the staff and A comprehensive suite of risk management fact that they will be going against the industry
thus a great deal of overall risk can be attrib- tools to support the investment manager and
movement towards outsourcing.
uted to people risk. As investment manage- minimize portfolio and investment risk is
For those who recognise the definite value
ment executives review their own risk manage- another essential element of an ideal
that outsourcing offers to the efficiency, quality
ment infrastructure, they inevitably should ask provider. These include the use of various
the questions: “Do we have the proper skill lev- risk tools such as performance attribution, and protection of their business, outsourcing
els in place to enable us to meet our business tracking error, Sortino, value at risk (VaR), will prove to be an effective solution to help
goals?” What type of people investment is marginal VaR, incremental VaR, relative VaR, them achieve performance excellence.
required to minimise risk to an acceptable risk bands, scenario analysis, stress testing
level?” Do we have the right people to support and back-testing analytics. Mike Taylor is Director, Outsourcing, Client
the launch of new products, new regulatory “These tools not only promote sound invest- Solutions, RBC Global Services.
requirements and greater service delivery?” ment decisions, but also help to create an effec-
For example, one of the key specific concerns tive risk management program,” said Blair
that investment managers have surrounds McPherson, head RBC Benchmark, UK, Europe
turnover risk. Historically, back-office opera- & Middle East, RBC Global Services. “The pro-
tions experience a high staff turnover. Clearly gram must enhance the ability of investment
this impacts the short-term risk of performing managers to evaluate not only risk itself, but
back office functions internally but it also also the effectiveness of investment strategies Mike Taylor
impacts the long-term risk profile of the invest- as well as help depict and analyze the effective-
ment manager’s business. Poorly qualified staff ness of their long-term investment strategy.”
and an inadequate infrastructure will minimize Ultimately, the one static quality that any
the investment manager’s business flexibility, provider must possess is the ability to make a
product innovation and service to the underly- fundamental contribution to the investment

06 ISJ02 13/9/04 20:23 Page 86
People - Moving & Shaking

a selection of appointments and promotions
updated daily at ISJFORUM.COM
Thomas J. Perna, senior executive vice presi- the Bank of New York, has appointed Dan White
dent at the Bank of New York, has decided to to the post of senior sales trader for its G-Port
leave the company. His current responsibilities, European Sales team. This appointment broad-
which include executive management for sever- ens G-Port's overall marketing to institutional
al of the Company’s securities servicing busi- clients and is part of the continued develop-
nesses, will be assumed by other members of ment of its global agency portfolio trading
the Company’s executive team. "During his two business.
decades with the Company, Tom Perna has Dan joins BNY Securities Group from Nomura
helped The Bank of New York become the lead- where he had worked for 3 years. Based in
ing provider of securities services to the finan- London, Dan will report to Karin Russell-
cial services industry," said Thomas A. Renyi, Wiedekehr, Head of G-Port European Sales.
the Company’s chairman and chief executive White's remit is to develop and deepen G-Port's
officer. "We are grateful for his many years of portfolio trading relationships with UK and
service and for his personal role in establishing Ireland based fund managers and hedge funds.
a winning team of executives in key segments
of our business. They will ensure we further Northern Trust Global Investments (NTGI) has
expand the global leadership position that Tom with existing Citisoft clients as well as develop- appointed Simon Hutchinson as strategist for
has helped us achieve." Perna joined the ing new business opportunities. Valerie is a transition management in Europe. His remit is
Company in 1986 when The Bank of New York well-regarded industry member who has held to manage NTGI’s transition management busi-
acquired Fidata Trust Company, where he non-executive positions on a number of boards, ness in London and to continue to build the
served as president and chief executive officer. providing advice on marketing and business firm’s transition management business across
Last year, Operations Management recognized expansion. Europe. Hutchinson takes over the responsibili-
Mr. Perna’s exceptional track record of accom- ties of Kevin Hardy, who has been named NTGI’s
plishments in the securities services industry Tremont Capital Management, a provider of global head of transition management.
with its first-ever "Lifetime Achievement alternative asset management services and Hutchinson reports dually to Hardy and to Nick
Award." solutions, has appointed Jim Mitchell to the Ring, managing director of NTGI Europe.
newly created position of head of investment Hutchinson joins NTGI from Instinet where he
ABN AMRO Mellon Global Securities Services management, Europe. In this new position,
B.V. has appointed Steve James as senior Mitchell will lead Tremont's European
trustee manager, reporting to John Morris, head research unit from London and will oversee
of the newly established Trustee and Depositary the investment process of evaluating, select-
Services business. This latest hire is a solid ing and monitoring managers, as well as
step in the development of ABN AMRO Mellon’s managing portfolios for select clients. In
solution to provide fiduciary services to invest- addition, Mitchell will supervise investment
ment funds. James brings to ABN AMRO Mellon relationship management activities. He will
a decade of experience in compliance within report to Cynthia Nicoll, senior vice president,
European regulatory environments. He joins director of investment management, for all
from Citigroup’s European Fund Services, where research and investment-related responsibili-
he was Funds Compliance Head. Steve’s previ- ties, and to Rupert Allan, managing director
ous responsibilities covered compliance mat- of Tremont's London business, for investment
ters relating to the provision of fund account- relationship management activities.
ing, transfer agency and trustee services in the
UK, Ireland, Luxembourg, Germany and Poland. Paul Wilson, senior vice president at JPMorgan,
In his new role with ABN AMRO Mellon, James has assumed the role of securities lending &
will be responsible for building detailed opera- investment products executive for JPMorgan
tional procedures, and for growing the new Investor Services in Europe. He replaces
trustee and depositary division through the Richard Warne who has taken on a new position
recruitment of experienced industry profession- of global client management executive for
als in line with ABN AMRO Mellon’s approach to JPMorgan Investor Services in Europe. spent over 10 years in total, latterly as Head of
providing quality service. Paul will be responsible for new business UK Clients and Portfolio Trading. NTGI is to fur-
development, client management and both ther strengthen its sales and marketing activi-
Citisoft, the specialist investment management product management and development within ties in Europe with the appointment of Heico de
consultancy, has appointed Valerie Nott, who the securities lending area. A key part of his Boer as a sales director for Continental Europe.
will work with Citisoft’s management team on mandate is to continue to ensure that JPMorgan De Boer will market NTGI’s full product range –
new business development and client relation- remains at the forefront of the lending business including passive, enhanced indexation, man-
ship management. Prior to joining Citisoft, by providing and further developing services ager of managers and active management – to
Valerie was the Account Director at COR-STPS and solutions that meet client expectations. institutional investors primarily in the
and group business director at 110 (One-Ten) Paul will also be responsible for Foreign Netherlands. He will also support NTGI’s
where she built a strong track record for client Exchange, cash investment products and exe- German joint venture with the Landesbank
service and revenue development. Nott will be cution products for JPMorgan Investor Services Hessen-Thuringen. De Boer joins NTGI from
responsible for strengthening relationships in Europe.BNY Securities Group, a division of State Street Global Advisors where he was a

