HSBC Securities Services

Issue 1, 2012

Welcome to the first HSBC Securities Services (HSS) Client Update of 2012. In this edition we are pleased to share you some articles and news items that we hope may be of interest as you focus on growing your businesses in this Year of the Dragon.

In this issue, we launch a new Global Insights section featuring two thought-provoking pieces: An update on "The wider world in 2050" originally published in January 2011 by the Bank's Senior Global Economist with this latest commentary seeking to identify the Top 100 economies with some fascinating outcomes, and "How credit intensive is Asia's growth?" explored by HSBC's Co-Head of Asian Economic Research. On a related note, this edition also offers you an opportunity to register for "Week in China", a subscriber-only publication available exclusively to HSBC's corporate and institutional clients that provides context and commentary on key business trends in China.

As we begin a new year, we would like to take the opportunity to thank you for your continued support. We are very pleased to have heard from many of you via the various industry surveys in the past few months. In the recently published Global Custodian survey for instance, you ranked HSBC number one in Global Custody in 2011. HSBC also came out at the top of the R&M 2011 UK Unit Trust Trustee / OEICS Depositary Survey, and received awards from other industry publications.

More valuable than these accolades is the message you are sending us about how effectively we have been in supporting your business objectives. Needless to say, we take your positive feedback as a challenge to become even more focused on delivering on our promise to help you enhance your business performance, mitigate risks and capture opportunities now and in the future.

2012 will doubtless bring with it many challenges, but we in HSBC Securities Services remain committed to further developing our solutions, people and connectivity so that we may continue to meet your evolving needs wherever you do business.

With best personal regards.

Cian Burke Drew Douglas

Cian Burke and Drew Douglas

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Please click the links below to view our global insights.

The Wider World in 2050
When HSBC published 'The World in 2050' in January 2011 we gave a projection for the Top 30 economies by size in mid-century from a pool of today's largest 40 economies. This update casts a wider net and seeks to identify the Top 100 and highlights some fascinating outcomes.

How Credit Intensive is Asia's Growth?
Asia's recovery from the global financial crisis has been, without doubt, impressive. Industrial output, in the three short years since, has increased by another third, despite western demand for the region's products remaining lacklustre. What has powered Asia's recovery is, quite simply, credit.

Cayman Islands

The Mutual Funds (Amendment) Law 2011, which was passed into law on 22 December 2011, amended the Mutual Funds Law (2009 Revision) and requires all master funds, as defined in the amended law, to become registered by the Cayman Islands Monetary Authority (CIMA).

Under the law, a master fund is 'a mutual fund that is incorporated or established in the islands (Cayman Islands) that holds investments and conducts trading activities and has one or more regulated feeder funds'. A regulated feeder fund is defined as a regulated mutual fund that conducts more than 51 per cent of its investing through another mutual fund.

The new requirements apply to relevant funds launched after the amended law came into effect as well as to existing funds.

All affected master funds must comply with the new registration requirements before 21 March 2012.

Registration procedures

The following documents must be submitted to the CIMA before the prescribed deadline

  • The completed and signed Form MF4
  • The filing fee of CID2,500 (USD3,048.78)
  • A copy of the certificate of registration or
  • Incorporation of the master fund; and
  • The current offering document of the master fund, if any

Ongoing filing requirements

In addition to filing the annual fee, master funds are required to file with CIMA, audited financial statements signed off by a local auditor within six months of its financial year.

Europe

In recent years, a number of legal actions have been undertaken in respect of discriminatory withholding tax claims. These actions consider where residents of the home country state (e.g. Netherlands) have received preferential withholding tax treatment on local (e.g Dutch) income over residents of another member state (e.g Germany). i.e. The German residents would have paid a higher withholding tax rate than the Dutch resident on the same income.

Whilst many of these legal cases have been heard and found in favour of the claimant, a breakthrough has recently occurred in that for the first time a third country claimant (from the USA) has been granted a full Dutch withholding tax refund for a tax exempt fund, and this has been paid by the Dutch authorities. This could result in many claims from other non EU resident clients to the various EU member state tax authorities.

As a follow up, the Dutch tax authorities have now announced new legislation that third country (i.e. non EU) Pension funds and other tax exempt entities will be eligible for a full refund of Dutch withholding in respect of portfolio dividends, as long as that third country has a Double taxation agreement with the Netherlands that contains an exchange of information agreement. The full procedures for this will be available later this year.

UAE

The Emirates Securities and Commodities Authority has recently issued draft regulations for stock borrowing and lending, short selling, liquidity provision and market making. HSBC has provided feedback on the draft regulations which includes several key considerations that will improve the overall efficiency of the suggested enhanced market mechanisms.

