KAS Selections, April 2011

Asset and liability management

at Servicekantoor AGH

XS2theWorld and KAS BANK

develop iPad app for IMS

Dashboard

ISAE 3402 replaces the SAS 70

KAS BANK acts as ‘pension

custodian’ for premium pension

institutions

KAS BANK welcomes two new

members to the German branch

management team

KAS BANK in 2010 and 2011

Amendment to the Securities Giro

Act extends legal protection

Back-office outsourcing services

now available in the German

market

Positive responses to

KAS BANK’s stress test for

pension funds

Productive partnership

In control 24/7: the pension

fund monitor on your iPad!

In the wake of natural disasters of the magnitude being experienced in Japan, stress becomes a relative term. High nuclear radiation levels, lack of food, water and medicine, total devastation. The discussions surrounding pension scheme funding levels and conducting stress tests for banks pale in comparison. Moreover, it once again shows that looking far into the future is almost impossible to do. Of course, we are following developments in Japan closely, and we sincerely hope that the situation has stabilised by the time this issue of KAS Selections is published.

Nonetheless, we do look into the future in this edition because there have been many positive developments at KAS BANK in 2011. We are very optimistic about further growth in Germany and the German-speaking market. We are pleased to announce that in January our German branch was strengthened with the appointment of Frank Vogel and Günter Schuhbeck, both highly experienced in the German securities industry.

The pension fund monitoring function of our Investment Management Services (IMS) division continues to evolve. The pension fund monitor, which is now available as an iPad app, provides institutional investors with the funding, compliance, risk and performance information to keep them in complete control of their funds. The app is particularly distinctive because it is designed for a very specific audience. Sander Munsterman of XS2TheWorld, the co-creators of our app, tells us more about this.

The collection of steering and accounting information is one of the major roles of the Dutch organisation, AGH. They use this information to advise their affiliated funds on the management of their assets and risk hedging. AGH see clear added-value in KAS BANK’s IMS services and tools such as the app to keep trustees and pension boards fully informed.

Mitigating and managing risk remain key for institutional investors and financial institutions alike. In this regard, the SAS 70-II report plays an important role. As of 2011, however, other international standards will begin to replace SAS 70-II in determining whether a service organisation is ‘in control’ of its financial reporting. The foremost of these in ISEA 3402, which KAS BANK has already begun to implement. As I have said, although stress is a relative term, it remains very important to control it. In anticipation of further regulation from the Dutch central bank, KAS BANK has developed its own stress test for pension funds. We outline this important tool for assessing the risks associated with changing economic scenarios, which can also be used to benefit non-Dutch pension schemes.

We also focus on BPO+, the automated processing in SimCorp Dimension of asset managers’ operations by the back-office of KAS Investment Servicing in Germany.

Traditionally, KAS Selections concludes with Laurens Vision. In this edition Laurens considers the harmonisation of securities settlement in Europe – or rather, the lack thereof.

We would be delighted to hear your feedback on the topics covered in this KAS Selections. After all, this issue has been written in close cooperation with our clients, with you in mind.

Sikko van KatwijkChief Commercial Officer, KAS BANK Managing Board

Editorial

Contents:Asset and liability management at Servicekantoor AGH 3XS2theWorld and KAS BANK develop iPad app for IMS Dashboard 6In control 24/7: the pension fund monitor on your iPad! 7ISAE 3402 replaces the SAS 70 8KAS BANK acts as ‘pension custodian’ for premium pension institutions 10KAS BANK welcomes two new members to the German branch management team 11KAS BANK in 2010 and 2011 12Amendment to the Securities Giro Act extends legal protection 14Back-office outsourcing services now available in the German market 15Global custody network news 16Positive responses to KAS BANK’s stress test for pension funds 18Productive partnership 20Personnel notes 22Client wins 22Laurens Vision 22

Comments on this issue, suggestions for future articles and mailing list requests should be addressed to:

