VOLUME 4 No. 19 - 2007 ISJFORUM.

COM
£ 25 - UK, ROW

INVESTOR $ 43 - America
EUR35 - Europe, Mid-East, Africa

S ERVICES
JOURNAL

MIFID: EVERY CLOUD HAS

A SILVER LINING

MIFID SPECIAL REPORT

ARE WE PREPARED?
PEOPLE MANAGEMENT
BEST EXECUTION
RISKY BUSINESS? - LATIN AMERICAN HEDGE FUNDS
END OF THE ROAD - AUCTION PLATFORMS
GERMANY - COUNTRY PROFILE
THE NEO-CONQUISTADORS - SPANISH CUSTODY

THE GLOBAL SECURITIES SERVICES INDUSTRY JOURNAL


INVESTOR OUT OF SIGHT, OUT OF MIND
Back in 1817, a businessman, financier,
S ERVICES speculator and part time economist David
Ricardo expounded the theory of compara-
JOURNAL tive advantage. This theory describes why it
can be beneficial for two parties to trade,
VOL 4 No. 19 - 2007 even though one of them may be able to
produce every item more cheaply than the
other. Ricardo used wine and cloth produc-
tion in Portugal and England as an example.
Whilst Portugal can produce both goods at
less expense than England, it makes sense
for Portugal to make excess wine and trade
the excess for English cloth; both countries
win.
200 years later, it seems that we no longer
trade in goods, but instead, we trade in
tasks. The world of Offshoring now makes
Ricardo somewhat obsolete. As the parts
that make up a companies services are bro-
ken down into tradable tasks, no longer do
we have the easily identifiable goods with
easily identifiable price variations, but
instead a series of tasks, spread across
many countries, that may or may not be
more cost effective in one country or anoth-
er and have far more subtler effects on the
global economy that tangible goods.
Different questions now arise, is it easier to
shift your tasks abroad? Do we trade effi-
ciently in various tasks, or do we keep it
under one corporate umbrella? As a result
we thought it appropriate to look at the
modern King of offshoring, India, and ask
how did it become the best in its class, and
how long can it keep its crown?
This brings us nicely onto our main feature.
Including both goods and tasks, all these
factors have to be bundled, organised and
protected through efficient regulation.
However the introduction of any new regu-
lation can be intimidating. This is why we
thought it appropriate to give you a special
section about the imminent Markets in
Financial Instruments Directive (MiFID).
SunGard have recently released their first of
Editor: Alan Duerden (Alan.Duerden@ISJforum.com)
2006 PPA MAGAZINE AWARDS Reporters: Giles Turner (Giles.Turner@ISJforum.com), Andrew Warburton (Andrew@ISJforum.com)
PUBLISHER OF THE YEAR Contributing Editor: Brian Bollen. Contributors: Keith Ford, Christine Senior
HIGHLY COMMENDED
MEMBER - PERIODICAL PUBLISHERS ASSOCIATION Account Managers: Ben Katzler (Ben.Katzler@ISJforum.com), Monique Theart
(Monique.Theart@ISJforum.com) Directory Sales: Daniel Ryder (Daniel@ISJforum.com)
General Manager: Kevin Lawrence (Kevin@ISJforum.com)
Systems Developer: Jon Gunnarsson (Jon@ISJforum.com)
Operations Manager: Katerina Dimitrova (Katerina@ISJforum.com)
Designer: Katerina Dimitrova (Katerina@ISJforum.com)
TOTAL NET CIRCULATION 11,188
Analysis for the Audit Issue Vol 3, No 14 distributed June 2006. Publisher: Justin Lawson (Justin.Lawson@ISJforum.com)
Source: AUDIT BUREAU OF CIRCULATIONS, www.abc.org.uk Chairman: Mark Latham (Mark.Latham@ISJforum.com)
INVESTOR SERVICES JOURNAL
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HARD COPY
four reports on MiFID, and one of the inter-
esting things to come out of the report is
that 40% of the participants were undecid-
ed as to how positive MiFID would be.
Possible questions to come out of this are;
why aren’t more people standing against it
MiFID if it doesn’t have the full backing and
support of the industry, and who will benefit
most from MiFID? ISJ addresses these
questions and more. We’ve also roped in
eaConsulting to talk about the often-ignored
people management side of MiFID, and
Anthony Kirkby of Accenture to grapple with
the issues around Best Execution.
We continue in the offshoring vein with our
other special report looking at how Spain
has become the new model for financial
expansion. Including insight from the major
custodians in the Spanish market on the key
developments over the past year, we analyse
the one-way movement of Spanish banks
into other parts of Europe and ask whether
the Spanish market can enjoy sustained
growth if European custodians are not
choosing to move there.
Our article on German custody analyses the
move away from the traditional depot bank
function of German custodians and how
diversity through value added services has
changed the face of the German market.
With the dominance of international custo-
dial providers in the market ISJ looks at
whether local custody
providers have missed
the boat of opportunity.
Finally, we would like to
welcome Andrew
Warburton to the editorial
team at ISJ.
Alan Duerden
investor
intelligence partners
W: www.ISJforum.com
 CONTENTS

VOL 4 No. 19 - 2007

Special Report Technology
20 Silver Lining 73 Outsourcing to India
- MiFID analysis - Can India keep its
crown?
23 ea Consulting
Regulars
- MiFID and people
80 Meet the Future
management
- International talent
with international
26 Expertly Executed
aspirations.
- MiFID and Best
Execution
20 The Last Word 81 Disaster Recovery
ISJ looks at MiFID, 58 Spain
not only regarding Custody
82 Mandates - Neo-Conquistadors
cost, but also for the 34 Left Behind
people affected by this
large-scale regulation - Has Germany custody
overhaul. 83 Dating & Letters
been left in the dust?

1 Hard Copy 84 People Moves

38 Analyze This
- Editors Letter - Central and Eastern
4 Letters ISJ Directory
Europe
Dear Sir... 86 The Directory of
Securities
44 CEO Profile
News Services Providers
- Mr Shah of JPMorgan
6 Global Snapshots
- Roundup of securities Hindsight/Foresight
46 Panel Debate
services headlines 80 Etheios looks back into
- Transfer Agency
the future 62 Auction Platforms
from ISJforum.com - At a crossroads?
Special Report
10 News Analysis 58 The Neo-Conquistadors
- Reading between the - A regional assessment
lines. of Spanish Custody

Funds Sec Lending

12 Domicile Reports 62 Auction Platforms
- Jersey, Bahamas and - Still competitive?
Ireland give us the
lowdown. 70 Fee Invoicing

14 Fund Regulation 72 Bravura

- Risky business in - Software solutions 34 Germany 73 India
Latin America. from down under - Left Behind - King of Outsourcing?

2 INVESTOR SERVICES JOURNAL

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 LETTERS TO THE EDITOR
If you are affected by,
or have an opinion on,
any aspect of investor
services write to us...
Alan.Duerden@ISJforum.com
The Impact of FX Trading by
Hedge Funds
The trading of FX as an asset class has con-
tinued to gain acceptance in recent years.
In fact, ClientKnowledge reported in 2006
that around 25% of all daily FX volumes
are alpha generating trades, and with
hedge funds accounting for the greatest
proportion of FX trades on the buy side,
they are clearly leading the pack with their
system requirements.
In comparison to traditional traders,
hedge funds are unique in their demands.
Due to their experience and expectations
from other asset classes (equity, energy
etc.) their trading strategies are inevitably
complex. They use algorithms, high levels
of automation, API connectivity, exe-
cutable streaming models etc; and with FX
volumes always increasing, banks need to
keep up.
They first need to provide the
appropriate services to not only attract
Banks must increase
technology spending
to help them
win the latency war.
new hedge fund business, but to also
retain their existing hedge fund clients. As
algorithmic trading becomes more com-
monplace, banks must increase their level
of technology spend to help them win the
latency war. And secondly, they must
improve their own risk capabilities to
counter the increasing sophistication of
their clients and the competition. They
can ill-afford to be pushed out of the mar-
ket by falling behind.
There really is only one way to achieve
these goals; through investment in their
trading platform. Banks must implement
truly scalable and highly available pricing
engines with genuine high performance
executable streaming capability, combined
with a clear connectivity strategy.
According to research from TowerGroup,
by 2007, global FX daily average volumes
4 INVESTOR SERVICES JOURNAL
will exceed US$3 trillion, with more than
44% of transactional volume conducted
electronically. This is an increase from
US$1.77 trillion in 2004. As the FX mar-
ket grows and becomes more complex (as
led by the hedge funds), how you trade
has never been more important.
Kieran Fitzpatrick, Director,
Strategic Solutions, Cognotec.
Incoherent Commercial
Relationships -The Cost
IT systems, software and services occupy a
huge proportion of budgets throughout the
financial services sector. Each relationship
with an IT provider must therefore be care-
fully structured, negotiated and managed to
ensure this spend delivers concrete, meas-
urable business results.
We need to structure
commercial relationships
with vendors and
service providers that
reward success.
All too often we see projects that overrun,
are over budget or fail to produce the bene-
fits that were promised by vendors - or
sometimes, all three.
Is this because IT vendors are unscrupu-
lous and/or incompetent? Not
generally. In our experience, one of the
main causes of project failure is
that the commercial relationship between
client and vendor was not
structured for success. Just as we do with
our employees, we need to
structure commercial relationships with
vendors and service providers that
reward success. But as soon as we start
talking about risk-reward, it
becomes clear that each party is much
happier to take on the latter than the
former. With commercially pragmatic
and IT-literate contract structuring and
negotiation it is possible to create a con-
tractual framework for successful
project delivery. Without it, you are sim-
ply producing a document that, at
best, will remain in the drawer and, at
worst, will become a millstone
around the neck of your project.
Tiffany Kemp, Managing Director,
Devant Limited.
The deadline for MiFID
Transposition at Level 3 is 31st
January 2007. What can firms
expect to see during the count-
down to MiFID implementation
this year?
The deadline for transposing the MiFID
measures (both Directive and Regulation)
into domestic law into each of the 31
European states (27 EU member states
plus Gibraltar, Norway, Iceland and
Lichtenstein) likely to be impacted will be,
somewhat appropriately, the 31st January
2007. Many of the optimists foresaw con-
siderable benefits for the early birds, and
they will gain from vital long-term com-
petitive advantage in servicing the
European Capital Markets. However, the
doomsayers have already passed their
judgement that a significant number of
EU Member States will fail to meet the
transposition deadline, although it’s
remains to be seen whether Member States
representing significant liquidity flows will
be among the laggards.
Having worked hard to prepare for MiFID,
the prospect of differential implementation
across the Member States is a scenario no-one
wishes to see happen. Should a significant
number of member countries fail to meet the
transposition deadline, this would raise
thorny issues for regulators and for firms who
have invested the time and trouble to be ready
on day one. With MiFID coming into EU law,
its predecessor – the Investment Services
Directive – will be repealed.
Lack of harmonisation
results in an uneven
regulatory environment.
Lack of harmonisation as regards imple-
mentation will result in an uneven regulatory
environment, and one that is hardly con-
ducive to the interests of governments or the
end investors.
It is clear that firms are far from consistent in
their preparations for MiFID. 14% of entities
surveyed by Accenture last year indicated that
they were in the “highly-strategic or design”
phase. These will be the entities who are likely
to shape the market infrastructure in Europe
over next 5 years, yet at the time of the survey,
next to no firms were coding. 48% of entities
were already in the planning phase, yet 36% of
firms overall would see their efforts as tactical
“tick the box” compliance.
(Letters continue on page 83)
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 NEWS - GLOBAL SNAPSHOTS
FUNDS & ADMINISTRATION
London - Standard Life
Investments, a property fund
manager in Europe,
announced the launch of two
innovative, new global proper-
ty funds aimed at institutional
and retail investors in the UK
and Europe. The Global REIT
Fund (OEIC) - for UK
investors - and the Global
REIT Focus Fund (SICAV) -
primarily aimed at the
European markets - will invest
largely in Real Estate
Investment Trusts (REITs) or
securities and companies
principally engaged in real
estate activities on a global
basis. The funds will aim to
maximise total return from
income and capital growth
over the longer term. By invest-
ing in indirect property, both
funds offer unique access to
global
property markets and the abili-
ty to diversify investors’ exist-
ing property portfolios.
Jersey - Raiffeisen Zentralbank
(RZB) has opened an office in
Jersey and announced that its
London Branch has obtained
permits from the Jersey regula-
tor to distribute seven of its
Vienna-based funds from
Jersey. These funds - all of
which meet the UCITS III
standard - are managed by
Raiffeisen Capital Management
(RCM), the asset management
arm of RZB.
MARKET INFRASTRUCTURE
New York/Istanbul - Citigroup
and Akbank announced that,
following receipt of all
6 INVESTOR SERVICES JOURNAL
required regulatory approvals,
the parties have successfully
completed the acquisition by
Citigroup of a 20% stake in
Akbank. Under the terms of
their agreement announced
on October 17, 2006,
Citigroup has acquired a
20% equity stake in
Akbank for approximately
$3.1 billion, at a price of
9.50 Yeni Kurus (YKr) per
share. Citigroup obtained its
shares in Akbank through (a)
the purchase of shares equal
to approximately 11.67% of
the fully diluted capital of
Akbank from Sabanci family
members and Sabanci
Holding subsidiaries at 9.50
YKr per share and (b) the
issuance of new Akbank
shares, equal to 8.33% of
Akbank’s fully paid up capital,
at the same price through a
reserved capital increase in
favor of Citigroup. The parties’
rights of first refusal or first
offer under the agreements
become effective at the closing.
In addition, pursuant to the
terms of their agreement,
Citigroup’s nominee, Sir
Winfried Bischoff, has been
appointed to Akbank’s Board
of Directors, and Mr Ege
Çaglar, Sabanci Holding’s
nominee, has been
appointed to the Board of
Directors of Citigroup's
Turkish banking subsidiary,
Citibank A.S.
Paris, Helsinki - Kemira Oyj,
Finnish chemicals group, and
Capgemini Finland Oy
(Capgemini), part of
Capgemini Group, has signed a
major outsourcing agreement.
According to this agreement,
Capgemini will assume
responsibility for Kemira’s IT
infrastructure services and the
support services provided for
Kemira’s SAP system.
Capgemini will provide
global maintenance and
development services for
workstations and other
infrastructure, as well as sup-
port for the SAP system. The
agreement is initially valid for
five years. It involves no job
cuts or employee transfers.
Boston - Evergreen
Investments, the asset man-
agement division of Wachovia
Corp. has announced an agree-
ment to acquire a majority
interest in privately held
European Credit Management
Ltd. (ECM), a London-based
fixed income investment man-
agement firm with approxi-
mately $26 billion (20 billion)
in assets under management.
The combined organization
will have over $280 billion (210
billion) in assets under man-
agement, serving more than
2,400 institutional clients and
three million individual share-
holders. Subject to regulatory
approval, the deal is anticipat-
ed to close in the first quarter
of 2007. Financial terms of the
transaction were not disclosed;
however, in 2007, Wachovia
expects the transaction to be
neutral to earnings per share
on a GAAP basis and modestly
accretive, excluding intangible
amortization.
Berlin - Deutsche Bank
announced that it completed
the process of acquiring
Berliner Bank and that Berliner
Bank AG & Co. KG is part of
Deutsche Bank Group since 1
January 2007. With that, the
business transacted with pri-
vate and business clients under
the Berliner Bank brand as well
as the 1,140 members of staff
and the entire branch network
with 60 locations have been
transferred from Landesbank
Berlin to Deutsche Bank. The
members of Berliner Bank's
new Management Board are
Oliver Bortz, Chairman, Frank
Gilly, Private Clients, and
Joachim v. Plotho, responsible,
among other things, for Credit
Risk Management and various
Corporate Centre functions.
Dr Christian Engell is also part
of the management team and
is in charge of Business Clients.
Burlington - SunGard has
announced that it has acquired
Automated Financial Systems
Corporation (AFS), a provider
of front-office products for
financial institutions. AFS will
become part of SunGard’s
WealthStation wealth manage-
ment technology solution. The
transaction, the terms of which
were not disclosed, is not
expected to have a material
impact on SunGard’s financial
results. AFS solutions include
the Investpoint broker
workstation, Investor and
Active Trader retail trading
tools, Infostream streaming
market data, and the
Correspondent Clearing Portal.
AFS solutions deliver advanced
functionality such as basket
trading, electronic account
opening and portfolio
rebalancing through a
standards-based Web 2.0
browser interface. AFS solu-
tions integrate with major
back-office and market-data
vendors.
Shanghai - SunGard has
announced that it has acquired
Shanghai Fudan Kingstar
Computer Co., Ltd, a provider
of software and processing
solutions for China’s financial
services, higher education and
the public sector. Kingstar
provides a suite of solutions
developed specifically for
China. It has a focus on
financial services solutions for
exchange management, futures
trading, securities trading, gold
trading, brokerage manage-
ment, data warehousing, and
campus and smartcard
solutions for higher education.
Kingstar has operated in China
for over 10 years and has more
than 500 professionals.
New York - RiskMetrics Group,
the financial risk manage
-ment firm, announced that it
has completed its acquisition
of Institutional Shareholder
Services Inc. (ISS). ISS is a
provider of corporate
governance and proxy voting
solutions to the institutional
investor community.
Financial terms of the deal
were not disclosed. "This
acquisition reflects our com-
mitment to building the
world's leading risk company,"
said Ethan Berman, Chief
Executive Officer of
RiskMetrics Group.


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 NEWS - GLOBAL SNAPSHOTS
"While RiskMetrics has
increasingly connected com-
munities of investors around
financial risk, ISS' 20-year
leadership in helping clients
manage corporate governance
and fiduciary risk represents a
perfect fit for RiskMetrics
Group as we grow." CEO
Ethan Berman will continue to
lead RiskMetrics Group, while
John M. Connolly will remain
CEO of ISS and will assume
the additional responsibility of
President of RiskMetrics
Group.
TECHNOLOGY
New York - Orc Software, the
global provider of technology
for advanced trading, market
making and brokerage, has set
new benchmarks for scalable,
multi-strategy trading based
on Orc’s Liquidator solution
running on the Solaris 10
Operating System (OS) as well
as Sun’s Sun Fire T2000
CoolThreads Server.
Performance testing results
measured throughput at more
than 5000 orders per second.
Performance testing was car-
ried out on Sun’s SWaP metric
system. The formula Sun
developed, SWaP = perform-
ance / (space x power), is a
simple calculation that allows
any customer to run the metric
and use the results to compare
systems from different vendors.
London - JPMorgan Treasury
Services has announced that it
has successfully completed
testing of SWIFT’s SCORE
service, which gives corporates
8 INVESTOR SERVICES JOURNAL
access to SWIFT’s SWIFTNet
messaging system, with two
clients, Microsoft and GE. The
testing demonstrated that
both messages (FIN) and
files (FileAct) were able to
be exchanged between cor-
porates and banks. The new
Standardised Corporate
Environment (SCORE) serv-
ice has been developed to
make it easier and more attrac-
tive for corporates to access
SWIFT and enjoy secure and
reliable communications with
all of their banking partners.
Munich - Siemens Business
Services will support large
portions of Deutsche Bank’s
information technology for a
period of five years, managing
the IT infrastructure in all
German branches, corporate
departments and additional
locations in Italy and Spain.
The contract enables Deutsche
Bank to improve its IT while at
the same time reducing its
costs, and is the latest addition
to the long list of major IT
contracts awarded to Siemens
Business Services by Deutsche
Bank in recent years. Siemens
Business Services will support
19,000 so-called thin clients for
the Deutsche Bank staff in
Germany, Italy and Spain. With
a thin-client infrastructure,
employees don’t have their
own PC, working instead on
keyboards and monitors that
are linked to central servers on
which the programs are
executed.
Luxembourg - Mutual Fund
Technologies, the specialist
transfer agency software,
services and consulting
company has agreed a new five
year contract with Schroders
Investment Management
(Luxembourg) S.A to extend
its use of MFT's GFAS Transfer
Agency platform to support its
global operations. The contract
confirms GFAS as Schroders'
core transfer agency system,
sitting at the heart of their
Luxembourg and offshore fund
services operations. Schroders
was keen to extend its existing
six year outsourcing partner-
ship with MFT as it expands
the use of GFAS to support
more of its international fund
ranges and distribution chan-
nels.
Boca Raton - ClariFI, a
provider of software and
services focused on
quantitative portfolio
management and research
announced that the Axioma
Robust Risk Model is now inte-
grated into ClariFI’s
ModelStation. The Axioma
Robust Risk Model is provided
as an option for clients to
select in ModelStation’s
Strategy Simulation, Portfolio
Optimization, and Risk and
Performance Attribution mod-
ules. Axioma, Inc., a global
provider of risk analysis and
portfolio rebalancing tools to
the financial community.
Integrating the Axioma Robust
Risk Model into ModelStation
eliminates the need to
manually move data between
the two solutions, improving
clients’ portfolio construction
efficiencies and enabling them
to get alpha generating
strategies into production
sooner. The Robust Risk
Model complements Axioma
Portfolio, the firm’s risk
analysis and portfolio rebal-
ancing software, which is also
integrated into ModelStation.
New York - OpHedge
Investment Services, LLC, a
hedge fund operations/admin-
istration service provider, has
gone live with the
GoldenSource Securities &
Products solution. This global
security master application
lays the foundation for the
company’s enterprise data
management (EDM) infra-
structure which is designed to
support the company’s growth
and accommodate its strategic
data management services to
existing and future clients. The
GoldenSource solution
enables OpHedge to stream-
line its reporting and data
management process by creat-
ing, maintaining and publish-
FREE NEWS DAILY AT WWW.ISJFORUM.COM
ing a standardized reference
data repository for all financial
instruments. The solution
centralizes securities master
data from multiple data
providers, cleans it, then
publishes it to OpHedge’s
internal securities and exotics
trading systems. OpHedge can
develop pricing solutions
around vendor data to suit
market hierarchies or tap into
a ‘securities of interest’ list
hosted on the real-time
GoldenSource platform.
OpHedge now has the
flexibility to cost-effectively
tailor data services for its
clients.
New York - A new global
partnership between SimCorp,
provider of asset management
software, and Spotfire,
provider of enterprise analytics
software – will bring enhanced
visual and data-analysis
capabilities to SimCorp's
customers. SimCorp will
integrate Spotfire DXPTM
enterprise analytics software
into its SimCorp Dimension
system, enabling asset
managers to obtain and
visualize complex data more
easily. The enhanced capability
will be particularly helpful to
firms using SimCorp
Dimension"s 'portfolio
manager’ screens, which are
the key displays of investment
holding data in the system.
SimCorp Dimension users will
now be able to present data
from these displays with
sophisticated color-enhanced
graphics, enabling them to
detect significant trends,
hidden patterns, anomalies
and biases hidden in the data
more easily and to act upon
them more quickly. 
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 NEWS - ANALYSIS
MONEY TO BURN
It is easy to complain about life but
often much harder
to justify our complaints.
T heindustry
majority of us in the financial
don’t have any real material
difficulties in comparison with a large
proportion of the planet. We may com-
plain about the mortgage or the bills but
this is because it is easy to forget how lucky
we really are in a global perspective. It is
even easier to forget how lucky we are
when City Bankers get paid millions in
Christmas bonuses. Goldman Sachs
reportedly paid Chief Executive Officer
Lloyd Blankfein $53.4 million in cash,
stock and options. Going by the uproar in
the London daily newspapers, it seems
that people are offended by working in the
same city as other such lucky bankers. This
offence stems from the fact that no-one
likes to feel impoverished, and even a well
paid doctor might feel slightly cheap next
to a well paid banker.
Goldman Sachs is an oft quoted case
because at the same time the seasonal
windfalls were being paid out, cleaners at
the company’s headquarters were publicly
complaining about low-pay. This is an
easy example because it deals with two
extremes, and as a result the middle
ground is often ignored. Those working in
the back office at these large investment
banks not only have to work in the same
city as the front office stars, but often in
the same building. What these fund man-
agers do to deserve this money may seem
mysterious to the general public, but not
so mysterious to the back office workers
who deal on a day to day level with the
business they bring in. Therefore is it easi-
er or harder to justify the size of their
bonuses to the back office?
Rationally, it seems easier. If the compa-
ny’s star banker brings in a sizable amount
of business, the role of the back office is
likely to be even more indispensable as the
company needs to process this business
here and now in order to stay competitive.
Taking into account London as a centre of
choice for investment, wage increases
within the City are not just allocated to the
top strata. Although wage increases for the
10 INVESTOR SERVICES JOURNAL
cleaners should never have to come
through protest, the large bonuses have
helped increase awareness and ease the
trickle down effect of wages. The back
office will not have to march past the pho-
tocopier with placards, but a quiet and
polite inquiry into your manager’s ear is
far more likely to have positive outcome
during these bullish times.
Most importantly, the City is one of the
most meteoritic systems around, and
whilst it still pays to know those in the
know, if you are bright and work hard, you
can have a good chance at becoming a
financial star.
Yet as mentioned earlier, we are not
rational. The well-paid doctor will still go
home to the four bedroom house in
Clapham and complain to their partner
that thanks to the bankers, the average
house price in Kensington and Chelsea
has just topped £1 million. It may instead
pay more to reallocate some of these
bonuses into keeping the rest of the
company’s workforce content about the
differences in salary. Rational arguments
justifying bonuses may seem logical, but as
every sort of relationship will tell you,
rational arguments don’t always keep
everyone happy. 
MIXED
MESSAGES
While MiFID is billed to
be complex, cumbersome
and restrictive, its teething
problems stem from a lack
of communication.
T heFinancial
real problem facing the Markets in
Instruments Directive
(MiFID) seems to be less one of cost or
preparedness than that of poor communi-
cation. The fact that 57.8% of firms in a
recent SunGard survey believed the direc-
tive to be purely a matter of compliance
rather than economic benefit seems to
suggest a lack of communication between
the financial services authorities and the
industry itself. Most of the companies sur-
veyed by Sungard are unsure as to whether
MiFID is good for the European economy
at all and state that their local regulators
have been unhelpful when it comes to
implementing it. If this is a taste of things
to come as the European market becomes
more integrated, firms may, rather than
breathing a sigh of relief at what is intended
to be a simplification of regulations, be
understandably discouraged.
By expecting the industry to implement
the directive without adequately explaining
the benefits of doing so or putting accept-
able measures in place to help the industry
prepare, the FSA has ensured that MiFID
has been plagued by controversy from the
outset. The European Banking Federation,
in particular, described the new directive as
“complex, cumbersome and restrictive,”
whilst voices across the industry have
expressed reservations about the costs busi-
nesses may face as a result of the directive.
If the FSA had provided a more lucid
account of the long-term benefits of adjust-
ing to the new regulations sooner – as they
did with the late publication of their paper
The Overall Impact of MiFID in November
2006 – many of these controversies could
have been anticipated and dealt with.
According to Hector Sants of the FSA, the
reality of the situation is that by paving the
way towards a single European market for
the investment services industry, MiFID
will “create the potential for revenue oppor-
tunities over the
longer term”; this
point, however, was
pushed long after
an atmosphere of
gloom had already
arisen.
Another major
issue affecting the
industry’s view of
MiFID has been the
timescale in which
firms have been
expected to prepare
for it. A survey
conducted by
OpRisk & Compliance magazine in 2005
found that despite widespread support for
MiFID a worrying 66% of firms who took

part in the survey believed that October
2007 was an unrealistic deadline. A year
later, however, a mere 16% of the firms sur-
veyed by SunGard admitted to being
behind schedule, which perhaps points out
that the earlier misgivings could have been
prevented by a more efficient flow of
information from the FSA.
What should have been a period of
exciting change is thus turning into the
biggest headache the investment services
industry has experienced for some time.
Lack of transparency has led to conser-
vatism throughout the industry, with firms
unable to focus on the benefits simply
because they’re ill-informed. Like any new
venture, MiFID is experiencing
teething problems that will probably
disappear in time; the frustrating nature of
these problems is that they arise, not
from any flaw within MiFID itself, but
from the poor communication
surrounding it. 
REGULATION
RED LIGHT
Should we
leave the issue
of hedge fund
regulation well
alone and let
fund managers
get on withh what
they do best?
w hile hedge funds traditionally value
their privacy, the increased appetite
of institutional investors in using these
investment vehicles, and the collapse in
recent months of prominent funds such as
Amaranth, hedge funds have been thrust
into the spotlight and are coming
under increasing scrutiny from global
regulators.
A two-tier hedge fund industry is
emerging with boutique managers and
fund managers serving high net worth
individuals in one camp, generally viewing
increased regulation as a barrier to their
talent and performance, and
‘supra’ alternative asset managers seeking
to develop business with institutional
investors in the other, that generally
believe increased regulation will boost
inflows by providing the transparency and
integrity demanded by investors.
While some European countries, such as
Germany, are pushing for more
disclosure in hedge funds, there is a more
‘hands-off ’ approach being taken by US
and UK regulators who are promoting the
idea that sophisticated and wealthy
investors know the risks associated with
investing in hedge funds and that unnec-
essary risks are attached to changing hedge
fund behaviour.
The thrust behind regulating hedge
funds is driven from a transparency
angle, however the ‘light-touch’
regulatory approach to hedge funds has
benefited the industry in Europe and the
US and stimulated the growth of this
investment instrument. Earlier this
month, the
Financial Times
reported that the
Eu ro p e a n
Commission
and an outside
group of experts
had published a
report urging
policymakers to
continue this
"light touch"
approach and
even reduce the
barriers prevent-
ing retail
investors and
large institutions
from investing
in hedge funds.
With hedge
fund earnings
cooling off over
the past few months some feel that regula-
tion in the industry would be appropriate
to prevent fund managers taking ever
more extreme positions to try and
generate alpha, but this is a somewhat
spurious argument.
The reality is however, that a loosely
regulated, open market place is one
that best suits hedge funds and as long as
investors spread their risk across a
diverse portfolio of products and
appropriate risk prevention measures are
taken, both investors and fund
managers can reap the rewards of
hedge fund investment.
NEWS - ANALYSIS
SLIGHT
RETURN
The ghost of Amaranth
haunts hedge America, has
paradise been lost?
2006 saw a record investment in Hedge
Funds, with an average of $36.9 bn in each
of the first three quarters. With this in
mind, anyone can be forgiven for thinking
that 2006 was a successful year through-
out. The landscape, however, was decid-
edly less than even.
Whilst some signs indicate high investor
confidence – over half the respondents in
a recent Deutsche Bank survey stated they
were happy to lock their money into a
hedge fund for a two-year period or more
– other signs suggest the market is slowing
down. The fact that the final quarter of
2006 witnessed a 58% decrease in invest-
ment has been linked by London’s
Financial Times to America’s wealthiest
households cutting their hedge fund
exposure. Quoting a recent Spectrum
survey, they point out that hedge fund
ownership among households of
net-worth $25 million or more has seen
an 11% decrease since 2005 – which
would seem to suggest the market has lost
its lustre.
If certain well-publicised collapses are
anything to go by, it’s no wonder the
ultra-rich are losing confidence. That a
fund is capable of losing a staggering $6.5
billion in the space of a month – as
Amaranth did before their inevitable
demise – is understandably going to
inspire pessimism among investors; it
doesn’t, however, mean it’s representative.
The Amaranth story is, in fact, totally
unrepresentative of the hedge fund
experience last year. Most funds actually
improved their performance, with several
of the world’s largest reporting 30 per cent
returns and some as much as 60. This
might not seem very encouraging if
Americans have stopped investing, but as
long as the situation continues, we can be
sure that they’ll come flooding back in
time. That is, if the ghost of Amaranth
proves less lasting than its name suggests:
“Immortal amarant, a flower which once in
paradise, fast by the tree of life, began to
bloom; but soon for man’s offence to heaven
removed…” (John Milton, Paradise Lost).
INVESTOR SERVICES JOURNAL 11
 FUNDS - DOMICILES REPORT
Jersey
Jersey’s funds sector has good reason to start
the New Year with optimism as 2006 ended
with the announcement that it had achieved
yet further record levels of investment.
Whilst Jersey’s Finance Industry showed
growth across its various financial services in
2006, it has been its funds offering that has
performed particularly strongly.
Over the third quarter of 2006, the Net Asset
Value (NAV) of funds under administration
in Jersey grew to £169.8 billion, with the Net
Asset Value of Specialist Funds such as Private
Equity, Property and Hedge Funds approach-
ing £82 billion – close to half of the total fig-
ure.
Meanwhile, the number of Expert Funds
established increased to 235 and the total
NAV of Expert Funds grew to £25.3 billion,
emphasising Jersey’s continued desire to
establish itself as a leading European jurisdic-
tion for specialist funds for professional
investors.
2007 also starts with the very positive news
that Jersey’s funds supervisory framework has
been approved by the Dutch Minister of
Finance and is now one of the few privileged
jurisdictions whose funds can be listed on
Euronext under a fast-track and light touch
regime.
Meanwhile, there is an ongoing dialogue
between Jersey’s funds professionals and the
Jersey Financial Services Commission (JFSC),
the Island’s regulator, aimed at fine-tuning the
funds regulatory framework.
The proposed Listed Fund Guide,
announced at the end of 2006, is the latest ini-
tiative. Currently open to consultation, it
aims to introduce a more streamlined process
to authorise listed closed-ended funds. The
regime would be available to private equity,
property and other alternative investment
funds such as hedge funds and funds of hedge
funds.
Another significant regulatory change is the
introduction of a revised Expert Fund Guide.
The key objectives of this revised Guide
include clarification of the required amount
of initial investment and of the criteria that an
Expert Fund must meet for listing on a stock
exchange and transferring interest.
2006 also ended with the appointment of a
new Director General at the JFSC. John
Harris has a great deal of experience in issues
of international finance and politics and the
Jersey’s funds community is looking forward
to working closely with him in order to main-
tain the Island’s position at the forefront of
international funds regulation.
Graeme McArthur, representative of the
Jersey Funds Association and Managing
Director of Northern Trust in Jersey.
12 INVESTOR SERVICES JOURNAL
Bahamas
The Bahamas is constantly reviewing its leg-
islative and regulatory environment to ensure
the jurisdiction meets the needs of the inter-
national market. The securities industry is no
different. In particular, the Securities Industry
Act is receiving significant focus. We expect
the revised act will reinforce the Bahamas’
modern regulatory regime while maintaining
its appeal to securities investment advisors
and independent asset managers. The indus-
try is also contemplating a few additional
refinements to the Investment Funds Act for
review with government in 2007.
The Bahamas has quietly established itself a
solid fund administration sector, staffed and
managed by a large pool of experienced pro-
fessionals in both large international firms
and niche organizations. With a focus on the
special needs of institutional and sophisticat-
ed investors, this broad cross-section of fund
administrators have more than $190 billion in
assets under administration.
Fund administrators providing services
from The Bahamas range from global firms
such as Citco Fund Services (Bahamas)
Limited, DPM Mellon and SG Hambros Bank
and Trust Bahamas Ltd. (member of the
Societe General group) to respected niche
players such as Butterfield Fund Services
(Bahamas) Limited, Swiss Financial Services,
and Genesis Fund Services Limited.
The Bahamas SMART Funds concept is the
most innovative development in the country’s
fund industry. It recognizes that many funds
do not fit a predefined classification of retail
or professional third party funds. SMART
funds provide for the development of regula-
tory oversight tailored to the client structure.
As the needs of clients vary and evolve, inter-
mediaries and clients have the ability to devel-
op, and submit to the Securities Commission,
proposals to establish entities with a specific
mandate. Four SMART Fund templates were
introduced initially and a fifth was added
recently for lightly regulated funds, well suit-
ed to family office arrangements.
The jurisdiction has also added Foundations
and Private Trust Companies to its growing
portfolio of wealth management capabilities.
Indeed, it was the first premier Common Law
jurisdiction to introduce Foundations. This
estate planning tool enjoys great familiarity in
civil law countries and may now be estab-
lished in The Bahamas for private, charitable
or commercial purposes. The Bahamas has
also introduced a comprehensive approach to
Private Trust Companies (PTC) that fully and
appropriately incorporates PTCs into the
country’s robust financial system.
Wendy Warren
CEO & Executive Director
Bahamas Financial Services Board.
Ireland
The Irish industry ended 2006 on a high as the
Financial Regulator announced the introduc-
tion of a new authorisation process for
Qualifying Investor Funds (QIFs). The new
regime will enhance the speed to market and
attractiveness of a QIF. Under the new process
a QIF can now be authorised by the Financial
Regulator on a filing only basis. Essentially this
means that if the Financial Regulator receives
a complete application for the authorisation of
a QIF before 3.00pm on a day, then a letter of
authorisation for that QIF can be issued the
following day. An application for authorisa-
tion will be complete on the basis that the par-
ties to the fund are all approved (the promot-
er, directors and relevant service providers to a
QIF having the appropriate authorisation/
approvals from the Financial Regulator) and
that the fund reflects the agreed parameters.
The intention is that the parameters for a QIF
will be simplified and codified, and these will
be included in a revised application form, a
QIF application form. It is proposed that a
revised application form and Notice will be
circulated in January and the Financial
Regulator will be accepting applications under
the new QIF arrangements no later than
February 2007.
Industry representatives have been working
with the Financial Regulator over the past
number of months to address the attractive-
ness and speed to market of the QIF and the
resultant revision of the authorisation process
and the enhancement of the product parame-
ters for the QIF represents a major achieve-
ment for the industry and authorities working
together. The new QIF is already attracting
attention and will certainly bring new business
to Ireland throughout 2007. We also see con-
tinuing growth throughout 2007 in UCITS III
product development, CCFs and the servicing
and domiciling of alternative investment
funds in Ireland. The Irish industry is also on
the road again early in 2007 as it will host its
annual industry briefing seminar in London
on 2nd February. With over 400 at last year’s
event, it looks as if there will be similar num-
bers again this year with interest already very
strong in what promises to be a lively and
comprehensive industry seminar.
Finally as always the publication of the
Lipper Fitzrovia Dublin Encyclopaedia late
last year brought welcome reading as the
industry continues its strong growth.
According to Fitzrovia, as of June 2006 the
industry is servicing over $1.2 trillion in assets,
which is up 28% on the previous year. This
consistent upward growth trend bodes well for
the Irish industry in 2007.
Deirdre Norris, Director – Marketing and
Communications, IFIA
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 LATIN AMERICAN HEDGE FUNDS
Funding the Latin beat
Is the Latin American market too risky?
Brian Bollen reports on the regional situation.
S ome might think that investing in
Latin America is pushing the risk
envelope just a bit too far, even for
hedge funds. If ever a region deserved a
reputation for long-term instability and
volatility, Latin America is that region.
But, of course, instability and volatility
create movement and where there is
movement, there can be profit. Michael
Hughes, chief investment officer of Baring
Asset Management, underlined the oppor-
tunities available in the region in his open-
ing observations of 2007. He notes that the
US$368.2m Baring Latin America Fund,
which aims to provide long term capital
growth primarily through investment in
Latin American equity securities, has
returned 37.2% over the past year and
48.0% over the past three years, in US dol-
lar terms, to the end of November 2006 on
an annualised basis. While past perform-
ance is of course no guarantee of future
performance, those figures do serve to
14 INVESTOR SERVICES JOURNAL
grab the attention. However, those returns
come from a very low base where from
years 2000-2002, major markets in the
region lost as much or more than half
their value in 24 months. And in a six week
period during May/June 2006, the region
dropped by 28% in dollar terms.
A growing number of hedge funds are
plying their trade in the continent, and
strong anecdotal evidence of the level of
interest and activity comes from Fernando
Donayre, Chief Investment Officer of
Miami-based INCA Investments, and
manager of the INCA Fund, a Latin
America regional long-short fund. He too
paints a broadly optimistic picture of
investment life there. “The vast majority of
Latin American hedge funds invest solely
in Latin America, though some in Brazil
have experience in investing in higher
yielding assets elsewhere,” he comments.
“As they’re accustomed to high-yield
investment at home, they’re comfortable
with investing in sovereign debt in other
high-yield centres. Brazil is the biggest
hedge fund player in the region. Growth
has been rapid. Just a few years ago there
were only a handful, but today the Eureka
directory lists over 200. It’s still much
smaller, though, than Asia, where there are
600-700 hedge funds. And there are few
true regional funds investing in a variety
of asset classes. Most just invest in fixed
income in Brazil. As an industry, Latin
American hedge funds are still very much
in their infancy. A hedge fund with a five-
year track record in Latin America would
be old; the average is one to two years old.
The newness of many of the hedge funds
brings higher organic risk, because of the
lack of experience. There will be higher
risk in Latin America because volatility
there is higher.
“Transparency in Latin America is high-
er too than it is elsewhere, due to the sim-
ple fact that managers are pursuing less