Cayman Islands

In the judgment of the Grand Court of the Cayman Islands in the case of Weavering Macro Fixed Income Fund (In Liquidation) versus Peterson and Ekstrom, two directors were found guilty of willful neglect of their duties and were held liable for damages of USD111 million, plus costs. This case has reignited the debate around the role of directors and the importance of appointing professional independent directors to oversee a fund's service providers, including the investment manager. While the Weavering case is not necessarily typical of the industry, it is causing directors to review what they are doing in terms of fiduciary oversight and due diligence and is of increasing emphasis for investors in all jurisdictions. In line with the focus being placed on this very important issue, in 2012 the Bermuda Monetary Authority will be working with the industry to develop and introduce corporate governance standards for fund board of directors to better align Bermuda's regime with global standards.

Bermuda

Bermuda intends to license and regulate corporate services providers by enacting the Corporate Services Provider Business Act, which has been drafted and circulated for industry comment. Corporate services include the provision of services related to acting as company formation agent, providing the registered office, filing statutory forms, acting or arranging for another person to act as a company officer, secretary or director and acting as a nominee shareholder. While this new legislation will have little impact on HSBC as a corporate service provider, as HSBC companies already operate in a licensed and regulated regime, it is expected to significantly affect other firms providing these services.

'Week in China' is a subscriber-only publication available exclusively to HSBC's corporate and institutional clients that provides context and commentary on the key business trends emerging from China, from a combination of Chinese and English language content sources. Week in China is delivered on a weekly basis and distributed by e-mail. It is also available to readers through a password-protected website.

To register for Week in China please visit www.weekinchina.com

Also available on your Blackberry, iPhone or as an iPad app.

Eight Reasons to Read Week in China

  1. You need to understand the world's fastest growing economy better
  2. Week in China filters all the information, saving you time
  3. A one-stop digest of China-centric news and insights, delivered to your inbox every Friday
  4. Locally sourced in China but from a global perspective
  5. Easy to read and unbiased
  6. For the busy executive, Week in China offers depth, covering 20 industries
  7. Each week there is new insight on what is driving 1.3 billion consumers
  8. In search of an answer? Access the Week in China web archive of thousands of articles

Icon upgrade

The enhancement of our European and Middle East and North Africa (MENA) accounting and valuation system, Icon, continues with the successful completion of its upgrade. This upgrade enables the roll out of additional derivative handling functionality in 2012, improved cost sheet model for various fund types and enhanced capacity for reporting.

MENA operating model

The migration of HSBC MENA clients from our legacy Asian accounting and valuation system, IFAS, to the Icon system and operating model has been completed. This provides greater scale for the Middle East fund services business and introduces support for same-day fund valuations along with weekend support, in line with market requirements. Our MENA clients will also benefit from strategic plans already established for the European traditional funds business including middle office as well as accounting services.

New Asian infrastructure and operating model

We have made good progress in migrating funds to our new fund accounting platform and operating model in Asia. In Hong Kong we have migrated more than 500 funds to the new model. Migrations for India and Vietnam funds have been completed and Indonesia is currently underway. The migration plan for 2012 includes Singapore, the Philippines, Thailand and Malaysia as well as further progression for Hong Kong funds.

Korea hedge funds

We have been heavily involved in the proposed launch of onshore hedge funds in Korea and have now launched our service offering, with the first funds launched in December 2011. Over the last six to eight months we have had significant engagement with regulators, industry bodies, such as the Korean Financial Investment Association and the Korea Securities Depositary, fund managers and prime brokers to discuss global trends in hedge funds, best practices and recommendations for the Korean market leading up to the launch. We have also customised our product proposition to meet the requirements of this segment.

Solvency II

We continue to be actively engaged in designing solutions for the Solvency II data requirements for our insurance clients. Several major data challenges are being progressed with clients, peers, data vendors, regulators and industry associations. The proposed solutions are being refined. In collaboration with our clients, other insurers and fund managers, we are escalating the initiative to ensure appropriate and consistent data content to the European Insurance and Occupational Pensions Authority. The data content outcomes and other regulations may, at a later stage, cross over into the pension fund segment.

IFRS convergence

Most large global economies have either adopted the International Financial Reporting Standards (IFRS) or have adoption plans in place. Full IFRS convergence for funds in the majority of our administration jurisdictions is scheduled to take place over the next one to three years. We have initiated a project to track and prepare an action plan for adoption of the new standards to ensure a smooth transition to the new standards. We are working with an external consultant for Phase 1 of the project which involves a review of the status of IFRS adoption across our fund administration jurisdictions and the attendant requirements. Phase 2 focuses on the implementation across our systems and processes to ensure we meet the prescribed timelines.

Hedge funds on HSBCnet

We now have the capability to deliver hedge funds data and reports to clients and their advisers via HSBCnet, the HSBC Group internet portal. Hedge fund data can be stored in the HSBC data warehouse, alongside information from the HSBC traditional accounting and valuation platforms. Clients for whom we service traditional and hedge funds can now view all of their portfolios, individually or on a group basis, through the same access point. Clients who currently use the 'Office' internet portal will be migrated to HSBCnet over the coming year.