06 ISJ02 14/9/04 16:18 Page 87
People - Moving & Shaking
director of marketing. At NTGI he reports to extensive knowledge of the Dublin funds indus- Clearstream, the custody and settlement divi-
Gordon Hogarth, head of European business try, beginning in 1987 with Ulster Bank sion of Deutsche Börse Group, has hired two
development. Custodial Services (now Northern Trust Ireland) new executives to lead the business develop-
in the investment management division. Jinnan ment activities. Stefan Lepp has joined as head
Helen Macdonell has been appointed as a port- Li and Kate Hassey have also joined the team of origination from Dresdner Bank
folio manager for NTGI’s active international as relationship managers and will be the pri- (CustodySolutions) where he was head of sales
equity team in London. Macdonell joins the mary contact for clients. and product management. Lepp will be co-
existing team of six in London, headed by located in Luxembourg and Frankfurt and will
Stephen Dowds. Miss Macdonell comes to NTGI Derivatives Portfolio Management, L.L.C. (DPM), focus on attracting new business in both the
from Hermes Focus Asset Management, a divi- the alternative investment administration spe- ICSD and CSD arenas. Thomas Zeeb has also
sion of Hermes Pensions Management where cialist, has hired Joseph G. Fallon as general joined as head of relationships for the UK,
she was Manager, UK Investments. counsel, a new position. Fallon will be responsi- Scandinavia and the Americas and will be
ble for protecting the company’s legal interests based in London. Zeeb was managing director
Claire Steele has been appointed as a senior worldwide and maintaining its operations with- at Bank of New York in London and has several
relationship manager for Northern Trust’s in the scope established by law. He was previ- years experience in the field of securities pro-
European Multi-National Pension Fund team. ously corporate counsel at RCN Corporation, a cessing and infrastructural development.
facilities-based provider of bundled communi-
cations services. Instinet Japan Limited, the institutional broker,
has appointed Takeshi Murakami as president
Fidelity Investments has appointed Martin and Tokyo branch manager.
Harris as managing director, UK Defined
Benefits reporting to David Stewart, president
of the European Institutional Business. He is
expected to take up this appointment in
November this year. Between 1997 and 1999,
Harris worked at Gartmore Investments and
most recently he has been head of UK
Institutional Business at First State
Investments.
The NOREX alliance has appointed Jukka

