Securities services
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Securities services, also known as asset services and investment services, comprises a wide range of products and services that are offered to institutional clients that issue, trade, and hold securities.[1] A bank engaged in securities services is usually called a custodian bank.[2]
History[edit]
In 1961, U.S. President John F. Kennedy established a Committee on Corporate Pension Plans.[3] Two years later, Studebaker Auto Manufacturer shuttered its business and operations and failed to provide pensions to the approximately 7,000 employees affected. Hence, in 1974, U.S. President Gerald Ford proposed the Employee Retirement Income Security Act (ERISA Act), protecting the employee benefit plans' standards.[4]
Since ERISA become effective, employers are no longer allowed to hold and manage their pension fund assets but are obligated to appoint external custodians to safekeep them.[5] Employers are also required to appoint trustees and depositories to ensure the pension funds are aligned to the investment mandates and managed in the best interest of the pension holders.[6]
Many banks have developed a wide range of custodial and related securities services and have developed new technologies in response to changing regulatory requirements, such as digital assets.[7][8]
Client segments and products[edit]
The securities services industry mainly serves two types of clients: asset owners and managers and banks, brokers, and dealers.
Asset owners and managers[edit]
The client segment of asset owners and managers includes asset management companies, alternative asset managers, insurance companies, pension funds, sovereign wealth funds, central banks, family offices and prime brokers.[9]
A bank may offer products and services including:[9][10]
- Global custody
- Fund services (accounting and valuation) - Some financial institutions outsource fund service to a bank with economies of scale and more advanced systems. Bank back offices have an integrated fund accounting platform covering different regions and fund types. Functions include providing accurate accounting of total assets and handling complex derivatives.
- Transfer agency - maintaining investors' individual records
- Collateral management and segregation - Banks can optimize financial institutions’ collateral portfolios with internal analysis tools and meet complex financing and liquidity needs.[11]
- Middle office outsourcing
- Securities lending and borrowing
- Treasury services - cash management and foreign exchange
- Trustee services
Banks, brokers and dealers[edit]
The client segment of banks, brokers and dealers includes global custodians, banks, brokers and dealers.[9]
Applicable products and services include:[10]
Global custody and direct custody[edit]
Global custody[edit]
A global custodian is responsible for the safekeeping and administration of assets of clients, for instance, asset managers and owners, in multiple markets. They serve as the first point of contact for their global clients. However, they may not have a strong network in every jurisdiction in which clients want to invest. Therefore, the global custodian appoints and manages direct custodians which have existing securities services infrastructure in particular individual markets.[14]
Direct custody[edit]
A direct custodian offers services including safekeeping and administration of client assets in a local market to global custodians. Direct custodians offer knowledge and experience of the markets and industry and close relationships with local regulators, which the global custodian might require but lack.[15]
Industry profile[edit]
As of 2022, the market size of the custody, asset and securities services industry in the United States as measured by revenue is $32.5 billion, with a year-over-year growth of 2.9% between 2017 and 2022.[16]
Many investment banks and banks offer securities services. Generally, the division of securities services is either grouped with global markets to form a larger umbrella of markets and securities services or falls under the umbrella of corporate banking or transaction banking. For instance, Citi and HSBC restructured and combined their global markets and securities services divisions in 2019[17] and 2020[18] respectively.
