Asset and liability management
at Servicekantoor AGH
XS2theWorld and KAS BANK
develop iPad app for IMS
Dashboard
ISAE 3402 replaces the SAS 70
KAS BANK acts as ‘pension
custodian’ for premium pension
institutions
KAS BANK welcomes two new
members to the German branch
management team
KAS BANK in 2010 and 2011
Amendment to the Securities Giro
Act extends legal protection
Back-office outsourcing services
now available in the German
market
Positive responses to
KAS BANK’s stress test for
pension funds
Productive partnership
In control 24/7: the pension
fund monitor on your iPad!
In the wake of natural disasters of the magnitude being experienced in Japan, stress becomes a relative term. High nuclear radiation levels, lack of food, water and medicine, total devastation. The discussions surrounding pension scheme funding levels and conducting stress tests for banks pale in comparison. Moreover, it once again shows that looking far into the future is almost impossible to do. Of course, we are following developments in Japan closely, and we sincerely hope that the situation has stabilised by the time this issue of KAS Selections is published.
Nonetheless, we do look into the future in this edition because there have been many positive developments at KAS BANK in 2011. We are very optimistic about further growth in Germany and the German-speaking market. We are pleased to announce that in January our German branch was strengthened with the appointment of Frank Vogel and Günter Schuhbeck, both highly experienced in the German securities industry.
The pension fund monitoring function of our Investment Management Services (IMS) division continues to evolve. The pension fund monitor, which is now available as an iPad app, provides institutional investors with the funding, compliance, risk and performance information to keep them in complete control of their funds. The app is particularly distinctive because it is designed for a very specific audience. Sander Munsterman of XS2TheWorld, the co-creators of our app, tells us more about this.
The collection of steering and accounting information is one of the major roles of the Dutch organisation, AGH. They use this information to advise their affiliated funds on the management of their assets and risk hedging. AGH see clear added-value in KAS BANK’s IMS services and tools such as the app to keep trustees and pension boards fully informed.
Mitigating and managing risk remain key for institutional investors and financial institutions alike. In this regard, the SAS 70-II report plays an important role. As of 2011, however, other international standards will begin to replace SAS 70-II in determining whether a service organisation is ‘in control’ of its financial reporting. The foremost of these in ISEA 3402, which KAS BANK has already begun to implement. As I have said, although stress is a relative term, it remains very important to control it. In anticipation of further regulation from the Dutch central bank, KAS BANK has developed its own stress test for pension funds. We outline this important tool for assessing the risks associated with changing economic scenarios, which can also be used to benefit non-Dutch pension schemes.
We also focus on BPO+, the automated processing in SimCorp Dimension of asset managers’ operations by the back-office of KAS Investment Servicing in Germany.
Traditionally, KAS Selections concludes with Laurens Vision. In this edition Laurens considers the harmonisation of securities settlement in Europe – or rather, the lack thereof.
We would be delighted to hear your feedback on the topics covered in this KAS Selections. After all, this issue has been written in close cooperation with our clients, with you in mind.
Sikko van KatwijkChief Commercial Officer, KAS BANK Managing Board
Editorial
Contents:Asset and liability management at Servicekantoor AGH 3XS2theWorld and KAS BANK develop iPad app for IMS Dashboard 6In control 24/7: the pension fund monitor on your iPad! 7ISAE 3402 replaces the SAS 70 8KAS BANK acts as ‘pension custodian’ for premium pension institutions 10KAS BANK welcomes two new members to the German branch management team 11KAS BANK in 2010 and 2011 12Amendment to the Securities Giro Act extends legal protection 14Back-office outsourcing services now available in the German market 15Global custody network news 16Positive responses to KAS BANK’s stress test for pension funds 18Productive partnership 20Personnel notes 22Client wins 22Laurens Vision 22
Comments on this issue, suggestions for future articles and mailing list requests should be addressed to:
NetherlandsClearing & Banking ServicesAssociate director: [email protected]
Fund & Investment ServicesAssociate director:[email protected]
Institutional ServicesAssociate director:[email protected]
Sub & Core custodyAssociate director:[email protected]
Sales & Business development (S&BD)Head of S&BD:[email protected]
German BranchManaging director:[email protected]
KAS Investment Servicing GmbHCEO & Managing director:[email protected]
UK BranchAssociate director:[email protected]
Institutional InvestorsBusiness development manager:[email protected]
Translation:Interpret Tekst & Vertalingen
Text editor:Matthew Binnington
Editor:Carla BoogersKAS BANK N.V.Marketing & CommunicationP.O. Box 24001, 1000 DB AmsterdamThe Netherlands +31 20 557 [email protected]
Graphic Design:Ebbenhorst Design, De Meern
Print:KAS BANK,Document & Systems Services
KAS Selections is a quarterly newsletter from KAS BANK N.V.Although the information in this issue is drawn up with the utmost precision, no rights can be derived from it.
Volume 18, Issue 1, April 2011
KAS Selections
K A S S e l e c t i o n s • A p r i l 2 0 1 1 3
The IRM Monitor linking assets and liabilities
Asset and liability management
at Servicekantoor AGH
Servicekantoor AGH handles the execution of pension, early
retirement and 55+ schemes as well as ‘resumption of work’
(employees partially fit for work). This involves the
following duties: advising pension managers and social
partners, the administration of the schemes, handling the
communication and supporting the management and/or
investment committee with the asset management. AGH
cooperates closely with Interest & Currency Consultants
(ICC) and KAS BANK regarding the execution of the asset
and liability management. During a lively conversation,
Erik Martens and Eric Mateman of AGH and Eddy Markus of
ICC outlined this collaboration.
One of the duties of AGH is to provide
steering and accountability information to
the management and/or investment
committees of the affiliated funds. How do
you use KAS BANK’s risk management
services in this regard?
Martens: “All affiliated pension funds have outsourced the
back-office of their asset management to KAS BANK. This
means that KAS BANK can produce reports for AGH and the
fund’s management, which enables us to closely monitor
the assets and the development of the (required) funding
ratios. KAS BANK also provides an excellent estimation of
what proportion the interest rate sensitivity of the
obligations bears to that of the investments and the
mismatch between them. Based on this information the
fund management can pursue a policy to adequately cover
the downside risk of the funding ratio. We believe this is
the strength of KAS BANK’s IRM Monitor. The fund
management must currently report to the Dutch Central
Bank (DNB) on a monthly and quarterly basis. So it is
paramount that you have a true and fair view of both the
current funding ratio and the required funding ratio. This
information also enables the fund management to render
accountability to all stakeholders and not only to DNB.”
An increasing number of pension funds wish
to be kept informed of their funding ratio
and the fund’s risk exposure on a daily basis.
AGH has been using the IRM Monitor1 from
the start and has actively contributed to the
development of this tool. AGH also uses the
IMS Dashboard2. What is the added value of
these tools?
Martens: “The management of a pension fund has the
ultimate responsibility for the ins and outs of the fund.
