VOLUME 5 No. 29 - 2008 ISJNEWS.

COM
GBP 25 - UK, ROW
USD 45 - America
INVESTOR EUR 35 - EMEA

S ERVICES
JOURNAL

FULLY AUTOMATIC?
THE PROGRESSION OF AUTOMATED CORPORATE ACTIONS

PLUS
INDIA - CAPITAL MARKETS CUSTODY FOCUS - ITALY
CARIBBEAN- OFFSHORING ANALYSE THIS - HEDGE FUNDS
EUROPE - OUTSOURCING PANEL DISCUSSION - DATA
EMS - EMPOWERING THE BUYSIDE OFF THE RECORD - SETTLEMENT

SERVING THE GLOBAL SECURITIES SERVICES INDUSTRY

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 HEADS UP

INVESTOR
S ERVICES
JOURNAL
VOL 5 No. 29 - 2008 A whole new world
Although it is cliché to say these are
interesting times in securities services,
there has rarely been a time where this
monochrome statement as been more
apt. The industry is set to change
beyond recognition in 2008. Tim
Howell, HSBC's global head of
securities services, hse recently stated
that the bank is attracting hedge fund
business because of the concern that
prime brokers are struggling due to the
credit crunch. The hedge funds, with up
to USD100 billion in assets, are eyeing
up HSBC's foreign exchange and
treasury products on top of traditional
fund administration and custody
services. A power shift is taking place,
with a few almighty struggles set to take
shape over the next few years.
One major shift in the back office
taking place at present is in corporate
actions. Though it is a little-
acknowledged fact, and most don't like
to talk about it, many of the bigger
firms have sizable contingency fund
squirreled away specifically for when
they miss a corporate action, according
to a data reference manager at the major
software firm Interactive. This is
because missing an action can
potentially cost an outfit millions of
dollars, to say nothing of major loss of
face in front of clients and competitors.
On top of this, the area of corporate
actions processing in the back-office is
antiquated, manual and inefficient. ISJ
takes a look at how automation is
changing the corporate actions
landscape (p16).
In our panel discussion, we discuss the
evolving nature of data management
(p24), and in our extensive Analyse This
section, we ask industry experts about
the changes in the hedge fund industry,
both in the front and the back of the
office (p50). Also, our man on the street
Brian Bollen, gets the dirt regarding
European clearing and settlement (p38),
and we examine how and if European
appetite for securities lending is
changing (p60). Also, for the first time
we take a look at the complicated arena
of EMS systems (p65).
The obvious theme for this issue is
change. The credit crunch, while
focusing on CEOs and other front office
figures, will profoundly affect how the
back office will be run. ISJ hopes to
focus on some of the more seismic
changes during the next few quarters.
Giles Turner

INVESTOR SERVICES JOURNAL

Group editor: Giles Turner (Giles@2ipartners.com)
Reporters: Joe Corcos (Joseph@2ipartners.com), Catherine Kemp (Catherine@2ipartners.com)
MEMBER - PERIODICAL PUBLISHERS ASSOCIATION Deputy editor: Ben Roberts (Ben@2ipartners.com)
Contributors: Brian Bollen, Nicholas Pratt, Carol McGuin, Jamie Darlow, Alison Ebbage

Associate publisher: Justin Lawson (Justin@2ipartners.com)

Publishing manager: Monique Labuschagne (Monique@2ipartners.com)
Account managers: Peter Lines (Peter@2ipartners.com), Craig McCartney (Craig@2ipartners.com),
Mohammed Malik (Mohammed@2ipartners.com), Tarik Rekiouak (Tarik@2ipartners.com),
Oliver Blennerhassett (Oliver@2ipartners.com)
TOTAL NET CIRCULATION 12,133 Operations manager: Sue Whittle (Sue@2ipartners.com)
Analysis for the Audit Issue Vol 4, No 22 distributed June 2007.
Source: AUDIT BUREAU OF CIRCULATIONS, www.abc.org.uk CEO: Mark Latham (Mark@2ipartners.com)
Investor Intelligence partnership 16-17 Little Portland Street, London W1W 8BP
TO RENEW YOUR SUBSCRIPTION PLEASE T: +44 (0) 20 7299 7700 F: +44 (0) 20 7636 6044 WWW.ISJNEWS.COM
TELEPHONE: +44 (0)20 7299 7700 © 2008 Investor Intelligence. All rights reserved. No part of this publication may be reproduced, in whole or in part, without prior
OR VISIT... WWW.ISJNEWS.COM written permission from the publishers. Thanks to Juliette, Sophie, Calypso and Electra.
ISSN 1744-151X. Printed in the UK by Pensord Press.
CONTENTS

VOL 5 No. 29 - 2008

I Technology 60
16
24 Panel Discussion
The evolving nature of data
management

I Funds
30 Putting the I in BRIC
Focusing on India

I Custody
33 The next stage
Custody in APAC

35 Hope Springs Eternal

Automation and
corporate actions
1 Heads up
the Editor’s letter
4 Letters
Reader’s points of view
I News
6 Global snapshots & mandates
Round up of securities services
headlines from isjnews.com
10 News analysis
Reading between the lines
Custody in the Italian market
I Fund administration
38 Off the record
European clearing and settlement
42 Outsourcing and Europe
The most active market
44 Regulating paradise
The motivation behind
38
Caribbean regulation
50 Analyse This
The future for hedge funds
58 Pension funds Ireland
Moving towards alternative assets?
I Securities lending
60 Plus ça change...
How the European appetite for sec
lending is changing
I Management systems
65 EMS Systems
Who has invested and why?

14 CEO profile
Ali Pichvai, CEO of Quad
I Regulars
Financial 68 People moves

I Special report 80 Hindsight/Foresight

Greg Froese of Insch
16 Fully Automated
How corporate actions are I ISJ Directory
getting automated
69 The directory of
securities services providers

2 INVESTOR SERVICES JOURNAL

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LETTERS TO THE EDITOR
The pen is mightier than the sword...If you are affected by, or have
an opinion on, any aspect of investor services please write to giles@
Prize winner 2ipartners.com and enter into the running to win an exclusive Cross pen.
The future of SOR
technology
W
hilst MiFID provides a range of
opportunities for innovation that
affects both the buy- and sell-
side it is multi-lateral trading facilities
(MTFs) that are driving innovation.
Offering an automated means for
brokers to match orders with suitable
trading venues, smart order routing
(SOR) is key to achieving MiFID
compliance and providing competitive
advantage. In fact, for most, SOR has
become synonymous with best
execution.
The evolution of SOR technology will
be determined by the idiosyncrasies of
the new trading venues and the way the
financial institutions interact with them.
Each trading venue demands a different
set of SOR logic in order to optimise
trading opportunities on that venue.
This way, SOR will evolve from simply
splitting orders to become a much more
sophisticated algorithmic mechanism
resolving the best trading opportunities
across multi-dimensional dark and
published liquidity pools – intelligent
liquidity access.
As the market fragments, metrics for
Change is the challenge
for the Transfer Agent
O
ne of the key themes at the recent
International Transfer Agency
Summit (ITAS) in Luxembourg,
was the globalisation of transfer agency
and the race to dominate the Asian
market. Fund management companies
are clearly becoming more interested in
Transfer Agents (TA’s) who can help with
managing market volatility at home,
whilst enabling wealth creation in
emerging markets.
Looking at technology and how it can
guarantee robust, real-time support, for
complex fund structures and a
consistent cross border service, with
support for unique national rules and
4 INVESTOR SERVICES JOURNAL
judging the power and efficiency of
SOR technology will develop, and
financial institutions will focus more on
the quality of the SOR solutions they
use. For now, performance is the key
driver as it allows brokers to set
themselves apart by securing liquidity
and best prices as quickly as possible.
Eventually, the marketplace and
technology changes resulting from
MiFID may well precipitate a shift in
the relationship between buy- and sell-
side. Market evolution may result in
technology moving up the chain, with
the buy-side investing in its own SOR
systems. This does not mean that the
role of broker will become obsolete.
While the buy-side is becoming more
eager for market visibility, there is still
a considerable wealth of trading
experience and expertise that only
brokers can offer – and that few
sell-side institutions would care to
forego. However, brokers will need to
invest heavily in SOR technology in the
near future and develop the most
advanced algorithms in order to outstrip
the competition and satisfy customer
demand.
Ian Salmon, head of European
strategic marketing at Fidessa
regulations, at whatever stage of the
economic cycle; I believe ‘change’ is the
challenge. To meet these challenges, we
need to have ‘change’ at the forefront of
our minds. TA’s which can offer genuine
choice, scalability, flexibility and the
ability to work with whatever stage of
customer transformation an organisation
has reached.
In a shrinking world, it is only a
matter of time before TA’s offer a
seamless global service. Until then, the
key thing is to distinguish the TA best
able to handle consumer’s needs,
whilst managing change, wherever they
are in the world – in other words, change
is the challenge.
David White, executive director,
Mutual Fund Technologies
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Next for FX
T
he FX industry is eagerly awaiting
the forthcoming final report by the
Committee of Payment and
Settlement Systems (CPSS) of the Bank
for International Settlements (BIS)
following its survey of over 100 banks in
2006. This is a major “check-point” as
the central banks pursue their stated
policy of pressing financial institutions
to eliminate settlement risk in FX, the
world’s largest financial market. This
comes at a time of increasing growth in
this market with broadening
participation, more platform based
trading and higher volumes in emerging
markets.
The provisional findings released by
the CPSS in July 2007, found that 55%
of surveyed FX obligations are settled by
CLS, the only global settlement system
for eliminating settlement risk. This
figure is growing year on year. Fund
related FX accounts for a significant
proportion of the outstanding 45%.
Settlement loss is the potential loss of
the total value of the trade due to failure
by the counter-part to deliver, and this
risk applies to funds. CLS has seen a
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?!D?)NVESTOR3ERVICESINDD 
LETTERS / NEWS

significant number of funds become CLS
participants recently, evidence that the
funds community is undergoing a shift in
sentiment towards FX risk. Why is this?
As the global economy evolves,
investment managers are turning to the
international marketplace for higher
returns and are also viewing currency as
a non-correlated asset class with
significant opportunities for improved
alpha. Others are uncomfortable with the
exposure to currency risk in their
portfolios and use forward contracts to
hedge that risk. As FX becomes more
prolific amongst portfolios, investment
managers are taking the initiative to offer
best practice in both risk management
and cost control. But how do investment
managers eliminate the risk of loss in FX?
Many investment managers historically
traded with only one counterparty, their
custodian. This avoided settlement
risk because only the custodian is
involved in debiting and crediting the
sold and bought currencies. For
competitive reasons, and often to comply
with contractual obligations more fund
managers are now trading with a range of
broker banks. This has changed the
risk and operational profile for
fund managers.
Settlement failure can be caused by a
number of things, including counterparty
collapse, incorrect settlement
instructions, and human error. Collapse
of counterparty is a rare event, although
the failure of Barings Bank in 1995 is
evidence of that catastrophic risk. More
common, particularly around high
volume points such as the IMM quarterly
settlement dates, are operational errors
and failures.
CLS settles the matched payment
instructions related to foreign exchange
deals in pairs in real time, eliminating
the time zone differences that cause
payment delays and give rise to
settlement risk. With growing volumes
and values being traded on behalf of
funds by many investment managers,
this operational control and oversight of
the settlement part of FX deals has been
the missing link in the life cycle of
trading and settling.
The number of investment funds now
registered as CLS third party participants
(gaining access to CLS through their
custodian banks) has reached 2038 and
is testament to the growing awareness
amongst funds of the need and ability to
eliminate settlement risk. At the last
quarter date, CLS settled 199,140 fund
related instructions with a gross value of
USD521 billion.
Furthermore, by demonstrating to
clients, auditors and risk managers a
sharply reduced exposure to settlement
risk and the virtual elimination of
failures, investment managers decrease
the funds’ liability to claims and other
settlement charges.
The consultative CPSS report noted
that despite banks pushing over half of
all FX volumes through CLS, further
progress was needed for institutions to
properly control their settlement
exposure. Current market conditions
accentuate the need to control
operational risk and adhere to best
practice, and therefore the market will
certainly see financial institutions,
including asset management houses,
continue to take the necessary steps
towards eliminating FX settlement risk.
Jonathan Butterfield, Executive Vice
President, Marketing & Communication,
CLS Bank International.

CUSTODY, CLEARING AND value-added services, while FUNDS AND ADMINISTRATION

NEWS SETTLEMENT
London - Nordea has signed an
agreement to sell its
institutional global
custody business to
JPMorgan. The
business will
transfer to
JPMorgan over
the next 12 to 18
months and
Nordea will
provide its
customers with a
full service
throughout the
transition period.
“Nordea wants to
focus on services where we can
truly add value to our
customers”, says Birger Gezelius,
head of financial institutions at
Nordea. “Our current
institutional customers will gain
access to JPMorgan’s best-in-
class global custody offering and
allowing us to strategically focus
on our
core competencies.”
London - JPMorgan announced it
has been mandated by Devon
County Council Pension Fund to
provide global custody and
related services for its GBP2.2
billion Fund. JPMorgan previously
serviced approximately 250
million of the Devon County
Council portfolio.
Barry White, investment manager
of Devon County Council Pension
Fund, said: This appointment
comes after an exhaustive review
and tender which was conducted
with the assistance of Thomas
Murray. Our overall perception of
JPMorgan was one of pro-activity
and a willingness to work with
Devon. We were very impressed
with the package offered by
JPMorgan.
London - Dedicated hedge fund
manager Scipion Capital is
launching a third fund, which will
invest in listed equities and
attractive IPO opportunities
across the African continent. The
new Cayman domiciled fund,
called Scipion Alpha Seeker is to
be US Dollar denominated and
an actively managed portfolio of
shares covering the African
continent excluding Egypt and
South Africa.
LEGAL AND COMPLIANCE
London - George W. Bush and
Gordon Brown have agreed to set
up a working group of senior
regulatory and Treasury figures
from the US and UK which will
develop plans to monitor and
regulate the banking system to
deal with the crisis in the
financial markets.
The proposals agreed Hank
Paulson, US Treasury secretary,

6 INVESTOR SERVICES JOURNAL FREE NEWS DAILY AT WWW.ISJNEWS.COM

 SANTANDER DE NEGÓCIOS PORTUGAL

Agents Banks in Major Markets Survey

by Global Custodian

Cross-Border
TOP RATED 2007

Leading Clients
TOP RATED 2007

Domestic Markets
TOP RATED 2006-2007

Value from Ideas

SANTANDER PRESENT IN OVER 40 COUNTRIES

www.santander.com
NEWS

and Alistair Darling, UK
chancellor, include the formation
of a UK-US regulatory body, which
will offer “individually tailored”
international supervision for
leading banks and financial
institutions with who are involved
in significant cross boarder
activity.
New York - The Operations
Management Group (OMG) has
submitted to Timothy Geithner,
president of the Federal Reserve
Bank of New York, its latest set of
goals for strengthening
operational efficiency across
privately negotiated credit and
equity derivatives products
Consistent with ISDA’s primary
purpose, to encourage the
prudent and efficient
development of the privately
negotiated derivatives business
via the continued standardization
of documentation, promotion of
sound risk management practices
and education of the market
place, ISDA endorses the
commitments and expectations
outlined by the industry in its
latest letter.
MARKET INFRASTRUCTURE
Oslo - Goldman Sachs has started
direct trading in equities on Oslo
Børs and the regulated market
place Oslo Axess from Monday 31
March.
Including Goldman Sachs, Oslo
Børs has 61 members, of which
37 are remote members trading
from offices outside Norway. The
number of members on Oslo
Børs are doubled over the last
seven years. On Oslo Axess there
is 46 members, including
Goldman Sachs. Goldman Sachs
is the third new member on Oslo
Børs and Oslo Axess in 2008.
SECURITIES LENDING
New York - Wall Street is lobbying
the Federal Reserve to take bonds
backed by student loans as
collateral in its new lending
facility to stem a slump in
demand for the debt that’s
driving lenders to stop writing
loans. The American
Securitization Forum and the
Securities Industry and
Financial Markets Association
asked for acceptance of AAA
rated securities in an April 2
letter to the Federal Reserve
Board and the Federal Reserve
Bank of New York.
TECHNOLOGY
London - A recent panel debate
on electronic trading in Europe
has highlighted the importance
of technology to leveraging
liquidity, the role of electronic
trading and the impact of dark
pools during a series of panel
discussions.
London - NYFIX, a provider of
innovative solutions that optimize
trading efficiency, has announced
the acquisition of UKbased
FIXCITY, a specialist in web-based
electronic trading and liquidity
discovery solutions.
NEWS DAILY AT
WWW.ISJNEWS.COM

Mandates round up of awards

Yet another good period for BNY Mellon, seeing the
outfit awarded sizable mandates from the Robert Wood
Johnson Foundation, O2 and the Colorado Fire and Police
Pension Association (FPPA).
BNY Mellon’s rival, State Street, also snapped up several
lucrative mandates, including the renewal of its contract
with BP pension trustees, which it has had since 1987. It
has also been appointed to provide custody services and
fund accounting for Rensburg Fund Management’s UK
unit trust funds.
Meanwhile, Devon Count Council has plumped for JP
Morgan to provide custody, accounting, and value-added
services to its GBP 2.2 billion fund. Devon CC only chose
JP Morgan after a review and tender, which it was aided in
by Thomas Murray. Previously JP Morgan had been
servicing approximately GBP 250 million of Devon CC’s
portfolio.

Mandates awarded in March and April 2008

Month Winner Client Location Assignment Mandate size
April Northern Trust Handelsbanken Norway Custody Services USD 50bn
April BNY Mellon Colorado FPPA Boston Custody Services USD 3.5bn
April State Street BP Pension Edinburgh Custody Services GBP 14bn
March JP Morgan Devon CC London Custody Services GBP 2.2bn
March BNY Mellon 02 London Custody Services EUR 1bn
March BNY Mellon RWJ Foundation Boston Custody Services USD 9.5bn
March State Street Rensburg London Custody Services GBP 1bn

8 INVESTOR SERVICES JOURNAL NEWS DAILY AT WWW.ISJNEWS.COM

 AD
odyssy fin
tech
half page suppied -
need full page
NEWS ANALYSIS
Blueprint
for
change
Paulson streamlines the
regulators
n March 31st Hank Paulson,
O America’s Treasury Secretary
announced his plans for the US
regulatory system. It has been described
by various leading financial publications
as the ‘boldest’ attempt to overhaul the
US’s regulation system ‘since the
depression’.
Mr Paulson’s plans for the US involv e
various phases of reform. He proposes the
initial expansion of the Presidents
Working Group (PGW), which comprises
America’s Treasury, the Federal Reserve,
the Securities and Exchange Commission
and the Commodity Futures Trading
Commission. The PGW group would
take control over credit ratings and
derivatives-trading infrastructure. The
Plan also involves the development of a
Mortgage Origination Commission
(MOC), which will oversee the
securitisation process. Eventually Mr
Paulson plans to remodel the regulatory
architecture of the country into three
clear agencies, the Federal Reserve will
monitor overall market stability, a
prudential regulator will be created for
banks and thrifts, and a business conduct
agency. In so doing Paulson will reform
the current mixture of regulatory bodies,
of which he has long been outspoken in
his criticism considering it as an
inefficient and fragmented system.
The new regulations predate the credit
crisis originating in a desire to make the
US’s capital markets more competitive by
streamlining the country’s regulatory
agencies, but with political and economic
pressures arising from the crisis in the
credit markets and the need to more
closely regulate lending standards, the
new need for new regulations which will
more deeply regulate the securitisation
10 INVESTOR SERVICES JOURNAL
process and the activities of investment
banks and hedge funds has become
paramount.
The new regulations have caused
debate. Some think they are not stringent
enough, the treasury considered creating
a single centralised body like Britain’s
FSA. Others consider that the changes
are too extreme in their editing out of
agencies such as the Office of Thrift
Supervision, (OTS) and the drowning
out of state level regulators. But for the
banks on Wall Street, the new
regulations are a death toll for autonomy.
The Fed’s bailing out of Bear Stearns
meant that they had to expect tougher
regulations and this they will get. The
reforms mean that the Federal Reserve
will have much deeper access into the
balance sheets of hedge funds and
investment banks in order to hunt
anywhere for systematic risk and will
now be accountable for overseeing the
well being of the economy. The MOC
will grade the underwriting of loans
going to pools and PGW has unveiled
reforms of its own, which include plans
for better disclosure of loan terms for
borrowers and analysis of underlying
assets by issuers of mortgage-backed
securities. Credit-rating agencies will be
expected to distinguish more clearly
between ratings for structured products
and straight corporate debt, and to flag
up conflicts of interest. The group is also
seeking to encourage alternatives to
standard securitisation, such as covered
bonds, which provide banks with capital-
market funding while holding on to their
mortgage loans. The reforms are in
keeping with European sentiment
regarding the crisis, with increased
transparency as a predominant concern.
However whilst Europe will rely on the
principals of best competition, will
Amercia simply over regulate?
Whilst the regulations may raise the
shackles of the banking community it is
obvious that there needs to be a serious
re-haul of the regulatory environment in
the US. Uncertainty about the extent of
the problems on balance sheets, and the
lack of understanding about what went
wrong and questions about whether the
banks themselves are in fact financially
sound have caused a culture of massive
uncertainty for investors. There is a need
for new regulations, which will inspire
investor confidence and create a new
level of stability so that the real
economies and stock markets can recover.
Also by streamlining the regulators they
are essnetially making the system more
competitive.
Paulson’s regulatory reforms come at a
time when regulatory bodies around the
world have been responding to the
turmoil. The Financial Stability Forum,
which is the body coordinating the global
response to the market turmoil has been
floating strategies to fighting the credit
crisis including proposals for a large
group of important banks to
simultaneously reveal their financial
positions. Other bodies include a group of
leading UK-US regulators treasurers
lead by Hank Paulson and Alistair
Darling, which announced its intentions
to create a transatlantic regulatory body
to monitor and regulate the banking
system.
There is an attitude on both sides of
the Atlantic that innovation in the
financial services industry has to be
preserved and that transparency
regarding the underlying value of credit
is now paramount. But whilst the US’s
approach of streamlining is very much
needed, it is interesting to watch as the
cogs of the country’s extensive regulatory
machine start to turn and its history of
implementing massive infrastructural
reform whenever crisis hits, repeats itself.
Rather like with the last statute Sarbanes-
Oxley which arose out of the Enron
decable - it may seem like a good idea at
the time but may also have far reaching
and problematic effects. I
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NEWS ANALYSIS
Another
one bites
the dust
JPMorgan Chase
acquires Nordea
t’s certainly been a busy month for
I American financial services giant JP
Morgan. Close on the heels of its
much-ballyhooed, cut-price acquisition of
failed broker Bear Stearns, it has gone and
bought Nordea’s global custody business,
the largest global custodian outfit based
in the Nordic region, worth an estimated
EUR 200 billion.
Though financial details of the
transaction were not released, this will
probably turn out to be a pretty good
piece of business for JP’s boys. Nordea
made the sale through traditional auction
and said it had “a lot of interest”. Part of
the transaction entails that JP Morgan is
made the global custodian for Nordea
Funds and Nordea Life & Pensions.
So far, on the face of it at least, the
acquisition has gone about as smoothly
and painlessly as possible. Stockholm-
based Nordea will keep its sub-custody
business, providing custodial services to
those who invest in Nordic countries, and
over the next year or so approximately
half of Nordea’s employees in its global
custody section will move to JPMorgan
Worldwide Securities Services. And most
importantly, nobody gets laid off.
In essence, the sale has stemmed from
Nordea continuing to tinker with its own
identity and at the same time is a
symptom of the continuing consolidation
of the global custody market. Nordea is
the product of a merger between the
Swedish, Finish, Danish and Norwegian
banks of Nordbanker, Merita Bank,
Unibank and Kreditkassen. It’s a sizable
entity, with over 29,000 employees
worldwide, and is probably the world’s
leader when it comes to internet banking,
boasting 4.8 million online customers.
However, Nordea has obviously
12 INVESTOR SERVICES JOURNAL
realized that it is simply not comfortable as
a global custodian. In essence, it is
admitting that it simply isn’t big – or small
and specialised enough - to maintain the
global part of its custody business.
Nordea’s Birger Gezelius says of the sale:
“The rationale for doing it is that we have
drawn the conclusion, some years back,
that long term for anybody who is not
specialised in global custodial services and
servicing large institutional clients, will
never be able to compete with the
specialists.
“We though it better to act now than
wait and see business deteriorate. I think
the global custodian market has been
consolidating for a while, and I would not
be surprised if the speed of this
consolidation picked up. Other banks
across Europe and elsewhere will come to
a similar conclusion.”
On JP Morgan’s part, the move is part of
a strategy to expand its presence in the
Nordic region, where it first established
itself near on 15 years ago. The company
has identified the fact that Nordics could
grow to be one of the largest asset
servicing markets in Europe. It claims
that currently there is more than EUR 2
trillion under management in the Nordics.
Phillip Silitschanu, an analyst with
independent research outfit Aite, says: “It
is little surprise to see another custody
business being bought, as the industry
continues its consolidation. The forces
behind the wave of consolidation over the
past few years will continue to drive the
industry to become more concentrated
into a tighter and tighter mass; in the end
we may finally see a custody industry with
only a handful of large mega-custodians,
with a few small, niche satellite like firms
in the outskirts. It is the medium-sized
custody businesses like Nordea that
“simply cannot weather the pressures”,
adds Silitschanu.
Stemming from the acquisition, JP
Morgan is to make available local
depository services to locally based
Nordic mutual funds. It will open new
branches in Norway, Denmark and
Finland and additionally is set to grow its
presence in Sweden.Conrad Kozak, global
head of JPMorgan’s Securities Company,
says: “This acquisition emphasizes
JPMorgan’s commitment to the Nordics.
”This latest move makes JP Morgan the
largest player in the Nordics. I
Enter the
dragon
HSBC makes its move
on the UK’s mortgage
market
n a move that has surprised many,
I
have.
HSBC has offered to match whatever
existing mortgage deals homeowners
The gambit is an attempt by Britain’s
biggest bank to take advantage of its
rivals’ current vulnerability and grab a
piece of a market that it has not
historically been dominant in.
In this current climate, where nobody
wants to lend any money to anybody
else, many banks that offer mortgages are
finding it impossible to get the plentiful
funding they had access to previously.
Consequently, many mortgage holders
coming off deals are finding a market
that is stingy to say the least. Those who
put down smaller deposits and who don’t
have a lot of equity in their properties
and are deemed high risk, are
encountering a veritable desert.
Enter the dragon - HSBC. Over a five-
week period, 14 April to 18 May the
bank is to extend its Rate Matcher
offering to non-customers, to match
existing fixed-rate deals even for rates as
low as 4.54%, for two more years. The
only caveat is that borrowers are required
 NEWS ANALYSIS

to have a minimum of 20% of the equity
in their home and will have to pay a fee,
calculated from what the borrowers
original rate was and the size of the
mortgage. HSBC has estimated 75% of
the new customers will pay less than
GBP1,000.
In the current doleful lending climate
the bank can afford to do this as it does
not borrow its money to finance
mortgages from money markets, as many
of its rivals do. And the banking giant has
admitted that rather than a planned
course of action, the move is purely in
reaction to the market.
Speaking on the circumstances that
allowed the bank to make the offer,
HSBC’s James Thorpe said: “It’s a number
of factors, primarily we had a very
conservative policy towards lending
which admittedly hasn’t made us made us
the most competitive in the past.” He
also cited the fact that HSBC does not sell
mortgages through brokers and
intermediaries and has not bought any
other mortgage lenders, preferring to
grow its business “organically”.
“We have a building society model
where we use retail deposits and the
bank’s own capital. After growing retail
deposits in the last three years as people
have looked to save cash with large
institutions like us, we are in a good
position.”Thorpe goes on to warn that the
deal will not be ideal for everybody. “We
don’t want this to come across as the
golden goose of mortgages.”
Nevertheless, a deluge of new business
is expected. The bank has said that it has
moved staff from other areas to help with
the new business.
Overall this could turn out to be a very
shrewd piece of business for HSBC, and a
little self-congratulation is probably going
on over HQ. The bank needed some good
news following on from the embarrassing
debacle last week when it lost a disc
containing the names and insurance data
on 370,000 customers. How did this
happen? They sent it by unregistered
postal mail. Ah well, could have happened
to anybody.
Meanwhile, Britain’s debtors and
homeowners shifted uneasily on news that
there was a 2.5% fall in house prices in
March, the largest since the early 90s.
Gordon Brown’s statement that the price
fall is “containable” is unlikely to comfort
many, especially in the light of the IMF’s
recent warning that the British economy
is heading for a substantial downturn and
that house prices in the country could
decline by up to 10% in 2008.
Recently Caroline Flint, the minister of
state for housing and planning, shrilly
denied a BBC presenter’s accusation that
Labour’s claim that the boom and bust
years were no more, has been
embarrassingly shown to be false, as the
storm clouds gather on the economic
horizon. Though some, like HSBC, find
themselves in a position to take advantage
of current climes, most will have to
whether the storm, crunch, crisis or bust,
whatever you may call it.. I

