European Custody £ 10 - UK, ROW

$20 - Americas
15 - EMEA

Market Guide 2010

Euro
Custody
Survey
Plus: Country-by-country
guide, CEE focus, legislation,
unbundled services

Europe
Examined

ECMG 2010 cover.indd 1 10/06/2009 18:21

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18:21
 Investor Services Journal | European Custody Market Guide 2010
European Custody
Market Guide 2010
S ince the last European Custody Market
Guide the financial world has encountered
the most momentous 12 months in modern
times. That some of the biggest financial insti-
tutions no longer exist - or exist independent-
ly – is only the beginning. Every institutional
player connected with the custody industry -
from beneficial owners and private investors
to service providers and exchanges – will have
been challenged by declining and volatile glob-
al markets and will have had to address certain
investment paradigms that until recently might
have been assumed as certain.
Losses incurred by this decline have not been
ubiquitous, however. The hedge funds market
has seen some winners through well-timed
tactics, and indeed some of the biggest pension
funds have been increasing their allocations
into the alternative space – often as part of a
long-term strategy.
Similarly, the pension funds sector in Europe
has pockets of relative success, and this sector’s
emergence as the source of money lending has
been intriguing.
Innovations have also defined the landscape.
Exchange traded funds have exploded among
institutional investors. New multi-lateral trad-
ing facilities have fragmented the European
trading landscape, with challenging implica-
tions for clearing and settlement. The lines be-
ECMG 2009 1-21 Final.indd 1
Market Overview
tween mainstream and alternative funds have
been further blurred, demanding an ever-wid-
ening and agile service from custodian banks
safekeeping the assets.
A new terminology has also developed amid
the turmoil. ‘Operational risk’ has broken out
of the lexicon of middle and back office com-
pliance to becoming a widely discussed and
scrutinised concept. ‘Stability’ has become the
most popular word for banks to market their
services.
European regulators and institutional inves-
tors alike have increased the pressure to address
these buzzwords. In this market guide, Michelle
Carroll of Kinetic Partners explores the disclo-
sure requirements demanded of a custodian.
Our exclusive ‘EuCu’ survey also uncovers the
growing concern among institutional investors
to understand the working of their service pro-
vider, as well as key insights into the frequency
and size of new custody mandates. We also fea-
ture fascinating and timely insights from guest
authors into Europe’s emerging region - from
Russia and the Ukraine to the Baltic countries
- as well as the growing demands for the best
technology. As banks restructure, markets gain
confidence and legislation currently in draft
form solidifies, a new chapter has begun. n
Ben Roberts, Editor
11/06/2009 17:09
 Investor Services Journal | European Custody Market Guide 2010 O
fo
Contents n
h
a

Supplement editor:
Ben Roberts
European Custody Market Guide 2010
(ben.roberts@2i.tv)

Senior account manager:

Trish De La Grange
(Trish.delagrange@2i.tv)

Account managers:
Tarik Rekiouak Features
(tarik.rekiouak@2i.tv)

Business development
4 ISJ’s ‘EuCu’ Custody Survey
managers:
James Olweny
(james.olweny@2i.tv)
8 Europe at a Glance
Mark Needham
(mark.needham@2i.tv)

Commercial director: Legislation

Jon Hewson
(jon.hewson@2i.tv)
14 IFRS 7 and the disclosure debate
Senior web developer:
Peter Ainsworth
(peter.ainsworth@2i.tv)
Fund Services
Operations manager: 16 Bundle Theory - Fund Services
Sue Whittle
(sue.whittle@2i.tv)

CEO: Mark Latham

Technology
(mark.latham@2i.tv)

2i Media
20 The Technology Challenge, by Robert
16-17 Little Portland Street
London W1W 8BP Mattsson Axen, Nordea
T: +44 (0) 20 7299 7700
F: +44 (0) 20 7636 6044
W: www.ISJtv.com

© 2009 2i Media
Markets
All rights reserved.
No part of this publication may
be reproduced, in whole or in
22 Eastern Wisdom, by SEB
part, without prior written
permission from the publishers. 26 Russia Market Player: Sberbank
ISSN 1744-151X.
Printed in the UK 28 Key Company profiles
by Pensord Press.

2 w

ECMG 2009 1-21 Final.indd 2 10/06/2009 19:37 Custod

 Our many years of experience and our high technical standards provide a firm foundation
for your securities businesses. With a great deal of flexibility, we fulfill your own particular
needs and also look after special wishes. If you want to know more about our compre-
hensive securities service (brokerage, custody, clearing services) in Austria and Central
and Eastern Europe, please contact us at custodyservices@erstegroup.com

Let us take care of the

precious things in your life.
You are in good hands with our custody service.

www.erstegroup.com

ECMG 2009 1-21 Final.indd 3

CustodyBaby_148x210abf_MarketGuides 1 10/06/2009
05.05.2009 19:37
13:27:05 Uhr
 Audit

Investor Services Journal | European Custody Market Guide 2010

EuCu Survey

European Custody Survey 2009

Investor Services Journal invited the major custodian banks to give feedback as to the services
they offer, the changing needs of their clients and how the difficult market circumstances
generally has affected their business. For full results go to ISJ.tv/eucu09

1. Which of the following custody services or technologies do you provide

to your clients?
16.7% Post trade services (eg, clearing)
15.8% Sub custody
14.2% Core custody
8.3% Client reporting
8.1% Securities lending
8.0% Cash management
6.4% Other
6.2% Fund administration
6.1% Transfer agency/accounting
5.9% Fee billing
4.3% Collateral management
Post-trade services such as clearing and sub-custody were the most common services
offered by the institutions, followed by core custody. The graph shows the proportions for
each ervice based on the statistics of if they only offered one (ie, the most common occurring
services), though typically, most respondents offered multiple services (eg, sub-custody and
fund administration). One respondent added that their clearing offering extended to remote
members.

2. Please estimate the total value of mandates you have won per quarter
for the last year.
This answer received a mixed set of results, which underlines the competitiveness of the
industry along with the uneven market landscape. One respondent claimed that the average Mi
t:
mandate won between the third and fourth quarter of 2008 increased from EUR6 million to
EUR8 million. This dropped back to EUR7 million in the next quarter, with only EUR2 billion e:
so far in the second quarter of 2009 when the survey was sent. Another reported that a Da
mandate value of EUR300 million in the third quarter leapt to EUR1.8 billion ad was up to t:
EUR3.5 billion for the beginning of 2009. But another had mandates of around EUR20 million e:
for the third quarter of 2008, adding: “The value of portfolios were very low due to clients’ Ph
t:
portfolio liquidation and low market ratio.” e:
Ne
t:
e:
4

ECMG 2009 1-21 Final.indd 4 10/06/2009 19:37

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ECMG 2009 1-21 Final.indd 5 10/06/2009 19:37
 Investor Services Journal | European Custody Market Guide 2010

EuCu Survey
3. Has this number of mandates increased
or decreased from the previous year?
Overall, two-thirds of the respondents saw
an increase in the number of mandates they
had won in the last year. This could be because
Increased (66%) clients such as pension funds might seek to
Unchanged (33%) reallocate their assets and the emphasis of
their investments, and so conduct request for
proposals.

In
4. Has the average size of the mandates increased or
decreased from the previous year?
Two-thirds of respondents also found that
Unchanged
the average size of the mandates was roughly
unchanged compared with the same period the Increased
previous year (ie, Q3 and 4 in 2008; Q1 and
2 2009). This may seem surprising given the
background pressures on pension fund assets
over the last year that has led to today’s debate
concerning beneficial owners’ access to the
proceeds from cash collateral pools in the US

5. Please rank what you perceive to be the level of importance for

each issue for your client? (1 high importance to 6 no importance)

1 2 3 4 5 6
Operational risk 57.3 0 14.2 28.5 0 0
Regulatory compliance 17.2 32.9 15.1 34.8 0 0
Transparency of operations 0.8% 42.8 14.7 13.2 28.5 0
Transparency of cost 12.1 28.5 16.3 0 42.8 0
Corporate actions 0 17.6 15.6 35.2 14.5 17.1
This question produced perhaps the most intriguing results. Operational risk was perceived
as a highly important concern among the clients of the custodians, with more than half giving
it the top ranking. Regulatory compliance was deemed the next most pressing, with almost
50% choosing 1 or 2 for importance. By contrast, all respondents ranked portfolio reevaluation
as a matter of little importance compared to the other topics of discussion. In the middle, the
transparency of cost was deemed a concern for many, though more than 40% believed it less
necessary. Corporate actions was almost evenly weighed in importance.