Ruuska, president of HEX Integrated Markets,
as chairman of NOREX.
Following the signing of the new NOREX Co
operation Agreement on April 7, 2004 HEX
Integrated Markets has now become a share-
Based in London, Steele will be directly respon- holder in Nordic Exchanges A/S. Jukka Ruuska
sible for co-ordinating client relationships for a was elected to NOREX together with Jouni Murakami-san joins the firm from Schroder
select number of European based multi-nation- Torasvirta, head of Helsinki Exchanges, Henrik Investment Management (Japan) Limited where
al pension funds. Prior to this appointment, Paulsson, acting head of Stockholmsbörsen he spent seven years in a variety of positions.
Steele held senior relationship manager posi- and Gert Tiivas, head of Baltic Operations. Most recently he was director, pension account
tions at JPMorgan Investor Services for six management and client services.
years with responsibility for servicing several of Managed Funds Association (MFA) has hired
their key clients. Scott Parsons, chief of staff/chief operating AXA UK plc has appointed Ian Richardson to
Wilson Leech was appointed ato the newly cre- officer at the Commodity Futures Trading the Board, as group business risk director. In
ated position of senior vice president, head of Commission (CFTC), as executive vice presi- this newly created role, Ian Richardson and his
strategic planning, International. Based in dent, Strategic and Government Affairs, a new team will be responsible for operational risk,
London, Leech will focus on major strategic ini- position. Parsons will play an active role in lob- compliance, internal audit, legal and company
tiatives for Northern Trust’s international busi- bying on legislative and regulatory affairs and secretarial matters. He will report directly to
nesses, namely asset servicing, asset manage- represent the Association before policymakers. Dennis Holt, group chief executive of AXA UK.
ment and wealth management. Leech joins Forum of that Institute. He is a law graduate
Northern Trust from State Street, having held a Brown Brothers Harriman announced has (LLB) of Manchester University.
number of senior management positions, most appointed of Keith Haberlin as head of
recently head of wealth management services. Infomediary sales for Europe. The hire steps up Data Explorers Limited has appointed Andy
BBH’s investment in Infomediary’s success as a Dyson as managing director of the Risk
Fortis Bank Information Banking has appointed multi-party STP connectivity platform. Haberlin Explorer service. Dyson was previously head of
relationship managers for its Prime Fund joins BBH from SWIFT, where his assignments risk and business development for Securities
Solutions office in Dublin. Lynn Winstanley has included global head of sales for investment Lending at Prudential M&G.
joined Prime Fund Solutions Ireland as senior funds and relationship manager for investment
relationship manager responsible for the client banks. ISJ
relationship management team. Lynn has

06 ISJ02 13/9/04 20:24 Page 88
ISJ Education
Looking for the right course to International Securities and Markets

further your career? ISJ spoke to a Association - ISMA
variety of financial education
schools about what they can offer
the aspiring financial professional.
In this training and education

section, Investment Education, the
International Securities and Markets
Association and the London Courses:
Business School highlight their
main courses for the following year. International Fixed Income and Derivatives (IFID)
Certificate Programme (formerly known as the General
Certificate Programme - GCP)
For some 30 years, ISMA's education programmes

Investment Education PLC: have set the international standard of competence
in the professional fixed income markets. The
ISMA Centre - The Business School for Financial
Markets based at the University of Reading pro-
vides the academic oversight for the IFID
Certificate's examination standard.
Since January 2004, ISMA's prestigious General

Certificate Programme, renamed the International
Fixed Income and Derivatives (IFID) Certificate
Programme is available through the existing residen-
Courses: tial programme (1 week on site in various European
cities) or through the new distance learning version.
Corporate Actions
7 - 8 September 2004 (2 days) Benefits
ISMA's IFID Certificate is the premier professional
qualification for the international fixed income secu-
Fund Management Overview
4 - 6 October 2004 (3 days) rities and derivatives markets, developed by profes-
sionals with hands-on industry experience. The
Certificate entitles you to partial exemption from
Securities Lending & Borrowing some domestic regulatory examinations.
28 September 2004 (1 day) Once you obtain your Certificate, you gain member-
ship to the ISMA AlumniWeb, the international forum
of fixed income professionals.
Eastern European Markets & Settlement
12 - 13 October 2004 (2 days) Benefits of the residential version:
Shorter programme duration - by the end of the
intensive one-week course, you will be ready to take
Bonds & Fixed Income Markets the exam there and then
20 September 2004 (1 day) Face-to-face tuition - highly qualified professionals
from the University of Reading and from leading
financial institutions coach you through the material
Further details can be obtained by visiting and answer your questions on the spot
www.InvestmentEducation.net or by phoning Michael Networking with your peer group - establish life-long
Stern on +44 (0) 161 228 2400 friendships and contacts for the future, as you work

03097 267X203 INV.SER.JNL 10/9/04 5:08 pm Page 1
FINANCE PROGRAMMES
London Business School’s challenging finance programmes are practical, yet rigorous, and draw
on the strengths of the School’s world-renowned finance faculty.
MASTERS IN FINANCE FINANCE EXECUTIVE PROGRAMMES