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Head of Sub-Custody Client Relations: Ulf Norén, ulf.noren@seb.se.
CEO PROFILE - ALI PICHVAI
Profile: Ali Pichvai,
CEO and Founder of
Quod Finanical
Ali Pichvai takes time out of his
structured schedule to talk to Catherine Kemp
about fragmenting liquidity
Ali Pichvai
14 INVESTOR SERVICES JOURNAL
What was it that inspired you move from
NET2S to start Quod Financial?
I have an aspiration and background
which is entrepreneurial, and so for me
starting Quod Financial was about a
desire to go from advising people into a
space where we could practice what we
preached and prove that our ideas were
not just hot air. We had a vision of what
was possible and what clients needed. We
started NET2S in 1996. It was my
second company. The first one was more
of an experiment than a real company
and allowed me to learn by making
mistakes. We had many ideas when we
started NET2S, but consulting was what
we did because we were young and didn’t
have the capital to do anything else. In
2004 NET2S brought a certain number
of assets from Reuters and Quod
Financial started out of that, as a NET2S
venture. We eventually sold NET2S to
BT last year, although I have been fully
dedicated to Quod Financial since 2005.
What is the vision of Quod Financial, what is
your niche?
The vision is really that execution is
changing in nature. We have been living
for the last 15 years with the paradigm of
connecting to exchanges. But now we are
moving into a space where we will bring
intelligence back to the platform and
decide how to execute in a multi asset
world and how to really look for liquidity,
because liquidity is no longer centralised,

it is decentralised. We are going to see a
lot of innovation in this field. This is why
we developed what we call the advanced
execution platform. That’s the vision we
had at the beginning, but it takes time to
implement it. We have been working on it
for a while, but we are now gaining
momentum, it seems that the vision is
shared with our market participants.
What experiences from your time at NET2S
have you brought to Quod Financial?
The first thing is obvious. At NET2S
we saw multiple cases of how technology
can be implemented in the trading arena
and this knowledge was the foundation of
Quod Financial. Secondly, in building any
company you learn a lot of lessons about
management, whether it’s how to take a
company public or how to survive a
recession. One of the hardest lessons is
how to manage people; how to attract the
best talent, how to keep them motivated,
how to help them grow, but also how to
get rid of non-performing people. I did an
MBA and it never prepared me for
management. That is a skill that doesn’t
come from knowledge of a market place;
it’s something that you have to learn
through doing and taking risks. At
NET2S we went up to a thousand
members of staff, managing a one
thousand strong company is very
different from managing twenty, fifty or a
hundred people. At NET2S we were in 8
countries, the cultural differences
between how people lead the same
company in different geographies are
fascinating. You learn everyday, you also
make mistakes but you also appreciate the
differences in different cultures.
The increasing complexity of trading
technology is often blamed for the
fragmentation of liquidity in the market,
what is your view on this? Is fragmentation
a bad thing?
Technology empowers, but it also
changes the landscape via positive
feedback on the environment.
Technology is evolving and enabling a
lot of things that a lot of traders and
investors wanted to do, but it also creates
a new reality for new practices and
models to emerge. This therefore is
changing the market, making it more
complex and global. We are living in an
evolutionary and complex system. What
is changing rapidly is that liquidity is
changing in nature becoming
decentralised and most asset classes are
becoming electronic. Therefore you can
do everything electronically out of a pool
of liquidity that is scattered across a few
places. The buy side who is the final
investor now has a cross asset type of
investment strategy, but the systems are
not yet multi asset or cross asset,
therefore there is an appetite for systems
that can look for liquidly and do it in a
multi asset fashion. It’s not just different
trading areas it’s different assets. This is
the highest level of complexity to have
cross asset trading because you have to
know the liquidity profile of each asset
class or instrument of asset class, you
have to know how they are tied together,
it can only be done with machines not on
a human basis it’s just too complex.
MiFID rules seem to have dramatically
changed European Capital Markets, what is
your view on these changes? What have
they affected already and what will they
change in the future?
A lot of brokerage houses and buy-side
houses see MiFID as a cost, but beyond
the cost MiFID was the catalyst for
changes which are very positive to the
market. They have encouraged the
development of a pan-European capital
markets space rather than a fragmented
national base. MiFID has made Europe
more transparent, much more than the
US. I believe in transparency in general,
because it allows for as much information
as possible to be shared in an equal
manner between market investors and
participants. This in turn ensures that
there is more competition in the market
place, which is good for the market place.
A lot of things that were happening in the
US didn’t happen in Europe because
MiFID was the impetus for change.
Quod recently produced a white paper on
the need for a fresh approach to algorithms,
how are Quod’s liquid seeking algorithms
different from previous algorithms?
There is an evolutionary process
CEO PROFILE - ALI PICHVAI
happening with technology today.
Formerly algorithms allowed you to take
decisions purely on certain mathematical
rules, now the rules are a framework with
which you look at different events in the
market and you take decisions all the
time. It’s not just one set of rules, or one
set of decisions. Now, liquidity searching
means that you build a certain number of
algorithms that predict how the liquidity
is on the market. The models we are
applying allow you to predict where the
liquidity is and where it is moving. But
it’s a predictive model and so you have to
make decisions, which are contingent on
what you see on the market at the same
time. Quod brings to the market an
advanced execution platform, which is
the latest in this kind of technology and
allows you to take dynamic decisions all
the time because the machine reacts to
every piece of market data. This wasn’t
true even three-four years ago.
What are your goals for the future?
I have promised myself that my next
company will be a non-commercial
venture. I don’t like the word charity, but
it should be a company which helps other
people to achieve their own goals. There
are different phases in life, in the first
phase you want to achieve and you want
to prove that you are able to achieve
something. Once you have done it a
few times you realise you are playing the
same game more or less, even if it gets
tougher and tougher. After a while you
have to find something else to
challenge yourself. Doing a company for
non-commercial purposes, in a
more altruistic manner, is the next
challenge for me. I
Ali Pichvai is CEO and founder of
Quod Financial, which is a provider of
advanced execution technology for the
global capital markets. Prior to
founding Quod Financial, Pichvai
started NET2S Group in Paris in
1996, a capital markets technology
consultancy. He has a Masters in
Engineering (Physique et Chimie
Lyons, France) and Masters in Business
Administration (Bocconi, Italy).
INVESTOR SERVICES JOURNAL 15
CORPORATE ACTIONS
Fully Automatic
As firms acknowledge that they must automate their corporate
actions, Joe Corcos takes a contrasting look at the progress that is
being made in Europe and the US
ike trips to the dentist, corporate actions can be
L inconvenient, complicated, and sometimes
painful, but are always necessary. Neglect them,
and a firm is likely to pay - possibly dearly. During the
last few years most in the financial industry have, at
times reluctantly, realized that the automation of large
parts of such actions is not only necessary, but
inevitable.
With its huge domestic market, it would be easy to
assume that companies in the US have a marked
advantage over their European counterparts. In
Europe, across a portfolio there could be up to 40 or 50
jurisdictions with their own methods and regulations,
whereas in the US there is the very real option of
ignoring the hassles of cross-border, multi-currency
actions and having to pander to the vagaries of
different regulatory regimes. With the DTCC's
(Depository Trust and Clearing Corporation)
oversight and EDGR (electronic data gathering and
recording system), the tool used to collect and report
corporate actions, domestic processes are infinitely
smoother and less complex.
Gert Raeves, vice president, business solutions,
16 INVESTOR SERVICES JOURNAL
GoldenSource, says: “The US obviously benefits from
the single regulatory, single currency and almost
single depository and clearing mechanisms for
products and the dominant position of the DTTC
makes of the process a lot easier”.
Nevertheless, corporations in the US are continuing
to increase cross-border investments, and in so doing
face the same obstacles as those in Europe and
elsewhere. But in a world that is becoming increasingly
connected, it has become both necessary and desirable
to be able to automatically carry out cross-border
actions, even in a country with such a massive domestic
market as the US. Indeed, globalisation is one of the
driving forces behind the move for automation of
corporate actions.
Geoff Harries, the vice president of product strategy
at Check Free, says: "That distinction between US
domestic processing and what historically used to be
called cross-border are merging.
"To make a market distinction between regions is
very difficult these days, and part of the reason for that
is because one of the trends that we've seen has been
the shift in asset allocation within US investment
CORPORATE ACTIONS

Global Corporate Actions traffic Growth of Corporate Actions messaging in 2007

The last eight years has seen a steady rise in the volume of corporate actions. In the 2008 the volume is set to be more than
five times the amount recorded in 2000. This is a trend that is not likely to abate, as firms in the US increase cross border
activity and developing markets in Asia and the Middle East look to attract foreign investment. Last year developing markets
rivalled the UK and Ireland in the growth of corporate actions messaging, closely followe by the Asia Pacific region.

strategies to diversify into international securities."
Of course the most pressing issue to be addressed is
that of standardisation. As the volume of corporate
actions and the blizzard of electronic messaging that
they require steadily increases, companies in both the
US, throughout Europe, and elsewhere, must be on the
same page, data wise.
"I think a standard is desirable, I also think its
practical impossibility", says Raeves.
"There isn't a single governing body, and that could
be a regulator or exchange, that could be effective," he
adds.
Overall - though the automation of corporate actions has come on
by leaps bounds in the last five years - many companies still rely
on the manual methods that have been serving them for decades
"So the standardization can only happen on a lower
technical level, where you say ok there isn't any true
fiscal or legal harmonization of real world stuff, what
we can do is at least make sure that when we start
sending these things around as electronic messages
that we do that in a language or format that is at least
understood by all of our machines in the same way."
Currently the ISO 15022 messaging standard,
developed in 1995, is the only messaging standard
used widely. Swift (Society for Worldwide Interbank
Communication) has been busy pushing the standard
in Europe and more belatedly in the US.
Ashok Panda the product director of corporate
actions at TATA says: "In Europe to some extent
[standardization] has been achieved. Though there is
still a long way to go. One of the examples could be the
ISO 15022 method, the Swift. There is much more
acceptability in Europe for using Swift than in the
states.
"Standardization of the messages and the market
practice would definitely help a lot. In the case of US
you have the US domestic market and you have the
international market. In the US domestic market
everything is as per DTCC."
The fact that Swift is a European-based organisation
also partly explains why it has stronger influence in
Europe. However, the Americans have acknowledged
the fact that despite the size of
their domestic market, they too
must adopt ISO, an act that will
hopefully boost the already
rising appeal of foreign
markets in the US. Swift is now
working with the DTCC to
that end.
David Hands, director of product management at
DTCC says: “We're working extremely closely with
Swift. I would imagine in the future ISO will get a lot
more play than it does today.
“Traditionally where ISO has not gained much
foothold is in the US, because people will always base
their corporate actions off DTTC files, and I don't
think that inhibits any cross border trading, but acts as
a alternative to Swift standards in the US so with our
new files going out in ISO we're working very closely
with Swift to modify the 15022 standard to
incorporate those data elements we need included in
the standard.
“When you step back and look at the changes that

18 INVESTOR SERVICES JOURNAL

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CORPORATE ACTIONS
are required, you're reengineering your internal
systems to accommodate this stuff. I think that 15022
has done a good job setting the scene.”
Linda Bookheim, a corporate actions expert at Swift,
acknowledges: "In general in the US market, how it
does corporate actions is very domestic based.
"Our role in the US market is about providing
guidance and cross border communication. So with
DTCC adopting the ISO standards it will make it
much easier for the US community, as they start to
increase their cross border investments, to use Swift to
communicate to the counter parties that are indeed not
on the continent."
Somebody once said that in life the only certain things are death and
taxes. Most financial institutions can add corporate actions to that list
Bookheim's colleague, fellow Swift corporate actions
expert Max Mansur, admits that there are certain
"data element translation issues" in the US, but that
these are being rationalised with the ISO standard and
being incorporated.
Meanwhile, in Europe there is what Mansur calls a
"tremendous amount of harmonization", with the
overall goal of the continent being able to act as a
single, harmonized market.
Of 15022 Hands says: “Its quite dynamic and almost
over-flexible people are saying these days. There's a
movement to refine specific data content within the
message because it leaves less room for interpretation,
and if you do that people use the standard more
appropriately, and as people do that adoption will
continue to grow.”
However, some are less enthusiastic about the
supposed popularity of the ISO standard. Steve Miller,
senior product manager at SmartStream Technologies
says: "Lack of standards has been the main barrier to
automation in general, and take up of ISO15022 hasn't
been as wide as is needed to fully take advantage of the
standard.
"Swift is doing more and more work in this area but
we have seen reluctance, historically, for US
institutions to buy into the work Swift has done."
Miller went on to admit that though eventually a
standard may emerge, it will "not be in the foreseeable
future", and referenced the fact that the financial
services industry is "littered with failed initiatives".
And yet companies in the US and Europe are
forging ahead with automation, though they are by no
means the only ones. Asia and the rest of the world are
catching up fast. According to Swift by far the fastest
growth in corporate actions automation is occurring in
Asia Pacific and developing markets.
Furthermore, since these markets often do not have
20 INVESTOR SERVICES JOURNAL
old systems in place, one of the major blocks to
automation, incorporating old legacy systems, is not so
much of a factor.
Mansur says: "Markets like China are definitely
starting to automate, and they're starting from
scratch, looking at the mistakes that other markets
have made and saying, 'ok, we need to automate this
process from the beginning, using newer technology,
not old legacy tech, that can be easily updated and
adapted to changes in the market'".
He adds that other developing markets, like Dubai,
Taiwan and South Africa have also realized that if they
desire foreign investment, they must move their
systems from the old-
fashioned paper-based
model to one that is
automated.
The technical hurdles
that must be vaulted by
a company are one of the major disadvantages for an
outfit that is considering automation. Overall it is a
costly, sometimes lengthy process, with any number of
pitfalls.
Recognizing what is realistically achievable is key to
avoiding an overly lengthy and painful process. Raeves
says: “I think people have over-reached themselves
sometimes. They haven't simply said we want to make
sure that for all of the corporate action notifications
that we receive, we have a single validated gold copy,
which is a realistic ambition.
“What they've done is said, what we want to do is
receive all the data and apply it to all the position
entitlements and make sure that we are doing all of the
voluntary processing. That makes it a project which is
a multi-year project which means that measuring the
benefits is difficult. You also have corporate risks,
including losing your executive sponsors and
corporate management teams. That has been the
experience of a few of the earlier adopters.”
According to Harries, integration of older systems
presents a major challenge. In fact he estimates that up
to 60 per cent of the cost of automating corporate
actions is on the integration side of things.
He comments: "One of the things we've seen is not
about standards, it's a little closer to home. It's the
internal systems where the actual data resides..
"Some of the bigger obstacles aren't necessarily
about market practice, standards and adoption of Swift
messages, they're closer to home in terms of building
the integration, that is a key element in the success of
a project.”
Harries goes on to warn that any company
considering automation should be sure to select a
vendor strong on integration, otherwise "you're
left with a significant part of the puzzle that has not
been solved."
CORPORATE ACTIONS
John Byrne, the CEO of Information Mosaic, agrees:
“Early on a lot of people have had a bad experience
with automation. When you go into down stream
processing of automation the systems require a lot of
integration. To automate corporate actions correctly
you have to be able to reconcile and see all of the
positions that a firm has, correctly.”
Overall, though the automation of corporate actions
has come on by leaps bounds in the last five years, it is
by no means universal, and many companies still rely
on the manual methods that have been serving them
Automating corporate actions helps cut down not only the likelihood
of financial disaster, but also saves on time and resources
for decades.
Nat Sey, the reference data business manager for
Interactive, calls corporate actions “the last bastion of
manual processing”.
Many custodians have succeeded in automating
their corporate actions process, as have sub-custodians
and data vendors, however the issuers have been
slower off the mark, generally continuing to pass on
notices to the rest of the market in a text form. This
makes things ever-more complicated for those further
down the chain.
Panda says: "In the last five or six years the
automating of corporate actions has evolved quite a
lot. But as far as the adoption of that by the different
financial institutions is concerned I'm not very sure
about that because whilst they keep talking about it,
there is not very much progress in that respect.
"It almost looks as if they know that it has got to be
done but they haven't yet taken a decision. They're just
sitting on the wall and trying to take that jump."
Part of any reluctance to adopt automation of
corporate actions is to do with the very nature of them.
One of the most obvious reasons to automate one's
corporate actions is to try and reduce the possibility of
missing one and being hit by a financial body-blow as
a result. However, for an outfit that has not suffered
such an event, or perhaps whose memory of such a
calamity has faded, there seem few pressing reasons to
initiate the costly and possibly fraught move to
automation.
“On the business side, too often corporate actions
have been viewed as a huge challenge offering less
strategic benefits than processing new instruments, or
as being forced on firms due to the need for regulatory
compliance. As a result they are put on the backburner
in favour of other projects. It has been a reactive
process in that it's not until something goes wrong,
causing a significant operational loss or customers
service issue that corporate action's automation is
given priority.”
22 INVESTOR SERVICES JOURNAL
Bookheim says: “The cost of implementing a system
is an impediment, it requires building your own or the
purchase of third party software, and in all cases it
requires a really strong business case.
“It's hard to quantify a business case that is based on
potential risk rather than something that's going to
benefit you and make money.”
However, the reality of these possible catastrophes is
considered imminent enough by many institutions and
many have established a sizable contingency fund just
sitting waiting to be deployed, claims Sey.
He comments: “If
you speak to a
number of the
investment banks in
the industry if you
ask them if they have
contingency funds for corporate actions they may kind
of shift uneasily, because no one wants to admit to it,
or indeed the size of these sorts of contingency funds.
But its pretty much accepted wisdom that they do
exist because in a manual corporate action world
making a mistake is pretty inescapable at a certain
point, that's the sad fact.
“There are pretty severe penalties in place for
missing corporate actions and I don't just mean
necessarily monetary penalties, there's reputational
risk involved here as well in terms of missing a
corporate action.”
The undeniable fact remains that by making a large
portion of corporate actions automatic, the risk of
being hit is lessened. Some actions of course cannot be
automated, but automating the ones that can, it frees-
up more people to look at the ones that can't.
Sey continues: “The goal of automation is not to
receive 100% automation, which is not achievable, you
need to have a pair of eyes looking at certain processes.
But what automation does for you is to allow you to
shift the focus of the manual processing towards the
more esoteric events, which are naturally the events
which carry more risk”.
It is simply a matter of encompassing all the data
flows hitting one's business, whether they are in
manual or electronic forms.
Somebody once said that in life the only certain
things are death and taxes. Most financial institutions
can add corporate actions to that list, and that being
the case, automating them helps cut down not only the
likelihood of financial disaster, but also saves on time
and resources.
Currently the US and Europe are leading the way in
automation, and both sides of the Atlantic are making
approximately even progress, with Europe slightly
edging the US. Overall the progress of automation can
be likened to the gruelling winter breeding trek of the
Emperor Penguin - slow, painstaking, and somewhat
inefficient, but determinedly inexorable. I
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PANEL DEBATE

Evolution
Our panel of experts ISJ
debate the evolving
nature of Data
PANEL DEBATE
Management... Data Management
Robert Cumberbatch is the European business lines director, Pricing
and Reference Data, Interactive Data (Europe). Cumberbatch joined
Interactive Data in June 1998 as production director to run the
company's IT operations. Cumberbatch was responsible for the
mission critical IT infrastructure with a 24 x 7 data centre, a 24 x 6
technical support group, network support and project planning. From
January 2003 Robert led an international real-time integration of
ComStock's infrastructure into that of Interactive Data.

Matt Meinel, Global Director of Business Development, 29West.

Meinel worked on the original Reuters Triarch system at Rich/Reuters.
Following that, he served at the UBS Investment Bank and its
predecessor organizations - Swiss Bank Corp and O'Connor &
Associates - for more than 15 years, starting as software
architect/project leader with O'Connor and rising to CIO-level. Matt
spent 5 years living and working in London and ran global IT
development groups within UBS for more than 10 years.

Mario Orphanou is Product Manager for Enterprise Data Management

products at Odyssey Financial Technologies and has been an active
participant in Market & Reference Data Management for over 20 years
covering active operational engagement in both buy and sell side
organizations, EDM software development, and consultancy services.

Gert Raeves is the Global Head of Marketing and Business Solutions,

GoldenSource Corporation Prior to GoldenSource, Raeves worked at
CheckFree where he was responsible for product marketing in their
Securities and Investment Division. During his five year tenure,
Raeves held a variety of roles including securities product manager,
business development director and, most recently, product marketing
director in charge of middleware, EAI transaction management and
corporate actions.

Michele I. Kelsey, SVP/Americas Business Owner, Pricing and

Reference Data, Reuters America, Michele Kelsey has over 20 years
experience in fixed income, financial services and information
technology. She is currently Product Business Owner for Reuters
DataScope Pricing and Reference for the Americas. Kelsey was with
Reuters Loan Pricing Corporation from its early inception and growth,
and ran sales, marketing and the global loan pricing service.

24 INVESTOR SERVICES JOURNAL

 PANEL DEBATE

Is improving data quality across a firm a
technology issue or is it more about the
cultural practices of the firm – should clean,
concise data be treated as a higher priority
throughout the lifecycle of a firm?
Cumberbatch: Often, improving data
quality across an organisation is a
technological, cultural, organisational and
procedural issue. Each of these areas can
have very different drivers and needs, and
occasionally these drivers are in conflict
with each other. For example, the search
for speed can drive IT architectures to be
more distributed, spreading processing
capabilities closer to where they are
needed most, whilst the principles of a
‘golden copy’ can drive the push for
centralised data repositories.
The need to improve data quality can
stem from the inefficiencies caused when
decisions are based upon inaccurate,
Nordea Bank AB (publ)
incomplete or untimely data – or from the
gains that can be enjoyed by enriching
existing datasets. Firms must decide
whether their information assets
adequately meet their organisation’s
information needs and take the
appropriate steps to ensure that they do.
The aim of this approach would be to
move away from, or to avoid, inefficiency
or to seek further benefits.
Orphanou: Data management is both a
technology and cultural issue. As data
volumes continue to grow exponentially
due to rising transaction volumes and
regulation, it is crucial that firms adopt an
enterprise wide approach to data
management and that this is given high
priority at every level within an
organisation.
Kelsey: Organizations are increasingly
adopting the concept that data needs to be
treated as an asset. Once a piece of data
enters the firm, it needs to be scrubbed,
tagged, and tracked as it moves through
the platforms and downstream systems.
The ability to measure data quality
through a formal data metrics program,
which is a constant 24 hour process, is
vitally important to the equation. A data
governance structure is also critical.
Rules must be applied to manage conflict
resolution properly, exercise control over
who can change the data and under what
circumstances, and ensure that the
systems communicate smoothly.
The strongest operators in this market
will look at culture and technology as
being equally important. Though
technology is needed to power the
solution, at the end of the day, people are
driving the technology and choosing to
make the investment based on importance.

Spot-on custody services.

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

Making it possible
 PANEL DEBATE

Is improving data quality across a firm a
technology issue or is it more about the
cultural practices of the firm – should clean,
concise data be treated as a higher priority
throughout the lifecycle of a firm?
Cumberbatch: Often, improving data
quality across an organisation is a
technological, cultural, organisational and
procedural issue. Each of these areas can
have very different drivers and needs, and
occasionally these drivers are in conflict
with each other. For example, the search
for speed can drive IT architectures to be
more distributed, spreading processing
capabilities closer to where they are
needed most, whilst the principles of a
‘golden copy’ can drive the push for
centralised data repositories.
The need to improve data quality can
stem from the inefficiencies caused when
decisions are based upon inaccurate,
Nordea Bank AB (publ)
incomplete or untimely data – or from the
gains that can be enjoyed by enriching
existing datasets. Firms must decide
whether their information assets
adequately meet their organisation’s
information needs and take the
appropriate steps to ensure that they do.
The aim of this approach would be to
move away from, or to avoid, inefficiency
or to seek further benefits.
Orphanou: Data management is both a
technology and cultural issue. As data
volumes continue to grow exponentially
due to rising transaction volumes and
regulation, it is crucial that firms adopt an
enterprise wide approach to data
management and that this is given high
priority at every level within an
organisation.
Kelsey: Organizations are increasingly
adopting the concept that data needs to be
treated as an asset. Once a piece of data
enters the firm, it needs to be scrubbed,
tagged, and tracked as it moves through
the platforms and downstream systems.
The ability to measure data quality
through a formal data metrics program,
which is a constant 24 hour process, is
vitally important to the equation. A data
governance structure is also critical.
Rules must be applied to manage conflict
resolution properly, exercise control over
who can change the data and under what
circumstances, and ensure that the
systems communicate smoothly.
The strongest operators in this market
will look at culture and technology as
being equally important. Though
technology is needed to power the
solution, at the end of the day, people are
driving the technology and choosing to
make the investment based on importance.

Spot-on custody services.

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

Making it possible
PANEL DEBATE
An airplane cannot fly itself; it must have
a competent pilot at the helm, who not
only understands and can operate the
technology but also evaluates the real
world external and practical issues. The
difference here is that the pilot
understands the importance of data
quality, and using technology properly.
Though some financial institutions have
not always understood this, I think the
recent climate has caused cultures to
change and drive their technology toward
data quality.
Raeves: It depends where you are on the
chicken and egg question...It is both a
technology and cultural issue. The root
causes of having bad data are a mix of
poor behaviours, institutionalised neglect,
and siloed business functions. For all the
pious noises about the central role of data,
financial institutions do not define
themselves as data processors - they are in
the business of making money. If that
means creating another data silo to start
trading a new product, so be it.
On the flipside of that argument, the
adoption of a shared data software
platform can and does trigger a lot of
existential questions about data
ownership, standards, and governance. So
no - technology is never the driver, but it
can be a catalyst for forward looking firms
- it is only when you start the process of
automation that you are forced to make a
complete inventory of requirements - and
those requirements are more often than
not in the domain of behaviours, company
culture, and governance
Meinel: Improving firm-wide data quality
today is ultimately about cultural
practices. However, several thorny
technology issues can impede data quality
even in a firm that really understands the
criticality of firm-wide data quality. One
newer thorny issue most firms face in
today’s environment is dealing with
timely delivery of data when trade times
are being measured in milliseconds. Even
firms like UBS, my former firm, that
invested and focused on global data sets
for most of their businesses throughout
the 1990’s, faced the reality that many of
these systems were not fast enough to
26 INVESTOR SERVICES JOURNAL
keep up with data streams coming in from
exchanges and OTC markets this decade.
At my current firm 29West, we saw this
requirement back in 2002 and responded
by designing messaging systems for
transporting data messages at speeds as
low as 15 microseconds (0.000015
seconds) over modern networks and
operating systems. I see many systems at
banks, exchanges and hedge funds today
struggling with the tradeoff between
speed and accuracy. At 29West, we
provide messaging systems that provide
“guaranteed” messaging at microsecond
speeds. This is extremely useful for
ensuring that a compliance system
actually receives all the trades executed
by a high-speed algorithmic trading
system. Or that ALL orders routed to an
electronic exchange are both recorded
AND delivered in time to get decent
execution.
I have seen many examples of data
problems caused by the underlying
application messaging systems simply
losing data or getting so far behind in
processing the data that it’s not useful to
the business. However, the culture of
firms that are winning says, “OK, we have
big technology challenges, but data
quality is critical to our firm’s integrity
and market standing, so let’s do whatever
it takes to solve these problems.”
Ultimately, the firms that understand that
data quality determines the quality of all
their business decisions will endure and
prosper.
So yes! Clean, concise data should be
treated as a higher priority throughout
the lifecycle of a firm.
How can firms organise their data to not only
meet current regulatory requirements (Basel
II, MiFID etc) but also future requirements?
Or will they always be rushing from one
regulatory data project to the next?
Cumberbatch: Firms are often torn
between doing just enough to comply
with individual regulations, and adopting
industry best practices, to establishing
thought leadership positions. On one
hand, certain regulations can encourage a
minimum best practice approach, i.e.
doing the very minimum is sufficient to
comply. On the other hand, there are
principles within many regulations that
do overlap. For example, many directives,
such as the Capital Requirements
Directive (aka Basel II), MiFID and
others under the Financial Services
Action Plan, share common goals in
principle. These common goals, which
focus on minimising the causes and effects
of negative consequences, can include
strengthening approaches to managing
risk, protecting investor interests, and
cementing confidence in financial
markets.
Other aspects of regulation have an
enabling approach aimed at stimulating
competition and growth; for example
UCITS III’s product passport, MiFID’s
organisational passport and the removal
of the concentration rule. Compliance is
clearly enough, but firms can choose to
take further action to grow their business
whilst reducing costs. The
implementation of new directives and the
removal of previous legislation can enable
firms to seek and obtain opportunities to
work differently. For example, UCITS
III’s product passport can provide firms
with the opportunity to promote products
in new EU countries, whilst MiFID’s
passport permits a firm to set up business
in a new EU country.
In reality, taking the time to step back
and look at the overall picture is the best
approach, as it can help to avoid
duplication of compliance measures. In
reality, this takes time and discipline.
Often firms are forced to look at each
directive in turn, assess its individual
impact and take the appropriate measures
to maintain compliance.
Kelsey: Risk management is a pronounced
theme among our clients right now. It is
understandably tempting (and sometimes
necessary) for firms to drop everything to
chase after one regulatory 'have to' after
another. But firms are so concerned right
now with exposures and managing what
is in their portfolios, that we find they are
doing a great deal of self policing. As a
best practice, the most sophisticated firms
are looking ahead of the curve to areas
where regulation has lagged but are
obvious suspects for future scrutiny.

