Sub-Custodians Tackle New Challenges

By Platt, Gordon | Global Finance, July/August 2009 | Go to article overview

Sub-Custodians Tackle New Challenges

Platt, Gordon, Global Finance

Global Finance selects the leading providers of the specialized services that make cross-border investing possible.

Global custodians and money managers are putting their sub-custodians under the microscope in the wake of the global financial crisis. They want to know that their assets are safe and that counterparty risks are being kept to a minimum. Pension funds and insurance companies are also asking more questions about securities lending practices and how loan collateral is being invested.

Meanwhile, the market turmoil is putting additional strains on sub-custodians, who arc relied upon to provide local market intelligence, as well as to look after the investments of offshore institutions. Margins are being squeezed and recordkeeping obligations are on the rise.

As if that were not enough, market structures are shifting below their feet, as trading migrates from exchanges to electronic platforms. Central counterparty clearing entities are netting more trades, leaving fewer transactions to be settled. Sometime next year the European Central Bank will begin developing a single platform to settle cross-border securities transactions in the eurozone. Known as Target-2 Securities, the single platform is scheduled to go live in 2013, dramatically reducing settlement costs. In the United States major changes are afoot in the standardization and centralized clearing of over-thecounter derivatives, including credit default swaps.

In our seventh annual survey of the Best Sub-Custodians, Global Finance selected the institutions that reliably provide the best custody services in nine regions of the world and in 66 countries. Our editors and reporters, with input from expert sources, selected the winners based on a series of objective and subjective criteria that included customer relations, quality of service, competitive pricing, smooth handling of exception items, technology platforms, post-settlement operations, backup systems and knowledge of local regulations and practices.

In selecting the winners, we also considered market share, commitment to the business, experience and number of staff, innovation, direct links to depositaries, financial soundness and safety, and range of assets serviced.

North America

The Bank of New York Mellon

The Bank of New York Mellon is the largest custodian in the world, with $20 trillion in securities serviced and nearly $900 billion in assets under management. The bank acts as depositary for more than 1 ,300 sponsored American and global depositary receipt programs (ADRs and GDRs) for companies based in 64 countries. It offers an integrated package of depositary receipt, corporate trust, and stock- transfer and clearing services. The bank continues to win new business and gain market share, even as it keeps strong control of expenses. It orters clearing services in more than IGU markets and is the clearing agent for half of all US government securities.

In Canada, CIBC Mellon, a joint venture with Canadian Imperial Bank of Commerce, is the leader in sub-custody and offers automated securities lending operations. CIBC Mellon is the only custodian in Canada to subscribe to the depositary's real-time corporate action announcement service using the Swift network. Its direct interface with the Canadian depositary provides real-time trade matching and settlement confirmation for equity, fixed-income, money market and derivatives transactions.

Western Europe

BNP Paribas

BNP Paribas Securities Services is the leading provider of clearing and custody services on a pan-European basis, with $4.7 trillion of assets under custody at the end of last year, in 2007 it acquired Exelbank,a subsidiary of Spain-based Banco Sabadell specializing in custody services. It has a local presence in all key European markets, and its global custody network covers 91 markets.

In May, BNP Paribas Securities Services' London office partnered with Pipeline Financial, a block trading and specialist algorithmic trading platform, on a hybrid clearing and settlement model to minimize counterparty risk exposure. …

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