The Masters in Finance has rapidly become established Hedge Funds Programme
as the pre-eminent postgraduate qualification for finance A two-day programme providing hedge fund managers
professionals. and investors with the knowledge and frameworks
needed to address the key issues facing the sector.
The programme provides a thorough and practical
training in the principles and practice of finance. The Corporate Finance Programme
extensive choice of electives allows for specialisation in Covers financial accounting and analysis, corporate
areas such as corporate finance, asset management, finance, valuation, capital markets and financing.
financial engineering and investment banking. The programme is offered in two formats – evenings or
block weeks.
The Masters in Finance attracts experienced, high
calibre, international participants who are pursuing Investment Management Evening Programme
successful careers as finance professionals within the The programme covers equity portfolio management,
financial services industry or in business. bonds and fixed income, and derivatives and derivative-
based investment strategies.
Part-time participants continue with their careers while
attending on sixty evenings per year over twenty-one Economics Evening Programme
months. Full-time participants take a career break in Examines the international macroeconomy and the
order to complete the programme in ten months. problems and prospects facing the world economy.
To find out more, come to a Masters in Finance In 2005 we will be launching new 5-day programmes in:
information session at London Business School - Equity Portfolio Management
at 6.15pm on: - International Finance
• Monday 27 September - Financing the Entrepreneurial Business
• Wednesday 3 November For further information, contact our Information Officer at:
Sussex Place
Regent’s Park
London NW1 4SA
Tel +44 (0)20 7706 6840
Fax +44 (0)20 7723 1788
email finance@london.edu
ISJ09/04
www.london.edu/finance/
06 ISJ02 13/9/04 20:24 Page 90
ISJ Education
in a convivial environment with fellow-professionals London Business School

from other institutions
Benefits of the distance-learning version:

Flexibility - you can work through the programme in
your own time, pace and location; no need to take
time off work or away from home
Ongoing support - expert e-tutors at the IFID Online
Campus are available on demand to answer your When do the courses start?
questions and give you practical guidance. At the
IFID Online Campus you have the facilities for get- The Masters in Finance programme at London
ting in touch with fellow students by internal e-mail Business School can be undertaken full-time over ten
or moderated discussion board months or part-time over twenty one months (mainly
Benefits to your organisation: evenings). The full-time programme begins in early
ISMA's IFID Certificate is a proven, internationally September and the part-time programme begins in
recognised, competency standard that can be embed- early October each year.
ded into appraisal requirements to ensure that staff
are fully up to date with technical developments in Courses:
the fixed income markets. Masters in Finance
The availability of ISMA's International Fixed Income
and Derivatives (IFID) Certificate Programme in two Who should enrol?
versions - residential and by distance learning - offers
utmost flexibility to firms to incorporate this The programme is designed for those working in, or
Certificate into their graduate/associates training pro- planning to work in:
grammes.
Implement systematic, timely and flexible staff devel- - Corporate finance, venture capital and corporate
opment programmes restructuring
- Capital markets, trading and risk management
Benefits of the residential version: - Investment banking and commercial and retail bank-
The intensive training and short duration of the resi- ing
dential course allows you to schedule and complete - Investment management, security analysis and
the programme quickly during off-peak periods broking
Benefits of the distance learning version: - The finance function of industrial, commercial and
Incorporate this qualification into your in-house train- service organisations
ing programmes and reduce staff release time for - Corporate planning and consultancy where detailed
classroom training; save on direct training costs. knowledge of finance is required
- Accountancy or law firms, property consultants,
2004/5 Schedule - IFID residential programme: commodity businesses and investor relations specialists
Lucerne, Switzerland - Not-for-profit organisations such as central and
November 7 to 13, 2004 regional banks, government departments and interna-
Registration deadline: September 6, 2004 tional organisations
Lisbon, Portugal What types of careers can the Masters in Finance lead
April 24 to 30, 2005 to and what are the placement opportunities?
Registration deadline: February 24, 2005
The School has an outstanding international reputation
Lucerne, Switzerland in the finance field, and strong links with financial
November 6 to 12, 2005 institutions. There is a dedicated Career Services
Registration deadline: September 5, 2005 department, which promotes awareness of the benefits
of recruiting from one of the largest and best pools of
For further information, please visit www.isma.org or talent in the world and assists recruiters in meeting
contact the Educational Services Department of the their employment needs. Prestigious recruiters regular-
International Securities Market Association on +41-1 ly hold presentations and conduct interviews on cam-
363 4222 pus. Graduates from the programme are represented in
every functional area of finance and in a variety of
firms, including financial services, consulting, industry
and the public sector.

the Swedish School of Economics
and Business Administration in Finland
• Academic degrees in economics: THE HANKEN MBA PROGRAMME

The Hanken MBA programme is an officially accredited,
bachelor’s, master’s, licentiate or doctor two-year part-time programme that offers relationship
marketing and finance as specialisation alternatives.
• At the academic forefront of relationship
These areas form the core of Hanken’s competence
marketing and services management, profile as Hanken is at the forefront of both areas both
nationally and internationally. The professors have solid
financial economics, management and knowledge and expertise and are at the cutting edge of
organisation developing both areas.
• 2500 students In addition to relationship marketing and finance, the

programme consists of modules in the areas of e.g.
• Tuition in English or Swedish; selection
management and accounting. The professors in these
of English-only programmes available areas also have solid expertise and experience of execu-
tive education.
• Founded in 1909, one of the most
long-standing business schools Application deadline September 30, 2004.
in the Nordic countries MASTER’S STUDIES