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 LATIN AMERICAN HEDGE FUNDS
esoteric trading strategies, which in turn is
due to their relative lack of maturity.
Investors will demand more complex
strategies in time. Miami is the regional
capital for Latin America; there’s more of
an interest in the continent as a region
here than there is in the major Latin
American cities because of the large dis-
tances between them. Our INCA Fund is a
long-short fund. We short shares where we
think prices will fall. We are regional spe-
cialists rather than industry specialists, but
we do have a bias towards certain indus-
tries. We like to buy franchise brand name
companies because we think there is more
potential in them in Latin America than
elsewhere. The fund started in May 2006,
and is up 10% in a benign market (at the
If ever a region deserved a reputation for
long-term instability and volatility, Latin
America is thhat region.
time of writing, late December 2006), rep-
resenting annualised growth heading
towards 20%, compared with inflation
that has dropped from hyperinflation lev-
els in the 1980s to a current average of
around 4.5%.
“The majority of our outperformance
comes from the long side of the equation,
thanks to rising equity markets, which is
where we mostly invest. From Europe, we
have fund of hedge fund investors and
high net worth individuals, from the US
there is more interest from endowments,
such as universities and charitable organi-
sations. There’s not much interest from
corporate pension funds; they are less
aggressive than endowments in pushing
out the frontiers of investment.”
‘Have hedge funds been overhyped?’, we
asked. “There’s been a lot of publicity,
nearly hysteria,” he answered. “It’s a hot
topic. I believe it’s a valuable asset class
with a long-term future, with characteris-
tics that other asset classes don’t have.
There are a lot of marginal players in the
field. Over time, only the good managers
will continue to attract investors. Others
will be swept out of business.”
How can providers of asset services help
the industry? “They have done a good job
in providing custody services in the
region, but need to be sure they can supply
good short inventory. As the industry
grows and more players come in you need
a greater supply of shorts. On the broader
16 INVESTOR SERVICES JOURNAL
front, regulations need to change in some
countries so that securities lending is
allowed. Without securities lending, you
can’t do shorts. Having said that, half the
volume of Latin American shares is in
ADRs (American Depositary Receipts) so
you don’t need to borrow shares locally.
You can short the ADRs, and borrow them
from a prime broker. We can short ETFs
too (exchange-traded funds). They are
very easy to borrow and make good liquid
index shorts.”
“Looking ahead, I believe the most
important thing for Latin America is to
have economic stability. Badly run
economies have been a long-term problem
there, but governments and ruling admin-
istrations today are doing a better job than
their predecessors. For 2007 and beyond
we expect to see continued low inflation in
Brazil, Mexico and Chile at least for the
foreseeable future. This creates the oppor-
tunity for interest rates to come down fur-
ther, which encourages equity investment.
A few years of low inflation and low inter-
est rates will force investors to equity mar-
kets in order to achieve real returns. And
hedge funds will continue to grow as the
importance of equity markets continues to
grow. They won’t be the catalyst for it, but
they will certainly benefit from it.”
Fernando Jasnis and Andrew Cummins
are co-portfolio managers of Explorador
Capital Management, LLC, based in
Buenos Aires. They manage a $55m hedge
fund that invests long and short in equity
and fixed income in Latin America. “We
also do special situation investing where
we provide capital in situations with equi-
ty returns but fixed income risk. We seek
to exploit opportunities that arise when
assets are mispriced,” says Andrew
Cummins. “This occurs because few hedge
funds focus on the region and because
regional economic dependence on com-
modities creates volatility of asset prices.
We seek to harvest these opportunities
while mitigating some of the risks through
hedging and a contrarian value approach.
We have been investing in the region for a
decade and have an extensive network of
relationships that facilitates access to infor-
mation and investment opportunities.”
Taking a step back from front line activ-
ity and the anecdotal evidence, evidence
with a harder edge to it comes from GFIA,
a Singapore-incorporated exempt finan-
cial adviser which has provided research
on hedge funds since 1998. GFIA, it is safe
to say, is an unparalleled source of infor-
mation on the industry in Latin America.
Its research note on activity in the region,
first published in July 2004 and published
twice a year since, is a must-read for any-
one looking for informed comment on the
subject.
In the most recent incarnation of the
report in July 2006, GFIA describes the
region as a sophisticated and rapidly
growing universe, with available capacity.
Concentrated in fixed income and FX,
macro and trading strategies, Latin hedge
funds offer non-correlated returns from a
liquid underlying opportunity set, it says.
“At the margin, there’s increased interest
in equity strategies, and some incipient
interest from global allocators.”
GIFA identifies four major watersheds
for the hedge fund industry in Latin
America:
1. The end of hyperinflation in the early
1990s and the growth of well developed
indigenous investment banks with
aggressive risk appetites. At that time,
the proprietary trading desks operated
as true hedge funds, having a noticeable
impact on prices and volumes, though
there were few independent managers.
There was also a substantial technology
transfer from the US and foreign banks
to the local houses.
2. After the Asian and Russian crises
(1997/98) there was consolidation of
both the hedge fund and mutual fund
industries, and a strengthening of the
banking system which led to an overall
reduction of leverage and systemic risk
in the financial system.
3. The dismantling or retrenchment of
foreign investment banks’ operations in
the Brazilian pre-election (2002) which
triggered a new harvest of managers,
most of them ex-proprietary traders,
who transferred their skills into inde-
pendent hedge fund firms.
4. Economic strength derived from
commodity flows increases global inter-
est in emerging markets; at the same
time a global search for investment tal-
ent and capacity, begins to attract inter-
national capital to Latin hedge funds.
Latin America, says GIFA, is still an


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 LATIN AMERICAN HEDGE FUNDS
under-represented region in the global
hedge fund industry. “With an estimated
$40bn of assets and 310 hedge funds, it
represents approximately 5% of the total
hedge fund universe. However, many sub-
stantial managers still have available
capacity and therefore the industry may
account for a greater proportion of cur-
rent global hedge fund capacity.”
“Brazil accounts for 51% of the region’s
capital markets, has the most sophisticated
onshore hedge fund industry, and hence is
where managers are concentrated. There
is a highly developed local banking and
mutual fund industry (ICI recently esti-
mated that Latin mutual fund industry
amounts to $366.2bn of assets – Brazil
accounts for 82.8% of the region’s total,
and this in turn is equivalent to about 60%
of Brazilian GDP) as well as the micro-
GFIA, it is safe to say, is an unparalleled
source of information on the industry in
Latin America..
structure of capital markets and high
reliance on debt as a financing alternative,
especially after the Brady Plan debt
restructuring in the early 1990s.”
“As in the case of Argentina, in Mexico
the local mutual fund industry is relative-
ly small which partly explains the scarcity
of pure Mexican/Argentinean hedge
funds. Many talented Mexican and
Argentinean traders have joined invest-
ment houses in New York, rather than
their local banks. This contrasts strongly
with the Brazilian experience, where the
local investment banks and local branches
of the foreign banks retained most of the
traders who ended up managing their own
hedge funds. Brazil is where most of the
assets and managers are concentrated.”
“Other hedge funds active in the region
are either a) funds that exploit the full uni-
verse of Latin markets, typically with a
heavy weighting to Brazil and Argentina,
or b) funds that cover the global emerging
markets universe, where Latin America
has a significant weight (on average 40-
60%) depending on whether the fund is
biased towards equities or debt. Latin cap-
ital markets offer good liquidity, depth
and volatility – a good environment for
hedge fund managers. The most liquid
markets are fixed income (cash, bonds and
derivatives), either onshore or offshore,
with relatively long yield curves (up to 30
18 INVESTOR SERVICES JOURNAL
years in Brazil and Mexico), with a variety
of other assets and their derivatives.
“In equities, large caps are liquid, espe-
cially ADRs traded in the U.S. For some
Latin names, turnover of ADRs surpasses
that of locally traded stocks by a wide
margin. Also, the restructuring and con-
solidation that took place after the privati-
sation cycle has opened doors for event-
driven plays and capital structure arbi-
trage; those doors are being kept open
with increased corporate activity.
Generally we see a move, at the margin,
to an increased role for equity markets,
both as the Latin growth story becomes
more apparent, and as low or falling inter-
est rates reduces the attractiveness of fixed
income investments.
“Size varies across the spectrum of
strategies, but macro funds are noticeably
larger than other strategies. The larger
funds can be found in the macro and
multi-strategy space (as large as $400-
600m; average size of $181m) whereas the
equity-linked strategies (long-short,
event-driven) and multi-strategy funds
fall within a smaller range (larger funds
typically have $50-80m). Since most of the
managers had previous experience in
major indigenous, or sometimes US,
investment houses or well-established
proprietary desks, professional training
and skill sets are of a global standard, and
investment skill sets are strong. However,
research by Capco shows that more than
50% of failures of hedge funds are said to
be due to operational problems. Latin
America is no exception, and there have
also been cases of intentional and unin-
tentional mispricing, mishandling of
assets, non-compliance with investment
mandate, and absence of proper compli-
ance which led to the termination of some
hedge funds. Mortality rates are roughly
comparable to those of developed mar-
kets, at around 10% per year.”
“Any allocator should as always pay close
attention to how the hedge fund is struc-
tured, how staff are incentivised, how effi-
cient and effectively utilised are the risk
management systems, and how sound is
the compliance framework,” GIFA
concludes. 
 MIFID
Silver
Lining
Could MiFID change
the whole investment
landscape in Europe
creating, somewhat
inevitably, both
winners and losers?
Alison Ebbage reports.
M iFID, the Markets in Financial
Instruments Directive, looms on
the horizon like a big black com-
pliance cloud with a fuzzy silver lining of
opportunity. For some it seems to be sim-
ply a compliance issue but others are look-
ing beyond the gloom, viewing it as a com-
petitive opportunity. The one area of com-
mon ground on this directive seems to be
confusion, with the Commission still to
publish its level three details and some
European regulators yet to give their
industries detailed guidance to follow. For
service providers able to give clear think-
ing and accessible solutions the opportu-
nity presented by MiFID, therefore, looks
too good to be true.
MiFID aims to replace the current
Investment Services Directive (ISD) and
allow investment firms to passport servic-
es throughout the EU. It is based on the
principle of home country supervision,
applies to all investment firms in the EU
and impacts all asset classes. Specifically it
aims to offer investors higher levels of pro-
tection according to how they are classi-
fied. In addition MiFID will impose a best
execution obligation on firms and
enhance pre and post trade transparency.
John Tattershall, partner and chair of the
financial service regulatory practice at
PwC comments: “In the mid-1990s the
20 INVESTOR SERVICES JOURNAL
ISD allowed brokers access to cross border
services but did not provide consistency
with regard to conduct or protection. It
also never really tackled the protectionism
of exchanges or of domestic markets.”
But by challenging the status quo could
MiFID change the whole investment land-
Part of the problem with MiFID is its
sheer complexity.
scape in Europe creating, somewhat
inevitably, both winners and losers?
Indeed part of the problem with MiFID
is its sheer complexity and it’s fair to say
that firms without the resource to really
understand the broader implications of
MiFID will suffer. Even bigger firms seem
to be taking the approach of first becom-
ing compliant and then looking to seek
out competitive advantage rather than
jumping in and gaining from being first to
offer x or y solution. And the complexity is
no different for the services providers
whose job it is to support firms through
the change.
Mike Hill, director of communications at
Gissings Software comments: “The trouble
is that MiFID is so broad and impacts so
many areas that no single vendor can offer
a complete IT solution and yet an under-
standing of the bigger picture is intrinsic
to being able to successfully overcoming
each small area.”
Steve O’Sullivan, partner in capital mar-
kets at Accenture thinks that attitudes
towards MiFID will be a key factor affect-
ing those who will come out on top. “The
general approach seems to be first to
become compliant and then to seek out
new opportunities,” he says. He compares
the situation to that in the US in the 1990s
where liberalization allowed for ECNs -
electronic trading networks. “Some bro-
kers worked out that liquidity had become
fragmented since there were now more
providers and drove a product onto the
market that brought that liquidity back
together again,” he says.
Indeed a recent survey by SunGard
Consulting Servicesfound that 57.8% of
respondents (330 financial institutions in
12 countries) thought that MiFID would
be more about compliance with 43.5%
believing that there were competitive
advantages. But 65% of respondents either
do not have an overall plan to MiFID
budgeting or have not identified MiFID
related budgets at all. Of those who have
set aside a budget, 49% have allocated less

than EUR1 million to accommodat e the
directive.
But most in the industry are agreed that
best execution is the main area that will
change. Under the directive best execution
needs to be both demonstrated and evi-
denced. Currently stock exchanges tend to
hold a competitive advantage when it
comes to execution on the basis of having
the best liquidity and of course the exist-
ing trading platforms to support that liq-
uidity. Systematic internalzers, firms that
match trades internally also do well.
The SunGard survey found that 18% of
respondents expected their organizations
to know how to ensure best execution by
the end of 2006 and that 33% expect to be
able to carry out best execution by March
2007. But 13% of firms do not expect to be
ready by the deadline of November 2007.
Because firms will now be obliged to
obtain the best possible deal for clients, con-
sidering not just the price but also the cost
and speed of trading plus the likelihood of
settlement, then the market will become
fragmented in terms of execution venues.
Richard Thornton, partner at SunGard
explains: “The best execution requirements
will need building into existing order man-
agement systems. It needs to be automated
so that systems can decide where individu-
als’ orders should be placed depending on
who has the best overall execution.”
This means that firms looking to place
orders must now decide whether to access
prices and other aspects of best execution
from a single venue, the LSE for example,
or with multiple ones. Mr Thornton
thinks that although initially investors
may take the option of using one single
venue for convenience that eventually
there will be competition as regards speed,
efficiency and cost of trading as well as
over the actual price.
For services providers able to provide a
system handling this mass of data and
present it in a user friendly, there will also
be opportunity. Their challenge is to pro-
vide brokers with the best execution infor-
mation that they need as well as keeping
track of all the orders and feeding execu-
tion and settlement data back to them- all
as quickly as possible.
Mr Hill comments that since the onus to
comply is on those doing the trading,
rather than the venues, whether to use
single or multiple venues is also an issue
for them too. “Should firms just feed their
prices through one venue and hope it does
not go down or through many venues,” he
questions? “Clearly some will choose to go
with one venue and review that yearly and
at the other end some will go with many
venues and adapt as they go along,” he
says, “and consequently it looks like best
execution will become a major differentia-
tor in the marketplace.”
There is general agreement that the simple
burden of compliance on smaller local banks
will be heavyy.
Best execution links in with pre and post
trade transparency for equities demanded
by the directive. Brokers will now need to
avail themselves of systems to publish pre
and post trading prices in pretty much real
time by November 1st, 2007. Seen as one as
the greatest areas of cost, it is also another
potential area of great opportunity for serv-
ice providers who will be able to leverage
their critical mass to provide this cheaply.
Mr Gissings is one such provider: On the
best execution front it is to become a
venue by publishing prices on behalf of
brokers and systematic internalisers for
investors to see.
Mr Hill comments that the EU has yet to
specify what will actually need to be pub-
lished in the data fields specified in the
level two guidance that has already come
out. He also states that a single identifier
MIFID
for each instrument has yet to be put into
place and that this will be essential if mul-
tiple venues are to be publishing the pre
and post trade quotes.
Another issue lies in publishing the
prices of more complex instruments such
as OTC derivatives. Mr Tattershall com-
ments: “With derivatives the picture
becomes more complicated as enough
information must be provided so that the
investor can establish where he or she can
get best value. Not easy when so much
derivative pricing is done to suit the indi-
vidual investor.”
Perhaps most significantly though is that
the pre and post trade transparency
applies only to equities and those invest-
ment houses whose main business does
not include equities may decide to stop
trading them all together and thus cir-
cumvent these transparency requirements
of MiFID.
Client classification is the third area
reckoned to be challenging by industry
players. The directive is to divide clients
into eligible counterparty, professional
client and retail client and provide differ-
ent levels of protection according to the
client’s classification. Although this is
largely a logistical problem it adds to the
cost of the directive for firms. Indeed the
SunGard survey found that 36% of firms
do not expect to be able to inform traders
of the classification of individual clients by
November 2007.
Mr O’Sullivan comments: “Firms will
need to carefully look at how they distin-
guish between bigger and smaller clients.
In reality it’s more a logistical exercise than
anything but still it will attract costs. For
service provider the opportunities here are
to provide an easy way of doing this and
some brokers may find that in the process
of doing it they will rationalize their client
base or supplier base to gain the very best
in terms of best execution.”
Clearly then MiFID presents significant
opportunities for services providers able
to make sense of it and offer firms systems
and the timeliness that they need to be
able to compete effectively.
But what are the implications in terms of
how MiFID might change the shape of the
marketplace?
So far no consensus has emerged on how


INVESTOR SERVICES JOURNAL 21
 MIFID
the shape of the marketplace will change
but there is general agreement that the sim-
ple burden of compliance on smaller local
banks will be heavy. Mr O’Sullivan for one
thinks that local banks will find it difficult
to compete in the market and find the
resources to update systems or install new
ones rather than relying on patching up
legacy systems. Again this area of the market
could prove profitable for services providers
able to capitalize on critical mass at a price
acceptable to such small banks.
Mr Thornton meanwhile thinks that
smaller investment banks should watch out
for bigger ones looking to encroach on their
territory. “Smaller specialist outfits may
assume that they are too small to be of
interest to larger players but this will not be
the case especially as time goes on and there
is a move towards the pan European listing
of stocks,” he warns.
Perhaps the biggest question mark lies in
who will be able to offer the best execution
and thus capture the most liquidity. Will the
prestige of the big stock exchanges win out?
Will they gain even more by partnering
with smaller local institutions or will they
face stiff competition from companies look-
ing to compete on the cost of doing busi-
ness as well as offering superior overall exe-
cution?
Mr O’Sullivan offers his view; namely that
size will be the main issue: “What we’re
probably looking at is an opportunity for
the larger exchanges to capitalize on
economies of scale. Midsized businesses or
exchanges need to achieve an innovative
proposition and those opportunities will be
around product, combining traditional
ones or effectively taking existing ones to a
new market segment or competing on cost,”
he says.
Mr Tattershall thinks that MIFID will
challenge the dominance of local exchanges
and of larger brokers by making them com-
pete with other others able to execute
trades. “It’s all about the cost of the actual
trade rather than the price of the invest-
ment,” he warns.
Project Turquoise is one early contender.
Seven banks; Citigroup, Credit Suisse,
Deutsche Bank, Goldman Sachs, Merrill
Lynch, Morgan Stanley and UBS have
announced their intention to create a pro-
prietary exchange. Together the group
accounts for some 50 % of volumes on the
LSE. Such internalisation, where banks
effectively net off trades internally, is already
estimated to lose the LSE some 30 % or so
of the marketplace. Whether the project will
ever get off the ground remains to be seen
22 INVESTOR SERVICES JOURNAL
but if the threat of its existence forces the
LSE to lower the cost of trading then the
seven banks will have achieved their aim.
Thornton comments: “MiFID frees up
competition for best execution and the LSE
has already announced that it is to cut costs.
This raises questions over whether Project
Turquoise will ever be realized.”
Clearly then the market is far from seeing
a complete picture as far as the vast array of
questions and strategic opportunities that
“MiFID frees up competition for best
execution and the LSE has already
announced that it is to cutt costs.”
A key element in MiFID’s successful imple-
mentation is, of course, the reaction and atti-
tude towards directive from national regula-
tors. Although the UK has been key in push-
ing the directive through and already had
much of the directive’s provisions in place,
other countries whose financial sectors are
less significant or less well developed have
been slower to react. In addition the directive
does not aim to be prescriptive, leaving each
member state to interpret its terms. Critics
argue that 31 different interpretations of the
directive could service only to further frag-
ment the European marketplace rather than
unify it as intended.
Alain Lesjongard, managing director and
head of compliance at the Bank of New York
points out that some national regulators
have consulted with industry much more
than others, thus making life easier for all
concerned. “The French authorities have
undertaken some consultation but not to the
same extent as the UK Financial Services
Authority (FSA) and I don’t think that the
German regulator has consulted with its
industry at all. At the moment most people
are aware of the bigger picture but have not
been told what they will need to actually
change or introduce by their regulators.”
Mike Hill, director of communications at
Gissings Software comments: “The EU states
are in various states of readiness. The Dutch
regulator for example has an English lan-
guage website and has said that it will not be
ready to implement the primary legislation
until Jan 2008, a whole year late. The Italians
are saying August 2010 and so the question is
how many will actually be ready?”
He continues: “A lot will depend on how
each country actually writes its best execu-
tion policy. Extremes in interpretation could
prove difficult and lead to a patchwork quilt
rather than free passporting. Another impor-
tant aspect is client classification. MiFID dis-
cusses this and allows clients to change their
classifications. This could prove to be an
administrative nightmare and will thus pres-
ent opportunities for services firms that can
MiFID throws up is concerned. It well may
be that until the directive goes live, players
will need to content themselves with simply
being compliant and taking an
evolutionary approach rather than worry-
ing about an endless list of ‘what ifs’ and
looking for a single big bang solution. But
for service providers able to forsee and solve
problems as they arise at a cost
acceptable to the market, the future looks
undoubtedly rosy. 
provide quick and efficient record keeping.”
Indeed a recent survey by SunGard found
that nearly half of the 330 institutions in 22
countries surveyed thought that the support
from national regulators was either bad or
very bad.
Countries not being ready of course pres-
ents something of a problem for the
European Commission since delaying the
deadline would require an act of Parliament,
which in itself would take up to a year to
obtain.
Mr Thornton comments: “The deadline for
transposition is the end of January and then
the deadline for implementation is
November. Moving this deadline would be
very complex and so unlikely. But the impact
of national regulators being tardy on the
transposition front is that banks will have
less time to comply. The reality is that 95% of
the information needed to be compliant is
already there. It’s only the fine-tuning over
file formats, for example, that is missing.
But has the whole timetable has been too
optimistic for such a complex area with so
many vested interests and different develop-
mental stages?
Mr Thornton for one thinks that the cost of
compliance is proving difficult for countries
whose financial markets are less well devel-
oped. “The danger is that MiFID will come
down to a diluted lowest common denomi-
nator solution. The risk to smaller institu-
tions is that the cost of compliance will prove
too much,” he says.
For the UK MiFID should not be unduly
painful. Indeed in many areas the UK FSA
has said that the directive does not go far
enough and is seeking to be supra-equiva-
lent. An example of this is on bundled com-
missions where the UK already allows for the
investor to know how the commission is
being split. Lesjongard comments: “In the
UK most of the requirements of MiFID are
already embedded in legislation and the FSA
view is that MiFID should not compromise
the existing legislative base. As always the
devil is in the detail.”

Opportunity Knocks
With the deadline for MiFID compliance less than a year
away Steve Robson, Group Managing Director at
ea Consulting Group, talks about the necessity of managing
the People Side of Change (PSoC) to meet the challenge.
T
he process of change within the
financial services industry, as in
any sphere of business, is always
full of questions and potential pitfalls.
However this is a rocky road that most in
the financial services world will have trod-
den before. Remember the Euro? A num-
ber of parallels can be drawn between the
activities involved in the implementation
of the Markets in Financial Instrument
Directives (MiFID) and those of the Euro.
There is a similar air of uncertainty
Under the right conditions, MiFID could help
financial institutions gain a competitive advantage.
amongst those affected by the new princi-
ples-based rules, when in reality, and
under the right conditions, MiFID could
help financial institutions gain a competi-
tive advantage. Those firms that looked on
the Euro as an opportunity to gain ground
over their competitors and adopted an
aggressive, first mover approach realised
significant rewards. A prime example was
Deutsche Bank who used the Euro as a
means of expanding their foreign
exchange business to a point where they
became a market leader and have subse-
quently retained that position.
As MiFID transforms the regulatory
landscape in Europe towards principles-
based governance, where there is freedom
to interpret directives rather than solely
implementing specific requirements, there
is an increased exposure to operational
risk which could affect an organisation’s
ability to trade. More opportunity nor-
mally means greater risk but by addressing
matters related to the People Side of
Change Management (PSoC), this risk can
be reduced.
Through undertaking a cultural assess-
ment, which evaluates the current beliefs
and values of an organisation, the distance
between the ‘as is’ state and the ‘to be’
desired outcome can be measured. By
developing a deeper understanding of the
different skills sets and attitudes required
from people (and possibly different peo-
ple), organisations can ensure there is a
smooth transition when change is taking
place.
The new regulations will undoubtedly
alter the way all businesses conduct them-
selves across the financial services sector in
Europe, and subsequently many peoples’
roles and responsibilities will change or
disappear entirely. Inevitably there will be
large scale technological and process
change, but it is the people within organi-
sations who will work these changes
through - playing an integral part in
deciding how successful these will be.
To date the primary focus has targeted
the technology and process changes need-
ed to achieve compliance by November
2007. However, what many have failed to
MIFID
Steve Robson, ea Consulting Group
address or even think about is the organi-
sational upheaval that will take place as a
direct result of MiFID. The process
requires a strategic approach, which needs
to start now, if it hasn’t already.
The consequences of ignoring or failing
to implement PSoC can be expensive and
problematic in the long run. The realisa-
tion of benefits can take longer to achieve
and often fall far below expectations.
PSoC, put simply, is the management of
people through a period of change. In
recent years many financial services
organisations have felt the effect of cost
reduction exercises, M&A activity,
large scale technological changes and
site rationalisations or relocations.
When the people side of change is man-
aged effectively organisations can also
benefit – from the development of new
skills, the emergence of new talent and
increased morale – which can lead to
increased productivity, profits and higher
overall customer satisfaction.
Senior business executives, board mem-
bers, and compliance managers should be
asking questions such as: Who in the
organisation will be affected by MiFID
changes? How will they be affected? What
are the major people concerns that are
likely to arise as a result of MiFID? How
can I get people in my organisation to
embrace innovation?
As with the introduction of the Euro, the
financial services organisations that
embraced change and saw it as an oppor-
tunity were inevitably the winners. When


INVESTOR SERVICES JOURNAL 23
 MIFID

When the dust settles on MiFID, the

organisations that have seen the bigger
picture are likely to come out on top.
the dust settles on MiFID, the organisa-
tions that have seen the bigger picture are
likely to come out on top. The people
responsible for large scale change pro-
grammes, however, can often be short-
sighted when identifying the people who
are affected. Change within one business
unit may appear isolated yet some deci-
sions can have a wide reaching impact
across many parts of a large organisation.
Decisions made in isolation could have
an important bearing on performance and
potential. Management teams need to
have their eyes on opportunity while
retaining the ability to track all the threads
of change and how they might impact
locally and beyond. A recent survey by the
Conference Board revealed only 30% of
Change Managers saw their initiatives as
very successful, while worryingly 70%
believed theirs to be only moderately suc-
cessful to not successful at all. From a
management perspective changes may be
small but not much is small in the eyes of
an employee. Altering a habitual way of
doing anything takes effort and people
tend to resist change if they can’t see a
good reason for it.
There are various ways an organisations
effected by regulatory changes can engage
their people by designing and delivering
people-focused change programmes. At ea
Consulting we have highly experienced
consultants that can deliver over the entire
life-cycle of PSoC, at all levels, including
cultural assessments, behavioural and cul-
tural change programmes, executive
coaching, staff training and Neuro-
Linguistic Programming (NLP) coaching
for individuals and teams. ea Consulting
Group has recently worked with one of the
UK’s largest banks which wanted to align
its management tools and training to
encourage behaviour, corporate vision
and objectives amongst its staff, and to
realise the performance of its people.
Using many of the techniques outlined
above we were able to ensure individual
targets and functions matched the overall
business performance, enabled a more
structured career path and tallied behav-
iour with the organisation’s mission, vision
and values. Changes as a direct result of
MiFID are likely to require a similar appli-
cation of techniques.
Spending time collecting and analysing
data about the culture of an organisation,
common attitudes, underlying values and
beliefs of employees, and then translating
this information into a plan, followed by
implementation, is a key aspect of manag-
ing people change. Whether a financial
organisation is headquartered in Europe
or is looking to make bigger waves in
Europe, it will find that by-passing the
people side of change management –
despite doing well in managing the
process and technology side of business in
the run up to MiFID – is likely to limit
business opportunity as well as affect
organisational stability.
In implementing MiFID there are many
opportunities to gain competitive advan-
tage through new openings in the market-
place across Europe, for both ‘home-
grown’ financial institutions and those
geographically further afield. If an organi-
sation is averse to change, unsure of risk or
inflexible, then this potential competitive
advantage could be lost as the organisation
struggles to implement the necessary
changes and tries to continue as before. 
Steve Robson is Group Managing Director
at ea Consulting Group, the financial serv-
ices management consultancy.

24 INVESTOR SERVICES JOURNAL

 DESIGNED AND
DRIVEN BY THE
EUROPEAN
FIXED INCOME
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IN COOPERATION WITH
 MIFID
Expertly Executed
The delivery and evidencing of “the most reasonable
w
result for the client” has taken on a whole new
meaning under “Best Execution.”
The measures could result in serious tensions and
conflicts acrooss the EU unless the competent autho-
rities take steps to manage their differences, explains
Dr Anthony Kirby, who chairs the MiFID JWG
Best Execution Subject Group.
nder MiFID, "Best execution" means
that, when firms execute client
orders, they must take all reasonable
steps to deliver the best possible result for
their clients, taking into account price, costs,
speed, likelihood of execution and settle-
ment, size, nature or any other consideration
relevant to the execution of the order. ‘Best
execution’ is therefore not synonymous with
measuring and minimizing trading costs
(Trading Cost Analysis), but about having an
implementation process which is consistent
with the underlying management style, and
about measuring the process and gathering
feedback to make changes. Article 21 of
MiFID currently leaves it to each firm to
make reasonable judgements about the rela-
tive significance of explicit and implicit costs
for its trading processes. Explicit costs
include spreads, taxes and bundled commis-
sions which are evident to both dealer and
client. Implicit costs include elements such as
opportunity costs and market impact costs,
and firms must make judgement calls about
how best to address these costs within their
client agreements.
The selection of execution venues is a crit-
ical consideration when crafting the best exe-
cution policy. An investment firm’s best exe-
cution policy must at least include, in respect
of each class of instruments, information on
the different venues where the firm executes
its client orders and the factors affecting the
choice of execution venue. Per the European
Commission’s Frequently Asked Questions
[EC FAQs 1.5.1-1.5.12], the policy has to be
dynamic and must include those venues that
enable the investment firm to obtain, on a
consistent basis, the best possible result for
26 INVESTOR SERVICES JOURNAL
the execution of client orders. The invest-
ment firm’s policy may have to be amended
to take account of the emergence of new ven-
ues, particularly for equities. The elimination
of the monopoly of directing liquidity onto a
central exchange (the Concentration Rule)
means that Order Routing systems may need
to identify and manage anything up to 20-40
new execution venues besides exchanges,
including investment firms internalising
orders on a systematic basis. The chal-
lenge/opportunity for the asset manager is
that this trend is occurring against a back-
drop of electronic trading (e.g. DMA/algo-
rithmic trading) and unbundling (of
research and execution-commissions).
A firm must, of course, have access to at
least the venues cited in its execution policy.
This can be achieved by gaining access to
these venues directly (e.g. becoming a mem-
ber of an exchange) or via an intermediary
The selection of execution venues is a
critical consideration when crafting the
best execution poliicy.
(or intermediaries). Firms will have to mon-
itor and regularly review their execution pol-
icy and decide which option (direct access vs.
intermediated access) is likely to secure the
lowest execution costs for their clients.
Supervisors will have to decide whether the
decisions taken by firms are reasonable. In
doing so, they will take account of a number
of factors (including the size and cost struc-
ture of the firm concerned). Clearly, the cost
of direct access to a multitude of venues may
be high. In many cases, therefore, an indirect
access through an intermediary may be the
best solution. For example, TCA data will
eventually evolve and further push some less
technology/algo-focused buy-side houses
into going electronic. When these TCA
providers start reflecting median execution
and research costs separately, they will
become powerful tools. In the interim, how-
ever, the commissions paid by asset man-
agers to intermediaries providing access to
execution venues can mount up over time
and it may become clear that gaining direct
access is more economical and efficient than
going through intermediaries.
The solution to the trade-off between the
desire for best price vs. the need for expedi-
ency (or immediacy) in ensuring the fill may
lie in the monitoring. What is missing in the
trading space is a best practice surrounding
the frequency of monitoring. If, for example,
asset managers are able to demonstrate best
use of trading rules encompassing invest-
ment vehicles and execution options to the
regulators, this could result in a significant
shift in market behaviour post-MiFID and
offer a massive boost to direct market access
(DMA) and (particularly) algorithmic trad-
ing.
Possible Approaches moving forward:
1. Benchmarking:
Benchmarking as a concept is not new, and
asset managers have been active supporters
of the concept over the past 15 years at least
as applied to areas such as modern portfolio
theory, portfolio modelling, and rebalancing.
If the quality of execution is to be bench-
marked, the critical issue for benchmarks is
that they must be robust, they should yield a
demonstrable quantitative result, and they
should ideally be industry-neutral if they are
to win widespread acceptability.
In other words, if benchmarking is to offer
a form of safe harbour to firms in terms of
price achieved for trades, then it should be
based on real-time executable or executed
trade data, preferably in markets with high-
frequency trading and execution processes
which are comparative in a qualitative, not
quantitative, fashion. This means that there
is little chance of externally evidencing best
execution in markets that either are decen-
tralized and/or lack any realistic form of


 MIFID

post-trade transparency in a quantitative
manner. It’s important to note that Article 21
of the L1 text (as did CP154 before it) right-
ly emphasized the need for best outcome
overall via a process-driven approach and
thus advocated flexibility in permitting firms
to select the factors appropriate to their busi-
ness model and the instrument rather than
focus on one particular factor, such as price.
2. Pro-active Process Management (PPM):
Some industry observers believe that the
best option for implementing the best execu-
tion obligation would be for regulators to
adopt a principles-based approach based on
intelligent ‘copy-out’ of the MiFID. Such an
approach could, for example, allow firms to
attach weight to their extant proprietary
models by which intermediaries establish
and communicate their prices. Such an
approach would also be popular with soft-
ware suppliers and network agents and
providers of market-led solutions (such as
reference data aggregation, normalisation
and distribution services). There is plenty of
scope for firms to mix, match and re-pur-
pose components provided that some basic
rules are adhered to; for example, KYC
applied to both new and existing clients
could be linked with AML measures for
transactions. This would also need to be
linked to the quality of best execution should
the client demand flexibility in classification.
There is even scope to apply benchmarks in
their proper context – for example, to over-
see the rebalancing and/or allocation of
trades, although it should be stressed that
these benchmarks would be internal to each
firm, and certainly not imposed. Such an
approach could draw upon the valuable
innovations already realised by TCA
providers such as ITG/Plexus or Elkins
McSherry. It will require considerable dis-
cussion as to its applicability, and runs the
risk that such a modular approach is ide-
alised. After all, many firms on the buy-side
suffer from makeshift KYC, AML, OMS and
EMS architectures and whereas it looks
implementable in a model form, it is highly
debatable whether such as an approach
could be rolled out in time to meet the
MiFID deadline.
There is a potential downside of the PPM
approach which needs flagging. It may cost
firms something to implement in the short
term to create seamless processes which can
be applied to most asset classes. While some,
possibly substantial, cost is inevitable, the
model has some business advantages.
Processes linking the IOI, order and execu-
tion management can be linked and man-
aged (and thus optimised), resulting in a
greatly improved velocity of trading. There is
also the potential (yet to be tested) to enable
buy-side firms to compile a steadily improv-
ing liquidity picture, but on the basis of
greater trust of their brokers rather than via
the benchmarking route (which could lead
to more legalistic outcomes and withdrawal
of liquidity from some markets as men-
tioned above). There is thus an immediate
medium term benefit to both the investment
intermediaries which can be passed on to the
end investors, which might not be the case in
“laissez faire” methods and will not be the
case if dealer-led markets are benchmarked.



