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PRODUCT CONCEPTION
The global custody product was conceived out of changes to United States pensions law. In 1974, the Employee Retirement Income Security Act ("ERISA") came to the Statute books, forcing US pension plan sponsors to segregate investment management and custody of the underlying assets.

Prior to this, banks had provided settlement and safekeeping services on an international basis. However, these activities were typically provided free-of-charge - and the functions therefore starved of resources - as part of investment management or other activities.  So it is generally accepted that global custody as a product in its own right was born in 1974.

The term 'global custody' was invented by a Chase Manhattan manager in late-1974. The Bank developed the product for a single US-based institutional investor. At that time, the service covered 15 markets around the world. Other banks (from the 'money center' of New York City and elsewhere) soon developed comparable product offerings, investing heavily in systems and staff and producing a comfortable stream of fee income.

THE PRODUCT TODAY
Service providers - both large and small - act for clients in many countries worldwide, handling assets across approximately 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.

DRIVERS OF GROWTH
Key drivers in the growth of global custody over the years include:
  • in the 1970s, the introduction of floating exchange rates and - towards the end of the decade - lifting of exchange controls in many major economies resulted in rapid development of the market for international debt instruments
  • in the 1980s, professional traders became prominent players and the practice of arbitrage increased
  • also in the 1980s, a rise in specialist fund managers running dedicated portfolios of foreign equities
  • through the last two decades, the opening up of markets in Eastern Europe and a gradual increase in investment in equities and in cross-border investments.
 The recent high growth rate is expected to continue, driven by a combination of global trends:
  • investors' growing appetite for cross-border assets, for emerging and exotic markets and for a wider range of financial instruments
  • investment managers' and banks' increasing use of global custodians to replace their own networks of local custodians
  • in many countries, the state retreating from its role of primary pension provider, causing citizens to invest in defined contribution pensions and mutual funds in record numbers - with custody banks serving the pension funds and mutual funds, their money managers and the banks acting for high net worth individuals.
 So, while young, global custody is an industry with vibrant prospects.

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