Hanken offers specialized Master’s Programmes which
represent the areas of strength at Hanken. A university-
level Bachelor’s degree is the basic entrance requirement.
The studies lead to the M.Sc. (Econ.) degree. Application
deadline March 1, 2005.
A MARK OF QUALITY
Hanken has received the prestigious EQUIS-brand. This
accreditation guarantees that Hanken meets the highest
requirements for educational quality, internationalisation
and interaction with the corporate sector.
For more information please contact info@hanken.fi

www.hanken.fi, www.hanken.fi/mba
06 ISJ02 13/9/04 20:25 Page 92
ISJ Education
- US and European global investment banks have tra- Finance, Project Finance, and Equity Investment
ditionally been the largest recruiters of our graduates. Management.
Programme participants have taken up roles in corpo-
rate finance, capital markets, sales and trading (equity Financial and strategic analysis
and fixed income), asset management, private banking Those working, or planning to work, as sell- or buy-side
and research (equity and fixed income) analysts, consultants, or strategic planners can spe-
- Venture capital and private equity firms, independ- cialise in financial and strategic analysis by focusing on
ent asset managers, hedge funds and boutique special- electives such as Strategy for MiFs; Analysis of Industry
ist corporate finance advisory companies and Competition; Financial Analysis of Mergers and
- Consulting firms with a strong finance division also Complex Restructurings; International Financial
hire our graduates Analysis; Advanced Corporate Finance; Understanding
- Industrial and non-financial services firms also the International Macroeconomy; and Financial Markets
recruit from the programme for positions in finance, and Economic Performance.
treasury, business development, and strategic planning
- International and regional development banks, cen- Asset management
tral banks, ministries of finance and financial regulators Electives in this area include Equity Portfolio
Management; Bond Portfolio Management; and
also employ our graduates.
Derivative-based Investment (these 3 electives together
comprise the Investment Management Evening
Contact details?
Programme); plus Topics in Asset Management,
Behavioural Finance; and Hedge Funds. Other electives
The Information Officer of relevance include International Finance, Trading and
Finance Programmes Office Financial Market Structure and electives in strategy,
London Business School financial analysis and macroeconomics as well as elec-
Sussex Place, Regent’s Place tives in private equity and venture capital.
London, NW1 4SA
Tel: +44 (0)20 7706 6840 Corporate Finance
Fax: +44 (0)20 7723 1788 The key electives for those pursuing careers in corporate
Email: finance@london.edu finance in investment banking, or in the finance, treas-
Web: www.london.edu/finance/ ury or planning groups of major corporations include
Advanced Corporate Finance; Financial Analysis of
How relevant are the courses? Mergers and Complex Restructurings; International
Finance; Mergers, MBOs and Other Corporate
Participants undertake four core courses: Reorganisations; and Project Finance. Participants may
choose to round out their selection with a strategy
- Financial accounting and analysis course, or further courses on financial analysis or macro-
- Corporate finance and valuation economics.
- Capital markets and financing
- Foundations of finance We also offer evening and daytime executive pro-
grammes in Investment Management, Corporate
These four cornerstones provide the basic financial con- Finance, Hedge Funds and Economics. In 2005 we will
cepts with which all finance professionals should be be launching three new 5-day executive programmes –
familiar. Participants can then tailor the degree to their Equity Investment Management, International Finance
own interests through an individual project and by and Financing the Entrepreneurial Business.
choosing five electives from a portfolio of approximately
thirty courses. Some participants take a broad spectrum Alumni Quote:
of electives, whilst others specialise. Some of the most
popular specialisms include: The Masters in Finance programme was for me the
ideal way to achieve numerous goals at once. The core
Financial engineering/capital markets courses refreshed my existing knowledge and broad-
For careers in financial engineering and risk manage- ened it into new areas like financial accounting. The
ment; sales, trading and research; derivatives, structured electives allowed me to deepen my expertise of the
products and securitisation; and fixed income and debt financial markets. Electives like financial engineering
capital markets the key electives include Options and and PhD seminar in financial economics were very
Futures; Fixed Income Securities; Financial Engineering valuable to me and were directly applicable in my job.
and Risk Management; Trading and Financial Market Last but not least, I made many friends during the time
Structure; Time Series Analysis, Market Models and I spent at London Business School.
Forecasting; and Global Capital Markets and Currencies.
Other electives of relevance include International Jorg Sauren
Quantitative Risk Analyst, ING