ECMG 2009 1-21 Final.indd 6 10/06/2009 19:37

 Investor Services Journal | European Custody Market Guide 2010

EuCu Survey
6. Which of these scenarios do you think would have the most significant
effect on custody and secyurities services this year ? (1 high importance
to 6 little or no importance)
1 2 3 4 5 6
New/More MTFs 12.5 15.8 6.1 17.2 28.9 19.5
Further short selling bans 0.2 0 35 29.2 32.4 3.2
Increased reg. on alt. funds 36 14.5 15.2 17.2 14.5 2.6
Increased requirements on reporting 1.7 32 48.9 15.6 1.5 0.3
Market stability 52.6 31.9 17.4 0.1 0 0
Global solution for transfer agency 15.9 0 0 0 0 84.1
Custodians believed that market stability is the key factor to the rest of the year – with
half giving it the ‘highest importance’ ranking. The increased regulation of alternative funds
would be the next issue influential on the custody market. These responses were likely have
been given soon after the already-contentious draft directive from the European Commission
that will restrict the operations of hedge funds in Europe unless they comply to certain
leverage and administrative standards. Certainly US pension funds have been staunch in
their allocation to alternative assets during the financial crisis, with funds such as CalPERS
hinting that it may increase its allocation in some areas, such as private equity. The feedback
on the importance of a global tranfer agency offering was curiously split between extremes;
this could be influenced by the emphasis each custodian has on this service.

7. An increased number of pension funds in the last year are seeking an

unbundled service where, for example, their provider of core custody
is separate from their agent lender or collateral manager. Have you
perceived an increase in enquiries for unbundled services?

In extension to the importance for the

Yes client of the transparency of what they are
paying for, half of custodians reported that
Unchanged there has been an increase in the amount of
Decreased conversations they are having regarding the
‘unbundling’ of services.

8. Are you expanding into new markets this year? “NO”

All respondents replied in the negative. Some might have expanded their network enough
for the time being; some might be reneging on previous plans. Probably most commonly,
custodians are seeking to consolidate and secure existing relationships until more stable
market conditions occur, and so are shelving expansion plans in the meantime. n