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 MIFID
Moreover, the investment managers are not
excluded from participating in particular liq-
uidity opportunities, which was a major con-
cern expressed by the IMA with regard to
prescriptive benchmarking.
3. “Laissez-Faire”:
There is another school of thought that
argues that MiFID is far too much stick and
not enough carrot i.e. the costs of implemen-
tation of its measures far outweigh any ben-
efits to be gleaned. Although the rules are
95% certain today, the eventual costs to the
industry and market users of the client clas-
sification, best execution, order handling and
record-keeping aspects of MiFID, it is
argued, could result in significant costs,
potentially in the range of $30-50 million for
a typical European universal bank, and pos-
sibly one tenth of that amount for many a
money manager or private bank. Taking
The client classification, best execution, order
handling and record-keeping aspects of MiFID
could
d result in significant costs potentially in
the range of $30-50 million.
account of these factors, it is very likely that
dealers would pass on to their clients the
increase in their costs, possibly via a com-
mission-based structure or possibly via
wider spreads for some asset classes if the
measures represent a significant departure
from current market practices – dynamic
client categorisation is an excellent example
of this. This school of thought might argue
that as a result, the imposition of “best exe-
cution” would actually cost investors more
than the current system.
“Laissez-faire” schemes whereby firms do
little to bring their systems in line with their
more developed competitors, will be a signif-
icant reality for many firms unable or unwill-
ing to commit compliance or system
resources to keep up with MiFID. A large
percentage of these firms may rely on either
the largesse or a relaxed approach to imple-
mentation on the part of some competent
authorities not having the headcount of
processes to monitor everything that hap-
pens. In many member states, for example,
many client classification schemes differenti-
ate only retail from professional, and there is
a modicum of best execution evidencing
with a sole focus on price. The Italian market
for example already enjoys reasonably low
execution costs and practitioners there see
some risks in liquidity fragmentation for the
retail investors. With over 800 banks, and
over 300 SSOs (organised trading systems),
28 INVESTOR SERVICES JOURNAL
the general view seems to be that such retail
investors will need to turn more to financial
advisors or portfolio managers in the more
complex MiFID world. Given this existing
legal and institutional context, MiFID could
present a significant headache, with its focus
on the investment required for real-time
market quotes for best execution compar-
isons for the SSO
Other markets such as Germany already
have some measure of best execution in
place, although this does not apply to all
products traded OTC. In Germany as in
France, there might be somewhat less focus
on competition, and much more on avoiding
fragmentation of liquidity and avoiding
information leakage (market impact).
Privacy is preferable in many member states
and firms use various tools to ensure they
stay in line with market prices. The CSSF in
Luxembourg is taking proactive steps to
devise a pre-law to help investors in this area.
The Dublin authorities have issued a very
pragmatic and workable paper which should
raise the level of confidence there. But this
leaves more than 20 member states of pub-
lishing significant works on the subjects of
client classification and best execution, and it
would be frankly presumptuous to assume
that they will follow the examples of lead
regulators in markets such as the UK, France
or Germany. It is clear that the “laissez-faire”
approach comes loaded with obvious disad-
vantages, such as the likelihood of some
form of sanction by the European
Commission or even the threat of legal
action from some firms who are exposed to
the costs of poor quality. Investment firms
who are inclined to follow this course of
action and implement minimal changes may
find that they are disadvantaged in the medi-
um term.
Summary of Approaches to Best Execution:
The three forms of approach to evidencing
best execution – benchmarking, pro-active
process management (PPM) and “laissez-
faire” are being debated by the BESG follow-
ing a survey of 50+ buy- and sell-side firms,
plus electronic market facilitators
and suppliers.
Prescriptive benchmarking was believed to
be somewhat more acceptable to regulators,
and was considered beneficial by some sup-
pliers. It was not identified as acceptable to
many market practitioners (sell-side and
market facilitators offered scant support for
it). There was a perception that it might be
attractive to select buy-side firms by some
sell-side firms/suppliers. By contrast, Pro-
active Process Management (PPM) proved
to be acceptable to many buy-side firms
(60% weight), with benefits for the end
investor and support for dynamic KYC and
(especially) market innovation. Electronic
market facilitators (68% weight) were partic-
ularly supportive, as were some sell-side
firms and suppliers. The comfort level
behind laissez-faire was strongest among
suppliers. It was also noted for dealer-led
markets. It was seen by many to be congru-
ent with existing policies and a practical
implementation route meeting the MiFID
deadline, although some buy-side firms and
market facilitators disagreed. It was not
viewed as acceptable to regulators, nor was it
perceived to be particularly acceptable to
investors. Grey areas were strongest when it
came to assessing protection for the end
investor and benefits for dealer-led markets.
Suppliers and market facilitators seemed gen-
erally more confident when answering the
questions in this regard.
To close, at this point in time, the thinking
is that best execution will be translated as a
process, not monitored trade/trade in a
dirigiste fashion. Both investment banks and
asset managers will need the underlying data
in order to evidence best execution practices
when called to evidence the same.
Expediency and common sense judgement
calls are not going out of fashion – the prices,
sizes, timings etc. all have to relate to
executable transactions i.e. completed per the
size and other conditions stipulated by the
client. Both investment banks and asset
managers will also likely need to draw up
policies to demonstrate the reasonable steps
to be carried out, especially for illiquid,
fixed income and OTC-traded instruments
such structured products where the recording
of the circumstances to the trade could be
seen as advantageous. Logically and legally, if
a firm’s quality of execution is likely to be
open to doubt or challenge, then making a
note of the circumstances and building in the
relevance of the factors at the time will
help mitigate disciplinary action. The degree
of regulatory arbitrage which could well
occur post the Level 3 process will mark an
important milestone as to whether best exe-
cution is workable in practice and the func-
tioning of markets across the EU becomes
the better for it. 

Christine Senior talks to Ilmarinen, the Finnish pension fund
that has recentlywon the IPE ‘Best European Pension’ Award.
Cool Runnings
lmarinen is one of several pensions
I
insurance companies which compete
for business to provide pensions for
Finland’s workforce.
Around 370,000 salaried employees and
around 50,000 self employed enjoy pen-
sions insurance coverage from Ilmarinen.
Contributions amount to around 21.5%
of pay for companies, and an employee
contribution of 4.3% for those under the
age of 53.
Finland’s pension insurance companies
operate on a risk based system. They are
allowed to choose their own asset
allocation, within the framework of
certain solvency capital rules.
“If we have very little solvency capital we
are not allowed to have a very risky
portfolio, while if we have excess solvency
capital then we can choose our asset allo-
cation more freely,” said Jussi Laitinen,
chief investment officer at Ilmarinen.
“That’s one way the regulator checks we
don’t have too much risk on our balance
sheet, because if one pension insurance
company in Finland fails the others will
pick up the tab so that pensioners will
never lose their rights.”
INVESTMENT PORTFOLIO
Ilmarinen’s EUR22bn portfolio has a
slightly higher allocation to equities than
its competitors, with about one third of its
portfolio invested in equities, around 40%
in bonds, 10-12% in real estate, roughly
10% in alternatives, and 4% in loans to
sponsoring companies. The latter is a lega-
cy from when the system was established
in the 1960s and companies were allowed
to borrow back their pensions contribu-
tions for internal investment, subject to
backing from bank guarantees.
Over the years Ilmarinen has shifted its
investments away from a pure domestic
bias to a more international one. The equi-
ty portfolio is now 60% invested abroad,
PENSION PROFILE - ILMARINEN
while the bond portfolio is 90% overseas.
“It has changed dramatically from the
early 90s when the two main asset classes
were maybe 90% inland and 10% abroad,”
said Mr Laitinen. He thinks that interna-
tional diversification of equities is now at
about the right level. Finnish and
European equities are managed mainly in-
house, while US, Japanese and emerging
market equity exposure is managed exter-
nally via pooled funds.
Domestic bond allocations are limited by
the size of the local market, says Mr
Laitinen. “The Finnish domestic bond
market is fairly small, the only major bor-
rower is the Finnish government and they
are finding enough investors from abroad,
so we have had to diversify. It’s gone from
maybe 60% domestic five years ago to less
than 10% domestic now.”
ALTERNATIVES
Ilmarinen has been investing in hedge
funds for six years, with an allocation of
1.5%, half of which is in funds of funds,
the rest in single strategies. Private equity
accounts for 2% of the portfolio.
The risk grading system limits the allo-
cation to these alternatives. If it were pos-
sible, Mr Laitinen would like to allocate
more to both private equity and hedge
funds. “They have very high risk points
allocated to them so we have had to keep
them lower than we would have like to.
Now after four good years our solvency
capital is fairly high so we have been
adding our commitments in private equi-
ty, but private equity companies have been
paying back a lot of funds, so it has been
hard to get the allocation to rise.”
One particular success story has been
Ilmarinen’s four year old internally
managed structured products
programme. This accounts for around 4%
of the portfolio, and is mainly capital
guaranteed products.
Mr Laitinen is very proud of his team’s
achievements here. “In 2002 we were a lot
poorer than we are today and it was a
good way to get some equity exposure into
the markets when the risk based system
wouldn’t have allowed it. We have been
going to investment banks and others to
buy long dated option baskets and doing
the bond investment side ourselves. It was
a good time to go into long term
call options - they have performed
much better than bonds but not quite as
well as equity.”
CURRENCY MANAGEMENT
Half of the currency exposure on the
equity portfolio is covered, and currency
risk is managed internally. This has not
always been the case. “We have had a cur-
rency overlay programme but we weren’t
too happy with it,” says Mr Laitenin.
“There was a lot of activity but very low
returns, so we decided to decrease activity
a bit but do it all in house.”
CUSTODY AND SECURITIES LENDING
Ilmarinen’s custody arrangements were
overhauled at the beginning of last year,
when one global custodian, ABN Amro
Mellon was appointed to replace
separate custodians for domestic and
global equities and European bonds. The
aim was rationalisation and
simplification of arrangements but it
has other unexpected, but welcome
consequences.
“It is easier to work with one
counterparty and we saved quite a lot of
money doing it. We almost halved our
custody costs, and we didn’t expect that,”
said Mr Laitinen.
The securities lending programme is
managed by the custodian. Most lending is
on the equity portfolio but early last
year this was extended to bond
lending as well. 
INVESTOR SERVICES JOURNAL 29
 THOMAS MURRAY
Best Practice
or Best Competition?
Institutional Investors are concerning themselves more and more
with ensuring that their current arrrangements are in line with best
market practice.
Arti Sharma of Thomas Murray gives ISJ the lowdown
n the UK and European markets, the
I task of evaluating, selecting and mon-
itoring global custodians and related
service providers is increasingly being
enshrined in legislation and best market
practice guidelines. The FSA in the U.K.
has recognised that there are significant
risks associated with custody too, and in
November 2001, published the Conduct
of Business Rules. These rules, which have
subsequently been upgraded, require,
among other things, that a regulated firm
must “establish and maintain a system for
assessing the appropriateness of its selec-
tion of the custodian and to assess the
continued appointment of that custodi-
an”. These rules are increasingly seen as
best market practice and may be adopted
more widely. Even markets as far away as
Australia and Singapore have developed
similar rules in their market, as a code of
best practice.
While the Canadian market does not
have legislation similar to the UK and
European markets, there are guidelines
being introduced by the various regulato-
ry and industry associations in regards to
business process outsourcing. The Office
of Superintendent for Financial
Institutions introduced the B10 –
Business Process Outsourcing Guideline
30 INVESTOR SERVICES JOURNAL
n.
for Insurance Companies, the Ontario
Securities Commission is working with
their international counterpart and the
Canadian Association of Pension
Supervisory Authorities (CAPSA) to
introduce guidelines that are in line with
the Financial Services Act in the UK. The
underlying principles are focussed on best
market practice, benchmarking and
monitoring.
The US market is similar to the
Canadian market where there are several
guidelines in place by bodies such as the
Department of Labour (ERISA) and new
regulation such as Sarbanes Oxley that
discuss plan administrators fiduciary
responsibilities. However, none are as spe-
cific as the FSA in the UK as it relates to
There is growing interest in Canada and
the US for benchmarking tools.
establishing and maintaining a system for
assessing the appropriateness of its selec-
tion of the custodian and to assess the
continued appointment of that custodian.
In the absence of overt regulatory pre-
scription, some pension funds are point-
ing to meeting notes, custody surveys,
annual reports and SAS 70 reports for
compliance comfort. Others have
responded more formally by producing
substantial information packs, private
custodian ratings and operational bench-
marking reports to meet their own and/or
client needs.
In conducting structured and objective
benchmarking, investors can feel confi-
dent that they have met their client and
fiduciary responsibilities, and at the same
time, kept the regulators on side.
In the UK and European market,
Thomas Murray’s experience in the last 12
– 18 months is that institutional investors
are concerning themselves more and
more with the business of ensuring that
their current arrangements are in line
with best market practice. The stimula-
tion for this has come from publicity sur-
rounding many high profile changes of
custodian and the service, risk minimisa-
tion and financial benefits that have
accrued to the investor or fund as a result
of the review.
In the Canadian market, lack of compe-
tition with 3 major custodians dominat-

ing the market has left institutional
investors with limited choice. They have
relied on colleagues in their respective
industries to benchmark their services
and fees. In the US market, the use of
consultants is more developed and cus-
tody searches are more prevalent within
certain plan types.
With these changes in regulation, the
industry is being drawn to three distinct
levels of provider evaluation and this
reflects the importance of the various
stages in the lifecycle of a relationship
with a provider. While the UK and
European market has led the way in this
area, there is growing interest in Canada
and US for benchmarking tools.
1. HEALTH CHECK
These reviews of the current arrange-
ments take the form of a clear “Health
Check” that examines three critical ele-
ments of a relationship with a provider:
Service Level Agreement
Custody & Related Services Agreement(s)
Fees and Commercial Arrangements
Service Level Agreement
The first step is to look at the Service
Level Agreement in order to understand
what services are being provided by the
custodian. Typically, the SLA is not very
well constructed and takes the form of a
high level description of what services are
available but does not address the com-
mitments that are required of both par-
ties. Increasingly investors are requiring
that their SLA addresses all aspects of the
service, from consistency of relationship
management staff, through to disaster
recovery plans.
Custody & Related Services
Agreement(s)
Next, the main agreement gives a full pic-
ture as to the asset safety and risk min-
imisation provisions in the relationship
and the extent to which the custodian
bank/service provider will take responsi-
bility for losses and protect the client
from risks in the markets. Often the con-
tracts that have been signed present a
variety of risk evasive clauses and many
agreements have unbelievable protections
in favour of the service provider. When
challenged, the providers will generally
say that there is never likely to be a situa-
tion in which such egregious clauses
would be invoked and therefore there is
no cause for concern. Investors can form
their own conclusions.
Fees and Commercial Arrangements
This is generally where the real shock
comes as institutions find that they have
been disadvantaged by the fee and com-
mercial arrangements in place. Normally
the ancillary cost items such as interest
spreads, fx margins and securities lending
splits (pre/post transaction costs) have
been ignored in the past and when taken
into consideration make a significant dif-
ference to the total cost of the custodian
relationship. This is validated by the cus-
todian providers many of whom will say
that around 50% of their revenues come
from non-headline fees.
2. RFP REVIEW
Increasingly the findings from Health
Checks are so disturbing that they trigger
a full review of the custodial and related
services arrangements. While the incum-
bent suppliers usually make strong com-
petitive proposals to retain the business
the client relationship is sometimes dam-
aged beyond reasonable repair.
Further, competitor custodians try to
add to the inducement to move by offer-
ing
fee
In conducting structured and objective
benchmarking, investors can feel confident
that they have mett their client and fiduciary
responsibilities.
reductions, contributions and fee rebates
to facilitate the transition away from the
incumbent. Commitments to provide
support staff during the
transition and beyond can make a
persuasive argument against staying with
the incumbent.
While reviews can be time consuming
and costly, the pay back in terms of serv-
ice improvements, access to new technol-
ogy, reduced risk and increased asset safe-
ty provisions as well as clear commercial
benefits can make a compelling case for
taking a mandate to market. Investors are
also saying that it has a salutary effect on
custodians as it shows that the business is
not necessarily with the custodian forever.
In order to deliver maximum benefit,
the RFP review is best when highly struc-
tured and clear on what the key buying
criteria for the investor might be. Our
view is that the RFP review should be
THOMAS MURRAY
structured as follows.
This is generally where the real shock
comes as institutions find that they have
been disadvantaged by the fee and com-
mercial arrangements in place. Normally
the ancillary cost items such as interest
spreads, fx margins and securities lending
splits (pre/post transaction costs) have
been ignored in the past and when taken
into consideration make a significant dif-
ference to the total cost of the custodian
relationship. This is validated by the cus-
todian providers many of whom will say
that around 50% of their revenues come
from non-headline fees.
3. CUSTODIAN BENCHMARKING
Part of the reason that Thomas Murray
developed PROBE, was to support institu-
tional investors fulfil the Conduct of
Business rules from the FSA that came out
in 2001. These rules stated that not only
should there be a process in place for
appointing a custodian but also for ensur-
ing the ongoing appropriateness of that
appointment. Thomas Murray has started
to see a decrease in switching behaviour
and clients were able to demonstrate that
they were still receiving best market prac-
tice. There are no comparative rules in the
Canadian and the US market.
Thomas Murray currently has over $675
billion of assets under surveillance for
major investment funds and asset man-
agers using Private Custodian Ratings and
Operational Benchmarking (“PROBE”).
It is more than just number crunching – it
is a custodian monitoring service.
Benchmarking service against the SLA is
quite a clear cut activity but gathering
universe data to ensure that service levels
do not slip below standards generally
accepted in the market, is quite different.
Further, regulatory interest in bench-
marking, while not prescriptive, would
suggest that structured ongoing compari-
son with the market is seen as best market
practice.
Regardless of the client’s custody expert-
ise, if their custodian knows they are
employing a knowledgeable, experienced


INVESTOR SERVICES JOURNAL 31
 THOMAS MURRAY

Regardless of the client’s custody expertise, if

their custodian knows they are employing a
knowledggeable, experienced third party to
monitor the service, it is more likely that the
custodian will pro
ovide a superior service.

third party to monitor the service deliv- that the UK market is now leading the
ery, it is more likely that the custodian will way when it comes to evaluating and
provide a superior service. monitoring custodians. As portfolio
values increase and custodian
FX BENCHMARKING competition for mandates accelerates,
In addition to operational benchmarking, investors are well advised to put in place
foreign exchange benchmarking can be sound evaluation, selection and monitor-
particularly relevant for small to medium ing tools.
sized funds that may be using their custo- The cost of implementing such tools
dian for a large percentage of their foreign and processes can be such that CFO
exchange execution. PROBE allows a approvals are required but the costs of not
client an inexpensive way of monitoring doing so can be such that CFO’s job
the custodian’s execution rates against retention could be reasonably
market rates. challenged by any reasonably informed
Record Currency Management, who has CEO or auditor. 
been providing foreign exchange bench-
marking since 1983, has found that a tiny
minority of funds has currency trades
being executed in an effective manner
overall. The benchmarking component of
PROBE, provided by Record, examines
foreign exchange transactions executed by
the custodian. These transactions are
compared against Record's database,
which is one of the most comprehensive
records of dealable foreign exchange rates
worldwide. Foreign exchange bench-
marking will identify the effectiveness or
otherwise of the currency execution the
fund is receiving from its custodian.

SECURITIES LENDING
BENCHMARKING
Thomas Murray has partnered with
Spitalfield Advisors to provide securities
lending performance analysis as part of
the quarterly PROBE report. The
enhanced PROBE will enable pension
funds, asset managers and other institu-
tional investors who have mandated their
respective custodians to carry out securi-
ties lending on their behalf, to monitor THOMAS MURRAY (www.ThomasMurray.com)
their performance and the risks is a global firm specialising in the global securities
associated with the activity. industry and provides evaluation, rating (market
infrastructure & custodian) selection and monitor-
ing products and services to global, regional and
CONCLUSION domestic custodians and institutional investors
While the US market had led the way in worldwide. Arti Sharma is Senior Vice President,
the past with ERISA regulations, it seems Business Development, Americas.

32 INVESTOR SERVICES JOURNAL

 A passion for results

Our business, your business:

results are everything
Our ability to deliver innovative, high-quality tailored
solutions and excellence in client relationship
management continues to be reflected in our
success in leading independent industry surveys.
We are pleased to announce that we have received
the highest number of “Top Rated” recognitions
and “Best in Class” awards of any provider in Global
Custodian magazine's 2006 Global Custody survey.
Over the past year, Euromoney named us
Best Investor Services House in its 2006 Awards
for Excellence; R&M Consultants rated us the
number one global custodian in Continental Europe
for the second year running; and Global Investor
ranked us as the top performing global custodian
within our peer group.

Call us to discover how we can help you achieve

the results you want in 2007 and beyond.

For further information please contact:

Robert Korsanke
Senior Sales Manager, Germany
+49 (0) 69 7593 7567
robert.korsanke@abnamromellon.com
www.abnamromellon.com
 COUNTRY PROFILE - GERMANY
Once labelled
the ‘sick man’
of Europe,
Germany is now
displaying healthy
economic
growth.
Left Behind?
Alan Duerden looks at the changing face of German custody.
T he last decade for Germany has
been a tough one. The German
Mark was replaced in 1999 with the
Euro, the country suffered high rates of
unemployment, coupled with that were
low levels of inflation but low levels of
growth. The economy wasn’t doing well.
The business media has not been kind to
Germany, dubbing it the ‘sick man’ of
Europe. Like many other countries in
Europe, Germany has had its problems in
the past but these are now disappearing.
The unemployment rate is going down,
with the lowest rate for 6 years and once
Germany and assets under custody have grown
by approximately 20%.
you scratch the surface it is clear to see that
Germany is anything but sick, with its
economy growing steadily and healthily.
“The German market and economy is
going at light-speed through structural
changes as a whole,” says Dietmar
Roessler, Head of Sales & Relationship
Management Germany, Switzerland &
Netherlands, BNP Paribas. “If you look
specifically at the investment industry this
is reflected by our growth rates, and cer-
34 INVESTOR SERVICES JOURNAL
tainly for BNP Paribas securities services
Germany is the strongest growing market
across Europe at the moment and we see
extraordinary potential to continue grow-
ing the business over the next few years.”
There has been significant growth in cus-
tody in the last four or five years in
Germany and assets under custody have
grown by approximately 20%. There has
also been a strong tendency by asset man-
agers to make increased use of value added
functions that have been established
around the core custody services such as
securities lending, contractual settlement,
and proxy voting, all of which are becom-
ing very important. Class action manage-
ment services that are already known in
markets such as the UK and the
Netherlands are starting to become very
popular in Germany as well.
The catalyst behind this growth in value
added services has been the KAG structure
that was brought in under the New
Investment Act in December 2001, allow-
ing the outsourcing of asset management
activities and portfolio administration
services to third parties. This has affected
the market in a number of ways.
Historically, the institutional investor
side, for example, was a very vertically
integrated market, meaning that clients
(institutional investors and pension
funds) typically mandated an asset man-
ager to do their asset management activity.
On the back of that the asset manager typ-
ically proposed to use their own custodian
bank, or depot bank in Germany, for the
execution which was usually done in
house. Usually everything was done out of
one single place. The KAG structure has
stimulated the development of the out-
sourcing of services from these ‘all-
singing-all-dancing’ depot banks.
“What you have seen over the past few
years is a structural change in a sense that
the value chain has been broken up,” says
Mr Roessler. “Clients are quite thematical-
ly appointing the different pieces of the
value chain to very specific best-of-breed
providers.”
While changes in regulation, like the
KAG implementation, has prompted busi-
ness for custodians and the types of serv-
ices being requested are beginning to
change, there is still a high degree of regu-
lation in the market that doesn’t allow


 COUNTRY PROFILE - GERMANY

investors to take full advantage of the asset
class diversification that you have in mar-
kets like the US or the UK.
“To some extent, regulations have led to a
higher degree of flexibility for investors,”
believes Moritz Ostwald, BHF-BANK.
“Since the introduction of the Investment
Act in 2004, for instance, KAGs are allowed
to outsource processes such as portfolio
management and invest in a wider variety
of investment vehicles including deriva-
Germany has a fairly risk averse nature.
A large portion of asset allocation tends to
move towards very ‘safe’ investments
such as fixed income.
tives and hedge funds. On the other hand,
the domestic regulators have become less
flexible as well, as most of the regulations
are initiated by EU bodies.”
Rather than regulatory flexibility, service
requirements have also changed due to
Nordea Bank AB (publ)
stringent regulation by the German regu-
lator specifically around the different
types of reporting that needs to be done
for the sake of risk management. “For
example, you are seeing custodians being
asked to provide risk management capa-
bilities around the monitoring of deriva-
tives and to support the stress testing of
portfolios to do scenario calculations.
These are the sort of things that corporate
insurance companies and pension funds
need to be able to provide from a regula-
tory perspective,” says Michelle
Grundmann, Branch Manager, ABN
AMRO Mellon in Germany. “Not every-
one has that capability in house, so some
of that falls back onto the shoulders of the
custodian.”
Gina Slotosch, Director of Custody
Services, HSBC Trinkaus adds to this, say-
ing: “Growth is related to some regulatory
changes, especially where IFRS was imple-
mented. Clients are being asked to report
in a completely different way by the mas-
ter KAG’s in the German market or from
the custodians.”
Economically, Germany has a fairly risk
averse nature and a large portion of asset
allocation tends to move towards very
‘safe’ investments such as fixed income.
Different sorts of structured products
have been developed to try and give
investors exposure to other assert classes
while still presenting ‘safe’ investments,
but these still have yet to take off. The
German hedge fund industry has also
been less glamorous in terms of attracting
asset allocation than people would have
thought in 2004 when that was launched.
“I think the general risk averse attitude is
primarily driven by the fact that a lot of
the investment products are insurance
based and linked to guarantees, which by
their nature do not allow a lot of risk tak-

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Making it possible
 COUNTRY PROFILE - GERMANY
ing because that guarantee has to be met.
This obviously takes part of the risk budg-
et away. Coupled with that, the regulatory
environment, although it has improved, is
still rather onerous and diminishes the
ability to be more dynamic,” says Mr
Grundmann.
There is an overtly serious, almost pes-
simistic feeling behind the German mar-
ket which some believe is the result of the
economic struggles that the country felt in
the late 90’s and early 2000. Others argue
that this is just the German way, their
mentality.
A turnaround in sentiment however has
been noticed over the past 18-months
with a stronger GDP and investors show-
ing a renewed confidence in the German
economy. “Last summer was really a turn-
ing point,” believes Martina Gruber, Head
of Sales, Germany, Clearstream. “The soc-
cer championship really gave the Germans
a positive attitude and a lot of reforms that
had been outstanding for years and years
are now under way.”
Being more of a rugby man myself, it
does slightly turn my stomach to think
that an uncouth game such as football
could have such an influence, not only on
a countries economy, but also on the dis-
position its inhabitants, but I can under-
stand how a sporting event such as the
World Cup could unite a country and
renew its spirit and belief in itself. “I would
say the climate is much more positive and
gives all types of investors a positive envi-
ronment to invest in,” says Ms Gruber.
“I would completely agree,” says
Slotosch, “one and a half years back we
were the ‘sick man’ in Europe, but in 2006
we achieved growth figures of 2.5% and
went through a pension reform and
healthcare reform, so a lot of things are
changing.”
While market development in Germany
as a whole is clear, the development of
German ‘home-grown’ custodians, or
depot banks, seems to have been stymied
by this previous lack of dynamism and
they have failed to capitalize on the accel-
erated economic growth. The German
market is dominated by foreign custodi-
ans, both from Europe and the US who
have taken advantage of the KAG structure
and diversifying allocation of assets.
On the custodial side, the shape of the
market has changed quite significantly.
The classic German providers have been
losing mandates for the past three or four
years to the likes of BNP Paribas,
StateStreet, ABN AMRO Mellon and
JPMorgan, who have been happily picking
up business from the domestic players.
The more international custodians, the
likes of which have just been mentioned,
heavily benefit from using a global operat-
36 INVESTOR SERVICES JOURNAL
ing model that allows them to deliver their
services locally. “We have invested across
Europe in activities that have traditionally
been done locally by local providers, so
our clients appreciate that if they appoint
us as a depot bank then they can use the
same platform in Italy and Spain.
Similarly, they can entrust hedge funds to
us in Germany, in Luxembourg, in Dublin
and be confident that they will always get
consistent data,” explains Mr Grundmann.
From an institutional investor or fund
administration point of view the biggest
opportunity comes from the increasing
likelihood that there will be significant
consolidation in the German depot bank
The classic German providers have
been losing mandates for the past three
or four years.
market. This will be facilitated by the abol-
ishment of antiquated fee structures,
increased market pressure through the
MiFID regulation and increased competi-
tion coming into the market by classic
global custodians.
There are currently between sixty and
seventy depot bank providers in Germany
and under these market pressures they will
have to decide whether they will invest
massively in infrastructure or whether
they will try to minimise costs and focus
on asset management which is their core
business. German banks that are fulfilling
their depot bank function will be put in a
position where they either ‘white label’ or
outsource their custody function to one of
the larger custodians, or just sell their
business altogether.
Over the years the US custodians have
shown their mettle in the acquisition
space in Germany. November 2002 saw
State Street acquire a substantial part of
Deutsche Bank AG’s Global Securities
Services businesses, giving them a
foothold not only in Germany but also in
Italy and Austria.
More recently, in 2005, The Bank of New
York established BHF BNY Securities
Services GmbH as a jointly held subsidiary
based in Frankfurt, with BHF-BANK and
The Bank of New York each holding a 50%
stake in the new company. The object of
the venture being to bring together BHF-
BANK's expertise on the German market
and The Bank of New York's international
experience, allowing clients to have a sin-
gle point of contact that coordinates all
the required services on their behalf.
“The trend of consolidation will go on
and there will be more acquisitions
throughout Europe, but it is hard to judge
who will be next. I think those who are
going to dominate are more likely to be
from the US, UK and French environ-
ment,” believes Ms Gruber.
For German local custody, the challenge
will be around what European regulation
in the future will look like. Target 2 securi-
ties is a big topic of discussion with the
European Central Bank and custodian
industry. This will potentially change
infrastructure, not only for German banks
but also the rest of Europe, bringing with
it large cost savings through efficiency,
technical harmonisation and cross border
business.
Pension fund reforms and healthcare
reforms, kick-started in the last 18-
months, will all come to fruition over the
next year and with the MiFID deadline
closing in, there are a lot of initiatives
being implemented, and depending on the
outcome there is a big potential for the
growth of further business in Germany.
“The various EU initiatives are a major
challenge for the European custody
providers and will tie up a lot of resources
over the next few years,” believes Ostwald.
“The Markets in Financial Instruments
Directive, for example, will definitely lead
to greater transparency and harmonisa-
tion of the 25 or more different markets.
Clients will benefit from these develop-
ments and, in the long run, this might
result in stronger cross-border invest-
ments in countries like Germany, for
instance, as these markets will then be
more attractive.
While growth in Germany over the next
few years will be evident, the pessimism
that under pins the market no doubt will
thwart the activity of its home-grown cus-
todians. Like a middle child dominated by
its older siblings, German depot banks
have been somewhat bullied into a corner
by their larger, stronger US and European
counterparts, and are putting up little
fight. The rate of acquisitions in Germany
does not look like it will slow and it is only
a matter of time before the number of tra-
ditional depot banks is squashed under
the weight of consolidation.