ISMA_CRoth_203x267_CMYK 13/9/04 10:39 Page 1
International Securities
Market Association
International Fixed Income

and Derivatives (IFID)
Certificate*
“The recognised benchmark of

competence for fixed income
professionals”
One qualification –
two ways of acquiring it
Over the past 30 years, thousands of market professionals have gained
this prestigious qualification* by enrolling on one of ISMA's one-week
residential programmes. From January 2004 candidates will also be able to
prepare for the IFID Certificate exam in their own time through a programme
of distance learning.
For more information about the IFID Certificate or to register online, please contact:
Distance learning programme: Residential programme:

Mike Kirkman Angela Kessler
mkirkman@chisholmroth.com education@isma.org
Telephone: (44-20) 7630 0161 Telephone: (41-1) 363 4222
or visit:
www.isma.org/educational/ifid.html
For training managers, the IFID Certificate can be integrated into your in-house
continuing professional education programmes. Please contact Mike Kirkman
for more details.
The IFID Certificate is organised by ISMA in collaboration with Chisholm Roth & Company and
with the academic support of the ISMA Centre - the business school for financial markets based
at The University of Reading in England.
* Formerly the General Certificate Programme (GCP)

06 ISJ02 16/9/04 13:02 Page 94
ISJ Directory of Services
Custody, Clearing & Settlement

Bank of Ireland Securities Services (BoISS) is a Tel: +353 1 6700 300
provider of administration, custody, transfer Fax: +353 1 8290 144
agency/ shareholder services and trustee services. Contact: Liam Manahan / Liam Butler
Assets under Custody:USD$160.8 billion Email: liam.butler@boiss.boi.ie
No. of funds: 155 funds (July 2004) including assur- Website: http://www.boiss.ie/
ance linked funds, exchange traded funds, umbrella Address: New Century House, Mayor
funds, unit trusts, variable capital companies, etc. Street Lower, IFSC, Dublin 1.
Credit Agricole Investor Services specializes in fund Tel: +352 4 767 2306
administration, custody/depositary/trustee as well as Contact: Olivier Storme
corporate trust activities. The Group aims to expand Email: info@eu.ca-investorservices.com
its service offering through local synergies in the
areas of commercial growth and IT infrastructure.
Assets under Custody: EURO434 bn
No of funds: 4,228
HSBC is one of the largest banking and financial Tel: +44 (0) 207 260 8083
services organisations in the world. HSBC's interna- Fax: +44 (0) 207 260 6144
tional network comprises about 10,000 offices in 76 Contact: Paul Stillabower
countries and territories in Europe, the Asia-Pacific Email: paulstillabower@hsbc.com
region, the Americas, the Middle East and Africa. Website: www.gis.hsbc.co.uk
Assets under Custody:$1.483 trillion Address: Mariner House, Pepys Street,
No of funds: 8,370 London EC3N 4DA
ING Securities Services in The Netherlands, Telephone: +31 20 797 9436

Belgium, Germany, France and Central & Eastern Contact: Ingrid Reichmann
Europe are working successfully under the single E-mail: ingrid.reichmann-
name and a single marketing strategy. ING Securities kops@mail.ing.nl
Services offers an extensive range of securities-relat- Web: www.ingsecuritiesservices.com
ed services to its wholesale clients. ING offers
custody services, integrated derivatives and cash-
clearing in the various domestic markets in Europe.
The ING BHF bank is one of the prominent Tel.: +49 (069) 718-3738
German business banks. Their activities are in the Fax: +49 (069) 718-3778
divisions of management & Financial services, Contact: Cornelia Keth
Corporate Banking, Financial Markets and private Address: Strahlenbergerstraße 45, 63067
Banking in summary. Offenbach am Main, Germany
Assets under Custody:EURO 140 billion
Nordea is one of the leading financial services group Tel: +47 22 48 4112
in the Nordic and Baltic Sea region and operates Contact: Sveinung Dyrdal
through three business areas: Retail Banking, Email: sveinung.dyrdal@nordea.com
Corporate and Institutional Banking and Asset Website: www.nordea.com
Management & Life. The largest financial services
group in the region with approximately EUR 262
billion in total assets. A world-leading Internet
banking and e-commerce operation with 3.8 million
customers.
Assets under Custody:EURO 360 billion