In order to get ahead of the curve, firms
must organise data from multiple sources
so as to understand exactly what is in
their portfolios. They must also ensure
that there is clear data governance in
place, and rules of engagement as to how
their downstream systems communicate.
Orphanou: There is no doubt that the
introduction of new regulations such as
Basel II, the Markets in Financial
Instruments Directive (MiFID) and the
Single Economic Payments Area (SEPA)
has put the issue of data management in
the spotlight. By investing in EDM and
ensuring it is given high priority
throughout the organisation, financial
institutions can ensure their data
management is in good shape and has the
flexibility to meet any future regulatory
obligations.
Raeves: At the lowest common
denominator level, many of the recent and
announced regulatory requirements share
four essential characteristics:
Quantity: firms need to capture, store
and distribute more data than ever before
(more sources, more internal customers,
more reporting channels)
Granularity: higher levels of detail and
more integrated and connected data sets
Quality: firms must be able to show
where the data came from, how a golden
copy was created, and the complete audit
trail for composites and individual
sources
Timeliness: firms must be able to send
data in near time - batch processing is out,
event-driven is in
If they want to create an EDM
program that allows current and future
compliance - these four fundamental
qualities need to be included in the design
of the solution. Scalability and future
proofing translates into four golden rules:
store more data, understand the structure
of it, make sure you can trust the sourcing
and derivation of the data, and get it in
and out of your infrastructure quickly.
Meinel: My experience in this area is firms
that focus on firm-wide risk management
are usually a bit ahead of the regulators
and do not need to rush from one
regulatory data project to another. If
your business has not had this focus in the
past, start a business unit whose success is
critically dependent on the kind of data,
messaging, and reporting infrastructure
that makes it easy to respond to
regulatory demands. Start a cross
product risk trading unit or provide prime
brokerage for a hedge fund and your firm
will be facing many of these types of data
issues. The business manager of one of
these units that is succeeding in the
market will be more demanding than any
regulator.
What is the cost/benefit return associated
with outsourcing and or offshoring (security,
regulatory, legal etc) and has that altered in
recent years?
Cumberbatch: The benefits of offshoring or
outsourcing can be reducing costs,
increasing a firm’s resource capacity and
taking advantage of centres of excellence
and competence that are not deemed to be
of strategic benefit to an organisation.
These are very important considerations
for a firm, as unsuccessful offshoring or
outsourcing initiatives can prove costly to
reverse and put a firm at a competitive
disadvantage.
These benefits have very different value
propositions to firms. For some time,
reducing costs seems to have been the
most attractive reason for offshoring or
outsourcing, but this has also proved to be
the largest source of dissatisfaction. As
demand for these ‘cheap’ and capable
resources increased and began to
approach supply, then so did their cost.
However, increasing capacity or using
centres of competence to augment
existing resources introduces different
benefits. Here, the focus is on expertise,
which an organisation doesn’t need to
own or simply does not have. Clearly this
is less ‘cost’ sensitive to where many
outsourcing and offshoring organisations
will be heading.
Orphanou: Managed Data Services are a
viable option for the smaller firms. Hedge
funds in particular tend to outsource data
management to their administrators.
However, for those firms looking to use
PANEL DEBATE
their data as a means of competitive
advantage, the outsourced model may not
be ideal. Data is an enterprise asset and
protecting this is critical, also questions
may arise over the audit ability of
outsourced data management. As a result,
some organisations will always prefer to
handle data internally.
Kelsey: Outsourcing and offshoring are
central elements to any organization's go
to market strategy. Going forward, we
will see a fundamental shift toward
outsourcing and the range of services
offered by firms, including the purchasing
and provision of data management
sources. As the markets continue to
evolve, we are likely to see a mesh of
providers emerge, which provide a hub of
data services to the market.
Offshoring has certainly helped to
streamline parts of the data management
process that are more routine, and there is
a compelling cost savings element.
However, firms often underestimate what
it takes, and how quickly subject matter
expertise can be developed. Institutions
must recognise that there is no conveyor
belt for market knowledge, no substitute
for people who have deep knowledge of,
for example US Fixed income, or
Canadian equities. As firms continue to
learn from their experience in offshoring,
they will invest more heavily in
automation, either directly or via an
outsourced firm, and put systems in place
to make up for knowledge gaps. This has
to be part of any cost/benefit equation.
Raeves: Outsourcing and off-shoring does
not necessarily translate into
straightforward savings - the business
benefit is more about focusing your
business on what it does best. Some firms
are making the call that managing data is
not a core competency, others feel that
much of their market differentiation is in
their unique understanding of highly
complex financial products, closeness to
their customers, and detailed
understanding of their counterparty risk.
There is no right or wrong answer here -
it is tightly linked to how firms define
themselves and what differentiates them
from their competitors.
INVESTOR SERVICES JOURNAL 27
PANEL DEBATE
Meinel: Although costs are going up in
many traditional offshoring locations, the
benefits are still there for traditional data
cleansing work, generating reports and
for engineering messaging and data
infrastructures. 29West has several
clients that are connecting middle and
back office groups in India or Asia or US
non-financial centers to front office
groups in NY, London or Tokyo using our
enterprise messaging solutions. Since the
abilities of firms to include offshore
groups in the culture of the onshore firm
has improved it is feasible to move even
more responsibility to these “offshore or
nearshore” groups.
Is automation the key to better organisation
of firms’ reference data management,
enabling them to better manage risk and cut
costs? And what are the obstacles to getting
a clear view of clients’ data?
Kelsey: Most data and technology experts
agree that virtually anything in the data
realm can be automated - it's a function of
priority, time and investment. But there is
a danger in assuming that there is a silver
bullet. Automation needs to deal not only
with the data itself, but the software and
platforms that house the data, as well as
the applications that fuel the business.
There is clearly automation in and
between each of these layers, which gets
challenged at many points along the way.
At the data level, organizations often
want to take the best of class data from
several sources. This creates mapping
and normalizing challenges - if you look
at even a few standard data fields across
organizations, more often than not they
don't match. It also creates timing
challenges, making it critical to
understand when and how each source
updates their data.
At the software or platform level, firms
will seek to build a competitive advantage
by differentiating. This often introduces
proprietary middleware, which means
more automation challenges. Finally,
legacy applications and databases often
exist to do very specific things, and are
structured accordingly. Again, it's back to
recognizing that once a piece of data
28 INVESTOR SERVICES JOURNAL
comes in, it needs to be treated as an asset
and tracked. Where it goes, how it is
stored, and who can change it is a vital
component to achieving automation.
Cumberbatch: Automation is a better way
to manage both pricing and reference
data, as the manual collection, re-keying
and processing of data will inevitably lead
to errors. While automation can reduce
errors caused by manually moving or
entering data between different systems,
it also speeds up the process of making
this data available to the applications that
need it when and where required.
When errors occur, they must first be
identified, then diagnosed and then
successfully resolved. When manual
processes are used to share important
data between different applications then
any errors are very complicated to
identify, to diagnose and to resolve. The
time taken to resolve these issues can
disrupt time-critical workflow processes
and thus lead to considerable expense.
The old school means of handling data
in individual silos, which focused solely on
the requirements of each business
function, often resulted in a number of
disparate systems. Many firms now focus
on open access and sharing a ‘golden
copy’ across the organisation. Information
technologies can achieve this, but other
considerations, such as information
security, need to be considered as well.
Information needs to be shared when it is
required, by authenticated consumers
who are authorised to see it and with
appropriate accountability.
Orphanou: Inaccurate data creates a huge
operational risk and reworking failed or
broken investments costs the industry
millions of dollars annually. In particular,
reference data underpins every banking
product and achieving Straight-Through
Processing (STP) represents a significant
opportunity to reduce transaction costs.
It is important that an organisation’s
systems all use the same high quality
reference data and that this reaches the
appropriate business functions efficiently.
This will reduce reconciliation issues, and
improve risk management and
compliance. There are many obstacles to
achieving this, not least inflexible legacy
infrastructure and the wide range of data
terms from data providers. Flexibility and
integration is key and financial
institutions should look to make more use
of SOA. EDMs should do more than
simply collate, cleanse and store data. By
encompassing workflow orchestration
and automating its distribution to
downstream applications financial
institutions can significantly reduce costs
and improve risk management.
Raeves: Automation levels in the financial
services industry obey a strict one-way
logic: virtually all data and most processes
are suitable for automation, and there is
no case for manual processing other than
inertia, underfunding, or short-termism.
Technology is ideally suited for high-
volume, repetitive processes - and the
very business model of the mainstream
banking and investment industry is
predicated on scale and cost-effective
growth. Finance and IT are a very good
match.
The challenges of client data are a little
different from product data: products are
exchanged between trading parties, but
the (necessary) illusion of unique
customer relationships means institutions
are loath to consider their
customer databases as a commodity, in the
same way they would with a security
master file. This means there are no
standards for uniquely identifying
customers, there is no de facto data
oligopoly in the same way it exists for
product data, and there is no perceived
business driver to make customer data
more interchangeable.
Meinel: Automation is key to managing
reference data. However, I have seen
several firms technology groups over-
engineer their automated solutions for
reference data. New types of reference
data are being generated every day. I
favor automated solutions that focus on
providing key subject matter experts with
highly automated toolsets as opposed to
systems that try to completely automate
out human expertise and judgment. By
choosing and designing a clear
standardized publish/subscribe

mechanism into their reference data
architecture, firms can leverage the
expertise of a domain expert across
product silos. For example, it’s typically
much better long term for an equity
system that needs forex information to
leverage the actual reference data used by
their forex group than by reinventing it
or doing it themselves.=
In my experience, one of the main
obstacles to maintaining a clear view of
clients’ data is that firms
frequently approach client data systems as
if client data is “static”. That is they put
much more effort into designing ways to
access the data than they do into ways to
publish changes to client data. The
reality is that client data is much more
dynamic than people realize and can be
handled with the same sorts of data
management architectures used for
dynamic data such as orders, trades, and
payments.
Has last summer’s credit crunch forced
firms to take data more seriously to help
manage risk?
Cumberbatch: Recent events, from the
volatility of the global financial markets
to the sub-prime crisis, have put a
spotlight on risk management and the
essential reference data supporting this
process. Only by optimising reference
data management, and thus having an in-
depth knowledge of the millions of
instruments flowing through its systems,
can a firm take a holistic approach to
effectively managing risk. Critical to this,
is the ability to take a 360° view of each
financial instrument .
Effectively managing and reviewing
reference data can help investors
understand the underlying dynamics of a
security and help them determine their
risk exposure. For example, even though
a security may have an AAA rating, that
rating may be supported by internal or
external credit enhancement. To
understand the risk profile of that
security, it can be crucial to know
whether that credit enhancement will
hold up under stress. With consistent,
timely and accurate reference data,
institutions can gain additional
transparency and can get a more complete
understanding of the financial
instruments streaming through their
applications and databases, and as a result
manage risk more effectively.
Orphanou: The sub-prime crisis has
highlighted the importance of ensuring
financial institutions have access to the
right data to evaluate risk. While its
impact is yet unknown, the crisis may
affect the reference data requirements
associated with assets. Financial
institutions may look to store more
information on customers and more
closely evaluate the risk of investing in
certain products. Financial institutions
require a significant history of consistent,
accurate and granular data. EDM
solutions that centrally collect, manage
and retain critical operational data will
help practitioners to analyse and make
better decisions about their credit risk
exposure. Such a system also makes it
possible to audit data from the point of
origin to consumption.
Kelsey: Absolutely. The turbulence in the
credit markets over the last year has made
it imperative that investors measure
exposure and monitor risk very closely.
For most financial firms, this is very high
on the agenda right now.
The credit crunch not only changed the
complexion of the portfolio mix, but the
degree of scrutiny the underlying
instruments receive. Though cash
issuance has dried up considerably,
portfolio managers still need to achieve
returns for their investors, and still need
to achieve diversification. They are
increasingly turning to the
derivatives markets as an alternative, and
are taking a more global approach in
search of investments. Because each
transaction is bespoke, the volumes in the
derivatives markets are eclipsing those of
the underlying cash instruments. And
they are far more complex to value.
While lack of transparency in pricing
complex instruments might have been
tolerated in a bull market, this is no
longer the case; it is simply becoming too
much risk for the return for investors to
bear. Additionally, investors don't only
PANEL DEBATE
want to know risk of issuer but who owns
them, so counterparty information
becomes a key consideration.
Another form of risk often overlooked
in this type of discussion, which can
benefit from data management and
investment, is trade settlement risk;
specifically, reducing trade failure rates.
This is a form of risk that, in many ways,
organizations have a greater degree of
control over than the market risk of the
current credit crunch. By that I mean, the
better the data management capability,
and the frameworks that power them, the
lower the risk of trade failure.
Raeves: Yes, the credit crunch centred
around some very complex financial
products, but reacquainted the industry
that - however ingenious the financial
engineering - you need to be able to
answer the basic questions: what is the
product, how much is it worth, how do
you price this asset, who is my
counterparty on this contract?
It illustrated the gap between the
small specialist group of quants and
engineers who understand the products,
and the risk, control, and finance
infrastructure of the wider institution. It
is clear now that CROs and CFOs will
actively corral the sharp end of the firm,
and what they need to do is get the right
data - so that the numbers and
calculations that are used for the
trading and investment activity, are
the same ones used for risk and exposure
management.
A shared, centralized and standardized
data architecture is what is needed for an
effective risk architecture - it is the only
way to catch risk as it flows through the
system - whether it is market, credit,
operational or legal risk.
Meinel: Yes. The complexity of the fixed
income securitization products clearly got
a lot of attention the last several
months. These particular products are
notorious in their sensitivity to data
errors in reference data. I expect firms
that continue to trade and deal with these
products to invest seriously in improving
data accuracy and timely deliver of data to
their risk managers. I
INVESTOR SERVICES JOURNAL 29
FUNDS INDIA
As one of the BRIC markets (Brazil, Russia, India, China),
India challenges China’s development hegemony
in the Asian region. Jamie Darlow looks at why it is such an
investment hotspot and the development of its capital market
ast month, the Ford Motor
L Company tied off the sale of its
luxury car brands, Jaguar and Land
Rover, for a rumoured USD2 billion, paid
for with a USD3 billion one-year bridge
loan from Citigroup and JPMorgan
(lending must go on, credit crunch or no).
The buyer is of course India's Tata
Motors, one of the world's largest
companies and a shining demonstration
of the nation's economic might.
India now has some of the largest
corporates in the world and it's now
debateable whether India should still be
considered an emerging market. It now
has all the trimmings associated with a
developed economy, including a booming
listings market. The market capitalisation
of listed companies as a percentage of
GDP exceeded 90% in 2006, up from 32%
in 2000 according the World
Development Indicators database,
published in April 2007.
The funds market has also seen
phenomenal growth over the past few
years. India is slated to become a USD1
trillion market in assets under
management for wealth management
providers by 2012, with a target market
size of 42 million households, according
30 INVESTOR SERVICES JOURNAL
Building BRIC
to a recent report from Celent.
There were around USD545 billion in
assets under management in 2005 in
India. Growth of around 8% a year since
then now puts that figure at around
USD600 billion in assets under
management.
And this is sustained growth, according
to Neil Daswani, managing director and
global head of Securities Services with
Standard Chartered Bank. “India's five-
year bull market, backed by record fund
inflows and strong corporate earnings,
encouraged retail investors to put 4.8% of
their household savings into funds in
2006 and 2007, up from 0.4% two years
earlier,” he explains.
Akhauri Sinha, head of RBC India,
agrees that assets under management are
likely to hit the trillion mark in coming
years. “Going by the present growth rate
of 15%, Celent's USD1 trillion figure by
2012 is not a big figure and seems
achievable,” he says.
Yet he thinks some of Celent's figures
may actually under-represent the market.
“In India there are currently around 300
million middle class households which is
set to rise by 2012 to 375 million as
income levels continue to grow. India's
average saving rate is 35%, higher than
most of the world's economies. There
were around USD545 billion in assets
under management in 2005 and there has
since been an average growth of around
15% annually. The AUM is predicted to
grow at an average rate of 15% minimum
in the next three years. As of now India
has around USD600 billion assets under
management. Going by the present
growth rate of 15%, Celent's figure of
USD1 trillion by 2012 seems achievable.”
The exact figures aside, those middle-
class savers represent a massive
opportunity for investment banks,
precisely why RBC opened a
representative office in India earlier this
year. And RBC is certainly not alone -
recent entrants include RBS and the
Development Bank of Singapore, who
join JPMorgan, Merrill Lynch and
Morgan Stanley who are all firmly
established regionally.
Market potential has also drawn a
plethora of asset managers to India.
There are currently 32 Asset
Management Companies (AMC) in the
country with around 20 applications
outstanding at the Securities and
Exchange Board of India (SEBI). Sinha

Mutual Funds growth in India
says it is expected that by 2010 there will
be anything between 50 and 60 AMCs in
India. “The more the AMCs, the more the
need for need for depositaries, clearing
houses and custodial services,” he
explains.
“There is good potential for all such
businesses in India. Presently, this area is
serviced by the large international banks,
and some domestic ones,” continues
Sinha. “Down the line, this particular
sector is definitely going to grow because
there is a high demand for these services
and as of now the demand exceeds supply.
Apart from domestic players, it is
expected that international players will
come in to fill the gap.”
The New York Stock Exchange (NYSE)
Group also showed interest in India in
early 2008, buying a 5% equity position in
the Mumbai-based National Stock
Exchange of India Limited (NSE), the
maximum investment permitted by a
foreign investor in a stock exchange under
the securities laws of India. The stake is
costing the exchange USD115 million in
cash from a consortium of selling
shareholders, including ICICI Bank
Limited, Industrial Finance Corporation of
India Limited, IL&FS Trust Company
Limited, Punjab National Bank, and
General Insurance Corporation of India.
The transaction is expected to close in the
first quarter of 2007.
Investment in and out of India is huge
and the staggering growth in savings and
GDP in India has left the regulatory
behind in some instances. The rupee is still
subject of controls implemented by the
Securities and Exchange Board of India
(SEBI) - foreign investors must register
with the regulator. Today there is partial
capital account convertibility, where an
individual can invest up to USD200,000,
part of a phased roadmap for convertibility
of capital accounts driven by the Tarapore
Committee. “Captial account convertibility
for us is a 'process' and not an 'event',” a
spokesperson for the exchange explained.
While there are conditions to full
convertibility for capital accounts,
including tight control of both inflation
and fiscal deficit as a percentage of GDP,
which has to be within a certain range, the
country is expected to see full account
convertibility within a few years. “The
government of India is taking steps to
make Indian currency convertible on
capital account.”
The Tarapore Committee has also made
FUNDS INDIA
Indian mutual funds have grown
exponentially in recent years after
minimal growth during the first
part of this decade. Reliance
Mutual Fund continued to lead
the pack with assets worth Rs
90,937 crore under management.
Though the fund’s assets slipped
2.77% as compared with February
(Rs 93,531.67 crore), it is
steadily moving towards the
milestone of Rs 1 lakh crore.
Source: www.easyMF.com
a series of recommendations for a phased
liberalisation of controls on capital
outflows over a three year period. A full
description of the recommendations can be
seen in our boxout, but Daswani from
Standard Chartered outlines the
implications here: “Our view is that clearly
authorities are relaxing controls over
capital flows we are going to see only
gradual move towards capital accounts
convertibility. Near term fiscal overruns on
wage revisions for government staff, high
spending on social sector and so on, along
with turmoil in international financial
markets might slow down the pace of
liberalisation. Similarly opening up of
banking system to foreign ownership will
be gradual, and rightly so.”
International organisations such as the
European settlement service, Euroclear,
are anticipating any liberalisation will
lead to an increase in their reach in what
must be the world's worst kept secret,
Indian economic expansion. This year
Euroclear sign a memorandum of
understanding (MoU) with the Central
Depository Services (India) Limited
(CDSL) to foster greater cooperation.
Philip Reichardt, head of International
Collaboration at Euroclear, explains the
INVESTOR SERVICES JOURNAL 31
FUNDS INDIA
motivation behind the pow-wow: “We
formalised our relationships with an
MoU so that we can exchange
information freely. From our side, we will
give them insight into European
domestic and cross-border transaction
processing practices as they are keen to
bring themselves in line with
international standards.”
Reichardt explains the opportunities:
“With the accelerating trends of reforms Indian stock
market will witness more and more of institutionalisation
and the increasing size of money under control”
“A lot of the opportunities for us depend
on how foreign banks are allowed to
interact with local banks. In most
instances, the local market is keen to get
involved with Euroclear as we are seen as
a proxy for foreign investors. In the
Indian market, we work with a large
network of foreign banks and domestic
Indian financial organisations. With a few
exceptions, the domestic Indian banks are
not as well known internationally
because they haven't had the business
opportunity.”
Arun Tiwari, head of the Mumbai office
at Swift, comments: “Economic
liberalisation in India has come a long way
and it is on an irreversible path supported
by all governments that have been in
power since the early nineties. With this in
the background, it will be only natural
that we'll see increased partnerships &
cooperation between Indian and western
markets.”
Euroclear has existing MoUs with the
other depositories in India, the National
Securities Depository (NSDL), the
depository for the equity market, and the
Clearing Corporation of India, a central
securities depository that specifically
handles the settlement of government
securities. Meanwhile, the NSDL has not
been idle, signing an MoU with Taiwan
Depository & Clearing Corporation
(TDCC) in February.
Back in India now, and Swift opened its
first office in India in Mumbai late
November last year. The organisation said
it is strengthening its presence as a direct
result of sustained growth and
development of the financial services
sector in India, and in particular the
proliferation of international relationships
between Indian financial institutions and
32 INVESTOR SERVICES JOURNAL
counterparties worldwide.
Investment into India is becoming
easier and more mainstream. March saw
Standard & Poor's launched an index
designed to provide investors with
tradable exposure to the Indian equity
markets, listing ten of the largest and most
liquid Indian companies which trade on
developed market exchanges.
Mutual funds are also beginning to
develop in India, says Reichardt. “We've
seen interest developing for these funds on
the international front, with investors
wanting to add these to their foreign
investment holdings. The Indian equity
markets are still very retail based, but it's
growing and expanding,” he explains.
“Expect to see growth continuing as the
government is keen to nurture the
development of more professional advice
for Indian private clients - and Indian
private clients know they need more
professional advice because they can't keep
pace with all of the changes, like every
other market. India has been a safe bet up
till now, but professional investors must
know how to manage money in down as
well as upward markets.”
Institutional investors have had an
increasingly important role over the past
15 years, with foreign institutional
“The idea of a complete decoupling, in which a US
slowdown had no impact on India, is clearly implausible
given the interdependent, linked-up nature of the world's
modern globalised economy”
investors and Indian mutual funds now
responsible for assets under their
management representing around 18% of
the entire market capitalisation.
“With the accelerating trends of
reforms Indian stock market will witness
more and more of institutionalisation and
the increasing size of money under the
control, this set of investors will play a
major role in Indian equity markets,”
explains Daswani of Standard Chartered.
“The importance of institutional investors
particularly foreign investors is very much
evident as one of the routine reasons
offered by market pundits whenever the
market rises it is attributed to foreign
investors' money, no wonder we see
headlines like "Flls Fuel Rally" (Foreign
Institutional Investors), in the business
press. This is not unusual with India alone
as most developed economies of today
might have seen a similar trend in the
past.”
But there is a dark cloud on the horizon
for India, given the recent downturn in the
US economy that still accounts for around
a fifth of the world's GDP, according to the
IMFs 2007 figures. This depends on the
extent to which India has 'decoupled' from
the US, according to Daswani. “The idea
of a complete decoupling, in which a US
slowdown had no impact on India, is
clearly implausible given the
interdependent, linked-up nature of the
world's modern globalised economy. For
proponents of decoupling, the world
economy is now less dependent on the
United States than before because of
development in China and India, increased
intra-Asian trade and a more vigorous
European economy. There can never be a
decoupling from the US economy but the
magnitude of the impact will not be what
it was in the past.”
RBC's Sinha agrees the US subprime
crisis will affect India: “there is no country
in the world that can say a US recession
will not affect their country. But India will
not be affected that much. The total
exports to the US from India represent
around 19% of Indian exports. Ongoing
demand in domestic consumption means
that any decline from exports will be filled
by the domestic market.”
Stan Chart's view is slightly more
sobering. “Asia will not be an oasis of
prosperity in case of a global slowdown,
and the stock market could be hit hard.
India is doing terrific but no one can be
granted immunity in a global
slowdown. India may feel collateral
damage in the equity markets,” says
Daswani. However, India is certainly
better placed to withstand a US
slowdown than a decade ago. I