They must assess all steering information at a single
glance to determine whether the pension fund is still on
the right track. It is our duty to clearly present the
steering information to the management members. Only
then can the management actively manage the fund and
make conscious choices, such as: are we aware of the risks
we are taking, has the risk been well-hedged? The IRM
Monitor helps us to inform our clients adequately about
Erik Martens (left) and Eric Mateman (right) of AGH and
Eddy Markus (centre) of ICC
1 IRM Monitor analyses and reports the risks of your investments versus your pension liabilities on a monthly or quarterly basis.
2 On a daily basis IMS Dashboard informs you online of the funding ratio, market developments, asset allocation, compliance monitoring and your holdings and transactions.
K A S S e l e c t i o n s • A p r i l 2 0 1 14
the asset management, the risks and the asset and
liability management. The monitor is published quarterly
and is too complex for a fund’s management. It is an
appropriate document for the investment committee.
Fortunately, you are becoming increasingly better in
opening up the information to pension funds. For example,
we can monitor daily the downside risk of the funding
ratio via the IMS Dashboard. This dashboard is an
accessible source of information – like the word says – for
the pension fund’s management.
Thanks to the feedback we receive from pension funds we
continue to learn. We pass this information on to
KAS BANK: we would like to see certain information
included in the IRM Monitor and the IMS Dashboard, which
is an excellent interaction.”
After the implementation of the Financial
Assessment Framework (FTK) in 2007 the
Dutch Central Bank increasingly focuses on
the obligations and risks of pension funds
and how risks are hedged. How does AGH
inform and advise the affiliated funds about
the risks on their balance sheet?
Martens: “The basic principle when informing
management is: how has the risk policy been shaped and
the control thereof set up? A guiding principle is the FIRM
methodology of the Dutch Central Bank. Fortunately, not
all parts of this methodology are relevant to pension
funds. The risk policy has been set out in the Actuary and
Technical Business Policy Document (ABTN). In the annual
report the fund accounts for the risks and how they deal
with them.
If management is aware of all risks, they are better able to
steer the fund and deliver accountability to their
stakeholders. You first need to have a clear view of how
funds actually deal with the risks and risk control. The
funds’ managers have established risk management
committees. Together with these committees we analyse
and monitor the risks and control measures. KAS BANK
provides a significant part of the information required via
the IMS Dashboard. The development of the funding ratio
and the required funding ratio are the central focus.
KAS BANK measures the performance and the risks, and
subsequently calculates the funding ratio and the required
funding ratio. What may happen if certain parameters
change is also considered. We therefore regularly consult
KAS BANK. All the information can be found in the IMS
Dashboard. We look at it daily to be able to inform the
management adequately.”
Mateman: “When we had to face the FTK, the right side of
the balance sheet became topical, because of the
development of the obligations as a result of the changed
interest. We then wondered: how can we gain the required
knowledge in this area? Of course by doing as much
research as possible, for which we use the media, asset
managers and experts. Based on this principle we made
contact with ICC. They advise us weekly on the interest
developments and instruments that we can use to hedge
risks, for example swaptions.”
Erik Martens has been active as
a manager in the pension and
finance industry since 1985 at
different pension providers and is
currently director at the
Servicekantoor AGH.
Servicekantoor AGH is a
partnership of and for pension funds.
Eddy Markus is Executive
Director/Chief Analyst at Interest
& Currency Consultants. After his
studies in economics at the Free
University in Amsterdam, he was
responsible for all the mid-term
interest and currency positions of
a large family office for more than five years. At the
beginning of the 1980s he made a switch from asset
management to consultancy and set up Interest &
Currency Consultants (ICC). Initially, ICC was mainly
an interest and currency consultant firm for
organisations. Today ICC has developed into a
consultancy firm specialised in nearly all aspects of
treasury management, corporate and structured
finance and market outlook.
K A S S e l e c t i o n s • A p r i l 2 0 1 1 5
Martens: “We have now realised an ‘information rectangle’
of sorts: ICC, KAS BANK, AGH and the actuaries of the
affiliated funds. By means of this rectangle the knowledge
of each discipline is used to organise the protection of the
funding ratio against interest drops, for example. It is
paramount to consider how to organise and adjust the
interest hedge. If the interest increases, do you still wish
to use the upwards potential, but at the same time
continue to be protected against the downside risk?”
What role does ICC play in that process?
Markus: “In our first meeting we immediately explained
what ICC does absolutely not do. And that is, putting it
irreverently, make up tricks for the technical aspects of
the risk policy: how can I equate the left and right side of
the balance sheet? What we do is explain to pension fund
managers that they must make their own decisions about
the management of risk on the balance sheet and on the
best way to do that. AGH has solved this perfectly. In
consultation with management and investment
committees they make their own decisions. All lines of
approach are considered carefully. What instruments are
available, what are the costs, which risks do you wish to
take, how do we estimate the interest movements? If you
use this instrument, to what extent are the risks hedged?
Should we extend the durations? A decision must be made
based on this mix of considerations. We only advise AGH.”
Mateman: “Together with ICC we consider the hedge,
duration and interest rate levels and request prices of
swaps or other instruments. Then we organise a conference
call with ICC, KAS BANK and the actuary about the right
instrument to use. For the hedging of the interest risk it is
possible to extend the duration of the investments by
means of bonds, swaps or LDI-pools. However, swaptions
are also a possibility. The downside being that they are
rather expensive. Some of our clients therefore prefer to
use as many collars3 as possible. The price of the receiver
will then be compensated by a payer. It is comparable to a
medical insurance scheme, whereby the client chooses a
certain amount of excess to reduce the insurance
premium. The question is: how much risk are you willing
to take? What will happen with the interest? There is a
chance of making mistakes in the estimation, as it is
impossible to know everything. To be able to develop a
clear vision, we organise brainstorming sessions with the
investment committees in which global developments are
discussed. For example, about the two growth paces in the
European Union and the correlated risks. These sessions
take place in a relaxed atmosphere, out of the box. The
input of ICC is paramount to create a sharp view. KAS
BANK and other experts also indirectly or directly
participate in the mental process, which enables us to
consider carefully whether the risks are acceptable or not.”
Do other factors also play a role in that
consideration process?
Markus: “We make the best possible estimation of the
developments in the world and how interest will be
influenced by those developments. We believe that politics
will start playing an increasingly large role in the markets.
Think, for example, of the discussion in Europe about the
independence of the European Central Bank. That is why
we have added two political scientists to our analyst team
and we also maintain good contacts with the Clingendael
Institute in The Hague. In this way we wish to keep a grip
on the international developments and their influence on
the economy.”
Martens: “You start with something, for example the use
of a dashboard, and you are fairly satisfied, however there
is always room for improvement. When a fund starts
shaping its policy, you will also receive an increasing
number of queries and feedback from your clients. That is
why we continuously wish to be informed faster and
sharper about the funding ratio. KAS BANK’s role as
supplier of the required data continues to be paramount.”
Eric Mateman’s main duties as
Asset Management Manager
include the asset management of
the affiliated funds at
Servicekantoor AGH.
3 A combination of a bought put option (receiver) and a sold call option (payer).
K A S S e l e c t i o n s • A p r i l 2 0 1 16
XS2theWorld and KAS BANK develop iPad app for IMS Dashboard
In April KAS BANK launched an IMS Dashboard app. With
this KAS BANK iPad app you will be informed of the latest
status of your pension fund at all times. This will enable
pension fund managers to stay in control.