06 ISJ02 16/9/04 13:04 Page 95
Custody, Clearing & Settlement

Tel: +46 8 763 5770 As a leading supplier of custody services in the Nordic
Fax: +46 8 763 6930 region, SEB Securities Services expertise in dealing
Contact: Goran Fors with securities, complex information flows, transac-
Email: goran.fors@seb.se tions and payments efficiently and accurately is crucial
Website: www.seb.se to your own business methods - and to your ability to
make wise investment decisions.
A blend of personal service, advanced communication
solutions and IT systems means that SEB can provide
you with the assistance you need in order to deal with
your securities in the most logical manner.
Assets under Custody: $200 bn
Tel:: +41-1-288-4811 The SIS Group (SIS Swiss Financial Services Group
Fax: +41-1-288-4512 AG) is, together with its four subsidiaries SIS
Contact: Marco Strimer SegaInterSettle AG, SIS x-clear AG, S A G SIS
Email: marco.strimer@sec. Aktienregister AG and SIS Systems AG, an innovative
Sisclear.com full service provider for international securities trad-
Website: www.sisclear.com ing, clearing, settlement and custody.
Adress: Brandschenkestrasse 47, Assets under Custody: CHF1,817 bn
P.O. Box, CH-8022 Zurich
Fund Administration
Tel: +1 441 295 - 5678 Bermuda Commercial Bank Limited (BCB) provides
Fax: +1 441 295 - 8091 high quality, comprehensive services to mutual fund
Contact: Paul Kneen clients. Services range from the establishment of the
E-mail: enquiries@bcb.bm fund to the on-going management and administrative
Website: www.bermuda-bcb.com functions. Specialised services include: Setup And
Address: P.O.Box HM 1748, Launch Services, Registrar And Transfer Agent,
Hamilton HM GX, Bermuda Corporate Secretarial Administration, Management,
Accounting And Valuation Services, Shareholder
Nominee Services, Custodial Services.
Tel: +1 (441) 295-1111 Butterfield Fund Services (Bahamas) Limited boasts a

Contact: Andrew Collins team of experienced professionals dedicated exclusive-
Email: contact@bntb.com ly to serving investment managers. Fund administra-
Website: www.bntb.bm tion is Butterfield Fund Services’ sole business, allow-
ing us to demonstrate our commitment to fund
administration.
Tel: +1 732.563.0030 DPM offers a complete suite of services designed to

Fax: +1 732.563.1193 solve all your onshore and offshore administrative
Contact: Lisa Cohen needs, save you time, and improve your operational
Website: www.dpmllc.com efficiency. From the most basic administrative reports,
Address: Two Worlds Fair Drive, to complex portfolio valuations, risk analysis and
Somerset, NJ, US 08873 transparency, DPM has the systems, infrastructure and
experience to handle your toughest administrative
challenges.

06 ISJ02 16/9/04 13:05 Page 96
Securities Lending
eSecLending is a global securities lending manager Tel: +44 (0)207 002 6700
designing, implementing and administering cus- Fax: +44 (0)207 002 6700
tomized securities lending programs for major institu- Email: ukinfo@eseclending.com
tional investors worldwide. The firm provides compre- Website: www.eseclending.com
hensive securities lending management services. From Address: Old Mutual Place, 2
developing the program, to setting up and conducting Lambeth Hill, London EC4V 4GG,
the auction, to handling all daily administration, UK
eSecLending supports clients at every point in their
securities lending activities. eSecLending is an Old
Mutual plc group company.
Technology
ADP handles employer-related functions that require Tel: +1 (973) 974-5000
extensive processing, recordkeeping, technology and Website: www.adp.com
up-to-date best practices. ADP is committed to Address: 1 ADP Boulevard, Roseland,
providing world class Service levels that exceed its NJ 07068, USA
clients’ requirements and expectations with solutions
that enable them to succeed in their businesses..
Pioneering the dedicated Third-Party Securities Tel: +353 (1) 674 5520
Lending Agency Intermediary in Europe since 2001, Fax: +353 (1) 829 1055
Guild Global manage Equities and Fixed Income loan Contact: Hans Beckmann
balances of 9.0 billion in twenty-four countries for Website: www.guildglobal.com
some of Europe's premier institutional Asset Address: Guild Global Securities
Managers, Pension Funds, Mutual Funds and Life Limited, Guild House, Guild Street,
Assurance Companies. IFSC, Dublin 1, Republic of Ireland
IFBS offers the financial industry a wide range of con- Tel : +41 (0)44 218 14 14
sulting services as well as individual and standard soft- Fax: +41 (0)44 218 14 18
ware solutions. The firm supports clients along the e-mail: info@ifbs.com
entire security value chain - from business modelling Website: www.ifbs.com
to change management processes. IFBS’s IT solutions Address: IFBS AG, Buckhauserstrasse
range from FINACE®, a Securities Finance and 11, CH-8048 Zurich, Switzerland
Collateral Management Platform, to the development
of tailor-made IT applications.
FT Interactive Data, a leading provider of financial Tel: +44 (0)20 7825 8000
information and analytical software to global markets, Fax: +44(0)20 7251 2725
supplies global securities pricing, evaluations, divi- Address: Fitzroy House, 13-17
dend, corporate action and descriptive information Epworth Street, London,
designed to support mutual funds' pricing activities, EC2A 4DL, UK
securities operations, research and portfolio manage-
ment.
4sight Financial Software is a world leader in the pro-

vision of innovative software solutions to the Tel: +44 (0) 20 7643 2242
Securities Finance and Settlement markets around the Fax +44 (0) 20 7643 2201
globe. As the technology partner of choice for many Contact: Judith McKelvey
leading European, North American and Asian financial Website: www.4sightsoftware.com
organizations our successes speak for themselves. Address:: No.1 Poultry, London
EC2R 8JR, UK