he established markets of Australia and Japan dominate
T the Asia Pacific region. Between them they manage over
a trillion US dollars just in mutual fund assets under
management, with Australia taking top spot with close to
USD540 billion as at the third quarter 2007 and Japan at
USD552 billion, according to Cerulli Associates. But 2008 could
see them knocked off their pedestals by China, whose mutual
fund assets were close to USD400 billion by the third quarter
2007, quadrupling from around USD100 in 2006.
If anything, the Chinese custody market is being unnaturally
restrained by the state's regulatory control of capital markets,
which slows foreign investment. China has been careful in
opening up its markets to foreign investment and Hernan
Rodriguez, managing director, Depositary Receipts, at the Bank
of New York Mellon, feels the process could be speeded up: “The
rest of the world would be delighted with the opportunity to
bring the latest technology and trading techniques to the
Chinese market, but much of the drive would depend largely on
the willingness of an unwieldy bureaucracy to permit the
introduction of multiple simultaneous innovations.”
Laurence Bailey, JPMorgan's Worldwide Securities Services
APAC CEO, agrees regulation has impeded foreign investment.
“The obtuse and dynamic regulatory framework in China is
causing some sluggishness in foreign investment,” he says. “As
most local companies are still state owned and often not audited
by internationally recognised accounting firms, foreign
investors could be reticent about investing in local businesses.”
Controls are now being relaxed in China but the upshot of
regulation has given the domestic custodians a head start in the
region. The Industrial and Commercial Bank of China (ICBC)
APAC REGION CUSTODY
The next stage
Jamie Darlow looks looks at the
lastest custody services
developments in the APAC region
plays the biggest role among many, but they are likely to be
joined in coming years by the presence of locally incorporated
foreign banks, many of whom are looking for entry through
Hong Kong, one of the most developed custody markets in the
region.
Chong Jin Leow, head of Asia, BNY Mellon Asset Servicing,
sees future potential for growth. “Hong Kong, operating one of
the most open markets in the world, has been a centrepiece of
investment market creativity and sophistication for the past
twenty years. It boasts a highly developed pension market, a
vibrant retail market, and a large and diverse institutional and
high net worth market that has led to the creation of highly
complex products including hedge funds and REITS,” he says.
Marcel Weicker, head of location in Singapore for BNP
Paribas, agrees the region shows future promise. “Hong Kong
certainly also seems to have growth potential with the
continuous listing of China mainland companies on the HK
Stock Exchange,” he explains.
Hong Kong and Singapore represent a half-way house
between the developed markets of Japan, Australia and New
Zealand (more on them in a minute) and the nascent developing
states such as Thailand and Taiwan.
Giles Elliot, Singapore-based product head of Custody and
Clearing at Standard Chartered, explains that Korea holds great
potential for custody services growth. The bank bought an 80%
stake in domestic fund accounting company A Brain last
October, giving access to the local market. “It gives us a notable
market share and extended capability into the local fund
administration market, one of the fastest growing markets in the
region,” says Elliot.
INVESTOR SERVICES JOURNAL 33
APAC REGION CUSTODY
“Pension fund reform and mutual fund reform and the growth
in the number of products, combining with a relatively wealthy
local community makes for market potential in Korea,” he
continues. “The community is increasingly looking for cross
currency exposure on those investments - many are not happy
having their pension plan entirely linked to the Korean market.
There has been a thirst for more structured products therefore,
away from the traditions of the cash account. That's driving a lot
of growth - the demand to get into equities and international
equities, where traditionally they had been money market
orientated.”
Inbound foreign investment has been possible for more than a
decade in Korea, albeit with the usual requirements such as
registration with the securities commission. Elliot says Korea
has been a pretty structured market but
that we are now seeing liberalisation with
new regulation coming through - currency
liberalisation for example, including
Increasingly, investors are relying more on independent,
account convertibility. bespoke research and less on the traditional bundled
Liberalisation of markets seems to be
something common among developing
research widely distributed by global investment banks
APAC markets. Taiwan, Malaysia, Thailand
and Indonesia, and of course India, are all taking steps to open
up markets and promote foreign investment. Privatisation is
expanding the value of capital markets in all APAC countries,
making them attractive to foreign investors from Europe and
the US. Taiwan and Korea have both recently introduced private
pension schemes.
The other driving factor is of course the growth in the
number of those wanting to invest. The middle classes are
growing in number across Asia causing domestic custody to
increase. India is slated to become a USD1 trillion market in
assets under management for wealth management providers by
2012. This is thanks to the dramatic growth in middle class
individuals who are expected to save money and will represent
42 million households by 2012, according to a recent report
from Celent.
Indian custody is covered in more detail in our special report,
which reveals the country is fast approaching developed market
status, at least in terms of custody services and the size of the
market. Those markets considered 'developed' in the APAC
region - Japan, Australia and New Zealand - still have potential
for growth, however. “In Australia we find an extremely mature
pension market, but one of the most vibrant hedge fund, private
equity, and offshore fund markets in the world representing
significant high value avenues for growth and expansion for
global custodians with the ability to support these investment
models,” explains Chong Jin Leow.
Superannuation in Australia pushed pension fund assets past
the AUD1 trillion mark in 2007 and the market is expected to
grow to AUD1.8 trillion by 2011 and AUD3 trillion AUD by
2016, according to the Australian Finance Group, Global Funds
Management Index. The impact superannuation has had on the
market should not be underestimated - Northern Trust entered
the Aussie market in 2007 with a staggering AUD51 billion
(USD42 billion) mandate from the Future Fund Board of
34 INVESTOR SERVICES JOURNAL
Guardians. The Future Fund was created in 2006 by the
Australian government to accumulate sufficient financial assets
to offset the government's unfunded superannuation liability,
which is expected to grow to over AUD140 billion by 2020.
Superannuation is expected to have a similar, albeit smaller,
impact on Australia's antipodean neighbour. Guardians of New
Zealand Superannuation's selection of Northern Trust as its
custodian for the New Zealand Superannuation Fund's (NZSF)
NZD11.5 billion (USD8 billion) assets. Northern Trust took
custodial responsibility for the fund's assets on 1 July 2007.
Japan also still holds growth potential, according to Chong
Jin Leow. “All markets in Asia represent ongoing opportunities
for growth,” he says. “In Japan, the worlds second largest
economy, we are witnessing the emergence of some of the
largest pension funds in the world entering global investment
markets, leading to incredible opportunities for cross-border
custody and securities lending. In some instances these pension
funds are managing in excess of USD1 trillion in assets each,
and growing monthly.”
Developed markets means developed and diverse investments
and therefore advanced services are required and it is the
developed markets that tax the resources of custodians the most.
Where markets are nascent and expanding rapidly, funds are
usually investing through equities. This is meat and drink to the
custodian banks, who already have all the technology and
experience required to service those clients without much
additional investment. There are still huge profits to be made in
the developed markets but this comes with the need to innovate.
Funds in Australia, for example, can demand daily valuations,
high volume fund switching solutions and capabilities, daily
compliance and performance monitoring, and unitised
accounting.
Asia is seen by most custodians as purely a growth area, yet
there may be some tough times ahead for the funds they service.
There is much speculation about whether the Asian economies
will be badly hit by the US downturn, as they were in 1997.
Chong Jin Leow says that in 2006 and early 2007 there was
talk of Asia 'decoupling' from the US and Europe and becoming
a region immune to the economic forces of the US and Europe.
“I believe that the current market conditions serve to
highlight the recognition that if anything, Asia has emerged as
a participant in the global economy and as such feels the impact
of any economic turmoil exhibited in the world. So, yes, our
expectation is that funds will be under pressure in the short
term as investors attempt to understand the true extent of the
credit crisis in the US, however we also expect Asia to
recover very quickly given the strong economies that have
emerged since the 1997 crisis in the region,” he concludes. I

Hope springs eternal
Italy's red tape and tricky tax regime have long been major
disadvantages to the country's fund industry,
Joe Corcos takes a look at how things may be finally changing
taly is a place where change comes slowly, but for the Italian
I fund industry, its arrival could be imminent. At least that is
what many are hoping. Italy's complicated tax regime and
over-regulation has long been a thorn in the paw of the industry,
and probably one of the largest factors in driving funds
elsewhere and contributing to the Italian economy's general
poor performance.
However, after pressure from the industry and the Bank of
Italy, the country's central bank, a new regime has been drawn
up and now only lacks implementation. But bearing in mind the
bloody mess that is Italian politics, nothing is certain.
The main problem is the fact that the way an Italian domiciled
fund and a foreign fund are taxed are different, creating an
imbalance that is seen as unfair.
An Italian domiciled fund pays capital gains tax on the daily-
calculated NAV of the fund every day, funnelling money to the
government, which otherwise could be used for reinvestment. In
contrast, foreign funds only need pay tax whenever they decide
to sell-up, leaving them more for reinvestment in the meantime.
Massimo Cotella, the chief executive of SPA, the Italian legal
entity of Societe General Security Services, explains: “While if
myself as an individual I invest into a foreign fund being sold
into Italy I see a performance that is not impacted by the capital
gain, so say I buy at EUR 100 and sell at EUR 101, I get EUR1
profit on which I will be applied the capital gain once I sell it.
“In the Italian domiciled funds, as it matures, whether you sell
ITALY CUSTODY
it or not you're still levied on the tax, and that creates a
discrepancy in performances, and if the market goes sour you
have a lot of credit which is damaging the funds, because you
have assets which cannot be reinvested.”
Italy is currently without a government, but during the last
one, the new law instituting a fairer tax was successfully passed
through parliament, leaving the next government with little
more to do other than implement it.
According to Cotella, the industry will be satisfied if the new
law is enacted by January 2009, but the feeling from the industry
and the Assogestioni (Association of Asset Managers) seems to
be the sooner the better.
Mauro Dognini, the deputy general manager of BNP Paribas
Security Services in Milan says of the current arrangement: “For
Italian residents there is an incentive to buy foreign funds rather
than domestic funds. As you know, the industry in Italy is a bit
in crisis because we are losing assets year after year. In 2007 the
industry lost about EUR 56 billion in outflow of money.
“It is a bit unfair, the Assogestioni have been trying to
convince the parliament to change this law. But we change
parliaments very often here in Italy”.
After having no effective government since January, this
month Italy is to decide between Walter Veltroni's centre-left
Democratic Party and AC Milan owner Silvio Berlusconi's
centre-right Forza Italia and its allies.
So far polls seem to be favouring Berlusconi, despite his
INVESTOR SERVICES JOURNAL 35
ITALY CUSTODY
unpopularity and perceived lack of
success during his previous two terms in
charge. But accusations of Berlusconi's
links with the mafia, political corruption
and dodgy business practices are less
fresh in the minds of voters than Romano
Prodi's recent centre-left government's
unpopularity stemming from tax rises
episodes such as the Naples garbage
scandal.
However the Italian funds industry is
What is certain is that if and when the tax
reforms ar enacted, they will have an
impact on the Italian custody market
hoping that whether it is a centre-left or
centre-right government that is elected
should not make too much of a difference
to whether the tax reforms go through.
Dognini says: “Everybody is hoping
that one of the first things the new
government does is align the taxation of
the Italian funds with the foreign funds,
so probably this problem will be solved
quite quickly, but there are many people
that have been saying this for many
years.”
He continues wryly:“There are a lot of
rumours that it will happen in the first
100 days.”
Of the reforms Cotella says: “It seems
to be not a problem from the theoretical
point of view but they still have to enact
that and that is one thing.”
What is certain is that if and when the
tax reforms are enacted, they will have an
impact on the Italian custody market.
According to Cotella, funds that already
exist will be favoured by the law.
The Bank of Italy has also recently
instituted a raft of other reforms. For
example it has vastly scaled back what
must be included in a prospectus and put
in place regulation that allows funds to
merge in as little as 15 days. Also, now no
authorisation is needed to set up a fund if
it is a clone of one that has already been
authorised.
Such measures are widely seen as an
admission that something needs to be
done to aid the financial services industry
and the Italian economy overall.
Of the new reforms Cotella comments:
“These were things that in the past you
were not able to do and since a month or
so ago they are now possible, so they are
36 INVESTOR SERVICES JOURNAL
trying to go towards pragmatism.”
According to Cotella, the Bank of Italy
is also attempting to create a Chinese
wall, a method of preventing conflict of
interest problems, between the asset
managers and the banks.
In the Italian industry most asset
managers are owned by banks, which
creates a captive market, something the
Bank of Italy wants to offset.
Cotella says: “The whole chain is a
captive market, from
the distributor to the
factory to the
holding companies
and managers booth.
“So the bank of
Italy is very much in
favour, if not of a separation even in the
capital in the two, at least a strong
Chinese wall. They're pushing to have
more independent board members in the
asset manager boards so that the boards
will be impacted by independent opinion
and not just by the captive world. So
they're trying to create an asset manager
a lot more autonomous from the group
they're belonging to.”
Dognini thinks that the Bank of Italy's
efforts to separate the distribution and
production side of things will aid the
industry. He recounts that traditionally
in Italy the banks have owned the Italian
funds, resulting in captive distribution,
leading to a bank both creating funds and
distributing them within their branches.
He says: “When the banks decide that
funds are no longer remunerative and
want to sell other products
like structured bonds it may “We are in a period of changes.
change very quickly and
convince clients to exit the This is a strong push because it
funds and enter into other
products.
comes from the regulators”
“If you push for segregation and obtain
it, so the independent asset manager is
not linked directly to the distribution of
the banker, things will change and funds
may be chosen because they are better
products than others.”
“We are in a period of changes. This is
a strong push because it comes from the
regulators. We will see how the market
will adapt.”
Another potential stumbling block in
doing business in the Italian market is
finding a distributor for funds. Players in
the custody market can run into
difficulties because there are simply not
enough distributors.
Cotella explains: “The problem is that
for the custodian market or the funds
market again especially there aren't that
many players anymore, here as you can
see in the lowering fees to be gained, in
an industry which is losing assets, you
need a lot of expertise to be able to be
close to your customer, on the other hand
you have to have a high and powerful IT
resources, and money invested in IT”.
A principal mistake made by some
Americans setting up funds in Italy was
installing their global IT system in Italy,
according to Cotella.
“There's a lot of localism that has to be
played with the IT. It means gathering
the resources the knowledge, and the
expertise.
“It's much easier to open up a fund in
Luxembourg than in Italy. It is a lot more
complicated in cost structure. You have to
open up a company here and it requires
some structure.”
Whatever happens with the new tax
law and the slackening of regulation and
red tape, what is certain is that the Italian
economy is in bad need of any fillip it can
get.
Reuters has reported that the
manufacturing industry in the country
has slowed almost to a halt and exports
have declined substantially.
The most recent NTC/ADACI
Purchasing Managers' Index has fallen
below the 50 level, which separates
growth and contraction, to 49.4. The last
time it was so low was in June 2005.
This combined with the buffalo
mozzarella fiasco and Naples' seemingly
never-ending trash crisis (apparently to
be resolved by sending the waste to
Germany), have left the Italians needing
something to restore their pride.
The answer is unlikely to be a suddenly
rejuvenated funds industry, as the effects
of any changes by the government won't
happen overnight. However, even a slowly
improving industry with a new, fairer tax
regime and more efficient regulation will
at least be one positive for a country that
desperately needs them. However in Italy,
the future is unwritten. I
CLEARING AND SETTLEMENT
Off the record
An industry insider talks to Brian Bollen
about European clearing and settlement
Everything is off the record, or I just
“ won't talk to you.” It's not often that
I am hoist by my own petard, but this
interview with a specialist who is deeply
steeped in the folklore of the Byzantine
world of European clearing and
settlement was off to an interesting
start, putting me on the backfoot
immediately. I feared the worst, an hour
or more of pompous, posturing, self-
serving lecturing but a smile soon
started to spread across my face as I
realised I was in for a treat. It turned out
to be a hugely enjoyable interview full of
robust, confident, provocative and
contentious assertions. One of the best I
have ever experienced since leaving
Midland Bank International Division
and joining the Financial Times Group
in October 1984.
Anyone who thinks that the clearing
and settlement world is deadly dull and
tediously boring and relentlessly clinical
and technical clearly isn't talking to the
right people at the right time on the
right terms. Seldom have I relished the
rollercoaster ride of a conversation such
as this. It started with an analogy
likening the debate over the future of
Europe's financial plumbing to the
squabble over the Zeebrugge energy
interconnector in Europe's energy
infrastructure. It ended with Da Vinci
Code-ish assertions that France and
Germany have renewed their attempts to
turn the European Union back into their
own pet project, this time through the
back door, using the planned overhaul of
38 INVESTOR SERVICES JOURNAL
Europe's fragmented and disjointed
cross-border trading, clearing and
settlement provisions.
One of the first recommendations I
make when leading a media training
course to prepare senior executives to
deal with representatives of the press
and other media is to insist that
everything is off the record, unless
otherwise agreed. The principal reason
for this is that if the interviewee, or an
accompanying public relations minder,
doesn't utter these magic words, the
entire interview is 'on the record'. This
means that the reporter is at complete
liberty to use whatever is said without
any further reference to the interviewee
for 'quote approval'. Insisting that the
interview be 'off the record, unless
otherwise agreed' means that the
reporter is honour-bound to agree on
the accuracy of the words being
attributed to the interviewee.
'Off the record', incidentally, does not
mean that the reporter cannot use the
material contained in the conversation,
as is often thought. 'Off the record'
means only that it should not be
attributed to the interviewee without
that interviewee's approval. Be warned,
though, that if what you say is juicy
enough, the reporter might still choose
to ignore the agreement and carry on
regardless. One overarching rule of
thumb to bear in mind when tempted to
say something to a reporter is that if you
would not be happy seeing it plastered
over the front page of the most rabid
muck-raking tabloid journal, DON'T
SAY IT TO A JOURNALIST!!
Another reason for using the formula,
with a reporter you feel you can 'trust', is
that it can lead to a much more relaxed
and fulfilling interview experience for
both parties. Writing as someone who
has experienced the full gamut of
interview conditions from 'on the record'
and 'off the record' to 'background only'
and 'deep deep background' and 'if I tell
you I will have to kill you', I am happy to
report that I have been prepared to
accept all such preconditions in different
circumstances. I can assure readers that
a full and frank discussion with an
industry expert who is prepared to speak
openly in return for an assurance of
anonymity can be hugely enjoyable. The
words 'selfish', 'rapacious', 'greedy' and
'bastards' featured more than once,
uttered with great good humour but a
clear intent to wound. The need for
balance demanded I contact as many
parties as possible for their input, but a
number failed to respond, or did respond
but in such a way that they failed to
convince that the great project to render
European trading, clearing and
settlement more harmonious and
efficient, and less expensive, is not about
to run into the ground. To this
disinterested observer, it seems obvious
that the industry generally is paying the
price for the short-term financial gains it
made from the demutualization of stock
exchanges across Europe. As one
observer puts it: “Ever since the
CLEARING AND SETTLEMENT
exchanges have been behaving like
English Premier League clubs like
Chelsea or Manchester United, pursuing
their own interests to the exclusion of
the good of the game.” It is also plain as
a pikestaff that the combination of
political interference and the naked self-
interest of many if not all of Europe's
"If you are a local player, you are competing
head-to-head with institutions that have a global client
base; and that is very difficult "
central bankers threatens to scupper the
private sector's dogged attempts to
deliver a single, efficient set of plumbing
for Europe's financial services industry.
Just as Euroclear appeared to be
making demonstrable progress with its
efforts to harmonise the five markets in
which it now has a direct presence (the
UK, Ireland, Belgium, France and the
Netherlands) and where its long awaited
single settlement engine has been up
and running since January 2007, the
European Central Bank's politically
driven determination to explore a
mechanism dubbed Target2-Securities
came out of the blue and hangs over the
market like a dark rain cloud. It will be
interesting - possibly even riveting - to
pick over in detail the results of the
consultation exercise on the ECB's
telephone book-style document on
Target2-Securities, published last
December. The market expects the ECB
to decide by the summer of 2008
whether to press ahead with it, or
whether to kick it into the long grass
where it can quietly disappear and
vanish from the collective memory. I
personally sense a strong preference for
the long grass scenario, especially from
those who have dedicated money, time
and effort to get us where we are today.
In the meantime, as Tony Freeman,
Executive Director of Industry
Relations and Market Growth EMEA at
Omgeo in London, puts it: We are in a
holding pattern in Europe. Planes are
stacking up in the skies over Heathrow
Airport, waiting to land on a new
runway: Target2 Securities. If it is built,
and there is a lot of political weight
being thrown behind it since the shocks
sent through the markets last summer, it
40 INVESTOR SERVICES JOURNAL
will reshape the European landscape,
bringing structural change and greater
efficiencies.”
Those mild-mannered people at
Euroclear are far too polite to speak out
aggressively and start rocking EU boats,
even if it means reaching the desired
settlement solution more efficiently and
more quickly, but maybe someone else
can do it for them. “Euroclear is neutral
on whether Target2-Securities should
go ahead, but we need more information
in order to make an informed decision on
behalf of all our clients,” comments Paul
Symons, Director and head of Public
Affairs at Euroclear.
“We are looking for ways to cut tariffs
and costs, and believe that we are
witnessing the benefits of competition in
action as the Commission's Code of
Conduct on clearing and settlement, and
new platforms emerge at different points
of the business. The best providers will
in the end attract the most business, and
this will drive consolidation between
providers or force a rethink of their
strategies. The ECB is looking to create
a monopoly, and we have to ask the
question honestly: which is the best
solution? The reality is that there is a
variety of answers. In the meantime,
Euroclear has moved on, and the Nordic
CSDs are following a similar plan in
terms of CSD consolidation and market-
practice harmonisation. There IS light at
the end of the tunnel. We conceived our
model in 2002 and the target
implementation dates seemed very far
away, but suddenly they are arriving
thick and fast, and we are delivering on
our promises, which is important for us
to do. It has been a major challenge,
involving investment of over 500m.
Some time after Target2-Securities was
first mooted in July 2006, our user-
populated Board instructed us to carry
on and deliver our new business model
as soon as we could deliver. Once
completed, our programme will provide
300 million per year in savings. Unless
the ECB provides convincing answers to
key questions raised by the CSDs on
governance, feasibility, end-user costs,
among others, it could be a jump into the
unknown that Europe's CSDs could find
themselves signing up to.”
Impartial market observers will surely
utter a quiet three cheers for the
Euroclear way, if only because it is
becoming tangible, and, so far, seems to
work, and is already better than the
planned official alternative. “When we
launch our Single Platform, for instance,
it will be multi-market and
multicurrency. It will process domestic
and cross-border securities transactions
as well as custody, collateral
management and securities lending
transactions on the same platform,
covering about 50% of the European
securities markets, while Target2-
Securities will only perform the
settlement function in euro only,” says
Euroclear's Symons.
In the meantime, the Nordic markets
to which he makes reference have
undergone something of a
transformation in recent years, the most
recent landmark event being the
completion of the takeover of OMX by
Nasdaq, which also owns, to some
extent or other, the CSDs in Iceland,
Estonia, Latvia and Lithuainia, notes Ulf
Noren, SEB's head of sub-custody client
relations for the Nordic and Baltic
markets, as well as Germany, Ukraine
and Russia. Norway remains a refusenik,
ploughing an increasingly lonely
looking furrow, but anyone who knows
Norway and its inhabitants will
recognise the behaviour pattern. There
is no way the country will fall in line
with its neighbours just because
everyone expects them to, and even if it
is the most advisable thing to do. In the
meantime, Ulf Noren points out, ChiX
has now started trading in Sweden and
can be expected to take 10-20% of
liquidity from the market, and maybe
even more from Finland, where it was
scheduled to begin trading on April 4.
“We are going to see a lot of trading
fragmentation as the various exchanges
and platforms compete with one
another,” he predicts.
There is no doubt that 2008 will be a
critical year, says Paul Bodart, general
manager of the Brussels branch of BNY
Mellon. “The push given by the
authorities is starting to help, and the

Code of Conduct will be important in
driving things forward,” he adds. The
complexities and difficulties that lie
ahead, however, are illustrated by the
sentence that follows: “We have seen 25
requests from different parts of the
overall infrastructure to connect to one
another and so far only one has
materialised: the first and only practical
CCP interoperability solution under the
code of conduct is the agreement
between LCH Clearnet and Xclear
(LSE) for peer-to-peer clearing
services.” One down, 24 to go. Adds
Michael March, director of corporate
communications at LCH Clearnet:
“Although the Access and
Interoperability provisions Code of
Conduct was signed with some fanfare
in mid-2007, outside London there
remains scant evidence that access is
being opened.”
Elsewhere, Clearstream, whose
parties at the big set-piece gatherings
are renowned for being much much
livelier than Euroclear's, reaffirms its
belief that the ideological battle between
two different views of the future has
been over for some time and that new
considerations face the market. “The
debate about whose model is best -
Euroclear's, our own or Target2
Securities - has become less relevant
now in today's world of interoperability
set up by regulatory initiatives such as
the Code of Conduct,” says Thomas
Zeeb, executive board member
responsible for Clearstream's client
relations. “Also since the events of last
August the focus has switched to finding
liquidity, to keep the markets
functioning efficiently. We already have
an extremely efficient system both
domestically within Clearstream
Banking Frankfurt as well as
internationally, either through the
subcustody network, or via using the
bridge with Euroclear and into domestic
markets. We are also seeing dramatic
increases in competition from our
traditional competitors as well as new
market entrants; the market has already
benefited from this fierce competition
between Clearstream and Euroclear and
there are more new players looking to
carve out a slice of the action for
themselves.” As evidence of the pressure
on both price and service, he adds that
Clearsteam grew its assets by an
average of just under 100bn a month in
2007, but revenue increases did not
grow by anything like the same
proportion, highlighting the need to
keep up the drive to reduce inefficiencies
still further.
Hardly were these words out of
Thomas Zeeb's mouth than news broke
that Settlement: The Next Generation,
might be showing at cinemas near you
sooner than you thought. Seven leading
CSDs - Clearstream Banking AG,
Frankfurt (Germany), Hellenic
Exchanges S.A. (Greece), IBERCLEAR
(Spain), Oesterreichische Kontrollbank
AG (Austria), SIS SegaInterSettle AG
(Switzerland), VP Securities Services
(Denmark) and VPS (Norway) - signed
an agreement in early April to establish
Link Up Markets, a joint venture to
improve efficiency and reduce costs of
post-trade processing of cross-border
securities transactions in Europe.
"One of the problems is that we have spent the best part
of 20 years getting the central banks out of the
settlement system - now they're coming back"
The Link Up Markets initiative is a
result of the changing market
environment and aims to promote
simplified cross-border business as
requested by the Lisbon Agenda,
proclaimed the official announcement.
The seven CSDs believe that improved
interoperability between CSDs with a
single point of access for customers
results in significant cost reductions.
“For many years,
customers have been requesting a
solution for easy access to other
markets,” said Jeffrey Tessler, Chairman
of Clearstream Banking AG, speaking
for the joint venture. The CSDs
participating in the initiative have
developed a unique solution geared at
reducing the complexity and the costs of
cross-border transactions. We establish
an environment that creates the
potential to reduce current cross-border
settlement costs by up to 80%” Link Up
Markets is scheduled to be launched in
the first half of 2009.
While we wait for the dust to settle,
our anonymous mole argues that there
are bright spots in the European
CLEARING AND SETTLEMENT
clearing and settlement saga, and
Euroclear is one of those bright spots.
“Plumbing takes time to install, but we
are near to having a single process in
Euroclear. My guys just don't see the
point of Target2 Securities, but it seems
as if Clearstream and/or the German
authorities have been nibbling at the
ECB's ear. If you've been working on the
Euroclear project for all these years, it's
a bit harsh if a public sector-driven
intervention kicks in just after you finish
a decade's work.”
The key problem, according to some
of those close to the coal face, is the
vested interests of many of Europe's
central bankers, who are seen to be
dragging their feet, in the way that we
might expect of turkeys being asked to
vote for an early Christmas. In short,
they want to hang on to their own job
and the very nice lifestyle that goes with
that job. Anyone who has been in a taxi
driven by a former currency trader will
recognise the syndrome.
“One of the problems is that we have
spent the best part of 20 years getting
the central banks out of the settlement
system, now they're coming back,” says
one market participant. “Another is that
the determination of ECB president
Jean-Claude Trichet to be lender of first
resort when the credit crunch began last
summer has neutered the commercial
banks. The ECB's readiness to wade in
and take rubbishy bonds and CDOs as
collateral in return for real cash means
that the banks are literally indebted to
him and his institution for billions and
billions. They won't say anything to
upset the applecart. They will zip their
lips and get on with it, even if there is a
bad smell coming from the project and
the way it is run.”
Please tell us, dear readers, he must be
mistaken, surely. A quasi-Governmental
institution putting its own interests
ahead of those of the markets it is
supposed to help and those of the people
it is supposed to serve? Whoever heard
of such a thing? I
OUTSOURCING
Outsourcing and Europe
2007 saw Europe's first ever year as the world's most active
outsourcing market. Europe surpassed the Americas in both the
number of contracts awarded in the region and in total value.
Alison Ebbage examines what is driving this appetite for outsourcing
uropean banks have been less than
E forthcoming when it comes to
outsourcing deals. Instead they
have preferred to deal with matters in
house or via their own affiliates. But asset
managers are now finding it difficult to
get the specialist know how when it
comes to alternative investments and are
increasing looking to partner with third
party services providers.
Indeed the situation could not be more
unlike that in the UK. There, a wave of lift
out deals has meant that with a few
exceptions, the middle and back office
space is almost entirely outsourced.
Jim Connor, partner at Morse
consulting comments: “The Prudential
was one of the first deals in 2000 but it
was the SWIP deal later that year that set
out the blueprint. The rationale behind is
was essentially the need to integrate four
different systems and thus crate
operational cohesion. SWIP wanted to
focus managing the money, not system
integration.”
What followed was a few years of
landgrab, where the big third party
services providers tried to get hold of as
much back office activity as they could.
This was also extended to Europe with
42 INVESTOR SERVICES JOURNAL
the services providers trying to get deals
in as many countries as possible - creating
bridgeheads which would, it was thought,
lead to further deals and thus market
share.
Geoff Cook, managing director at BBH
in Luxembourg comments: “Everyone
thought mass outsourcing was the next
big thing and that one big deal in one
country would provide enough of a
toehold to get deals from other
institutions in that country. They were
wrong.”
In Europe there has been no great
outsourcing stampede. Although there
were two big deals between State Street
and AXA and ABN that could well have
set the ball rolling, organizational
structure and cultural factors have meant
that middle and back office has, largely,
remained an internal function.
Gilliane Philip Courtines, Head of
Relationship Management, Institutional
Investors at BNP Paribas comments: “In
continental Europe asset managers tend
to be part of a universal bank that also
offers insurance, pensions and other
products. This affords them economies of
scale and any 'lift out' will generally be to
affiliates owned by the parent company.”
Internal economies of scale of course
mean that there is little in the way of cost
savings or value to be added by engaging
a third party. The AXA and ABN deals
being the exception.
Connor comments that in the case of
AXA and ABN there was a degree of
operational dependence. In addition
activity in the UK marketplace that may
have influenced the decision to outsource.
He says that aside from commercial
aspects to outsourcing that social
legislation generally made life more
difficult as well.
“Big lift outs involve transferring
peoples' employment and there are all
sorts of legislative issues around that in
continental Europe. The lack of
commercial reason and the hassle factor
with this has effectively prevented the
market from developing. This was the
case at Deutsche bank where an
outsourcing deal was considered and then
rejected in favour of keeping the middle
and back office in house,” he says.
But the integration of alternative
investments into the mainstream means
that asset managers need specialist
platforms and staff able to deal with more
complex asset classes and structures.

