INTRODUCTION
Sub-custodians are very market-specific. Unlike institutions that cater to the global market, what makes a sub-custodian effective in one country may not apply in another.
Key operational skills and the ability to deliver straight-through processing are taken for granted. The differentiating factor is what might be called an institution’s local savvy: the depth and breadth of its knowledge of the local market.
Knowledge of fund flows and of peculiarly local practices is crucial, say respondents to our first-ever poll on sub-custody in Asia. One fund manager has this tale to tell: "In the early 1990s, there was very good yield on Thai corporate paper. Thailand was a physical market, which allowed a lot of counterfeit paper to float around. The counterfeits are very good but a local bank can usually spot the difference. And even if a mistake was made, they have the leverage to get the company to [compensate] the investor that a global institution does not have."
In cash and forex-restricted markets such as Taiwan and Malaysia, a sub-custodian that is able to lobby the regulators is a step ahead of its competitors.
Global custodians, who are often the major clients of the sub-custodians, want someone who can take up industry issues for investors and speak to regulators on their behalf.
This is especially so in China, which is poised to throw open its A-share market to foreign investors. The mainland is justifiably seen as a documentation minefield for the uninitiated. Those coming from markets such as Hong Kong or Singapore, which require minimal paperwork, openly confess to finding custody work involving Shanghai and Shenzhen very daunting.
METHODOLOGY
Asiamoney's first sub-custody poll was faxed to 400 operations managers
and settlement managers at asset management firms, insurance companies,
central banks, brokers/dealers and finance directors at large corporates
around the world. A total of 51 replies were received. The geographic
breakdown of our respondents is as follows:
Asia: 35
Europe: 12
Others: 4
The questionnaire asked participants to rank the sub-custodians they have
used in 12 countries: Australia, China, Hong Kong, India, Indonesia, Japan,
Korea, Malaysia, Singapore, Taiwan, Thailand and The Philippines. Three
points were awarded to the banks with a first-place ranking, two for a second
place and one for a third-place vote. The replies were weighted according to
the total assets under investment in ex-Japan Asia and in Japan:
0.25=Less than $100 million
0.5=Between $100 million and $500 million
1=Between $500 million and $1 billion
2=Between $1 billion and $5 billion
4=Greater than $5 billion
The service performance tables indicate what respondents think about the
banks' performance in particular services. Respondents are asked to rate
the banks they voted for in three main areas:
(A) Core custody
Settlement, safekeeping, provision of market information, corporate actions,
fees, proxy voting, income collection, tax reclamation, client reporting,
business-continuity planning, straight-through processing.
(B) Client service and communication
Account/relationship management, local/same time zone service,
customized solution, experience/knowledge of personnel.
(C) Value-added services
Cash management, depository risk analysis, securities lending, forex
trading/execution, system interface/compatibility, service delivery via the
Internet, taxation reclamation, commitment to the business, English-language
ability.
A four-point scale is used, where four is "very satisfied" and one is
"dissatisfied".
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