ECMG 2009 1-21 Final.indd 7 10/06/2009 19:37

 Investor Services Journal | European Custody Market Guide 2010
Market Overview
Austria
A ustria remains a vital sub-custody
gateway for US and European
banks to gain access to central and Eastern
Europe. Though some market players had
increasingly seen more traffic coming the
other way – from diversifying fund clients
in Czech Republic looking for exposure into
more developed markets – the pressures on
the region as a result of the withdrawal of
foreign investment greatly reduced this. The
three significant players in sub-custody are
Erste Bank, Raiffeisen and Bank Austria/
UniCredit. Erste Group AG has around 50%
of the market share for assets under custody,
with the other two banks commanding
around 60% based on transactions as they
have clients based on the broker-dealer
community.
By mid last year Erste had bought up 10
banks in the CEE region. Alexander Schleifer,
head of custody at the bank, told ISJ at
the time: “We see that there is a demand,
clients are using the banks we acquired for
several securities services, we developed the
ECMG 2009 1-21 Final.indd 8
Europe examined
A guide to the major custody
markets across the continent
and an update on the events
over the past year
custody services in these new countries, we
see interest and demands from our existing
clients, a lot of RFPs asking what we can
offer in these markets.”
“The CEE banks we bought up were more
or less retail banks, so we have a strong retail
base of domestic clients investing in the
home market but also abroad and using the
Erste Group for securities services. This is
currently one of the big projects, to further
develop the custody service they offer to
domestic clients and to foreign clients and
this is how we as an Austrian based company
expanded our regional approach.”
The expansion in this way has become
more prominent, as there is growing
consensus that the niche providers serving
a single market will have found, and will
continue to find, the environment difficult
in attracting mandates.
Bank Austria/UniCredit is the biggest
custodian for international brokers, and has
relationships with global custodians such as
BNY Mellon. The legislative system in the
10/06/2009 19:37
 Investor Services Journal | European Custody Market Guide 2010
country is very similar to Germany.
Austria has one of the most
technologically advanced central securities
depositaries in the world, and the low
market risks and high settlement rate as key
elements of its growing reputation.
For investors, the special purpose vehicles
allow a saving in capital gains tax (CGT)
whereby a CGT payment I only made upon
the distribtuon of the fund, so capital can
be built up over time. Any external bank
wanting to set up an SPV in the country
require a license
Market wisdom:
“The biggest problem for the Austrian
market is its small size. There is a lot of
stock at critical mass that is under the radar.”
Gunter Schnaitt
Statistically speaking:
RZB: Number of asset management
companies: 4
Number of funds: 469
Asset under custody: EUR38.2 billion.
Benelux
Belgium, the Netherlands and
Luxembourg have great variety between
them in terms of pension fund history, fund
types, investment outlooks and service.
In the Netherlands, pension fund
are overseen by a board of trustees, a
fiduciary manager and a custodian. A
fiduciary manager will hire and fire the
asset managers, sculpt the tactical asset
allocation and help the trustees – who have
ultimate responsibility for the fund – define
a strategy. They will also hire the custodian,
ECMG 2009 1-21 Final.indd 9
Market Overview
which can give an independent view while
providing core and ancilliary custodial
services.
How pension funds are valued, and the
frequency of valuation, has been one of the
most significant events in the Dutch market
in what has been called the New Financial
Framework. Asset/liability ratios before were
calculated as if the interest rate was fixed at
4%. Now, the Dutch National Bank demands
that asset/liability calculation is based on the
real interest rates – which had dropped at the
end of 2008 - with a pension fund altering
its exposures in accordance. Thus, a greater
balance was struck between the asset side
and the liability side.
More frequent adjustments to portfolio
calculation continue to shorten the
investment outlook for many pension funds.
In recent months, Dutch pension funds
have been hit by sharp declines in their
funding ratios. As a result most of the funds
regulated by the De Nederlansche Bank had
to submit a proposal that stipulated their
plans for recovery.
According to statistics at Bureau Bosch,
the biggest pension funds have been hit
the hardest. The ABP fund’s finding level
declined by 50% from 140% to 90%.
The DNB usually requires a three-year
investment plan when funds drop below
105% funded. This has been extended based
on the economic circumstances.
In Belgium, there are three pillars of
pensions: the state plan, the corporate plan
and the private plan – and the country is
dominated by the first and third pillars. A
government pension plan is more generous
in Belgium than a lot of markets, and there
are tax breaks for private plans, meaning the
corporate plans are playing catch up.
Luxembourg has an expertise for
domiciling funds. It has been more
than two years since the legal draft for
specialised investment funds that replaced
10/06/2009 19:37
 Investor Services Journal | European Custody Market Guide 2010
Market Overview
the undertakings for collective investment
legislation. SIFs have a looser regulatory
structure and attractive tax regime.
Domiciled funds, plus insurance and
reinsurance funds are putting their assets
in custody accounts, according to Olivier
Scherrer at BNP Paribas. SIFs also provide
access to funds of hedge funds, private
equity and real estate. The country has also
seen an increase in ETFs launches.
Market wisdom:
“Domiciled funds as well as insurance and
reinsurance funds are putting their assets in
Luxembourg custody accounts... the lightly
regulated SIFs allow qualified investors a
wide investment policy ” – Olivier Scherrer,
BNP Paribas
Statistically speaking:
BNP Paribas’ assets under custody:
Belgium 9%, Netherlands 7%,
Luxembourg, 84%
(Source: BNP Paribas)
France
The French market has plentiful
opportunities for custodians, and in
particularly strong and varied in the
insurance and private equity markets.
For the non-resident market, the
dominant player remains BNP Paribas. In
the domestic market, BNP Paribas is joined
by Societe Generale Securities Services and
Caceis, the fund administrator.
In the domestic market, large insurance
companies such as Axa often manage
their in-house reserves. This can include
life insurance policies, which allow retail
investors to buy securities or shares of funds
10
ECMG 2009 1-21 Final.indd 10
in a wrapper that is tax efficient. These
companies - whether purely French or
part of a foreign parent, such as Allianz –
therefore need custodians for the accounting
and administration.
These insurance companies also promote
the asset management services to third
parties – such as pension plans or fund of
funds managers. There are also, of course,
the traditional asset management companies
such as Credit Agricole Asset Management
and independent asset management
companies that have between five and 15
billion such as Metropole Gestion – where
people buy shares of these funds but also a
mandate to these firms for managing assets.
The third strand of asset management
is private equity. Some of the largest
international private equity firms have
a subsidiary in France, such as 3i and
Blackstone, and these firms are managing
French domiciled private equity funds and
they have been growing very quickly and this
business is very large.
The fourth type of management is real
estate. Such companies, like the insurance
firms have been are setting up their own
asset management companies to manage the
real estate assets they have in their books.
Market wisdom:
“What is interesting in the French market
is that, contrary to maybe all European
markets, it’s dominated by services provided
by banks that are originally French” –
Sebastien Danloy, SGSS
Ireland
Despite the pressures on the Irish