Hedge funds and funds of funds,
venture capital, property funds, complex
derivatives; all need specialist custody
and administration. And although the
behemoth players will be doing sufficient
business volumes to warrant significant
infrastructure investment in supporting
such investments, niche and smaller
players almost certainly will not have
that critical mass..
This is where the market shows the
most potential, according to Mark
Schoen, head of product management
EMEA at Northern Trust. “In this
environment you have the perfect
landscape to buy in components of
outsourcing. There are lots of challenges
with alternatives such as liquidity,
pricing, cash management, and
performance calculation. Systems that
are alternatives literate cost a lot to buy
in and then implement. Although you can
get by on excel up a point there will be a
tipping point where a dedicated system is
required.”
By way of illustration Schoen points
out that a long only system has maybe 10
to 20 critical data elements compared to
between 20 and 50 for a derivatives based
investment.
And Philip Courtines adds: “Doing it
all in house when it comes to private
equity, structured products, funds of
hedge funds, or real estate funds is not
really viable. Plus you can't use systems
like SWIFT so if a third party has the
know-how and the resource to manage it
thus adding value for the asset manager
then it would be foolish to not consider
outsourcing.”
She comments that it is this need for
innovation with newer asset classes and
investment structures that will, thus
drive change.“One of our important
client groups is corporate entities who
manage significant monies but simply
want to focus on their core business and
partner with a provider who has the
critical mass required to administer it
effectively.”
She gives the example of EDF and
Areva, both of whom have been awarded
public money to deal with nuclear power
stations and waste and have then
outsourced to a third party asset managers
plus are using BNP Paribas Securities
Services as an full outsourcing partner.
“In addition to core custody and asset
servicing, we do all the reporting and are
part of the governance of that money. We
do the performance, regulatory, IFRS
and accounting reporting for them and
have provided such services as well as the
insurance piece to retirement company
AG2R,” she says.
Schoen echoes the trend for this sort of
client. “ We see a lot of pensions funds
and sovereign wealth managers who have
looked to diversify their investments but
need help in the back office. This is
prevalent throughout the Nordic region
and especially in Sweden,” he says.
Add to the mix the increasing cost of
compliance, regulatory requirements to
have risk properly assessed, the ability to
independently value derivatives, as well
as do a good job of servicing the asset in
the fist place and it is easy to see why
smaller and medium sized players such as
corporates and pensions funds are now at
least considering an outsourced
arrangement.
Philip Courtines comments: “In
Take the role of the transfer agent. It has gone
from being a bundled service to now being potentially
a distribution support type service for
asset managers that have a product they would
like to sell in unfamiliar territory
Germany for example, the regulation has
changed so that institutional clients now
require independent reporting. This is
very important when you consider that
reports have traditionally been done by
the asset managers themselves. The pace
of regulation is pushing the industry to
have more independence.”
Indeed third party providers, if they
are to capture some of this business need
to be able to provide a service that is not
just about making cost savings for the
client but that actively support the
product range and adds value and can
protect the asset manager's revenue
stream.
Take the role of the transfer agent. It
has gone from being a bundled service to
now being potentially a distribution
support type service for asset managers
that have a product they would like to
sell in unfamiliar territory.
Philip Courtines comments: “If you are
trying to market a domestic product in
other countries then it makes clear sense
OUTSOURCING
to have someone on the ground who
know the local regulations, the local
legal regime, the people, the language
etc. Services providers that have a global
footprint are ideally placed to take on
this function and accompany clients on
their journey up the value chain.”
The demand then, is for services
providers that are able to offer a modular
type offering on a single platform.
And some might say that the initial
landgrab type deals were a failure for the
services providers in that they ended up
running several different platforms at
great cost and inconvenience to
themselves.
As if to prove the point there have
been a number of headline deals that
have been reversed; In 2005 JP Morgan
had abandoned its five-year struggle to
implement an outsourcing deal with
Schroders and ended up paying back
some GBP20m (e30m) Were those deals
a failure due to the lack of focus and
definition in them? Could experiences
like these now be put to best advantage
on the continent?
Connor thinks so: “Players in
continental Europe will now have a
better service to choose from. Services
providers are in the midst of maturing
their initial offerings and can now
offering out a tried and tested package
that is more suitable for mid market
players who don't necessarily want to let
go of everything, “ he says.
Being able to mix and match the client
offering but operating on a single
platform in a standardised fashion is
clearly essential in the current climate.
Cook comments: “The days of huge lift
outs are gone and so now it's down to
being able to offer the client x and y, not
the whole alphabet. We've found this to
be a more successful business model as it
is more scaleable and allows us to have
clients running on the same platform
rather than trying to run many different
ones,“ he says. I
INVESTOR SERVICES JOURNAL 43
CARIBBEAN
Regulating paradise
Joe Corcos takes a look at the motivation behind
the regulation efforts from the main Caribbean
domiciles and what the future holds for the region
These days it seems like every piece of
rock in the middle of an ocean is trying to
transform itself into an international
funds centre, with varying degrees of
success. Malta has set itself up as a
specialist in fund of funds and even
Gibraltar is attempting to get in on the
action. Meanwhile, Jersey and Guernsey
are forever attempting to expand their
funds markets, despite a perceived limited
capacity.
So where does this leave the
Caribbean? For a long time this region
was regarded as a hotbed of tax evasion
and money laundering, the place to go
when you wanted something set up
quickly and with little scrutiny. Discrete,
fast, and oh yes, boasting fantastic
beaches, the Caribbean was the go-to
option for all and sundry.
However, this perception faded some
time ago and since we have seen a
transformation of sorts, with locations
like Bermuda, the Caymans and BVI
instituting more regulations and
presenting themselves as specialist,
boutique domiciles, with their past as a
home for shady deals no more relevant
than the Caribbean's history as a haven
for the likes of Blackbeard and Henry
Morgan.
The Cayman Islands is the big gun of
these domiciles. Setting up a fund in the
Caymans, which is then perhaps
administered in Dublin, has become a
model that has been made to run as
smoothly as a Swiss clock. The legal,
regulatory and financial aspects all
operate in tune with each other, and any
snags have long since been ironed out.
But an overriding strength of
Caribbean jurisdictions is their ability to
44 INVESTOR SERVICES JOURNAL
change and adapt to varying demands of
their clients. And the last few years has
seen many of them carefully and
painstakingly add well-crafted new
regulations for their funds industry.
Most of these regulations are less to do
with the actual monitoring of funds in
place, and more to do with who gets in
and who doesn't. Monitoring is often
done elsewhere.
Darren Stainrod, the head of fund
services for UBS in the Caymans, says of
the location: "The Caymans continues to
be the domicile of choice for new hedge
fund launches.
"Other jurisdictions like Bermuda and
the BVI are starting to replicate
Cayman's successful legislation. As other
domiciles attempt to carve into this
market, they are faced with changing the
mind-set of the regulators and those that
work in the industry."
After first being developed as an
offshore banking centre in the 1970s, the
Caymans has since diversified into an
variety of areas and today is known as the
major hedge fund domicile in the
Caribbean.
In this regard it had a jump on
Bermuda by not requiring those
domiciling their funds in the jurisdiction
to also base their administration and
other functions there.
Like the other Caribbean domiciles, the
Cayman Islands has been focussing
harder on regulation, and telling anybody
who will listen about its efforts.
In December last year, the Caribbean
Financial Action Taskforce stated:
“Caymans suspicious activity reports
have decreased by an annual average of
seven per cent over the last three years.
This may be due to enhanced risk
management and compliance controls in
industry since the introduction of the
statutory requirements for systems,
procedures and training.
“There is a strong compliance culture
in the Cayman Islands. The Cayman
Islands specifically have worked
diligently to develop a very robust anti-
money laundering regime that is
comparable with most Western
jurisdictions.”
As well as recently revising its Mutual
Funds Law and Money Laundering
Regulations, The Caymans has just
signed a memorandum of understanding
with the UK's FSA to exchange
information and aid each other in
investigations.
And additional to its anti-money
laundering efforts, the Cayman Islands
Monetary Authority (CIMA) has been
continuing to attempt to perfect its
policies to keep the domicile attractive.
“CIMA has recently clarified its
position on foreign domiciled funds
administered in Cayman. Cayman
domiciled funds are required to register
with CIMA but until recently it was
unclear if foreign domiciled funds
administered in Cayman needed to
register. CIMA has now clarified that
registration for these funds is not
required”, says Stainrod.
By clarifying the rules on this, CIMA
has allowed funds from different
jurisdictions to use administrators
established in the Caymans.
Stainrod adds: “In addition, CIMA has
recently introduced e-filing for their
registered funds.
“This will allow the domicile's growth
 9 ( * 2 7 < 2 8 & 2 9 (5(
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CARIBBEAN
to be scalable in the future, as well as
providing a solid platform for CIMA to
use to provide statistical analysis on a
timely basis”.
Currently the Caymans retains its place
as unacknowledged leader among the
Caribbean domiciles. It has more capacity
than most and can offer a host of services.
And like other jurisdictions, the Caymans
is not resting on its regulatory laurels.
"We do see new regulations being
introduced in the future to meet certain
industry needs such as unit trusts for
Japanese investors, Segregated Portfolio
Companies for segregating liability and
the supporting of Shari'ah compliant
products", says Stainrod.
Regulation almost always helps grease
the wheels of the actual processes that go
into domiciling a fund in a given
jurisdiction. And in doing so, regulation
enhances reputation - a major factor when
it comes to choosing a domicile.
“If you look at why people choose fund
domiciles its reputational risk. Caymans
may be in all probability the most
expensive domicile of the Caribbean
locations to base a fund but probably 60 to
70% still go there every time. If it's a one
billion dollar fund $20,000 rather than
$15,000 doesn't really matter”, says Chris
Adams, the global product head for
alternative funds at BNP Paribas.
Bermuda's finance minister, Paula Cox,
agrees with Adams. At the recent
Bermuda International Business
Association (BIBA) event in London, she
said unequivocally, "Reputation is
everything".
Bermuda, the Caymans' smaller
counterpart, introduced its Investment
Funds Act (IFA) in 2006 in an effort to
clarify and streamline its regulatory
regime.
The IFA did not significantly alter
Bermuda's regulatory regime, though
what it did do was create a new
classification of authorised fund and
present a fresh licensing regime for fund
administrators. The new licensing regime
simply ensures that administrators are
running the correct operating systems.
Additionally, the IFA grants the
Bermuda Monetary Authority (BMA)
more power to carry out investigations
and restricts how confidential
information is used.
Cheryl Packwood, BIBA's CEO, says of
the act: "It is the policy in Bermuda for
46 INVESTOR SERVICES JOURNAL
the Ministry of Finance and the Bermuda
Monetary Authority (BMA) to
collaborate on writing financial
legislation. On this occasion, as is
traditional in Bermuda, they also asked
for the input of the financial industry in
reviewing the Act and recommending
pertinent changes or additions to it prior
to presentation before the House of
Assembly.
Cox said that the IFA represents "a
seismic shift and advance in the
investment fund industry in Bermuda".
However she went on to assure that
Bermuda is determined only to regulate
where needed and that the policymakers in
the jurisdiction are aware how damaging
over-regulation can be.
Nevertheless, most agree that the
inclination over the past few years in the
Caribbean has been towards, rather than
away from, new regulation.
"Generally speaking there is a trend
towards enhanced regulation, keeping up
with international standards, call it what
you will, here in Bermuda certainly", says
Graeme Dargie, the BMA's director of
banking, trust and investments.
He adds: "We are keen to make sure
that the regulations here keep pace with
whatever the international standards may
be at the time, and of course they're
always changing."
Currently Bermuda is striving to
present itself as a specialist location for
funds, free of any association with money
laundering, tax evasion, and so forth.
It is little wonder this jurisdiction
wishes to keep a clean reputation.
Financial services are the number one
industry on the territory, subordinating
tourism. Bermuda has one of the highest
per capita GDP figures in the world,
mostly driven by the financial services
industry. Currently there is well over
USD 200 billion in funds in Bermuda.
Dargie says: "Since coming to Bermuda
I've been quite impressed with efforts to
keep the bad business out.
"There are big efforts to make sure that
the business we get, the promoters behind
it and the senior officers are fit and
proper. At that stage a lot of business
doesn't make the grade or doesn't come
here in the first instance because it knows
it wouldn't get through the vetting
stage."
However, he admits that there is “a bit
of work to do on the money laundering
front”.
“What I think you do need to see is
good cooperation between regulators,
because the funds industry, more than
many others, is quite fragmented.
“You'll often find that you have a piece
of the action here but the investment
manager will be somewhere else and the
custodian may be somewhere else and if
something goes wrong I think that is
when regulators do need to cooperate and
you need adequate powers in your own
legislation to enable you to obtain
whatever information it is that you need
that might help to investigate something
that went wrong or clear up some kind of
mess.”
Of course the need not to over-regulate
is also key, and Dargie is quick to point
out that "The framework here aims to be
sensible and proportionate, not to over-
supervise when it's not called for."
Despite its small size, Bermuda is also
trying to present itself as a serious option
for fund administrators.
Paula Cox said recently: "Other places
have funds administered from elsewhere,
but a greater share of hedge fund
managers are now choosing to set up in
Bermuda".
Whether there is actually a trend of
more fund managers and administrators
basing themselves in Bermuda is
debatable, as Dublin and Luxembourg,
with their far superior resources and
infrastructure, look like they will
continue to dominate this area of the
market.
Indeed, it is the perception that these
relatively diminutive jurisdictions in the
Caribbean are lacking in infrastructure
that is a major stumbling block to
attracting administrators and managers.
Adams says: "You do what you have to
do in the Cayman Islands or BVI or
Bermuda, but firstly they're heavily
resource constrained. I know they're all
investing in their infrastructure but let's
be clear, they're small islands sitting in a
deep blue sea, so there's a physical limit to
what they can actually do.
"You see it to a lesser extent in the
Channel Islands, but you still see it, there
are physical limitations to what they can
do. I'm aware that there are
administrators there but they've
obviously made a decision based on their
business model that they want to be in the
location. Our business model and that of
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CARIBBEAN
most of our peer organisations is that we
don't."
However while jurisdictions in the
Caribbean may never become
administration and management centres,
one well-known and seemingly ever-
present advantage they do have is speed
to market.
For example, it is possible to set up a
These factors, combined with a willingness to work
with international regulators and of course
continuing investment in infrastructure, are crucial
to a domiciles survival
fund in Bermuda in a mere week,
according Susan Stirling, the marketing
director of BIBA.
Dargie claims: "One advantage is
there's a relatively well-established path
to setting up business here.
"There are a lot of checks and balances
that need to be gone through but by and
large the professional firms here are well
geared up to doing this. There is a steady
flow of new business and we try and make
it as easy as possible for new businesses
to set up provided they meet the
standards, and that applies to new
investment businesses, and investment
funds."
Setting up a fund in the BVI is also a
relatively rapid process. According to the
BVI Financial Services Commission it
takes a mere 48 hours for an application
for recognition and approximately two
weeks to finalize the registration of a
fund.
After many years playing catch-up, the
BVI is now number two only to the
Cayman Islands in the assets it has in
funds, having surpassed Bermuda some
years ago.
But to some, one Caribbean domicile is
very much like any other. Adams says: "If
you look across the Caribbean locations I
don't see any material differences.
"In the last three months we've set up
Cayman, BVI and Bermudan funds and if
you were to ask me I wouldn't be able to
tell you why the promoters had gone for
those locations. My only belief would be
because their existing fund range was
there so it's for historical reasons.
"Cayman obviously has the lion's share
because they got into the market first, but
48 INVESTOR SERVICES JOURNAL
in terms of arbitrage between them, our
view would probably be that they've all
struck an appropriate balance between
having the right KYC and AML controls
in place because otherwise we wouldn't
touch it, and relying on the good name
and reputation of the directors of the
funds and then relying on jurisdictions
like Dublin or Luxembourg who actually
do the work."
Yet despite the attractive new
regulations that the Caribbean domiciles
are instituting, their future is by no
means assured.
As Paula Cox said at the end of her
address in London, Bermuda cannot
afford to become complacent, and neither
can any of its counterparts in this sunny
region.
The popularity of the area depends
largely on a set number of qualities that it
has, foremost among them quick and easy
set up of funds and low taxation, that are
lacking in other regions. Should there be
a major shift in governmental policy and
several other factors, then jurisdictions
like the Caymans, the BVI and Bermuda
could be in trouble, with their impressive
new regulations simply smoke in the
One thing is certain, prudent regulation is a decisive
factor in the survival story of any SIFC
wind.
In his recent paper, dubbed The Future
of Offshore Financial Centres, CIMA's
chairman, Timothy Ridley, addressed this
possibility, highlighting one potential
cause as "the major economic powers
implementing domestic policies and
programmes that eliminate the need to
use small international financial services
centres (SIFCs). This would entail the
introduction of well-balanced regulatory
and supervisory regimes and the
introduction of tax rates and other costs
to levels that made it impossible for
SIFCs to compete. If this were left to
Ireland with its 12% tax rate this might
happen."
However, Ridley went on to admit that
this possibility is "remote".
Another possibility, he writes, is
massive growth and success for SIFCs,
stemming from more globalisation of
financial markets and regulatory
competition between countries. In this
scenario any negative connotations the
term "offshore" has would be completely
negated.
A more realistic future for SIFCs
according to Ridley, is that some
jurisdictions will see success, while
others will dry up. He also predicts
continued efforts from major powers to
marginalize any attractions such
locations can offer.
However, one thing is certain, prudent
regulation is a decisive factor in the
survival story of any SIFC, and will
continue to be in the future.
What is needed, Ridley writes, is "a
good risk based regulatory and
supervisory approach, a flexible and
adaptive approach to legislation and
regulation to provide the structures,
products and supervision expected by the
market".
These factors, combined with a
willingness to work with international
regulators and of course continuing
investment in infrastructure, are crucial
to a domiciles survival.
There are plenty of examples of those
who have tried and failed to become a
successful funds centre. The one that
immediately springs to mind of course is
Vanuatu, which has fallen off the map of
international funds centres.
Overall, it is this flexibility and
adaptability that Ridley writes of that
most Caribbean domiciles do have going
in their favour. The ability to pass new
regulation and new policies as the
landscape of the financial services
industry changes is the key to their
continuing survival and relevance on the
world scene. But passing the right
regulations while resisting any
preponderance to over-regulate is
walking a very high tightrope. I
Hedge your investments –
eliminate risk with the right jurisdiction

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ANALYSE THIS - HEDGE FUNDS / PRIME BROKERAGE
Hedge Funds Trends, challenges and opportunities
Is it becoming more
difficult to launch hedge
funds?
CHARLIE WOOLNOUGH, SENIOR BUSINESS DEVELOPMENT MANAGER
AT FORTIS FUNDSERVICES
espite the fact that the hedge fund industry now
D manages in excess of $2.5 trillion, it is still a
relatively young industry undergoing a high rate of
growth. Even with a global credit crisis underway, total asset
under management are rising, via both performance and
greater capital inflows.
As the market grows and matures, the governance
standards demanded by investors introduce wider challenges
for new entrants, particularly on operational issues.
Underlying the governance standards, there has been a
substantial shift in the factors which influence investor's
allocation decisions. This shift has been driven by the
growing influence of institutions as investors in hedge fund
and fund of hedge fund managers.
The evaluation of a fund manager's ability to generate
absolute returns remains the key attraction of a hedge fund,
but the level of infrastructure, risk management and
transparency that a hedge fund manager is able to offer is
now equally important. Indeed, it is often easier to quantify
and evaluate the operational strength of a fund over its ability
to generate future alpha.
Such demand for operational standards means that new
hedge fund firms must launch with larger teams comprising
of not only investment professionals, but also operational
experts. New firms must also be more diligent when
appointing service providers. Brand name administrators and
prime brokers will add to investor confidence when
performing due diligence on a new venture.
Higher operational standards do however add to the cost of
setting up a hedge fund, meaning that new firms will have to
raise more capital to meet running costs. This trend has lead
to the launch of numerous incubation/seeding platforms,
which offer start-up hedge funds operational support in
return for a fixed percentage of revenues.
The “Institutionalisation” of the hedge fund industry will
continue to transform the market in a myriad of ways. The
increasing levels of professionalism are a welcome
development for the industry, adding to the appeal of hedge
funds. There is a danger however that the increasing barriers
to entry may bring with it a fall in entrepreneurial spirit.
50 INVESTOR SERVICES JOURNAL
Where next for the Hedge
Fund industry
CHRIS ADAMS, GLOBAL PRODUCT HEAD FOR ALTERNATIVE
INVESTMENT FUNDS AT BNP PARIBAS SECURITIES SERVICES
hether it is hedge funds or private equity, the rise
W of fund of fund structures appears unstoppable,
and the obvious driver for this is institutional
investors. Insurance Companies and Pension Funds now
account for approximately 40% of the inflows into Fund of
Private Equity Funds for example. These institutions remain
underweight to these asset classes, and when investing they
are looking for diversified exposure to the sector,
increasingly looking to managers to create bespoke baskets of
funds rather than fund of funds. There is no reason to believe
that this trend will not continue.
Barriers to entry to the hedge fund management industry
remain low - driven to a significant extent by technology.
However the ability of hedge funds to differentiate
themselves from the pack is ever more difficult - most
commentators acknowledge that the average lifespan of a
hedge fund is reducing. Therefore institutional and fund of
fund investors are likely to be ever more attracted to
reputation and brand. Coupled with this is a trend for large
banks to purchase hedge fund managers and then to use these
organisations as the platform for the management of all of the
bank's hedge fund assets. This reinforces the consolidation of
hedge fund assets into the hands of larger players, and makes
it harder for new entrants to obtain investments from these
institutions.
As the hedge fund industry becomes dominated by large
institutions, so will the industries that service them. Scale,
balance sheet strength and credit rating will become ever
more important in both regulated and unregulated markets.
Historically hedge funds would select their service providers
based primarily on their experience of administering funds.
As these skills have become commoditised, managers will
differentiate their service providers based on, for example,
their ability to support the distribution of their funds in Asia
as well as Europe and the US, and their ability to offer
liquidity and execution services. As recent events have
shown, once in ten thousand year events can occur
surprisingly frequently, and the ability of a fund's service
provider to continue to offer a full range of services through
good times and bad will remain key to the fund's long term

Are Hedge Funds Entering
The Mainstream?
AUBREY NESTOR, PRODUCT ARCHITECT, BRAVURA SOLUTIONS
t will be a long time, if ever, before hedge funds are
I regarded as mainstream retail investment products.
There are many barriers to this eventuality including
those for the fund manager (loss of control over liquidity),
the investors (risk, access), and the retail administrators
(complexity).
It can be said, however, that there is a shift occurring
towards the mainstream for the hedge fund sector. This is
manifesting itself in three main ways:
Firstly many of the major 'long fund' management
groups have launched small numbers of hedge funds that
sell alongside their existing long fund ranges (albeit
typically to many fewer investors with much higher average
holding and deal values).
Secondly, some traditional hedge fund managers are
seeking to conservatively expand the number of investors in
their funds. This might be achieved by increased marketing,
or by the lowering of the minimum investment limits or by
a simplification of the product features (e.g. easier access,
more frequent pricing, simpler performance fee structures).
Finally, many long fund managers are seeking to apply
hedge fund like techniques and features to elements of their
long fund ranges (e.g. 70/30 funds, FAIFs, Performance
Fees).
One of the trends that Bravura Solutions have
encountered is the requirement by traditional long fund
managers to be able to run hedge funds, or funds with hedge
fund-like features, on the same system that they administer
their long fund ranges on. This provides many benefits
including:
A single investor view for the manager (for Management
information, retrocessions etc), a standardised customer
experience whether they are buying hedge or long funds,
maximum staff flexibility, minimising of system
deployment, operation and maintenance costs, and a single
software provider to interface with.
As the hedge and long fund worlds slowly edge towards
each other, the trend from a software perspective will be
that some of the more arcane and difficult features of hedge
funds might drop away, but at the same time the remaining
pieces of complex, hedge fund specific, processing will need
to be able scale up from the low hundreds of investors that
are typical in the hedge fund world today, to cope with
thousands and even (low) tens of thousands of investors.
ANALYSE THIS - HEDGE FUNDS
Can hedge funds stave off
further prescriptive
regulation?
TOM MCEVILLY, DIRECTOR OF GLOBAL SOLUTIONS STRATEGY AT
CHECKFREE
he hedge fund industry can no longer ignore the
T increasingly complex compliance landscape and the
growing debate regarding hedge fund regulation.
The formation of the Hedge Fund Working Group (HFWG)
voluntary practices, increasing FSA interest, previous
interpretations of MiFID and, for those funds choosing to
go public, Sarbanes-Oxley, are all bearing down and needing
attention. So how can the proactive adoption of internally
instigated controls stave off the imposition of prescriptive
regulatory requirements?
One answer, and perhaps the simplest, is for hedge funds to
look to technology and solutions that are designed to meet
operational risk management and compliance requirements
simultaneously.
Gone are the days of gaining operational efficiency with
one project and starting another to ensure that control
procedures are in place to address regulation. More often
than not this ultimately leads to unnecessary duplication of
efforts and disparate solutions. Enlightened fund managers
who see compliance as a competitive opportunity will focus
on improving 'cornerstone processes' such as reconciliation
and exception management. Importantly through these
cornerstone processes the fund manager proactively forms
a vital foundation layer for a strong operational risk
management framework whilst naturally traversing and
enabling multiple compliance and control mandates.
Cornerstone processes focus the back office on delivering
key operational benefits such as increased productivity and
risk mitigation while also satisfying the internal control
requirements of the various compliance mandates. This
focus allows hedge fund operators to derive a two-pronged
benefit from a single systems implementation and ensure
that through their own controlled implementation they
satisfy auditors and regulatory bodies without the need for
formal regulation.
Within today's uncertain climate, it is fair to presume
that regulatory and compliance pressure will not ease. So
focusing on projects that enable cross-compliance and
mitigate operational risk should become a standard P&L
objective. By embracing cornerstone processes, and thereby
adopting more stringent voluntary practices, fund
managers can also make the case for staving off future
prescriptive regulation.
ANALYSE THIS - HEDGE FUNDS
How will the Sub Prime
debacle and Credit Crunch
effect the Hedge Fund
space and Hedge Fund
Administrators?
DERMOT BUTLER, CHAIRMAN, CUSTOM HOUSE
ecent articles in the media including both the
R Financial Times and the Daily Telegraph would have
readers believe that not only is the hedge fund world
full of manipulative crooks and Gordon Gecko's but also the
majority of Hedge Funds - one commentator suggested 75%
- would close in the very near future.
Whilst I accept that there may be some crooks and
“Gecko's” in the hedge fund arena I would refuse a
suggestion that the market is overridden with such people.
You get crooks and Gecko's in all walks of commercial life
and in that regard the hedge fund industry is no different -
except that the hedge fund industry is clearly and publicly
trying - and I believe succeeding - to introduce standards of
best or sound practises, which will preclude all but the most
persistent crook. The Gecko's of this world are a product of
human nature and they are here to stay in whatever industry,
whenever and wherever they can prosper.
The suggestion that 75% of hedge funds will fail is frankly
ludicrous. No doubt some hedge funds will fail and indeed
some have already - although I would point out that the
Carlyle Fund, which several of these articles featured, is not
and never was a hedge fund by any definition that I know. It
was a leveraged long only fund whose portfolio specialised in
credit exposure. Nevertheless it is likely that several of
those funds that have invested in these market sectors have
suffered - including subprime, credit, and some debt
instruments as well as the certain exotic hard to value OTC
derivatives products - may fail. So also will funds that have
been masquerading as hedge funds but were in fact
essentially long only equity funds - just as they did in the
demise of the tech bubble in 2000/2001.
Well managed long short funds - which is the largest
sector of hedge funds - futures and commodities funds and
several of the arbitrage strategies will not only survive they
will prosper because of the very volatility that commentators
fear. The fact is that when institutional investors see their
staple diet of equities, fixed income and property once again
in such disarray and in negative territory, they are inevitably
going to look favourably on those hedge fund managers and
strategies (and indeed funds of funds managers) who have
consistently done their job in preserving capital first and
making real returns second - just as they did following the
tech boom bubble at the beginning of this decade.
52 INVESTOR SERVICES JOURNAL
How are the changes in the
hedge fund administration
landscape benefiting start
up managers
GAVIN GRAY, MANAGING DIRECTOR, PHOENIX
number of trends have significantly altered the hedge
A fund administration landscape over the last number of
years. The continuing acquisition of independent
hedge fund administrators by larger traditional
administrators has resulted in a perceived consolidation of the
marketplace, however, as these hedge fund administrators
have been disappearing, a new breed of administrator is
stepping up to fill the gap. This new breed are pitching their
service offering based on a range of selling points including,
quality and flexibility of service and a comprehensive
technology. Alongside the service provider consolidation, the
global institutional administrators would also appear to be
increasingly selective in offering their services.
In this changing landscape, and considering the current
market environment, navigating the selection of an
independent administrator is becoming an increasingly
important and difficult task for a start up hedge fund manager.
While a comprehensive due diligence questionnaire (such as
that prepared by AIMA) should form the basis of a detailed
review of an administrators experience, systems, regulatory
oversight, controls and other key areas, it is important for an
investment manager to understand that there are an
increasing number of differences in the scope and range of
services being offered by the different administrators.
One recent development is in the area of trade and
investment operations support. Increasingly administrators
have either developed investment operations outsourcing
platforms or are white labelling third party trade support
software to allow for much closer alignment with the
investment manager. The administrators range of service
coverage in this area can range from simply facilitating more
favourable terms with a third party software provider to
complete outsourcing, whereby the administrator will have an
investment operations outsourcing platform and team with
the specialist knowledge to facilitate trade capture, broker
matching, break resolution and reporting of matched trades to
the prime broker or prime brokers. The more comprehensive
offerings will include integrated live portfolio pricing modules.
The benefit of such a comprehensive service is to allow the
start up investment manager have a greater focus on
managing the portfolio rather than being consumed by
setting up their own operational infrastructure, an unwanted
distraction in these volatile times.
 Custom House Offers 24/7 Service
Custom House Administration & Corporate Services Limited now offers its clients
a full “round the world” and “round the clock” hedge fund administration service through
its head office in Dublin and representative offices in Chicago and Singapore.