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 ANALYZE THIS... CEE CUSTODY
JAROSLAV ZARUBA, Head
of Custody, Ceskoslovenska
Obchodni Banka, a.s.
(CSOB, a.s.)
WHAT ISSUE IS THE MOST TOPICAL
IN YOUR MARKET?
rom my point of view, foreign investors have not forgotten the
F Czech market as two new IPOs were recently made on the Prague
Stock Exchange. The main exchange PX index repeatedly broke its all-
time highs throughout December. Czech economic developments are
very promising. The Czech Republic has been successfully profiting
from joining the EU nearly three years ago and the Czech currency is
increasingly strengthening against both the USD and the EUR.
However, there continue to be some barriers that can discourage some
important institutional investors who are interested in investing on the
Czech market. What barriers should foreign investors be aware of?
Firstly, so far, no Central Securities Depository has been established in
the Czech Republic. Currently, it is more a political than a business deci-
sion and the six-month long post-election deadlock does not support a
fast solution of this issue. Although the legal basis of a bi-level securities
register has been in place since 2004, precisely according to applicable
Czech law, only beneficial accounts can be set up with the Central
Securities Registrar (SCP). Some global custodians operating in the
Czech market have decided to open an omnibus account on behalf of
their name on the SCP’s books, whereas some more conscientious cus-
todians tend to open segregated (i.e. individual) accounts on behalf of
their customers there to comply. In order to open an account with the
SCP, the global custodian utilizes a local custodian as their agent, as is
usual all over the world. However, under Czech law, there are strict doc-
umentation requirements, which usually represent no problem for
Czech entities. Nevertheless, these documentation requirements that
result accurately from the Czech legal environment can be very cumber-
some for foreign investors. For this reason, some foreign investors have
difficulties in complying with the requirements. Therefore, we make
every effort to remove segregated accounts at the central level, along with
the burdensome requirements.
Secondly, the documents I mentioned above are also required when we
execute any corporate action on behalf of our client. CSOB custody rep-
resentatives have been negotiating with Czech issuers or their paying
agents to simplify these strict requirements but they insist on keeping
this practice. However, CSOB custody has initiated discussions with the
Capital Market Supervisory Department of the CNB. The CNB’s posi-
tion seems to be favourable for both us as the local custodian and our
clients. We strongly believe that our endeavour will be successful and that
additional documents will no longer be required for the purposes of cor-
porate actions this year.
However, in spite of the facts mentioned above, all CSOB custody staff
place enormous importance on providing foreign clients with the best
quality services and they are committed to continuously improving the
level of all custodial operations in the Czech market.
38 INVESTOR SERVICES JOURNAL
CLIVE TRIANCE, Managing Director
Europe, Middle East and Africa (EMEA),
Head of Direct Custody and Clearing
(DCC), Chief Operating Officer (COO)
for Securities and Fund Services (SFS)
EMEA, Citigroup Global Transaction
Services (GTS)
WHAT NEW DEMANDS DID CLIENTS IMPOSE
ON THEIR DIRECT CUSTODIANS IN 2006?
WHAT DO YOU ENVISAGE FOR 2007?
T hroughout 2006, and over the past few years, our clients have
been shifting their European focus further east to Central and
Eastern Europe (CEE). Whilst 2006 saw increased activity across
direct custody and clearing (DCC) globally, the action was most
pronounced in the CEE markets as a result of the substantial
growth, both in terms of assets and in transactions, CEE countries
have recently enjoyed. As a result, clients are eager to get into these
markets and take advantage of the opportunities they present.
The challenge custodians face is supporting the massive volume
increases across CEE whilst simultaneously expanding and
improving the product set to meet client needs. One of the ways in
which Citigroup is responding to clients is through network
expansion. Over the past 14 months, Citigroup has opened three
new DCC branches across CEE - Slovakia, Israel and Cyprus -
bringing our network to 49 markets, the largest in the world.
Market growth and client demand will continue to drive expan-
sion into new markets with CEE and the Middle East both posing
interesting opportunities.
Clients are not only demanding increased access to new markets,
but better service. Citigroup is constantly striving to put our
clients first and as part of that effort our product set now includes
third-party on exchange clearing which enables broker-dealers to
trade in markets in which they do not have a local back office pres-
ence. In 2006 this service was rolled out in Austria, Hungary and
Poland, enabling our clients to build direct exchange connectivity
for trading without incurring the fixed costs that can arise from
establishing a local clearing operation. We have also worked with
clients to operate their own local depository accounts in Russia
and Turkey. As clients explore more on-exchange activity, particu-
larly in response to the increasing demand for derivatives, we
envisage more interest in this type of product enhancement in
2007.
As clients become more active in CEE, we expect them to look
for more asset financing capabilities as alternative means of
expanding their activity without using increasing amounts of
working capital. As a result, fails coverage will also become more
important.
CEE is the region to watch in 2007 as clients look to their custo-
dians to provide improved access, service and products to support
their growth in this vibrant space.
RZB Custody Services –
Experts on the spot
Regional Focus and Local Expertise are the two driving forces of our product
in Austria and Central and Eastern Europe. Rely on a professional partner
who understands your needs and expectations. Contact: Mr. Jürgen Sattler,
juergen.sattler@rzb.at, +43-1-71707-1882, www.custody.rzb.at
 ANALYZE THIS... CEE CUSTODY
NORMUNDS VIGULIS,
Head of Treasury and
Custody of Parex banka
WHAT IS THE CURRENT
OUTLOOK FOR CUSTODY
SERVICE PROVIDERS IN THE
BALTIC REGION?
T hemarket
latest trends in the Baltic custody and fund administration
show that there are more foreign financial institutions
using the services provided by Riga Stock Exchange, therefore cash
agents are needed for the settlement of transactions. There are two
options they may use, first, full custody services within any of
Latvian Central Depository members or OMX as securities settle-
ment agent and one of Latvian banks as cash agent. The Baltic cus-
todians are planning to broaden their services by also providing
safekeeping of Azerbaijani, Kazakh and Ukrainian papers.
Custody services still remain an additional platform for brokerage
to asset management products in the framework of one entity,
including ordinary securities account services, high level securities
processing, sub-custodian services for international banks, brokers
and funds, voting services, investment fund custody administration,
pension fund custody administration, though global custody serv-
ices for Baltic and CIS financial institutions and corporate clients
are provided as well.
The Pan-Baltic custody and fund administration market may be
characterized by several important trends. First, the importance of
value added custody and fund administration services rises hand in
hand with growing customer needs. A simple example, Parex banka,
besides such core services as securities safekeeping, settlements of
transactions, securities deliveries, corporate actions, cash manage-
ment and reporting provides its clients with value added services,
including account management for each client, relationship man-
agement and market information.
Second, in the current market situation it is crucial not only to
provide the direct access to the widest range of Baltic and foreign
depositories, but also to provide detailed fee structures, thus offer-
ing the lowest costs.
Third, the focus slightly shifts from institutional clients towards
retail clients as development of retail custody services is closely con-
nected to development of asset management services for retail
clients. Developing retail custody products Parex banka is able to
provide high quality custody platform for convenient use of broker-
age and asset management products for example the settlement fees
for the deals executed on international markets are only EUR5-7
and the deals executed through Riga Stock Exchange are settled free
of charge.
Moreover, Parex banka has the leading position in Latvia, repre-
senting up to 40% of the Latvian pension pillars and investment
funds safekeeping market as eight out of nineteen investment funds
registered in the Republic of Latvia use the services provided by
Parex custody team.
40 INVESTOR SERVICES JOURNAL
JÖRG AMBROSIUS,
Managing Director,
State Street Bank GmbH,
Germany
GIVEN THE SMALL SIZE OF THE
CENTRAL AND EASTERN EUROPEAN
MARKETS, SHOULD GLOBAL CUSTODY
FIRMS IGNORE THEM?
T hestraightforward.
answer should definitely be no — and the reasons are quite
Whilst Central and Eastern European markets are
still relatively immature, they are growing at around 15 to 20 % annual-
ly — a rate far faster than more developed markets. With this level of
growth, asset sizes in many Central and Eastern European countries
could grow to be very attractive within the next 5 to 10 years. However,
to have a significant presence in them at that stage, you may want to
invest in them now.
As a global custodian, State Street covers more than 100 markets and
operates in 23 markets. Even if some markets are perceived not attractive
on a stand-alone basis, our multinational customers expect us to be there
as their service provider. Our market coverage via our sub-custodian net-
work allows local customers to benefit from our services as a global cus-
todian; however, for services such as NAV calculations for domestic
funds, local regulation often demands a local provider.
Whilst each country has its own unique characteristics, there are some
generalisations that can be made. One pertains to the concentration of
asset pools. The top five to six asset owners in each market often repre-
sent upwards of 50 % of all assets in the respective market segments.
Consequently, success for foreign groups requires forging business part-
nerships with at least one of the large local players. Another shared char-
acteristic in these markets is that the local players tend to know one
another. Personal recommendations (“word-of-mouth”) do often sell a
good product quickly. Custody is a relationship-driven business, and it
takes time to build up credibility. That’s why we’ve cultivated a well-
established team of people who are dedicated to these markets.
A good illustration of the potential in Eastern Europe is Poland. It is the
sixth most populated member state of the EU and one of the most suc-
cessful examples of the transition from a partially state-capitalist market
economy to a primarily privately owned market economy. The Baltic
States, Estonia, Latvia and Lithuania, also offer great opportunities. In
terms of culture and background, the Baltics are similar to the Nordic
countries, and, like the Nordics, they have made the development of a
pension industry a priority. The Baltics have strict pension regulations
that require all pension schemes to be fully funded, which — over time
— means potentially large pools of assets.
Other countries that will become increasingly attractive in terms of
growing wealth include Hungary, the Czech Republic, Bulgaria, Romania
and Turkey. With nearly 50 % of its population currently under 20 years
of age, Turkey could ultimately build one of the largest pension indus-
tries in Europe. Some of the most interesting opportunities also are in
lesser-known markets such as Kazakhstan and Azerbaijan. Theses oil-
rich countries focus on building asset pools to back pension provisions
as well as education and health services. State Street has already built a
very successful custody position in Kazakhstan through word-of-mouth
marketing. What is clear in all these examples is this: the first movers will
be dominant players in the years ahead.
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 ANALYZE THIS... CEE CUSTODY
ERNST BOLLHALDER,
Member of the Executive
Committee, Head of Customer
Relations, SIS SegaInterSettle AG
EMERGING MARKETS IN CENTRAL AND
EASTERN EUROPE (CEE) SHOW HIGH LONG-
TERM GROWTH RATES. IS THEIR INTEGRA-
TION IN THE EUROPEAN UNION IS A MATTER
OF TIME?
A-CA's CEO Erich Hampel: "With IMB, we are gaining one of
C EE markets have boasted a high-level growth rate for quite
some time. The amount of foreign direct investment has risen
dramatically since 1990, not only in relative but also in absolute
B the most important banks in what is arguably the most
important market in Central and Eastern Europe. It is our clear
terms. In 2005, three of the top ten Emerging Market Economies
(EMEs) in terms of foreign direct investments were CEE markets.
This fact is neither surprising, nor do the CEE markets differ from
the "traditional" South Asian or South American EMEs in this
respect. Globally operating companies thus already have a proven
network in place. We extended our network between 1996 and 2005
to cover today's comprehensive range – including the CEE markets
– and continue to operate it successfully. The case may be different
for infrastructure providers that operate regionally or focus on asset
classes. In general, custody in EMEs is distinct from custody in fully
developed markets. The latter benefit from high STP rates in sys-
tems that are stable and harmonious in terms of market practices.
Changes to the regulatory and political environment are rare, less
polarising and seldom spontaneous. Outsourcing of the street side
is primarily motivated by the notion of minimising costs while
maintaining quality standards. At the other end, the service
providers do their utmost to gain economies of scale and market
power advantages that allow them to deliver on their promise to
save costs. From a European point of view, the market entry of the
national CEE infrastructures amounts to a further fragmentation.
The investors, respectively their custodians, have little time to adjust
to highly dynamic regulatory environments and bring their knowl-
edge of market practices up to date. Our negotiations with clients
do not focus on price, but primarily on market coverage and quali-
ty assurance. "Value for money" is the top criterion; Asset classes
(shares, bonds and funds), fails management, repairs, corporate
actions, taxes, proxy voting etc. Indeed, the success factors of a fea-
sible service strategy are comparable to the challenges posed by the
offshore and hedge fund business, which we are tackling with a sim-
ilar strategy. In contrast to the other EMEs, the CEE markets are
steadily being integrated in the EU and assimilating to its regulato-
ry system. Political integration thus leads to an even more pro-
nounced dynamic, whereas the need to localise and accommodate
national particularities is in effect removed. In this context, the chal-
lenge faced by our institution is the following: to identify, in terms
of volumes and harmonisation, the right moment for opening a
direct link to the respective CEE infrastructure (i.e. stock exchange,
CCP and CSD).
42 INVESTOR SERVICES JOURNAL
BANK AUSTRIA CREDITANSTALT
Bank Austria Creditanstalt (BA-CA)
has completed the acquisition of the
majority interest held in International
Moscow Bank (IMB) by HVB.
aim to grow vigorously in Russia and therefore we will support
IMB’s expansion targets.”
HVB has sold its interest of 70.26 % in
International Moscow Bank (IMB) to BA-CA in cash for a price
totalling approx. ff 1 billion. BA-CA has recently acquired also
the 19.77 % interest in IMB held by VTB Bank France.
Following the acquisition of the shareholdings held by VTB
France and HVB, BA-CA holds now 90.03 % of IMB’s
total share capital, which corresponds to 95.19 % of IMB’s vot-
ing capital. Besides BA-CA, the only other remaining
shareholder is the European Bank for Reconstruction
and Development (EBRD).
International Moscow Bank was established in October 1989;
it was the first international bank in Russia, with registration
number 1. Creditanstalt was one of IMB's founders. Originally
specializing in corporate banking, IMB has started to expand its
activities to include retail banking. The bank has
achieved strong growth over the past few years: in 2005,
measured by total assets, the Russian banking market as a
whole grew by 33 % while IMB's total assets increased by 53 %.
At present IMB is the ninth-largest bank in Russia, with total
assets of US$ 7.7 bn (as at 30 September 2006). The bank cur-
rently employs some 1,800 staff and operates 45 branches,
although IMB expects to significantly expand its
distribution network in the medium term. IMB will be fully
consolidated within BA-CA as of 1 January 2007.
With some 143 million inhabitants, Russia is the largest
market in Central and Eastern Europe. In the years 2001 to
2005, Russia achieved real cumulative GDP growth of almost
35 %, making it one of the most dynamic markets worldwide.
Russia's GDP is expected to grow by an average 6 per cent annu-
ally in the coming years.
INZ ANG VEJCE 203x267.indd 1 12/20/06 9:57:57 AM
 CEO PROFILE - JPMORGAN

Management Team Influence in Growth / Company Structure

Strong Of key importance for a successful manager is the success of the

team that they build around them, not only in talent but also in
level of expertise. The team surrounding Mr Shah seem an able
bunch. “The recent additions of Susan Ebenston (Scottish Widows
Investment Partnership), Mark Kelley (Citicorp) and Francis
Jackson (SEI) illustrate the quality of the team we are recruiting
and how we are benefiting from both buy-side and sell-side points

Foundations
of view. This diversity provides the depth and breadth of experi-
ence and talents to address our clients’ most complex needs,”
explains Mr Shah. It is also important that rotation in direction
within the same company can often shed new light on old prob-
lems. Mr Shah has had a wide and varied role within JPMorgan.
“I’m one of the long-time staff contributing through a new role.
When I joined JPMorgan ten years ago, I worked in the invest-
ment bank first as European Head of Derivatives Middle Office
and then as Global Head of Derivatives Collateral Management
Operations. I then moved to Worldwide Securities Services to run
Continuing ISJ’s the clearance and collateral management business prior to head-
CEO profile series we talk to ing up Global Custody.”

Mr Raj Shah of JPMorgan Regulation

One of the most important areas of custody in the past few years
has been the developments and changes that have been forced
through by regulation. “As clients reallocate some of their budgets
to comply with regulations and governance provisions, it puts
more pressure on their operating costs and that in turn makes
them more interested in outsourcing alternatives,” states Mr Shah.
“It also generates demand for our compliance, performance meas-
urement and analytics products. Increased regulatory costs also
reinforce client interest in enhanced returns, which in turn creates
demand for our alternative investment support, securities lending

“Increased regulatory costs also

reinforce client interest in enhanced
returns.”
and short term cash investment solutions.” And where does
JPMorgan think this business growth and demand will come
from? “In Europe, markets are consolidating as MiFID levels the
playing field, regardless of country of domicile, and reduces bor-
der restrictions. Cross-border growth will come from greater
competition, lower costs through consolidation and efficiencies,
and more choices for investors. In Asia cross-border investment
growth will surge as those countries’ restrictions and regulations
on local investors ease and let those invest-able assets out. For
example, the Hong Kong Monetary Authority has estimated that
if China dropped restrictions on outward investment, Chinese
investors could send $340 billion out of the mainland in a year,
Raj Shah equivalent to 15%+ of the country’s GDP.” It is this awareness

44 INVESTOR SERVICES JOURNAL


within the market place that gives
JPMorgan the confidence to plan and
react with success. “JPMorgan believes
that successfully meeting and mitigating
regulatory challenges, particularly in the
emerging markets, is what distinguishes
custody providers today. JPMorgan helps
its clients interpret market regulations and
gain insights about best practices to oper-
ate within the rules. But real success for
our clients (and others) is achieved when
JPMorgan works with local market partic-
ipants to lessen the regulatory challenges
in the first place. JPMorgan has used its
extensive expertise and close partnerships
with market participants to streamline
“Investment in technology is crucial to support
the two biggest growth areas in the business.”
market practices.” For example, the
Taiwan Stock Exchange (TSE) asked
JPMorgan to host a series of sessions
about its proposed market practices with
its investor clients. The discussions
enabled TSE representatives to meet with
investors around the globe. This provided
the Exchange with an opportunity to
articulate its strategic direction. The TSE
used the investor feedback to refine some
of its practices.”
Technology & STP affect on business
For any business partnership to work effi-
ciently on a day-to-day basis, you have to
secure an efficient platform and frame-
work for doing business. “Investment in
technology is crucial to support the two
biggest growth areas in the business,”
states Mr Shah. First, securities services
providers have to make significant invest-
ment to support and automate the servic-
ing and reporting for alternative invest-
ments. Second, as emerging markets’
structure and regulation evolve and as
investor confidence in new instruments
grow, custodians will need to update their
technology to accommodate these market
needs.”
JPMorgan is also in effect outsourcing its
expertise to other areas as Mr Shah
explains. “JPMorgan also leads in its com-
mitment to developing global technology
industry standards that facilitate straight-
through processing. Yawar Shah,
JPMorgan’s Global Operations Executive
for JPMorgan Worldwide Securities
Services is now chairman of SWIFT.
JPMorgan sits on all major SWIFT com-
mittees, as well.”
One of the major driving forces behind
this expertise in technology is the amount
JPMorgan is willing to spend on the issue.
“We are investing more than $600 million
per year to develop best-in-class technolo-
gy platforms in support of this compo-
nent-based framework. Many of our com-
petitors are too small to make an invest-
ment of that size. Technology is one place
where our vast global resources make a
real difference.”
It is clear that STP cannot be under-
emphasised, neither for the industry or
JPMorgan. One of our top objectives year
over year is to continuously improve our
clients’ STP rates,” Mr Shah explains.
“Improving STP rates improves the quali-
ty of our service to our clients, and it
reduces their (and our) operating risk. It
also enables all parties to be more efficient.
Our operations team takes increasing STP
rates very seriously—from senior execu-
tives, to middle managers, to the staff
doing the heavy lifting. When I was visit-
ing our processing centre in Bournemouth
recently, the STP initiative was part of our
review. It was an absolute pleasure to hear
the passion of our ops managers as they
discussed how they were going to achieve
the last remaining percentage points.”
Having been invited down to the
Bournemouth centre during a press day,
the drive was clear to see, STP is of utmost
importance. “Straight-through processing
is an area where JPMorgan’s industry
knowledge, experience and customer serv-
ice play a key role. We have dedicated
teams who actively work with our clients
to improve their STP rates. This includes
addressing client behaviour, industry stan-
dards and our own systems and processes.
We work consultatively to help them
understand the impacts of adjusting their
internal procedures. We quantify where
transactions break down with root cause
analysis, and we collectively analyze the
issues from both sides. One client, a lead-
ing global fund manager, actually used our
model to drive their other custodians to
improve their STP rates.”
Custody Growth & Growing Markets
“A second driver of growth for JPMorgan
will be our new state-of-the-art product
CEO PROFILE - JPMORGAN
set to leveraged funds and hedge funds,
which will include auto-borrow capabili-
ties, trade finance, and full STP and
matching of short sell trades,” continues
Mr Shah. Indeed, it is not excellence in one
area, but excellence in every sphere that
enables custodians to compete on a global
level. An obvious area that one must be
strong in is the ability to identify global
and domestic trends before your
competitors catch on. Mr Shah seems well
placed. “Many of the Asia-Pacific
countries offer significant growth oppor-
tunity. Australia, of course, is a market
with strong growth because of the nation-
al retirement savings mandate. JPMorgan
is well positioned with the superannua-
tion funds and other asset accumulators in
the country. Taiwan is another opportuni-
ty for JPMorgan because of our strong
local capabilities, global investor interest
in the market and the growth of asset
pools in country. The development of
QDII in China provides an opportunity
for a global custodian like JPMorgan to
provide cross-border services to the assets
under management that can now be
earmarked for foreign markets. We see
India and Korea as other markets with
opportunity.”
Going Forward
But what of the future for JPMorgan?
Mr Shah rounds up JPMorgan's approach
to 2007. “JPMorgan has aggressive growth
targets for our 2007 global custody business.
Much of our success will come
from our tight integration of other securi-
ties services, not just custody. JPMorgan
offers an unparalleled range of products
and services for our clients such as fund
accounting and administration, compliance
reporting, performance measurement,
securities lending, foreign exchange, and
short-term cash investments. This requires
staff with industry expertise and a
significant technology budget to invest in
the automation that will deliver these
services with consistent high quality to
our clients. Because we are part of a
diverse financial services firm that already
has the expertise in these areas, where
appropriate we work with or look to hire
staff from these other lines of business. A
client’s choice to outsource does not just
present us with an opportunity to deliver a
valuable service; it also allows us to get
closer to our clients and better understand
their needs.” If Mr Shah is correct,
then JPMorgan will be setting the standards
for 2007. 
INVESTOR SERVICES JOURNAL 45
 PANEL DEBATE - TRANSFER AGENCY
ISJ Panel
Debate
Transfer
agency Ray Pepper
Mellon
Transformation?
Our panel of expert
transfer agents
debates technology
platforms...
Etienne Carmon
Caceis
Bill Hookings, Head of Product Development (Rufus GTA), Bravura
Solutions. Mr Hookings has over 32 years of experience in the IT
industry. He was responsible for Rufus development from its inception
in 1991 until 1996, and subsequently for establishing the Product
Development Group. He is now responsible for defining the future
direction of the Rufus system.
Etienne Carmon, Head of International Product Development,
CACEIS. Mr Carmon joined CACEIS as Senior Product Manager for
the TA business in September 2005 and now heads International
Product Development. He has previously held roles at EFA, Chase
Manhattan Bank and First European Transfer Agent.
Alec Hoffman, Associate Director, heading the Retail Fund Services
Practice, Etheios. Mr Hoffman has worked in the financial services
industry for fifteen years with spells in treasury, international banking
and, for the past three years, in investment management systems. He
has been involved in the preparation of a request for proposal (RFP) for
a major provider of third party fund administration services.
Pete Hudson, Linedata Services, Head of Product Marketing UK.
Mr Hudson has responsibility for Product Strategy, Marketing
Communications and Customer Documentation. Over the past 20
years, Pete has worked in a variety of roles for numerous software ven-
dors within the Financial Services industry, including Misys and
Thomson Financial.
46 INVESTOR SERVICES JOURNAL
Alec Hoffman
Etheios
Karine De Bondt
RBC Dexia
Paul O’Neil
State Street
David White Bill Hookings Pete Hudson
MFT Bravura Linedata
Ray Pepper, Managing Director, Transfer Agency, Mellon. With over
26 years experience within the Third-Party Administration industry,
Mr Pepper is responsible for managing the Transfer Agency business
in UK and Pune, India. He sits on the IMA Investment Fund
Operations Committee and is a founder member of the TPA Forum.
Karine De Bondt is Head of Product Management-Shareholder
Services within RBC Dexia Investor Services Bank. Ms De Bondt
joined Dexia Fund Services in January 2005. In a her last position, she
was in charge of the development and implementation of Vestima,
Clearstream’s order routing product.
Paul O’Neil, Senior Vice President, Head of European Shareholder
Services, State Street Bank. Luxembourg S.A. Mr O’Neil assumed his
current role in January, 2006. Based in Luxembourg, he is responsi-
ble for State Street’s European Shareholder Services (Transfer
Agency) business, which has operations in Luxembourg and Ireland.
He has twenty five years of financial service experience primarily in
administration services with Boston Financial Data Services (BFDS).
David White, Client Services Director, Mutual Fund Technologies.
Mr White joined the company from Aberdeen Asset Management
PLC where he was head of Wholesale Marketing for UK and Europe.
Prior to this he worked for Schroders PLC in the UK.

Comment on the latest developments to
affect the transfer agency industry in the
past year.
Hookings: There are four main areas of
development that could potentially impact
the TA industry; Hedge Funds Regulation,
Automation, Standardisation and Asia.
With regard to regulation, 2006 has seen a
number of small regulatory changes; though
none of which compare with the effort
required to implement EUSD. MiFID still
appears to have a minor effect on TA.
We are beginning to see Hedge Funds inte-
grating with the mainstream TA world; there
is now a need to support larger investor bases
and to provide connection to Swift and other
STP hubs.
Asia is also growing in importance; for cross
border funds based in Europe, the need for
the capability to provide support to distribu-
tors based in Asia has become a priority. This
includes communicating with distributors in
their own language and time zone; it also
extends to vetting, scanning and inputting
applications locally to increase accuracy and
timeliness. As a result the tier 1 TA’s are creat-
ing local service centres to support this activ-
ity on behalf of their fund manager clients.
O’Neil: Number one is managing growth,
particularly in the main offshore centres in
Luxembourg and Ireland. The industry is
heading for a second consecutive year of 30%
growth in terms of fund values and even
greater in terms of transaction volumes, with
strong growth from Asia in particular.
Further consolidation of third party-distri-
bution has meant we are spending an increas-
ing part of our time servicing the distributor
rather than the end investor in the retail sec-
tor. Also, institutional investors are investing
strongly into collective schemes. Platforms,
fund supermarkets and the ‘wrap debate’ are
all encouraging a trend towards fewer share-
holder accounts on the register but more
transactions.
During 2006 we have seen an increased
number of distributors participating in STP
initiatives reducing costs and delivering serv-
ice benefits. Encouragingly, KYC/AML issues
are settling down although they still take time
and carry considerable risk.
Carmon: Many factors continue to exert a
significant influence on the industry. A con-
stantly evolving regulatory environment in
Europe forces the Transfer Agent to be nimble
enough in terms of systems and business
structure to adapt and take advantage of
changes. However, regulation complexity,
PANEL DEBATE - TRANSFER AGENCY
brings less clarity and for MIFID, the TA
industry remains unsure as to its effect on its
business.
As open architecture drives sales and trans-
action volumes, Transfer Agents remain
focused on raising the STP rate and reducing
the cost per transaction.
Lately, there has been a shift in the type of
product the Transfer Agent is required to han-
dle. Until recently, traditional “plain vanilla”
mutual funds were the norm, but in the last
year the TA has been required to deal with an
increasing number of more exotic vehicles
such as Hedge, Private Equity and Real Estate
funds, all of which have specialised transac-
tion processing requirements.
Pepper: 2006 was a year of tremendous
change with a number of underlying themes
driving an evolution of the TA industry.
Straight through processing was a major talk-
ing point as transfer agency is still heavily
reliant on manual processes. We have seen
much more industry collaboration this year
and this is resulting in a push for standardisa-
tion. Between the TAs and Fund
Supermarkets, agreement has been reached to
adopt ISO messaging standards, and opera-
tional focus has been on simplifying settle-
ment, potentially through a greater use of
Crest and BACs.
The year also saw an increase in consolida-
tion, for example significant re-registration
campaigns by Fund Supermarkets resulting in
more aggregation. 2006 also saw an increase
in the sale of Structured Products as well as
“Growth was set against a backdrop of
continued regulatory change with MiFID
being a key item on everyone’s agenda.”
the first tranches of Revenue allocated
accounts for Children’s Trust Funds, increas-
ing the scale in both these products types.
This growth was set against a backdrop of
continued regulatory change with MiFID
being a key item on everyone’s agenda, along
with continued AML legislation and COLL
conversions as well as the recent ISA reforms.
De Bondt: Developments in several areas
have impacted and continue to impact the
transfer agency industry: these range from
changes in the regulatory framework, like the
implementation of EUSD and MiFID, to
industry initiatives sponsored by bodies like
EFAMA or the FPSG. While the objective of
these initiatives is to evolve toward more stan-
dardization in Europe, we see that in practice,
the market is moving slowly and that more
efforts are to be made to implement best
practices.
While RBC Dexia implemented the new ISO
20022 standards in 2005, we see that the take-
up is quite slow and that the number of coun-
terparties ready to communicate using such
norm are limited. Efforts need to increase in
this field, because as long as they are not wide-
ly adopted, the market will only extract limit-
ed benefits from these initiatives that are vital
for the industry.
In parallel, fund promoters explore new
countries of distribution where the level of
maturity can be variable and hence require
specific processes on the part of the transfer
agents. On the product side, an increasing
number of new complex funds are launched
that call for specific functionality. It is typical-
ly the case for hedge funds or SICARs for
example.
Hoffman: Within the UK we have seen a rush
to implement new wrap platforms while
existing fund supermarkets have continued to
attract more investors. Consequently, UK TA
providers have seen funds under administra-
tion increase but the number of accounts and
transactions decrease (due to aggregation).
This trend is likely to continue as more plat-
form providers come online.
Adoption of STP has become standard. The
fund processing principles published by the
Investment Managers Association (IMA) at
the beginning of 2006 have laid down high-
level guidelines on straight-through process-
ing and efficiency objectives for the industry.
The acquisition of EMXCo by Euroclear may
eventually deliver the promise of integrated
order and settlement processing on an indus-
try standard platform. The ISO20022 stan-
dard for STP fund processing has started to
make some impact but most large distributors
and TA providers have invested heavily in
trading via EMX and change is unlikely
overnight.
In the cross-border European market
we have seen the growth of alternative funds,
in particular hedge funds and funds of hedge
funds. As a result, there have been a
number of acquisitions by major third party
administrators of hedge fund administrators
and systems.
Hudson: The three areas where Linedata
Services has seen the most demand are in


INVESTOR SERVICES JOURNAL 47
 PANEL DEBATE - TRANSFER AGENCY
automation, regulation and asset coverage.
The call for more automation has, in part,
been driven by the ever increasing rise in
transaction volumes, the need to automate
complex fee calculations (including trailing
fees and performance fees) and the require-
ment to integrate with external auto-dealing
systems such as EMX, FundSettle and
Vestima.
Changes in regulation have mainly touched
the European Transfer Agency industry,
which has been affected by the likes of UCITS
III, MiFID and COLL.
The increase in KYC (Know Your Customer)
requirements have been highlighted even
more, especially when viewed in a legal con-
text.
The variety of alternative funds now in use
requires increased international knowledge,
as well as a requirement to have integrated
solutions that are truly cross-border and can
handle all aspects of their business.
White: From a technology standpoint, there
are three key areas that spring to mind:
“The variety of alternative funds requires
increased international knowledge, as well as
integrated solutions that are truly cross-border.”
1. The increasing significance of Platforms –
the popularity of fund supermarket and wrap
platforms has grown significantly during
2006. The top four players in then UK alone
now account for over £25 billion of assets.
2. Straight Through Processing – SWIFT,
Vestima, Fundsettle and EMX have all been
very active in the marketplace, increasing
market share, culminating in Euroclear’s pur-
chase of EMXCo in December.
3. Legislation and other industry initiatives
– AML, IBAN and SOX form just a part of the
initiatives that have impacted the European
mutual fund marketplace in 2006. The need
for technologies and software to keep pace
with these legislative and compliance devel-
opments is paramount and increases year on
year.
What are the likely new developments within
the creation of standards in the TA space for
2007?
Pepper: The focus for 2007 is likely to be the
need for more standardization of the process-
es surrounding trading, settlement and recon-
ciliation. The TPAs, fund supermarkets and
fund managers are certainly actively progress-
ing these issues with regular steering meet-
ings, coordinated by IMA. This has led to a
48 INVESTOR SERVICES JOURNAL
general agreement to focus on standard mes-
saging formats, with ISO being the preferred
route, and discussion with Crest and EMX
who have now partnered up and exploration
into the use of BACs. The collaboration
between different providers is very refreshing
and demonstrates that the industry is deter-
mined to reduce the industry costs and risks
as margins continue to get tighter.
Hoffman: We are likely to see a continuing
adoption of the ISO20022 standard for funds.
The standard is being used by SWIFT, who are
pushing hard for its use among transfer
agents and platform providers in the UK. The
standard has recently been updated to cater
for UK requirements such as ISA transfers.
The recent acquisition of EMXCo by
Euroclear should accelerate the take up of
ISO20022 within the industry. It is likely that
Euroclear will enable use of the standard over
the EMX platform, providing backward com-
patibility with the existing FIX standard cur-
rently employed by EMX.
In Europe, there is already significant adop-
tion of the old ISO15022 standard and we
would expect to see significant take up and
migration to ISO20022. The two major fund
trading and settlement platforms (FundSettle
and Vestima+) are already migrating to
ISO20022.
Carmon: The new SWIFT xml ISO20022 for-
mat is now in the test phase among many
industry players, and CACEIS is an active par-
ticipant in the “early adopters” group. SWIFT
is genuinely furthering the standardisation
cause for its “big player” affiliates in the indus-
try. However a problem arises with the small-
er distributors such as IFAs that are ineligible
for SWIFT membership. They are remain
with their proprietary formats so true indus-
try-wide standardisation looks to remain elu-
sive, despite SWIFT’s efforts.
De Bondt: So far, standards have mainly
addressed the issues relating to dealing with
the implementation of the order, status and
confirmation messages.
Reporting has been tackled as well, with the
availability of statements (both for transac-
tions and holdings). Next steps will cover cash
flow reports, which represents a challenge, as
it introduces a new type of counterparty in
the ISO 20022 communication chain. Indeed,
up to now, distributors were the senders and
receivers of messages; the fund managers and
fun promoters now enter the game as well.
In addition to the reporting activity, where
new templates need to be developed to cover
activities like trailers fees, for example, an
important area of development concerns the
provision of standardised standing data.
Initiatives are also ongoing in this field.
White: Our research indicates that there are
two key areas of standardisation that will fea-
ture in TA in 2007: Firstly, improved business
continuity planning and execution to ensure
that technology and infrastructure support-
ing TA can recover quickly and consistently, in
the event of a business continuity situation;
and secondly the requirement to deliver more
real-time, or near real time reporting, by
whichever medium the customer requests.
Hookings: 2005 was the year when a consen-
sus arose surrounding the need for standardi-
zation and automation across Europe for the
TA industry. 2006 has largely been a year of
agreeing on priorities, as well as how to move
forward.
We believe that 2007 will be the year in
which we will see significant implementations
delivering automation based on ISO20022
standards. This still has a focus on order
placement, however, and is not a full DVP
type solution. The acquisition of EMX by
Euroclear opens the opportunity for proper
linkage of order placement and settlement to
become a reality, at least for the UK market,
and we look forward to understanding their
plans in this area.
O’Neil: Arguably one of the main develop-
ments has been the acceptance by more mem-
bers of the community, particularly distribu-
tors, that standardization in transfer agency is
important. Through initiatives co-ordinated
by EFAMA and applied by the local trade
associations such as ALFI, IFIA and IMA, we
have seen meaningful improvements in the
STP rates for fund message processing.
SWIFT have been very active with their con-
tinued focus on new message types for funds
and the client bases of both FundSettle
(Euroclear) and Vestima (Clearstream) are
increasing. Also, the expanding role of plat-
forms such as AllFunds in Spain, is now help-
ing market efficiency after a few years where
the set-up costs seemed to be outweighing the
actual day to day benefits.
Additionally, we have made great strides
over the last 12 months in standardizing cash
processing. We have done this by enhancing
our technology, working with SWIFT and our


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 PANEL DEBATE - TRANSFER AGENCY
paying agents and finally by encouraging dis-
tributors and investors to pay more attention
to payment references.
Hudson: From Linedata Services’ perspective,
we expect the 2007 trends to be more of the
same, with similar drivers to those in 2006,
thus providing continued standardisation in a
number of areas.
Regulation will still be an important factor,
particularly within the EU, and automation of
workflows will again prove to be a decisive
requirement. This will particularly apply to
“Common standards are more important
now than ever before. The implications are
those of greater automation, workflow and
reducing costs.”
how our customers undertake business with
their end-clients e.g. Client statements and
use of the internet to extend on-line services
and the move away from paper-based
transactions.
Cross-border business will continue to
flourish and there will be a significant
increase in the variety of fund categories,
which will require a move towards standardi-
sation of processes.
Comment on the impact of open architecture
arrangements on the transfer agency systems.
Carmon: Open architecture in combination
with cross-border fund distribution contin-
ues to drive up the transactions volumes for
TA, at the same time as raising the complex-
ity of the service required. Open architec-
ture requires the TA to interface with many
third parties which is nothing new, however,
the type of third party is changing.
Traditionally, interfaces were with the fund
manager or a bank selling only one fund
range, but today, new actors such as fund
supermarkets, life assurance companies and
IFAs are selling diverse fund ranges to many
investors, creating what is known as the spi-
der web or spaghetti model. Interfacing with
these new, multi-fund range providers is a
significant challenge for the TA, whose IT
systems must be flexible enough to link in
with those of the new additions to the distri-
bution chain.
White: The emergence of open architecture
has certainly accelerated consolidation
amongst the established brands, whilst at the
same time opened up new opportunities for
50 INVESTOR SERVICES JOURNAL
new entrants to become established, particu-
larly in the area of web technologies and
front-end platforms.
Investment in technology continues apace
and only those that are able to continually
invest in functionality to meet the needs of
new products, distribution and operational
methods will succeed.
Hudson: Open architecture is an absolute
requirement within modern Transfer Agency
systems.
Alongside common standards, such as XML,
open architecture is essential for sharing and
distributing information between core trans-
fer agency systems and those of outside man-
agers, distributors etc. The use of common
standards is more important now than ever
before. The implications are those of greater
automation, workflow and reducing costs.
The better the connectivity, the better the
end-customer experience, which is an impor-
tant aspect of the transfer agency business, as
this seems to be becoming a key differentiator
between businesses / services.
De Bondt: More and more clients indeed
require global support for their business.
The emergence of new markets or sophisticat-
ed distribution patterns poses the question of
the global presence of providers. Being able to
serve clients locally - be it for their local fund
ranges or for their internal funds being dis-
tributed locally - becomes more and more a
requirement.
It is therefore essential to have a TA platform
that is flexible and allows the provider to
accommodate the needs of clients in several
jurisdictions.
Hookings: There are three main areas where
Open Architecture has influenced TA
providers. The first has been the need for TA
providers to be able to handle external funds
and run sub-registers in these funds. The
major systems, including our own Rufus GTA
system, have been enhanced to support these
funds, providing controls and audit trails to
match individual client orders to aggregated
deals placed with the external fund promoter.
The second area relates to the electronic
placement of the aggregated order using stan-
dard hub systems such as EMX and Swift.
Some of the open architecture players have
invested here, however still too many rely on
the fax machine. Others have found that
automating this piece is relatively easy using
an STP package such as our Babel product.
The final area is that of re-registration.
Bigger open architecture players have
required significant numbers of people to
carry out the labour intensive process of man-
ually re-registering holdings from a client’s
own name to the open architecture nominee
accounts. Although progress has been made,
there is still no agreement in the industry on
how to automate the process.
Pepper: The major impact of open architec-
ture arrangements is the need for
platforms/systems to deliver data to each
other in a form that can be readily interpret-
ed. As this is often not the case, most TAs have
established functions to intermediate and
ensure any issues are ironed out. This is par-
ticularly important as the size of individual
nominee transactions is increasing and as the
UK charging structures for TA are commonly
transaction based it can result in a much
higher risk profile for handling these trades.
Specific areas of focus for the open architec-
ture providers and TAs surround the need to
hold and account for client money with dif-
ferent rounding methodologies for dealing
and commissions; the need to support differ-
ent dealing and settlement processes e.g.
paper, telephone, fax, electronic; and, asset
reconciliation processes (interfaces or MI
reports). In particular the perennial problem
for any nominee holder to keep unit group-
ings (1&2) synchronised.
Hoffman: Some transfer agency systems have
already been enhanced to enable administra-
tion of fund supermarkets i.e. providing
aggregation functionality to buy units from
external fund managers. This has been rela-
tively easy for providers as the investment
vehicles and instruments (mutual funds, ISAs
etc) are already catered for by the core TA sys-
tem. However, as transfer agents enhance
their service proposition to include adminis-
tration for wrap providers and other types of
platform, there will be a requirement to
administer other types of investment vehicles
and instruments (e.g. pensions, onshore and
offshore investment bonds etc.).
Up to now, the approach for developing
these “super” administration platforms has
been to bolt on to the core TA system other
proven systems that specifically cater for the
required investment type and vehicle. Where
required, aggregation engines and consolidat-


 PANEL DEBATE - TRANSFER AGENCY

ed views and reporting have been developed
across systems to support the open architec-
ture platforms. The challenge for these com-
ponent based architectures is to provide the
efficiency and scalability required to support
“Open architecture has also continued to
encourage outsourcing as many traditional
in-house transffer agents struggle to adapt
to change.”
tributors – commission, trailer fees, consoli-
dated investor reporting for example deliv-
ered through online communication tools.
Open architecture has also continued to
encourage outsourcing as many traditional in-
providing global solutions that TA providers
have to overcome?
De Bondt: On the technology side, the key
factor is of course the TA platform as a whole,
including all interfaces to the external world.
The main characteristics of such a platform
have to be flexibility and adaptability to be
able to face diverging requirements for differ-
ent markets. But technology is not the only
solution. Expertise and knowledge is even
important. In that respect, being present
globally and able to call on resources in local
markets is also an asset of importance.

