Custodian Banks and CSD Interaction

Report
Custodian Banks and CSD Interaction
Asia Pacific Central Securities Depository Group General Meeting
Market Booms and Busts
Date: 19-22 October 2013
PUBLIC
How are CSDs directly serving the end investor?
Listed Company
Registrar
Lawyer
Investors
Buy
Hold
Sell
Funds (Fund Manager)
International Brokers
Banks
(Local Custodial)
Members
Brokers
Banks (Global Custody)
Depository
Banks
Local Brokers
Sp. Category
Insurance Companies
Banking
Infrastructure
2
PUBLIC
Primary responsibility to the investor
 Instantaneous transfer of securities ownership linked with cash settlement
 “Speed to market" of corporate action notification and entitlement payment – Golden record
 Provider of Proxy services
"Provide uncompromised safekeeping of assets"
 Legally ringfenced
 Operationally robust
 Financially stable
 Lien free
3
PUBLIC
The sub-custodian bank

A Custodian bank, is a specialised financial institution responsible for safeguarding a firm's or individual's financial assets, and
providing residual services related to this function
Custody services are approved either as part of the banking license, or as an add-on certification to a banking license

Core service offerings










Value-add service offerings





Safekeepingofofassets
Safekeeping
assetsthrough
through
thethe
depository.
depository.
Local
Local
Custodian Bank
Custodian
Bankmirrors
mirrors
depository
depository
holdings
holdings
in internal
in internal
books
and report
books
andtoreport
clientsto clients
Reconciliation ofofCSD
Reconciliation
CSDand
and
local
local
custodian
custodian
bank
bank
records
records
Receipt and
Receipt
anddelivery
deliveryofof
securities,
securities,
after
after
matching
matching
client
client
instructions toto
instructions
counterparty
counterparty
allegement
allegement
and and
market settlement
market
settlement
Forex conversion for foreign institutional investors
Cash payments and receipts, linking them to securities
Transaction/portfolio/cash reporting in specialised SWIFT
formats formats
SWIFT
Corporate action
Corporate
actionreporting/administration
reporting/administration
Dividend and
Dividend
andincome
income
collection
collection
Proxy services
Proxy
services
Take-up of
Take-up
ofrights
rightsand
andbonus
bonus
issues
issues






Regionally consistent interface across markets
Extended client services hours
Single point of contact
Documentation review for account opening
Stock transfer processing between Registry and
Trading accounts
Special daily reports for alleged trades, trade status, settled
trades etc
High quality market information via Market Guide,
Newsflashes, etc
Cash Management services
MIS reporting, eg settlement and income collection
performance, Securities Performance Reports
Relationship Profile, Query Tracking reports etc
Regulatory reporting (if any)
Acts as the “Intermediary” of an investor
4
PUBLIC
Relevant regulations – USA
Employee Retirement Income Security Act of 1974


The Employee Retirement Income Security Act of 1974 (ERISA) is an American federal statute that establishes minimum
standards for pension plans in private industry and provides for extensive rules on the federal income tax effects of transactions
associated with employee benefit plans. ERISA was enacted to protect the interests of employee benefit plan participants and their
beneficiaries by:
–
Requiring the disclosure of financial and other information concerning the plan to beneficiaries
–
Establishing standards of conduct for plan fiduciaries
–
Providing for appropriate remedies and access to the federal courts
ERISA is sometimes used to refer to the full body of laws regulating employee benefit plans, which are found mainly in the
Internal Revenue Code and ERISA itself
17F-5/17F-7

Rule 17f-5 was adopted in 1984, and revised in 1997. The 1997 Amendments expanded the types of foreign banks and
securities depositories that may serve as custodians of fund assets, and required that the selection of a foreign custodian be
based on whether the fund's assets will be subject to reasonable care if maintained with that custodian