For more information on Custom House, the only hedge fund administrator awarded
a Moodys Management Quality Rating, please review our website
(www.customhousegroup.com)
or contact Dermot Butler (dermot.butler@customhousegroup.com)
or David Blair (david.blair@customhousegroup.com).

CHICAGO DUBLIN SINGAPORE

Chicago Administration & Corporate Services LLC. Custom House Administration & Corporate Services Ltd. Singapore Administration & Corporate Services Pte Ltd.
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Chicago, IL 60610. Dublin 1, Ireland.
Tel: (+1) 312 280 0330 Tel: (+353) 1 878 0807 Tel: (+65) 6303 8393

Custom House Administration & Corporate Services Limited is authorised by the Irish Financial Regulator under Section 10 of the Investment Intermediaries Act 1995,
which authorisation does not extend to the Chicago or Singapore representative offices.

t h h i hi t d1 1 06/03/2007 20 05 00
ANALYSE THIS - HEDGE FUNDS
How can hedge funds
manage costs while
growing their business?
RICHARD BUCKLAND, HEAD OF OPERATIONS FOR NORTH
AMERICA. LACROSSE
edge funds seeking to operate in today's
H environment face a bit of a dilemma: How can they
build and support a first-class infrastructure without
capital? And further, how can they attract capital without a
first-class infrastructure? It's the classic Catch-22.
Operational due diligence is now an integral part of an
investor's risk control and due diligence process. Those
funds that lack the technology, infrastructure and
intellectual capital could find it difficult to attract assets.
The increasingly popular solution to this problem is
outsourcing. Traditionally, funds have outsourced their fund
administration activities (fund accounting,
subscription/redemption processing, etc.). The more recent
phenomenon of outsourcing full middle-office and
operations activities has started to take hold. These services
include valuation support, P&L calculations, position
reconciliations including the investigation and resolution of
breaks, cash and collateral management and trade
confirmation.
Many new fund managers have found that by outsourcing
all of their operations activities, namely administration,
back- and middle-office, they can place more focus on front-
office activities such as portfolio management and capital
raising. They're also realizing that they can reduce the time
to market to weeks by working with a specialist provider
who has the knowledge and experience necessary for new
strategies or markets that arise suddenly.
There are several important advantages to outsourcing a
funds middle- and back-office services. The most notable
relate to reduced capital expenditures and lowered cost
pressures. In certain circumstances, funds can take advantage
of a more variable versus fixed cost structure, which may
include charging the cost of some middle-office and
operations activities as a fund expense rather than carrying it
as a management expense. A fund can also decrease the
“management bandwidth” required to oversee operational
and support activities.
The challenge is finding a provider that can support the
asset classes and markets in which a fund trades. Finding the
right provider that can offer full middle-office and operations
support can help reduce operational costs and enhance a
fund's ability to quickly take advantage of opportunities.
This allows the manager to focus on the front-office and
capital raising activities necessary to build the business.
54 INVESTOR SERVICES JOURNAL
“What are the latest
industry trends regarding
hedge fund
administration?”
PETER SANCHEZ, CEO, OPHEDGE
he appetite for institutional investors for hedge
T funds is increasing. They are attracted by the
higher returns and by the more exotic investment
opportunities. Some studies predict global institutional
investments into hedge funds will increase to over $1
trillion USD by 2010. Pension plans and endowments are a
more demanding and risk adverse investor type who
demands increased transparency, independent valuations
and cost efficiencies. To meet this requirement from
institutional investors, funds are looking for services
beyond the traditional fund administration services of
calculating the Net Asset Value and providing shareholder
services. These additional services include independent
valuation services, daily profit and loss calculations,
collateral management, full trade, position and cash
reconciliation daily with the fund's prime brokers, and
processing and accounting of more complex derivative
financial instruments as well as of more non-standard fund
capital structures.
Furthermore, the trend of having more institutional
investors in hedge funds has created top down pressures on
the funds to manage their operational risk. This has led to
a trend to outsource more services as noted above to the full
service provider fund administrator. Segregation of duties
and independence is a key control in mitigating operational
risk. The administration service provider must have
experienced middle and back-office personnel to handle
OTC derivatives and the related settlement and valuation
requirements for those products. Outsourced functions may
give potential institutional investors comfort that the
appropriate operational experience is in place and that the
appropriate segregation of duties exists between the
manager and the administrator.
In conclusion, it is important to note that even if all of the
middle and back office services are outsourced to a full
hedge fund service provider, the hedge funds' management
still needs to retain accountability for the proper
performance of those functions.
ANALYSE THIS - HEDGE FUNDS
Is Curacao still an
attractive jurisdiction for
offshore hedge funds? and
how does Curacao
differentiate itself from its
competition?
MAI LIEM, MANAGING DIRECTOR & LEGAL CONSUL, SS&C
TECHNOLOGIES
uracao has been the base of the earliest funds such as
C Quatum, Long Term Capital, Tiger, Jaguar and the
Tudor funds. Today the majority of all offshore
hedge funds are via their attorneys routed to the Cayman
Islands. It was time for Curacao to get even and take
measures to stay an attractive jurisdiction for offshore
hedge funds. By the introduction of a tax-exempt entity
Curacao leveled the playing field with its competitors.
Although Curacao has not taken spectacular measures; new
legislation and directives guarantee a fast process of
incorporation and maintain good legal standing of the
service providers and the hedge funds itself.
Curacao as part of the Netherlands has implemented a
solid legal structure for tax exempt legal vehicles and
Curacao has a local regulator whom has been assisted by
the Netherlands Regulator but the regulation has been
amended to fit the Caribbean market.
All jurisdictions in the Caribbean have a tax neutral
environment for offshore hedge funds, all are in the same
time zone as New York and setting up an offshore company
is done swift and diligently in all jurisdictions. Why is this
Dutch Island still on the map and how does it differentiate
itself from the rest?
History, Expertise and Infra Structure
The financial offshore industry in Curacao dates from
1940. The Curacao service providers have decades of
experience with the hedge fund industry. This
experience and expertise in combination with a no
nonsense approach focusing on getting business done
is Curacao's competitive edge.
Worlds' Leading Service Providers
Leading service providers: all big four audit firms,
international banks, administrators and international
law firms have offices in Curacao for over 50 years.
Thanks to a pleasant working visa environment and
highly educated local staff the service providers
manage to attract and keep the best brains.
Costs
Compared to the other jurisdictions in the Caribbean:
going Dutch is the most affordable way to structure
your offshore hedge fund. From registration fee to
local law firm rates Curacao is the best you can get.
56 INVESTOR SERVICES JOURNAL
What are the key features
for the successful
administration of fund of
hedge funds?
DONARD MCCLEAN, HEAD OF FUND SERVICES, IRELAND
UBS GLOBAL ASSET MANAGEMENT
uccessful hedge fund administration is about getting
S the right combination of people and best-of-breed
technology to deliver tailored solutions to clients.
Each client wants something a little different and not
simply to receive information at the end of a production line
set up. With our open architecture approach, ability to work
in the client’s preferred jurisdiction, and the capability to
administer various fund structures, we can offer an all round,
tailored solution through our primary contact service model.
Adapting the format and frequency of reporting to clients
is also a key feature of our approach - whether through
physical reports or via our secure web portal.
The relationship between fund administrator and
investment manager is changing as the investor base
changes. Traditionally, the target market for hedge funds was
the high net worth individual. That position changed some
time ago to include institutions and, increasingly, pension
funds. One consequence of this is that more due diligence is
required with service providers - administrator, custodian,
lawyer, accountant - having to undertake due diligence on
each other. This results in investment managers being more
focused on who their service providers are which can be an
advantage to companies such as UBS, as compliance and due
diligence are important drivers for our business.
Although the flows of information around fund of funds are
still to a large extent paper-based, automation in the form of
workflow tools and web based trading and reporting is
becoming more prevalent. A significant industry initiative
currently taking place is a collaboration between top-tier
administrators and industry bodies working towards an
automated solution using the SWIFT messaging system.
Once in place, this initiative will allow the straight through
processing of fund of fund trading from investment manager
to custodian to transfer agent. The messaging platform
should also facilitate a more automated approach to pricing,
valuation and settlement of fund of fund trades.
Anticipating how clients’ requirements will develop is key
to keeping pace with the ever-changing hedge fund industry.
Having good relationships with the regulators within the
locations in which we operate, actively participating in
industry groups and working in jurisdictions where the
regulator is open to new ideas and supportive of business,
ensures that clients’ evolving needs can be catered for in
future legislation and regulation.
IRELAND - PENSION FUNDS
With the Irish stock market performing so poorly,
Nicholas Pratt examines whether Irish managed pension funds are
looking to more alternative assets in order to generate better returns
hese are tumultuous times in
T Ireland following the hastily
announced resignation of long-
term premiere Bertie Ahern. After more
than a decade in charge of the country,
during a time in which Ireland witnessed
an unprecedented era of economic
prosperity, Ahern gave notice of his
intention to step down on May 6th.
As unexpected as the exact timing was,
the fact that Ahern has been under
constant investigation over alleged
irregularities in his personal finances
meant that his eventual departure at some
point this year was inevitable to most
observers.
When the May date arrives it will be
seen as the end of an era, not just because
of Ahern's absence from office but also
because the unprecedented economic
prosperity of the last few years appears to
have also departed.
Nowhere is this clearer than in the
performance of Irish managed pension
funds. According to figures from Dublin-
based Rubicon Investment Consulting,
these managed pension funds lost 5.5
billion during the last seven months of
2007 following the collapse of the US sub-
prime lending market and the subsequent
malaise that hit global equity markets.
This meant that the value of pension
funds in 2007 declined by an average of
2.6%, the first time the Irish market had
suffered a loss since 2002 and, but for a
strong performance in the opening half of
the year, where returns increased by 5.9%
up to May, these figures would have been
a lot worse.
In terms of individual managers, AIB
Investment Managers was the best
performer during 2007 with an average
return of 1.3% with Eagle Star being the
only other manager to enjoy a positive
return (0.6%). At the other end of the
scale, the worst performer was Bank of
58 INVESTOR SERVICES JOURNAL
Irish pension funds
Ireland Asset Management with -7.6%.
The early months of 2008 have not been
much better for the Irish pension funds
market, according to Rubicon's latest
figures which reported an 11.4% loss for
the opening quarter.
Over-exposure to the global equity
markets is the obvious explanation for the
industry's losses, accounting for 3 billion
of the end of year losses. The Irish stock
market, which is heavily weighted to
financial stocks, fared particularly poorly
among global equity markets, declining by
28.6% between May and December in
2007.
Figures from the Irish Association of
the Pension Funds' (IAPF) asset
allocation survey, which covers all pension
assets not just managed funds, show a
similar but not as dramatic level of losses.
The survey calculated that there were
86.6 billion in assets as of the end of
2007, a 1.3% decline on the previous year's
figure of 87.7 billion.
“Everything is in a state of turbulence at
the moment,” says Jerry Moriaty, director
at the Irish Pension Funds Association.
“The Irish stock market has been very
volatile on a daily basis so it has been hard
to take stock of exactly what is going on at
the moment.”
However, over the last five years - since
the last equity market downturn in 2002 -
Moriaty says there has been a concerted
move away from Irish stocks, about 40%,
as well as a general move to less risky
assets, with investment increasing in
long-term bonds with 42% of pension
fund assets invested in medium or long-
term bonds by the end of 2007, an
increase of 15% on the 2006 figures. And
although the figures do not yet show this,
Moriaty also believes that there is a
greater appetite for moving into
alternative assets for the sake of diversity.
The extent of this appetite was evident
at the recent annual investment
conference held by the association earlier
this month where the presentations
covered a number of alternative
investment areas - Asian property, climate
change and 130:30 products.
For example, Garrett Walsh, head of
credit research for Europe and Asia at
Pioneer Investments, whose presentation
was titled Making money out of the credit
crunch, highlighted the case for using
derivatives as a short term tactical
solution to the current trading challenges.
“Derivatives can be used to pair trades
and to sell short-dated protection on
assets,” said Garret. “Also, credit default
swaps can be used to take directional bets
and curve trades can be used as flatteners
and steepeners for investment portfolios.”
John O'Brien, principal of QED Equity
presented an introduction to 130:30
investing which referred to the superior
risk and return trade off that theory
suggests these new instruments possess.
O'Brien also highlighted the operational
issues that come with these instruments,
such as the requirement for major
infrastructure changes in terms of
custodians and prime brokers, collateral
management and legal facilities, and
appropriate fund structures and risk
controls.
However, despite the presentations,
Fiona Daly, managing director of Rubicon
Investment Consulting says there has not
been a huge change in investment
strategy. “Some funds have pegged back
their equity weighting but we've seen
nothing dramatic. There has been a lot of
talk about alternative investments or
products that have a broader range of
assets and we have seen the advent of
liability-driven investments which
incorporate more novel instruments.
“But there is a reluctance among
trustees to move whole-heartedly into

alternatives given the complexity and lack
of transparency that surrounds the area. It
is mostly the larger pension funds that can
afford to dip a toe into this area without
overly affecting the diversity of their
portfolios,” says Daly.
Much of this reluctance is down to a
lack of knowledge among pension fund
trustees, says Daly. While it is often hard
for trustees to find time to embark on
rigorous education programmes, there are
a number of initiatives, courses and
conferences aimed at improving this
situation.
One such initiative was unveiled at the
recent IAPF conference - the first set of
investment guidelines for members.
Moriaty likens the guidelines to the
Myners' Report which was introduced in
the UK back in 2004. In all there are seven
guidelines for defined contribution
trustees and an equal number for defined
benefit trustees. “They are basic common
sense guidelines but they form the basis of
a good framework for trustees who are
wondering about how they should address
investment matters,” says Moriaty.
Furthermore, says Moriaty, the guidelines
have been endorsed by Brendan Kennedy,
chief executive of the Pensions Board,
giving the guidelines the necessary stamp
of regulatory approval.
In terms of regulation there is a Social
Welfare and Pension Bill that is due to be
passed into law later this year which will
add a layer of security for pension fund
trustees in that pension fund
administrators will have to register with
the Pensions Board and trustees will face
a mandatory requirement to undergo
regular training.
There is also a government green paper
on the Irish pension funds market that has
been made available for public
consultation and comment. At this stage it
is still quite vague and is more an
examination of all the aspects of pensions
provision rather than a specific
framework, says Moriaty. In particular it
asks how the industry can improve
coverage and adequacy and questions
whether there should be an introduction
of mandatory incentive schemes for
savers.
But what would Moriaty like to see come
out of the consultation process? “I would
like to see more simplification in the market
so that more consumers can understand it,
particularly in relation to tax relief and tax
credits or how the government's
contributions to pension funds are
expressed on the average pay-slip.”
Daly says that she would like to see a
more reasonable approach to the way that
contribution schemes are operated and
also opposes the idea of a mandatory
scheme. “Otherwise pensions become like
a tax and it will reduce schemes to the
lowest common denominator meaning
that we will lose the benefit of the many
IRELAND- PENSION FUNDS
good schemes there are in the market.”
Despite the poor performance of
Ireland's managed pension funds at
present, most in the market still have an
element of long-term optimism. As
Moriaty points out, the 86.6 billion of
assets in the market is almost double the
44.8 billion of five years ago. There is
also the feeling that the current
turbulence in the equity markets is as
much a result of investors' panicked
reactions rather than any fundamental
flaws in the market.
There is also the fear of a recession in
the US but, says Daly, until it becomes
clear to what extent this recession may be
and until the current market turbulence
works itself out, there is a risk in too many
trustees instructing their managers to
make any dramatic cuts in their Irish
equity assets.
“It is hard to say that there have been
any lessons learned in all of this, because
of the unique nature of the events that
have led to the market's decline” says Daly.
“Until everything is washed through, it
will be difficult to tell if there will be any
long-term effect from this.
“Personally I don't think things will
fundamentally change in the global
equities market and investment managers
will want to be careful of moving away
from their core investment philosophy as a
reaction to the current market conditions.
If they have convictions I would I
SECURITIES LENDING
Plus ça change...
How has the European appetite for securities
lending been affected by the market
developments? Carol McGuin investigates
ecurities lending is alive and well
S and thriving in Europe. The
credit crunch and liquidity crisis
caused by the US subprime crisis, the
meltdown of giant Bear Stearns, and the
rumors surrounding the potential
problems of other investment banks have
not dampened market opportunities in
Europe. The predominant market players
are still the same as they have been for the
past several years, although what the
credit crisis in the US has done has put a
60 INVESTOR SERVICES JOURNAL
renewed focus on securities lending
programs, risk management and
transparency.
The primary borrowers remain large
broker-dealers such as Morgan Stanley,
Goldman Sachs, and so forth, and the
large global custodian space continues to
be occupied by the likes of JPMorgan,
State Street, The Bank of New York
Mellon. There are several niche lenders
as well who have entered the market as
well over the past several years, all
jockeying for spots.
“In the European market, there are also
a number of pension funds as well as fund
management companies that do their own
lending for the assets they have under
management,” adds Paul Wilson,
managing director and global head of
securities lending sales and client
management at JPMorgan. “But even
with that, the dynamics of this industry
have not changed dramatically over the
past several years.”
Despite the liquidity problems and
economic slowdown in the US, securities
lending in Europe is “a buoyant market to
be in right now,” says Simon Waddington,
head of trading, securities lending, RBC
Dexia Investor Services, London. “In
2007, we generated 39% more revenue for
our clients than in 2006 across the
combined RBC Dexia group, much of
which came from revenue growth on
existing accounts.”
The players are mostly the same, but
Waddington says the growth can be
attributed to a number of factors. “The
cost of funding and focus on risk
management has directly impacted many
hedge funds, but at the same time, they
thrive on the record volatility we've seen
in the markets. Combine that with the
growth in 130/30 funds from traditional
long-only managers, and the result has
been strong demand to borrow from all
the major prime brokers, thus increasing
returns for beneficial owners.”
Regarding the credit crunch in the US,
experts believe there have been some
effects on the securities lending market,
but not in the profound way that has
affected financial institutions in the
states. In some respects, the European
market has seen new opportunities for
securities lending, with renewed interest
in cash reinvestment and a steepening of
a yield curve that had been flat for quite
some time.
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SECURITIES LENDING
“Securities lending in Europe has had a
few changes since last August, when the
subprime crisis started in the US,” says
Guy d'Albrand, global head of liquidity
management at Societe Generale
Securities Services (SGSS). “I believe we
also started seeing a confidence shake-up
in European institutions, although
certainly not to the extent as experienced
in US banks and custodians.
“There was a shortage of term cash in
the markets, resulting in an increasing
spread between three-month EURIBOR
fixing and the three-month EONIA
swap,” he continues. “What we starting
seeing then were those institutions that
were long on securities, especially fixed
income, realizing they could make more
by lending out these securities, taking
cash on collateral, and reinvesting that
cash at much higher rates than before.”
Now, with the steepening of the yield
curve, fixed income lending activity has
increased, and markets have entered a
new era, where there is a spread between
lending against cash and lending against
other securities. Since August, there has
been a growth in fixed income lending
activity in Europe, with demand for very
high-quality AAA-rated government
bond securities particularly high.
Consequently, demand has outstripped
supply, lenders are saying.
Also, Wilson adds, what the crunch in
the US has driven is a greater bias toward
noncash collateral. “The typical model in
the US is that a greater proportion of
loans are made against cash collateral,”
he explains. “Given that the dominant
players in the marketplace are US
participants, there have always a greater
proportion of loans against cash
collateral than against noncash collateral.
Clearly, if you take cash collateral, you
must ensure that cash is invested in a
range of money market instruments to
generate a return sufficient enough to
pay the rebate back to the borrower and
maintain a spread for the benefit of the
lender.”
One of the trends European lenders are
seeing as a consequence of the credit
difficulties in the US is a reassessment of
the way cash collateral has been
managed. As a result there is now a far
greater proportion of loans made against
noncash collateral than against cash
collateral. “When you look at the
different lenders in the market, each has
62 INVESTOR SERVICES JOURNAL
its own style and philosophy toward the
way cash collateral is managed. Simply
put, some lenders may undertake loans at
relatively low fees in order to generate
cash collateral which is then invested in
lower-quality investments to make a
return. And there are other lenders who
typically try to maximize the value of the
The credit crunch and liquidity crisis caused by the
US subprime crisis, the meltdown of giant Bear Stearns,
and the rumors surrounding the potential
problems of other investment banks have not
dampened market opportunities in Europe
loan itself, take the cash collateral, and
invest it very conservatively,” adds
Wilson.
The US credit crunch, adds
Waddington, has been somewhat of a
double-edged sword for European
securities lending and borrowing. On the
one hand, many borrowers are focusing
on balance sheet constraints and moving
away from cash collateral, which has
caused significant growth in business for
noncash lenders such as ourselves,” says
Waddington. “On the other hand,
however, the traditional cash collateral
lenders are making huge returns on their
reinvestments, so both cash and noncash
lenders are benefiting from the current
environment at the same time.”
“I don't expect markets will come back
to their former balance very quickly or
very soon,” says d'Albrand, when asked
about an end to the credit crunch.
“However, it may be that we are in a new
balance now. What we see now are
counterparts much more careful about
collateral they receive, and in general,
there seems to be much more risk
consciousness in the markets than before.
The securities lending community is
becoming more mature and risk
conscious.”
Despite a the publicity surrounding the
hot markets in Latin America, security
lending participants believe there are
markets yet to tap in Europe. There are
many countries and lenders within those
markets that don't engage in securities
lending because a developed securities
lending environment does not yet exist
and the only form of lending is synthetic.
Of course, in some markets, there is tax
legislation required to keep up with
securities legislation. Belgium, for
example, issued a world decree in March
2007 clarifying that securities lending
would not be deemed a capital event or a
disposal. This has paved for way for
Belgian mutual fund owners to lend their
securities without sparking capital gains
taxes on their portfolios. Similar decrees
are waiting passage by other
governments as well, including Spain.
There is much focus on the BRICs-
Brazil, Russia, India, and China-due to
the amount of inward investment in those
countries, and the rise in capitalization is
a catalyst prompting opportunities in
securities lending and borrowing. Most
banks have some sort of strategic policy
and involvement for those countries.
There is always concern, however, about
Russia, about its politics and policies.
There are certain challenges to
expanding the securities lending market
in Europe. For example, d'Albrand says
common accounting practices between
nations are needed, as well as some
regulatory easing in certain countries.
In addition to exploring new markets,
industry participants are also looking at
new product development as a way to
generate new and incremental revenue.
JPM's Wilson says it best: “If you're
standing still in terms of what you're
doing, you're probably going backwards.”
The product development agenda is
crucial to the securities lending and
borrowing function, especially as it
covers new market expansion, where
early entrants in those markets receive
the benefits of high fees. Also, effective
product development “looks beyond the
traditional securities lending transaction,
at swaps, equity forwards, and so forth, at
innovative ways to gain early entrance
into some of these new and emerging
markets, even when there isn't necessarily
a conventional securities lending and
borrowing facility available,” adds
Wilson.
 SECURITIES LENDING

Perhaps the “silver lining” in the credit allowing each client to determine how collateral and the correlation between
cloud, globally speaking, is that the credit cash collateral is managed. So that client loan and collateral types are just as
crunch has forced all industry can choose the desired credit risk, important as a credit rating.”
participants to review their securities liquidity risk, and interest rate risk, and Where does the industry go from here?
lending programs. customize a program around its unique Industry participants believe the trend for
“It's a resurgence of a word that's been requirements. Contrast that to a large the remainder of the year will be a focus
in the industry a long time-transparency,” commingled fund, where the same level of on risk management. Waddington
says Wilson. “I define transparency as customization is not possible. believes “Europe is going to have a very
buoyant year. Despite everything that has
happened over the last few months and
With the steepening of the yield curve, fixed income the constraints of much closer risk
lending activity has increased, and markets have entered management, there is still considerable
activity in the markets and demand to
a new era, where there is a spread between lending borrow is still increasing.”
against cash and lending against other securities At the same time, there will be a
wariness in the markets, a wariness in
general surrounding how an investment
enabling clients or beneficial owners to No conversation about a securities house as big as Bear Stearns could tumble
truly customize every component of their lending and borrowing program would and a wariness about the rumors
programs, to fully understand all their be complete without the topic of surrounding other giants like Lehman
risks, and to explore their upside transparency and risk management. The and UBS.
potential and their downside potential, as collapse of Bear Stearns and the scare In the meantime, the securities
well as providing them with concise, mongering about other investment banks lending and borrowing community focuses
detailed, real time, online information
that enables them to review and assess
what's going on. Despite a the publicity surrounding the hot markets in
“Ultimately, what lenders are looking
for is transparency in terms of where
Latin America, security lending participants believe
their risk lies, what risk is being taken to there are markets yet to tap in Europe
generate the desired returns, and where
their exposures are. My own perspective serve to underscore the industry's belief on securing adequate returns on the risk
is that where those lenders are using in risk management as a core factor in any involved. On the borrower side,
providers who have historically been very program. “The days are long gone when it's apparent borrowers are not
transparent, the impact on them has been lenders would just say I'll take any AAA- willing to take spreads as small as did in
less substantial.” rated G-10 government debt at 105% previous years.
For example, when managing cash margin and that's the end of it,” says And, as always, there will be a focus on
collateral, some lenders follow a policy of Waddington. “These days, liquidity of the new ways to generate revenue. I

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LIQUIDITY - DARK POOL FOCUS

Extract from ‘Rise of Dark Pools and Rebirth of ECNs:

Death to Exchanges?’ a white paper by Aite Group

T
here are two types of dark pools in the current market: Independent
crossing platforms that tend to focus on facilitating block trading;
and single broker/dealer-owned crossing platforms, which are GRAPHS
typically tightly integrated with the broker/dealer’s electronic and The graphs below represent some actual activity at the end of
algorithmic trading group. February in 2007 and 2008. the graph to the left shows the
Independent dark pool operators, such as Liquidnet, POSIT, Pipeline, considerable increase in revenue from securities lending and
reinvestment activity, scaled by the lendable assets, in basis
and NYFIX continue to build liquidity in their respective platforms. Looking
points. American equities have more than doubled in return to
to break into this lucrative electronic block trading market, leading
lendable, demonstrating the increasing demand for high-
broker/dealers financed and launched BIDS, a consortium-led platform quality equities borrowing by funds during the subprime crisis.
designed to function as an industry utility with an aggressive pricing Fewer owners were prepared to lend out their equities over the
schedule; it may lead to pricing compression in the block trading market summer while fund were increasingly keen to borrow them.
if BIDS is successful. In addition to making numerous investments in
leading regional exchanges, ECNs, and other ATSs (see figure below), most
large broker/dealers have also launched their own dark pools in the form
of internal crossing platforms. From the broker’s perspective, internal
crossing provides cost savings in terms of eliminating exchange
transaction fees. From the client’s perspective, internal crossing can
provide rapid, anonymous executions with minimum market impact. While
most broker/dealers are still very secretive about the actual trade volume
that occur within these individual platforms, crossing rates appear to be
anywhere between 4% to 11%, with some of the largest platforms
averaging anywhere between 40 million to 100 million in trade volume on
a daily basis. Taken individually, broker/dealer-owned platforms do not
have enough trade volume to seriously threaten some of the leading
exchanges and ATSs. In order to boost their overall fill rate, some of the
broker/dealer-owned dark pools have started to link up with other broker-
owned and/or independent dark pools.
Credit Suisse has been fairly active in this regard, linking up its
CrossFinder with Instinet CBX, Fidelity
CrossStream, Lehman LCX, Liquidnet (as a SLP)
and many more. When taken together, dark pools
can definitely have a significant impact on
certain orders, especially those orders driven by
dark liquidity-seeking algorithms. Firms that
heavily rely on dark liquidity-seeking algorithms
have reported that more than 40% of shares in
certain orders were filled in dark pools before
hitting the public market for a clean-up. As a
result, dark pools of liquidity are becoming the
execution destination of choice for an increasing
number of sell-side and buy-side traders. The
figure on p66 illustrates some of the options a
fictional buy-side trader potentially faces, given
a specific order to work in the U.S. equities
market. Given a large block order, the trader
might first attempt to seek instant fill in the
block trading market. Any residual order could
be routed to a broker who would then put it
through his or her own internal crossing engine.
Any remaining shares can be routed via a smart
order routing engine to other dark pools before
finally hitting the public market. I