NetherlandsClearing & Banking ServicesAssociate director: [email protected]

Fund & Investment ServicesAssociate director:[email protected]

Institutional ServicesAssociate director:[email protected]

Sub & Core custodyAssociate director:[email protected]

Sales & Business development (S&BD)Head of S&BD:[email protected]

German BranchManaging director:[email protected]

KAS Investment Servicing GmbHCEO & Managing director:[email protected]

UK BranchAssociate director:[email protected]

Institutional InvestorsBusiness development manager:[email protected]

Translation:Interpret Tekst & Vertalingen

Text editor:Matthew Binnington

Editor:Carla BoogersKAS BANK N.V.Marketing & CommunicationP.O. Box 24001, 1000 DB AmsterdamThe Netherlands +31 20 557 [email protected]

Graphic Design:Ebbenhorst Design, De Meern

Print:KAS BANK,Document & Systems Services

KAS Selections is a quarterly newsletter from KAS BANK N.V.Although the information in this issue is drawn up with the utmost precision, no rights can be derived from it.

Volume 18, Issue 1, April 2011

KAS Selections

K A S S e l e c t i o n s • A p r i l 2 0 1 1 3

The IRM Monitor linking assets and liabilities

Asset and liability management

at Servicekantoor AGH

Servicekantoor AGH handles the execution of pension, early

retirement and 55+ schemes as well as ‘resumption of work’

(employees partially fit for work). This involves the

following duties: advising pension managers and social

partners, the administration of the schemes, handling the

communication and supporting the management and/or

investment committee with the asset management. AGH

cooperates closely with Interest & Currency Consultants

(ICC) and KAS BANK regarding the execution of the asset

and liability management. During a lively conversation,

Erik Martens and Eric Mateman of AGH and Eddy Markus of

ICC outlined this collaboration.

One of the duties of AGH is to provide

steering and accountability information to

the management and/or investment

committees of the affiliated funds. How do

you use KAS BANK’s risk management

services in this regard?

Martens: “All affiliated pension funds have outsourced the

back-office of their asset management to KAS BANK. This

means that KAS BANK can produce reports for AGH and the

fund’s management, which enables us to closely monitor

the assets and the development of the (required) funding

ratios. KAS BANK also provides an excellent estimation of

what proportion the interest rate sensitivity of the

obligations bears to that of the investments and the

mismatch between them. Based on this information the

fund management can pursue a policy to adequately cover

the downside risk of the funding ratio. We believe this is

the strength of KAS BANK’s IRM Monitor. The fund

management must currently report to the Dutch Central

Bank (DNB) on a monthly and quarterly basis. So it is

paramount that you have a true and fair view of both the

current funding ratio and the required funding ratio. This

information also enables the fund management to render

accountability to all stakeholders and not only to DNB.”

An increasing number of pension funds wish

to be kept informed of their funding ratio

and the fund’s risk exposure on a daily basis.

AGH has been using the IRM Monitor1 from

the start and has actively contributed to the

development of this tool. AGH also uses the

IMS Dashboard2. What is the added value of

these tools?

Martens: “The management of a pension fund has the

ultimate responsibility for the ins and outs of the fund.

They must assess all steering information at a single

glance to determine whether the pension fund is still on

the right track. It is our duty to clearly present the

steering information to the management members. Only

then can the management actively manage the fund and

make conscious choices, such as: are we aware of the risks

we are taking, has the risk been well-hedged? The IRM

Monitor helps us to inform our clients adequately about

Erik Martens (left) and Eric Mateman (right) of AGH and

Eddy Markus (centre) of ICC

1 IRM Monitor analyses and reports the risks of your investments versus your pension liabilities on a monthly or quarterly basis.

2 On a daily basis IMS Dashboard informs you online of the funding ratio, market developments, asset allocation, compliance monitoring and your holdings and transactions.