Banks offering securities services include but not limited to[19]
BNP Paribas: Securities Services
BNY Mellon: Global Market Infrastructure- Citi: Markets & Securities Services
Crédit Agricole/Santander: CACEIS Investor Services
Deutsche Bank: Corporate Banking
HSBC: Markets & Securities Services- J.P. Morgan: Markets & Securities Services
Mizuho: Institutional Services- MUFG: Investor Services
- Northern Trust: Asset Servicing
Royal Bank of Canada: Investor & Treasury Services- SMBC: Custody and Securities Services
- Société Générale: Global Markets and Investor Services
- Standard Chartered: Financial Markets
- State Street: Asset Servicing
Industry ranking[edit]
Global[edit]
As of 2021, the largest custodian banks by assets under custody (AUC) are[20][21][22][23][24]
| Rank | Bank Name | Assets under Custody (US$) |
|---|---|---|
| 1 | BNY Mellon
|
46.7 trillion |
| 2 | State Street
|
43.7 trillion |
| 3 | JPMorgan Chase
|
33.2 trillion |
| 4 | Citi
|
28.5 trillion |
| 5 | Northern Trust
|
12.6 trillion |
| 6 | BNP Paribas
|
12.6 trillion |
| 7 | HSBC
|
10.0 trillion |
Regional[edit]
According to the Global Custody Survey 2020 by Global Investor Group, the top regional custodial banks are:[25]
| Region | Bank Name |
|---|---|
| Americas | JPMorgan Chase
|
| Asia-Pacific | HSBC
|
| Europe, Middle East, and Africa (EMEA) | HSBC
|
Notable industry acquisitions[edit]
 | This section appears to be slanted towards recent events. (Learn how and when to remove this template message) |
2000 to 2010[edit]
In July 2003, HSBC announced an agreement to acquire 82.19% of Korean fund administrator Asset Management Technology (AM TeK) for $12.47 million in cash, which was the largest fund administrator in South Korea, with $24 billion of assets under administration.[26]
In November 2005, U.S. Bancorp announced the purchase of the corporate trust and institutional custody businesses of Wachovia Corporation.[27]
In July 2006, HSBC announced that it would acquire Westpac's sub-custody operations in Australia and New Zealand for $112.5 million, making the British bank the leading sub-custody and clearing bank in Australia and New Zealand.[28]
In July 2007, the merger between Bank of New York and Mellon Financial Corporation was finalized to create BNY Mellon, which is the largest custodian and asset servicer with more than $18 trillion in assets under custody and administration at that time.[29]
In July 2007, the Boston-headquartered bank, State Street confirmed that it would acquire Investors Financial Services for $4.2 billion.[30]
Also, in July 2007, the French bank BNP Paribas announced an acquisition of a minority stake of 33.4% in the capital of SLIB, which had been a 100% subsidiary of Natixis prior to the acquisition.[31]
In April 2010, Standard Chartered acquired Barclays' African custody business, which had assets under custody of $3.8 billion.[32]
One month later, in May 2010, State Street announced the completion of its acquisition of Intesa Sanpaolo's Securities Services business (ISPSS) for Euro 1.28 billion in cash.[33]
Since 2011[edit]
In January 2021, U.S. Bancorp acquired the debt servicing and securities custody services client portfolio of MUFG Union Bank, with approximately 600 client relationships and $320 billion in assets under custody and administration.[34]
In September 2021, State Street announced it would acquire Brown Brothers Harriman's Investor Services business, including its custody, accounting, fund administration, global markets, and technology services for $3.5 billion in cash.[35]
In January 2022, Standard Chartered announced an agreement to acquire full ownership of RBC Investor Services Trust Hong Kong Limited from RBC Investor & Treasury Services, expanding its custodian business to MPF and ORSO schemes trusteeship business in Hong Kong.[36]
See also[edit]
References[edit]
- ↑ "Securities Services Overview". Financial Edge Training. Andrew Ryden. Retrieved October 1, 2020.
- ↑ "The Securities Custody Industry" (PDF). European Central Bank. Diana Chan, Florence Fontan, Simonetta Rosati, Daniela Russo. Retrieved August 1, 2007.
- ↑ "Erisa 40 Timeline Alternate". U.S. Department of Labor. Retrieved January 25, 2022.
- ↑ "President Ford Signing ERISA of 1974". Pension Benefit Guaranty Corporation. Retrieved April 27, 2017.
- ↑ "Investment Company Act of 1940" (PDF). US Government. Retrieved May 13, 2021.
- ↑ "Investor Bulletin: Custody of Your Investment Assets". U.S. Securities and Exchange Commission. Retrieved December 6, 2021.