the new breed of distribution platforms. Due
to cost and risk considerations, it is unlikely
that we will see full replacement of the tradi-
tional TA systems currently employed by the
large providers.
O’Neil: This continues to grow dramatically
and for most fund promoters is the dominant
method of selling their investment products.
At State Street/IFDS we have developed inte-
grated and sophisticated tools to service dis-
house transfer agents struggle to adapt to
change. In the new world, they need to deal
with many funds not just their own and this
sets new operational challenges. Furthermore,
their own funds are now distributed though
many channels, not just their own network,
again setting new administrative burdens that
increase their technology spending and chase
often scarce human resources.
What are the technological hurdles in
White: The critical challenges facing technol-
ogy providers who want to offer a ‘Global’
solution for the wide range of markets, both
new and mature are:
1. A substantial and diverse range of function-
ality – solutions need to be all-encompassing
in order to meet the regulatory, legal and
reporting needs of the promoters and distrib-
utors in each market.
2. Availability – any modern day global trans-
fer agency system must provide round the

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clock availability servicing multiple time-
zones and markets.
3. System Performance – it is paramount that
systems can deliver the necessary processing
power to service the peaks and troughs of a
global business.
O’Neil: At State Street/IFDS we have made
great strides in this area during the last year or
so and have installations where this is working
very effectively for our clients. The idea of
supporting Asian, The Americas and
European investors locally in their own lan-
guage and time zone but having it integrated
into a single operating model is very much
alive today. The use of advanced shareholder
recordkeeping and workflow tools has
allowed us to build networks and create
processes to meet the increasingly global
nature of fund distribution.
Hudson: The technological challenge is in
providing global solutions to handle increas-
ing volumes of transactions, standardisation
of processes, the ability to be a truly multi-lin-
gual, multi-currency system, and being able to
manage local rules within a global system.
Given that the average TA will handle a vari-
ety of fund products in multiple jurisdictions,
the TA system solution needs to strike a fine
balance between flexibility and uniformity of
approach.
Hookings: We need first to define the terms
‘international’ and ‘global’. With regard to TA
we would define international to mean a sys-
tem that supports many domiciles, but that
needs a separate instance for each domicile.
However, there are still hurdles to overcome
in order to achieve this.
Whilst the core of TA is broadly the same
across the globe, every domicile has its own
settlement requirements and mechanisms,
regulatory reporting and, in the retail market,
tax efficient products. An international system
should ideally support multiple currencies,
but can possibly pass with only one currency
per instance; premium systems provide
multi-lingual screens and paper outputs.
Bravura Solutions define a Global TA system
as one where a single instance can support
multiple domiciles; there are three significant
extra capabilities required to support this.
Firstly, the system must be fully multi-cur-
rency, preferably with integrated FX process-
ing. Secondly to meet regulatory require-
ments, the system must fully support data
segregation, permitting individual users /
service centres to only view and update infor-
mation for which they have authorisation.
Finally the system needs to handle time
52 INVESTOR SERVICES JOURNAL
zones, allowing users to operate in other time
zones, whilst the funds operate in their own
domicile time zone.
Hoffman: The roll-out of global solutions is
greatly affected by the local functionality
required for each domicile and the jurisdic-
tions of the investors in the funds.
From a technology point of view, a truly
global system would be hugely complicated
and difficult to implement and maintain. We
are, however, starting to see single systems
“Whilst the core of TA is broadly the same
across the globe, every domicile has its own
settlementt requirements and mechanisms.”
that cater for both administration in the UK
domestic and in cross-border distribution of
funds.
The ideal scenario is a global TA provider
that provides local expertise and utilizes the
efficiencies of global systems but only where
appropriate to meet local market needs.
Carmon: The principal technological hurdle
for TA providers lies in developing a single
platform for transaction purposes, which is
an essential factor in the reduction of costs
linked to IT maintenance and development. A
central TA system also ensures the scalability
of the platform. It is easier to upgrade and
expand the capacities of one platform than
upgrade multiple platforms or establish new
ones.
Interfacing represents another major tech-
nological hurdle. The TA needs to interact
with all the various types of distributors as
well as participants such as Prime TAs. STP
interfaces with Prime TAs have become essen-
tial, due to the pressures of working with
Alternative Investments, where orders can be
placed, cancelled and replaced in very short
time periods.
Finally, providing remote access to core
applications and setting up web access for
information or transactional purposes are
further challenges that need to be overcome.
Pepper: TA providers and fund managers
always need to ensure that there is a sensible
business case to provide a return on the sig-
nificant system investments required to sup-
port new developments. Obviously this does
at times require a leap of faith but we have
seen many examples in the industry of devel-
opments that have not come to fruition or
failed to deliver a return on investment. It is
true that technologies do get cheaper over
time but the requirements are increasing at
the same rate and the need to introduce new
technologies is always present. In addition to
the technologies themselves, the cost of
labour remains a challenge and most if not all
large technology providers have turned to the
use of lower cost development centres.
In terms of the specific complexities of
international TA systems, these include items
such as the need for new product features,
support of multi-currency and support of dif-
ferent time zones and geographies.
In recent years, the TA industry has clearly
moved from traditional TA services to a pro-
liferation of more sophisticated services that
have evolved in the market. What do you
consider the TA value-added services to be
and how do you foresee these added-value
services evolving in the future?
Carmon: The two principal added value serv-
ices for the TA are centralising services and
those that support clients’ cross-border distri-
bution aspirations. Centralising services (such
as CACEIS’ Prime TA service), route orders
through a single gateway, simplifying the
transaction process for distributors. Cross-
border distribution support services, (such as
CACEIS’ European TA service) address the
issues of investor position recordkeeping, dis-
tribution network management and fee cal-
culation.
Centralising services will need to evolve to
handle the more complex alternative prod-
ucts.
Cross-border distribution support services
in Luxembourg are already fairly advanced.
The majority of settlement is already cross-
border, which means Luxembourg TAs are
used to different countries’ settlement
processes. The growth in cross-border distri-
bution and open architecture will force
domestic-only TAs to broaden their horizons.
De Bondt: TAs need to be in a position to sup-
port their clients in their distribution strategy,
which requires specific services to be provid-
ed.
They range from the handling of retroces-
sions and commissions to the provision of
specific reporting as well as global distribu-
tion support.
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 PANEL DEBATE - TRANSFER AGENCY
part of the standard offering, however, access
to information is key and generates value not
only for fund clients but also for their own
clients, whether they are institutional or retail.
New technology allows providers to grant
easy and user-friendly access to information.
While standardisation if, of course, a must, it
cannot be to the detriment of flexibility.
White: Added value functionality’ seems to
be the watchword for offering a complete
client service. No longer can mainstream
administrators simply offer traditional
record-keeping services. Clearly the more
niche players are focusing on offering a pre-
mium service to their institutional and high
net worth clients by offering more seamless
support for both classic and alternative prod-
“The massive range of product and service
selections required across our client base
and the markett as a whole cannot be
underestimated.”
uct ranges. As more and more business is
being processed via STP, the requirement to
offer a multitude of B2B services is now a pre-
requisite and critically the move to real-time
activity requires providers to offer all forms of
confirmation back to the end broker and/or
customer ‘as it happens’.
Hookings: TA services are continually evolv-
ing; what is accepted as traditional today
includes services that only a few years ago
would have been viewed as value added. In
years past, a European TA’s main responsibil-
ity was to maintain the fund register; today all
major TAs would regard servicing the distrib-
utor as one of their key responsibilities.
There are still a number of services to dis-
tributors that are considered value added; a
key area is the calculation of management fee
rebates (retrocessions). This still causes some
TA issues. Today, there is an extraordinary
number of methods fund promoters can
invest to calculate the retrocession.
Connections to the various STP hubs have
still not been implemented by all TA’s.
For the fund promoter, provision of
flexible management information is often a
key requirement and the leaders in this field
not only provide a comprehensive set of
canned reports and enquiries, but also offer a
user friendly business intelligence tool to
allow the promoter to produce reports on
demand.
Hudson: The need for modern TA systems to
54 INVESTOR SERVICES JOURNAL
contain comprehensive data has resulted in
the TA database being used by other depart-
ments e.g. Fund Accounting, Sales and
Marketing.
The increase in sophistication in the
approach of TA’s to investor relations has
resulted in them being the customer-facing
department within investment management
firms. More on-line services are now available
to distributors and investors and consequent-
ly more efficient management information.
The future of the TA industry is largely
dependent on technology and there is already
the ability to view details of investments and
portfolios on-line, at any time of the day or
night and from anywhere in the world.
O’Neil: There is no doubt that this trend is
fully part of our industry and when we look to
the evolution of transfer agency servicing, it
has been a complete revolution in the past ten
years. Indeed the original services of dealing
and registration are almost taken for granted
these days. For the leading transfer agents,
others services such as commission and fee
processing, multi lingual and multi-currency
processing, call centres, automated workflow
tools, online reporting, service centres across
the globe, are almost taken for granted. The
massive range of product and service selec-
tions required across our client base and the
market as a whole cannot be underestimated.
The functionality of our systems and the
experience of our people must keep pace,
requiring increasing capital investment and
steadfast commitment.
Hoffman: The types of added-value provided
by TA service providers include call centres,
web- enabled dealing and account servicing
for investors and distributors, fund supermar-
ket functionality and catering for other types
of product such as DC pensions, child trust
funds and wealth management functions.
TA providers will continue to enhance and
deliver web-based applications, either as
direct portals into their clients’ products or
white-labeled open architecture platforms
that support a variety of product types and
providers. STP will play a major part in this
offering.
With the proliferation of platform-based
distribution and the trend for life and pension
companies to use more OEIC based fund
structures to underpin their products, TA
service providers must move into other
administration areas to attract new clients
and retain their existing ones.
Pepper: Of course TAs are expected to get the
basic services right and therefore value added
services are often seen as a key differentiator.
Increasingly TAs are being asked to provide
consultation on product design features and
distribution. We are seeing the need to help
clients with STP solutions and lobby on their
behalf for standardization and regulatory
change. TAs have also introduced new servic-
es such as technical services e.g. Web creation
and extended services to include things such
as support of fulfillment and distribution.
We have also seen the emergence of new
services such as dedicated support for institu-
tions/platforms - separate telephone lines and
dedicated contact names to establish working
relationship with the institution and delivery
of bespoke reports and MI, electronic con-
tract notes etc.
Discuss outsourcing and strategic partner-
ships within the TA world.
De Bondt: There is indeed a trend going into
this direction which results from market evo-
lution, where pressure on costs and margins
are an incentive to consider outsourcing as an
alternative. The increasing complexity of new
products, combined with new distribution
markets, is also an element that plays a role in
the decision.
Hudson: As the variety of fund products and
the need for automation increases, both out-
sourcing and strategic partnerships have
become extremely important within the TA
world. By aligning itself with the ‘expert’, the
TA is given immediate access to the specific
industry knowledge of the partner.
Undoubtedly, the trend over the past 5-10
years has been to outsource the TA side of the
business, however, smaller companies in par-
ticular are no longer content with getting sec-
ond best service from outsourcers who give
priority to their larger clients. These compa-
nies are looking at bringing their systems back
in house to some extent. Moving the TA busi-
ness to an Application Service Provider (ASP)
may be a potential alternative for many of the
smaller firms who are looking to bring the
expertise back in-house, but without the IT
overheads and running costs.
Hookings: For some years, fund managers

have recognized that developing their own TA
systems requires continual investment; there-
fore they have either outsourced their entire
administration to specialist Third Party
Administrators, or purchased packaged TA
systems to support their in-house operations.
Recently the TA world has become more
complicated; increasingly fund managers are
looking for a single solution to support mul-
tiple domiciles across the globe. Pan
European regulation, direct access to distribu-
tors and IFAs, the Internet and STP hubs such
as Swift, EMX and NSCC have added to the
complexity.
Progressively more, fund managers and the
specialist Third Party Administrators are
looking to partner with international software
solution providers (such as Bravura
Solutions) who are committed to providing
comprehensive global functionality into the
long term. Further, the infrastructure
required to support the electronic distribu-
tion channels has led to an increased demand
for a hosted ASP style solution which can be
shared across multiple Transfer Agents.
Hoffman: In the UK, outsourcing of the TA
function is almost universal. As the TA func-
tion itself becomes more detached from the
end investor, an in-house TA operation
becomes less attractive and fund managers are
generally happy to offload their essentially
fixed cost TA operation to an outsource part-
ner.
As the basic TA function becomes more
commoditized, fund managers are more fre-
quently looking for a “one stop shop” for all of
their asset servicing needs (custody, fund
accounting TA, investment operations etc)
rather than a best of breed TA provider who
may not be able to fulfill the whole asset serv-
icing function. Where TA providers do not
have a one-stop shop facility, they tend to
offer something similar though strategic
alliances (e.g. Capita using BNY for custody).
In Luxembourg and Dublin, outsourcing of
the TA function is less common. This is not
surprising since the range of services provid-
ed tends to be more specialized and geared
towards the specific distribution model of
each fund. However, the growth in out-
sourced TA is growing rapidly in the two cen-
tres, driven by a desire to lower costs and by
managers wanting to bring increasingly spe-
cialized products to market as quickly as pos-
sible (and not wanting to build the capability
in-house). Partnerships are also common in
these centres with, for instance, large US play-
ers wanting to enter the market and teaming
up with established market specialists.
PANEL DEBATE - TRANSFER AGENCY
Pepper: Within the industry we talk a lot
about partnerships and this is certainly what
all TAs should aspire to have as TA services
can not longer be simply considered a com-
modity.
Whilst all fund providers are different the
key is to find a balance between the need for a
low cost, generic and efficient service against
the need to design more costly processes that
are bespoke to give clients value added bene-
fits. It is certainly true that TA is a scale busi-
ness as margins are low and it is necessary to
ensure that volumes are as high as possible to
justify IT development and operational effort.
In the same way that asset managers out-
source their TA as it's not their core compe-
tence, so too TAs outsource certain processing
for exactly the same reason. For example,
statement printing and mailing is usually best
outsourced, by the TA, to a dedicated bulk
printing organisation. Literature fulfilment is
another example of this. The important point
is that the TA manages all of these relation-
ships with the other parties, so the asset man-
ager need not concern themselves.
O’Neil: Transfer agency lagged behind its
administrative siblings of custody and fund
accounting in terms of outsourcing in recent
years but is beginning to pick up speed. There
“Transfer agency is the most client sensitive
administrative service. When a fund promoter
entrustss you with looking after ‘their clients’,
you must think ‘partnership’.”
is a diminishing gap and the number of fund
promoters doing their own transfer agency
processing is declining.
We have seen some very close partnerships
develop between fund promoters and their
transfer agents. We still believe that transfer
agency is the most client sensitive administra-
tive service and when a fund promoter
entrusts you with looking after ‘their clients’,
you must think ‘partnership’. The ability to
provide flexible service models, seamlessly
integrated into the client’s own business, has
been the key to growth. We continue to evolve
the model as it is critical to our client’s success.
Carmon: With no shortage of technically
qualified personnel and a significantly lower
labour cost than their European counterparts,
Asian countries have seen certain labour
intensive parts of European and US TA busi-
nesses successfully outsourced to them.
Companies looking to expand their business
into the Asian or the Eastern European
regions have established local call centres for
servicing clients from those regions. Local
call centres are well positioned to handle geo-
graphically-close clients due to the availability
of labour with the language skills required
and for Asia, similar time zones.
In terms of partnerships, we are now seeing
TA’s persuaded to outsource parts of their
business in return for client introductions in
the Asian or Eastern European markets. This
“partnership” model looks to be a growth area
in the future, making the outsourcing easier
to swallow for the TA, by tempting them with
new business in markets they are keen to pen-
etrate.
In 2007 what do you see as the main chal-
lenges and opportunities in transfer agency?
White: For 2007, I see the opportunities as
being:
1. Continued growth of the Fund
Supermarket/Wrap model – platform busi-
nesses, such as FundsNetwork will increasing-
ly dominate the retail fund space becoming
the ‘Tesco’s’ of their generation.
2. Alternative investment markets becoming
more mainstream. As the market for hedge
fund and structured products matures, so will
the increase in consolidation within the world
of transfer agency as clients look for a one-
stop shop solution covering traditional and
alternative product ranges.
3. New markets – with the expansion of the
EU and the explosive growth in India and
China there will be many new opportunities
and challenges for transfer agents from the
distributors and fund promoters who operate
in these new jurisdictions.
Pepper: The major message is the need for
continued change, continued standardisation
and continued investment. We are likely to
see further consolidation with providers play-
ing to their strengths. Price pressures are an
important factor for all TA businesses
whether it is in the manufacturing, distribu-
tion or administration space.
We will see activity resulting from regulato-
ry change particularly MiFID and the ISA
reforms and we will continue to see new and


INVESTOR SERVICES JOURNAL 55
 PANEL DEBATE - TRANSFER AGENCY
innovative products and fund structures. In
summary it is a very exciting and challenging
time for the Transfer Agency industry.
Hookings: As previously mentioned, there
have been four areas of development in
2006; hedge funds, MIFID, Automation
and Standardisation and Asia. We see 2007 as
a year when solutions in these areas are
implemented.
If we want to see a step change in the cost
of providing a TA service to fund promoters,
Product complexity will certainly be an issue
to deal with for the next few years.
we must implement the Automation and
Standardisation solutions we have designed
in 2006. There is still a significant amount of
work required to make this a reality, not just
in systems development, but also in working
with the distributors to get their support to
utilise the solutions available.
From a systems providers’ point of view,
Asia is a rapidly growing market for which
significant opportunities exist for systems
that provide both flexibility, and the robust
management controls European systems
have developed in recent years.
A system that can support UK,
Luxembourg, Ireland and the major Asian
fund domiciles can be described as interna-
tional. If it can also provide full multi-cur-
rency, data segregation and time zone pro-
cessing, it is well on the way to being a truly
global system.
Hoffman: In the UK, TA providers must
expend every effort to explore new opportu-
nities in a market that is veering towards
open architecture and platform-based distri-
bution.
Undoubtedly, we will see further consoli-
dation in the UK TA provider market. The
recent announcement that The Bank of New
York is to acquire Mellon will create a new
“super” TA provider that will overtake IFDS
as the largest in the UK. Although there are
many challenges involved in merging the two
TA operations (not least the rationalization
of a large number of administration loca-
tions), the new provider will have a scale not
seen before, which may trigger further con-
solidation involving smaller providers like
Capita, Northern Trust and BNP Paribas.
The potential fallout of the BNY acquisition
may be several existing BNY or Mellon
clients looking for another provider or a
period of time where both BNY or Mellon
56 INVESTOR SERVICES JOURNAL
are not on the radar for clients wishing to opportunity for existing systems in the mar-
outsource or change provider. Other ket to evolve to meet these requirements.
providers should gear up their sales and
marketing accordingly! O’Neil: The clear challenge is to continue to
PEPs and ISA rules are changing in the next support the growth of the industry and our
year and this will involve considerable sys- clients. We must continue to invest in tech-
tems and operational changes for UK TAs nology, improving efficiency and reducing
with the cost burden falling on providers risk. However, there is also the labour short-
under existing maintenance agreements. age in markets such as Luxembourg and
In Dublin and Luxembourg, further con- Ireland. We need to use human resources in
solidation in the TA space is very likely, in a other markets, to react more quickly to
market that is much more fragmented than clients and achieve economies of scale
through regional processing.
The merging of mainstream and alternative
products will continue to be a challenge to
support the special features hedge funds, pri-
vate equity funds and real estate funds.
Product complexity will certainly be an issue
the UK. Continuing growth in the cross-bor- to deal with for the next few years.
der market fuelled by retirement needs, the Regulation will also still be a challenge with
European fund passport and a growth in MIFID on the horizon and we are also
alternative funds will ensure continuing watching the development of the order
opportunities for providers. However, a routers, platforms and fund supermarkets as
desire for more cost-effective distribution of our clients need to support increasingly
funds will result in the need for efficiencies complex distribution channels. Overall,
of scale and will lead to consolidation. however, we are optimistic about our
European transfer agency services and our
De Bondt: The changes in the regulatory ability to support clients through these
framework represent a major challenge changing market dynamics in a time of
together with the evolution of distribution unprecedented growth. 
patterns as well as the emergence of new and
complex products. In order to be successful,
providers will need to integrate all those
changes but also increasingly focus on client
services and satisfaction. The day when the
role of the transfer agent was to process
orders and carry out reconciliations are
behind us. Providers need to be innovative,
both from a products and services point of
view, but also from a technology perspective
and put client service on top of their
priority list.
Hudson: The main challenges will be:
-Increase in the volume and complexity
of trades
-Increase in regulation, especially within
the EU
-Standardisation of processes within an
ever-expanding global fund marketplace
Which will create opportunities such as:
-A decrease in operational costs
-Improved investor servicing
-Comprehensive management information
Other changes in the market will see more
deals going through fund supermarkets or
wrap providers, and alternatives to current
fund supermarket providers may also start to
appear. We may also see more specialists in
alternative funds, which may lead to diversi-
fication of the TA market. This provides an
 ™

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 COUNTRY FOCUS - SPAIN

The Neo-
Conquistadors

As Spanish firms
expand abroad, can
Spain attract
enough foreign
investment
to remain a vibrant
onomy?
eco

Giles Turner reports.

A t the end of 2006, the Spanish

prime minister, Jose
Rodriquez Zapatero, delivered an
address praising his country’s progress
Luis
throughout the past year. New legislation
has laid the foundation for a more tolerant
society, the economy is expanding at an
extraordinary rate and peace talks with the
terrorist group Eta were progressing
nicely. Spain also led the equity surge in
Europe for 2006. Spain’s benchmark Ibex
index turned out to be the best perform-
ing index out of all the major European
benchmarks, up 31 per cent over the year.
Mr Zapatero even went as far to say that
2007 was going to be an even better year
than the last for Spain, both politically and
economically. Less than 24 hours after this
statement, a car bomb planted by Eta at
the capital’s Barajas airport killed two peo-
ple, derailing the peace progress and
embarrassing the prime minister. At
present all eyes are on Mr Zapatero as he
struggles to piece together his political
momentum, but what of predictions to
the economy? Just like Prime Minister’s
predictions, is it all too good to be true?
NEO-CONQUISTADORS?
It is undeniable that Spain’s economy is
doing well. Real GDP growth has averaged
3.6 per cent a year since 1996, greater than
the euro-area average. Large-scale Spanish
companies and institutions have also
raised hefty sums in order to fund foreign
acquisitions. Ferrovial, a construction and
services group, has taken over the British
Airport Authority (BAA); Banco
Santander, continental Europe’s biggest
bank, bought Abbey National for EUR98
bn, rejuvenated the English bank’s
antiquated computer systems and bought
a 20 per cent stake in the Philadelphia
based lender Sovereign. The telephone
giant Telefonica bought its Czech counter-
part Cesky Telecom for almost EUR5 bn
and then followed that acquisition by
snapping up Britain’s second largest
Spanish businesses should be well practiced
in this form of financial expansion.
mobile phone operator O2 for a massive
EUR26 bn. The latest major merger
prospect is Iberdrola’s £11.6 bn takeover
bid for Scottish Power.
Spanish businesses should be well prac-
ticed in this form of financial expansion as
Spanish companies and banks have
acquired significant amounts of assets in
emerging economies, most notably Latin
America. Moving business into the euro-
area was therefore not a totally new expe-
rience and as a result the Spanish banks
seem to have taken to it like ducks to
water. Indeed, some would go so far as to
say that this new conquest of Spain is a
misnomer, and that Spain has had for
some time a financial presence in Europe,
as Banco Santander’s Research and Public
Policy Department states, “International
expansion does not correspond to a con-
queror objective of some big multination-
als. There are many small and medium
sized Spanish firms with international
presence.”
The most notable area that has been
subject to the Spanish invasion has been
the UK as seen in the graph opposite.
However within the financial industry,
there seems to be little inclination that any
foreign investment is moving back into
Spain. A recent warning by the Bank of
Spain stated that Spain would be left
behind in comparison to the rest of

58 INVESTOR SERVICES JOURNAL


Europe if it did not start improving incen-
tives for foreign investment and private-
sector research. It is perhaps the lack of
research and development that is
dissuading not only foreign companies to
invest in Spain, but also persuading
Spanish companies to move out of the
country. Domestic R&D spending reached
EUR10 bn for the first time, but this is
only 1.1 per cent of gross domestic
product, whilst the European average for
R&D is 1.9 per cent. In monetary figures,
the drop in direct foreign investment has
been quite dramatic, with a fall from
EUR38.2 bn in 2000 to EUR16.6 bn in
2005. Statistics from World Bank also
paint a pretty black picture for any future
investor. If you want to start up a business
The biggest problem is that of employing
a workforce.
in Spain, it takes 10 procedures and 47
days. Compare this to the Organisation for
Economic Co-operation and
Development average that comes in at 6.2
procedures and only 16.6 days. If you
wanted to set up an efficient and
competitive office in Spain, this time
frame may pose something of a problem
in a highly competitive market. However
the biggest problem is that of employing a
workforce in Spain. According to World
Bank figures it is three times as difficult to
Credit Institutions’ Distribution of Foreign Assets by Geographic Areas, 2003 and 2005 (in percent)
hire a worker in Spain than it is in the
OECD and twice as difficult to fire them
(proving that it is always easier to get fired
than hired). On top of these difficulties it
can take an executive from a non-EU
country over a year just to get a work per-
mit. All these factors combine to push
both the back and the front office out of
Spain and into more financially advanta-
geous arenas. Does this expansion show
that Spanish companies have little faith in
their country of origin? In the current eco-
nomic climate, moving parts of your port-
folio abroad is not seen as a lack of faith,
but simply common sense because the
effects of an economic downturn will not
be as far reaching if you put all your eggs
in one basket. Another incentive to invest
overseas is that the tax system in Spain
aids investment abroad because goodwill
acquired through foreign takeovers is tax-
deductible. Yet it’s not all doom and gloom
for foreign investment as Santander’s
Research and Public Policy Department
states, “There is no lack of foreign invest-
ment into Spain. Spain is still receiving
close to 2 per cent of GDP in FDI and,
although competition from other destina-
tions is increasing, we have important fac-
tors to continue attracting foreign invest-
COUNTRY FOCUS - SPAIN
ment. Domestic confidence depends on
growth, which will maintain a positive
path.”
FRAGMENTATION MYTH DISPELLED
Another area that Spain seems to be
doing well is de-fragmentising the finan-
cial industry. A common complaint has
been the industry has been fragmented,
with a number of smaller institutions
vying for power but lacking resources and
the know-how to compete on a Pan-
European and global level. After joining
the European Union in 1986, Spain opted
for an extremely open policy regarding
competition, with little protection for ail-
ing businesses. This in turn has developed
a strong survival streak for Spanish com-
panies; either make it or you don’t. As two
heads are better than one, it made sense to
consolidate. Iberclear, the Spanish Central
Securities Depository, is a prime example
of recent positive integration as Soledad
Lecube, Head of Coverage Financial
Intermediaries, BNP Paribas states,
“Historically there has been two relevant
platforms, one for fixed income linked
with the Bank of Spain, and the equities
platform for settlement. These two plat-
forms have been integrated under one
roof [Iberclear]. Iberclear has increased its
organisation over the past three or four
years and is now working far more effi-
ciently. Initiatives to integrate both plat-
forms is definitely the way that transac-


INVESTOR SERVICES JOURNAL 59
 FOCUS COUNTRY - SPAIN
tions need to be done and this has been
accomplished through SUC (Single
Matching Model). Integration has also
been achieved for equities and the next
step is fixed income, due to be completed
in February. The harmonisation of equi-
ties and fixed income in the Spanish mar-
ket through a single window using the
Swift Standard is nearly complete. The
next step will be to integrate both plat-
forms from a systems point of view.” This
positive and affirmative platform should
serve the Spanish financial industry well in
the coming years.
REGULATION?
Regarding regulation, Spain and MiFID
seem not to be the best of bedfellows.
“Spain has been one of the first countries
to voice that we will not be compliant for
the initial deadline of MiFID implementa-
tion,” states Juan Briz, Head of Corporate
Communications for Securities Services in
Spain for BNP Paribas. Spain’s retail finan-
cial services market has shown it is active-
ly preparing for MiFID by teaming up
with the UK Securities & Investment
Institute (SII) in the development of a new
qualification; The International Certificate
in Financial Advice (ICFA) will be
launched on the 16th October of this year.
But in the institutional side, Spanish regu-
lators seem to want to control MiFID at
their own pace. According to Robert
Nisbet of Gaesco, “Spain might be around
6 months late of MiFID, but at least it isn’t
as bad as other EU countries.” Indeed, var-
ious sectors of the Spanish market have a
lot on their plate due to MiFID states Mr
Nisbet. The Spanish Stock exchange, Bolsa
de Madrid (BME) is worried about the
lack of business that may occur due to the
new legislation. In Portugal, when the
national stock exchange joined the
Euronext platform, brokers found it easier
Regarding regulation, Spain and MiFID
seem not to be the best of bedfellows.
to do business abroad. At the moment, it is
expensive to trade Spanish stocks outside
of Spain. MiFID’s desire for transparency
and cross-border efficiency by creating a
broader exchange network will stop this
nice little earner for the BME, something
that the exchange will do its best to put off.
Big banks in Spain are already making
their move, creating large pools of liquidi-
ty outside of Spain, most notably
60 INVESTOR SERVICES JOURNAL
in London, in order to trade shares
efficiently, essentially creating a pre-cursor
to MiFID.
SHOULD THE BME BE WORRIE ABOUT
MIFID?
With the exception of challenging
exchanges on trading activities, banks that
internalise their trades are no longer
expected to pass the trade information
onto the exchange. For example, Spanish
banks will have the option to publish the
data through the Multilateral Trading
Facility or a data vendor instead of the
BME or The Market for Financial Futures
and Options (MEFF) if they so wish.
Although exchanges are expected to
remain the main source of liquidity, espe-
cially for equity shares, this greater trans-
parency of exchange cost will lead to
greater competition. Exchanges that are
seen to charge excessive fees could quickly
lose their market share unless the cost bal-
ance is readdressed. However according to
Mr Briz, the BME understands that MiFID
is going to dramatically change the finan-
cial landscape and are launching a number
of initiatives to improve their business
position. Interestingly, no Spanish banks
seem willing to join Project Turquoise, the
trading platform backed by seven large
investment banks.
Is this postponement of MiFID seen as a
negative move within the industry?
According to Mr Briz “Postponing
MiFID is not seen as something that is not
going to damage the competitive position
of the country. There is a strong concern
from non-residential investors because the
Financial Services Authority in the
UK is putting a lot of effort into MiFID
and they are surprised that our
operators in Spain are not moving as fast
as the UK. However sometimes it is better
not to rush these things.”
Basel II seems to pose no problems for
the larger financial institutions and the
Bank of Spain seems well set to deal with
the adoption of Basel II market risk
framework. In 2006 the central bank
demanded that all Spanish banks improve
their balance sheet management in order
to comply with the new regulation frame-
work. As a result the Spanish
Confederation of Savings Banks (CECA)
Number of financial institutions
has began to develop a common risk man-
agement tool in order to facilitate cost shar-
ing of Basel II implementation amongst its
members. In the end, CECA’s selection
process led to 17 of the institutions opting
for the acquisition of Sungard’s Bancware.
Another problem, and one that is imme-
diately noticeable but often overlooked, is
that of language. English is undoubtedly the
language of business, yet according to many
in the industry Spain seems to lag behind
compared to France and Germany in
regards to the number of English speakers
in managerial positions. The positive aspect
is that action is being done. The Bank of
Spain is already making significant efforts
to improve the consistency between the
Spanish and English versions of their web
page and with the growth of Spanish acqui-
sitions on English soil, things can only
improve.
It is hopeful that parallels will not be
drawn between the prime ministers
political implosion and Spain’s economic
situation. As Spain continues to conquer
aboard, will there be enough investment
into Spain to balance fund this momentum,
or will the big banks simply outsource in
their entirety? Regarding regulation, whilst
Spain seems well set to take Basel II, there
are still many questions that need to be
answered before MiFID comes into place.
2007 should not only be an interesting year
for the prime minister, but also for the
Spanish economy. 
 Santander Global Securities
AMBITION, TEAMWORK, INNOVATION
Need we say more?
©ACM 2006/Photo: Carlo Borlenghi

SANTANDER PRESENT IN OVER 40 COUNTRIES

www.santanderglobal.com

globalsecurities@gruposantander.com | Phone europe: (34) 91 2893932 / 28 | Phone USA: (1212) 350 39 02

 SECURITIES LENDING - AUCTION PLATFORMS
Are auction platforms
still competitive?
Brian Bollen weighs up auction
platforms against non-exclusive
routes to Securities Lending.
his question sprang to mind unbid-
T den during the research that paved
the way for this article, and seemed
to become more pertinent with the news
that the ownership of SecFinex, admittedly
a very minor player, was passing into the
hands of Euronext. That this represents an
interesting change of direction for Euronext
was clear from the immediate reactions of
quietly baffled industry participants, who
asked for more time than was available to
form a considered opinion. ‘I wonder what
they meant by that’ was a sentiment echoing
round the market as halls were being decked
with boughs of holly.
The owners of the undisputed big boys,
eSecLending and Equilend, will surely argue
that their business continues to grow, both
in terms of the number of clients signing up
to use them, and the volume of assets being
channelled through them, but there are
mutterings of disagreement and discontent
within the market. These mutterings ques-
tion the very raison d’etre of auction plat-
forms, and while ISJ has built a reputation
for fairness and balance, sometimes the
sheer power of what people are saying over-
rides the demands of that handsome pair-
ing.
“I think people get hung up with the tech-
nology aspect of auctions,” comments one
62 INVESTOR SERVICES JOURNAL
industry insider, who requested not to be
identified – let’s call him Bashful – “It’s nice
and flashy to have a technology platform to
distribute the information and gather up
the bids. However, from a borrower’s point
of view, the real issue is everything BUT the
platform. It’s about a number of things. The
lender having the right portfolio to make it
appropriate for an auction – most are not.
The lender specifying terms and conditions
– you would be amazed at some of the mess
“It’s nice and flashy to have a technology
platform to distribute the information and
gather up thee bids.”
that still comes to market. Going right to
the end of the bidding timeframe – some
lenders still haven’t made crucial decisions.
I had a lender once tell me that I was in sec-
ond place on a bid where I was really aggres-
sive and should have won. I convinced him
to extend the deadline and investigate my
bid. He found out that he had included
Switzerland with the Scandinavian coun-
tries instead of the continental ones!
“Then after the auction is completed and
the decisions have been made: How well do
they execute? What technology will they put
into place to support it? How quickly do
issues get resolved? Those are the sorts of
things that really make the auction process a
success. A borrower will pay good money
for the right portfolio. Whether it gets done
on a system or via carrier pigeon is the least
of the issues.
“How many genuine auction platforms are
there? It depends on what you mean by auc-
tion platforms. If you are looking at tech-
nology platforms that facilitate auctions,
there are probably only four – eSecLending,
SecFinex, Equilend and I think Mellon has
one for single stocks. There are a couple in
the US that claim to have activity, but I have
yet to find anyone that uses them.
“How much business are they doing? I
don’t think that there are many auctions
being done on SecFinex or Equilend. Not
on Equilend because there aren’t enough
borrower users of Equilend and the lenders
on Equilend don’t like doing auctions. Not
on SecFinex because there aren’t enough
users on it either. The other reason is that
Equilend offers auctions free and SecFinex
charges a ridiculous amount of money.
eSecLending is open to anyone that the
client wants to include and that will sign the
appropriate documentation.”
Fans and owners of auction platforms will
point to the premium price that they say
they can deliver as the justification for their
existence, but custodians in particular
strongly dispute that assertion. It is the
underlying attractiveness of a portfolio that
generates a premium price, not the route it
takes to market, many say. “I know what the
auction platforms are trying to achieve, but
I cannot honestly see what they’re doing
that we don’t,” says John Arnesen, a manag-
ing director at The Bank of New York.
“What’s the supposed magic that they offer
that we don’t? The platforms are not an
option all the time; the market is awash with
certain assets, especially UK equities, which
will never be auctioned. We have had a
number of clients try the exclusive route to
market, who have been disappointed with
the lower prices on offer at the start of the
second year; the majority have come
back into our programme.”
“The premium comes not from auction-
ing a stock but from the result of the auc-
tion, exclusive access to securities; there is