The KAS BANK app has been developed in cooperation with
XS2TheWorld. Together with founder and commercial
director Sander Munsterman we will discover the world of
mobile devices and tablet computers.
Mobile applications and services from banks are still in
their infancy, although we are currently experiencing a
time of rapid innovation. The general public already use
apps for simple tasks such as obtaining balance
information. Business users, such as institutional investors
and asset managers, have an increasing need for
management information and up-to-date insight into their
funding ratio or performance measurement, for example.
KAS BANK is the first bank/custodian in the Netherlands
to provide such information to its clients through an iPad
app. What makes the app unique is its focused target
group, user-friendliness and its state-of-the-art
appearance.
“Research has shown that the adoption of technical
gadgets, computers and mobile devices has experienced
enormous growth since 1990. We have become early
adoptors,” explains Munsterman. “An example: of all
iPhones sold in the Netherlands since their launch in 2007,
75 percent were sold in 2010. After the introduction of the
iPad in 2010 450,000 units were sold in just six months.”
Images and files can be downloaded with a simple swiping movement across the screen
Tablets like the iPad are in fact minicomputers, which
makes them more suitable for sending large digital files
and images than mobile phones. Furthermore, they are
extremely user-friendly. Images and files can be
downloaded with a simple swiping movement across the
screen. Agendas and meeting minutes can also be updated
and sent by means of the iPad. “KAS BANK has optimally
used these possibilities to make its IMS Dashboard
accessible on the iPad through an app. The KAS BANK app
is extremely user-friendly and does not require any
technical knowledge.”
IMS Dashboard users can now access their data wherever
they have an internet connection – significant added value
for pension fund managers and trustees, for example, who
require regular updates on their fund’s status.
According to Munsterman the biggest trend is now
mCommerce. “Banks capitalising on this development are
first movers. KAS BANK can now expand its mobile services
by adapting the app to make it available to other clients
and client groups.”
Founder and Commercial Director of XS2TheWorld, Sander Munsterman
The KAS BANK app is user-friendly and does not require any technical knowledge
Introduction to XS2TheWorldXS2TheWorld is a specialist in mobile marketing and branding and provides tailor-made applications and mobile websites for organisations (such as Guinness, Intel and IBM), football clubs, government institutions and media companies, such as Teleac and NUsport.nl.Supported by mobile technology and the creativity of XS2TheWorld, organisations can distinguish themselves in the market and achieve their commercial objectives through mobile concepts.XS2TheWorld has branches in Amsterdam, London and Jakarta and since 2007 has been a trendsetter in the area of mobile services and the development of mobile apps and websites for over 2,000 different mobile devices (Java enabled, Blackberry, Symbian, iPhone, Windows Mobile and Android).
K A S S e l e c t i o n s • A p r i l 2 0 1 1 7
In control 24/7: the pension fund monitor on your iPad!To pension fund trustees, it is vitally important to have
direct excess to the current funding ratio of their schemes.
At the same time an enormous amount of information is
offered. That is why the overview of Key Performance
Indicators and the performance of your asset manager(s)
may be not be as transparent as it should be. The KAS BANK
pension fund monitor app can deliver this information
directly to your screen.
Since you have outsourced the administration and custody
of your pension fund to KAS BANK, we hold an enormous
amount of data regarding your scheme. Combining this
with information on pension fund liabilities enables us to
provide extensive risk-control information in the form of a
pension fund monitor.
The pension fund monitor enables us to convert this
bewildering amount of data into useful and practicle
steering information. Several pension funds are already
using the pension fund monitor as a web application, in
the form of our IMS Dashboard, offering intuitive reports
and graphics that deliver the required information in a
user-friendly manner.
KAS BANK has now introduced something new – as it is
now possible to view the daily reports from the pension
fund monitor digitally on your iPad. This app provides up-
to-date insight into developments in your pension fund,
24 hours a day, wherever you are. The app will constitute
a valuable tool for pension fund managers who wish to be
demonstrably in control.
The pension fund monitor on the iPad will enable pension
fund managers to gain access to significant steering
information, 24/7:
• The value of your portfolio
• Asset allocation
• All positions and transactions
• Compliance reports
• Performance data
• Hedge ratios (both interest and currency)
• Developments in the funding ratio
• Export to PDF.
From high-level information you can drill down to detailed
data, such as market value changes, or view diagrams of
positive and negative peaks in the investment results of
your fund.
Pilot testing of the pension fund monitor app commenced
several weeks ago, and it will be available to all pension
funds subscribing to KAS BANK’s IMS Dashboard in April.
K A S S e l e c t i o n s • A p r i l 2 0 1 18
ISAE 3402 replaces the SAS 70No sooner has KAS BANK’s latest SAS 70-II report been
delivered by the printers, than we are preparing its
substitute. The International Auditing and Assurance
Standards Board has published new guidelines for service
organisations, the ISAE 3402. With these new guidelines it
will become easier for the chartered accountants
representing KAS BANK clients and prospects to assess the
extent to which KAS BANK’s management is demonstrably
in control of the bank’s administrative processes.
The ISAE 3402 standard is a clear improvement on SAS 70-
II, as it incorporates risk management and the board is
explicitly asked to supply detailed explanations. In the
ISAE 3402-II standard – in contrast to SAS70-II – the
functioning of all COSO (risk management framework)
elements can be assessed by the chartered accountant.
COSO describes and defines the different elements of an
internal control system, e.g. monitoring, information and
communication.
The accountant will subsequently determine whether the management has a reasonable basis on which to base its conclusions
The most significant change under ISAE is that
management must include an explanation in the report
covering the functioning of all control measures,
emphasising their responsibility for this area. The
accountant will subsequently determine whether the
management has a reasonable basis on which to base its
conclusions. With this, ISAE 3402-II provides our clients,
and pension funds in particular, and their accountants
insight into the quality of the internal control of the
services outsourced to KAS BANK.
Certifying organisations have expanded enormously since
the introduction of the ISO-9001 standards in 1987 by the
International Organisation for Standardisation. An ISO
standard primarily provides information on an
organisation’s technical quality management systems.
It does not provide much information relating to the
control of processes which underpin a product or service.
This need has been met by the Statement on Auditing
Standards (SAS) no. 70 since the mid 1970s. This
statement is drawn up by the organisation itself on the
basis of guidelines provided by the Auditing Standards
Board of the American Institute of Certified Public
Accountants (AICPA).
SAS 70Under the influence of the Sarbanes-Oxley Act – which
imposes several regulations on organisations and their
foreign branches listed on US exchanges, and foreign
organisations with listed branches in the United States –
SAS 70 became the market standard for the financial
accounting of organisations.
SAS 70 focuses on the effectiveness of an organisation’s
internal control measures relating to the reliability of
financial reports. An external auditor determines whether
the structure of the internal control measures set out by
the organisation is adequate to achieve the defined
objectives, and whether these control measures are
demonstrably executed over the audit period.
KAS BANK has a SAS 70-II certification for a significant
part of its operational and ICT processes. Based on the
SAS 70 report clients or prospects and their accountants
can verify whether their provider, in this case KAS BANK,
complies with the requirements for outsourcing their
administrative activities, for example. This is particularly
important to pension funds as this requirement forms part
of the Pensions Act.