K A S S e l e c t i o n s • A p r i l 2 0 1 14

the asset management, the risks and the asset and

liability management. The monitor is published quarterly

and is too complex for a fund’s management. It is an

appropriate document for the investment committee.

Fortunately, you are becoming increasingly better in

opening up the information to pension funds. For example,

we can monitor daily the downside risk of the funding

ratio via the IMS Dashboard. This dashboard is an

accessible source of information – like the word says – for

the pension fund’s management.

Thanks to the feedback we receive from pension funds we

continue to learn. We pass this information on to

KAS BANK: we would like to see certain information

included in the IRM Monitor and the IMS Dashboard, which

is an excellent interaction.”

After the implementation of the Financial

Assessment Framework (FTK) in 2007 the

Dutch Central Bank increasingly focuses on

the obligations and risks of pension funds

and how risks are hedged. How does AGH

inform and advise the affiliated funds about

the risks on their balance sheet?

Martens: “The basic principle when informing

management is: how has the risk policy been shaped and

the control thereof set up? A guiding principle is the FIRM

methodology of the Dutch Central Bank. Fortunately, not

all parts of this methodology are relevant to pension

funds. The risk policy has been set out in the Actuary and

Technical Business Policy Document (ABTN). In the annual

report the fund accounts for the risks and how they deal

with them.

If management is aware of all risks, they are better able to

steer the fund and deliver accountability to their

stakeholders. You first need to have a clear view of how

funds actually deal with the risks and risk control. The

funds’ managers have established risk management

committees. Together with these committees we analyse

and monitor the risks and control measures. KAS BANK

provides a significant part of the information required via

the IMS Dashboard. The development of the funding ratio

and the required funding ratio are the central focus.

KAS BANK measures the performance and the risks, and

subsequently calculates the funding ratio and the required

funding ratio. What may happen if certain parameters

change is also considered. We therefore regularly consult

KAS BANK. All the information can be found in the IMS

Dashboard. We look at it daily to be able to inform the

management adequately.”

Mateman: “When we had to face the FTK, the right side of

the balance sheet became topical, because of the

development of the obligations as a result of the changed

interest. We then wondered: how can we gain the required

knowledge in this area? Of course by doing as much

research as possible, for which we use the media, asset

managers and experts. Based on this principle we made

contact with ICC. They advise us weekly on the interest

developments and instruments that we can use to hedge

risks, for example swaptions.”

Erik Martens has been active as

a manager in the pension and

finance industry since 1985 at

different pension providers and is

currently director at the

Servicekantoor AGH.

Servicekantoor AGH is a

partnership of and for pension funds.

Eddy Markus is Executive

Director/Chief Analyst at Interest

& Currency Consultants. After his

studies in economics at the Free

University in Amsterdam, he was

responsible for all the mid-term

interest and currency positions of

a large family office for more than five years. At the

beginning of the 1980s he made a switch from asset

management to consultancy and set up Interest &

Currency Consultants (ICC). Initially, ICC was mainly

an interest and currency consultant firm for

organisations. Today ICC has developed into a

consultancy firm specialised in nearly all aspects of

treasury management, corporate and structured

finance and market outlook.


Martens: “We have now realised an ‘information rectangle’

of sorts: ICC, KAS BANK, AGH and the actuaries of the

affiliated funds. By means of this rectangle the knowledge

of each discipline is used to organise the protection of the

funding ratio against interest drops, for example. It is

paramount to consider how to organise and adjust the

interest hedge. If the interest increases, do you still wish

to use the upwards potential, but at the same time

continue to be protected against the downside risk?”

What role does ICC play in that process?

Markus: “In our first meeting we immediately explained

what ICC does absolutely not do. And that is, putting it

irreverently, make up tricks for the technical aspects of

the risk policy: how can I equate the left and right side of

the balance sheet? What we do is explain to pension fund

managers that they must make their own decisions about

the management of risk on the balance sheet and on the

best way to do that. AGH has solved this perfectly. In

consultation with management and investment

committees they make their own decisions. All lines of

approach are considered carefully. What instruments are

available, what are the costs, which risks do you wish to

take, how do we estimate the interest movements? If you

use this instrument, to what extent are the risks hedged?