economy, the country remains a home for
many custodian banks and domiciled funds,
including hedge funds. The country services
10/06/2009 19:37
 Investor Services Journal | European Custody Market Guide 2010
approximately one-third of the world’s
hedge fund assets, and is a strong advocate of
the UCITS model.
There is a significant business in custody
for both Irish-domiciled funds and non-
Irish funds based in centres such as Cayman
and Bermuda. The ‘bundled’ custody service
has as strong tradition in Ireland because
it is a more institutional market place than
other domiciles. Ireland has also witnessed
the increase in hedge funds seeking to
launch UCITS products in the market, as
much for the opportunity to gain assets
under management as a drive for greater
compliance with regulatory scrutiny.
The best news is that with significant
achievement over the last 20 years the
regulatory environment in Ireland has
an enviable reputation when it comes to
international best practise. An acknowledged
open and transparent tax regime, Ireland
is the only international location of
significance not to be included in the many
lists of “offshore” jurisdictions.
Funds of funds - particularly funds
of hedge funds, have seen significant
redemptions from institutional investors and
high net worth clients, principally due to
liquidity issues.
Dublin has been a key recipient in the
growth in the European ETF industry, which
reached EUR91.228 billion in assets under
management at the end of 2008, according
to data from Lyxor Asset Management.
Market wisdom:
“Even during the market meltdown of
2008, investors worldwide poured more than
USD260 billion into ETFs. To date, Ireland
has been the domicile of choice for cross
border ETFs in Europe” - Andy O’ Callaghan,
PricewaterhouseCoopers
ECMG 2009 1-21 Final.indd 11
Market Overview
Statistically speaking:
Total funds administered in Ireland
Q3 2008: 10,899
Q4 2008: 10,855
Q1 2009: 10,704 (Source: Central Bank
and Financial Services Authority and IFIA)
Italy
Declines in the final payout in state-
funded TFR schemes has encouraged more
Italian workers to move from a government
pension to those invested in market-based
funds. At the same time, the financial fallout
has wiped an estimated EUR300 billion off
of the balance sheets of these funds. The
choice between a state and private scheme is
currently irreversible – a contentious issue
that has slid down the list of priorities of the
Italian authorities in the last year.
A minority of workers moved into
the market-based funds scheme, though
the market losses were still significant.
Further, some say that more people - and
their companies in turn - need to focus on
‘topping up’ their retirement with private
schemes and escape the traditional mindset
of a sufficient state-based scheme.
But the mutual funds industry remains
curtailed by uneven regulation. Funds
domiciled in Italy are taxed daily based
on their net asset value; funds domiciled
elsewhere are only taxed when the
holding is sold, putting the domestic funds
at a disadvantage, and the daily tax has two
effects: firstly, reporting performance that
already factors in the tax often gives them a
lower return compared to those domiciled
elsewhere. Performance pressures has
caused a lot of consolidation in the funds
market.
11
10/06/2009 19:37
 Investor Services Journal | European Custody Market Guide 2010
Market Overview
Market wisdom:
“There was a lot of emphasis on the new
pension fund industry in Italy when it was
launched after the 1993 reform, but it didn’t
really take off because of the mindset of
the population.” – Stefano Catanzaro, BNP
Paribas
Nordic region
The Nordic market is starting to pick up
in the downturn. For custodians, transaction
volumes declined after an October 2008 peak
though are now returning to pre-September
2008 levels. In Norway the short selling ban
is still in place. Danske Bank in Denmark
has a securities lending operation though
few banks have the facilities to engage with
the bank’s repo or share buy-back deals,
according to sources. The increase in the
cost of collateral is adding costs to custody
charges overall. Equities, particularly
large cap, have been favoured by many
institutional investors over more alternative
products.
In January 2009 four financial services and
securities bodies – the Federation of Finnish
Financial Services, the Danish Securities
Dealers Association, the Norwegian
Securities Dealers Association and the
Swedish Securities Dealers Association -
created a joint organisation called the Nordic
Securities Association. The body attempts
to harmonise regulation across the region.
In the same month, Euroclear Nederland
(NEC) and Finnish Central Securities
Depository (APK) terminated the link
between the two countries.
Greater liquidity and trading volume
has been introducted to the markets
following the establishment of new MTFs
12
ECMG 2009 1-21 Final.indd 12
and Burgundy – a platform owned by
a consortium of 12 Nordic banks – has
potential to boost the market.
Banks such as the Swedish firm SEB
continue to expand into the Baltic region
and Russia. At the end of 2008 the bank had
660 offices.
Market wisdom:
“In sub-custody, 2009 money will be
spent primarily on mandatory investments
following the reshaping of the Nordic
markets that follows the re-shaping of
the nordic markets that follows rom the
implementation of central counterparty
clearing” – Ulf Noren, SEB
Russia
Despite the inroads into the securities
services market by banks such as SEB, Russia
remains a challenge for foreign investors.
Just a few banks, such as ING, act as sub-
custodians for the global players, though
local players such as Rosbank and VTB are
gaining market share.
Perhaps most significantly, the country
still lacks a central securities depository
– one characteristic that tends to divide
‘developed’ and ‘emerging’ markets. Despite
talk since 1998, and a new provisional date
set for 2013, it is difficult to see the two
main depositories in the country – DCC
and the NDC – will be joined with a more
internationally friendly partner. No CSD still
puts a premium on trading, with assets held
in the name of the sub-custodian with their
registrars.
The lack of set regulation for corporate
actions remains another stumbling block. A
company is frequently only obliged to pay
dividends within the calendar year, rather
than the typical Western standard of 30
10/06/2009 19:37
 Investor Services Journal | European Custody Market Guide 2010

Market Overview

days. The market also still lacks a delivery-
versus-payment mechanism, though some
custodians make individual deals with their
sub-custodians.
Market wisdom:
“Foreign players don’t have enough
understanding of the local market because
traditionally they have only catered for the
global book” – Rami Bourgi, SGSS
company’s overview for 2008.
Market wisdom:
“In the face of a far-reaching liquidity
crunch, the stock exchanges have emerged
as a clear liquidity benchmark and a model
of reliability and transparency”
Antonio Zoido, chairman and CEO, BME n

Spain
The Spanish custody market is dominated
by Banco Santander, BBVA, BNP Paribas
and Citi, with additional service innovations
from RBC Dexia, although for the majority
of foreign players the country still represents
a tough nut to crack. Unless you are a
Spanish bank, or have more than a certain
number of people in the market or a
developed retail branch, options are few,
though there are no restrictions if you are a
global custodian holding Spanish assets for
clients domiciled elsewhere.
Pension pooling – where a large multi-
national brings together all its individual
country and regional pensions within a
single fund to benefit from the economy
of scale – is not yet a significant part of the
Spanish custody landscape.
The Bolsas y Mercados Españoles,
Sociedad Holding de Mercados y Sistemas
Financieros, S.A, or BME, the holding
company that has integrated the stock
exchanges, AIAF fixed income market,
derivatives market and the country’s
clearing and settlement systems, including
IBERCLEAR, is the largest market in the
world for corporate debt trading volume,
at EUR2.4 trillion, and the third largest
stock exchange in Europe, according to the

