Custodian Banks and CSD Interaction Asia Pacific Central
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 Investors Buy Hold Lawyer Sell Funds (Fund Manager) International Brokers Banks (Global Custody) Banks (Local Custodial) Members Local Brokers Banks Brokers Depository 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 · Safekeepingof ofassetsthrough thethe depository. Local Custodian Bankmirrors depository holdings in internal books and report books andtoreport clientsto clients · Reconciliation ofof. CSDand local custodian bank records · Receipt anddeliveryofofsecurities, after matching client instructions totocounterparty instructions counterparty allegement andand market settlement · Forex conversion foreign institutional investors · Cash payments and receipts, linking them to securities · Transaction/portfolio/cash reporting in specialised SWIFT formats SWIFT · Corporate actionreporting/administration · Dividend andincomecollection · Proxy services · Take-up of ofrightsand andbonus 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 17 F-5/17 F-7 · Rule 17 f-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 17 f-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 17 f-5) that contracts directly with the fund to provide custodial services foreign assets 5 PUBLIC
Risk management · Thomas Murray Depository Review and Risk Evaluation – Asset Commitment Risk – Counterparty Risk – Liquidity Risk – Asset Safety Risk – Asset Servicing Risk – Financial Risk – Operational Risk – Governance and Risk and. 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% A 4% 1 AA Very low risk AA- Very low risk 1 AA 7% 2 A 18% 5 A+ Low risk A- Low risk BBB Acceptable risk BB Less than acceptable risk 7 AA 26% 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 Indonesia · Indonesia Association of Custodian Banks Japan · Business operations committee – 10 Sub-committees and SM PG Thailand Vietnam Singapore · 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 Philippines 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
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