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 SECURITIES LENDING - AUCTION PLATFORMS
clear evidence that you can extract a premi-
um by providing a borrower with exclusive
access,” adds Chris Taylor, a senior manag-
ing director at State Street. “In fact, most
“Exclusives are a growing business
and here to stay,”
auctions carried out using the auction plat-
forms are not in fact conducted as auctions
but as sealed tenders with one or two
rounds of bidding.”
“Auctions platforms are not of themselves
creators of value, so why drag someone else
into the value chain,” asks Richard
Thompson, head of product sales at BNP
Paribas Securities Services. “We can offer
our clients a range of lending services such
as agency, principal or combined pro-
gramme lending as well as auctions. But the
truth is that not all portfolios are suitable
for auction and if we don’t recommend an
auction as a value proposition as part of our
normal client inter-action, we are not being
complacent: it’s because we don’t think
there is any value differential for the client
over and above their existing arrange-
ments."
“Exclusives are a growing business and
here to stay,” continues Bashful.
“The appetite from a dealer’s point of view
waxes and wanes depending on business
conditions, but the trend is generally
upwards. It’s simply a question of the slope
of the increase. Demand for
hedge fund business is increasing, so the
need to have stocks available on exclusives is
also increasing.”
The question of whether the business tak-
ing place on the auction platforms is incre-
mental business or simply
cannibalising new business depends on
whether the portfolio was already in a lend-
ing programme, he comments. “If so, then
there is no real new creation of
loans although the actual numbers
wouldn’t necessarily match one for one.
However, many exclusives are a
client’s first foray into securities lending as a
whole, or into a new market. In that
case, the stocks most in demand will
actually increase the total amount on loan
without affecting anyone else’s balance.”
What impact are the auction platforms
having? For lenders, it gives them another
revenue generating opportunity to help
keep their best clients (most attractive port-
folios).
Top tier borrowers need a constant flow of
exclusives to keep their existing hedge fund
64 INVESTOR SERVICES JOURNAL
and proprietary trading clients satisfied.
These firms can afford the exclusives.
They also benefit second tier borrowers,
firms which can’t get on the radar screens of
most of the biggest custodial lenders – State
Street, JP Morgan, Northern Trust, BGI, et
al. Either credit is an issue, or the lenders
want them to maintain quite large mini-
mum borrowing balances in order to get an
allocation of the more special stocks. The
majority of the second tier firms don’t have
the sort of balance activity available to
them. Exclusives are a great way for them to
get access to a ready supply of hard to bor-
row stocks.
Says Mark Fieldhouse Director of
Technical Sales at RBC Dexia: “Auction
providers have injected more competition
in the marketplace and overall, this is a pos-
itive thing for the industry as it strives to
become more transparent. We have seen an
evolution of securities lending over the past
“Auction providers have injected more
competition in the marketplace and overall,
this is a positivve thing for the industry as it
strives to become more transparent.”
several years, as there are more available
routes to market to maximize lending
returns. The availability of multiple routes
Picking a Product
There are significant differences between the
many types of auction products being offered in
the market, says Chris Jaynes, President of
eSecLending. The products themselves have
widely different degrees of sophistication and lev-
els of service and support both pre and post the
auction. In addition the providers offering these
products also have widely varying levels of experi-
ence, expertise, and commitment in managing
auction processes.
Three important factors for Beneficial Owners to
consider when differentiating between auction
products and services are: The provider’s experi-
ence, expertise and commitment to the auction
process;
Provider independence & the potential for conflicts
of interest with existing pooled lending structures;
Levels of service and operational support both pre
and post the auction process.
“eSecLending, Equilend and SecfFinex offer
has forced top-quality lending programs to
adapt to the changing needs of the market
through a stronger commitment to risk
management, technology and significant
investment in the infrastructure.
Competition for business has forced the
traditional agent lender to enhance their
service offering by adopting similar
approaches in their programmes, says Mark
Fieldhouse. As auctions improve price dis-
covery and transparency, providing clients
with pricing reassurance is becoming a
requirement. Traditional agents without the
resources or the appetite to evolve with the
market will increasingly find themselves left
behind. Who is really benefitting, the indus-
try or the customers? The client benefits, as
they have yet another option available to
them to meet their investment objectives
and risk parameters. As the industry strives
to become more transparent, the auction
process adds to this by offering price dis-
covery and transparency to the market, as
well as increasing the knowledge of the
lender to make informed decisions.”
The use of auction platforms also raises
issues surrounding the risk profile of
clients, in terms of counterparty and rev-
enue. “In an exclusive all the borrowing is
done by a given counterparty, which can
entirely different products and services, and were
created to serve entirely different customer bases
so the threats they face are unique to each com-
pany,” Chris Jaynes continues. “The only item they
really share in common is that they offer a differ-
ent product than the traditional pooled agency
lending process, which is the primary business
model used by custodial and third-party agents in
the industry. While there are threats to any busi-
ness, these firms should continue to benefit from
industry trends as Beneficial Owners continuing to
move away from a dependence on the traditional
pooled agency approach and increasingly utilising
exclusives, auctions and multiple routes to mar-
ket. The amount of business done through auc-
tions is significant and has been growing steadily
for several years. eSecLending has auctioned well
over $1 trillion in global equities and fixed income
securities since inception, with over $350 billion in
2006 alone.”

lead to concentration risk,” resumes
Bashful. “This can be looked at in several
ways. Lenders should have maximum
exposure limits by borrower anyway. As
long as it is the maximum amount the bor-
rower can borrow, or is likely to borrow, it
becomes a non-issue. Secondly, on many
exclusives, the lenders bid out parcels sepa-
rately – by country or by region – rather
than a total portfolio. Second best pricing
can sometimes be awarded because the best
bidder is already doing too much business
with the lender, or has won other pieces of
portfolio. Another thing to look at is that
realistically, the lender is always over-collat-
eralised so the only one with REAL expo-
sure is the borrower. The lender has poten-
tial exposure that will only become real
exposure in the event of a confluence of
factors – the default of the borrower while
“ There will always be room for an auction
approach for the right client in the right
markets or assset classes. ”
simultaneously having the portfolio of
stocks on loan versus the value of the col-
lateral move in opposite directions to the
tune of at least 5% in a single day. And
even then, with all of those events occur-
ring at the same time, it is only then that
the first penny of exposure hits the lender.
“On the revenue side of the equation, the
“Business is good...”
SecFinex - which experienced a change of ownership
during the preparation of this article,
welcoming Euronext as a 51% shareholder
alongside Société Générale and Fortis, and
bidding farewell to a number of existing investors -
takes serious issue with the criticisms being voiced
about it in some quarters. Chief executive officer
Allen Postlethwaite, approaching his first anniver-
sary in the hot seat, dismisses the
suggestion that auction platforms are expensive to
use, struggling for business and facing an uncer-
tain future. “Business is good with our key client
base,” he told ISJ. “The appetite for
holding auctions has not diminished, we speak to a
lot of investors, many of whom are considering lend-
ing stock for the first time, who have it under con-
sideration as a simple route to market which gener-
ates guaranteed income immediately.
He also swats aside negative comments on
counterparty and revenue risk. “ Our auction sys-
tem lets lenders decide who is allowed to bid, so
counterparty risk assessment takes place pre-
auction. Few people have the right
SECURITIES LENDING - AUCTION PLATFORMS
lender is making a very simple choice here.
There is a risk that they lend out the port-
folio in an exclusive that turns out to be less
than they could have received in normal
open market lending. They give up the
upside. The flip side is that they have a pre-
dictable revenue stream that is insulated
from market events – in a quiet year they
may have earned less. Quiet years can
occur as a result of general market activity
being neutral or down, trading strategies
that are successful some years and not oth-
ers can have dramatic effects in the
demand for specific markets. It can occur
as a result of people disinvesting from
hedge funds, and so on.”
The certainty of revenue that may be at a
premium to current market conditions
versus losing the upside in a very hot mar-
ket is a topic that will surely continue to
generate debate for the foreseeable future.
There is an argument that with continuing
strong volumes of mergers and acquisi-
tions activity predicted in 2007, now might
be a good time to consider market rates
instead of platform rates. But BoNY’s John
Arnesen concludes with one quiet but
arresting observation. “The danger is that
technology and information flows for each stock to
enable them to do better in terms of the
guaranteed revenue from an auction by taking a
different route. Feedback we have had from
clients is that they have been very happy with the
returns.
Euronext executive director for Cash Markets &
Listing Marianne Demarchi describes the
acquisition as a logical extension of the group’s
activities, enabling it to deliver a one-stop shop
for cash, derivatives and securities lending and
borrowing. “the market is growing and we believe
it will continue to grow, as will the
diversity of people using stock lending,” she told
ISJ. “A large number of our clients are heavy users
of it and we believe there is room for us to offer
value added services in a more automated and
efficient way, drawing on our experience of
automating the trading of securities. We can offer
clients easy access to SecFinex, and
providing access to this service and ultimately a
link to a central counter party will help to grow the
market.”
In-side Negotiating
One client, a senior trader at one of the UK’s top
investment managers, gave his view, on the
condition that we guarantee anonymity. The
outbreak of such shyness is slightly confusing,
but we agreed in the interests of hearing about
the experience of a genuine end-user of auction
platforms and other ways to deliver exclusivity.
“I use both eSeclending and SecFinex. I’ve done
12 auctions so far, and my retro-analysis shows
that I haven’t yet lost out when comparing guar-
anteed income with what I would have made in
the market. In fact, I’m slightly ahead of the
game. That might be because we’re a tougher
negotiator. I think we probably hold out for more
than others do. eSeclending and SecFinex origi-
nally wanted 20-25% of the income we derived
from lending, but we pay nowhere near that. The
first auction we did, with eSeclending, was
about 18%. With both, it is now down into single
figures. I also do exclusives off my own bat. I
work out what I want beforehand, and I know
when auctions won’t deliver the money I want.
“The main difference between the two, for me,
is that with SecFinex I must accept the highest
bid on offer, whether it meets my requirements or
not. With eseclending, I am not obliged to take
the highest bid. We’ve also had a look at the new
facility being developed by ICAP, but would
probably choose to use Equilend ahead of ICAP.
To be quite honest, I’m not sure we need another
player in the market.”
people never do a proper analysis at the end
of their 12-month contract to work out the
opportunity cost of using an auction plat-
form. It is hard to do a retro-analysis, but
there needs to be more of it.” Adds Andy
Clayton, senior vice president, Northern
Trust Global Investments: “Three or four
years ago, clients were looking for greater
certainty of more revenue. In today’s more
interesting times, they might make more
from being in our programme rather than
doing exclusives. Our own analysis shows
there is not much difference in the terms of
revenue you can generate, although all you
need is one extra special to tip the balance
greatly.”
“There will always be room for an auction
approach for the right client in the right
markets or asset classes,” concludes Mark
Fieldhouse. “However, at the end of the day,
top quality results across the board in the
areas of risk management, revenue genera-
tion, and transparency are the foundation
of survival.” 
INVESTOR SERVICES JOURNAL 65
 SECURITIES LENDING - INDICATORS

“To shorten winter, borrow some money due in Spring.”

W. J. Vogel

Analysis of the key indicators on securities lending

and borrowing statistics from Data Explorers.

Key Stats

Equity by Fee > 100 Mn

Rank Stock Description

1 Fairfax Financial Holdings Ltd
2 Fairfax Financial Holdings Ltd

3 PagesJaunes Groupe SA

4 Novastar Financial Inc

5 PW Eagle Inc
6 NYSE Group Inc
7 Wartsila Oyj
8 Pre-Paid Legal Services Inc
9 La-Z-Boy Inc
Group Data: The Securities Lending Fee increased during the div- 10 Chipotle Mexican Grill Inc
idend season of April and March where lenders re-write the fee for
the loans and cash in on stock rise increases. The SL Fee has
dropped to a yearly low at the end of 2006. Apart from the cycli-
cal nature of the SL Fees, all other variables have remained steady. Equity by Fee > 10 < 100 Mn

Rank Stock Description

1 Overstock.com Inc
2 Neurochem Inc
3 Medis Technologies Ltd
4 Northfield Laboratories Inc
5 Hythiam Inc
6 Eurotunnel SA
7 Pacific Ethanol Inc
8 Cell Therapeutics Inc
9 True Religion Apparel Inc
10 Home Solutions of America Inc

66 INVESTOR SERVICES JOURNAL

Crowded Pool or Exclusive Access?
Crowded Pool or Exclusive
Access? The choice is yours.

eSecLending takes an active

approach to securities lending by
managing customized programs
for institutional investors. Unlike
the traditional agency approach,
where many lenders’ portfolios
are grouped together and their
securities sit in a pool waiting to
be borrowed, eSecLending markets
each client’s portfolio individually
or and awards lending rights to the
optimal bidders.

Our clients receive more lending

revenue compared to traditional
programs, because eSecLending
introduces objective competition
via an auction process.
eSecLending clients achieve all
this while maintaining conserva-
tive risk parameters, retaining
close control over their lending
programs and receiving superior,
customized client service.

United States +1.617.204.4500

Europe +44 (0) 207.469.6000
info@eseclending.com
www.eseclending.com
eSecLending provides services only to institutional investors and other persons
who have professional investment experience. Neither the services offered by
eSecLending nor this advertisement are directed at persons not possessing such
experience. Securities Finance Trust Company, an eSecLending company, per-
forms all regulated business activities. Past performance is no guarantee of future
results. Our services may not be suitable for all lenders.
 SECURITIES LENDING - RMA COMPOSITE ANALYSIS

Hot down under...

The latest RISK MANAGEMENT ASSOCIATION SECURITIES LENDING COMPOSITE - Quarter 3 2006
Below is a table showing a year-on-year snapshot of the 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 securities on loan in return for non-cash collateral.

lending data
from the Risk
Management
Association.

Pacific Rim equities on loan increas-

ed sharply over the past year, most
notably Australia, nearly
doubling in size.
The region is growing so maybe it
wasn’t all dancing and partying for
you at SIBOS this year.

Compare this to the European mar-

ket where every country, with the
exception of the UK, suffered a hefty
fall in the amount of equities on loan.
The US continues to be the king
keeper regarding lendable assets and
especially anything to do with cold,
hard cash with USD266,647 million
on loan vs. cashcollateral.
The Survey reflects data provided by the following institutions: Barclays Global Investors; Boston Global Advisors; Brown Brothers Harriman & Co.; Comerica Bank;
Credit Suisse; Frost National Bank; Investors Bank & Trust Company; JP Morgan Chase & Co.; M & I Global Securities Lending; Mellon Financial Corp.; MetLife
Insurance Company; Metropolitan West Securities LLC; The Northern Trust Company; PFPC Trust Company; U. S. Bank, N.A.; Union Bank of California, N.A.; The
Vanguard Group, Inc.; Wells Fargo Institutional Investments

European Equities on Loan USD (mn) Pacific Rim Equities on Loan USD (mn)

68 INVESTOR SERVICES JOURNAL

 HEDGE FUND PERFORMANCE - INDICATORS

Money grows on hedges...

July to December 2006 Rate of Returns

The round up for

the second half of
the year.

Data from Hedge

Fund Research Inc.

If the months of August and

September lived up to their rep-
utation as the quiet months, the
December was certainly the
start of the silly season. Year to Date Increase: August/September/December
Silliest of all was the Emerging
Markets Index, hitting 25ROR
over the year, an increase fund-
ed by the latter months.

The Bigger Picture

INVESTOR SERVICES JOURNAL 69

 FEE INVOICING
The Cheque’s
in the Post...
In response to a Fee Billing article in our last
issue - which looked at the challenges from
manual processes that currently dominate -
ISJ readers wrote in with both questions
and answers...
What are the current problems in the
fee invoicing space?
There are two sets of problems that are
common to both the buy side and the
supplier side.
One is that the systems lack enough flex-
ibility to allow them to charge properly.
With the increased emphasis in the UK
and the US on fee transparency, rough
approximations and and fees calculated
externally on spreadsheets and then pasted
on are less likely to pass the scrutiny from
an auditing perspective. “I think a number
of people in the industry have been caught
short in having the proper tools in place in
order to define the billing rules, compute
the fees accurately and present them
clearly.” Thomas Dackow, president of
Interactive Technologies.
The problem is exacerbated by the fact
that operational functions like billing tend
to be at the end of the list in terms of
funding. Unfortunately, some don’t find
fee invoicing anywhere near exciting as a
new trading screen or other front office
tools. These things tend to get well funded
and the more operational functions tend
to be at the end of the list.
Another problematic area is found the
minute you move into an unbundling of
fees - the nature to negotiate the fee.
Clients simply feel that they have a right
and an obligation to negotiate for a better
price. Invoicing isn’t as cut-and-dry as it
used to be and fees have become a
70 INVESTOR SERVICES JOURNAL
perfectly negotiable part of a business
relationship, the net effect being that you
can come up with some very complicated
arrangements associated with how one
computes that the fee is due.
More and more attention is being paid to
investment based fees in the investment
management area and they have gone
from being a rare, peculiar arrangement to
one that is increasingly common in
the industry and the varieties and ways
that you can compute performance based
fees are actually quite extensive. Again you
run into problems with systems that might
have been developed as recently as five
years ago to address fees and they are no
longer well positioned to accommodate
those dynamics.
New system on the block?
Fingertip Development, the banking and
financial software provider, has developed
a product called eFee that aims to inte-
grate invoice data into existing
applications without undue processing.
The fee invoicing system is a text-based
method of electronically transferring an
invoice from agent to client via the
globally adopted XML format.
“The biggest benefit is efficiency,” says
Adrian Gumbley, Managing Director,
Fingertip Developments. “This means
lower costs, reduced operational risk, bet-
ter accountability and improved
information. eFee levels the playing field
for the supply side allowing uniqueness
and value to be focused in their products
and service and away from the secondary
function of billing.”
While eFee is a convenient and
handy utility, one of things that has been
seen in the financial and banking industry,
as a whole, is that it is very difficult to
establish a standard methodology of doing
things. Active participation in using a
standard method for invoicing may be
difficult to establish and could prove a
stumbling block for Fingertip’s eFee
system.
“Participation has always been an
issue in the past,” says Gumbley. “There
have been attempts at proprietary formats
on a relationship basis, but this is
expensive for the agent/custodian and
inflexible for the market as a whole. The
active participation of some of the biggest
organisations in the market ensures a
flexible, standard approach with benefits
for all.”
Dackow backs this up saying: “I think
eFee may be in the category of a very good
idea that may have difficulty getting
traction in the industry.”
If you look back historically at the way
new systems have been introduced in dif-
ferent industries, a classic example is seen
in the US with EDI initiatives in the
automotive industry. A situation was
reached whereby if you couldn’t adhere to
the standard then you couldn’t be a
vendor, and a similar move would need to
be made for eFee. It would take significant
players in the financial industry to exert
the same type of leverage to get the buy-in
necessary establish standardised
methodology around fee invoicing.
“I don’t see any indication of that sort of
activity in the financial community. One
could argue that it should but those kind
of moralistic tones don’t tend to get very
far if people don’t see a payback,” says
Dackow.
While eFee could have some difficulty
getting traction, the fact that a product
such as this has been developed will
present the market with some challenges
and questions and a number of large
players in the industry have been interest-
ed in seeing what the eFee system has to
offer.
“In the end the market drives any
direction,” says Gumbley. “With the level
of interest that eFee has generated,
combined with the size of participants we
look forward to an electronic future for
fee invoicing.”
 COMPANY PROFILE - BRAVURA SOLUTIONS
It has been a busy couple of years for
Bravura Solutions.
Ian Dunstan, CEO, speaks to
Andrew Warburton about his belief that
20
007 will be a vintage year.
Brave Hearts
ravura Solutions was established in
B 2004 by Iain Dunstan and Simon
Woodfull to acquire and run the
wealth management division of CSC
Australia Pty Ltd. During the two years of
its existence, it has established itself as a
leading global software provider, wit-
nessed a rapid increase in its client base
and undertaken seven strategic acquisi-
tions. In June 2006 Bravura listed on the
Australian Stock Exchange and over the
past six months saw its share price more
than double from the original list price.
The acquisition of the Rufus Software
business from the Bank of New York in
2006 established Bravura as a major par-
ticipant in the UK wealth management
industry, adding 13 clients across the UK,
Luxembourg and Ireland to its existing
portfolio, with 1,500 funds and more than
six million investor accounts.
Managing Director Ian Dunstan says,
“The acquisition has given us significant
scale in the UK market and access to soft-
ware with features and functionality that
can support a broad range of European
fund structures. The acquisition also
brings with it access to new financial serv-
ices clients, skilled and experienced staff
and complementary applications. Without
this acquisition it would have taken us
some time to reach this position.”
Hot on the heels of this acquisition,
Bravura acquired AB Prodata of
Luxembourg, a major provider of software
solutions whose flagship product, Babel
Inegrator, is used by 12 major financial
institutions in the UK and continental
Europe. “The acquisition is complimenta-
ry to our recent Rufus acquisition,” said
Mr. Dunstan, “as the Rufus global transfer
72 INVESTOR SERVICES JOURNAL
agency system has been integrated with
AB Prodata’s Babel platform for several
years. Together the two products offer one
of the most functionally rich platforms on
the market today.”
In January this year, Bravura Solutions
(and AB Prodata) is launching Funds
Messaging Service (FMS), a centrally host-
ed message hub for the Investment
Management community that will allow
separate parties to communicate using any
medium and any format. Mr Dunstan
explains, “Counterparties may communi-
cate using SWIFT, Fax, Internet, propri-
etary file formats or anything else and the
FMS hub will not only manage the trans-
lation from one message type to another
but also apply business logic to cope with
any transaction type and interface to the
market or a financial product platform.”
Bravura is also currently undertaking a
major research and development project
to engineer ‘Sonata’, an enterprise-level
wealth management platform based on
Service Oriented Architecture (SOA).
According to Mr. Dunstan, Sonata repre-
sents the next generation in wealth man-
agement solutions: “When complete,
“In the past 6 months they have seen their
share price more than double.”
Sonata will enable the administration of
investment, retirement savings, portfolio
management and insurance products. A
key feature is the ability for clients to
license only those modules they require.
Clients may choose one or two of the
modules initially and integrate further
modules as their business changes. As a
single application, the modules help to
administer many financial products. The
establishment and maintenance of prod-
ucts for investors is also more efficient.”
Bravura Solutions is currently riding a
wave of growth in the need for pension,
investment and portfolio management
software. Increasing regulation and com-
pliance obligations are providing constant
opportunities for product development,
whilst heightened competition is driving
the market for more sophisticated prod-
ucts, often utilising wireless technology.
Keeping adrift of the full-scale adoption of
Wireless Router Application Platforms
expected in 2007, Mr Dunstan assures us
that “Bravura Solutions has strong WRAP
offering and is well positioned to take
advantage of the business opportunities
presented.” Another factor driving growth
is that ageing populations in many Asian
countries means the need for pensions
and wealth management solutions is
increasing. “Deregulation of the wealth
management industry and increasing eco-
nomic growth in several markets is expect-
ed to drive industry growth and the
requirements for wealth management
applications there.”
After its unprecedented first two years,
Bravura Solutions is now completing the
final stages of its acquisition integration
process, which involves bringing together
a number of different organisations and
cultures. “We have strong integration
teams in place,” says Mr Dunstan, “and so
far, the progress has been exceptional. We
are now presented with the interesting
challenge of combining the products
together to have an overarching product
strategy. The challenge, however, is not
the integration of the products them-
selves, but achieving this in the quickest
possible timeframe.”
As for the future, Mr Dunstan says there are
“many opportunities we’re very excited
about. We’re now in the position to cross-sell
to our customers as we have a broader prod-
uct range. There are also more opportunities
with potential clients since numerous oppor-
tunities have arisen for the Rufus Business as
a result of the acquisition.” We can only con-
clude that Bravura Solutions’ rising star is still
very much in its ascendance. 

Will India build in its successes
in the outsourcing industry, or
has the decline already set in?
Giles Turner reeports.
CAN INDIA KEEP
ITS CROWN?
Is the writing in the sky?
INDIA - OUTSOURCING
istorically India has been well
H placed to serve as an outsourcing
capital. English is the business lan-
guage of the world, and as a result India is
well placed with 350 million people in
India being liquistinly apt in English, often
more so than the English themselves. As
Mack Gill, President of Offshore Services
at Sungard states: “The foundation for
India’s success clearly rests on both a large
and highly skilled English speaking talent
pool. India graduates 150,000 engineers
every year, which has sustained the
increase in global demand for India-based
resources.” Another cross-border strength
is the similarities within the Indian and
English law systems. The highest court of
appeal in the Indian legal system is still the
House of Lords. The U.S legal system is
heavily based on the U.K model and the
rest of the commonwealth countries all
share similarities, strengthening India’s
outsourcing potential.
The real catalyst for the Indian IT out-
sourcing boom came during the run up to
the Millennium. Mr Hilary of the National
Outsourcing Association explains: “In the
late 90s every company had this immov-
able deadline, they just had to get every
system checked as no-one could predict
what might happen. In stepped TCS,
Infosys, and Wipro with highly skilled
teams of engineers. Where the Indian
offering might have been doubted earlier,
it was now trusted because there was this
fixed deadline. A lot of companies found
they could trust the Indian offshore model
because of this. Evidence of this can be
seen by looking at how the revenues of
these three companies in particular have
rocketed since the millennium.” The Y2K
was a test that the Indian services compa-
ny passed with flying colours.
It is safe to say that outsourcing to India
is not just a phase, unlike recent advertis-
ing campaigns touting the benefits of
domestic help-lines and call centres. “The
‘toe in the water’ phase has since evolved.
There is enough factual evidence to sup-
port that outsourcing to India is here to
stay,” states Mike Mathias, Director,
Banking and Financial Services
Consulting at Tata Consultancy Services.
“In fact it is even snowballing as market
leaders start gaining competitive advan-
tage through ‘right sourcing.’ This is put-
ting pressure on competitors to follow suit
and survive.” Theoretically, as long as
India can offer value for money it should
remain a centre for outsourcing for a
while for not only is outsourcing to India
INVESTOR SERVICES JOURNAL 73
 INDIA - OUTSOURCING
Outsourcing Minutiae
$17 billion of IT services will go
offshore by 2008
$17 billion of US work will be be
offshored in 2008
$3.0-$4.6 billion of testing work
is offshored
$5.4 billion spent on business
process outsourcing in Asia-
Pacific in 2004
$50 billion will be spent on
offshore outsourcing by 2007
1.2 million European jobs to go
offshore
100,000 jobs were lost to
Chinese outsourcing in 2004
12,000 legal jobs were out-
sourced in 2004
15% of manufacturing companies
outsourced research and
development in 2004
15% of Singapore IT companies
outsource
16 outsourcing megadeals
awarded in 2003, 12 in 2004,
11 in 2005
19% of US businesses have some
offshore outsourcing strategy
2.3 million banking jobs will be
offshored by 2010
25% of current tech jobs will be
outsourced to India by 2010
25% of IT jobs will be offshored
by 2010
81% of UK companies to increase
outsourcing in the next 2-3 years.
830,000 jobs to go offshore by
the end of 2005.
85% of outsourcing contracts to
be re-negotiated.
74 INVESTOR SERVICES JOURNAL
more than just a place, the blend of off- “only 10-20% possess the qualifications
shore/onshore combinations is now gen- that are expected by the big companies.”
erally regarded as a highly efficient eco- Either their English skills are inadequate
nomic model. For Chris Potts, CEO of or the knowledge they acquired at univer-
Rhyme Systems, companies in India have sity is insufficient.
completely acknowledged the popularity A large percentage of the top tier gradu-
of offshore/onshore outsourcing combi- ates often leave India to work to work in
nations. “You are looking at something the west. The average worker in India has
already historically well established. In the a per captia income of $685 per annum;
past there have been vertical integration compare this to neighbours Indonesia and
models especially in manufacturing. For Thailand, with $1000 and $2700 respec-
example, a company would have its own tively. The lure of the high paying West to
glass works, steel plants and even coal young, bright graduates is hardly surpris-
India will keep hold of it’s outsourcing crown,
unless Indian outsourcing companies become
so big th
hat they in turn have to outsource.
mines to produce the end product, per- ing. It is important here to note a signifi-
haps a car or a ship. This changed and ver- cant counter-argument to that of the
tical integration gradually fragmented as ‘brain-drain.’ Whilst it is undoubtedly true
companies or even countries become spe- that some of the top tier of technical skills
cialists at various processes or stages. This move to join Western companies abroad,
is much more cost-effective and econo- there is a significant trend for successful
mists will tell you that specialisation is the Indian ex-pats to return home. Mr Potts
way to optimise efficiency benefits. In states: “Many Indian companies lose skills
global economic terms, outsourcing of to their clients and into the territories
processes to specialist providers is there- abroad they are supporting, however
fore an inevitable trend rather than a fad.” many of them eventually return. Family
Continuing with economic theory, it and culture is very important in the
stands to reason that outsourcing to India region, and this means there is a reverse
will continue due not only to the amount brain drain, where people have moved
of money that is flowing into the country abroad for ten to fifteen years and return
through the outsourcing industry, but the with added skills and expertise.”
increased competition of outsourcing Another significant factor against out-
providers by both domestic and foreign sourcing to India is the implications of
companies. To be able to offer cost-effec- such a high turnover rate. Turnover rate
tive and efficient services in such a climate, often reaches 30% amongst IT providers,
only the best companies will
prevail. Presuming state Pay Pressure in India
intervention occurs only in
the provision of educated
employees, then perhaps
India will keep hold of its
outsourcing crown, unless,
of course, Indian outsourc-
ing companies become so
big that they in turn have to
outsource.
Against India
However, can India sustain
this growth in the long run?
According to a Deutsche
Bank Research article in
2005, of the 150,000 gradu-
ates joining the existing total
of 1.75 million engineers,
Source: Deutsche Bank Research


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 INDIA - OUTSOURCING
whist in call centres the rate can be as
much as 50%. Companies have to offer
enticing pay and benefit packages in order
to keep their employees, and as a result,
the more experienced members can expect
rapid pay increases that are far greater in
proportion than less qualified members
(see graph). In July Wipro Ltd and Satyam
Computer Services Ltd posted profit
warnings due to the hike in wage costs. It
will be interesting to see how these
increases in wages affect the long term cost
efficiency of outsourcing to India.
There is also an increasing threat from
other markets, although the strength of
these threats is hard to define and there-
fore hotly contested. Pakistan, Bangladesh
and Sri Lanka all have a significant pro-
“India’s methods for dealing with the
influx of competition and the difficulties
the industry facees have been somewhat
circumspect during the past year.”
portion of English speakers, and of course
there is always the much hyped rise of
China. Another country that may become
the new centre of outsourcing is Canada.
Some US-based customers believe that the
gains in proximity, language and culture
will outweigh the increased cost in expert-
ise. There are also a number of Western
companies moving into India and setting
up shop. Accenture, IBM Global Services
and EDS have all established themselves
within the sub-continent.
India’s methods for dealing with the
influx of competition and the difficulties
the industry faces have been somewhat
circumspect during the past year. In July
nearly 500,000 bank workers walked off
their jobs in order to protest against the
planned outsourcing of their jobs to pri-
vate domestic companies. The All India
Bank Officer’s Association (AIBOA), one
of the three labour unions organising the
protest, seemed to shoot itself in the foot
regarding its methods of protest. RJ
Sridharan, the general secretary of AIBOA,
stated that outsourcing “does not lead to
more efficiency. It creates complications in
rendering good customer service.” Seeing
as India is seen as the outsourcing capital
of the world, and the industry is one of the
biggest growth areas in the domestic econ-
omy, it might pay for Mr Sridharan
to think twice before trying to stop
outsourcing trends.
76 INVESTOR SERVICES JOURNAL
The most obvious but often overlooked
problem until you are actually in India is
the state of the infrastructure. Whilst the
government has finally realised the poten-
tial of the outsourcing industry, which
brings in around 25% of all export earn-
ings, by providing regulation and tax
incentives. However “the infrastructure of
the country is still inadequate and com-
pares poorly with those available in other
competing countries in the far east and
eastern Europe,” states Mr Mathias of Tata.
“Most of these shortages (e.g power) are
met and paid for by the individual compa-
nies themselves. This will continue to be
an additional burden to the cost base.”
Another potential difficulty is that tech-
nology improves at an alarming rate and
therefore companies have to spend heavily
not only to keep pace with technology but
also keep in place an infrastructure that
allows innovation to flourish.
A DiamondCluster outsourcing survey
also highlights some troubling times for
the future of outsourcing. 47% of buyers
of offshore services have terminated at
least one contract between 2004 and 2005.
More recently Infosys Technologies,
India’s second-largest IT outsourcing
group, stated that whilst Indian companies
have addressed problems due to insuffi-
cient infrastructure, now the major factor
that needs to be addressed is that of edu-
cation. “We have this enormous pool of
young people but what is missing is the
‘pipe’ in between which connects people to
the opportunity,” Nandan Nilekeni, chief
executive of Infosys, told the Financial
Times. Turnover rates are steadily increas-
ing in the industry because trainees can-
not meet the standards that are expected
of them. This failure is not down to abili-
ty, but education.
Whilst India might be some way ahead of
its competitors in regards to the share of
the global outsourcing market, if it fails to
support its education system, the domestic
financial industry will feel the after-effects.
It will be fascinating to see whether
India can overcome the many problems it
faces over the next five years and build on
its successes. 
 GLOBAL ORGANIZERS OF I NST ITUTIONAL
FINANCE & INVESTMENT CONFERENCES

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 DISASTER RECOVERY
Its all Bang
& Olufsen,
MiFID and
Scrabble
to me
Keith Ford talks legislation.
Yes! Corporate life at continuity towers
marches on as we all recover from our
Christmas vacations and guess what? We
have all binned our shiny new MP3 players
that we had for Christmas, or at least we did
for a while.
You see we were told that in our depart-
ment we were having a new Midi HiFi
System. When we looked at the budget we
were ecstatic £35.000 just for starters. In no
Despite sitting in close proximity to
the Compliance Department we had
not really heard too much about this
new MiFID gadget.
time at all we had the Bang and Olufsen cat-
alogue out and had sorted some stylish sexy
units for each desk and some of those won-
derful noise suppression headphones to
drown out the constant bleating from Henk
Our Dour Dutch colleague who heads up
the compliance department. Had we paid a
little more attention to the mail we would
have realised that we were not about to get
new music systems, but had in fact had
inherited what looks like a bad Scrabble
hand; we were all about to get a new MiFID.
MiFID is pretty old hat itself, it has been
around since April 2004, although amend-
ments to national legislation and rules to
carry out to its provisions must be made by
78 INVESTOR SERVICES JOURNAL
Well, it should allow companies to provide
services across borders and establish branch-
es in other European states. It also does away
with the idea that all share trading had to be
done through exchanges. Many banks deal
'off-book' which means they shift shares they
are already holding between the customer
that want to buy and sell, which is easier than
going through the exchanges.
(Yawns from all the IT team)
And the impact to us in IT will be?
MMMM.. the real issue is that firms like us
will have to be able to prove 'best execution'
on deals - which means that we are likely to
have to take into account issues such as price,
venue, cost and speed. We will also have to
keep records on such deals for five years.
Cheerful Henk told us his best guess was that
many of the smaller firms that currently
trade off-book just won’t have the IT systems
to record or store this information to
demonstrate that they are providing best
execution, so a bit of an open season for a
few vendors and consultants then?
31 January 2007, so they have not been hang-
ing around eh?
Any more “Good News”?
Well, despite sitting in close proximity to
Yes, there is some more for you in IT and
the Compliance Department the size of
that lot in communications as well. Firms
which seems to beginning to dwarf the rest
will soon have to publish a great deal more
of the other departments here at Megabank
information than they have had to before
(What did we do before compliance?) we
which will mean new they will need to devel-
had not really heard too much about this
op new communication infrastructures, and
new MiFID gadget. Henk managed to fill us
they'll have to build new business processes
all in, and told us that it was really an ISD2,
to deal with all this. Business Analysts are
w e
predicting £10m for IT and £12m for new
processes - costing the industry around
£1bn.
Oh Dear, so what’s likely to happen here in
the UK?
The prediction from many respected
organisations in the Industry - including the
UK Financial Services Authority is that the
countered that ISDN was virtually extinct
cost of compliance may very well outweigh
and we had to then sit through the sorry tale
the benefits. It could also lead to a wave of
of the Investment Services Directive.
mergers of the smaller players in Europe.
At last we managed to establish some com-
And with the deadline fast approaching, we
monality between IT and European Finance
could see an outbreak of poaching as banks
Compliance; if you spend a fortune attempt-
get desperate to have the best workers in
ing to implement something of questionable
place. (Henk Beams)
importance and it doesn’t work, then give it
So here endeth the first lesson on MiFID,
a few years and multiply the implementation
we must dash, we need to re-write our CV’s
budget many times, to take out a few of the
to demonstrate our major skills and under-
smaller players, insist more people or coun-
standing of the compliance arena and sneak
tries are involved, and have another go! This
in some of these new acronyms we have
is what seems to have happened here.
learned today, oh and retrieve our MP3 play-
ers from the recycle bins! 
So Mr Compliance, what is this new
Directive supposed to do?
 GLOBAL ORGANIZERS OF INSTITUTIONAL FINANCE & INVESTMENT CONFERENCES

The 11th Annual

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Over 700 February 22-23, 2007
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 MEET THE FUTURE - BHF BANK
BHF SPIRIT
ISJ speaks to Christine
Boehm of BHF-BANK,
continuing the series of
‘Meet the future’ profiles.
In spring 2005 I got a phone call from Moritz
Ostwald, Head of Sales and Relationship
Management BHF-BANK (we already knew
each other from Deutsche Bank and State
Street as we worked together on an IT migra-
tion project when Deutsche sold it’s global
custody business to State Street) and the rest is
history … No, honestly - when he described
the details of this job vacancy it was clear that
I should take up this exceptional opportunity
at BHF-BANK.
Why did you choose your career initially?
Obviously I was looking for a job which
offers a lot of interaction with other people.
During my schooldays I already worked in the
hotel business in my free time. That is why I
originally choose a vocational training course
in this sector. Later on, I decided to deepen my
experience in the financial sector, so the new
target was clear: to get a job in the banking
industry. To complete my profile and to build
a basis with regard to the banking sector I
completed additional occupational studies at
the German Bankakademie. Now I have both:
a job with a commercial background and
plenty of interaction with other people.
Describe your experience at previuos
employers / locations
A global company like Deutsche Bank with
international clients and employees – this was
quite interesting for a young country girl like
me. I learned how to look after clients. The
working atmosphere in the client service unit
was outstanding. At State Street I made my
first experiences as a team leader. I was respon-
sible for the Customer Service team covering
German institutional clients and international
asset management mandates. Also, I was
involved in a project in preparation for the IT
80 INVESTOR SERVICES JOURNAL
migration. During the migration phase we
had to work with both system environments –
quite a challenging time and an important
part of my career.
What do you enjoy most about your current
position at BHF-BANK?
People know each other – I always get imme-
diate support no matter which department I
contact, and the team spirit is amazing. At
BHF-BANK most of the colleagues have a lot
of experience in the securities services indus-
try. To work as a Relationship Manager was
one of my objectives in the past -, now that I
hold this position I am enjoying everything
about it.
Who are your mentors / role models?
With regard to business definitely my former
boss at Deutsche Bank and State Street Attila
Demirci. He taught me the ropes in custody
business and is now a good friend of mine
who is ready to answer my calls 24/7. And of
course I owe a lot to Cornelia Keth and Moritz
Ostwald from BHF-BANK. Their advice has
been indispensable – they believe in my
strengths and listen to my ideas – Moritz sup-
ported my career in particular by offering this
job to me. With regard to private life, my par-
ents -, it’s unbelievable how they mastered
their life.
Where do you see yourself in five years time?
Married? (hopefully), mother? (maybe) –
but definitely working in the custody industry.
As a relationship manager? In sales? In prod-
uct development or projects? There are many
opportunities and challenges – time will tell.
Basically I want to extend my knowledge, have
a good working atmosphere and the flexibility
to do things my way.
We at ISJ work hard, we did hear you work
long hours too. What is your average work-
ing day like?
Usually I start at around 9 a.m. – the end is
open and depends on the daily workload.
Throughout the day I work on SLA’s and/or
RfP’s, and I communicate with our clients to
answer their inquiries. I am in meetings and
conference calls with clients and/or col-
leagues to analyse client requirements and to
set up individual service models. As we are
on business trips on a regular basis, I have to
arrange the meetings and all other aspects
(agendas, presentations etc) and, of course,
follow up afterwards and write call reports.
Additionally I am involved in the develop-
ment of our internet tool cds@web.
If you were given the opportunity to take a
sabbatical or year out what would you do?
I would write a book, I’ve already got a
story in mind – but the details are still secret.
If you were named BHF-BANK employee of
the year, how and where would you cele-
brate?
I would celebrate with my colleagues,
friends and family at home or in a dis-
cotheque. A great big fantastic party…
What are your long-term goals for the
future?
To keep well and fit, to have an interesting
and challenging job but also enough time for
family and friends.
THE ISJ MINUTE
CD or MP3? Both
Books or Films? Books
Cocktails or Wine? Wine
Theatre or Club? Club
Elvis or Johnny Cash? Elvis
Nightts In or Nights Out? Nights Out
Watching or Playing? Watching
ISJ or FT? ISJ!
CHRISTINE BOEHM
Title: Relationship Manager Custody,
Education: 2000-2004 vocational studies at the
German Bankakademie in banking and business
administration.
Employment: 2000-2003 Client Service Officer,
Deutsche Bank, Global Securities Services, 2003 -
2005 Senior Customer Service Officer and later First
Line Manager, State Street Bank GmbH,
2005 to present BHF-BANK Aktiengesellschaft
 1st annual event

un fu t
ts nd
co ge en
ac ed ev
ed o h rst
ag t fi
an ed ’s
m cat SA
di e U
de Th

13 -15 March 2007, The Embassy Suites, New York, USA

Top-level speakers include:

Thomas Schneeweis
Michael and Cheryl Philipp
Professor of Finance
University of
Massachusetts Amherst

Reiko Nahum
Chief Executive Officer
Amber Partners Customised.