ECMG 2009 1-21 Final.indd 13 10/06/2009 19:38

 Investor Services Journal | European Custody Market Guide 2010
Legislation
IFRS 7 and the disclosure debate
Michelle Carroll at Kinetic Partners analyses the progression of disclosure
regulation and what it means for custodians
A s we currently all lurch our way through
finalising fund financial statements,
there are patterns developing regarding
disclosure. Making the appropriate amount
of disclosure has never been so keenly felt. I
am a fan of the principals guidance sup-
ported (ever decreasingly) by the Interna-
tional Financial Reporting Standards (IFRS).
But one man’s interpretation of “material
risk” is not necessarily another’s and this is
where animated debate can come to border
on being a marked waste of precious time,
where there is a lack of common direction as
to what appropriate disclosure means.
Specifically I want to discuss the qualita-
tive disclosures required under IFRS 7 and
the implications for custodians. Twelve
months ago, who would have thought
about custodian risk and IFRS 7 in the same
context. But today, post Lehman Brothers,
post Madoff, post Weavering, we are - or at
least we should be - thinking about what
disclosure we should be making regarding
all fund third party providers albeit, I don’t
think that IFRS 7 was ever written with the
intention of disclosing exposures to third
party providers.
14
ECMG 2009 1-21 Final.indd 14
In August 2005, the International Ac-
counting Standards Board (IASB) issued
IFRS 7 “Financial Instruments: Disclosures”
to be applied to investment funds for an-
nual periods commencing on or after 1st
January, 2007. No one at that time thought
this meant that the standard would apply to
exposure to prime brokers. The evolution of
funds disclosure shows how the interpreta-
tion of the funds’ risks has moved. Con-
centration risk was supposed to be about
geographies or instruments, not global
trading infrastructure.
In fund financial statements today, not
only are there realms of data regarding
specific financial instruments under IFRS 7
but there is also notes regarding the prime
“Twelve months ago,
who would have thought
about custodian risk and
IFRS 7 in the same
context”
broker relationship and the custodian rela-
tionship.
Paragraph 31 of IFRS 7 states that:
“An entity shall disclose information that
enables users of its financial statements to
evaluate the nature and extent of risks aris-
ing from financial instruments to which the
entity is exposed at the reporting date.”
It goes on to say that narration of how
that risk has been managed is also required.
And thus, where two years ago there may
have been only minor mention of third party
contractors, today’s accounts provide a much
fuller picture of the relationship as a risk to
10/06/2009 19:38
 Investor Services Journal | European Custody Market Guide 2010
“If the worst case
scenario were to
present itself, and
litigation were on the
horizon, I want to know
I have robust support in
place behind my deci-
sion not to disclose”
be managed, not as a provider of services to
the fund.
Although generally, third party contrac-
tors have been reluctant to disclose details
of remuneration or service level agreements,
the flip side is that in this more litigious
environment, a lack of appropriate disclo-
sure can be an extremely high risk and costly
omission. Particularly for those custodians
taking on dual roles, say acting as trustee or
prime broker.
As an example, I have not seen any fund
financial statements which disclose all the
sub-custodians or how the risks of the use of
the sub-custodian are managed. But should
we be asking ourselves, why not? I’m not
advocating disclosure of sub-custodian rela-
tionships but what I am advocating is that, if
the worse case scenario were to present itself
and litigation were on the horizon, I want to
know I have robust support in place behind
my decision not to disclose.
To make good, sensible disclosure, I think
the following helps bring things back to
grass roots. None of this is rocket science,
but with everybody re-writing disclosures
with their own agenda in hand, I think this
simple guidance makes sure that everyone
understands what is required.
The appropriate amount of disclosure is a
balance of:
• 1. providing useful information to the
users of the financial statements,
ECMG 2009 1-21 Final.indd 15
Legislation
• 2. meeting the relevant accounting
standards (in both letter and spirit),
• 3. not putting the fund at a disadvan-
tage by disclosing too much, but,
• 4. at the same time, not exposing the
fund if there were to be litigation by
disclosing too little.
There is an opportunity to use this
discussion of IFRS 7 disclosure as a way
of uncovering how comfortable directors
and management are with their providers
and the service level agreements (SLAs) or
contracts they have in place. Directors are
responsible for providing useful informa-
tion in the funds financial statements and if
they have a third party provider unwilling
to assist with this disclosure, maybe further
interrogation is required to ensure that the
best interests of the investor are being met.
Maybe these debates are not entirely without
merit after all. n
About The Author
Michelle Carroll
Expertise
Audit & assurance
Career summary
Before joining Ki-
netic Partners, Michelle
worked for Pricewater-
houseCoopers (PwC)
in Sydney and London,
specialising in assurance
reporting within the
investment management
industry in both countries. She has gained global
experience working in IM markets in Luxembourg,
Monaco and Bermuda. While at PwC she focused
on Corporate Governance, specifically controls
assurance reporting to support the growing
market demand for further transparency over
third party providers. Michelle’s specialist skills
include risk management and auditing of
investment funds, including reporting under
s404 of the Sarbanes Oxley Act.
t: +44 20 7862 0845
e: michelle.carroll@kinetic-partners.com
15
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 Investor Services Journal | European Custody Market Guide 2010
Service Styles
Bundle theory - fund services
The desire to offer the maximum
number of fund services to a client
has kept alove the market debate
surrounding the price and value of
bundled, or unbundled, custody.
Anthony Harrington gets market
insight.
T he drive towards cost control and value
for money by fund managers in all
sectors, from the pension funds to mutual
funds and even the hedge fund sector,
has been sharpened the losses sustained
through the downturn. In a buoyant
market there is less immediate concern
about the loss of one or two points; in a
falling market, every penny counts. This
has intensified the debate around bundled
versus unbundled services from suppliers.
16
ECMG 2009 1-21 Final.indd 16
Chris Adams, global product head,
alternative funds at BNP Paribas, has
responsibility for all the bank’s service
offerings to hedge funds. He argues that
the bundling/unbundling argument has a
degree of complexity to it. The old adage
that it is easier to sell seven products to one
client than one product to seven clients is of
course as true in this space as in any other.
But the more services a client takes from a
new service provider, the more the execution
risk involved in delivering those services,
particularly in the transition period from
one service provider to another, increases.
“In particular, with some of the large
outsourcing deals we have seen in the last
five or so years, the execution risk is massive.
For large multi national clients with multi
asset classes, and with significant numbers
of people involved, the level of consumption
of management attention, IT time, oversight
and governance is huge,” he says.
10/06/2009 19:38
 Investor Services Journal | European Custody Market Guide 2010
This provides an important context,
he suggests, to the natural desire of
service providers to deliver the maximum
possible portfolio of services to clients.
“The issue is, how do you get to this point
from start up? Some of the big deals in
the industry are still in the process of
migrating services five years into this
kind of all-in contract, and that is not
comfortable for anyone involved,” he says.
Trying to transact a transition
of this magnitude to a complete
bundled offering in one “big bang”
moment is phenomenally difficult.
He adds that another defining context
to the debate is that there are very few
asset managers who wake up in the
morning and say to themselves, “Wow,
I am really looking forward to working
with my service provider today!”.
In the real world the client wants the
service provider to be essentially invisible
as the service level agreement is achieved
100% of the time, and for the job to simply
get done at a reasonable price. However,
since clients always have a change agenda
of one sort or another, there are always
ongoing meetings with service providers.
The problem with the unbundled “best
of breed” approach, he suggests, is that
it is self evident that from the client’s
standpoint, interacting with seven service
providers is much more complex and has
much more of a management overhead
associated with it, than dealing with one
provider. Moreover, identifying the source
of an error can be vastly more complex
when there are multiple service providers.
Another point, he says, is that “other
things being equal, clients will get a better
price for each service with a bundled set of
services.” Moreover, there are some services
that will just not be on the table unless the
client has taken a bundle of services. In BNP
Paribas’s case, this might be maintaining
the shareholder register, for example. “We
know what we need to receive to make an
ECMG 2009 1-21 Final.indd 17
Service Styles
“Some of
the big
deals in the
industry are
still in the
process of
migrating services five
years into this kind of
all-in contract”
Chris Adams,
BNP Paribas
acceptable return, based on the cost and the
risk of delivering particular services and
there are some that are just not economical
in and of themselves as sole services,” he says.
Bank of New York Mellon (BNY Mellon)
provides tailored services for hedge fund
and prime brokers, financial institutions and
pension funds. Staffan Ahlner, who heads
up the BNY Mellon’s global collateral team,
says that people have been “taking a hard
look at bundling” both from the client and
from the service providers’ perspective.
“In particular, what is driving this
is that the traditional assumption
that profitable activities would pay
for less profitable activities is having
to be rethought as a consequence of
changed market circumstances,” he says.
Declines in profitability of traditionally
profitable areas have caused service
providers’ profitability models to falter.
Daron Pearce, head of UK and Ireland
at BNY Mellon Asset Servicing says that
what investment managers are looking for
from supplier relationships is simplicity
and control. “We can simplify their
17
10/06/2009 19:38
 Investor Services Journal | European Custody Market Guide 2010
Service Styles
arrangements and structures and make
their lives easier. However, we should not
pretend that operational matters are always
top of their agenda,” he says. Pearce argues
that it is perfectly possible to provide fee
transparency in a bundled arrangement.
“We quite often have bundled
arrangements but very transparent, unitised
fee arrangements. Even where you have
dynamic drivers for costs, such as transaction
volumes and reporting frequencies, you can
still get a very clear sense of the charging
structure in a bundled service,” he says.
BNY Mellon has a broad, sophisticated
asset servicing product capability, and no
two clients will take exactly the same mix of
services, so even in a bundled arrangement
there is a lot of tailoring, he points out.
Mark Westwell, senior vice president
and head of customer management in
the UK for State Street, says investment
managers want the bill they receive at
the end of the month to be relevant and
compatible with the service they receive
and with the types of fees that their
peer groups are paying in the market.
“One of the big changes we are seeing is
the move from segregated funds to pooled
vehicle portfolios. Where funds used to
invest directly into the markets, they are
now moving to buying units in pooled
vehicles and this changes the nature of the
service provision,” he says. Traditionally
State Street would have earned part of
its fees from custody provision, but that
falls away in a pooled investment, so
the pricing dynamic has to change.
Similarly, State Street and other providers
are seeing much more of a move by
investment managers to OTC derivatives
trading. “Many of the historic fee structures
in place did not reflect the right pricing for
this new approach,” he says. As growth in
OTC derivatives increases, there is much
more demand for collateral management
services, and that in turn changes the
18
ECMG 2009 1-21 Final.indd 18
dynamics of the price agreement between
service provider and client. “We have also
seen a considerable growth in passive
hedging strategies by pension funds to cover
their global equity investment exposure,
since their liabilities are in Sterling,” he adds.
At the same time, there has been a very
sustained growth in interest in performance
measurement and risk management services.
“How does all this flow back to service
pricing? Clearly some of the traditional
pricing approaches are no longer as
appropriate as they were,” he says.
“Where funds used to
invest directly into the
markets, they are now
moving to buy units in
pooled vehicles”
Mark Westwall,
State Street
Every service provider with an interest
in developing their own business will
naturally look at their relationship with
every client from the standpoint of that
client’s impact on the provider’s P&L. So if
whole tranches of fees drop away because
of changes in the client’s investment model,
the providers costs will increase and some
difficult conversations will have to take place
to ensure that the relationship returns to a
suitable level of profitability for the provider.
While clients have a natural interest
in finding the lowest fee structure that is
compatible with the standard of service
that they are seeking, it is a foolish
manager indeed who diverts energy into
trying to cut the supplier’s revenue to
the bone. This is an industry that needs
sophisticated support and that does not
come free, bundled or unbundled. n
nor
10/06/2009 19:38 32051_
 Nordea Bank
Custody services with
a broader horizon
Are you looking for a single point of entry to the Nordic and Baltic region? Or do you
have your eyes set on a specific local market? Nordea is the leading Nordic custodian and
the only truly Nordic player with well-established banks in Finland, Denmark, Sweden and
Norway as well as a strong presence in the Baltic countries.