ISAE 3402For several years the SAS 70 report has been a common
way for service organisations to account for the internal
K A S S e l e c t i o n s • A p r i l 2 0 1 1 9
control of the reliability of financial reports. However, this
standard will be replaced as of 2011 by new guidelines for
service organisations, the ISAE 3402. The guidelines are
published by the International Auditing and Assurance
Standards Board. The main advantage of ISAE is that it is
an international standard, meaning that service
organisations are no longer dependent on standards that
apply chiefly to the United States.
KAS BANK will also include an explanation from the management in our latest SAS 70-II report regarding the functioning of control measures
The system under ISAE 3402 reflects that of SAS 70, with
two types of reports: Type I for the set-up and existence
of the internal control measures, and Type II for the
set-up, existence and functioning of the internal control
measures.
Start dateThe new ISAE standard will become effective for reports
regarding periods that end on or after 15 June 2011.
KAS BANK will report for the 2011 calendar year on the
basis of the ISAE 3402 standard, although we will also
include an explanation from the management in our latest
SAS 70-II report regarding the functioning of control
measures.
K A S S e l e c t i o n s • A p r i l 2 0 1 110
KAS BANK acts as ‘pension custodian’ for premium pension institutions
Since 1 January 2011, so called premium pension
institutions (PPIs) can be established in the Netherlands to
operate defined contribution schemes across Europe. This is
not only a step towards the ‘European’ pension fund, but
also offers an excellent opportunity for the Dutch pension
sector to raise its profile internationally. To support PPIs in
expanding their businesses, KAS BANK has developed a
new, dedicated service: the pension custodian
(pensioenbewaarder).
A PPI is a new legal entity somewhere between an insurer
and a pension fund. It is based on European legislation
and executes defined contribution schemes for employers
in the Netherlands and all other countries in the European
Union. To prevent the co-mingling of assets, the PPI is
required by law to separate all assets under custody.
Amongst other things, this mitigates the risk that a deficit
in one participant offsets the pension assets of another
retirement plan, so-called contamination risk. To this end
the PPI uses an independent pension custodian.
As an expert in custody and administration, KAS BANK
now combines both functions – separation of pension
assets and risk mitigation – in this new service. We also
act as an independent supervisor of the management of
the PPI, ensuring that the PPI acts according to its
statutes and prospectus.
As pension custodian, KAS BANK enables the PPI to remain
‘in control’ and thus to secure its market position, a must
for any PPI in these troubled times.
KAS BANK’s outlook on the future of PPIs KAS BANK has great expectations for PPIs as the Dutch
answer to the opening of European borders to pension
providers from all member states. Dutch expertise in the
pensions arena is clearly recognised and appreciated, with
participants in the Netherlands being able to build up
their retirement funds at much lower cost. For the PPI
itself, the risks are spread.
As an expert in custody and administration, KAS BANK now combines both functions – separation of pension assets and risk mitigation – in this new service
Because several pension funds will host their DC
investments in the same PPI vehicle, it is expected that
partnerships between pension funds will emerge within a
‘collective’ PPI. Such an approach maximises cost savings
and minimises risk, while giving pension funds direct
control of the PPI results. This leads almost automatically
to the bundling of pension expertise, also a long-standing
desire within the European Union.
K A S S e l e c t i o n s • A p r i l 2 0 1 1 11
KAS BANK welcomes two new members to the German branch management team
Germany is a key market for the future growth of KAS BANK.
Therefore, on 1 January, the management team of the
KAS BANK N.V. German branch was strengthened by the
appointment of Frank Vogel as Managing Director and
Günter Schuhbeck as Branch Manager, Head of Depotbank
Services.
Frank’s main objective is to reinforce the position of
KAS BANK in Germany, with the goal to become the
provider of choice for mid-sized financial institutions and
the institutional investor community. In addition, with his
wealth of experience, Günter will ensure that the quality
and flexibility of all custodian and depotbank services in
the German market will continue to be of the highest
standard.
KAS BANK has been servicing financial institutions in
Germany for many years. These core services were
complemented by the establishment of the independent
fund administration services for German funds and insurers
via its Kapitalanlagegesellschaft (KAG) KAS Investment
Servicing GmbH and the Depotbank services provided by
KAS BANK N.V. German branch. The Master KAG and
Depotbank services are geared towards the institutional
investor community.
“I have spent almost my entire career in the securities
industry and am very enthusiastic about the new and
challenging opportunities that lie ahead of us in the
German market. KAS BANK is uniquely positioned as the
only independent provider offering a complete range of
securities and investor services. Combining this product
range with a focused strategy on specific client types will
be a recipe for success – positioning is key” says Frank
Vogel.
Günter Schuhbeck: “Germany is a changing market and
I see ample opportunities in many areas. With changing
regulation, for example, Depotbanks in Germany are under
growing cost pressure. Our goal is to demonstrate the
strength of the German branch as an efficient and quality-
oriented service provider and become the partner of choice
for the investor community.”
Over the past decade, Frank Vogel
worked for Citigroup, first in
London and, from 2003, in
Frankfurt. As Head of Sales there
he was a member of the EMEA
Client and Sales Manager team.
Prior to this, he held a position
at the London Stock Exchange for three years. In 1994,
Frank Vogel obtained his BA Business Administration in
Münster (Germany) and in 1998 his MBA at the CASS
Business School in London.
Günter Schubeck joins the
KAS BANK German branch
bringing with him thirty years of
experience from CACEIS Bank
Germany and its predecessors
HypoVereinsbank AG and
Bayerische Vereinsbank AG. In his
last position at CACEIS Bank, Günter was responsible
for Sales & Relationship Management for Depotbank
clients. Previously, he was responsible for Depotbank
Services at HypoVereinsbank.
K A S S e l e c t i o n s • A p r i l 2 0 1 112
KAS BANK in 2010 and 2011On 17 March KAS BANK
published its Annual
Report for the year 2010.
In this edition of KAS
Selections we would like
to look back on the past
year with chairman of the
Managing Board, Albert
Röell. Röell certainly
expects positive
developments in 2011,
despite the lower result
achieved in 2010.
And the euro crisis also continues.
We have observed clear opportunities in the Dutch and
German institutional markets. Stricter regulations result in
an increased demand for specialised services regarding risk
management and management reports. More intensive risk
management will result in an increased demand for
independent reports and support from both pension funds
and their advisers, as they must prove that they are
demonstrably in control.
KAS BANK already executes the control function on the
investment guidelines required by the supervisory
authority for many pension fund managers. With our
internally developed pension fund stress test we capitalise
on the expected obligatory stress test for pension funds
from the Dutch Central Bank (DNB). We are also prepared
for the further development of the Premium Pension
Institution, the PPI. We consider the PPI to be an
excellent opportunity for the Dutch pension sector to
further distinguish itself internationally. To support the
sector we have developed a new service especially for
PPIs: the Pension Custodian.
