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2008 | Book

A Brief History of Custody Read chapter Read first chapter

Global Custody and Clearing Services

Authors: Ross McGill, Naren Patel

Publisher: Palgrave Macmillan UK

Book Series : Palgrave Macmillan Finance and Capital Markets Series

Part of: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft"

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About this book

The global custody product was conceived out of changes to United States pension law. Today, service providers act for clients in many countries worldwide, handling assets across 100 countries of investment. The range of services is ever more sophisticated. Measured by the value of assets held under custody, it is a multi trillion dollar industry.

Table of Contents

Frontmatter

An Introduction to Custody & Clearing

Frontmatter
Chapter 1. A Brief History of Custody
Abstract
We cannot go into the detail of custody and clearing services without giving first some sense of context and history to the subject matter. The industry has been formed by people not by theory and it is these characters that have brought us to the current position of the industry.
Ross McGill, Naren Patel
Chapter 2. Custody Today
Abstract
In the “old days”, as we’ve seen, custody was predominantly about the core service of looking after the physical evidence of a client’s ownership in shares — the certificate — together with one or two added value services tacked on. Today, in the twenty first century, custody is a highly sophisticated product. With the dematerialisation of assets, the certificates have, for the most part, gone, replaced by electronic records managed by sophisticated technology which connects the shareholding to a large number of related events on the one hand and on the other connects the financial intermediary (custodian) to a wealth of information about investor interest and activity that can be used to stimulate further business. The odd added value product tacked on the side has now become a closely interwoven network of custody services and intermediaries that can span the globe in microseconds.
Ross McGill, Naren Patel
Chapter 3. Key Issues
Abstract
In this chapter we will look at some of the key issues that have, are and will task all those involved in the custody, clearing and settlement industry. To do this we will use both presentational style and also some case studies which help to highlight the very real problems and solutions that many have already come across. One of the most prevalent of these is the issue of outsourcing which now sits at the centre of discussions as all parties seek to focus on core activities where they can reduce costs based on their own skills and unique business models. Outsourcing seeks to do the same thing, using the skill sets of others and is set to increase in the current economic cycle.
Ross McGill, Naren Patel
Chapter 4. Clearing & Settlement
Abstract
We move on now to clearing and settlement. Clearing, Settlement and Custody activity focuses on the clearing, settlement and custody functions by analysing how they work and the interaction between the organisations involved. There is an interdependency in the roles of clearing houses, central counterparties, central securities depositories and the custodians, as well as, assessing the impact on the workflow and procedures in the operations function at banks, brokers and institutions.
Ross McGill, Naren Patel

Asset Servicing

Frontmatter
Chapter 5. Asset Servicing Key Issues
Abstract
The reader will have gathered by now that, even though modern custody contains many disparate elements, at its core is a fundamental product offering asset servicing.
Ross McGill, Naren Patel
Chapter 6. Withholding Tax
Abstract
In this book, as we’ve said, it would be impossible in the space to cover every aspect of custody in extreme detail. However, it is useful if we can choose one such area in order to highlight the principles and processes that do underpin the custody and clearing world. For this purpose, we have chosen a little known and even less understood area of corporate actions’ asset servicing — withholding tax. While a description of withholding tax in a book of this nature would normally take up two or three pages at most, here we are taking the subject to some depth in order to identify the issues that custodians and others face in the market. The reader should be aware therefore that issues raised here apply just as much to every other aspect of custody and clearing. The nature of the issues may vary but essentially the types of issues are the same:
  • How to reduce cost and risk through automation;
  • How to gain competitive advantage in the market through performance.
Ross McGill, Naren Patel
Chapter 7. OTC Derivatives
Abstract
Over The Counter (OTC) Derivatives markets have witnessed phenomenal growth in the recent years, not only in terms of volume of transactions, but also in the universe of products that are traded and in the breadth of counterparties active in the market. The consequence of the rapid growth is reflected in the strained state of post trade infrastructure.
Ross McGill, Naren Patel
Chapter 8. Trustee & Fund Accounting Services
Abstract
As part of a complete client offering we’ve seen that most top tier global custodians will provide an array of products and services, many of which come under the general class of “asset servicing”. The aim is to hook as much of the client needs through one provider to capture the opportunity to cross sell other services and over time increase their share over the available revenue stream from that institution.
Ross McGill, Naren Patel
Chapter 9. Securities Financing & Lending
Abstract
Securities lending is increasingly recognised as part of the investment management activity with an estimated $3 trillion or more of securities on loan at any given time. Securities Lending describes the market practice by which, for a fee, securities are transferred from one party (the Lender) to another (the Borrower). The borrower is obliged to return them either on demand or at the end of the agreed term.
Ross McGill, Naren Patel

Managing Risk

Frontmatter
Chapter 10. Vendor Landscape
Abstract
The range and complexity of solutions is such that, in any credible book on custody, it is now impossible to describe the market without addressing both the theory, as we have so far, as well as the practice. The growth in financial markets is to a certain extent determined by the technology available and importantly the new technologies and deployments that are being designed. The firms mentioned in this chapter are by no means the only ones in the space, but they are the key players and their products and strategies should be understood by practitioners in order to gain some context of the likely changes in the market over the next five years.
Ross McGill, Naren Patel
Chapter 11. Corporate Governance
Abstract
In this chapter we look at four issues that are to a large extent inter-related, although at first glance they may not appear to be so. The management of risk is not just about the hard issues of making processes more efficient with technology, although that is a large element. Managing risk is also about “soft” issues, rather a misnomer, of the impact of external influences.
Ross McGill, Naren Patel
Chapter 12. Network Management
Abstract
The third key way in which the risks associated with custody on an international basis can be mitigated is through good relationships between partners with specialist knowledge and expertise. So-called network management therefore is aimed at creating a robust and clear set of guidelines by which different parties can contribute to the common objective of both extending value added services to clients and also mitigating the cost and associated risk of having to be a specialist in every area.
Ross McGill, Naren Patel

Technology

Frontmatter
Chapter 13. Standards, Messaging & Mediation
Abstract
In this chapter we look at messaging and standards. In order to have consistency across the industry, we need standards for the types of communication that are used. The body that oversees those standards is ISO. The current messaging standard is ISO 15022 and the next standards release will be ISO 20022. There are two key implementers of standards — FIX and SWIFT.
Ross McGill, Naren Patel
Chapter 14. Reconciliation
Abstract
In this chapter, we look at what could easily be viewed as the fourth major risk mitigation strategy. Where failures occur for whatever reason, reconciliation provides the methodology to identify the problem and remediate it out of the system allowing both custody and clearing to have a back-stop process.
Ross McGill, Naren Patel

The Future

Frontmatter
Chapter 15. The Future
Abstract
Profitability and scalability are the two key business drivers facing the securities industry worldwide. Trading volumes are increasing, and so are the range and complexity of asset classes being traded. Organisations need solutions that help them grow their business while containing operational costs.
Ross McGill, Naren Patel
Backmatter
Metadata
Title
Global Custody and Clearing Services
Authors
Ross McGill
Naren Patel
Copyright Year
2008
Publisher
Palgrave Macmillan UK
Electronic ISBN
978-0-230-59244-5
Print ISBN
978-1-349-28288-3
DOI
https://doi.org/10.1057/9780230592445