Should we extend the durations? A decision must be made

based on this mix of considerations. We only advise AGH.”

Mateman: “Together with ICC we consider the hedge,

duration and interest rate levels and request prices of

swaps or other instruments. Then we organise a conference

call with ICC, KAS BANK and the actuary about the right

instrument to use. For the hedging of the interest risk it is

possible to extend the duration of the investments by

means of bonds, swaps or LDI-pools. However, swaptions

are also a possibility. The downside being that they are

rather expensive. Some of our clients therefore prefer to

use as many collars3 as possible. The price of the receiver

will then be compensated by a payer. It is comparable to a

medical insurance scheme, whereby the client chooses a

certain amount of excess to reduce the insurance

premium. The question is: how much risk are you willing

to take? What will happen with the interest? There is a

chance of making mistakes in the estimation, as it is

impossible to know everything. To be able to develop a

clear vision, we organise brainstorming sessions with the

investment committees in which global developments are

discussed. For example, about the two growth paces in the

European Union and the correlated risks. These sessions

take place in a relaxed atmosphere, out of the box. The

input of ICC is paramount to create a sharp view. KAS

BANK and other experts also indirectly or directly

participate in the mental process, which enables us to

consider carefully whether the risks are acceptable or not.”

Do other factors also play a role in that

consideration process?

Markus: “We make the best possible estimation of the

developments in the world and how interest will be

influenced by those developments. We believe that politics

will start playing an increasingly large role in the markets.

Think, for example, of the discussion in Europe about the

independence of the European Central Bank. That is why

we have added two political scientists to our analyst team

and we also maintain good contacts with the Clingendael

Institute in The Hague. In this way we wish to keep a grip

on the international developments and their influence on

the economy.”

Martens: “You start with something, for example the use

of a dashboard, and you are fairly satisfied, however there

is always room for improvement. When a fund starts

shaping its policy, you will also receive an increasing

number of queries and feedback from your clients. That is

why we continuously wish to be informed faster and

sharper about the funding ratio. KAS BANK’s role as

supplier of the required data continues to be paramount.”

Eric Mateman’s main duties as

Asset Management Manager

include the asset management of

the affiliated funds at

Servicekantoor AGH.

3 A combination of a bought put option (receiver) and a sold call option (payer).


XS2theWorld and KAS BANK develop iPad app for IMS Dashboard

In April KAS BANK launched an IMS Dashboard app. With

this KAS BANK iPad app you will be informed of the latest

status of your pension fund at all times. This will enable

pension fund managers to stay in control.

The KAS BANK app has been developed in cooperation with

XS2TheWorld. Together with founder and commercial

director Sander Munsterman we will discover the world of

mobile devices and tablet computers.

Mobile applications and services from banks are still in

their infancy, although we are currently experiencing a

time of rapid innovation. The general public already use

apps for simple tasks such as obtaining balance

information. Business users, such as institutional investors

and asset managers, have an increasing need for

management information and up-to-date insight into their

funding ratio or performance measurement, for example.

KAS BANK is the first bank/custodian in the Netherlands

to provide such information to its clients through an iPad

app. What makes the app unique is its focused target

group, user-friendliness and its state-of-the-art

appearance.

“Research has shown that the adoption of technical

gadgets, computers and mobile devices has experienced

enormous growth since 1990. We have become early

adoptors,” explains Munsterman. “An example: of all

iPhones sold in the Netherlands since their launch in 2007,

75 percent were sold in 2010. After the introduction of the

iPad in 2010 450,000 units were sold in just six months.”

