It has been yet another challenging year for the securities services industry as it grapples with upcoming regulations. Most of the regulations, including EMIR, Dodd-Frank and Basel III, are due to come into effect in 2013 and 2014, but providers have wasted no time in altering their strategies in order to prepare.
The most read story on GlobalCustodian.com this year by number of page views concerns the settlement of a BNY Mellon FX lawsuit, which also prompted a change in custodians business models. In January, BNY Mellon reached a partial settlement with the Justice Department regarding claims the custodian overcharged clients on FX transactions. Owing to one whistleblower, which leaked confidential information showing the firm had supposedly exploited the lack of transparency of FX transactions, the foreign exchange industry has changed for good.
Custodians have also found it necessary to scale up and increase market share in order to offset low margins as regulation also impacts the cost of doing business. A few of them have tried prime custody and a combined collateral services offering, leveraging off the volumes in their investment bank and, for those that cannot, scaling up seems the most likely option. State Street, for example, acquired Goldman Sachs Fund Administration and was reportedly looking at Societe Generale Securities Services amidst news that the French player was looking to reduce its balance sheet and that the U.S. custodian was looking to Europe for acquisitions.
Those providers whose parents also own an investment bank sought to merge their collateral, clearing, prime brokerage and custody offerings this year in an environment where investor and broker-dealer clients need to reengineer their businesses and seek greater efficiencies, particularly as regulation mandates centrally cleared transactions. Citi led the way with a combined product offering some time ago, and this year saw BNY Mellon and J.P. Morgan do the same. In November, J.P. Morgan reorganized its Investor Services team as part of the integration of its Treasury and Securities Services business, which includes Worldwide Securities Services (WSS), into a new Corporate and Investment Bank (CIB) division.
BNY Mellon subsequently created a new Investment Services division as the company aligns its Asset Servicing, Corporate Trust, Depositary Receipts, Global Markets, Global Collateral Services, Broker Dealer Services and Pershing businesses under a single leadership structure. BNY Mellon said the new structure will allow strong alignment across all of the businesses.
Even ICSDs are gearing up to meet the challenges posed by the central clearing regulations. Anticipating a collateral shortage as the industry moves toward a centrally cleared framework, which will require high-quality collateral to be posted to meet CCP margin requirements, ICSDs, as mobilizers of collateral, are partnering with agent banks in various markets to facilitate the cross-border flow of that collateral. Readers saw first-hand how this is being executed through a partnership between BNP Paribas and Euroclear.
Meanwhile, online readers were also interested in how T2S and AIFMD are driving a strategic rethink by custody network managers. Due in 2015, T2S will force these network managers down the road to being direct members of the system, one custodian network manager said. AIFMD, too, 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.
See below for the full list of the top securities services stories of 2012.
1. First Settlement in FX Lawsuits Amid a Changed Industry
2. Societe Generale Could Get Over 4 Billion Euros for Securities Services Business, Say Analysts
3. BNY Mellon Virginia FX Lawsuit Dismissed
4. BNY Mellon Expecting CSD License By Year End
5. Q&A: Emily Portney and Dinkar Jetley on the New Agency Business at J.P. Morgan
6. BNP Paribas Upgrades Fund Administration Services
7. Trend of Securities Lending and Custody Unbundling Is Reversing, Survey Finds
8. J.P. Morgan Reduces Tri-Party Repo Intraday Credit by More Than a Third
9. Northern Trust Sued by Los Angeles City Attorney for Pension Securities Lending Losses
10. US Treasury Eases FATCA Rules; European Countries to Help Collect Data from FFIs
11. US District Court Judge Dismisses Northern Trust Securities Lending Claims
12. J.P. Morgan Reorganizes Investor Services Team
13. BNY Mellon Reorganizes Asset Servicing Management Team
14. OTC Derivatives Regulations to Cost Industry $6.7bn on IT Upgrades, White Paper Says
15. BNP Paribas Hires Claudine Gallagher to Launch US Custody
16. Custodians at a Crossroads With Their Business Models, But Silver Linings Are Appearing
17. T2S and AIFMD Drive Global Strategy Rethink By Network Managers
18. J.P. Morgan Launches New Service for Maintaining Excess Collateral
19. Euroclear Pursues Strategy of Collaboration With Agent Banks and CSDs
20. J.P. Morgan Appoints Lebedin Global Head of Prime Brokerage