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HSBC Securities Services Newsletter – Q3 2011

Welcome to the Q3 global business update from HSBC Securities Services (HSS). This update includes Regulatory Updates, Product Enhancements, Industry News, People Moves and Awards and Surveys.

Regulatory update

TARGET2-Securities (T2S)
The launch of T2S, the future IT platform for the settlement of almost all bonds and equities traded in Europe, is being delayed from Q3 2014 to 2015 due to increased user requirements and the need for more testing. The delay was announced by the European Central Bank at SIBOS. The T2S project office has also stated that negotiations with central securities depositories are moving ahead well. The Financial Times reported that the Bank of England has decided that sterling will not join T2S at launch. IT connections, harmonisation of national practices and developing the post-T2S business model are continuing issues for all participants.

The Financial Times reported (27 Sep 2011) that the LCH.Clearnet board has agreed that LCH.Clearnet can be purchased by the London Stock Exchange (LSE), but the deal is still subject to approval by LCH.Clearnet's shareholders (mainly banks). Control of a UK and French clearing house will enable the LSE to create a more integrated service and that will rival other organisations in Europe and the USA more effectively.

MiFID was implemented in the EU in 2007 and the European Commission's follow up proposals are expected shortly. Areas covered are likely to include improvement of transparency and investor protection and extending the scope to some derivatives and UCITS funds. Implementation is due in 2013.

European Market Infrastructure Regulation (EMIR)
Final text is expected in December 2011 with implementation by the end of 2012. EMIR requires ‘eligible’ over-the-counter derivatives to be cleared through a central counterparty rather than merely between the two trading parties, as in the past. EMIR will lead to increased costs as trading parties have to put up margin at CCPs, whereas this was unnecessary under their old arrangements.


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Product enhancements

Enhancements to HSS Passive Hedging Capability in Europe
Further enhancements were implemented in July to the HSS passive hedging platform. These enhancements provide clients with greater flexibility in determining appropriate fund parameters to control their outsourced hedging activity to manage currency risk, including improved hedge re-balance options encompassing both specified tolerance ranges and resets (fund value) combined with minimum FX deal thresholds. These deliveries have been well received by existing clients. Progress represents another step in the ongoing investment in passive hedging capabilities, first delivered in 2009. HSS offers a client driven, highly automated and robust risk management service encompassing both institutional and alternative clients and supporting both share class and asset hedging. The core service is based on automated links between HSS as fund accountant and/or transfer agent, to the passive hedging calculation engine, with electronic execution flow to HSS's proprietary FX desk. Due to client demand, the service has been expanded to accommodate clients who may have their fund accounting or transfer agency supplied outside of HSS but wish to utilise this risk management service.

Transfer Agency Services in Malaysia
HSS has officially launched transfer agency services in Malaysia through HSBC (Malaysia) Trustee Bhd (HSBC Trustee), the locally incorporated trust entity. With this launch, HSS now offers end-to-end securities services, including trustee, custody (both global and sub-custody and clearing), fund accounting and valuation, as well as transfer agency services in Malaysia. "The launch of transfer agency services is a direct response to client demand in the Malaysian market. The introduction of this product reinforces our strong commitment to utilise our superior regional presence to provide comprehensive securities and fund services throughout Asia-Pacific,” said On Bee Heong, Head of HSS Malaysia. HSBC Trustee is a recognised leader in the Malaysian unit trust management industry and winner of The Asset’s 2011 Best Fund Administrator – Retail Funds, Malaysia award. This is the first time a Malaysian Fund Management company has implemented such an arrangement and is another first for HSBC Trustee which was also the first trust company to perform fund valuation on behalf of Malaysian Fund Managers, the first Trustee for Malaysian funds investing overseas and the first Trustee for Exchange Traded Funds in Malaysia.

New Performance Measurement & Attribution Platform
HSS has implemented its new performance measurement and attribution platform, BI-SAM B-One (B-One), with the first client now live. B-One will be used to provide performance measurement and attribution analysis to HSS clients around the globe and is the first stage in a series of major developments that will be rolled out over the coming months. "This is the first of a series of deliverables that will ensure HSS has a cutting-edge performance measurement product to meet the increasingly complex requirements of asset owners, managers and their advisers,” Colin Kay, global head of performance measurement, says. The significant investment in this project is a clear signal of HSS's commitment to the custody business in general, and performance measurement in particular.

Key Investor Information Documents (KIID) for UCITS Fund Ranges
The KIID replaces the Simplified Prospectus and represents the key mandatory element of UCITS IV. UCITS fund ranges are required to produce, on an annual basis, a two page document summarising:

  • Objectives and Investment Policy
  • Risk and Reward Profile
  • Charges
  • Past Performance
  • Practical Information
A KIID is required per sub-fund and generally per share class. Where sub-funds are registered cross border the KIID(s) must be translated into the language of such country of registration.

HSBC offers an internet based KIID solution that allows clients to view KIIDs online across their fund ranges. The solution provides an easy to use exception based dashboard that enables managers to monitor the various stages of production of their KIIDs on a real time 24x7 basis. Given the proprietary nature of the information contained in a KIID, the manager will typically supply the narrative element. This can be entered either directly through the internet front end or via transmission to HSBC of an electronic file. Information from HSBC fund accounting records is integrated to the KIID solution in order to automate the calculation of the Synthetic Risk and Reward Indicator, Charges and Past Performance data.

