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Date: 19-22 October 2013 Asia Pacific Central Securities Depository Group General Meeting Market Booms and Busts Custodian Banks and CSD Interaction PUBLIC.

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Presentation on theme: "Date: 19-22 October 2013 Asia Pacific Central Securities Depository Group General Meeting Market Booms and Busts Custodian Banks and CSD Interaction PUBLIC."— Presentation transcript:

1 Date: October 2013 Asia Pacific Central Securities Depository Group General Meeting Market Booms and Busts Custodian Banks and CSD Interaction PUBLIC

2 2 Banks (Local Custodial) Local Brokers How are CSDs directly serving the end investor? Funds (Fund Manager) International Brokers Banks (Global Custody) Insurance Companies Listed Company HoldSell Lawyer Registrar Banking Infrastructure Members Brokers Banks Sp. Category Depository Investors Buy PUBLIC

3 3 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 PUBLIC

4 4 Safekeeping of assets through the depository. Local Custodian Bank mirrors depository holdings in internal books and report to clients Reconciliation of CSD and local custodian bank records Receipt and delivery of securities, after matching client instructions to counterparty allegement and market settlement Forex conversion for foreign institutional investors Cash payments and receipts, linking them to securities Transaction/portfolio/cash reporting in specialised SWIFT formats Corporate action reporting/administration Dividend and income collection Proxy services Take-up of rights and bonus issues Safekeeping of assets through the depository. Local Custodian Bank mirrors depository holdings in internal books and report to clients Reconciliation of CSD and local custodian bank records Receipt and delivery of securities, after matching client instructions to counterparty allegement and market settlement Forex conversion for foreign institutional investors Cash payments and receipts, linking them to securities Transaction/portfolio/cash reporting in specialised SWIFT formats Corporate action reporting/administration Dividend and income collection Proxy services Take-up of rights and bonus issues 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 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 Core service offeringsValue-add service offerings PUBLIC

5 5 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 17F-5/17F-7 Rule 17f-5 was adopted in 1984, and revised in 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 17f-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 17f-5) that contracts directly with the fund to provide custodial services for foreign assets PUBLIC

6 6 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 Transparency Risk –CSD on CSD Credit Risk Liquidity Risk Governance and Transparency Risk Risk management Source: Thomas Murray Data Services Ltd Operational Risk PUBLIC

7 Regional risk ratings Source: Thomas Murray Data Services Ltd AAAExtremely low risk AA+Very low risk AAVery low risk AA-Very low risk A+Low risk A A-Low risk BBBAcceptable risk BBLess than acceptable risk BQuite high risk CCCHigh risk PUBLIC

8 8 Communication Industry groups – Working together Japan Philippines Taiwan India Hong Kong Singapore Thailand Vietnam Indonesia Korea Japan Business operations committee – 10 Sub-committees and SM PG Philippines Four foreign custodian banks conduct ad hoc meetings based on industry issue Taiwan Taiwan Securities Association (broker member level). TDCC host public forums for member to receive input on changes or enhancements Hong Kong Custodian Bank Working Group (8 banks) Regular Monthly meetings Korea Korea Federation of Banks has a new sub-group Association of Local Custodians India Informal Custodian Bank group – foreign and local banks. NMPG Singapore SMPG – SWIFT related and Ind ustry related issues. CSD reps participate 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 Vietnam Ad hoc custodian bank meeting to discuss issues. (foreign banks) Indonesia Indonesia Association of Custodian Banks PUBLIC

9 Thank you PUBLIC

10 10 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 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 PUBLIC


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