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Chief Investment Officer
The Robert Wood Managed Accounts USA 2007 is North America’s first forum for the discussion of hedge
Johnson Foundation fund investing via a Managed Account structure. Thanks to the thought-leaders of the
alternative investment world, Managed Accounts USA 2007 directly addresses the
barrier that investors face when allocating to hedge funds; predominantly the lack of
Pierre-Yves Moix
transparency and liquidity. At last the hedge fund industry has awoken to the changing
Chief Risk Officer
RMF Investment needs of the investor community!
Management
Platinum sponsors:
Mary L. Cahill
Vice President for
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Emory University

Associate Sponsor: Organised by: Producers of:

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Response form Fax Back to +44 (0)20 7242 2324

: Yes! Please register me for the congress : Yes! Please send me the congress brochure : Yes! I am interested in sponsorship opportunities

Name: ..............................................................................................................................................................................................................................

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Event code: MAUSA/ISJ

www.hedgefundsworld.com/2007/mausa
 MANDATES

MANDATES AWARDED TABLE

2006
Month Winner Client Location Assignment Mandate Size
January Northen Trust Hampshire UK Custody Services GBP 2.8 bn
January AXA Investment Port of London UK Fund Administration GBP 250 million
December Northern Trust El Paso Fireman USA Securities Services USD 600 million
December JPMorgan Texas USA Custody & Asset Services USD 21 bn
December JPMorgan Ohio USA Custody and Accounting USD 92 bn
December Morgan Stanley Statoil Norway Advisory Mandate USD 28 bn
December Northern Trust The Pensions Trust UK Custody & Asset Services GBP 3.6 bn
November AA Mellon Cambridgeshire UK Custody & Accounting GBP 1.2 bn
November Mellon Financial River & Mercan UK Custody & Depositary n/a
November Northern Trust OPF UK Custody Services USD 320 million
November BNPParibas RFGP France Fund Administration EUR 4.3 bn
October JPMorgan Teachers’ Ret USA Custody Services USD 8 bn
September State Street IKANO Lux Securities Services USD 3.8 bn
September AA Mellon Hoogovens Netherlands Custody & Accounting EUR 5 bn
September Citigroup Kiwibank New Zealand Securities Services n/a
September Northen Trust Abu Dhabi UAE Custody n/a
August AXA Rosenberg Nykredit US Equities USD 60 b
August AXA Rosenberg Nykredit US Equities USD 50 bn
August Statestreet Virgin Money UK Custody GBP 2.6 bn
August AA Mellon North YorkshirePF UK Custody & Accounting GBP 1 bn

A healthy state of mind

THERE HAVE BEEN SOME BIG MANDATES WON OVER THE NEW YEAR, THE MOST NOTABLE
BEING THE OHIO TREASURER OF STATE’S OFFICE.
JPMORGAN WORLDWIDE SECURITIES SERVICES was selected by OHIO TREASURER OF STATE’S OFFICE to provide
custody and accounting services for $92 billion in assets of Ohio's public funds. JPMorgan will now provide global as
well as domestic custody and securities services for the public employees' retirement system and workers compensation
insurance fund through its Worldwide Securities Services unit, which is part of JPMorgan Chase.

HAMPSHIRE COUNTY COUNCIL has appointed NORTHERN TRUST as its first global custodian, to provide custody, per-
formance measurement and securities lending services for the GBP£2.8bn pension fund. In addition, Northern Trust
Global Investments (NTGI), the asset management arm of Northern Trust, has been appointed as transition manager.

NORTHERN TRUST also announced that it has been appointed custodian for the EL PASO FIREMEN AND
POLICEMEN’S PENSION FUND, providing global custody, securities lending, benefits payment and foreign exchange
services for the $600 million fund, which serves more than 1,800 active and 1,300 retired firefighters and police offi-
cers.

MORGAN STANLEY has topped the advisory league tables compiled by Thomson Financial after winning the mandate
for Statoil’s $28bn takeover of NORSK HYDRO. The deal means that Morgan Stanley overtook its rival Citigroup in advis-
ing $479.3bn worth of deals in 2006 compared to the latter’s $473.4bn, Goldman Sachs, who advised Norsk on the
takeover, is currently third in the tables with £427.5bn.

NORTHERN TRUST has been reappointed as global custodian and asset servicing provider to THE PENSIONS TRUST,
a multi-employer occupational pension schemes for the charitable, social, educational, voluntary and not-for-profit sec-
tors in the United Kingdom. Following a comprehensive external review of services delivered since 1999, The Pensions
Trust renewed Northern Trust’s mandate to provide global custody, investment accounting, unitisation, performance
measurement, compliance analysis and securities lending for the GBP£3.6 billion (approximately USD $7.1 billion)
fund.

82 INVESTOR SERVICES JOURNAL

 LETTERS (cont from page 4) / DIARY

Letters (continued from page 4) each competent authority, while helpful, only http://www.terrapinn.com/2007/secme/
solves some of the issues. A consistent vision + 44 (0) 207 092 1239
The message that MiFID will yield hearty needs to be facilitated by CESR and common
benefits for the early has clearly yet to reach the standards and market practices agreed by the 20 March 2007, 3 days
masses, yet by Feb 1st 2007, firms will be left firms themselves in order to forestall confu- Investing in Infrastructure Assets
with a stark choice; whether to bite the bullet Embassy Suites Hotel, New York
sion post-November 1st 2007. Given the past T: +44 207 092 1224
and keep up with their more proactive rivals, record for harmonisation among Member http://www.terrapinn.com/2007/iiaa/con-
or whether to depend on other firms to help States around other directives, this author tact.stm
them fulfil functions such as best execution expects there to be significant transitioning
and order handling, client classification and acclimatisation activity occurring during 26 March 2007, 3 days
administration, transaction reporting or data 2008 until issues such as best execution and World Exchange Congress
management. A “wait and see” strategy will no client classification are stabilised and until the The Jumeirah Beach Hotel, Dubai
longer be an option. competent authorities network their systems http://www.worldexchangecongress.com/
There are two areas in particular where dif- +44 (0)2070 921 276
multi-laterally. November 1st 2007 will not be
ferential interpretation is likely to have costly the finishing line for eventual harmonisation
consequences for all concerned: of financial markets in Europe while so many 26 March 2007, 5 days
1) Firstly, it is assumed that transaction factors remain undecided, but the transposi- Asset Allocation Summit 2007
reporting will be implemented consistently as tion decisions will greatly impact the pacing of Sandton, Johnannesburg
it is presented as MiFID “Regulation” with that harmonisation. T: +27 11 463 6001
direct legal effect. The theory (expressed in http://www.terrapinn.com/2007/asset-
articles 25 and 32 of the Level 1 text) appears Dr Anthony W Kirby za/contact.stm
innocuous and requires firms to develop some Head of Risk, Regulation & Compliance, 27 March 2007, 3 days
intelligent routing to cope with the measures Capital Markets Absolute Return for Trustees
in the absence of an industry utility solution. Accenture Millennium Hotel Mayfair, London
However, at the time of going to press, the http://www.terrapinn.com/2007/art/
competent authorities had yet to agree the
exact fields which practitioners would need to
populate beyond the 23 base fields. This is
Dating +44 207 092 1224
27 March 2007, 3 days
because different competent authorities have Global Securities Hedge Funds World Espana 2007
The Westin Palace, Madrid
different uses for the information to be report-
ed (e.g. market abuse vs. prudential reasons). Services events http://www.terrapinn.com/2007/esp/
+44 207 092 1224
Some competent authorities are likely to 12 February 2007, 3 days
require firms to issue reports depending on the Alternative Beta - IRC Conference 23 May 2007, 3 days
location of the execution venue, whereas some The Landmark, London Hedge Funds World Asia 2007
might focus on where the terms of business are T: +44 (0)207 827 5972 Raffles City Convention Centre,
agreed and/or investment advice is offered. http://www.hedgefundsworld.com/2007/ Singapore
Urgent guidance by CESR is sorely needed, altbeta/ http://www.terrapinn.com/2007/fof%5Fs
otherwise firms will need to report transac- g/ T: +65 6222 8550
28 February 2007, 3 days
tions to multiple competent authorities and Hedge Funds World Australia
regulators will need to carry out expensive rec- The Westin, Sydney 3rd June 2007, 4 days
onciliations. Above all, standards are critical. T: +65 6322 2715 Funds World Middle East 2007
2) Secondly, the issue of the correct classifi- http://www.hedgefundsworld.com/2007/ Madinat Jumeirah, UAE
cation of clients under MiFID is showing hfw%5Fau/ http://www.terrapinn.com/2007/fwm/
every sign of becoming a free for all. There are (+65) 6322 2711
three categories of client classification under 05 March 2007, 4 days
Hedge Funds World Middle East
MiFID; Retail, Market Professional and Madinat Jumeirah, Dubai
Eligible Counterparty. The tests will need to 12 June 2007, 3 days
T: +44 207 092 1224 Hedge Funds World Global
be conducted each firm on the basis of each http://www.hedgefundsworld.com/2007/ Opportunities 2007
client’s suitability and appropriateness to hfwme/contact.stm Bridgewaters, New York
transact the instruments in the required man- http://www.terrapinn.com/2007/hfwgo/
ner. However, most member states maintain 1 646 839 4710
two-way classifications, and few regulators 06 March 2007, 3 days
stipulate how different clients might be classi- CDO World USA 2007
Bridgewaters, New York 18 June 2007, 3 days
fied in practice, even given home state guid- T: +44 20 7092 1263
ance. More worryingly, as things stand, clients Hedge Funds World Scandinavia 2007
http://www.terrapinn.com/2007/cdo The Grand Hotel, Stockholm
are entitled to change their classifications on http://www.terrapinn.com/2007/scandi/
request (and firms need to have the necessary 12 March 2007, 4 days +44 (0) 207 8275981
documentary evidence). If this measure goes Islamic Funds Asia 2007
through post-Jan 31st, there is every possibili- The Westin Kuala Lumpur, Malaysia
ty of a “free for all” with clients shopping http://www.terrapinn.com/2007/iiasia/ 26th June 2007, 3 days
around for the best terms and most firms (+65) 6322 2736 ETF & Closed-End Funds World 2007
needing to make significant amendments to tbc, London
18 March 2007, 4 days http://www.terrapinn.com/2007/laa/
their systems. Securitization World MENA 2007
To conclude, it is clear that guidance from +44 (0) 207 092 1000
Shangri-La Hotel, Dubai

INVESTOR SERVICES JOURNAL 83

 PEOPLE MOVES - MOVING & SHAKING

The Pensions Trust has promoted Phil

Bradish to Head of Business State Street -

Moving Improvement. Mr Bradish joined the

Trust in October 2005 as Sales Manager
following a restructuring of the Sales
Team. In his new role Mr Bradish will be
Board Revamp
State Street
Corporation has

&
announced the
responsible for the Trust’s products and election of three
data and for the European nation-
development of als to its Board of

Shaking new tools to fur-

ther advance the
business goals. He
also becomes a
Directors. Amelia
Fawcett, a dual
American and
British citizen,
Amelia Fawcett
member of the has recently retired from her position as
Senior vice chair and chief operating officer at
Management Morgan Stanley International. A lawyer
BARCLAYS CAPITAL, the investment
Group which is by training, Fawcett was named by the
banking division of Barclays PLC, has
responsible for Financial Times as one of the 25 most
announced the appointments of Glenn
directing business powerful women in Europe. She also
Boyd and Ajay Rajadhyaksha, both
strategy and serves as a member of the Court of the
Directors, as Co-Heads of US Fixed Phil Bradish operations. Mr Bank of England. Peter Coym, a
Income Strategy. In addition, Bulent
Bradish will continue to be based in German national and the retired head
Baygun, Director, becomes Head of
Leeds and will report to the Deputy Chief of Lehman Brothers in Germany , is
Quantitative Strategy. Based in New
Executive, Stephen Nichols (who takes also a former
York, all three appointments report to
over as Chief Executive from 1 May member of
Larry Kantor, Managing Director and
2007). Prior to joining the Trust, Mr Lehman Brothers
Co-Head of Research. Mr Boyd joined
Bradish was a consultant with Pension & Bankhaus
Barclays Capital in 2005 as Head of
Benefit Services Limited. Management
Mortgage Strategy and Mr.
Rajadhyaksha joined in 2005 as Senior Board and its
Deutsche Bank has announced the European
Mortgage Strategist. Mr. Baygun, who
appointment of Chris Whitman as Group Management
joined the firm in 2003 as Head of US
Treasurer and Knut Pohlen as Deputy Group. Coym,
Fixed Income Strategy, will now focus
Group Treasurer, with immediate effect. with more than
on developing quantitative analytical
Mr Whitman, formerly Head of Debt 35 years of expe-
tools and trading models, as well as
Capital Markets at Deutsche Bank in rience in
coordinating model development
efforts across research areas.
North America, will be based in London European invest- Dr Peter Coyn
and will report ment banking,
to Richard has served in positions that include
GOLDMAN SACHS Japan has
Evans, Deputy chairman of the Association of Foreign
announced the appointment of
Chief Risk Banks in Germany, a member of the
Shigemitsu Sugisaki as Vice Chairman
Officer. Mr Supervisory Board of the Deutsche
of the firm. Mr Sugisaki joined Japan's
Whitman has Börse AG and a member of the German
Ministry of Finance in 1964 and
been the head of Central Capital Market Committee.
served in various positions including
Debt Capital Maureen Miskovic, a British citizen, is a
Deputy Director General of the
Markets busi- leading authority on risk and compli-
International Finance Bureau,
ness in North ance. She current-
Commissioner of the Tokyo Regional
America for five ly chairs Eurasia
Taxation Bureau, and Secretary
years, and has Group, a top
General of Executive Bureau at the
played an inte- Chris Whitman political risk advi-
Securities and Exchange Surveillance
gral role in the sory and consult-
Commission. From 1997 to 2004, he
development of Deutsche Bank’s debt ing firm based in
served as Deputy Managing Director
platform in North America. In addition New York . Prior
of the International Monetary Fund,
to his new role, Mr Whitman will become to this role she
where he played a key role in manag-
a member of the Group Investment served in several
ing the Asian currency crisis and
Committee, the Capital and Risk senior manage-
reforming the international
Committee and the Risk Executive ment positions
monetary system. He currently
Committee. In addition, Mr at a number
serves as Chairman of Sompo
Pohlen will continue to be Global of prominent
Japan Research Institute.
Head of Funding and Liquidity investment bank-
Management and will ing firms. Maureen Miskovic
also be based in London.

84 INVESTOR SERVICES JOURNAL


Deutsche Bank
have also
announced the
appointment of
Barry Bausano and
Jonathan Hitchon
as Co-heads of
Equity Prime
Brokerage, effec-
tive immediately.
Bausano, previous-
ly Global Head of
Hedge Funds, will Barry Bausano
be responsible for
the client facing aspects of prime broker-
age while Hitchon, previously Global
Head of Prime Services, will continue to
lead the development of the platform’s
award-winning product offering. Both
Mr Hitchon and Mr Bausano have exten-
sive experience in the hedge fund indus-
try, on both the buy side and the sell side,
and will jointly
report to Yassine
Bouhara, Head
of Global
Markets Equity,
and Alan Cloete,
Head of Global
Finance and
Foreign
Exchange.
Jon Hitchon
On 1 May 2007,
Ben Haasdijk will call it a day and step
down as Chairman of the Board of
Directors of Equens. His successor will be
Michael Steinbach, currently Deputy
Chairman of the Board of Directors. Mr
Haasdijk joined Interpay’s Board of
Directors in 1999 and has held the posi-
tion of Chairman since 2004. He will
retire on 1 May. The Supervisory Board
has nominated Mr Jan Sonneveld for
membership of the Board of Directors of
Equens as from 1 May 2007. Mr
Sonneveld is currently General Manager
Risk Management. Michael Steinbach is
currently Deputy Chairman of the Board
of Directors and is responsible for
Marketing & Sales, as well as Payments
Operations. He has been spokesman for
the Board of Directors of
Transaktionsinstitut für
Zahlungsverkehrsdienstleistungen AG
(TAI) since July 2003. Prior to his
employment at TAI in 2003 he was a
director of DZ BANK AG (Deutsche
Zentral-Genossenschaftsbank), where he
PEOPLE MOVES - MOVING & SHAKING
headed the Payments department. During
his career Steinbach has gained extensive
experience in payments. In 1985 he
became the head of the electronic pay-
ments department at the then
“Genossenschaftliche Zentralbank” or
GZB-Bank (cooperative central bank) in
Stuttgart. Since then he has headed
increasingly large and complex payment
divisions formed by mergers in the
German banking world. Mr Steinbach is a
member of many significant national and
international payment committees.
Credit Suisse Group has announced that
Leonhard Fischer, Chief Executive Officer
of Winterthur, will be appointed Chief
Executive Officer of the Europe, Middle
East and Africa (EMEA) region. In this
role, Leonhard Fischer will report to
Oswald J. Grübel, Chief Executive of
Credit Suisse and will join the Executive
Board of the bank. He will be based in
London and will assume his new respon-
sibilities on March 1, 2007. Michael
Philipp, CEO of
the EMEA region,
will become
Chairman of
Credit Suisse in
the EMEA region.
In this new role,
Michael Philipp
will focus on
expanding the
bank's strategic
client relationships
with a particular Leonhard Fischer
focus on the
Middle East. He will also continue to play
a key role developing strategy with
Leonhard Fischer and driving specific ini-
tiatives in the EMEA region. Michael
Philipp will remain a member of the
Executive Board and will continue to
report to Oswald J. Grübel. He will be
based in London and assume his new
responsibilities on March 1, 2007.
Etheios, the inde-
pendent invest-
ment management
consultancy,
announces the
appointment of
Tania Solomons as
Manager of the
Resourcing
Division. In this
newly created role,
Tania will help Tania Solomons
Etheios recruit and place specialist con-
sultancy staff for client projects. Ms.
Solomons brings both recruitment and
consulting skills that she will apply to
resource projects for clients and to grow
further the staff of Etheios. She has pre-
viously worked in Account and Contract
management, selection and allocation of
resources. Most recently Ms. Solomons
undertook new business development for
high level finance clients in risk (opera-
tions, market and credit) compliance
(MiFID, SOX, Basel 2 and AML) and
corporate governance - in both the UK
and Europe.
Obituary
Seymour Martin Lipset, social scientist
and scholar on the nature on democra-
cy, died on New Years Eve, 2006. One
of Mr Lipset’s most important contri-
butions was the notion that ‘The more
well-to-do a nation, the greater the
chances that it will sustain democracy.''
Lipset showed that economic develop-
ment, thorough the development of the
middle-class, the growth of voluntary
organisations and the spread of educa-
tion, was a necessary requisite for a
secure democracy to flourish. This
claim has been subject to extensive
empirical examination, both quantita-
tive and qualitative, in the past 30
years, and while the correlation is not
as liner as Mr Lipset suggested, a
strong causal relationship is certainly
apparent.
A selection of the
appointments from
WWW.ISJFORUM.COM
INVESTOR SERVICES JOURNAL 85
 ISJ Directory of Services

Consultants
C: Professor Michael Mainelli,
Z/Yen helps organisations make better choices. Our name combines Zen and Yen -
Executive Chairman
“a philosophical desire to succeed” - in a ratio, recognising that all decisions are
E: michael_mainelli@zyen.com
trade-offs. Z/Yen’s mission is to be the foremost risk/reward management firm.
In the financial markets Z/Yen conducts numerous research projects on a variety of C: (Disaster Recovery and Project
wholesale and retail issues, as well as providing technical strategy, support and Management): Keith Ford,
prediction systems. Z/Yen’s renowned annual studies include: Senior Consultant
i. Global cost per trade benchmarks on equities, money markets and foreign E: keith_ford@zyen.com
exchange;
T: +44 207-562-9562
ii. Operational performance of broker ratings;
F: +44 207-628-6786
iii. Operational performance of client (buy-side) ratings.
W: www.zyen.com

Custody & Clearing

BHF-BANK is one of Germany's most prestigious private banks. Its roots date back to the
year 1854. As an advisory, service and sales & trading bank, we offer our discerning clientele C: Cornelia Keth
a comprehensive array of customised solutions. BHF-BANK combines the strengths of a pri- T: +49 69 718 3738
vate bank with a long track record of capital market competence. F: +49 69 718 6050
Trust, an individual approach and impartiality - these qualities are at the very heart of the E: cornelia.keth@bhf-bank.com
long-term guidance and advice we provide for our clients. Our bank's activities are grouped C: Moritz Ostwald
within the divisions Asset Management & Financial Services, Financial Markets & Corporates
T: +49 69 718 6838
and Private Banking.
The bank's longstanding experience in the German securities services market goes hand in E: moritz.ostwald@bhf-bank.com
hand with a corporate culture that values prompt acknowledgements and short decision-mak- A: Strahlenbergerstraße 45,
ing channels. 63067 Offenbach a.Main
BHF-Bank offers tailor-made custody services to meet its clients' particular requirements. Germany
It's reporting services include a comprehensive SWIFT reporting matrix as well as its W: www.bhf-bank.com
Internet-based reporting tool cds@web. Assets under Custody: EUR269 bn No of funds: 328

The CACEIS Group is a partnership between the Investor Services business lines T: +33 1 57 78 10 78
of Crédit Agricole S.A. and Groupe Caisse d'Epargne. We rank among the top 10
custodians worldwide, with EUR 1,697 billion in assets under custody C: (France)
(30/6/2006). CACEIS provides a full range of services to institutional clients in Patrick Lemuet
France, Luxembourg, Spain and Ireland. These services include, global and local E: france@caceis.com
custody (safekeeping of listed and OTC assets) depositary/trustee services, T: +352 4767 2567
STP transactions (SWIFT), corporate actions and income collection, proxy voting, C: (International)
tax services, compliance and performance monitoring, flexible online reporting, José-Benamin Longrée
securities lending, matching, processing and settlement. We also have links to E: international@caceis.com
200+ UCITS registrars. Our network of sub-custodians provides a secure W: www.caceis.com
environment for your assets in over 70 markets worldwide.

www.dbs.com
DBS offers a full range of custodial services including securities safekeeping, settlement +65 6878-1830
of trades, corporate actions and market information updates. These services are
available in Singapore, Hong Kong, Indonesia, India, China (A-shares) and other select- +65 6878-4766
ed markets. DBS also offers short-term, highly liquid overnight facilities for its clients' Ms Low Swee Fun
accounts to earn daily interest on any excess funds. investorsvs@dbs.com
DBS Bank Ltd,
With over 20 years of experience in the custody business, DBS' strengths lie in its ability Global Transaction Services,
to provide quality services, in depth knowledge and expertise of the Asian markets, as Securities Services,
well as customized business solutions to support clients’ businesses. Its clientele 6 Shenton Way, #36-02,
comprises the global custodians, international central securities depositories, broker- DBS Building Tower 1
dealers, financial institutions, insurance companies, investment managers, private banks
and corporate. 068809 Singapore

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

86 INVESTOR SERVICES JOURNAL


T: +46 8 701 2988
F: +46 8 701 2990
Contact: Johan Wennerberg
E: custodyservices@handels-
banken.se
Address: Blasieholmstorg 12,
SE-106 70 Stockholm, Sweden
www.handelsbanken.com/nordic_
_custody_services
New York: Christopher Lynch
T: +1 718-242-7555
E: chris.e.lynch@jpmorgan.com
London: Dick Feehan
T: +44 (20) 7742-0102
E: dick.j.feehan@jpmorgan.com
Sydney: Laurence Bailey
T: (61-2) 9250-4833
E:laurence.bailey@jpmorgan.com
W: www.jpmorgan.com/wss
Nordea is the leading financial services group in the Nordic and Baltic Sea region
and operates through three business areas: Retail Banking, Corporate and
Institutional Banking and Asset Management & Life.
T: +47 2248 6238
Contact: Anne-Lise Kristiansen
Head of Sub-custody and
Clearing
E: anne-lise.kristiansen@nordea.com
Nordea is the leading custody services provider in the region. Nordea provides high
quality, tailor-made custody services for local and foreign investors dealing with
Nordic, Baltic or global securities.
T: +44 (0) 20 7653 4096
F: +44 (0) 20 7248 3946
Contact: Tony Johnson
Head, Sales & Relationship
Management
E: antony.johnson@rbcdexia-is.com
Address: 71 Queen Victoria Street,
London, EC4V 4DE, UK
T: Europe: (34) 91 2893932 / 28
T: USA: (1212) 350 39 02
W: santanderglobal.com
E: globalsecurities@
gruposantander.com
T: +46 8 763 5770
F: +46 8 763 6930
Contact: Goran Fors
E: goran.fors@seb.se
W: www.seb.se
Custody, Clearing & Settlement
Handelsbanken was the first Nordic bank to provide complete custody services in the
entire Nordic region. We conduct in-house processing in each Nordic country, with
well-experienced staff with in-depth market knowledge and access to market
information. Each client is allocated an account manager fully responsible for the
day-to-day activities, as well as a regional relationship manager. Handelsbanken
provides specialised and tailor-made custody services including complete corporate
action services, securities borrowing and lending for all Nordic countries, as well as
settlement and clearing services to clients that are remote members of the Nordic
stock exchanges.
JPMorgan Worldwide Securities Services provides custody and securities servicing
solutions to the world's leading institutional investors, including fund managers,
insurance companies, pension funds and banks.
As one of the world's leading global custodians, we have $11.7 trillion in assets
under custody.
JPMorgan meets institutional investors' needs by providing extensive experience,
comprehensive products and advanced technology designed to optimize efficiency,
enhance revenues and mitigate risks associated with global investing.
- The leading financial services group
- A world-leading Internet banking and e-commerce operation
- The largest customer base of any financial services group in the region
- A leading asset manager in the Nordic financial market
- The most comprehensive distribution network in the region
RBC Dexia Investor Services offers a complete range of investor services to institu-
tions worldwide. Established in January 2006, we are equally owned by Royal Bank
of Canada (RBC) and Dexia. We rank among the world's top 10 global custodians,
with approximately USD 2.0 trillion in client assets under custody, including in-
house assets of RBC and Dexia. Our innovative products and services help clients
maximise operational efficiency, minimise risk and enhance portfolio returns. And
our 3,800 professionals in 15 markets offer proven expertise to enhance clients’
business performance.
Santander is Spain’s leading financial institution and the largest bank in the euro zone
by market capitalization. Our commitment and contribution to the securities industry is
well established after more than a century of providing services in this field.
Santander’s cutting edge technology enables it to offer a comprehensive array of inno-
vative services in a broad range of markets. Santander currently has full local capabili-
ties in Iberian and Latin American markets along with a franchised presence in many
others. Santander`s experience and product range ensures that every aspect of the
securities business is fully contemplated.
SEB is the leading provider of securities services in the Nordic and Baltic area. We
are committed to custody and clearing processes for the wholesale market. We hold
securities worth over EUR 460 bn and provide services in more that 70 markets, 9
of them under the SEB name (Sweden, Norway, Finland, Denmark, Luxembourg,
Germany, Estonia, Latvia and Lithuania).
We offer a full range of securities services including corporate action and
information services, securities lending and services to remote members of the
Nordic and Baltic stock exchanges. We continuously develop new products in
connection with clients and partners to ensure we deliver the high-quality
products our clients demand. We always strive to make the processes more
efficient. With a history of 150 years in the securities industry; we know the market
and our clients well.
INVESTOR SERVICES JOURNAL 87
 Financial Asset Services is the custody and investments-servicing division of
Standard Bank, providing a unique suite of services to sophisticated investors in A:Standard Bank
South Africa and eight sub-Saharan markets. Financial Asset Services
3rd Floor
Standard Bank has assets under custody to the value of ZAR1.56 trillion and an 25 Sauer Street
overall market share of approximately 40%. Johannesburg 2107
T: +2711 636 6615
Standard Bank's unique selling point lies in its consultative approach to E: adam.bateman@standard-
relationships combined with the bank's commitment to custody and investment bank.co.za
administration services. W: www.standardbank.co.za

Standard Chartered leading the way in Asia, Africa and the Middle East.
Standard Chartered has a history of over 150 years in banking and is in many of the
world's fastest-growing markets with an extensive global network of over 1,200
branches (including subsidiaries, associates and joint ventures) in over 50 countries C: Neil Daswani,
in the Asia Pacific Region, South Asia, the Middle East, Africa, the United Kingdom Global Head, Securities Services
and the Americas.
T: +65 6517 0022
As one of Asia's leading custodians, Standard Chartered has an impressive track E: Neil.Daswani@sg.standard-
record across the 16 Asian markets in which it provides securities services. It serves chartered.com
global, regional and local custodians and broker-dealers, as well as local and regional W: www.standardchartered.com
fund managers. The Bank plays a key role in promoting the development of these
markets and keeping the international investor community informed of industry
developments across the region.

Swedbank provides client-focused custody services to domestic and international

securities lending (including auto-borrow facilities), derivative clearing services,
proxy voting, full corporate actions and income service. Flexibility is an important
aspect of Swedbanks products and services. Our dedicated Client Relations T: +46 8 5859 1800
Managers and Account Managers are focused on personalized processing and F: +46 8 7237 147
reporting solutions. C: Neal Meacham, Head of
Custody
Other Features: ISO9001:2000 quality certification. Swedbank Markets Online
(SMO) internet information and reporting toolfor Custody and Securities Lending. E: neal.meacham@swedbank.com
Nordic Custody alliance with DnB NOR (Norway), OKO Bank (Finland) and A: Stockholm SE 105 34
Amagerbanken (Denmark) to offer regional custody product. Sweden
Institutional Assets under Custody: USD 70 billion
No. of Institutional Clients: 110

Unicredit Markets & Investment Banking (MIB) serves as UniCredit Group's global
product and competence center for global financial markets and investment banking
services, including Custody throughout Central and Eastern Europe, including Austria.
T: +43 50505-58510
Brand diversitiy under which the group operates (Bank Austria Creditanstalt, HVB,
Bank BPH, Bank Pekao, Zagrebacka Banka and International Moscow Bank), has its F: +43 50505-58579
roots in local market presence and knowledge, contributing into a single unified prod- C: Andreas Petzl , Head of Sales
uct across the region. In 2006 the group was recognised by no less than 3 independ- and Relationship Management
ent surveys as being the best region custodian
Markets & Investment Banking E: Andreas.petzl@ba-ca.com
The group's ability to deliver service excellence across 13 markets is the cornerstone of W: www.hvb-custody.com/
our success. From participation in local market associations to our inter group training
sessions, to a client consultative approach, the group continues to work towards mak-
ing a single impression - excellence.

Data Services
Capco Reference Data Services (CRDS) provides a suite of reference data
management solutions that help financial services providers to achieve C: Donna Faup Bailey
superior data integrity, solve data integration issues and transform
operational performance while lowering data management costs. These Director Business Strategy &
services include a comprehensive managed services offering - a proven Marketing, Capco
alternative to in-house management of reference data as well as index T: +212 284 8749
and ETF data solutions. CRDS also provides consulting services E: Donna.FaupBailey@Capco.com
including advisory, assessment, migration, implementation, integration,
project management, development and training. For more information, W: www.capco.com/crds
please visit www.capco.com/crds.

Through its subsidiaries, DTCC provides clearance, settlement and information serv-
ices for equities, corporate and municipal bonds, government and mortgage-backed London: Richard Bustard
securities and over-the-counter derivatives. DTCC's depository also provides custody T: +44 (0)20 7444-0403
and asset servicing for more than 2.5 million securities issues from the United E: rbustard@dtcc.com
States and more than 100 other countries and territories. In addition, DTCC is a
leading processor of mutual funds and insurance transactions, linking funds and car- New York: Susan Spivey
riers with their distribution networks. DTCC has operating facilities in multiple loca-
tions in the United States and overseas. For more information on DTCC, visit T: + 1 212 855-4144
www.dtcc.com. E: sspivey@dtcc.com

DTCC’s GCA Validation Service gathers and distributes validated global corporate General information
actions announcement information on more than 1.4 million securities from more T: +1 212 855-1000
than 150 countries in more than 16 languages, more than any other provider.