Stricter regulations result in an increased demand for specialised services regarding risk management and management reports
Brokers and financial institutions are experiencing an
increased need for intensive guidance of their operational
activities, including risk management. An increasing
number of larger market parties consider KAS BANK to be a
logical partner when hiring a ‘specialist with an
established reputation close to home’. We capitalise on
this development with our European Broker Services,
among other things. By outsourcing their mid- and back-
office activities to KAS BANK, brokers can increasingly
focus on their core business.
What is also paramount to our Dutch clients is the
amendment to the Securities Giro Act (“Wet giraal
effectenverkeer”) with effect from 1 January 2011. Due to
the extension of the scope of the Securities Giro Act, as
How do you look back on 2010?
“2010 was a difficult year for KAS BANK. The extremely
low interest rates again had a considerable impact on the
bank. Due to our low risk profile we have been limited in
our ability to make returns on the assets entrusted to the
bank. In addition, we also had to deal with another bad
year for exchange rates. Lower trading volumes directly
influence our commission income. The majority of our
clients operate in the financial sector, and so there is a
certain inter-dependence between the bank and
developments in the financial markets. So, in spite of
achieving lower costs, the aforementioned factors
negatively affected our profitability. Nevertheless, we were
able to maintain our dividend payment. With this we hope
to underline that KAS BANK, with its strong solvency, has
much faith in the future. With a BIS ratio at year-end of
over 23 percent we are already complying with the
recently proposed Basel III guidelines.”
What are your expectations for 2011?
“The economic prospects for 2011 for Europe are a bit
more favourable. The interest level has slightly increased
lately, which is also positive for the bank. However, the
financial markets continue to be unstable. For example, we
have to wait and see what economic consequences the
horrible earthquake in Japan will have in the long term.
Albert Röell, chairman of the
Managing Board, KAS BANK
K A S S e l e c t i o n s • A p r i l 2 0 1 1 13
well as the fact that KAS BANK is the only large custodian
actually established in the Netherlands, the securities of
our clients are even better protected against insolvency
risk. Our legal specialists have been intensively involved in
the discussions surrounding the bill. We will keep our
clients informed this year about any developments
regarding the Act. This also fits with our aim to share our
knowledge with our clients as actively as possible. For
example, by means of Xpert Meetings and workshops.
A perfect example is the KAS BANK Pension Academy. We
will soon organise the first meeting for our clients and
other stakeholders entitled ’Pension management in
control: the practice’.
In order to inform and service our clients better and faster, the total process chain has been considerably simplified
What is your opinion on the opportunities in
KAS BANK’s other home markets, Germany
and the UK?
“In fact we experience the same developments in these
markets as in the Dutch market. The business of securities
services within Europe is becoming increasingly complex
as a result of new regulations and ever more demanding
clients. In Germany the trend towards outsourcing fund
administration and/or consolidation of KAGs and
Depotbanks continues. The fact that we are the only
independent provider of both ‘Master KAG’ and Depotbank
services affords us a unique position. We are convinced
that we will again realise additional growth in Germany in
2011, also through acquisitions. Acquisitions in other
parts of western and northern Europe have not been ruled
out at this stage. Emphasis is particularly placed on
institutional portfolios.
In the United Kingdom we will continue to develop tailor-
made solutions for UK pension funds as well as
strengthening our position as an independent partner for
pension funds, consultants and trustees. We also expect
excellent growth possibilities for KAS BANK as a central
gateway for non-European parties to access the European
infrastructure.”
In the banking code the client is the centre
point. How is this principle translated into
KAS BANK’s services?
“Last year, we further solidified contact with our clients by
introducing client service reviews. Nearly all clients have
participated. Several process and quality improvements
have been realised in consultation with our clients. This
process will continue in 2011.
In our daily operations, focus will fall on faultless
processing. In order to inform and service our clients
better and faster, the total process chain has been
considerably simplified. Requirements and complaints are
dealt with much quicker and more efficiently. Specialist
product managers have also been appointed to advise our
clients on new products or support them to improve
existing products. And our app for the IMS Dashboard will
make an essential contribution to pension funds that aim
to be demonstrably in control 24/7.”
The business of securities services within Europe is becoming increasingly complex as a result of new regulations and ever more demanding clients
What is your opinion on investor relations in
this context?
“We pay much attention to informing shareholders as
transparently as possible and making visits to potential
new investors. We believe it contributes strongly to the
liquidity of KAS BANK’s shares. Of course we are receptive
to suggestions from shareholders to improve and advance
this. The same applies to feedback on our annual report
and other statements made by our bank, as we are
convinced that good investor relations are in the interest
of all KAS BANK stakeholders.”
K A S S e l e c t i o n s • A p r i l 2 0 1 114
Amendment to the Securities Giro Act extends legal protection
The Securities Giro Act (Wet Giraal Effectenverkeer, or WGE)
has been amended with effect from 1 January 2011. The
amendment relates to the way in which banks in the
Netherlands, including KAS BANK, hold securities in custody
on behalf of, and for the account of, their clients. As a result
of this amendment almost all securities will now benefit
from the legal protection of the WGE1. This means that
KAS BANK is no longer required to maintain a separate
depository company for the custody of securities that now
fall within the scope of the WGE.
The WGE governs the book-entry delivery of securities and
the protection of investors in the event of the bankruptcy
of their bank (insolvency risk). Banks in the Netherlands
are obliged to realise an adequate segregation of assets
whereby the securities that they hold on behalf of their
clients are segregated from the bank’s own assets.
Until 1 January 2011 the scope of the WGE was limited:
the protection only applied to securities that were held in
custody by a bank that was admitted as a “participant”
(as defined in the WGE) to Euroclear Netherlands.
Furthermore, Euroclear Netherlands was able to decide
whether securities fell within the scope of the WGE or not.
As a result, the protection afforded by the WGE was
effectively limited to securities that were traded in the
Netherlands through NYSE Euronext.
In order to provide adequate protection for those client
assets not covered by the WGE, KAS BANK deposited these
securities in a special purpose vehicle: KAS Depositary
Trust Company (the trading name for KAS BANK
Effectenbewaarbedrijf N.V. – KDTC). KDTC is a separate
legal entity, entirely distinct from KAS BANK and therefore
exposed to very limited insolvency risk.
Expanding the scope of the WGEThe scope of the WGE has now been expanded to include
securities that are held with banks that are not admitted
as “participants” to Euroclear Netherlands. Furthermore,
this protection extends to all securities, money market
instruments and units in collective investment schemes, as
defined in the Dutch Financial Supervision Act (Wet op het
financieel toezicht, or WFT) regardless of where they are
held or traded.
Consequences for KAS BANK Effectenbewaarbedrijf N.V. The extended scope of the WGE, and the broader
protection it now offers, will allow KAS BANK to introduce
a more uniform way of segregating assets. KAS BANK is
currently reviewing its use of KDTC, and evaluating
whether this will be in the best interests of our clients due
to the operational efficiencies that a simpler structure will
generate. It is important to note that the amendment of
the WGE does not mean that banks in the Netherlands
must discontinue the use of special purpose vehicles such
as KDTC, which remain an effective way of segregating
assets held in safekeeping from banks’ own assets.