Rule 17f-7 permits a fund to maintain assets with a foreign securities depository if certain conditions are met. First, the
depository must be an "eligible securities depository". Second, the fund's "primary custodian" must provide the fund or its adviser
with an analysis of the custodial risks of using the depository, monitor the depository on a continuing basis and notify the fund of
any material changes in risks associated with using the depository. The rule defines a primary custodian (often referred to as a
"global custodian") as a US bank or qualified foreign bank (as defined by rule 17f-5) that contracts directly with the fund to provide
custodial services for foreign assets
5
PUBLIC
Risk management
 Thomas Murray Depository Review and Risk Evaluation
– Asset Commitment Risk
– Counterparty Risk
Risk
– Liquidity
Liquidity Risk
– Asset Safety Risk
– Asset Servicing Risk
– Financial Risk
– Operational
Operational Risk
Risk
– Governance
Governance and
Risk
andTransparency
Transparency
Risk
– CSD on CSD Credit Risk
Source: Thomas Murray Data Services Ltd
6
PUBLIC
Regional risk ratings
AAA
Extremely low risk
AA+
Very low risk
BBB
4%
A4%
1
AA
AA-
1
AA
7%
2
Very low risk
Very low risk
A
18%
5
A+
Low risk
A
Low risk
A-
Low risk
BBB
Acceptable risk
BB
Less than acceptable risk
7
AA26%
11
B
Quite high risk
CCC
High risk
A+
41%
Source: Thomas Murray Data Services Ltd
7
PUBLIC
Communication
Industry groups – Working together
Vietnam
Korea
 Ad hoc custodian bank meeting to
discuss issues. (foreign banks)
 Korea Federation of Banks has a
new sub-group Association of
Local Custodians
Thailand
 Custodian Club – Market
Advocacy division interact with
Stock Exchange, BOT, and MOF.
CSD will invite market
participants where they will
present proposed changes and
enhancements
Japan
Korea
Taiwan
India
Taiwan
Hong Kong
India
 Informal Custodian Bank group –
foreign and local banks. NMPG
Singapore
 SMPG – SWIFT related and Ind
ustry related issues. CSD
reps participate
Japan
 Business operations committee –
10 Sub-committees and SM PG
Thailand
Vietnam
 Taiwan Securities Association
(broker member level). TDCC
host public forums for member to
receive input on changes or
enhancements
Philippines
Hong Kong
 Custodian Bank Working Group
(8 banks) Regular Monthly
meetings
Singapore
Philippines
Indonesia
 Indonesia Association of
Custodian Banks
Indonesia
8
 Four foreign custodian banks
conduct ad hoc meetings based
on industry issue
PUBLIC
Thank you
PUBLIC
Disclaimer
CERTAIN INFORMATION IN THIS PRESENTATION HAVE BEEN PREPARED AND PRESENTED BY THE HONG KONG AND SHANGHAI BANKING
CORPORATION LIMITED ("THE BANK") BASED ON INFORMATION OBTAINED FROM SOURCES IT BELIEVES TO BE RELIABLE BUT WHICH IT HAS NOT
INDEPENDENTLY VERIFIED. WHILST EVERY CARE HAS BEEN TAKEN IN PREPARING SUCH INFORMATION, THE BANK MAKES NO GUARANTEE,
REPRESENTATION OR WARRANTY AND ACCEPTS NO RESPONSIBILITY OR LIABILITY AS TO ITS ACCURACY OR COMPLETENESS. EXCEPT AS
SPECIFICALLY INDICATED, THE EXPRESSIONS OF OPINION ARE THOSE OF THE BANK ONLY AND ARE SUBJECT TO CHANGE WITHOUT NOTICE
© COPYRIGHT. THE HONG KONG AND SHANGHAI BANKING CORPORATION LIMITED 2013. ALL RIGHTS RESERVED
NO PART OF THIS PRESENTATION MAY BE REPRODUCED, STORED IN A RETRIEVAL SYSTEM, OR TRANSMITTED, IN ANY FORM OR BY ANY MEANS,
ELECTRONIC, MECHANICAL, PHOTOCOPYING, RECORDING, OR OTHERWISE, WITHOUT THE PRIOR WRITTEN PERMISSION OF
THE HONG KONG AND SHANGHAI BANKING CORPORATION LIMITED
10
PUBLIC

similar documents