88 INVESTOR SERVICES JOURNAL

Interactive Data (Europe) Ltd
A: European Headquarters
Fitzroy House, 13-17 Epworth
Street, London EC2A 4DL
T: +44 (0)20 7825 7800
F: +44 (0)20 7608 3514
E: eu-info@interactivedata.com
W: www.interactivedata.com
C: Brendan Beith – European
Sales Director
W: www.sungard.com/dataman-
agementsolutions
T: 1-888-441-9935
F: 212-977-7144
C: Marketing Department
E: moreinfo@sungard.com
A: SunGard
888 Seventh Avenue
New York, NY 10106
Telekurs (UK) Ltd
15 Appold Street
London
EC2A 2NE
C: Kimberly Neumann
T: +44 (0) 20 7550 5000
F: +44 (0) 20 7550 5001
E: info@telekurs.co.uk
W: www.telekurs.co.uk
Andrew Collins Managing Director
T: 441-299-3954
E: andrewcollins@bntb.bm
Tania Kowalski Marketing
Manager T: 441-278-6300
E: taniakowalski@bntb.bm
A: Rosebank Centre 11
Bermudiana Road, Pembroke,
Bermuda HM 08 / P.O. Box HM
195 Hamilton, Bermuda HM AX
T: +33 1 57 78 10 78
C: Patrick Lemuet (France)
E: france@caceis.com
T: +352 4767 2567
C: José-Benamin Longrée
(International)
E: international@caceis.com
W: www.caceis.com
New York: Christopher Lynch
T: +1 718-242-7555
E: chris.e.lynch@jpmorgan.com
London: Dick Feehan
T: +44 (20) 7742-0102
E: dick.j.feehan@jpmorgan.com
Sydney: Laurence Bailey
T: (61-2) 9250-4833
E:laurence.bailey@jpmorgan.com
W: www.jpmorgan.com/wss
Interactive Data Corporation (NYSE: IDC) is a leading global provider of
financial market data, analytics and related services to financial institutions, active
traders and individual investors. The company’s businesses comprise: FT Interactive
Data, ComStock, CMS BondEdge and eSignal.
FT Interactive Data provides global securities pricing, evaluations, dividend, corporate
action and reference data designed to support financial institutions’ and investment
funds' pricing activities, securities operations, research and portfolio management. FT
Interactive Data collects, edits, maintains and delivers data on more than 3.5 million
securities, including daily evaluations for approximately 2.5 million fixed income and
international equity issues. FT Interactive Data specialises in ‘hard-to-value’ instru-
ments and ‘hard-to-get’ information from emerging markets.
SunGard's solutions for data management provide technology for the management
and delivery of market, historical and reference data to financial services
institutions, energy and public sector organizations. SunGard also offers outsourced
data management services, as well as real-time, interactive and flat-file data feeds
for application integration. Aggregating market data and financial content from more
than 100 third-party sources, SunGard's solutions for data management add value
through a range of services including cleansing, enrichment and analytics. To find
out how SunGard's solutions for data management can help improve productivity,
portfolio optimization and investment opportunity with predictive analytics and
packaged data please visit www.sungard.com/datamanagementsolutions.
Telekurs Financial, a company in the Telekurs Group, specializes in the procurement,
processing and distribution of international financial information for investment adviso-
ry services, portfolio management, financial analysis and securities administration. A
global network of local financial market specialists procures real-time stock exchange
information at source from the leading financial centres. Containing over 3 million
financial instruments, the database of structured, encoded securities information main-
tained by Telekurs Financial and its ten representative offices abroad is unparalleled
throughout the world in terms of both depth and data coverage.
Telekurs Financial is a founding member of the Association of National Numbering
Agencies (ANNA) allocating Swiss security (Valor) numbers and leads the way in intro-
ducing standards aimed at simplifying trading and securities administration.
Fund Administration
Butterfield Fund Services (BFS) provides valuation, accounting, corporate secretarial,
compliance, directorial and shareholder services to hedge funds, fund-of-funds, and
mutual funds. BFS also services international pension & insurance trusts. Clients
such as financial institutions, insurance companies, and institutional investors use
Butterfield Fund Services to set up and launch investment funds. BFS operates in
Bermuda, Bahamas, the Cayman Islands and Guernsey.
Whether a fund is just starting out or is well established, Butterfield Fund Services
can provide complete solutions to help clients better service their investors. With
over $50 billion in assets under administration, many alternative funds have turned
to Butterfield Fund Services for timely and accurate administration services.
The CACEIS Group is a partnership between the Investor Services business lines of
Crédit Agricole S.A. and Groupe Caisse d'Epargne. With a total of 823 billion in
assets under administration (30/6/2006), we are Europe’s premier third party fund
administrator. CACEIS provides a full range of services in France, Luxembourg,
Ireland, Belgium and The Netherlands. These services include portfolio valuation
with multiple and automated pricing sources, NAV calculation, product structuring,
tax relevant data calculation, fees and commissions calculation, on-line client report-
ing, legal and statutory investment guideline monitoring, performance measurement
and globalisation techniques such as Cloning. Our transfer agency services include
retail and institutional account management, Europe-wide transaction processing,
distribution network management, third party distribution and shareholder services.
The Fastnet Network, operated by CACEIS, undertakes some of the above services
and is a partnership venture with the Fortis Group.
JPMorgan Fund Administration provides a full suite of products for all aspects of
fund administration, enabling asset managers to focus on their core business of
investment management. Fully integrated with JPMorgan's custody and fund
accounting system, it also accepts automated data feeds from clients' in-house or
third party accounting platforms. By automating these activities, we leverage
technology to build flexible business systems that increase efficiencies and deliver
customer focused solutions.
A world-class team of experienced industry professionals provides the expertise you
need in fund administration services.
INVESTOR SERVICES JOURNAL 89
 PFPC is a premier provider of processing, technology and business solutions to the C: Fred W. Jacobs, III
global investment industry. Our core offering includes accounting, administration, A: PFPC, 301 Bellevue Pkwy
investor services, middle-office services and regulatory administration services. Whether Wilmington, DE 19809 USA
your products are U.S. or non-U.S. domiciled funds, trust vehicles, limited partnerships T: 302-791-2000
or commingled investment products, PFPC’s multi-jurisdictional, multi-fund capability F: 302-791-1570
allows us to process your complex fund structures - from hedge funds, fund of funds E: Information@pfpc.com
and private equity funds to master/feeder and multi-managed funds. C: Fergus McKeon
A: PFPC Riverside Two
PFPC offers personalized alternative investment solutions tailored to your unique Sir John Rogerson’s Quay
needs. With more than 30 years in the fund servicing industry, our seasoned and Dublin 2, Ireland
responsive professionals bring you the know-how, focus and dedication to deliver the T: +353-1-790-3500
services you need, when and where you need them, any way you want them. E: Information@pfpc.com

Our clients have access to a broad range of value added services and tailored solu- T: +44 (0) 1481 744000
tions including global custody and fund administration services for funds domiciled F: +44 (0) 1481 744529
in the Caribbean and Channel Islands. C: Jose Santamaria
E: jose.santamaria@rbc.com
Our services include Trustee, banking and credit facilities, treasury and foreign A: PO Box 48 Canada Court
exchange, trade execution, financial accounting, corporate services, derivative sup- St Peter Port Guernsey
port services and online access, leveraging a custody network that covers 80 plus GY1 3BQ United Kingdom
markets worldwide. Our service combines leading edge technology with professional W: www.rbcprivatebanking.
expertise and a truly integrated service delivering creative, customised solutions. com/ci.html

Atlanta: Peter Cohen

For over 25 years, professional advisors, financial institutions, corporations and high net T: 001-404-233-5275
worth families worldwide have relied on Trident Trust for integrity, reliability and commit- BVI: Barry Goodman
ment to client service. T: 284-494-2434
Main Services: A full range of back office administration services tailored for hedge, pri-
Cayman Islands: Rick Gorter
vate equity and closed-ended funds. We offer flexibility in structuring administration
T: 345-949-0880
which allows us to work closely with accounting firms and other service providers.
Services include full fund accounting, NAV calculations, registrar and transfer agent, Guernsey: Mark Le Tissier
corporate secretarial including company formation, due diligence compliance and inter- T: 01481-740-930
net reporting. UK: Robin Harris
Assets Under Administration: $13 billion * No. of Funds Administration: 185 T: 44-(0)207-935-1503
W: www.tridenttrust.com
Fund Services offers comprehensive fund administration services including fund
set-up, registration and support around the world (currently 28 countries), fund
accounting, NAV calculation, compliance management, risk control and reporting.
We provide a flexible offering from the full range of services, including Private W: www.ubs.com/fundservices
Labelling, to selected functions. Services are based on leading fund administration C: Mr Gerhard Fusenig
architecture, multi-source pricing and powerful compliance tools. T: +41 44 235 4992
Capabilities also extend to services for hedge funds through our teams in Cayman, E: gerhard.fusenig@ubs.com
Ireland and Canada. A: UBS Global Asset
In times when management attention is increasingly focused on value creation, it Management, Fund Services,
may be rewarding to re-evaluate whether asset administration remains a strategic Stauffacherstrasse 41, PO Box,
core business to you. CH-8098, Zurich, Switzerland
Luxembourg: Jean-Paul Gennari, tel. +352-44-1010 1
Switzerland: Markus Steiner, tel. +41-61-288 4910
UK: Mark Porter, tel. +44-20-7901 5000

Hedge Fund Administration

Robert N. Chin, General Manager
T: (+) 5999 738 1351 ext 11
E: robert.chin@atcfunds.an
ATC Fund Services is a specialized hedge fund administrator who has consistently Kedi J. Chang, Managing Director
received excellent reviews from its clients. ATC provides full administration to hedge T: (+) 5999 738 1351 ext 10
funds, including daily processing of all funds’ activities, nav calculation on a daily, E: kedi.chang@atcfunds.an
weekly or monthly basis and registrar & transfer agency services. In addition, ATC
ATC Fund Services
takes a pro active approach in assisting start up hedge fund managers with the Bon Bini Business Center, units
incorporation of their fund in jurisdictions such as the Cayman Islands, the British 2B2K & 2B2L
Virgin Islands and the Netherlands Antilles. Schottegatweg Oost 10
Curaçao, Netherlands Antilles
F: (+) 5999 738 1311
W: www.atcgroup.info

Custom House Administration &

Custom House is a specialist hedge fund administrator and was the first and only Corporate Services Limited
one to be awarded a Moody’s Management Quality Rating. A: 25 Eden Quay, Dublin 1,
Custom House provides advice and assistance in the organization of hedge funds, Ireland
together with the provision of a full administration service, which covers all aspects T: +(353) 1 878 0807
of the day-to-day operation, including shareholder services. F: +(353) 1 878 0827
Custom House now offers a global “24/7” service through offices in Dublin, Chicago C: dermot.butler@customhouse-
and Singapore. group.com
Custom House is authorised by the Irish Financial Regulator under Section 10 of the C: david.blair@customhouse-
Investment Intermediaries Act, 1995. group.com
ww.customhousegroup.com

90 INVESTOR SERVICES JOURNAL


W: www.dpmmellon.com
T: +1 732 667 1155
F: +1 732 662 2650
C: Skander Aissa
E: Aissa.s@dpmmellon.com
A: 400 Atrium Drive Somerset
New Jersey NJ 08873 USA
W: www.tridenttrust.com
T: +44 (0) 20 7935 1503
F: +44 (0) 20 7935 7242
C: Robin Harris
E: rharris@tridenttrust.com
A: 7 Welbeck Street
London W1G 9YE UK
W: www.ubs.com/fundservices
C: Mr Gerhard Fusenig
T: +41 44 235 4992
E: gerhard.fusenig@ubs.com
A: UBS Global Asset
Management, Fund Services,
Stauffacherstrasse 41, PO Box,
CH-8098, Zurich, Switzerland
British Virgin Islands
International Finance Centre
Haycraft Building
1 Pasea Estate
Road Town
Tortola
British Virgin Islands
T: +1 284 494 1509
F: +1 284 494 1260
W: www.bviifc.gov.vg
C: Philippe Teilhard
A: Fimat International Banque SA
(UK Branch) - part of the Societe
Generale Group
SG House, 41 Tower Hill
London EC3N 4SG, UK
T: + 44 207 676 85 36
F + 44 207 628 44 47
E: philippe.teilhard@fimat.co.uk
A: Exchange Tower
One Harbour Exchange
London
E14 9GE
T: Asia: +81 (0) 2 3517 2791
Europe: +44 (0) 20 7971 5700
North America: +1 212 943
2290
E: corpcom@cls-group.com
W: www.cls-group.com
DPM Mellon provides onshore and offshore alternative asset fund administration,
back and middle office outsourcing, portfolio valuation, daily NAVs, risk
administration and portfolio transparency solutions for fund managers, asset
allocators, institutional investors and proprietary traders.
DPM Mellon’s services are designed to solve complex administrative needs and
improve operational efficiency. From the most basic reports to complex portfolio
valuations, risk analysis and daily transparency, DPM has the systems, infrastructure
and experience to handle your toughest administrative challenges.
DPM Mellon has a world-wide staff of approximately 200 employees. DPM Mellon
is headquartered in Somerset, New Jersey with offices in London, the Bahamas, and
the Cayman Islands.
For over 25 years, Trident Trust has been a leading provider of corporate, trust and
fund services to the financial service sector worldwide.
Fund Services: A full range of back office administration services tailored for
hedge, private equity and closed-ended funds. Flexibility in structuring a fund’s
administration allows us to work closely with accounting firms and other service
providers to offer a cost-effective administrative solution.
Services include full fund accounting, NAV calculations, registrar and transfer
agent, corporate secretarial including company formation, due diligence compliance
and internet reporting. Assets of Funds Serviced: $20 billion No. of Funds: 300
New York: Mario Novello T: 212-840-8280 London: Robin Harris T: 0207-935-1503
BVI: Barry Goodman T: 284-494-2434 Cayman Is: Rick Gorter T: 345-949-0880
Guernsey: Mark Le Tissier T: 01481-727571 Jersey: Mike Spittal T: 01534-733401
Hedge Fund Services, based in the Cayman Islands, Ireland and Canada holds a
leading position in the area of hedge fund administration, offering a complete range
of services including accounting, NAV computation, share holder services, banking
and credit facilities. With the dedication and experience of a professional team of
200 and our state-of-the-art web reporting, accounting and shareholder systems, we
are well positioned to provide clients with a first class service.
With specialist expertise in both single manager and fund of hedge fund adminis-
tration, we provide facilities for both onshore and offshore funds.
Capabilities also extend to services for investment funds through our teams in
Luxembourg, Switzerland and the UK.
Cayman Islands: Darren Stainrod, tel. +1-345-914 1076
Ireland: Don McClean, tel. +353-1-436 3636
Canada: Pearse Griffith, tel. +1-416-971 4702
International Finance Centres
The British Virgin Islands has created a progressive and transparent environment for
the establishment and regulation of mutual/hedge funds and their functionaries. By
the end of Q3 2006 the BVI had recognised or registered more than 4,000 funds,
and licensed some 700 managers and administrators, making the BVI a leading
domicile of choice for investment business.
Benefits of conducting investment business in the BVI include:
-Fast-track registration and licensing system - funds can be registered in a few days.
-Presence of qualified, experienced legal, accounting & administration practitioners.
-A well-developed corporate professional infrastructure.
-Modern, robust and cost-effective regulatory and corporate regimes.
-BVI private and professional funds fall outside the scope of the EU Savings
taxation Directive.
-Segregated Portfolio Companies - also known as Protected Cell Companies - can now
be formed as mutual funds under the BVI Business Companies Act 2004.
Prime Brokerage
Fimat’s Alternative Investment Solutions team (AIS) is a dedicated global Prime
Brokerage team serving the alternative investment community including hedge
funds and CTAs.
The AIS team offers a global range of brokerage activities on a wide range of asset
classes including equities, bonds, currencies, commodities, and their related listed &
OTC derivative products. The team also provides a dedicated account management
team, cross-margining tools between securities & derivative instruments, hedge fund
start-up services, hedge fund industry quantitative information and capital
introductions services.
The AIS team is part of Fimat, which employs over 1,600 people in 26 markets,
and is a member of 46 derivatives exchanges, and 17 stock exchanges worldwide.
Payments & Settlement
The Settlements Directory for CLS removes the uncertainty surrounding which
instructions to use, easing time pressure on query handling and investigation in
back office operations.
The Settlements Directory for CLS is a web-enabled application powered by
SSISearch containing contact details, basic settlement information and MT300
preferences. It offers Settlement Members ongoing certainty of accurate settle-
ments information and a fast, simple method of publishing and accessing CLS
static data.
INVESTOR SERVICES JOURNAL 91
 Eiger Systems solutions are designed to be best in class and are the leading products
within their market sectors. Developed to meet the needs of organisations with complex or
mission critical payment processes, our solutions interface easily with existing business A: Eiger Point
applications and are available for all main operating systems. Swift Park
EigerPAY Gateway is a global payments platform which handles complex payment require- Old Leicester Road
ments and multiple payment channels. Already the UK’s leading BACSTEL-IP solution,
Rugby
EigerPAY Gateway is ideally suited to organisations with one or more of the following:
CV21 1DZ
• a mission critical reliance on payments
• complex functional or technical requirements United Kingdom
• a requirement for numerous communication channels such as T: + 44 (0) 1788 554800
BACSTEL-IP, CHAPS, SWIFT, or PE-ACH connectivity (Sales): +44 (0) 1788 554810
EigerPAY Gateway’s flexible architecture enables organisations to integrate with the
many new and developing payment systems, with minimal change to legacy systems.

A: Europe/Asia/Africa
Fundtech's payments solutions automate all aspects of the funds transfer and cus- 42 New Broad Street
tomer notification process, enabling straight-through-processing (STP) of payments. London EC2M 1SB
Fundtech also offers payments solutions for continuous linked settlement (CLS), nos- United Kingdom
tro account management and enterprise-wide payments management.
T: +44-207-588-1100
Global PAYplus - The enterprise-wide payments management solution for global
F: +44-207-588-1155
financial institutions.
PAYplus RTGS - A fully integrated, multi-currency payment system for banks resid- A: Americas
ing in countries outside the U.S. that have established Real Time Gross Settlement 30 Montgomery Street Suite 501
(RTGS) standards. Jersey City, NJ 07302
PAYplus USA - The leading payments solution for financial institutions in the US. T: +1-201-946-1100
F: +1-201-946-1313

Securities Lending .
Data Explorers Limited, a specialist and independent company, offers impartial
W: www.dataexplorers.com
quantitative measurement of securities lending performance services to the global T: +44 (20) 7392 4000
securities financing industry. We help our clients monitor and understand the F: +44 (20) 7392 4004
relative performance of their lending activity and risk, and turn raw lending, borrow- A: 155 Commercial Street,
ing and collateral data into useful, actionable information. We also provide proxies London E1 6BJ United Kingdom
for short selling information. London: Julian Pittam
Working with the industry we ensure information flows are appropriate and peer T: +44 (20) 7392 5018
groups relevant. We are not involved in transactions. E: jp@dataexplorers.com
All of our services: Performance Explorer, Transaction Explorer, Risk Explorer, Boston: Tim Smith
Index Explorer and Report Explorer are web based and available to clients T: + 1 (617) 973 5099
E: tim.smith@dataexplorers.com
over the internet.

T: +1 212 901 2224

EquiLend Holdings LLC was formed by a group of leading financial institutions to C: Michelle Lindenberger
develop a global platform for the automation of securities finance transactions. E: Michelle.lindenberger@equi-
The EquiLend platform is designed to increase efficiency by standardizing, cen- lend.com/info@equilend.com
tralizing and automating front and back office processes, while delivering global A: 17 State Street, 9th Floor
access to liquidity, reduced risk and scalability. The EquiLend platform is
New York NY 10004
designed to process equity and fixed income securities finance transactions on a
global basis. Investors include: Barclays Global Investors; Bear, Stearns & Co. T: +44 20 7743 9510
Inc.; Credit Suisse; The Goldman Sachs Group, Inc.; J.P. Morgan Chase & Co.; A: 54 Lombard Street
Lehman Brothers; Merrill Lynch; Morgan Stanley; Northern Trust Corporation; London EC3V 9EX
State Street Corporation; and UBS. W: www.equilend.com

eSecLending is a global securities lending manager and a leading provider and

administrator of customized securities lending programs. Its programs attract T: US- +1 617 204 4500
some of the world's largest and most sophisticated asset gatherers, including T: UK- +44 (0)20 7469 6000
pension funds, mutual funds, investment managers and insurance companies. C: Dan Ahern
Over the past six years, the company has auctioned over $950 billion in assets E: info@eseclending.com
and has achieved significant growth in its client base, lendable assets and assets W: www.eseclending.com
on loan. The firm awards principal securities lending business through a compet- A: 175 Federal Street, 11th FL,
itive auction process that has provided clients with higher returns compared to Boston, MA 02110, US
traditional program structures and improved transparency and objective criteria A: 1st Floor, 10 King William
upon which to make decisions. More information about eSecLending can be Street, London EC4N 7TW, UK
found at www.eseclending.com.

T: +41 (0)44 218 14 14

IFBS offers the financial industry a wide range of consulting services as well as F: +41 (0)44 218 14 18
individual and standard software solutions. The firm supports clients along the entire
E: info@ifbs.com
security value chain - from business modelling to change management processes.
A: IFBS AG, Buckhauserstrasse
IFBS’s IT solutions range from FINACE®, a Securities Finance and Collateral
Management Platform, to the development of tailor-made IT applications. 11, CH-8048 Zurich, Switzerland
W: www.ifbs.com

92 INVESTOR SERVICES JOURNAL

New York: Christopher Lynch
T: +1 718-242-7555
E: chris.e.lynch@jpmorgan.com
London: Dick Feehan
T: +44 (20) 7742-0102
E: dick.j.feehan@jpmorgan.com
Sydney: Laurence Bailey
T: (61-2) 9250-4833
E:laurence.bailey@jpmorgan.com
W: www.jpmorgan.com/wss
T: +44 (0) 20 7521 5672
F: +44 (0) 20 7521 2683
C: Jonathan Cossey, Head of
Equity Finance
A: Nomura House,
1 St Martin's-le Grand, London,
EC1A 4NP United Kingdom
W: www.nomura.com
W: www.gruposantander.com
T: (3491) 289 39 42/54
E: securitieslending@
gruposantander.com
T: +44 (0) 207 551 3000
E: bsginfo@adp.com
Address: The ISIS Building,
193 Marsh Wall, London,
E14 9SG, UK
T: +44 (0)20 7631 9240
F: +44 (0)20 7631 9256
E: emea@advent.com
A: One Bedford Avenue,
London WC1B 3AU, UK
W: www.advent.com
A: EMEA - Progress Apama
68 Lombard Street
London EC3v 9LJ
T: +44 (0) 870 3517212
E: fraser.herrick@progress.com
A: USA - Progress Apama
10th Floor, 230 Park Avenue
New York NY
T: +1 203 606 5006
E: jim.feingold@progress.com
W: www.progress.com/apama
JPMorgan Securities Lending offers institutional investors the opportunity to earn
extra income on investment and pension portfolios with minimal risk and
involvement by lending their securities to qualified borrowers. With more than 300
lending relationships and lendable assets in excess of $1.2 trillion, JPMorgan is
clearly committed to the market and to the value that our clients place in it. Our
resources enable you to develop programs that comply with your business
requirements and achieve your business objectives. When you select JPMorgan as
your securities lending agent, you have chosen a premier provider of securities
lending services worldwide.
Nomura Group is a global investment bank dedicated to providing a broad range of
financial services for individual, institutional, corporate and government clients.
The Group’s business activities include investment consultation and brokerage
services for retail investors in Japan, and, on a global basis, brokerage services,
securities underwriting, investment banking advisory services, merchant banking,
and asset management.
Nomura offers a full range of Equity Finance services to institutional participants
in over thirty markets, through regional trading desks in London, New York,
Tokyo and Hong Kong. Identifying client needs and providing bespoke solutions
is our top priority.
Santander is the only Spanish financial institution with a team exclusively dedicated
to securities finance & with the purchase of Abbey in 2004 has expanded its
capacity on a Global basis with trading teams in London (UK) & Connecticut (USA).
Santander's leading local capabilities in Spain, Portugal, UK, USA & Latin America,
along with its solid balance sheet & combined with the state-of-the-art technology,
provides its clients with the broadest range of solutions in securities lending &
financing, including availability across all assets classes, as well as access to
uncommon emerging markets.
Technology
ADP Brokerage Services Group is an industry leading outsourcing vendor for global
transaction processing systems, desktop productivity applications and investor
communication services to banks and brokerages worldwide.
-Proxy Edge – comprehensive solution for institutional global proxy voting management.
-Gloss – leading international STP system which automates the trade processing
lifecycle from trade capture through confirmation, clearing agency
reporting and settlement.
-Tarot - a UK retail and private client stockbroking, custody and fund management solution.
-Securities Data Management – outsourced data services for securities operations.
Advent Software EMEA, established in 1998, provides trusted solutions for the front
through to back office operations, based on a true real-time fund/portfolio
accounting platform, to the investment management community throughout Europe,
Middle East and Africa. Advent has an established network of offices across the
region serving a growing client base of asset managers, hedge fund managers, prime
brokers, fund administrators, wealth managers, private banks and family offices who
continue to improve their businesses using Advent’s suite of integrated investment
management solutions. Advent Software EMEA is part of Advent Software Inc.
(Nasdaq: ADVS), a global organisation that has been providing solutions to the
world's leading financial professionals since 1983. Firms in more than 50 countries
using Advent technology manage investments totaling more than US $8 trillion.
Progress Apama provides the next-generation Algorithmic Trading
Platform for both the buy and sell-side financial institutions - giving
traders full control over composing, deploying and managing algorithmic
trading strategies, such as VWAP, spread trading and index arbitrage.
Apama has customers using the Algorithmic Trading Platform in equities,
futures & options, foreign exchange and bonds and often trading multiple
assets classes within the same strategy.
Apama's platform plugs straight into any market data feeds, order
management systems and databases.
INVESTOR SERVICES JOURNAL 93
 C: Belinda Hamer (US)
Asset Control is the world's leading provider of Centralized Data Management (CDM)
E: bhamer@asset-control.com
to financial industry firms. With a complete range of in-house and outsourced T: +1 212 445 1076
options, Asset Control delivers a hybrid approach to data management. The F: +1 212 445 1079
selection of developer tools, turnkey software solutions and outsourced services
enable users to optimize their investment data for efficiency, cost control, reduced C: Pascal Guignabaudet (EU)
E: pascalg@asset-control.com
operational risk and increased value from their data.
Address: 54 Lombard Street,
Asset Control solutions manage prices, reference data, risk factors, credit risk data, London, EC3P 3AH, UK
corporate actions and research data. The solutions support market risk, Basel II, T: +44 (0)20 7743 0320
F: +44 (0)20 7743 0321
portfolio management, trading and enterprise-wide operational coherency.
W: www.asset-control.com

Burns Statistics provides software and consulting services. We are focusing on ran-
W: www.burns-stat.com
dom portfolios, a technique that provides significantly improved performance meas-
T: +44 (0)20 7525 0696
urement. A particularly powerful feature is that the initial holdings of the portfolio C: Patrick Burns
can be used in the performance analysis in order to gain even more precision. E: patrick@burns-stat.com
Performance measurement is after the fact, but random portfolios also allow fund 4-b Jodrell Road
managers to test trading strategies before implementing them. There are many addi- London
E3 2LA UK
tional uses of random portfolios as well, one is to objectively evaluate the effect of
constraints on a portfolio.

DST International is the world’s premier vendor of technology solutions to the global
T: UK +44 (0)20 8390 5000
investment management community with over 700 clients in 55 countries, and
Boston +1 617 482 8800
1500 employees in 19 of the world’s leading financial centres. Our wide range of
Hong Kong +85 225 812 880
asset management solutions meet the needs of fund managers, dealers, settlement
F: +44 (0)20 8390 7000
staff, custodians and record keepers operating as international asset managers; from
E: info@dstintl.com
front office simulation, opinion management and modelling functions, through data
A: DST House, St Mark’s Hill,
management, dealing and settlement to custody and corporate actions. The suite of
Surbiton, Surrey, KT6 4QD
products can be used either as stand-alone applications or brought together in flexi-
W: www.dstinternational.com
ble combinations according to specific needs.

Eagle Investment Systems LLC, a Mellon Financial CompanySM, is a global provider

of financial services technology, serving the world's leading financial institutions. W: www.eagleinvsys.com
Eagle's Web-based systems support the internal straight-through processing T: +44 (0) 20 7163 5700
requirements of firms of any size including money managers, mutual funds, hedge F: +44 (0) 20 7163 5701
funds, plan sponsors, banks, corporate trusts, and insurance companies. Eagle is A: Mellon Financial Centre
committed to providing leading-edge technology, professional services, and global 160 Queen Victoria Street
support for portfolio management, investment accounting, performance London, EC4V 4LA
measurement, attribution, reference data management, AIMR/GIPS compliance,
reporting, and outsourcing.

Financial Tradeware provides integrated solutions for medium to small sized

Investment Management firms, Fund Managers and Hedge Funds, covering the full
trade life cycle. It is part of the Dharma Group of companies and benefits from the W: www.f-tradeware.com
joint contributions and experiences within the group of leading market traders, busi- T: +44 (0)20 7493 2773
ness analysts, financial services professionals and skilled Microsoft Certified pro- F: +44 (0)20 7495 4858
C: Alberto Fontana
grammers. The company has developed a suite of applications that integrate and
E: info@f-tradeware.com
Straight Through Process (STP) real-time trading, back office administration, A: 31 Dover Street
accounting and compliance. Ultra.net®, S-Messenger® and H-Fund® are the com- London W1S 4ND UK
pany's flagship products all based on Microsoft.NET infrastructure. In addition the
company offers a Member Administered Closed User Group (MA-CUG) service for
SWIFT connectivity. For more information see: www.f-tradeware.com

Interactive Technologies is a leader in developing and delivering software solutions

that support current and emerging Financial Industry needs for enterprise-level T: +1 908 273 1116
billing and revenue management. Founded in 1993, Interactive Technologies was C: Mike Donoghue
acquired by Fiserv, Inc (Nasdaq: FISV) in June 2005 and is based in Summit, N.J., E: Mike.Donoghue@itadv.com
with additional offices in Los Angeles, London and Toronto. The company's sole A: 482 Springfield Avenue,
product - Advantage Fee System - provides banking and financial service institutions Summit, New Jersey NJ 07901
with a comprehensive solution for streamlining, automating and managing fee-based USA
billing operations. Over 60 organizations benefit from the Advantage Fee System, W: www.itadv.com
ranging in assets managed from 5 billion to well above 1 trillion US$.

94 INVESTOR SERVICES JOURNAL


C: Harvey Colborne
E: harvey.colborne@mondas.com
A: 17 - 29 Sun Street
London, EC2M 2PT, UK
E: info@mondas.com
T: +44 (0) 207 392 1300
F: +44 (0) 207 392 1301
W: www.mondas.com
peterevans
New Broad Street House
35 New Broad Street
London EC2M 1NH
T: +44 (0) 29 20 402200
E: info@peterevans.com
W: www.peterevans.com
T: +1 609-987-2400
F: +1 609-514-4794
C: Lorne Whitmore, Vice
President, Global Sales &
Product Management
E: lwhitmore@pfs.com
A: 600 College Road East,
Princeton, NJ 08540, USA
W: www.pfs.com
T: +44 (0) 20 7651 8800
F: +44 (0) 20 7651 8811
C: Elizabeth Gee,
Sales Director
E: elizabeth.gee@simcorp.co.uk
SimCorp, 10 Walbrook
London EC4N 8DQ UK
W: www.simcorpdimension.com
T: +44 (0)20 7826 4470
F: +44 (0)20 7826 4480
C: Nick Stevens
E: sales@singularity.co.uk
A: Cable House, 4th Floor
54-62 New Broad Street
London EC2M 1ST UK
Further Contacts:
US T: +1 212 946 2685
Singapore T: +65 9616 7732
T: +44 (0)118 378 8239
F: +44 (0)118 931 4741
E: admin@icmacentre.ac.uk
C: Samantha Heslop
(please quote ref:IS001)
A: University of Reading,
Whiteknights, PO Box 242,
Reading RG6 6BA
W: www.icmacentre.ac.uk
AIM-listed Mondas plc provides specialist software solutions to firms dealing in the
Global Financial Markets. Our solutions increase process efficiency, improve
customer service and reduce operational risk.
Mondas is a market-leading supplier of solutions for global corporate actions
processing; financial research and client reporting, and management of new issues
and placings.
Mondas’ clients include HSBC, Credit Suisse, ING, Panmure Gordon & Co.,
Brewin Dolphin Securities, Investec, Williams de Broë, Man Financial, Stocktrade,
Evolution Securities and Rabobank.
www.mondas.com
peterevans is a leading independent provider of front to back office solutions for the
financial services sector. Clearly focused on the securities and investment market,
and built upon more than 21 years of experience, peterevans presents a
sophisticated boutique approach in a homogenized market place.
xanite, peterevans suite of products, offers a configurable, fully integrated,
browser based, comprehensive solution that can be deployed as a single application
or integrated as components into your existing platform. The xanite modules can de
delivered via an ASP or self-hosted. Covering wealth management, custody,
corporate actions, clearing and settlement, private client and on-line stock broking
with full operational and administrative support for the front, middle and back office.
xanite gives full but controlled access to clients, portfolio, fund and relationship
managers, brokers, middle and back office staff – on line anywhere in the world.
Princeton Financial® Systems, a wholly owned subsidiary of State Street
Corporation, is a leading provider of investment management and accounting
systems and ASP services for global institutional investors.
Its flagship PAM® investment management systems provide comprehensive STP-
ready functionality that can be licensed for in-house use or accessed via the
Internet. PAM® systems are currently used worldwide by over 275 leading invest-
ment managers, insurance companies, mutual funds and unit trusts, pension funds,
hedge funds, endowments, banks and corporation, which manage combined total
assets over US $3 trillion.
Princeton Financial has offices located throughout the United States, United
Kingdom, Belgium, Australia, Singapore, Amsterdam and Canada. Form more
information, visit Princeton Financial’s website.
SimCorp Dimension is a powerful, comprehensive and truly seamless investment
management system. It can handle NAV and other calculations, with complete relat-
ed accounting, for a huge variety of fund structures and product types, including
regional specialties.
Support for broader functions, such as performance attribution and risk manage-
ment, are particular strengths of the system.
SimCorp Dimension has been designed from scratch as a total straight through pro-
cessing system, handling all aspects of the investment management process, consis-
tently. Data is recorded into a single database so that reporting is made easy, there
is no reconciliation of data and no duplication of procedures.
Over 100 Capital Markets firms worldwide rely on Singularity to achieve step-change
improvements in efficiency and cost-effectiveness. Across front, middle and back office
operations, Singularity's clients are improving performance by automating process and
leveraging their human capital most effectively. Our process automation solutions com-
bine deep knowledge and long-standing capital markets experience with award-winning
technology. Clients include JPMorgan, Bank of Tokyo Mitsubishi UFJ, Raymond James,
Prudential, Invesco, BNPParibas, Morgan Stanley, American Express and M&G.
-By cutting latency in securities processing, our clients are recognising new efficien-
cies, reducing costs and increasing throughput
- By streamlining their customer on-boarding processes, our clients are gaining faster
access to fees, increasing customer satisfaction & gaining greater cross-sell opportunities.
- By automating their KYC & other compliance processes, our clients & reducing risk.
- By improving collaboration in their client reporting cycle, our clients are providing
more timely and insightful investment performance information.
Training and Education
The ICMA Centre, University of Reading has an international reputation for providing
quality academic and professional programmes tailored to the capital markets indus-
try. Established in 1991 with funding provided by the International Capital Market
Association (ICMA) in Zurich, the Centre is housed in a purpose-built modernist
building with state-of-the-art facilities including two dealing rooms. Our academic
programmes include the MSc International Securities, Investment and Banking, MSc
Capital Markets, Regulation and Compliance, MSc Financial Risk Management and
MSc Investment Management.
Professional programmes offered:
- - ICMA and NASD certificate and diploma programmes
- - Practical finance workshops for market professionals (Market VaR, Options, Repo,
FX and Money Markets) – can be customised to company requirements
- - Simulated trading days.
INVESTOR SERVICES JOURNAL 95
 HINDSIGHT/FORESIGHT
Stewart Copland ,
Consulting Director at Etheios,
starts the new year by reflecting
on some old onees...
THGISDNIH
It is customary at the end of a calendar year to look back, reflect
on the changes that have happened, and try to identify patterns or
trends that have emerged.
With the benefit of hindsight, we can see that 2006 was a time of
consolidation and rebuilding in the asset management industry.
The year started with the announcement of the merger of invest-
ment businesses MLIM and Blackrock and industry consolidation
continued at the end of the year with the merger of The Bank of
New York and Mellon to create the largest global custodian. A
good example of rebuilding is Credit Suisse, which rebranded and
restructured its global businesses into three clear lines and is now
better able to focus on its core businesses.
In terms of investment management strategies, the main trend
over the last few years has been a move to open architecture and
multi-manager strategies. The past year has seen the maturity of
open architecture and multi-manager strategies.
Fund management groups offering their competitors products
was unheard of a few years ago, and now almost all leading players
have an open architecture offering. This has helped to polarize the
industry even further into specialist managers, distributors and
asset aggregators. Trading and implementation of strategy has
become more highly automated. Adoption of electronic trading
systems increased significantly, particularly in global fixed-income
markets. The importance of STP links from execution through to
settlement became more critical to achieving fast transaction
processing. More organisations created direct access from their
trading platforms to clearing facilities such as DTCC, NSCC,
Bloomberg and Clearstream. Take-up of value-added services
such as compliance and performance analytics improved as
managers tried harder to identify the source of their returns.
Most of these trends were anticipated by the key players and
factored into their strategies. In addition, market conditions and
volatility have been relatively benign. If there are lessons to be
learnt from these trends, it is that asset managers need to keep
ahead of the pace of change and build in structural flexibility to
cope with more challenging times ahead.
96 INVESTOR SERVICES JOURNAL
“Life can only be understood
backwards, but it must be lived forwards.”
SOREN KIERKEGAARD
FORESIGHT
It is customary, at the start of a new calendar year, to look
forward, predict the changes that might happen, and to identify
new patterns or trends.
With the advantage of foresight, we can see that 2007 is going
to be the year when several significant regulatory milestones are
reached: the new UK sourcebook COLL becomes mandatory in
February, MiFID is due to come into force across Europe in
November and there will be further proposals on the
development of UCITS4.
Although the changes required will largely have been complet-
ed in readiness for these implementations, they are milestones on
the convergence path of different regulatory approaches in
Europe.
Hedge funds, in particular, will benefit from this trend and will
move from being alternative to an essential, but still relatively
small, part of balanced portfolios. UCITS 4 is expected to include
hedge funds in its scope for the first time – giving a European
passport to hedge funds. This is likely to further accelerate their
growth and acceptance as a mainstream and regulated product.
While multi-manager strategies have gone so far, the
development of wrap services still has some way to go and there
should be several new launches in the months and years ahead.
Wrap platforms allow managers and IFAs to consolidate and
report on all aspects of a client’s investment portfolio, including
retail funds, pensions and life policies.
However, as has been seen with the stalled growth of fund
supermarkets, there is probably only shelf space for a few wrap
platforms: some will fail in development and others will
consolidate to lead the market. Overestimates of the popularity
of wrap products are likely to drive fruitless development plans.
The areas of largest returns are likely to continue to be
emerging markets. The search for alpha in these regions will
need more detailed and timely analytics. There is risk
from volatility and change but the biggest risk is to not be
invested at all.