Images and files can be downloaded with a simple swiping movement across the screen

Tablets like the iPad are in fact minicomputers, which

makes them more suitable for sending large digital files

and images than mobile phones. Furthermore, they are

extremely user-friendly. Images and files can be

downloaded with a simple swiping movement across the

screen. Agendas and meeting minutes can also be updated

and sent by means of the iPad. “KAS BANK has optimally

used these possibilities to make its IMS Dashboard

accessible on the iPad through an app. The KAS BANK app

is extremely user-friendly and does not require any

technical knowledge.”

IMS Dashboard users can now access their data wherever

they have an internet connection – significant added value

for pension fund managers and trustees, for example, who

require regular updates on their fund’s status.

According to Munsterman the biggest trend is now

mCommerce. “Banks capitalising on this development are

first movers. KAS BANK can now expand its mobile services

by adapting the app to make it available to other clients

and client groups.”

Founder and Commercial Director of XS2TheWorld, Sander Munsterman

The KAS BANK app is user-friendly and does not require any technical knowledge

Introduction to XS2TheWorldXS2TheWorld is a specialist in mobile marketing and branding and provides tailor-made applications and mobile websites for organisations (such as Guinness, Intel and IBM), football clubs, government institutions and media companies, such as Teleac and NUsport.nl.Supported by mobile technology and the creativity of XS2TheWorld, organisations can distinguish themselves in the market and achieve their commercial objectives through mobile concepts.XS2TheWorld has branches in Amsterdam, London and Jakarta and since 2007 has been a trendsetter in the area of mobile services and the development of mobile apps and websites for over 2,000 different mobile devices (Java enabled, Blackberry, Symbian, iPhone, Windows Mobile and Android).


In control 24/7: the pension fund monitor on your iPad!To pension fund trustees, it is vitally important to have

direct excess to the current funding ratio of their schemes.

At the same time an enormous amount of information is

offered. That is why the overview of Key Performance

Indicators and the performance of your asset manager(s)

may be not be as transparent as it should be. The KAS BANK

pension fund monitor app can deliver this information

directly to your screen.

Since you have outsourced the administration and custody

of your pension fund to KAS BANK, we hold an enormous

amount of data regarding your scheme. Combining this

with information on pension fund liabilities enables us to

provide extensive risk-control information in the form of a

pension fund monitor.

The pension fund monitor enables us to convert this

bewildering amount of data into useful and practicle

steering information. Several pension funds are already

using the pension fund monitor as a web application, in

the form of our IMS Dashboard, offering intuitive reports

and graphics that deliver the required information in a

user-friendly manner.

KAS BANK has now introduced something new – as it is

now possible to view the daily reports from the pension

fund monitor digitally on your iPad. This app provides up-

to-date insight into developments in your pension fund,

24 hours a day, wherever you are. The app will constitute

a valuable tool for pension fund managers who wish to be

demonstrably in control.

The pension fund monitor on the iPad will enable pension

fund managers to gain access to significant steering

information, 24/7:

• The value of your portfolio

• Asset allocation

• All positions and transactions

• Compliance reports

• Performance data

• Hedge ratios (both interest and currency)

• Developments in the funding ratio

• Export to PDF.

From high-level information you can drill down to detailed

data, such as market value changes, or view diagrams of

positive and negative peaks in the investment results of

your fund.

Pilot testing of the pension fund monitor app commenced

several weeks ago, and it will be available to all pension

funds subscribing to KAS BANK’s IMS Dashboard in April.


ISAE 3402 replaces the SAS 70No sooner has KAS BANK’s latest SAS 70-II report been

delivered by the printers, than we are preparing its

substitute. The International Auditing and Assurance

Standards Board has published new guidelines for service

organisations, the ISAE 3402. With these new guidelines it

will become easier for the chartered accountants

representing KAS BANK clients and prospects to assess the

extent to which KAS BANK’s management is demonstrably

in control of the bank’s administrative processes.