Transfer Agency Services upgrade

On 19 November 2011, we successfully upgraded our Global Alternative Transfer Agency platform to NTAS 11, the very latest version of Koger's flagship software. Clients can now benefit from the following new features:

  • Rate of return calculations on investments that can be displayed on shareholder statements
  • New limited partnership and private equity tracking capabilities
  • Staged redemption calculations and tracking
  • Hold back functionality where percentage hold-backs can be defined and tracked on individual orders as well as a default percentage at higher levels, eg fund group
  • New side pocket module enhancements to allocate from the main fund to the side pocket net of incentive fees
  • Inclusion of multi-currency and pending trades
  • Performance fee enhancements, eg tiered incentive fee structures that allow reduced fee rates to be charged on higher account balances, and new performance fee methods where average incentive fees without equalisation allow NTAS to calculate the incentive fee for each lot when subscriptions are priced using the bid NAV

These new features will strengthen our transfer agency services proposition even further.

HSBC is delighted to have received the following honours recently:

Awards

  • Asian Investor Service Provider Awards 2011
    Best Direct Custody, Japan
    Best Direct Custody, Middle East
    Best Direct Custody, Southeast Asia
  • Asia Asset Management Best of the Best Awards 2011
    Best Fund Administrator for Alternatives Products, Asia-Pacific
    Best Transfer Agent, Asia-Pacific
  • Global Investor ISF Middle East Awards 2011
    Domestic Custodian of the Year
  • HFM Week US Awards 2011
    Best Administrator in the 'Over USD30 billion – Client Service' category
  • ICFA European Service Provider Awards 2011
    Custodian of the Year, Germany
    Fund Administrator of the Year, Channel Islands
    Custodian of the Year, UK and Ireland
  • Malta Institute of Management Mediterranean Islamic Finance Conference 2011
    Best Contribution to Islamic Finance by a Conventional Institution

Surveys

  • Global Custodian Global Custody Survey 2011
    HSBC was ranked No.1 globally for Global Custody in the recently published Global Custodian Global Custody Survey 2011. HSBC was top rated in 8 out of 10 categories and leads the survey among institutional investors with fund manager scores increasing significantly. We were ranked first against our peers among institutional investors after being rated Commended in 2009. Regionally, HSBC was ranked No.1 service provider in Asia (without outliers) and No.2 in Europe with the North American operation receiving a Commended ranking for the first time. The survey results demonstrate HSBC's commitment to deliver a market leading Global Custody product to our clients and to position them as the No.1 service provider in the industry.
  • R&M UK Unit Trust Trustee/OEICS Depositary Survey 2011
    HSBC Trustee and Depositary Services regained the No.1 spot in the annual survey which asks fund managers to rank the services they receive from their trustee or depositary provider. The services include compliance monitoring, regulatory and technical support. In the overall survey, HSBC came out on top with an average score of 9.14 out of 10, beating last year's winner, JP Morgan. In addition, HSBC was also awarded first place by managers who manage funds in excess of GBP1 billion with an overall score of 9 out of 10.
  • Global Investor Magazine/ISF Equity Lending Awards 2011
    HSBC Treasury Operations was ranked No.1 in Collateral Management and No.2 in Trade Support and Settlement. HSBC Finance was ranked No.1 in Fees and Billing. Both departments were one of only two lenders to achieve the top spot in two categories and runner up in another. HSBC was ranked fourth in Operations overall. HSBC Securities Lending achieved a global overall weighted rank of tenth in 2011, up three places from the previous year.

Banks and Broker-dealers

Tim Faselt has been appointed as Global Head of the Banks and Broker-dealers client segment. In this role he reports to Scott Epstein, Head of HSS Americas. Tim will maintain his Custody and Clearing product responsibilities for the Americas, reporting to Colin Brooks in Hong Kong.

Corporate Trust and Loan Agency

Peter Snodgrass has been appointed Head of Corporate Trust and Loan Agency (CTLA), Americas, based in New York and is responsible for the management, oversight and development of the CTLA proposition in that market. Peter will have a dual reporting line to Mark Crathern in London and Scott Epstein in New York. Peter was previously Head of HSBC Securities Services in Japan.

HSBC Securities Services, Japan

Following Peter's move to the Americas, Rajesh Atal has been appointed Head of HSBC Securities Services, Japan, effective 1 January 2012. Rajesh was previously the Programme Manager for the Global Custody Programme based in London. Prior to that he was the Head of Institutional Fund Services, Singapore. He has a direct reporting line to Yoshikazu Kato (Head of Global Banking, Japan) and functionally to Shaik Ismail Hakim (Head of Custody and Clearing, Hong Kong).