Partial dematerialisation The physical safekeeping of bearer certificates of securities
involves cost and risk. The WGE therefore also contains
provisions for a further dematerialisation of securities that
fall within its scope. The WGE stipulates that all physical
securities that are not embodied in a global note or global
share will need to be converted into global notes, global
shares or registered securities before 1 January 2013.
Furthermore, physical delivery of securities from the WGE
system to an investor will no longer be possible as of
1 July 2011. Despite this, these changes are likely to have
little or no impact on the majority of end investors.
1 Securities that do not benefit from the protection of the WGE are registered securities whereby (i) a notary deed is required for the transfer of such securities, and (ii) the possibility of transferring such securities is restricted or ruled out under the relevant articles of association or the securities’ terms of issue, unless they have been admitted to official listing on an exchange or a multilateral trading facility as defined in Article 1:1 of the WFT.
K A S S e l e c t i o n s • A p r i l 2 0 1 1 15
Back-office outsourcing services now available in the German marketFollowing the Dutch market we are now able to offer our
clients in Germany the opportunity to use the front-office
module of SimCorp Dimension, one of the world’s most
advanced systems for investment accounting. Both the
extent of operational outsourcing and the requirements of
operational control can be determined.
There are two main alternatives:
1) Outsourcing of fund administration for public funds
and special funds: application service provider (ASP)
2) Comprehensive business process outsourcing (BPO)
plus ASP for the front office (BPO+).
This service has been offered to clients in the Netherlands
since 2007. At the end of 2010 we also introduced BPO+
to two German asset managers, one of whom (AVANA
Invest GmbH) already had the SimCorp system in place,
making the transition very smooth. For the other asset
manager (ELAN Capital-Partners GmbH) we provided more
in-depth training and introduction to the system, so that
the service could run successfully from the start.
The asset manager enters the trades directly into the
Dimension front-office tool and then conducts the pre-
compliance checks. The legal and contractual limits are
stored in the system (entered by KAS Investment
Servicing). When all limits are checked and approved, the
asset manager can trade in Dimension with a broker of
their choice (pre-approved by KAS Investment Servicing).
After the trade has been executed, the asset manager
enters the price he received from the broker and
KAS Investment Servicing’s back-office receives all details
for further automatic processing in the system.
KAS BANK’s BPO+ service is a cost-efficient solution for
asset managers, without the concern of IT issues. Access
to a state-of-the-art application is provided, including
support from KAS BANK specialists, enabling asset
managers to remain in complete control of their
operational risks.
K A S S e l e c t i o n s • A p r i l 2 0 1 116
Global custody network newsEurope
GREECE – Possible postponement of CGT until 2012
The Greek Ministry of Finance has indicated that the
implementation of Capital Gains Tax, planned to become
effective as of 1 January 2011, will probably be postponed
until 1 January 2012.
CROATIA – Introduction of OTC reporting requirement
The Croatian Financial Services Supervisory Agency (CFSSA)
has introduced reporting requirements for OTC transactions
which will include the trading price, ISIN code, nominal
amount and transaction time.
Accordingly, a non-resident professional investor is obliged
to report details of the purchase transaction to the Zagreb
Stock Exchange (ZSE) at the end of the trading day.
Transactions conducted after official trading hours should
be reported at the beginning of the next trading day. Credit
trading activities covering repo and reverse repo
transactions as well as buy- and sell-back transactions or
Lombard loans are not subject to these new reporting
requirements.
NORWAY – Statute of limitations, clarification
The official Statute of Limitations (SoL) in Norway has been
reduced from three years to one year with effect from 1
January 2011. The Norwegian tax authorities have based
this on the legal right to practice a shorter SoL for the
reclaim of dividend taxes.
However, the local tax authorities, COFTA, have announced
that they will continue to practice the three-year SoL. If
and when a one-year limitation is introduced, COFTA will
announce this in
sufficient time.
We recommend that
reclaims are filed
continuously and as
soon as possible after
the dividend season.
ICELAND – Tax increase for
foreign investors
The Icelandic parliament has
accepted a bill increasing
capital gains tax, interest
tax and dividend tax from
15% to 18% for foreign legal
entities (foreign corporations) and from 18% to 20% for
individuals. The tax increase is effective as per 1 January
2011.
Outside Europe
BRAZIL – Tax changes
Several tax changes will become effective in Brazil as of 1
January 2011. The most important of these are:
• The IOF tax rate applicable to ADR cancelations into
local shares has been established at 2% (formerly
2.38%).
• The IOF tax rate applicable on conversions of 4131
Direct Investment to Resolution 2689 Portfolio
Investment has been established at 2% (formerly
2.38%).
• The IOF tax rate applicable to foreign exchange inflows
for the purpose of investment in private equity/
venture capital funds has been reduced from 6% to
2%; these investments include funds known as FIPs
(Fundo de Investimento em Participações) and FIEES
(Fundo de Investimento em Empresas Emergentes), as
well as investment funds that invest in these two types
of funds.
• The IOF sliding scale on short-term holdings (for
redemptions within 30 days) will no longer apply to
corporate bonds, but only to government bonds.
EGYPT – Stock exchange requirements
The past weeks have seen many reports that the Egyptian
Stock Exchange (EGX) was to open again, which were later
recalled. The latest news is that the exact date of
K A S S e l e c t i o n s • A p r i l 2 0 1 1 17
resumption of trading will be decided following
discussions with the new Prime Minister.
New trading/investment requirements
Custodian banks are to submit immediately the
shareholding ownership structure for all closed-ended
funds with an existing unified code (investment permit)
on the Egyptian Exchange (EGX). Clients are required to
send the shareholding information on all closed-ended
funds to us. We will then inform our local custodian,
HSBC.
Furthermore, a list was published by Egypt’s Attorney
General, detailing the Egyptian individuals that are
currently restricted from investing in Egypt, effective
immediately. This list of individuals is available on EGX’s
website (www.egyptse.com,NewsDetails, the website was
down at the time of writing).
Clients are requested to review urgently all their accounts
in Egypt and provide details of the shareholders and their
ownership levels in the closed-ended funds to ensure that
none of the individuals named by the Attorney General of
Egypt are among the fund’s shareholders or certificate
holders.
Five percent holdings
The Egyptian Financial
Supervisory Authority
(EFSA) has announced
temporary investment
restrictions, which
include the mandatory
disclosure of holdings of five per cent or more in any
investment fund or when requesting a new unified code
(investment permit) in the Egyptian market.
Failure to comply with these requirements may result in
the suspension of existing unified codes in the Egyptian
stock market.
PHILIPPINES – Excess funds may be repatriated
Since early December 2010, foreign investors have been
able to repatriate excess pesos funded with inward
remittances of foreign exchange, including refunds arising
from the disapproved additional subscription of PSE-listed
shares during a rights offering, subject to certain
conditions and documentary requirements. The new policy
cannot be applied retrospectively.
INDIA – Fixed pay date for dividend and bonus
payments
The Securities and
Exchange Board of
India (SEBI) has made
several amendments
to the equity listing
agreement, key among
which is the introduction of a fixed pay date for dividend
and bonus issues. The fixed pay date is applicable to
payments decided at any board/shareholders’ meeting
convened on or after 1 January 2011.
