TARGET2-Securities (T2S) and the Alternative Investment Fund Management Directive (AIFMD) are driving network reviews among global securities services providers as they rethink how they connect to emerging markets going forward. Heads of Network Management at the Standard Chartered Global Emerging Markets The Road Ahead seminar yesterday discussed the changes. Andrew Osborne, SVP global head of Network Management, Northern Trust, said AIFMD might prevent or restrict some of the choice the global custodian has in some of the more exciting markets because it would not be prepared to take on the (depositary) risk in safekeeping those assets.
Credit Suisse is in the midst of a sizeable network review checking that includes a rethink on market access including the use of the account operator model. Vince Melaugh, head of EMEA Network Management said: Were reviewing everything because we support an investment bank we have a number of operating models; we go direct with the infrastructure in Europe, we self-clear in Japan and we use the account operating model in Hong Kong, which we see as an opportunity to extend that to other markets. From market to market the account operator model changes depending on the regulations. We are clearly engaged in multi markets where you wouldnt want direct access where theres small flow you might want to wait for a regional hub. In Europe youll get the opportunity with T2S to do something across 20+ markets in one hit. Thats a way off but there will also be opportunities to expand the account operator certainly in Asia Pacific and that will change the dynamic. Along with that well continue to reduce the number of players we use and consolidate the network and strategic partner s in certain markets.
Osborne commented on the rethink global providers are doing under T2S: The brokerage and investment bank community have been long term direct members of systems, globals not so much as they have tended to rely on third parties rather than own proprietary networks. T2S will force us down the road to being direct members of the system somewhere and I think once weve gotten that on board and were comfortable with that then that model will be extended beyond Europe to other locations, particularly the larger markets in Asia Pacific. That will be driven by operator efficiency and married with AIFMD because we have our own accounts in depositary systems and as we expect depositary systems, being considered clearing systems, would be prevented from AIFMD requirements, that would mean mitigating our risk as well as increasing our operational efficiency.”
Martin Anderson, head of Network Management, RBC Investor Services said his team is undergoing the consolidation of provider networks in preparation for T2S. Weve just seen a client with their own wealth management division with their own network requirements which is leading us to make slightly different decisions as to whether we become an operator direct in the market place. T2S and AIFMD make us relook our strategy to see if there are opportunities occurring from the dynamics of the changing infrastructure.
(JDC)