A dedicated relationship manager supported by a specialist team will always be able to offer
you a winning combination of regional competence and local insight. Our size, experience
and connections with key players make us a sustainable provider in the evolving Nordic and
Baltic securities markets.

To capitalise on our expertise, please contact

Ms. Anne-Lise Kristiansen, tel +47 2248 6238, email: anne-lise.kristiansen@nordea.com,
Ms. Nina Groth, tel +45 3333 6124, email: nina.groth@nordea.com or
Mr. Teemu Pihlatie, tel +358 9 165 51008, email: teemu.pihlatie@nordea.com.

nordea.com Making it possible

ECMG 2009 1-21 Final.indd 19 1

32051_Custody_148x210.indd 10/06/200916:05:28
19.12.2008 19:38
 Investor Services Journal | European Custody Market Guide 2010
New Architecture
Technology challenge
Amid wider trading innovations, custodians must also ensure they have
the best systems, writes Robert Mattsson Axen of Nordea
T here are a number of challenges for the
custody business which put pressure
on one of the most vital parts of our way
of performing and serving as custodians:
our technology. The world is changing
at a very high pace. This puts pressure
on all custodians to further develop their
technological and infrastructural capabilities.
Evolving market
We see a world where new MTFs pop-up
with new technology and the old regulated
exchanges are switching their trading
platforms to new ones. On the CSD level we
see plans to switch, develop and change the
infrastructure. T2S is reality in just a couple
of years, and in at least Sweden and Finland
we will join Euroclear’s Single Platform. We
see that CCPs are entering the new markets
like the Nordics. And clearly, if SWIFT’s
new XML standard messaging and format
20
ECMG 2009 1-21 Final.indd 20
ISO20022 will pick up speed these new
solutions will definitely affect the securities
industry in the future. We also see a greater
service demand from our clients, together
with regulators, requiring more information
and reporting. Simultaneously there is a
pressure to lower the price for the services
delivered. Last but not least, we should
never lose track of all necessary controls and
processes that need to be in place in order to
keep the operational risks to a minimum.
All in all, as custodians sit in the
middle of all this, it requires technologies
that are up to the task. Custodians
need systems that are prepared to
survive in an ever-changing world.
Generally custodians use in-house built
systems that have been developed during
a number of years, including masses of
knowledge and functionality, and to a great
extent they are very efficient with low cost.
But often these systems are developed
in a world that evolves in a fairly stable
10/06/2009 19:38
 Investor Services Journal | European Custody Market Guide 2010
fashion. The world we see now is where
you would like to use the important
components and features (stable,
efficient and with low running cost)
with new appended features. These new
attributes are speed and flexibility.
In summary we already know that there
will be changes, but not in more detail what
the changes will be. Therefore it is important
that a custodian has considered and solved
the following characteristics regarding
technology in the next coming years:
“Custodians need systems that are prepared to
survive in an ever-changing world”
Connectivity
With a number of changes in the world
around us, custodians need to ensure
that they have good connectivity and
integration possibilities both externally but
also internally. SWIFT is usually the main
communication channel for custodians, but
in order to adapt to both the infrastructural
changes and the demands from clients
as well as other stakeholders, custodians
need to have platforms that offer other
integration possibilities at the same time.
Flexibility
Integration is a key part, but also
flexibility in the system. You need systems
that can adopt to a changing environment,
where probably your internal processes
and procedures need to change and the
technology has to support that. Your clients
and also the regulators will require new type
of information and reports. Depending on
your clients this could vary and the systems
need to be flexible to cope with this.
ECMG 2009 1-21 Final.indd 21
New Architecture
Speed
Speed in the custody world is not the
same thing as for front office. For us there
are two areas where speed is important
and where our systems need to support
our business with. First, it is how fast we
as a custodian can adapt to a new business
environment and the requirements on
our business. Second, it is how fast we as
custodian could find potential problems
and resolve them. This is what we require of
our systems ie changes can be implemented
quickly and that the systems support our
personnel to find and sort out open issues.
The custodians already have a system
like this in place or have technology
providers delivering this type of solution
to a relative low cost will be the winners
in the years to come. A very important
issue regarding technology in the coming
years is how you manage to get to a IT
cost structure that could adapt to the
new changes and challenges - ie, how
you could move from a normally high
fixed IT cost to a variable cost base.
In general, the custodians and technology
providers that succeed to be on top of the
infrastructural changes and challenges will
definitely have a more pleasant journey.n
About The Author
Robert Mattsson Axen has 20 years experi-
ence in financial services. He has worked in
positions in product development and client
relations for banks, broker dealers and service
providers. Prior to joining Nordea he was
responsible for OMX Front Office products
worldwide.
21
10/06/2009 19:38
 Investor Services Journal | European Custody Market Guide 2010
Central & Eastern Europe
Eastern wisdom
SEB examines the investment environment of a number of Central
& Eastern European markets and assesses their potential as custody
service markets
S EB is a major European provider of
Custody Services with a strong grip of
the four Nordic Markets (Denmark, Finland,
Norway and Sweden) and has established a
presence in the Baltic custody arena since
2000. The bank enjoys a dominating market
share in Lithuania and between 35% and
40% market share in Estonia and Latvia,
following several major mandate wins the
last two years. In 2006 SEB established
Custody Services in Ukraine where rapid
growth has taken SEB to a top-four position
in the market and the latest addition in the
CEE is Russia where SEB started up in 2008.
SEB is among the six largest providers of
sub-custody services also in the Russian
market. This growth in all five CEE markets
we service is primarily coming from the
need of the clients to have a model where a
regional assimilation of services, expecting
the service levels and level of commitment
in the CEE to mirror those of the Nordics
From a custody perspective, all three
Baltic markets are small with a market
cap far less than EUR15 billion.
The major infrastructure investments
in the three Baltic markets was taken in
connection with OMX’s acquisitions of the
exchanges and central securities depositories
(CSD) and no major investment has been
made in infrastructure lately. The markets
function well and international investors
will easily feel themselves as home here as in
any developed Western European market.
22
ECMG 2009 24-32 Final ML.indd 22
We see a lack of consistent regulatory
environment, an absence of asset
servicing guidelines, very strict and
cumbersome documentary needs,
lack of a DVP-environment, obstacles
relating to currency regulation and
the comparably instable political
environment. Paired with a somewhat
un clear attitude towards international
investor protection, the challenges are
manifold and not solved over night.
Ukraine
In Ukraine, the expected consolidation
of the exchanges and trading platforms is
slow but consolidation of trading volumes
have already happened to a great extent.
The creation of a CSD with real CSD
features is very good news and key to the
market. SEB, together with ING, Citi and
Unicredit, has established a forum for best
market practice and nourishes high hopes
for this forum to make a difference in
introducing further internationally accepted
mechanisms into this interesting market.
We expect the Ukrainian market
to add more foreign suppliers to the
pamphlet and that a consolidation will
only happen once the market has reached
more of its full potential. SEB has a very
experienced, passionate and energetic team
in Kiev that in many areas nare driving
the market although the banks history
10/06/2009 18:16
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 Investor Services Journal | European Custody Market Guide 2010
Central and Eastern Europe
in Ukraine is comparatively short.
Russia
SEB started Russian sub-custody in
St Petersburg in August 2008. SEB is a
full service provider and we have put
substantial focus into building superior
Asset Servicing capabilities as:
• Corporate governance issues
are still a concern
• Non-contractual, manual, time-
consuming and labour-intensive
• No single source of information
(issuers, “de facto” CSDs,
data-vendors, mass media)
• Dividends can be paid annually
and quarterly
• No pay date, no ex date principles
(payment period is in place)
• Record date determines entitlements
• No automated electronic data feed
• Claims of entitlement is not supported
by market infrastructure
An equally important factor has been
to cater for an organisation that to an
unusually great extent focus to mitigate
the major market risks. In order to do that,
a major study pre-opening identified and
outlined ways to mitigate the following risks:
• Absence of a CSD
• Absence of a foreign nominee concept
• Manual registration process and wide
geographical distribution of registrars
• No centralised source of corporate
actions information
• No true DVP, offshore
settlements in USD
• No fixed settlement date for equities
• Delays in dividend payments
• Proxy Voting – no split bulletins
• Tax Exemption/Reclaim processes
24
ECMG 2009 24-32 Final ML.indd 24
A lot of the international focus the past
6-7 months have been on the economy
in the CEE states and the degree of
problems they are running into in trhe
midst of this unprecedented crisis.
Economics in focus
The problems in Central and Eastern
Europe will not be easily resolved,
despite bail-outs from the IMF and
others. CEE is the region of the world
that has been hit hardest by the global
credit crisis and recession. One major
reason is that for a relatively long time,
economic growth was based on credit
expansion and borrowing in foreign
currencies. A continued credit crunch –
mainly due to contraction of financing
channels from the West – will have
increasingly adverse effects on investments
and consumption. The economic
downturn will thus be pronounced during
2009, especially so in the three Baltic
Markets and Ukraine. These four markets
are countries characterised by large
external imbalances. They have very
large financing needs, after often
explosive credit growth. The share
of total borrowing denominated in
foreign currencies is very high.
Standing outside this gloomy picture is
commodity producer Russia. The region’s
largest economy entered the current crisis
with sizeable budget and current account
surpluses, which will turn into deficits this
year due to lower energy prices. Russia, too,
experienced a rapid build-up in private debt,
but foreign loans represent a reasonable 30
per cent of total borrowing. The banking
system is backed by the government’s
strong financial resources, but smaller
privately owned banks are under pressure
and some of them may not survive. more.
10/06/2009 18:16