Previously, the concept of fixed pay date did not exist and
companies had up to 30 days from the Annual General
Meeting to pay the final dividend and up to 30 days from
the record date for bonus payments. A fixed pay date will
enable investors to manage their cash/securities flows
more efficiently.
INDONESIA – SID required when trading directly with
local broker
Under the new rules issued by the Indonesian CSD (KSEI),
clients trading directly with an Indonesian local broker
require a Single Investor Identification (SID).
Local brokers will be required to quote the SID of their
client (who placed the order with them) in their trade
orders. Clients may want to contact their local broker to
ensure the availability of the SID for trading.
SINGAPORE – Remote membership proposed by SGX
Singapore Stock Exchange (SGX) proposes to expand
membership on the securities market to foreign brokers
based abroad. These brokers, regarded as remote trading
members, will observe their home rules and deal only for
foreign investors.
This initiative aims to extend the reach of SGX into the
international market, as with the introduction of the
remote trading members, foreign investors may be served
by a wider pool of trading professionals with access to the
Singapore market.
K A S S e l e c t i o n s • A p r i l 2 0 1 118
Positive responses to KAS BANK’s stress test for pension fundsRecently, KAS BANK launched a pension fund stress test,
anticipating the stress test that the Dutch Central Bank
(DNB) is likely to make compulsory for Dutch pension funds.
The responses during the presentation were enthusiastic.
The audience had several questions and remarks that we
will take to heart when further developing the stress test.
It is relevant to review both peaks (like in 1987 and 2008) and lows during the test.
With the development of this stress test for pension funds,
KAS BANK aims to help its clients to meet the stricter
requirements set out by the government and supervisory
institutions. The new stress test will give pension fund
managers and investment committees a better
understanding of the consequences (and with this the
risks) of several worst-case scenarios relating to the
funding level of their schemes. In addition to three
standard scenarios they can also opt for a tailor-made
service and a more comprehensive analysis of the results.
The stress test can be implemented on an annual, monthly
or quarterly basis. The stress test is also available in
Germany and the UK, where it has attracted a great deal of
press attention.
Stress test presentationThe presentation of the stress test attracted a great deal
of attention. Ard de Wit and Chris van der Gulik, both from
our Institutional Risk Management (IRM) department and
closely involved in the development of the stress test,
responded to several questions and remarks from the
audience. Please find below the most significant of these.
Does KAS BANK advise clients on how to
mitigate tail risks?
The two main risks for pension funds are securities and
interest risk. Securities risk can be hedged through
options. Depending on the fund this can be done by
simple or more complex option constructions. KAS BANK
can support you to analyse and implement these
85
90
95
100
105
110
115 Equity 25%
Interest rate shock in %
Equity 0%
Equity -25%
Actual
-1%1%-0%-1%-1%
Scenario analysis: coverage yields equities vs interest rate shock
K A S S e l e c t i o n s • A p r i l 2 0 1 1 19
strategies. To hedge the risk on interest rates, swaps and
swaptions can be used. KAS BANK’s order desk can execute
these transactions for you.
The aim of introducing a stress test is to make pension funds consider their scale and to be aware if, and how, they are prepared for the future.
What is the objective of the stress test for
the DNB?
No concrete data are available yet. A pension fund is a
financial institution. In that respect the risk models are
comparable to Solvency II and Basel II, and the stress test
for financial institutions forms an essential part of these.
A determination of the Value at Risk alone is not
sufficient.
The aim of introducing a stress test is to make pension
funds consider their scale and to be aware if, and how,
they are prepared for the future.
To conclude, there is also political pressure to make stress
tests for pension funds compulsory.
On what principles is the historical stress
scenario based and to what extent do
‘shocks’ from the past appear to be relevant
for an adequate comparison of data?
In the event of a historical scenario the main question is
whether a pension fund can survive a comparable hit. Two
things are important in this context: 1. What risks play a
role?, and 2. What will happen? So-called lows may have a
considerable impact, however, in the event of small
movements it is often much more difficult to assess what
risks the fund runs. That is why it is relevant to review
both peaks (like in 1987 and 2008) and lows during the
test.
The DNB for example does not include liquidity risk in the
test, which is actually quite relevant.
How does KAS BANK integrate the stress
test in its package of services?
The stress test falls within KAS BANK’s regular risk
management services, as does the IRM Monitor. For the
execution of profound analyses, data arising from the
performance measurement and performance accounting
services are required. For ex-ante calculations only fund
accounting is required.
K A S S e l e c t i o n s • A p r i l 2 0 1 120
Productive partnershipStephen Isgar, KAS BANK, considers the role of the
custodian as regards contingent assets and scheme funding.
In the canon of great sporting rivalries, none inspires
more passion, romance or nostalgia than the biennial
battle for the Ashes. For those not familiar with the arcane
traditions of cricket, this contest dates back to 1882 and
commemorates the first time that Australia beat England,
their former colonial masters, on an English ground. The
Sporting Times ran a satirical obituary lamenting the
death of English cricket, and a group of Melbourne women
presented the England captain with a small terracotta urn,
thought to contain the charred remains of a cricket bail.
Since then this contest has been known simply as The
Ashes. Steeped in history and post-colonial grudges, it
now embodies the spirit of all sport like no other.
Cricket itself is a complex game, requiring a unique blend
of specialist sporting skill, teamwork and tactical nous. So,
despite the myriad disappointments that have followed,
England’s hour of glory this summer remains an epic
achievement. Remember when Alastair Cook and Jonathan
Trott were the most productive batting partnership on
Australian soil? Even if you are not a cricket fan, you
cannot fail to appreciate the duo walking into bat against
a ruthless Australian side on the verge of victory, only to
rake in 329 runs and steal a draw.
As partnerships go, that one evidently worked under the
enormous pressure of expectation. I am not one for
tenuous analogies, but this cricketing news did make me
think of the partnership between pension scheme and
employer and the balancing act both must maintain to
keep the team in the game: the trustee managing assets
and liabilities and the employer maintaining a financially
robust company. Each needs the other for the greater good
of the company.
One such approach is for employers to set aside assets for the scheme to meet its funding commitments, without transferring them directly
Vital link It is the trustee’s primary duty to protect member benefits
and their ability to do so depends on a financially robust
sponsor, especially in volatile economic times. So the
employer covenant is a vital link between the company
and its pension scheme and requires diligent monitoring
(recent Mercer research shows 37 per cent of respondents
carried out formal monitoring once per year or less – out
of 119 schemes surveyed).
Indeed, the Regulator has indicated that trustees should
scrutinise this as rigorously as they would fund
performance and many trustees have been revisiting this
as the issue moves up the risk register. Perhaps a general
lack of understanding between trustees and employers
makes it unlikely that the employer will approach the
trustees with an open chequebook. Nor should trustees be
K A S S e l e c t i o n s • A p r i l 2 0 1 1 21
willing to ride out these uncertain times in the hope that
the finance director will inject a bundle of cash into the
scheme.
With this in mind, trustees have been investigating
alternative ways to tackle deficits, while sponsors are keen
to avoid overfunding the scheme. One such approach is for
employers to set aside assets for the scheme to meet its
funding commitments, without transferring them directly.