64 INVESTOR SERVICES JOURNAL


Trading
Places
Catherine Kemp looks at
the portfolio
management systems
market - who has
invested in EMS
systems and why?
istorically portfolio management
H systems have had clearly defined
functions in the trading process.
On the buy-side portfolio managers used
Order Management Systems (OMS') to
record their orders, manage and shape
their portfolios, and to route orders to their
traders, whilst traders used Execution
Management Systems (EMS') to execute
the trades and source the best price from
different venues. But as the market has
become more fragmented the line between
the buy and sell-side has blurred and the
use of the software has changed.
Increasing numbers of management
houses are now investing in EMS' to keep
up with market demands.
Globally markets have changed and have
become much more fragmented with
dispersed pools of liquidity. This has put
pressure on portfolio fund managers to use
management software, which allows them
to look at a number of venues at the same
time to access various pools of liquidity.
Equally new trading systems such as
algorithms, GMAs and smart routers
embedded within EMS' have redefined the
trading process, making it much more
complex. Managers have started to invest
in and maintain algorithmic systems to
adapt to these changes, and to ensure that
they are managing their portfolios
competitively.
There are a wide range of EMS'
available, from broker provided to leading
independents, and each of these different
LIQUIDITY - EMS
complicated systems for our clients.”
In the US the trend is much more
established, with a much higher percentage
of fund managers using this technology
than in the UK. This is partly because
American Stock exchanges, AMEX 29,
NYSE and NASDAQ, have far bigger
market caps in terms of listed equities than
stock exchanges in the UK. These
conditions are very conducive to using
EMS' because speed and volume is a high
priority. Also, in practical terms a lot of the
technology originates from the US, a lot of
the prominent vendors are US companies.
For managers using EMS' in the UK and
the rest of Europe one of the main issues is
compliance with MiFID regulations
regarding best execution. Portfolio
managers are using this technology to
show that best practice has been achieved.
The EMS gives the portfolio manager the
information they need to tell the dealer
which stock to invest in and to ensure that
his dealing team gets him the best value for
systems target different parts of the
market. “Empowerment on the buy side” is
a buzz phrase for most vendors, and
increasingly they are developing EMS',
his client on a trade-by-trade basis.
Frédéric Ponzo, managing director of
NET2S explains: “It's about division of
labour, an EMS allows you to do your job
which integrate with OMS'. Or they are
as a buy side trader to select the best
developing the OMS' to have the qualities
broker for the trade. It is then down to the
of an EMS. In most cases OMS' are still
broker to do their job and come back to you
very much necessary for successful
with the best execution.”
trading, and are in the incumbent system
There is also a growing trend for hedge
and so vendors are adapting to these by
fund managers, private wealth managers
creating integrated systems. An
and long only managers to use EMS' to
interesting change is that many vendor
execute trades themselves. This is
brokers who were initially developing
specifically when they are trading in large
systems, which gave their clients access to
volumes of highly liquid instruments.
their own trading desks, are now creating
These could be large cap stocks, equity FX,
systems with order routing to numerous
futures, or options. They also use EMS'
places. This is both a reflection of the
when the involvement of a trader won't
change in market conditions, with
add value to the trade. Leaving the trader
increased dark pools and dispersed
out of the execution in these instances
liquidity, and of vendors' understanding
makes the trading process much more
that it is not just the sell-side but the buy-
efficient, as it leaves a portfolio manager's
side also that needs to have access to this
traders time to seek out less liquid stocks
fragmented liquidity in order to trade
or to monitor market conditions more
competitively.
closely. This is especially important when
Belinda Keheyan, head of marketing at
markets are volatile.
ITG, explains: “The type of people who do
Whilst “empowerment of the buy side”
the trading now are generally quite a
is a major trend for vendors and is talked
different beast from 20 years ago, they are
about by various vendors as the main
much more IT literate, much more
reason why they are developing their EMS'
mathematical, they have to understand
to adapt to portfolio managers' needs,
quite a lot of complex technology, such as
critics have highlighted the fact that to a
algorithms. The trading desk on the buy-
certain extent it is the use of this
side, have become extremely sophisticated.
technology that is feeding the need for it's
Empowerment on the buy-side is one of
use and that this is not always good for the
the big trends and is fuelling companies
market. Sunil Chadda, practice head in
like ours to develop more and more
INVESTOR SERVICES JOURNAL 65
LIQUIDITY - EMS
alternative investments at Carne Group
describes what he calls a certain degree of
“unhealthy cannibalism” in the market: “If
you look at the history of these EMSs,
before they were introduced the average
order size on the New York stock
exchanges was 800 to 700 shares, now it is
400 to 500 shares. Since the markets have
gone electronic - traders are using crossing
networks, electronic trading systems,
matching networks to trade across several
markets on one electronic crossing and this
has created fragmented or dark pools of
liquidity. Essentially the technology has
fragmented the liquidity.” And yet it is this
very fragmentation, which causes traders
to use the technology.
Chadda also considers them to be
completely counterproductive in certain
market conditions. “In highly volatile
markets like we've seen in the last few
months, you'll find that these models just
don't work, they are based on historical
data, and in the last two to three years I
believe the market has fundamentally
changed. It's a new market. People are now
investing in commodities, such as gold, oil
and grain, as well as shares and bonds and
so on. There is no historical data for this
new market because it's only two or three
years old. So how on earth you can really
allow an algorithm to trade on historical
data effectively in a new market.”
Diagram demonstrating fragmented liquidity in the US market - Europe is following closely
behind. As liquidity fragments - the amount of execuction options increase exentuating the
buy-side traders’ need to access this information via an Execution Management System.
66 INVESTOR SERVICES JOURNAL
Other critics have pointed to the fact that
whilst the use of algorithms is a growing
trend for the larger houses, they are not
necessarily cost effective for mid-market to
lower end houses. To successfully use
algorithms you have to constantly update
and remodel the algorithms, otherwise
other traders will pick up the footprint of
your trades and will trade against you. The
cost of employing a team to maintain an
algorithmic system and of implementing an
EMS is high, and unless you are trading in
high volumes and are making large returns,
it may not be worth it financially. But
ultimately as the market evolves and
continues to fragment, fund managers are
going to continue to need more advanced
technology to provide data. The
algorithmic and direct market access
qualities of the EMS makes it the best tool
currently for that.
An increasing number of new markets
are also starting to use EMS'. Countries
such as Hong Kong, Singapore, and Japan,
that are not emerging markets, but have
not previously seen the kind of vendor
presence that is in the UK and US before,
are starting to buy into EMS'. Emerging
markets like Thailand and Korea are also
starting to use this technology. In Asia the
markets are much more concentrated,
unlike the UK and US, where there are
thousands of money managers. In Asia
there is much more concentration of the
assets in the top tier. It will be interesting
to see what effect this influx of independent
providers of direct market access will have
on such a concentrated market.
Another interesting trend, which has
been highlighted by commentators, is that
whilst jobs are being cut in the city and
banks tighten their belts during the current
financial crisis, there may well be a cut in
IT budgets and slow down in the rate of
management houses' implementation of
EMS'. However, analysts have pointed out
that in fact the opposite is happening.
Denise Valentine a senior analyst at Aite
Group describes: “They are letting go of
the people before the technology. It's very
clear for everyone in the trading
environment that you need to be electronic.
Maybe you can do without an OMS in
edition to an EMS, but you can't have
neither.”
There is a degree of cannibalism in the
market. As vendors introduce increasingly
complex trading technology it affects the
liquidity of the market, which in turn
creates a need for more technology. But
ultimately technology has fundamentally
changed trading culture by making it
electronic and currently buy-side traders
are benefiting from the many trading
solutions that are available on the market,
and are adapting them to their needs.. I
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 PEOPLE MOVES
MOVING & SHA KING
Boston - State Street Corporation
announced the appointment of
Maureen Miskovic to chief risk officer.
In this newly created senior role,
Miskovic will lead a global team of
more than 250 multi-disciplinary enter-
prise risk professionals that support
State Street’s business, customers and
operations worldwide. She will report
to Ronald E. Logue, State Street’s
chairman and CEO and join the compa-
ny’s Operating Group, State Street’s
senior-most strategy and policy-mak-
ing team. With this announcement
Miskovic will step down, effective
immediately, from State Street’s Board
of Directors.“Maureen’s appointment
builds on our already strong risk man-
agement culture and infrastructure,”
says Logue. “State Street has achieved
considerable global growth over the
past five years and in creating this role,
we intend to focus the intellectual
capital and leadership skills of this
highly experienced industry veteran to
advance the
strategy for our
risk organization
at a time of
unprecedented
complexity
and change
within the finan-
cial services
industry.”
MAUREEN MISOVIK
London -
Northern Trust has appointed Wayne
Bowers as chief executive officer of
Northern Trust Global Investments
Limited, the London-based subsidiary,
and multi-asset class investment man-
agement business of, Northern Trust
Corporation. In his new role, Bowers is
responsible for the continued growth
and development of Northern Trust’s
investment management business in
Europe, Middle East and Africa
(“EMEA”) and Asia-Pacific (“APAC”).
His appointment follows that of Steve
Potter, who was recently named presi-
dent of Northern Trust Global
Investments. Bowers will report to Mr.
Potter. “Wayne’s strong leadership
68 INVESTOR SERVICES JOURNAL
qualities, disciplined decision-making
and proven investment expertise make
him ideally suited to this important role.
We are at an exciting point in the
development of our global asset man-
agement business and are delighted that
Wayne will be leading our international
activities,” says Potter.
London - Watson Wyatt Worldwide
announced that Carl Hess has been
appointed global head of investment
consulting,
effective from 1
July 2008. He will
succeed Roger
Urwin who, after
holding the posi-
tion for the past
13 years, will take
on a newly created
role focusing on
the global devel-
CARL HESS opment and deliv-
ery of investment
research. Hess has been with Watson
Wyatt for almost 20 years and currently
serves as the director of the investment
consulting practice in the Americas. He
is a Fellow of the Society of Actuaries
and a Chartered Enterprise Risk
Analyst.
Dublin - Alan Flanagan has been named
managing director of The Bank of New
York Mellon’s Alternative Investment
Services (AIS) business. Flanagan will
lead development and expansion of the
firm’s growing private equity adminis-
tration services business in Europe. He
is based in Dublin and reports to Rick
Stanley, executive vice president and AIS
head of product management. “Alan
brings substantial expertise in both the
hedge fund and private equity servicing
markets,” says Stanley. “Global investing
in private equity continues to accelerate
and diversify. The Bank of New York
Mellon is expanding its European team
of experts and working with our clients
there to ensure we build the best solu-
tions for their evolving administration
and reporting needs.”
London - Caplin Systems has hired
Scott McLeod as director of sales.
Reporting to Adam Hawley, commercial
director, McLeod will be responsible for
Caplin’s global sales and marketing
activities. He commenced his new role
on 18 February 2008 and is based in
London. McLeod’s financial markets
experience, specifically in investment
banking technology, spans over 20
years. His career includes senior sales
and marketing roles at Reuters, Instinet
Fixed Income, Quotron and, most
recently, Ion Trading, where he was
sales and marketing manager.
Throughout his career, McLeod has
contributed to major bottom-line
growth in the European and US mar-
kets.
London - Multilateral trading facility
(MTF) Chi-X Europe has appointed
Tony Whalley, investment director at
Scottish Widows Investment
Partnership, as non-executive director
“We are delighted that Tony has agreed
to become a non-executive director of
Chi-X Europe,” comments Peter
Randall, CEO of Chi-X Europe
Limited.
"From the out-
set, Chi-X
Europe has
actively
consulted with
both our
participant firms
as well as their
buyside clients
SCOTT MLEOD
to better under-
stand the mar-
ket's needs. As he's one of the buyside's
most respected heads of trading, we
look forward to Tony's continued input
and counsel."
London - International Financial Data
Services (IFDS), the international
transfer agency joint venture between
State Street Corporation and DST
Systems, announced today that
Simon Hudson-Lund has become chief
executive officer.
 ISJ Directory of Services
T: +44 (0) 844 499 6388
C: Saghar Bigwood or Stephen
Everard
A: 7th Floor, 69 Park Lane,
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E: sbigwood@goalgroup.com or
severard@goalgroup.com or
info@goalgroup.com
C: Cornelia Keth
T: +49 69 718 3738
F: +49 69 718 6050
E: cornelia.keth@bhf-bank.com
C: Moritz Ostwald
T: +49 69 718 6838
E: moritz.ostwald@bhf-bank.com
A: Strahlenbergerstraße 45,
63067 Offenbach a.Main
Germany
W: www.bhf-bank.com
International: Olivier Storme
T: +352 4767 2847
E: olivier.storme@caceis.com
France: Patrick Lemuet
T: +33 (0)1 57 78 03 34
E: patrick.lemuet@caceis.com
W: www.caceis.com
T: +47 22 94 92 95
F: +47 22 48 28 46
Contact: Bente I. Hoem
E: bente.hoem@dnbnor.no
W: www.dnbnor.com
W: www.handelsbanken.com
/nordic_custody_services
T: +46 8 701 2988
F: +46 8 701 2990
C: Johan Wennerberg
E:custodyservices@handelsbanken.se
A: Blasieholmstorg 12,
SE - 106 70,
Stockholm, Sweden
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– for the Nordic region
One region • One custodian • One point of entry
DnB NOR is the largest and leading provider of Custody, Clearing and
Remote Member Service in Norway. In addition, DnB NOR provides a wide
range of value added services to both Foreign and Domestic clients.
Through an Alliance solution with banks in Sweden, Finland and Denmark,
DnB NOR can offer seamless regional products, which can be customized to
our client's needs.
The cornerstone of Handelsbanken’s philosophy is to put the client and the
client’s needs in focus. Nordic Custody Services are locally present in all the
Nordic markets and offer a wide product spectre to a diverse client base.
Each client is allocated an account manager in each market, 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.
INVESTOR SERVICES JOURNAL 69
 ING Wholesale Banking Securities Services provides award winning local and region-
al custody services for investment professionals. We are proud to be the largest cus-
todian provider in terms of assets and number of foreign clients in Central & Eastern For further information please
Europe. ING has been providing Securities Services in CEE since 1994 and we will contact
continue our ongoing pursuit of excellence through new technology. Innovation and Lilla Juranyi, Global Head
client focus are the key drivers to service our clients the best way. Custody
at + 31 20 7979 435
Other activities of ING Wholesale Banking Securities Services are Paying Agency or contact her by email:
Services and web-based management of employee stock option & share plans. Lilla.Juranyi@mail.ing.nl
ING is your local partner in: Belgium, Bulgaria, Czech Republic, Hungary, Poland,
Romania, Russia, Slovak Republic and Ukraine.

Intesa Sanpaolo’s Transaction Services include : INTESA SANPAOLO S.P.A.

Financial Institutions Transaction
• Sub Custody, Derivatives and Remote Membership Clearing Services
P.zza della Scala 6
• Global Custody and Depository Bank for mutual funds, pension
20121 Milan
funds, real estate funds, private equity funds and hedge funds Italy
• Fund Administration for mutual funds, pension funds, real estate T: +39 02 8794 2466
funds, private equity funds and hedge funds F: +39 02 8794 1519
W: intesasanpaolo.com
• Paying Agent for foreign funds and sicavs
C: Riccardo Lamanna
• Cash and Payment services like swift to checks, mass payments, E: riccardo.lamanna@intesasan-
checks and cash letters paolo.com

Business Development –
Investment Fund & Global
KBL, leading service provider in the Luxembourg fund industry, offers one-stop shop Custody Services
facilities to international fund promoters. 43, boulevard Royal
Product structuring (of SICAV, FCP, SIF, SICAR, SEPCAV, …), global custody L-2955 Luxembourg
services as well as an efficient fund administration and transfer agency infrastructure Stéphane Ries e-mail :
are some of our fields of expertise that will bring added value to the management of stephane.ries@kbl-bank.com
your assets. Sandra Cortese e-mail :
For all kinds of Undertakings for Collective Investment going from plain vanilla sandra.cortese@kbl-bank.com
cash, money-market, equity and bond funds to sophisticated alternative, venture Stéphane Pesch e-mail :
capital/private equity, pension pooling and funds of hedge funds, KBL offers expert stephane.pesch@kbl-bank.com
legal, fiscal and technical advice as well as access to the global markets. Tel. : (352)4797 3512
Fax : (352)4797 73910
www.kbl.lu

Nordea is the leading financial services group in the Nordic and Baltic Sea region
and operates through three business areas: Nordic Banking, Banking & Capital
Market Products and Savings & Life Products.
Nordea is the leading custody services provider in the region. Nordea provides high T: +47 2248 6238
quality, tailor-made custody services for local and foreign investors dealing with Contact: Anne-Lise Kristiansen
Nordic, Baltic or global securities. Head of Sub-custody and
- The leading financial services group in the Nordic and Baltis Sea region Clearing
- A world-leading Internet banking and e-commerce operation E: anne-lise.kristiansen@nordea.com
- 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

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

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

70 INVESTOR SERVICES JOURNAL

 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
T: +46 8 763 5770 securities worth over 560 bn EUR and provide services in more that 75 markets, 10
of them under the SEB name (Sweden, Norway, Finland, Denmark, Luxembourg,
F: +46 8 763 6930
Germany, Estonia, Latvia, Lithuania and Ukraine).
C: Goran Fors, Global Head of
Custody Services We offer a full range of securities services including corporate action and informa-
tion services, securities lending and services to remote members of the Nordic and
E: goran.fors@seb.se Baltic stock exchanges. We continuously develop new products in connection with
W: www.seb.se 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
over 150 years in the securities industry; we know the market and our clients well.

Sébastien Danloy
Global Head of Sales,Investor
Services
Société Générale Securities
Services
T: +33 (0)1 41 42 98 65
E: sebastien.danloy@socgen.com
W: www.sg-securities-services.com
Société Générale Securities Services offers institutional investors, asset man-
agers and financial intermediaries a comprehensive range of financial securities
services: custody, clearing & trustee services, fund administration, asset servic-
ing and transfer agency. SGSS currently ranks 3rd European custodian and 9th
worldwide custodian (Source: Globalcustody.net) with EUR 2,580* billion in
assets held and valuates 4,354* funds representing assets of EUR 405* billion
(as of June 2007).

Financial Asset Services is the custody and investments-servicing division of

A:Standard Bank Standard Bank, providing a unique suite of services to sophisticated investors in
Financial Asset Services South Africa and eight sub-Saharan markets.
3rd Floor
25 Sauer Street Standard Bank has assets under custody to the value of ZAR1.56 trillion and an
Johannesburg 2107 overall market share of approximately 40%.
T: +2711 636 6615
E: adam.bateman@standard- Standard Bank's unique selling point lies in its consultative approach to
bank.co.za relationships combined with the bank's commitment to custody and investment
W: www.standardbank.co.za administration services.

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

Swedbank provides client-focused custody services to domestic and international secu-

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

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

71 INVESTOR SERVICES JOURNAL

 Data Services
Avox
Market Data & Analytics provides high-value real-time market data, indices and back Redwither Tower
office services. Information from diverse sources are provided to its customers, Redwither Business Park
tailored to their specific information needs. Accuracy and reliability are ensured by Wrexham, LL13 9XT
collecting the data from the Group’s own trading platforms, such as Xetra® and United Kingdom
Eurex® and cooperation partners like STOXX Ltd. and the Irish Stock Exchange.
Avox®, a majority-owned subsidiary, validates, corrects, enriches and maintains
T: +44 (1978) 661 813
business entity data. With an operational model, unique in the industry, Avox®
enables clients to comply with regulatory requirements and to achieve a holistic view F: +44 (1978) 661 668
of the risk exposure towards a client. W: www.avox.info

Interactive Data Corporation (NYSE: IDC) is a leading global provider of financial

market data, analytics and related services to financial institutions, active traders
www.interactivedata.com
and individual investors. The Company's businesses supply real-time market data,
time-sensitive pricing, evaluations and reference data for millions of securities trad- T: 020 7825 7800
ed around the world, including hard-to-value instruments. Many of the world's best- F: 020 7608 3514
known financial service and software companies subscribe to the Company's services Brendan Beith
in support of their trading, analysis, portfolio management and valuation activities.
European Sales Director
Through its businesses, Interactive Data Pricing and Reference Data, Interactive
Data Real-Time Services, Interactive Data Fixed Income Analytics, and eSignal, the eu-info@interactivedata.com
Company has approximately 2,300 employees in offices located throughout North Fitzroy House
America, Europe, Asia and Australia. The Company is headquartered in Bedford, 13-17 Epworth Street
Mass. Pearson plc (NYSE: PSO; LSE: PSON), an international media company,
London EC2A 4DL UK
whose businesses include the Financial Times Group, Pearson Education, and the
Penguin Group, is Interactive Data Corporation's majority stockholder.

SmartCo is a leading provider of data management solutions for the financial industry.
SmartCo’s software, Smart Financial Data Hub, covers all the data area, including SmartCo
financial instruments, market data, third parties, funds, transactions, and provides 37 rue de Liège
full connectivity, a powerful and user friendly front-end, traceability, quality control, 75008 Paris
data enrichment and customisable workflow. France
Our solutions are based on SmartPlanet, an innovative technology focused on data
management, and able to meet evolving business requirements. T: + 33 1 58 22 29 60
SmartCo offers to its customers the ability to respond in the fastest way to regulatory E: info@smartco.fr
and business changes. W: www.smartco.fr
For further information: www.smartco.fr or info@smartco.fr

Telekurs (UK) Ltd

Telekurs Financial specialises in the procurement, processing and distribution 15 Appold Street
of international financial information. Financial market specialists at Telekurs London
Financial gather information from all the world’s major trading venues – directly EC2A 2NE
and in real time. The Telekurs Financial database with its structured, coded
securities management data is unique in terms of its depth of information and T: +44 (0) 20 7550 5000
data coverage. With offices in 22 countries, Telekurs Financial combines the F: +44 (0) 20 7550 5001
advantages of global presence and local know-how. E: info@telekurs.co.uk
W: www.telekurs.co.uk

Fund Administration
Apex Fund Services Ltd is a global hedge fund administration solution for hedge C: Peter Hughes
funds and private equity clients located in 9 separate jurisdictions across the globe. Group Managing Director
The company uses the software solution, PFS PAXUS, which is a fully integrated T: +1 441-292-2739
hedge fund accounting system combined with web-based reporting to allow clients F:+1 441-292-1884
and investors to access their information 24/7 securely online. We will tailor all
E: info@apex.bm
solutions to meet your needs and our continuing focus on the quality of service and
the relationship with each and individual client ensures that we retain our ethos of A: 31 Reid Street,
providing a personalized service rather than a generic solution. Hamilton,HM11
Highly qualified and experienced staff, mirrored with top tier technology and Bermuda
competitive fee structures make Apex Fund Services Ltd the clear choice for your
fund administration needs. WWW.APEX.BM

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

72 INVESTOR SERVICES JOURNAL

Daniel Cann, Director
Daniel@folioadmin.com
William Harris, Director
William@folioadmin.com
Folio Administrators Limited
Folio House, Road Town
British Virgin Islands
www.folioadmin.com
T: 284 494 7065
F: 284 494 8356
www.imfcfundservices.com
t +31.20.644.4558
f +31.20.644.2735
Mrs. Consuelo Nardon
e: consuelo.nardon@imfc.nl
Rivierstaete Building,
Amsteldijk 166, 1079 LH
Amsterdam, Netherlands
C: Fred W. Jacobs, III
A: PFPC, 301 Bellevue Pkwy
Wilmington, DE 19809 USA
T: 302-791-2000
F: 302-791-1570
E: Information@pfpc.com
C: Fergus McKeon
A: PFPC Riverside Two
Sir John Rogerson’s Quay
Dublin 2, Ireland
T: +353-1-790-3500
E: Information@pfpc.com
C: Stuart Mauger
T: +44 (0) 1481 744479
F: +44 (0) 1481 744529
E: stuart.mauger@rbc.com
A: PO Box 48 Canada Court
St Peter Port Guernsey GY1 3BQ
C: Deanna Bidwell (Cayman)
T: +1 345 949 9107
F: +1 345 946 1288
E: deanna.bidwell@rbc.com
W: www.rbcprivatebanking.com
Sébastien Danloy
Global Head of Sales,Investor
Services
Société Générale Securities
Services
T: +33 (0)1 41 42 98 65
E: sebastien.danloy@socgen.com
W: www.sg-securities-services.com
Swiss Financial Services
(Ireland) Ltd.
Block 4B,Cleaboy Business Park, Drawing upon an extensive track record of proficiency, dependability and
Old Kilmeaden Road,
Waterford, Ireland
T: +353 51 351180
F: +353 51 871595
Adrian Maher
E: amaher@swiss-financial.ie
Folio Administrators Limited, part of the Folio Group of Companies supplying
fund administration, company management, director services and insurance
management, is the leading fund administration company in the British Virgin
Islands.
We specialize in servicing the needs of start-up to medium sized hedge funds,
covering all aspects of fund formation, structuring and on-going operations.
We work closely with an extensive number of banks, brokers, custodians,
auditors and lawyers to ensure that our clients receive the best independent
advice and structures.
Established in 2002, IMFC Fund Services B.V. is a boutique hedge fund
administrator and a trustee with its offices in Amsterdam and Sydney. IMFC
offers third parties administration and related services to all type of onshore and
offshore funds combining high quality, independency, technology, timely
calculation with flexibility, experience, custom-made solutions and competitive
rates. Our services include: fund set-up and corporate services, NAV calculation
and other accounting services, R&T agent and other investors and compliance
services. For more information visit our website: www.imfcfundservices.com
PFPC is a premier provider of processing, technology and business solutions to the
global investment industry. Our core offering includes accounting, administration,
investor services, middle-office services and regulatory administration services. Whether
your products are U.S. or non-U.S. domiciled funds, trust vehicles, limited partnerships
or commingled investment products, PFPC’s multi-jurisdictional, multi-fund capability
allows us to process your complex fund structures - from hedge funds, fund of funds
and private equity funds to master/feeder and multi-managed funds.
PFPC offers personalized alternative investment solutions tailored to your unique
needs. With more than 30 years in the fund servicing industry, our seasoned and
responsive professionals bring you the know-how, focus and dedication to deliver the
services you need, when and where you need them, any way you want them.
Our clients have access to a broad range of value added services and tailored solu-
tions including global custody and fund administration services for funds domiciled
in the Caribbean and Channel Islands.
Our services include Trustee, banking and credit facilities, treasury and foreign
exchange, trade execution, financial accounting, corporate services, derivative sup-
port services and online access, leveraging a custody network that covers 80 plus
markets worldwide. Our service combines leading edge technology with professional
expertise and a truly integrated service delivering creative, customised solutions.
Société Générale Securities Services offers institutional investors, asset man-
agers and financial intermediaries a comprehensive range of financial securities
services: custody, clearing & trustee services, fund administration, asset servic-
ing and transfer agency. SGSS currently ranks 3rd European custodian and 9th
worldwide custodian (Source: Globalcustody.net) with EUR 2,580* billion in
assets held and valuates 4,354* funds representing assets of EUR 405* billion
(as of June 2007).
responsiveness, Swiss Financial Services acts as administrator as well as registrar
and transfer agent of funds investing in a broad range of financial instruments.
These include futures, foreign exchange, equities, options, bonds and other funds.
We perform accounting and administration services for diverse fund types
domiciled in, but not limited to, the United States, Bahamas, Cayman Islands, B.V.I.
and Ireland.
INVESTOR SERVICES JOURNAL 73
 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

Custom House is one of the world’s largest independent alternative investment Custom House Administration &
and hedge fund administrators and the first and only one to be awarded a Corporate Services Limited
Moody’s Management Quality Rating. A: 25 Eden Quay, Dublin 1,
Ireland
Custom House offers a round-the-world, round-the-clock service from its T: +(353) 1 878 0807
office in Dublin and representative offices in Chicago and Singapore, enabling
F: +(353) 1 878 0827
it to provide, not only complete global administration services, but also the
C: dermot.butler@
ability to produce daily dealing NAVs.
customhousegroup.com
Custom House is authorised by the Irish Financial Regulator under Section 10 of C: david.blair@
the Investment Intermediaries Act, 1995, which authorisation does not extend to the customhousegroup.com
Chicago and Singapore representative offices. ww.customhousegroup.com

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

International Finance Centres

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

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

Prime Brokerage
Newedge Global Prime Brokerage Group is a global, multi-disciplinary, solution-
providing team dedicated to delivering superior services to alternative investment Philippe Teilhard de Chardin
industry participants including hedge funds, commodity trading advisors (CTAs), fund T: + 44 20 7676 85 36
of hedge funds, family offices, and institutional investors (insurance philippe.teilhard@
companies, banks and pension funds). newedgegroup.com
The Newedge prime brokerage team offers a global range of brokerage services Vincent Tournant
covering a wide range of asset classes including equities, bonds, currencies, T: +44 (0)20 7676 8171
commodities, and their related listed and OTC derivative products. We also offer an vincent.tournant@
innovative portfolio-based cross-margining solution, a dedicated account management newedgegroup.com
desk, hedge fund start up services, quantitative information on the hedge fund Duncan Crawford
industry, capital introductions services, and recently prime brokerage services to T: +44 (0)20 7676 85 04
Sharia compliant hedge funds. duncan.crawford@
Newedge is a major new force in finance, resulting from the merger of the two broker-
newedgegroup.com
age firms - Calyon Financial and Fimat - on January 2nd, 2008. Newedge is wholly W: www.newedgegroup.com
owned by Calyon and Société Générale, with both companies having 50% ownership.