- ↑ "The evolution of a core financial service - Custodian & Depositary Banks" (PDF). Deloitte. Deloitte. Retrieved January 1, 2019.
- ↑ "Summary and Highlights: The Securities Services Industry in the 'New' World". Future of Finance. Future of Finance. Retrieved November 11, 2021.
- ↑ 9.0 9.1 9.2 "The Custody Services of Banks" (PDF). Davis Polk. The Clearing House. Retrieved July 28, 2016.
- ↑ 10.0 10.1 "Securities Services: The Good Times Are Over, It Is Time To Act" (PDF). Oliver Wyman. David Maya, Hugues Bessiere. Retrieved June 1, 2015.
- ↑ "A practical 10-step guide to collateral management" (PDF). IHS Markit. CloudMargin. Retrieved June 1, 2017.
- ↑ "Third Party Clearing by HKSCC General Clearing Participants". HKEX.
- ↑ "Account Operator definition". Law Insider.
- ↑ "Sectors explained: Global Custody". eFinancialCareers. Retrieved September 1, 2013.
- ↑ "SUB-CUSTODY: You'll miss us when we're gone". Funds Europe. Retrieved October 1, 2015.
- ↑ "Custody, Asset & Securities Services in the US - Market Size 2003–2027". IBISWorld. Retrieved February 9, 2022.
- ↑ "Citi combines equities, prime brokerage and securities services units". The Trade. Joe Parsons. Retrieved March 5, 2020.
- ↑ "HSBC combines markets and securities services divisions in major restructure". The Trade. Joe Parsons. Retrieved July 30, 2019.
- ↑ "Custodians By Assets Under Custody (AUC)". TAB Financial Markets. The Asian Banker. Retrieved December 31, 2010.
- ↑ "Top custody banks add record $12.7tn assets in 2021". Risk.Net. Alessandro Aimone. Retrieved January 24, 2022.
- ↑ "Citi to Launch Fund Custody Business in China". Citi. Citi. Retrieved July 30, 2021.
- ↑ "Financial information, news and reports for investors". Northern Trust Corporation. Retrieved December 21, 2021.
- ↑ "BNP Paribas reports "strong business drive" for 2021". Asset Servicing Times. Jenna Lomax. Retrieved February 10, 2022.
- ↑ "HSBC reaches new custody milestone". Asset Servicing Times. Maddie Saghir. Retrieved August 3, 2021.
- ↑ "Global Custody Survey 2020". September 30, 2020. Retrieved September 30, 2020.
- ↑ "HSBC acquires Korea fund administrator". Asian Investor. Retrieved July 2, 2003.
- ↑ "U.S. Bank to Acquire the Corporate Trust and Institutional Custody Business from Wachovia". US Bank. Retrieved November 29, 2005.
- ↑ "HSBC To Pay Up To US$112.5 Million For Westpac Sub-Custody Operations In Australia And New Zealand". Global Custodian. Retrieved July 27, 2006.
- ↑ "Custody industry consolidates". IPE. Heather Mckenzie. Retrieved September 1, 2007.
- ↑ "State Street finalises takeover". Irish Examiner. Niamh Hennessy. Retrieved July 3, 2007.
- ↑ "BNP Paribas to take a minority interest in SLIB". BNP Paribas. BNP Paribas. Retrieved July 17, 2007.
- ↑ "Standard Chartered Buys Barclays African Custody Business". Global Custodian. Retrieved April 27, 2010.
- ↑ "State Street acquires Intesa Sanpaolo's Securities Services business". Securities Finance Times. Retrieved May 17, 2010.
- ↑ "U.S. Bancorp buying large custody book from MUFG Union Bank". Amercian Banker. Retrieved January 6, 2021.
- ↑ "State Street to Acquire Brown Brothers Harriman Investor Services". Brown Brothers Harriman. Retrieved September 7, 2021.
- ↑ "Standard Chartered signs agreement to acquire RBC Investor & Treasury Services' trustee and domestic asset services business in Hong Kong" (PDF). Standard Chartered. Retrieved January 12, 2022.
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