 Investor Services Journal | European Custody Market Guide 2010
A bit more on the Baltics
Because of the acute crisis, Central and
Eastern Europe need various forms of
help from the IMF, EU and individual
Western European countries to sustain
their financial systems. The G20 meeting in
early April manifested a desire to provide
expanded aid to vulnerable economies via
the IMF and other channels. The financial
systemic risk has decreased. The region’s
economies will remain sensitive to shifts
in general risk appetite in the financial
markets as well as continued downgrades
in the credit ratings on their borrowing.
The recession in the Baltic countries
will be very deep and lengthy. The
global outlook has darkened and their
competitiveness has weakened further.
Currency depreciations elsewhere in Central
and Eastern Europe, as well as in Sweden –
which is an important market for Estonia
– are squeezing exports. Meanwhile the
Baltic governments are continuing their
painful austerity policies; in Estonia and
Latvia further fiscal tightening measures
are on the way. The Baltics are combating
economic imbalances by means of pay
and price cuts, or “internal devaluation”.
Certain leading indicators have admittedly
shown clear signs of stabilisation in
recent months. This is mainly true of
household optimism. In manufacturing,
however, indicators have continued their
slide and remain at record-low levels.
This means that no economic recovery is
imminent, although GDP declines will slow
during the second half of 2009. We expect
Estonia’s GDP to fall by 12% this year and
2.3% in 2010. Latvia’s economic slide will be
in the same range: 14 and 3%, respectively.
Lithuania’s downturn will be 9 and 3.5%.
These economic collapses are a reaction
to previous overheating, which was driven
by exploding credit and property markets,
most accentuated in Latvia and Estonia.
ECMG 2009 24-32 Final ML.indd 25
Central and Eastern Europe
“The region’s economies
will remain sensitive
to shifts in general risk
appetite in the finan-
cial markets, as well as
continued downgrades
in the credit ratings on
their borrowing”
Because of the drastic downturn in domestic
demand, the two fundamental imbalances in
the Baltic economies – large current account
deficits and high wage-driven inflation –
will ease. This trend has already made some
headway, especially in Estonia. Current
account deficits, which stood at 9-13% of
GDP in the Baltics last year, are rapidly on
their way down. The main reason is that
imports are now falling more than exports.
Our main scenario is still that internal
devaluation will continue and that the
Baltic currency pegs will hold up. This is
based on the assumption that the countries
will continue to receive international
(IMF, EU and individual EU countries)
support for their fixed exchange rates. The
IMF is expected to accept a 2009 budget
deficit in Latvia of up to 7% of GDP,
somewhat larger than the 5% maximum
it had stipulated earlier; this requirement
had been set as Latvia’s policy response
when the country received a large bail-out
loan package from the IMF, the EU and
individual EU countries late in 2008.
After being temporarily suspended,
the loan programme can thus resume. As
part of this compromise, the government
will implement further large budget
cuts. Lithuania, too, is increasingly in
need of an IMF/EU bail-out. n
25
10/06/2009 18:16
 Investor Services Journal | European Custody Market Guide 2010
Market Player Profile
Russian market player: Sberbank
S berbank of
Russia is a
unique enterprise
in many senses.
We have got a
history we are
deservedly proud
of, a great credit of trustworthiness from
our customers and the society as a whole,
a powerful infrastructure and client base,
qualified and experienced staff. The scale
of operations of Sberbank makes it one
of the biggest banks in Europe. This is the
basis that enables our future growth and
development, along with possibilities and
potential for Sberbank’s further successful
evolution, linked mainly with its strong
competitive position in the Russian market.
Sberbank Custody Services Department has
been active since the introduction of this type
of services appeared in the Russian Federation
in 1997. We are one of the largest banking
custodians in terms of volumes of assets
under custody and the number of customers
served. We offer to our clients - both residents
and non-residents of the Russian Federation
- a full suite of custody services for Russian
and foreign securities. Rendering custody
services to our clients, we use individual
approach and high quality products,
including value added services, and more.
We graduate our tariff policy at a maximum
level, taking into consideration prime cost
of operations on accounts of our customers.
One of our main features is that due to the
size and shareholder structure (almost 60%
of Sberbank’s shareholder capital belongs
to the State) we carry a so called ‘social
function’, and offer retail custody services
all over the country, across 11 time zones.
Information:
Sberbank Custody Services clients can
physically deliver instructions and receive
reports in more than 900 Sberbank branches
26
ECMG 2009 24-32 Final ML.indd 26
(out of more than 20,000 outlets) from
Kaliningrad region to the Far East.
As of 1st May 2009 Sberbank
Custody Services attends to more
than 257,000 custody accounts.
We split tariffs for custody services
rendered to legal entities and individuals. In
our business we never practiced averaged or
generalized tariffs such as flat fee for complex
custody per monthly, quarterly or annual
services. Our credo is: ‘every customer pays
only for those services which were rendered
to’. We understand that if we choose a complex
custody tariff structure, it brings additional
complexity in determining cost of operations
fulfilled, as well as in automating the process
of calculation and invoicing to our clients.
Nevertheless, when we choose between the
notions “labour-intensiveness” and “quality
of services”, our choice remains “quality”. The
quality and transparency in servicing our
customers – is one of the main tasks we face.
If we look at Sberbank’s tariffs for custody
services we see the varied approach towards
establishing fees for different types of
operations. For example, for operations that
change the balance on customers’ depot
account, there are eight various tariffs,
depending on type of operation fulfilled:
internal transfer; change of position resulting
trades at organised securities market; roll out
of securities from custody; delivery versus
payment operation; operation on exchange of
Sberbank’s promissory notes; encumbering
of promissory notes for settlement;
encumbering of securities on credit
agreements; fulfillment of steady instructions.
Our invoices contain detailed descriptions
of clients’ operations and fees due in
accordance with custody tariffs. When
necessary, on customer request, we prepare
fully detailed invoices free of charge. It
reflects all the operations for every day
during the period of the main invoice.
As a separate expense item we provide to
10/06/2009 18:16
 Investor Services Journal | European Custody Market Guide 2010
our customers the calculation of our direct
costs charged by the registrars, transfer agents
and other custodians or depositories for
the fulfillment of customers’ instructions.
These expenses are reimbursed to Sberbank
by the customers additionally in accordance
with tariffs of the third parties - providers
of services based on separate invoices.
Sberbank Custody Services applies a special
approach to customers with considerable
volume of assets in custody. For this category
of client negotiation, mutually profitable
tariffs are determined, what is fixed in
additional clauses to the custody agreement.
For the developing securities lending
market in Russia, it is possible to use
discounts from basic tariffs for safekeeping
of securities that can potentially be lent.
Legal issues are a substantial problem - in
particular, on participation of shares lent
in general shareholder meetings, as well as
corporate action income rebate by borrower.
Though mutual relations of the counter-
parties on voting and income rebate matters
are subject to bilateral agreements, there are
no standards in the Russian Federation in this
field, making securities lending a rather difficult
process. In terms of corporate action there are
certain risks of non-fulfillment of rights on
securities lent – that is, the right of vote at the
shareholders meeting, the right on dividends
or other distribution on securities, etc.
Sberbank of Russia has a wide country
network and renders custody services all over
the Russian Federation in 11 time zones. Taking
this into consideration as well as non-uniform
development of the Russian regions, Sberbank
offers various tariffs for custody services
depending on a particular territory of a region.
Despite the broad network the tariff policy
of Sberbank in terms of custody services (types
of services, cost of operations) is set in the head
office. Regional branches of Custody Services
are liable for their tariffs within established
“forks”. Regional branches are free to run their
individual tariff policy for their local customers.
All this is aimed at finding an
ECMG 2009 24-32 Final ML.indd 27
Market Player Profile
individual approach to every client
and meet understanding and vital
interest among our customers.
This “complex” tariff structure is possible
due to usage of centralised Automated
Informational System “Depositary”
(in-house product of Sberbank). This
assures strict observation of the legislative
requirements to custody services
established in the Russian Federation.
This software has got very high degree
of protection and fidelity. Information
safety measures represented in the system
correspond to the highest standards and
ensure safekeeping and confidentiality.
Automated Informational System
“Depositary” combines the databases of
all outlets rendering custody services.
It enables custody services officers in
the head office to perform operations
on all depot accounts opened in
anywhere in Russia in online mode, as
well monitoring custody operations
performed in the regional branches.
Sberbank Custody Services concentrates
on achieving the optimal balance between
competitive tariffs and high quality services
to ensure satisfaction of active customers
and to attract potential ones. Its personnel
constantly perfect their skills and analyse
existing services and tariffs of competitors
in order to offer their own models of
quality products to customers.The main
sources for development of competitive
advantages in custody services are a
combination of manpower and abilities in
coverage of client base. At the same time
we constantly improve technologies and
products, ensure maximum efficiency in
taking decisions, simplify paper flow and
develop electronic document circulation.
We try to be client-oriented at all times.
Our team, which has developed through
years of hard work, shares common set
of values. These values aim at perfection,
respect to tradition, professionalism and
esteem to our customers’ interests. n
27
10/06/2009 18:16
 Investor Services Journal | European Custody Market Guide 2010
Company Profile
Erste Group
Erste Group was founded in 1819 as the
first Austrian savings bank (“Erste oester-
reichische Spar-Casse”). In 1997, Erste
Group went public with a strategy to expand
its retail business into Central and Eastern
Europe. Erste Group’s customer base has
grown through numerous acquisitions
and organic growth from 600,000 to 17.2
million, of which 16.2 million clients are
citizens of the European Union and benefit
from the stable EU regulatory
framework.
Having always focused on retail and SME