74 INVESTOR SERVICES JOURNAL


VocaLink
Drake House
Three Rivers Court
Homestead Road
Rickmansworth
Hertfordshire
WD3 1FX
T: +44(0)870 1650019
F: info@vocalink.com
W: www.vocalink.com
W: www.dataexplorers.com
T: +44 (20) 7392 4000
F: +44 (20) 7392 4004
A: 155 Commercial Street,
London E1 6BJ United Kingdom
London: Julian Pittam
T: +44 (20) 7392 5018
E: jp@dataexplorers.com
Boston: Tim Smith
T: + 1 (617) 973 5099
E: tim.smith@dataexplorers.com
T: +1 212 901 2224
C: Michelle Lindenberger
E: Michelle.lindenberger@equi-
lend.com/info@equilend.com
A: 17 State Street, 9th Floor
New York NY 10004
T: +44 20 7743 9510
A: 54 Lombard Street
London EC3V 9EX
W: www.equilend.com
T: US- +1 617 204 4500
T: UK- +44 (0)20 7469 6000
C: Christopher Jaynes
E: info@eseclending.com
W: www.eseclending.com
A: 175 Federal Street, 11th FL,
Boston, MA 02110, US
A: 1st Floor, 10 King William
Street, London EC4N 7TW, UK
W: www.eurexseclend.com
T: +41 58 854 2066
F: +41 58 854 2455
E: info@eurexseclend.com
Eurex Zurich Ltd., Selnaustrasse
30, 8021 Zurich, Switzerland
T: +41 (0)44 218 14 14
F: +41 (0)44 218 14 18
E: info@finace.ch
A: COMIT AG, Buckhauserstrasse
11, CH-8048 Zurich, Switzerland
W: www.finacesolution.com
Payments & Settlements .
VocaLink is the transaction specialist. We pioneered electronic payments four
decades ago and many of the world’s top banks have been relying on our services
ever since. Our automated payment system processes over 80 million transactions
per day and has the capacity to handle all of Europe's automated payments. Our
switching platform powers the world’s busiest ATM network.
The VocaLink CSM delivers reach for our clients throughout the SEPA and beyond
with a range of value-added services that leverage our know-how and technical capa-
bilities.
VocaLink is the partner of choice in the transactions business. Find out why at
www.vocalink.com
Securities Lending .
Data Explorers Limited, a specialist and independent company, offers impartial
quantitative measurement of securities lending performance services to the global
securities financing industry. We help our clients monitor and understand the
relative performance of their lending activity and risk, and turn raw lending, borrow-
ing and collateral data into useful, actionable information. We also provide proxies
for short selling information.
Working with the industry we ensure information flows are appropriate and peer
groups relevant. We are not involved in transactions.
All of our services: Performance Explorer, Transaction Explorer, Risk Explorer,
Index Explorer and Report Explorer are web based and available to clients
over the internet.
EquiLend Holdings LLC was formed by a group of leading financial institutions to
develop a global platform for the automation of securities finance transactions.
The EquiLend platform is designed to increase efficiency by standardizing, cen-
tralizing and automating front and back office processes, while delivering global
access to liquidity, reduced risk and scalability. The EquiLend platform is
designed to process equity and fixed income securities finance transactions on a
global basis.
Investors include: Barclays Global Investors; Bear, Stearns & Co. Inc.; Credit
Suisse; The Goldman Sachs Group, Inc.; J.P. Morgan Chase & Co.; Lehman
Brothers; Merrill Lynch; Morgan Stanley; Northern Trust Corporation; State Street
Corporation; and UBS.
eSecLending is a leading global provider and administrator of customized securities
lending programs and they have grown to become one of the largest lending agents
in the marketplace. Their program has been adopted by some of the world’s largest
and most sophisticated asset gatherers including pension funds, mutual funds,
investment mangers and insurance companies. eSecLending’s approach has
introduced investment management practices to the securities lending industry,
offering beneficial owners an alternative to the custodial lending model. Through
eSecLending, beneficial owners have achieved optimal returns, greater transparency
and increased control over their program as compared to traditional lending models.
eSecLending maintains offices in Boston, London and Burlington, Vermont.
Securities Finance Trust Company, an eSecLending company, performs all regulated
business activities. Additional information about eSecLending is available on the
company’s website, www.eseclending.com.
Eurex is one of the largest derivatives exchanges and the leading clearing house in
Europe. Wherever you are located, we provide you with access to the benchmark
futures and options market for European derivatives. Eurex also offers short term fund-
ing products, such as Eurex Repo. Eurex Repo is among the forerunners in providing
integrated trading and clearing for repo transactions. Eurex’s latest innovative market-
place is called Eurex SecLend.
Eurex SecLend. Europe’s leading investment banks participate as borrowers in the
Eurex SecLend marketplace, acting as principal brokers, dealers and intermediaries.
They all benefit from Eurex’s leading state-of-the-art trading and processing services.
For Eurex, service and technology innovation is not just a buzzword. New trends are
being transformed into inventions through the adoption of advanced trading practices.
Find out more on www.eurexseclend.com.
FINACE® is the only fully integrated solution today which supports the future busi-
ness model within the area of Securities Finance and Collateral Management. The
architecture of FINACE® is based on a stable, leading edge technology platform,
which was developed with performance and robustness as the focus of design. With
flexibility at its core, customer-driven extensions and modifications can be quickly
and easily applied to the standard component set.
INVESTOR SERVICES JOURNAL 75
Securities Lending .
New York: William Smith
JPMorgan's Securities Lending program is unparalleled due in no small part to the
T: 212-623-5664
Firm's breadth of capability, financial strength, professional expertise and seamless
operations. E: william.z.smith@jpmorgan.com
London: Michael Fox
Our program enables investors to access a broad spectrum of lending markets, with T: 44 207 742 0256
a diverse borrower base, offering a broad indemnification against borrower default, E: michael.uk.fox@jpmorgan.com
while achieving very competitive bids for their securities - all of this in an
environment designed not to compromise the activities of their fund managers. As Sydney: David Brown
one of the founding members of EquiLend, a global automated platform for T: (61-2)92504606
borrowers and lenders, JPMorgan is at the forefront of technology and is ideally E: david.ldn.brown@jpmorgan.com
placed given its integrated lending, custody and accounting platforms.
W: www.jpmorgan.com/wss

Pirum provides a full suite of automated reconciliation and straight through process-
ing (STP) services supporting Operations within the global securities finance T: +44 20 7220 0961
industry. The company's on-line SBLREX service encompasses daily contract F: +44 20 7220 0977
compare, monthly billing comparison, mark-to-market & exposure processing, C: Rupert Perry
pending trade comparison, income claims processing and custody reconciliation.
E: rupert.perry@pirum.com
Subscribers to Pirum’s services significantly increase their operational efficiency
A: Pirum Systems Limited
and reduce their risk by using Pirum’s solutions, as staff are able to focus on fixing
the exceptions instead of using their time to check and process routine business. 37-39 Lime Street
These automated processes are more scalable and risk controlled too, allowing London, EC3M 7AY
significantly higher volumes to be managed without corresponding increases in W: www.pirum.com
operations headcount.

Santander is the only Spanish financial institution with a team exclusively dedicated
to securities finance & with the purchase of Abbey in 2004 has expanded its
capacity on a Global basis with trading teams in London (UK) & Connecticut (USA). W: www.gruposantander.com
T: (3491) 289 39 42/54
Santander's leading local capabilities in Spain, Portugal, UK, USA & Latin America,
E: securitieslending@
along with its solid balance sheet & combined with the state-of-the-art technology,
provides its clients with the broadest range of solutions in securities lending & gruposantander.com
financing, including availability across all assets classes, as well as access to
uncommon emerging markets.

Email: securities.finance@sun-
gard.com
Around the world, USD9 trillion in securities financing is managed on SunGard’s
proven solutions for international and U.S. domestic securities lending and repo for Contact: Switch board: +44 (0)
over 250 clients. Through our Loanet, Global One, Martini and Astec Analytics prod- 208 081 2000 Marketing: +44
ucts and services, we provide comprehensive business solutions and information with (0)208 081 2853
worldwide reach for equities or fixed income securities financing. These solutions –
all in an integrated, exception-based processing architecture – includes order rout- Visit: www.sungard.com/loanet
ing, pre-trade analytics, trading, position management, operations, accounting, set- www.sungard.com/globalone
tlement and reconciliation. www.sungard.com/martini
www.astecgroup.com

Technology .
Advent Software EMEA, established in 1998, provides trusted solutions for the front
through to back office operations, based on a true real-time fund/portfolio
accounting platform, to the investment management community throughout Europe, T: +44 (0)20 7631 9240
Middle East and Africa. Advent has an established network of offices across the F: +44 (0)20 7631 9256
region serving a growing client base of asset managers, hedge fund managers, prime E: emea@advent.com
brokers, fund administrators, wealth managers, private banks and family offices who A: One Bedford Avenue,
continue to improve their businesses using Advent’s suite of integrated investment London WC1B 3AU, UK
management solutions. Advent Software EMEA is part of Advent Software Inc. W: www.advent.com
(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.

Aquin are the market leader in investment compliance software with MIG21® pow-
ered by Aquin LawCards® for global compliance including UCITS III and SEC 1940. Annette Lindinger
The company has built its reputation on solid compliance and IT experience in long press@aquin.com
term relationships with its clients. T: +49 69 21 93 66 600
Aquin services a blue-chip client base of the world’s leading investment F: +49 69 21 93 66 650
Mainzer Landstr. 199
management companies, hedge funds, fund administrators and custodians. These 60326
include Citi, State Street, BNP Paribas, Credit Suisse, CACEIS Investor Services, Frankfurt am Main
Allianz Global Investors, Pioneer Investments and Commerzbank. The company has Germany
its headquarters in Frankfurt, Germany with subsidiaries in Boston, London, Paris, W: www.aquin.com
Dublin, Luxembourg and Zurich.

76 INVESTOR SERVICES JOURNAL


A: BI-SAM Ltd
1 Cornhill
London EC3V 3ND
T: +44 (0)20 3008 5834
F: + 44 (0)20 3008 5831
E: marketing@bi-sam.com
W: www.bi-sam.com
Broadridge Financial Solutions
The ISIS Building
193 Marsh Wall
London E14 9SG UK
T: +44 (0) 20 7551 3000
E: info@broadridge.com
W: www.broadridge.com
T: UK +44 (0)20 8390 5000
Boston +1 617 482 8800
Hong Kong +85 225 812 880
F: +44 (0)20 8390 7000
E: info@dstintl.com
A: DST House, St Mark’s Hill,
Surbiton, Surrey, KT6 4QD
W: www.dstinternational.com
W: www.eagleinvsys.com
T: +44 (0) 20 7163 5700
F: +44 (0) 20 7163 5701
A: Mellon Financial Centre
160 Queen Victoria Street
London, EC4V 4LA
W: www.f-tradeware.com
T: +44 (0)20 7493 2773
F: +44 (0)20 7495 4858
C: GrahamBright
E: info@f-tradeware.com
A: 31 Dover Street
London W1S 4ND UK
Fingertip Developments Ltd
Curtain Court
7 Curtain Road
London EC2A 3LT
UK
T: +44 (0)20 7100 9280 Unrivalled extensibility allows you to develop your own functionality with your in-
enquiries@fingertip- house development team.
developments.com
BI-SAM is a leading provider of analytics software, client reporting and data manage-
ment solutions to the investment management community.
Our integrated and innovative solutions have already been adopted by many
renowned asset managers in France, Belgium, Luxembourg, UK, Hong Kong and
Singapore who have assets under management ranging from 10 to 450 billion Euros.
The B-One suite of products covers: performance measurement, performance attri-
bution (equities, balanced and fixed income), risk attribution (ex-post and ex-ante),
as well as multi-lingual client reporting and factsheets. This suite of products can be
used either as stand-alone applications or ASP hosted solutions.
The Company has approximately 45 employees in offices located in Europe (Paris,
London, Luxembourg). Offices in Asia and North America are under consideration.
The Company is headquartered in Paris.
Broadridge Financial Solutions, formerly ADP Brokerage Services Group, with nearly
$2.0 billion in revenues and more than 40 years of experience, is a leading global
provider of technology-based outsourcing solutions to the financial services industry. Our
integrated systems and services include international securities processing, investor
communication and outsourcing solutions. We offer advanced, integrated systems and
services that are dependable, scalable and cost-efficient. Our systems help reduce the
need for clients to make significant capital investments in operations infrastructure,
thereby allowing them to increase their focus on core business activities.
Proxy Edge – comprehensive solution for institutional global proxy voting management.
Gloss – leading international STP system which automates the trade processing lifecycle from
trade capture through confirmation, clearing agency reporting and settlement.
Tarot - a UK retail and private client stockbroking, custody and fund management solution.
Securities Data Management – outsourced data services for securities operations.
DST International is the world’s premier vendor of technology solutions to the global
investment management community with over 700 clients in 55 countries, and
1500 employees in 19 of the world’s leading financial centres. Our wide range of
asset management solutions meet the needs of fund managers, dealers, settlement
staff, custodians and record keepers operating as international asset managers; from
front office simulation, opinion management and modelling functions, through data
management, dealing and settlement to custody and corporate actions. The suite of
products can be used either as stand-alone applications or brought together in flexi-
ble combinations according to specific needs.
Eagle Investment Systems LLC is a global provider of financial services technology,
serving the world's leading financial institutions. Eagle's Web-based systems support
the complex requirements of firms of any size including institutional investment
managers, mutual funds, hedge funds, brokers, public funds, plan sponsors, and
insurance companies. Eagle is committed to providing enterprise-wide, leading-edge
technology and professional services for investment accounting, data management,
and performance measurement. Eagle’s product suite is offered as an installed
application or can be hosted via Eagle ACCESS, Eagle’s application service provider.
Eagle Investment Systems LLC is a division of The Bank of New York Mellon
Corporation. To learn more about Eagle's solutions, contact sales@eagleinvsys.com
or visit www.eagleinvsys.com.
Financial Tradeware provides integrated solutions for medium to small sized
Investment Management firms, Fund Managers and Hedge Funds, covering the full
trade life cycle. It is part of the Dharma Group of companies and benefits from the
joint contributions and experiences within the group of market traders, business ana-
lysts, financial services professionals and skilled Microsoft Certified programmers.
The company has developed a suite of applications that integrate and Straight
Through Process (STP) real-time trading, back office administration, accounting and
compliance. Ultra.net®, S-Messenger® and H-Fund® are the company's flagship
products all based on Microsoft.NET infrastructure. The company also offers a
Member Concentrator for hosted SWIFT connectivity and Member Administered
Closed User Group (MA-CUG) services for Corporates and Hedge funds. For more
information see: www.f-tradeware.com
Elemes NM is your partner in global agent bank custodian network management pro-
viding a global view of your relationship network in a powerful and easy to use pack-
age. It includes diary, invoice verification, document management, multi-entity
views, reporting, account information incorporating fee and rate structures, contacts,
notes and supports eFee – electronic fee invoicing technology.
Flexibility does not stop with the software, our commercial terms offer adaptable
pricing to suit present and future requirements for all sizes of organisation.
INVESTOR SERVICES JOURNAL 77
 IGEFI is the foremost provider of software solutions for international fund promoters, A:IGEFI Group Sàrl - 7, Rue des
third-party service providers and fund managers. Its prestigious client-base is testi- Primeurs, L-2361 Strassen
mony to our commitment, service and quality with more than 200 expert staff sup- T: +352 26 44 211
porting clients from seven offices worldwide including Bangalore, Boston, Frankfurt, F: +352 26 44 21 44
Geneva, London, Luxembourg and Paris. MultiFonds is operational in more than 20 E: marketing@igefi.com
countries worldwide and support investment funds assets in excess of US$ 2 trillion. W: www.igefi.com
MultiFonds Fund Accounting and MultiFonds Transfer Agency are developed on a C: Mr. Jesper Steiness - Head of
"one system-one database" philosophy and provide significant advantages including Business Development, Europe &
reduced overhead and IT support costs and single look and feel reporting for global Asia
clients. E: jesper.steiness@igefi.com

For more than a decade, administrators, managers, and advisors have relied
on KOGER for dependable software tools backed by extensive industry T: 001-201-291-7747
experience and expertise. Now, for those who want to reduce costs and F: 001-201-291-7808
streamline business processes, Koger offers Fully Integrated Fund C: Mr Ras Sipko
Administrator, a vertically integrated suite serving the back-office E: ras@kogerusa.com
software needs of the fund industry. KOGER USA
Fully Integrated Fund Administrator consists of three core programs: 12 Route 17 North
~ NTAS, the New Transfer-agency System Suite 111
~ E*TAS, Electronic Transfer Agency System Paramus
~ GRID, Global Reach Interface Daemon New Jersey, NJ 07652, USA
Other programs, such as PTAS, KIT, and KORS available separately, complement W: www.kogerusa.com
the core competency of Fully Integrated Fund Administrator.

Lombard Risk is an innovative and established provider of financial trading systems,

risk management software, regulatory software and independent valuation services. Lombard Risk
Our software solutions include Colline, a market leader in collateral management, 21st Floor
and STB-Reporter, a market leader for regulatory reporting. We also provide enter- Empress State Building
prise-wide trading and risk management solutions that allow you to value and man- Lillie Road
age risk proactively across a broad range of financial instruments. Other solutions London SW6 1TR
include sophisticated anti-money laundering and financial crime detection software. UK
Lombard Risk is a global company with offices in London, New York, Shanghai, T: +44 (0)20 7384 5000
Hong Kong, Singapore and Johannesburg. F: +44 (0)20 7384 5140
For more information, please visit www.lombardrisk.com www.lombardrisk.com

Building on over twenty years of experience in capital markets and cross-asset

software solutions, Murex introduces Mx Asset Manager - a unique cross currency,
cross asset fund management solution capable of handling the full range of
products, from plain vanilla to the most complex derivative products.
C: Hélène Desbiez
Coupled with a high degree of flexibility and customization, Mx Asset Manager
Business Development Manager
features a multifaceted design catering to the needs of both service providers
T: +33 1 44 05 32 00
(prime brokers, administrators, asset servicing providers) and direct clients (portfolio
E: helene.desbiez@murex.com
managers for mutual, pension or hedge funds, insurance companies).
W: www.murex.com
With so many new challenges presented to buy-side managers when integrating
increasingly-complex derivatives into their portfolios and funds, Mx Asset Manager
represents a strong and reliable ally for dynamic position keeping and multi-dimen-
sional risk management in a thriving market.

Odyssey Financial Technologies is an industry leader in the global provision of wealth

and asset management solutions and services to the Private Banking, Mass Affluent London Office:
and Retail Banks as well as Institutional and Fund Managers. More than 180 finan- Martin House
cial institutions in 30 countries have chosen Odyssey solutions.
Odyssey focuses on providing a comprehensive range of components for portfolio 5 Martin Lane
management (PMS), advisory process, customer relationship (CRM), compliance, London EC4R 0DP U.K.
risk, analytics and Enterprise Data Management (EDM). The components are
deployed on a single scalable wealth and asset management platform, facilitating T: +44 (0)20 7621 5800
the enterprise-wide implementation of solutions and data management. Founded in
Luxembourg in 1995, Odyssey today has offices in the key financial centers, includ- F: +44 (0)20 7621 5899
ing London, New York, Singapore, Zurich, Frankfurt, Brussels, Geneva, Madrid,
Toronto and Tokyo. Odyssey’s operational head office and main development centre E: info@odyssey-group.com
is located in Lausanne, Switzerland. Throughout this knowledgeable network Odyssey W: www.odyssey-group.com
employs over 600 professionals.
peterevans is a leading provider of front to back office solutions for the financial services
sector. With 23 years experience peterevans takes a sophisticated and dynamic
approach to assist customers in reducing costs and witnessing an increase in margins by
seamlessly replacing costly and restricting legacy platforms. peterevans works in a col- peterevans
laborative manner and sees clients as partners to help meet all the demands in today’s New Broad Street House
marketplace. The xanite product suite offers a highly configurable, flexible and fully 35 New Broad Street
integrated, browser based, comprehensive front to back solution that complies with mes- London EC2M 1NH
sage standardization and settlement harmonization. Deployed as a single application or T: +44 (0) 29 20 402200
integrated as components into your existing platform. Each of the xanite modules can be E: info@peterevans.com
delivered via an ASP or self-hosted. Covering: wealth management, custody corporate W: www.peterevans.com
actions clearing and settlement private client and on-line stock broking Clients contin-
ue to retain all control with their portfolio, fund and relationship managers, brokers,
middle and back office operation – on line anywhere in the world.

78 INVESTOR SERVICES JOURNAL


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
Redi2 Technologies, Inc.
1771 Broadway St.
Oakland, CA 94612
T: +1 (510) 834-7334
E: info@redi2.com
W: www.redi2.com
T: +44 (0)20 7260 1900
F: +44 (0)20 7260 1911
C: Elizabeth Gee, sales director
of SimCorp Dimension
E: elizabeth.gee@simcorp.com
W: www.simcorpdimension.com
A: SimCorp, 100 Wood Street,
London EC2V 7AN
T: +44 (0)20 7826 4470
F: +44 (0)20 7826 4480
C: Nick Stevens
E: sales@singularity.co.uk
A: Singularity
4th Floor, 101 Moorgate
London EC2M 6SL UK
Further Contacts:
US T: +1 212 946 2685
Singapore T: +65 9616 7732
Visit SunGard at
www.sungard.com
T UK: +44 (0) 8452 303 065
T US: 1-888-650-1831
F: +44 (0) 8452 303 064
E: info@fintuition.com
A: FinTuition Ltd
1 Berkeley Street
London W1J 8DJ
United Kingdom
W: http://www.fintuition.com
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.
Founded in 2002, Redi2 Technologies is a leading provider of fee billing solutions to
the global financial services industry. Redi2 offers flexible, feature-rich solutions
that help firms streamline operations, improve cash flow, reduce costs, enhance
client service and meet compliance obligations.
Redi2’s flagship fee billing and revenue management solution Redi2 Revenue
Manager helps financial professionals more easily manage the fee billing process,
including client setup, multi-currency fee and accrual calculations, invoice and
advice generation, accrual reconciliation, adjustments and reversals.
Our open APIs and support for industry-standard relational databases ease integra-
tion with third-party solutions, including accounting, performance measurement and
CRM systems.
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 specialities.
SimCorp Dimension has been designed from scratch as an enterprise-wide system,
handling all aspects of the investment management process and related administra-
tion functions, consistently. Data is recorded once into a core database so that
reporting is made easy, there is no reconciliation of data and no duplication of pro-
cedures.
Over 100 Capital Markets firms worldwide rely on Singularity to achieve step-change improve-
ments 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 combine 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
efficiencies, 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.
With annual revenue of USD5 billion, SunGard is a global leader in software and
processing solutions for financial services, higher education and the public sector.
SunGard also helps information-dependent enterprises of all types to ensure the con-
tinuity of their business. SunGard serves more than 25,000 customers in more than
50 countries, including the world’s 50 largest financial services companies.
Training and Education .
FinTuition is an international training company based in London specialising in the
securities finance business: securities lending, equity finance, hedge funds, prime
brokerage, repo and collateral management.
FinTuition offers a regular schedule of open-enrolment courses from introductory to
advanced levels as well as tailor-made in-house training and consulting. We have
course locations in Asia, Europe and North America.
FinTuition training relies heavily on exercises, role plays and case studies to pro-
mote a better understanding of securities financing and trading concepts through
contextually reinforced learning.
For more information about our courses, course dates and course directors, please
visit our website www.fintuition.com
INVESTOR SERVICES JOURNAL 79

T: +44 (0)20 7260 1900
F: +44 (0)20 7260 1911
C: Elizabeth Gee, sales director
of SimCorp Dimension
E: elizabeth.gee@simcorp.com
W: www.simcorpdimension.com
A: SimCorp, 100 Wood Street,
London EC2V 7AN
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 specialities.
SimCorp Dimension has been designed from scratch as an enterprise-wide system,
handling all aspects of the investment management process and related administra-
tion functions, consistently. Data is recorded once into a core database so that
reporting is made easy, there is no reconciliation of data and no duplication of pro-
cedures.
 FORESIGHT

FORESIGHT
Greg Froese is Head of Investor
Relations at Lionhart, a global,
multistrategy arbitrage fund with
USD 800m undermanagement, with
offices in London, New York,
Singapore and Toronto.
Analysts are suggesting alternative managers are learning
from traditional managers, with the adoption of strategies
such as 130/30. Can alternative managers learn from
traditional managers?

I think there’s always a cross fertilisation between traditional

managers, alternative managers, and private equity managers. If
you are not aware of what’s going on in all the different fields
that you are tied to then you may miss something.

How will the emerging markets and particularly China affect

the hedge fund space?

Emerging markets is a big term. Overall, the effect will be huge

and China is certainly a great opportunity. The demand that
comes from China for commodities and natural resources is
huge, for example and that certainly drives up prices. If you are
involved in the supply side you will certainly benefit from that.
The key thing that we feel is that to do well in emerging mar-
kets you have to have a local presence. It strengthens relation-
ships in the region, which is paramount to ensureing that you
know which markets, at which times, are more favourable or less
favourable. Also there are so many regulatory changes going on
out there that you really have to be on top of it. You can’t do
that from New York or London. You really have to have an
office there which, in the long run will mean more hedge funds
setting up offices abroad.
How will the commodities boom affect the fund arena?
At Lionhart we think that the bull market has really just start-
ed. We are about 20% of the way into a long-term commodity
boom. I think more and more hedge funds will certainly become
involved but it takes a local presence in a lot of these cases. A
lot of this market is in sub-Saharan Africa, in the more remote
regions. I would guess that in the future there would be a
select group of hedge funds that will become fully committed
and be able to fully understand commodities and natural
resources and take advantage of it. For example in Africa we
get involved in projects where we may need to build the infra-
Greg Froese
structure to take advantage of the investment. But it will
absolutely become an important part of hedge fund investing
for 20-30 years probably. The other side of this, which I think
is kind of interesting, is that as commodities become more
expensive people are obviously going to try to fill the gap with
new technologies. Across the commodities spectrum there’s
going to be a lot of new technologies that are developed. I think
this will be another way that hedge funds will benefit too, by
watching these substitute alternative technologies that will
replace some of the metals and commodities. For example
rhodium is used in catalytic converters and in cars to prevent
pollution. This is one of the platinum group metals, PGM
metal group. As platinum increases in price, it’s reached some-
where in the 2,200USD range recently, and has just gone up
exponentially in the last couple of years, Rhodium, adds a sig-
nificant cost to the price of a car. So in China, they are develop-
ing substitute technologies to replace rhodium. I

80 INVESTOR SERVICES JOURNAL

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At Fund Services, with more than 50 years experience behind us, we
understand the importance of fund administration to your business.
Whether you manage traditional or alternative investments, our teams
can develop a customised and flexible solution. With a comprehensive
range of services and products, leading edge technology platforms
and superior client service, we work in partnership with you to meet
your every need, from simple to complex. It’s a long term and disciplined
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Find out more by visiting www.ubs.com/fundservices

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