Translation may be supplied by clients or by arrangement with our vendor. The solution ensures translation can be viewed on a side-by-side basis to provide ready comparison to the UCITS home language. It further prompts for translation by exception based on any update to the home narrative. Clients have the ability to define the authority and various approvals required to review and approve the KIID prior to issuance. This can be achieved on a modular basis for clients who require discreet access to users for different sections of the document. The system provides a full audit trail of any amendments thereby ensuring full version control.

Our solution allows extraction of data from our fund accounting system to enable clients to prepare and monitor their data throughout the year. The solution also ensures an efficient annual update process and creates fully automated KIID files to support the publication process.


Industry news

Organisation for Economic Co-operation and Development (OECD) Update
During an OECD meeting regarding the TRACE (Tax Relief and Compliance Enhancement) project which is designed to improve tax relief procedures for cross-border investors, it was agreed that the proposed system would be extended to include Domestic and Atypical relief. The package originally covered tax treaty relief only. Domestic relief relates to tax exemptions available in a target market of investment, whilst Atypical relief relates to withholding on transactions. Furthermore, a soft implementation target of 1 January 2015 is now anticipated. HSS continues to participate in proof of concept testing with governments.

EU Commission Withholding Tax Recommendation Update
HSS is participating in the EU Commission’s Tax Business Advisory Group (TBAG). This group has been working on how the EC 2009 recommendation on withholding tax on cross border securities in Europe can be implemented. The ambition is similar to the work of TRACE but for European countries. TBAG has drafted a report and this is currently being edited by the commission for release in early 2012. The report is likely to suggest pursuing a very similar solution to the OECD model, followed by a new EC directive on the matter.

Foreign Account Tax Compliance Act (FATCA) Update
Notice 2011-53 was issued by the US Treasury which gives a phased implementation to FATCA. The FFI agreement will now be effective from 1 July 2013. New accounts will be subject to a US indicia search for any US status from this date and subsequent documentation requirements. Existing accounts must provide new documentation by the end of the second year of operation, if appropriate. US withholding in relation to Fixed, Determinable, Annual, Periodical (Dividends and Interest) on recalcitrant accounts will commence from 1 January 2014. US withholding in relation to gross sale proceeds and pass thru payments will commence from 1 January 2015.


People moves

  • Paul Hamill has been appointed Head of Prime Services, reporting to Cian Burke, Co-Head of HSS and Patrick George, Head of Global Equities
  • Ian Stephenson has been appointed Head of Fund Services, responsible for the management and oversight of HSS Fund Services with primary responsibility for the global product proposition, including product strategy, management and development. Ian will report to Drew Douglas, Co-Head of HSS
  • Karen Leung has been appointed Deputy Head of Corporate Trust and Loan Agency, Asia Pacific. Based in Hong Kong, Karen will have a dual reporting line to Mark Crathern, Global Head of Corporate Trust and Loan Agency, and Ian Banks, Head of HSS Asia
  • Nico Torchetti has been appointed Head of Product Development for Sub-Custody and Clearing. Based in Hong Kong, Nico is responsible for the continued expansion of the sub-custody and clearing product suite with a specific focus on broker-dealer outsourcing. Nico will report to Colin Brooks, Global Head of Sub-Custody and Clearing
  • Aaron Ng has been appointed as Senior Product Manager for Transfer Agency heading up the product function for Asia, and Nick Wheeler as Product Manager responsible for EMEA and the Americas. Aaron will report to Gina Slotosch, Head of Global Product Management, Transfer Agency Services and will be based in Hong Kong. Nick will also report to Gina Slotosch and will be based in London
  • Stephen Isgar and Richard Parkin have been appointed to the Relationship Management and Sales team for Pensions, Europe and is based in London. They will report to Pat Sharman, Head of Relationship Management & Sales, Pensions, Europe
  • Alistair Jones has been appointed Head of Global Custody for Europe and is responsible for the management and oversight of the global custody business across the region. Alistair will report to Arjun Bambawale, Regional Head of Europe
  • Matthew Adams, Senior Vice-President, Business Development, has transferred from the HSS Client Management Group in London to the Singapore based Client Management Group. He will report to Tony Lewis, Head of HSS Singapore
  • Tracy Lee Ming Li has joined the HSS Singapore team as Vice-President, Business Development, reporting to Tony Lewis, Head of HSS Singapore
  • Khalid Salim and Hazel Lai have been appointed Senior Vice President, Sales and Relationship Management, Asia Pacific. Based in Hong Kong, Khalid and Hazel are responsible for providing world-class service standards to meet the needs of global custodian banks and broker dealer clients and will report to Dan Massey, Regional Head of Client Management Group, Asia Pacific
  • Sue Shim has been appointed Senior Vice President, Sales and Relationship Management, Asia Pacific. Based in Hong Kong, Sue is responsible for sovereign wealth funds and South Korean financial institutions. Sue will report to Dan Massey, Regional Head of Client Management Group, Asia Pacific

Awards and surveys

Global Custodian Hedge Fund Administration Survey
HSS regained Top Rated status in Dublin and Luxembourg while Guernsey and Singapore have retained their Top Rated Status. Results across the board were much improved on 2010 with seven Top Rated results in total. Full results are:

Top Rated Commended
Dublin Hong Kong
Guernsey United States
Luxembourg Europe
Singapore Asia
<$100m $100m-$1bn
$1-$5bn $5bn+
Single Strategy Multi-Strategy
Single Provider Fund of Funds
Leading Clients Multi-Provider

HFM Week US Awards 2011
HSS has won the award for Best Administrator over $30bn - Client Service. The results were announced at an awards event on 13 October in New York.


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