business, today Erste Group is one of
the largest financial services providers in
Central and Eastern Europe in terms of
clients and total assets.
Erste Group offers a full range of securities
services to its large domestic and interna-
tional institutional customer base. This
includes custody services, corporate action,
income and information services, stock ex-
change clearing services, tax reclaim, proxy
voting, etc.
Looking for a first class custody provider in
Austria, Czech Republic, Slovakia, Hungary,
Romania, Croatia or Serbia you should
28
ECMG 2009 24-32 Final ML.indd 28
contact:
Alexander Schleifer,
Head of Custody Services
Email: Alexander.schleifer@erstegroup.com
Tel. + 435010015146
Gertrud Hadrany, Relationship Management
Email: Gertrud.hadrany@erstegroup.com
Profile – Alexander Schleifer
Alexander Schleifer has been Head of Custody
& Network Management since January 2003.
He joined Erste Group in 1994 (which was at
that time GiroCredit Bank AG) and started to
work
in the custody services unit. From 1998 on
Alexander Schleifer held various manage-
ment roles
within securities back office operations, is
member of various market working groups
and now
promoting the sale of the Austrian and CEE
custody business of whole Erste Bank Group.
10/06/2009 18:16
 Investor Services Journal | European Custody Market Guide 2010
“The Trusted Provider of Global solutions
in Custody, Corporate Actions and Wealth
Management”
Information Mosaic (IM) was established in
1997 and today leads the market for corporate
actions and custody solutions to the invest-
ment services industry.
IM was founded 11 years ago to address the
needs of investment services organisations
seeking to support their client’s global invest-
ment business from a single, consolidated
platform. The company is headquartered in
Dublin, Ireland and serves its European, Asian
and North American customers from its offices
in Luxembourg, London, Singapore, New York
and Boston. IM brings to market new low cost
of ownership technology solutions for global
corporate actions and custody processing that
scale. IM has built up a significant client base
of the largest global and domestic custodians,
sovereign wealth funds and large asset manag-
ers. Six of the top ten global custodians now
use IM solutions globally.
Products:
Information Mosaic has invested consistently
in product development since inception on
modern scalable technologies. Among Infor-
mation Mosaic’s product’s are:
cama™ - is a global, end-to-end, corporate ac-
tions solution, is a three-time winner of B.I.S.S.
Research’s best overall platform award and
winner of the 2008 corporate action system.
converg-e™ - is an investment accounting and
custody system designed for today’s global
investment services business. converg-e™’s
inherent multi-currency design lets you oper-
ate your business and service your clients any-
where in the world from a single, web enabled
platform.
Our Services:
Information Mosaic provides a range of ser-
vices to clients on a global basis, including our
SAS 70 compliant ASP services. By utilising our
own hosting facilities and industry recognised
ECMG 2009 24-32 Final ML.indd 29
Company Profile
Information Mosaic
hosting partners, together with ISO17799
aligned security procedures and ITIL/
ISO20000 aligned service delivery processes, we
have created a blended ASP offering for all out
products, which can support all phases of the
implementation lifecycle, to a full production
operation.
Offices:
EMEA Director of sales Grace O’Donnell
Information Mosaic
Styne House,Upper Hatch Street, Dublin 2,
Ireland
T: +353 1 241 5200 F: +353 1 241 5201
E: godonnell@informationmosaic.com
US: Kevin Cullen
E: kcullen@informationmosaic.com
T: +1 646 495 5350
UK: Elaine Mullan
E: emullan@informationmosaic.com
T: +1 44 207 477 65 74
Singapore: Deirdre Jennings
E: djennings@informationmosaic.com
T: +65 6829 7638
Luxembourg: Alain Leyder
E: aleyder@informationmosaic.com
T: +352 26 25 7770
Profile – John Byrne
John Byrne has over 20 years experi-
ence in the IT industry, co-founding
one of Ireland’s first university campus
companies in 1985 directly after
graduating as an electronic engineer.
He helped build-up this Company to be a European leader
in its field in the power automation sector and successfully
sold out of this business in 1995. He founded Information
Mosaic in 1997 to develop Internet applications in the
Capital Markets sector.
29
10/06/2009 18:16
 Investor Services Journal | European Custody Market Guide 2010
Company profile
Kinetic Partners
Kinetic Partners is a global professional
services boutique focused exclusively on the
asset management industry.
We provide a full range of audit and
assurance, tax, consulting, forensic,
corporate recovery and corporate finance
services. Operating as one seamless team
and structuring our business around client
needs, we are well positioned to provide
innovative solutions to the entire asset
management industry.
We advise over 750 clients, including many
of the world’s largest hedge funds and
traditional asset managers. Established in
2005, Kinetic Partners now operates out of
London, Dublin, Grand Cayman, New York
and Geneva.
Our unique focus makes us less susceptible
to conflicts of interest and enables us to
deploy highly experienced professionals in
a targeted, efficient yet flexible manner. A
global firm, we operate as a seamless team
with a single point of contact for clients,
reacting rapidly while avoiding duplication
of effort.
For our experienced project leaders, quality
of service delivery is paramount, ensuring
that only appropriate personnel are de-
ployed and that communication is empha-
30
ECMG 2009 24-32 Final ML.indd 30
sized. This has been recognised through our
award for ‘Best Consulting Firm in Ireland
and Cayman’.
Our multi-disciplinary team of senior pro-
fessionals is drawn from regulators, financial
institutions and major professional services
firms around the world. It consists of experts
in all aspects of fund operations and
distressed situations, including:
n Regulatory consulting and compliance
n Stock Exchange Listing and corporate
finance advice
n Audit and accounting
n Tax advice
n Operational risk and governance
n Forensic accounting and investigation
n Litigation support and expert witness
n Liquidation/restructuring
For further information visit
www.kinetic-partners.com
Iveagh Court, Floor 5, Block D,
Harcourt Road, Dublin 2, Ireland
t: 353 1 475 0520 f: 353 1 475 0376
w: www.kinetic-partners.com
e: info@kinetic-partners.com
10/06/2009 18:16
 Investor Services Journal | European Custody Market Guide 2010
Nordea
Nordea is the leading financial services
group in the Nordic and Baltic region and
operates through three business areas:
Nordic Banking, Private Banking and
Institutional & International Banking.
Nordea is the leading custody services
provider in the region. Nordea provides high
quality, tailor-made custody services for
local and foreign investors dealing with
Nordic and Baltic securities.
Due to the unique history of being formed
from four established banks, Nordea is the
only Nordic custody provider with strong
local presence and expertise in all four
markets. Nordea combines Nordic compe-
tence with local expertise, and has proven
ability to deliver high quality services that
meet both clients’ and each local market’s
requirements.
Nordea is the clear market leader in the
region with more than EUR420 billion in
assets under custody and almost 27 million
cleared transactions in 2008. We have the
largest market share in the Nordic region as
well as the largest client base of all Nordic
players, which provides clear evidence of
capabilities to deliver high-quality services
across the markets.
ECMG 2009 24-32 Final ML.indd 31
Company Profile
Leading Nordic custodian:
• Critical mass and resources available
• Deep local experience and active in-
volvement in each Nordic market
• Complete operational capabilities and
best-fit systems developed in each
Nordic market
• Proven ability to deliver high-quality
service in all Nordic markets
• Excellent connections with key players
in all Nordic Markets
• Extensive product and service offering
• Your single point of entry to the whole
Nordic region
Contact:
Nina Groth
Head of Sub-custody and Clearing
Tel: +45 3333 6124
E-mail: nina.groth@nordea.com
31
10/06/2009 18:16
 Investor Services Journal | European Custody Market Guide 2010
SEB
SEB is a leading provider of custody services
in the Nordic region as well as Central and
Eastern Europe. SEB is committed to cus-
tody and clearing processes for the wholesale
market and holds securities worth over EUR
360 billion in more that 75 markets. We offer
a full range of custody services, including
clearing and settlement, corporate action
and information services, securities lend-
ing and services to remote members of the
Nordic and Baltic stock exchanges.
Key Services
SEB acts as sub-custodian in 10 markets
- Denmark, Estonia, Finland, Germany,
Latvia, Lithuania, Norway, Sweden, Russia
and Ukraine. SEB constantly reviews oppor-
tunities to expand its Northern and Eastern
European service offering. The regional
model covers all sub-custody markets with
one contract, the use of one single country
adopted IT system in the Nordic markets as
well as the web based tool C&I Online pro-
viding real time access to securities and cash
transactions and portfolio information.
A Client Relationship Manager, with the
support of local client service teams, is in
control of every client relationship. The
prime fields of service provision are:
a) Post Trade Settlement and Clearing
Services, including the Remote Membership
Agent role, Tri-Party Remote Membership
Services, GCM Services and OTC Settle-
ments.
b) Asset Servicing, including Corporate Ac-
tions, Voting, Income and Tax Services.
c) Reporting: The use of one system across
the region gives a consistency in the SWIFT
reporting that is unsurpassed in the region.
SEB also supports alternative communica-
tion to SWIFT and more than 1 million
transactions per year are now handled via
MQS communication. Use of various file
32
ECMG 2009 24-32 Final ML.indd 32
Company Profile
solutions are also increasingly sought for
and SEB supports as of now five different
solutions in this field. The MIS report is
distributed as one file for the four Nordic
markets and the C&I Online tool is used by
nearly 20 percent of our client base, provid-
ing an additional safeguard for reconcilia-
tions, alternative instruction processing and
contingency use.
d) A quickly growing role as International
Paying Agent across the region in addition to
a registrar role where applicable.
SEB processes around 27,000,000 settlements
yearly on behalf of its sub-custody client
base and has Assets under Custody of SEK
1.7 trillion for this client segment.
Other key contacts:
Göran Fors,
Global Head of Custody Services
goran.fors@seb.se +4687635304
Kenneth Draegert Nielsen, Global CRM
kenneth.draegert.nielsen@seb.se
+4687635822
Johan Furugård, Global CRM
johan.furugard@seb.se +4687635179
Eric Molander, Global CRM
eric.molander@seb.se +4687635448
Yvonne Siljelöf, Global CRM
yvonne.siljelof@seb.se +4687635477
Tamara Kokic, Global CRM - Compliance
and Legal
tamara.kokic@seb.se +46-8-7635828
Group Address: globalclients@seb.se
Key Locations: Denmark, Estonia,
Finland, Germany, Latvia, Lithuania,
Norway, Sweden, Russia and Ukraine.
10/06/2009 18:16
e)

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09 15:50 ECMG 2010 cover.indd 3 10/06/2009 18:21

 FROM MILAN TO HONG KONG,
WE STAND BY YOU
WITH AN INTERNATIONAL SERVICE PLATFORM.

“As well as the tools we provide for our clients, we have the structures to support their international
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