This offers trustees security against employer default,
safeguarding future contributions should the employer
find itself in difficulty.
Perfectly placed to assist The Pension Protection Fund (PPF) has issued guidance
and the custodian’s role is also vital, since pledged
securities must be safeguarded through a separate account
structure – ringfenced from the scheme’s assets and the
sponsor’s balance sheet, for the scheme to have a claim on
those assets in the event of employer default.
There are many benefits to this approach. The most
significant for the employer is a sizeable reduction in PPF
levy contributions, allowing money that would have gone
to the PPF to remain on the employer’s balance sheet and
under their control, resulting in greater financial stability.
For trustees, this translates into greater certainty for the
scheme’s future: continued support from the employer and
a stronger employer covenant as a result. Trustees will also
benefit from bespoke account structures, supported by
Stephen Isgar is Business
Development Manager,
Institutional Investors. This
article first appeared in the March
issue of Pensions World.
In a nutshell• the partnership between trustee and employer is
crucial – each needs the other for the greater good
of the company
• one approach to tackling deficits is for employers
to set aside assets for the scheme to meet its
funding commitments which offer trustees security
against employer default
• a custodian is vital since pledged securities must
be safeguarded through a separate account
structure
their custodian, and access to independent and neutral
analysis. Such analysis offers an impartial valuation of the
assets pledged based on mark to market accounting, with
an option on margin calculation to remove price risk.
the custodian’s role is vital, since pledged securities must be safeguarded through a separate account structure
Custodians are perfectly placed to assist in these
structures – it has been reported this year that some are
strengthening their links with trustees by making more
intelligent use of the data they hold through regular
valuations, collateral calculation and transition
management, as well as regulatory compliance reporting.
And our cricketing metaphor? How about this: the
employer and trustees, two batting partners walking to the
crease, with their consultants to coach them and the
custodians acting as umpires, keeping a watchful eye and
updating the scoreboard.
K A S S e l e c t i o n s • A p r i l 2 0 1 122
Laurens Vision
The European Commission
has once again elevated
clearing and settlement to
the top of its agenda, from
the depths of what were once
called the salt mines of the
securities industry.
No fewer than seven expert
groups are in the background
coaching and advising the Commission on the best way
forward or, as some market commentators have
suggested, how to extricate itself from the relative mess
the European markets are currently in. I refer to the
CESAME Group, the CESAME 2 Group, the Legal Certainty
Group, the FISCO Group, the Tax Barriers Business
Advisory Group, the Monitoring Group of the Code of
Conduct and the Expert Group on Market Infrastructures.
Not satisfied with internal voices alone, the Commission
launched a consultation in January on central securities
depositories and the harmonisation of “certain aspects
of securities settlement” in the European Union.
Legislative proposals are due in June 2011 and the
ultimate goal is a transparent and stable financial
system for Europe.
The most notable difference, however, is the number of central counterparties and securities depositories: just one in the US but no fewer than 23 in Europe
When comparing the US and European equity markets it
is striking to note not only that the US produces roughly
the same gross domestic product with 200m fewer
people, but also that the companies representing that
GDP are quoted on four systemically important trading
venues, compared with 28 in Europe. The most notable
difference, however, is the number of central
counterparties and securities depositories: just one in
the US (the Depository Trust & Clearing Corporation, or
DTCC) but no fewer than 23 in Europe. The DTCC was
Personnel notes
GermanyOn 1 January the Relationship Management team was
strengthened by Dijaneta Sokolovic.
Natalie Nabibux was appointed as Sales Manager on
1 March.
Netherlands – Client management Sandra Könisser was appointed on 1 March as Specialised
Relationship Manager, Fund & Investmentservices.
Matthijs Verweij and Niels Bodegraven were appointed
on 1 February and 1 April respectively as
Accountmanagers, Institutional Services.
Jetze Dalmeijer supports Institutional Services as of
1 February as a commercial trainee.
On 1 March the Clearing and Banking Services Relationship
Management team was strengthened by Andy Heideman.
On 1 March the Sub & Core Custody Services Relationship
Management team was strengthened by Sjef van Waard.
SalesPatrick van der Sloot was appointed on 15 January 2011
as Product Sales Manager, Treasury.
Product managersHester Blaauw, Gerrit Groot, Bram Bressers and Ramses
van de Nes have been appointed as the new product
managers at Clearing & Settlement, Derivatives Clearing &
Settlement, Treasury and Corporate Events.
United KingdomMartin Nadel, was appointed on 1 March as Head of
Relationship Management UK.
Client winsNyenburgh Vermogensbeheer Custody and
settlement
Rigi Capital AG Order execution
St. Bedrijfstakpensioenfonds Risk monitor,
Detailhandel Asset administrator
and custody
K A S S e l e c t i o n s • A p r i l 2 0 1 1 23
born of a crisis, when its numerous predecessors in the
1970s forced the stock exchanges to close down for one
day each week to catch up with the trading volumes and
the associated manual, paper-intensive processes that
were an inevitable part of the transfer of securities
ownership in those days.
Small wonder then that the DTCC, as the exclusive
depository gateway in the US, claims the credit for
attracting the investment capital that fuels the US
economy, by means of an efficient, low cost and
centralised infrastructure. In comparison, and despite a
few severe crises of our own, Europe continues to
struggle along with an infrastructure that remains
completely fragmented along national lines. One
wonders why. This is no doubt partly due to the
inevitable vested interests, bearing in mind that Europe’s
exchanges still derive approximately 25 percent of their
annual revenues from post-trade services. And partly
because the European Commission cannot make up its
mind on how best to tackle the substantial challenges of
achieving cross-border post-trade consolidation. The
inescapable question is how to divide this project
between the private and the public sectors. Thus far the
Commission has opted for a bottom-up approach, hence
all the advisory and consultation exercises. The private
sector is supposedly best placed to drive interoperability
– i.e. the technical requirements of the securities
industry – but the public sector is inexorably bound with
the legal, regulatory and tax issues.
Unfortunately, technical progress in the post-trade
landscape is intertwined with cross-border legal and tax
issues and therefore integration to date has taken shape
very slowly, if at all. On top of this, Europe does not
seem able to decide whether horizontal consolidation
(between exchanges and central counterparties across
member states) or vertical consolidation (between
exchanges, CSDs and CCPs) will best address their
concerns over the competitiveness of the markets.
Europe does not seem able to decide whether horizontal consolidation (between exchanges and central counterparties across member states) or vertical consolidation (between exchanges, CSDs and CCPs) will best address their concerns over the competitiveness of the markets
And in the midst of all this, the clearing, settlement and
custody providers keep performing their balancing act to
accommodate traders and investors, as if a single market
in Europe is already a reality. In doing so, are they merely
making money from Europe’s inefficiency? True or not, this
probably best symbolises the crossroads facing the
Commission – the question of whether to regulate or
promote competition in protecting the welfare of end-
users and intermediaries alike. But another viable
explanation of the stalemate in Europe is that the
dominant behaviour of post-trade service providers is to
do the right things for existing market participants in
given market circumstances. Which is not necessarily the
same thing as doing the right thing for the market at
large.
This column was first published in Portfolio Institutional.
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