While clients still consider a myriad of criteria when determining which service providers to use for custody and securities lending, and those service providers may not always be one in the same, in the past six to seven months a much greater number of clients are opting to bundle the two services than in the recent past, says Paul Wilson, a managing director at J.P. Morgan.
Wilson, who is managing director and global head of client management & sales for Financing & Markets Products, which includes securities lending, foreign exchange, collateral management, clearance, futures & options clearing and transition management, spoke to Global Custodian at IMNs Benefical Owners Securities Lending Conference Monday in Phoenix, Arizona.
Watch the video with Wilson below.
Wilsons comments come on the tail of a report released last week by custody and securities lending consultancy Finadium, which claimed that the growth in unbundlingwhich had grown to be a trend in recent yearswas reversing. Finadium polled U.S. plan sponsors and found that 59% have unbundled or intend to unbundle the services this year, compared with 61% in 2011 and 70% in 2010, when unbundling peaked. Unbundling held at 65% in 2009 and 48% in 2008.
While an outside provider may mean more revenues, the difficulty of multiple negotiations with more service providers, including disrupting their important custody agreements, can be more trouble than it is worth, Finadium noted in its report.
Wilson echoes the sentiment, pointing out that it is all type of clients who are opting in greater numbers for a bundled service offering, including asset managers, pension funds, mutual funds and insurance companies. I think in the current spread environment, people are looking at the risk/reward [ratio] within the securities lending business, and operational risk and operational convenience is a significant part of that process, Wilson says.
It is also more difficult to access some emerging marketswhich is where beneficial owners are increasingly turning to following troubles in the U.S. and European marketson a non-custody, unbundled basis, Wilson says. Bundling custody with securities lending also allows service providers to offer a more customized offering, he says.
However, the trend of unbundling has not ceased altogether. Within the industry, we do still see a fairly significant amount of unbundling, Wilson says. Our third-party business, for example, continues to grow at really good levels. J.P. Morgan offers third-party securities lending as well as in a package deal along with custody.
At the NeMa conference in Croatia in June of last year, Mark Bosquet, head of network management for Banque Privee Edmond De Rothschild Europe, said the industry was moving toward unbundling, rather than bundling, of all types of services. The industry is naturally moving to unbundling, because if you look at the number of extra services and compliance costs in the futurefor example, T2S, asset servicing, settlement pricing, data transferclients and custodians need to be able to know exactly what they are paying for.
For the past several years until now, it appeared more service providers and their clients were pushing to unbundle services, which allows clients to pick and choose services a la carte and theoretically provides greater transparency around pricing.
(CG)