A677 Corp Pensions _isj 9/10/04 3:31 PM Page 1
GLOBAL ORGANIZERS OF INSTITUTIONAL FINANCE & INVESTMENT CONFERENCES
The 8th Annual
Corporate Pension
Funds Summit
October 25 & 26, 2004 • The Ritz Carlton • Half Moon Bay, CA
T he National Summit for Corporate Treasurers,

Plan Sponsors and their Investment Advisors
This Summit is one of the few national
conferences geared solely at the outlook for
corporate pensions in the coming year and its
many investment and plan management
challenges. It will feature an impressive array of
roundtable discussions, industry debates, case
studies, and interactive presentations lead by an
esteemed speaker faculty.
For More Information, Please Visit:

E m a i l : mail@imn.org
www.imn.org/a677/isjm/ Call: +1-212-768-2800 Ext. 1

F ax: +1-212-768-2484
Still using your Global Custodian
to provide Securities Lending
Agency Services to you?
With €9 billion in Equities and Fixed Income Assets under

Management, Guild Global provide first-class Third-Party
Securities Lending Agency Services to Europe’s premier Life
Assurance Companies, UCITS Funds, FCPs and Asset
Managers in Ireland, Luxembourg and Italy. Guild Global’s
gateway throughout Europe and our innovative Securities
Lending techniques now give Institutional Lenders the
freedom of choice for the management of your Securities
Lending programs, delivering strong, consistent fee
performances, reducing operating costs further in an
unrivalled control and compliance environment. This allows
us to individually service our Client Lenders and Borrowers
better than any other Agency Lender in the industry.
Please contact Hans Beckmann on: +353 (1) 674 5520 or

hans.beckmann@guildglobal.ie for an exploratory discussion.
WWW.GUILDGLOBAL.COM
The products and services outlined above are offered by Guild Global Securities Limited™. Guild Global is the brand name for the
Institutional Investor Services business offered by Guild Global in designated European Union Countries. Guild Global is authorised by the
Irish Financial Services Regulatory Authority. © 2004 Guild Global Securities Limited. All Rights reserved.

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00 ISJ02 Cover 16/9/04 13:38 Page 1

THE GLOBAL SECURITIES SERVICES INDUSTRY JOURNAL

INVESTOR Securities Financing / Lending; Legal & Compliance

TIME FOR GROWTH?

CRÉDIT AGRICOLE INVESTOR SERVICES

4CRE012• INVESTOR SERVICES JOURNAL 203X267 HOMME À LUNETTES

Editor’s Letter & Contents

INVESTOR Time for Growth?

12 Getting the Standardisation will matter a great deal to the

17 Brand Identity White labelled software as a solution

21 Action Stations The World’s leading solutions vendors debate the

32 Automating Nat Sey of FT Interactive Data looks at the

34 Transfer Agency ISJ looks at the main concerns of transfer agency

36 Selling… selling… Hedge funds look set to continue to attract the

INVESTOR SERVICES JOURNAL 1

INVESTOR 41 Hedge Fund Sector

48 SWIFT Sibos Your Sibos pull out timetable

50 Time to Shine Mandate victories have increased as funds outsource

55 Talking Carol McGinn on the timeliness and

60 Securities Lending Data Explorers provide high level summary in the

64 A loan on the Edge Securities lending is replaced as the scapegoat

78 Estonia A profile of Estonia - the end of the rainbow?

82 Singing their tune? ECSDA responds to the European Commission’s commu-

88 ISJ Education Continuing and further education in securities services

94 Directory Directory of investor services

2 INVESTOR SERVICES JOURNAL

Janet Du Chenne Costs of Compliance

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The success story continues:

For further information please contact Cornelia Keth on +49 69 718-3738 or

necessary systems,” he says. “But the availability Technology

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Partnership and Trust

Custody & Outsourcing stand-alone solution or as part of a Technology

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DPM Europe Ltd

News - Asia Pacific

Custody & Outsourcing to be selected as their solution of

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Butterfieldus fundi servicium

Small enough to be quick.

For more information, please contact:

The theme for this year’s Sibos event, “Time for

Securities Finance International

The Securities Finance and Hedge Fund Symposium

Symposium (sim-pOz-ium) n. Pl. – ia (rarely –iums) 1. Philosophic, scholary, or

Charlie Stopford Sackville T: +44 (0)20 7377 2977

sibos 2004 Out Front?

14 INVESTOR SERVICES JOURNAL

Now Vestima+ also meets your needs in domestic fund

Increase your STP rate. Lower your costs.

Get connected to Vestima+ today,

THE GLOBAL SECURITIES SERVICES INDUSTRY JOURNAL

THE GLOBAL SECURITIES SERVICES INDUSTRY JOURNAL

INVESTOR Securities Financing / Lending; Legal & Compliance

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CORPORATE ACTIONS, ROUTINE OR RISK?

register before 1 November for a free subscription online at

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T echnology has caused a rush to the market by

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18 INVESTOR SERVICES JOURNAL

INVESTOR SERVICES JOURNAL 19