The ISAE 3402 standard is a clear improvement on SAS 70-

II, as it incorporates risk management and the board is

explicitly asked to supply detailed explanations. In the

ISAE 3402-II standard – in contrast to SAS70-II – the

functioning of all COSO (risk management framework)

elements can be assessed by the chartered accountant.

COSO describes and defines the different elements of an

internal control system, e.g. monitoring, information and

communication.

The accountant will subsequently determine whether the management has a reasonable basis on which to base its conclusions

The most significant change under ISAE is that

management must include an explanation in the report

covering the functioning of all control measures,

emphasising their responsibility for this area. The

accountant will subsequently determine whether the

management has a reasonable basis on which to base its

conclusions. With this, ISAE 3402-II provides our clients,

and pension funds in particular, and their accountants

insight into the quality of the internal control of the

services outsourced to KAS BANK.

Certifying organisations have expanded enormously since

the introduction of the ISO-9001 standards in 1987 by the

International Organisation for Standardisation. An ISO

standard primarily provides information on an

organisation’s technical quality management systems.

It does not provide much information relating to the

control of processes which underpin a product or service.

This need has been met by the Statement on Auditing

Standards (SAS) no. 70 since the mid 1970s. This

statement is drawn up by the organisation itself on the

basis of guidelines provided by the Auditing Standards

Board of the American Institute of Certified Public

Accountants (AICPA).

SAS 70Under the influence of the Sarbanes-Oxley Act – which

imposes several regulations on organisations and their

foreign branches listed on US exchanges, and foreign

organisations with listed branches in the United States –

SAS 70 became the market standard for the financial

accounting of organisations.

SAS 70 focuses on the effectiveness of an organisation’s

internal control measures relating to the reliability of

financial reports. An external auditor determines whether

the structure of the internal control measures set out by

the organisation is adequate to achieve the defined

objectives, and whether these control measures are

demonstrably executed over the audit period.

KAS BANK has a SAS 70-II certification for a significant

part of its operational and ICT processes. Based on the

SAS 70 report clients or prospects and their accountants

can verify whether their provider, in this case KAS BANK,

complies with the requirements for outsourcing their

administrative activities, for example. This is particularly

important to pension funds as this requirement forms part

of the Pensions Act.

ISAE 3402For several years the SAS 70 report has been a common

way for service organisations to account for the internal


control of the reliability of financial reports. However, this

standard will be replaced as of 2011 by new guidelines for

service organisations, the ISAE 3402. The guidelines are

published by the International Auditing and Assurance

Standards Board. The main advantage of ISAE is that it is

an international standard, meaning that service

organisations are no longer dependent on standards that

apply chiefly to the United States.

KAS BANK will also include an explanation from the management in our latest SAS 70-II report regarding the functioning of control measures

The system under ISAE 3402 reflects that of SAS 70, with

two types of reports: Type I for the set-up and existence

of the internal control measures, and Type II for the

set-up, existence and functioning of the internal control

measures.

Start dateThe new ISAE standard will become effective for reports

regarding periods that end on or after 15 June 2011.

KAS BANK will report for the 2011 calendar year on the

basis of the ISAE 3402 standard, although we will also

include an explanation from the management in our latest

SAS 70-II report regarding the functioning of control

measures.


KAS BANK acts as ‘pension custodian’ for premium pension institutions

Since 1 January 2011, so called premium pension

institutions (PPIs) can be established in the Netherlands to

operate defined contribution schemes across Europe. This is

not only a step towards the ‘European’ pension fund, but

also offers an excellent opportunity for the Dutch pension

sector to raise its profile internationally. To support PPIs in

expanding their businesses, KAS BANK has developed a

new, dedicated service: the pension custodian

(pensioenbewaarder).

A PPI is a new legal entity somewhere between an insurer

and a pension fund. It is based on European legislation

and executes defined contribution schemes for employers

in the Netherlands and all other countries in the European

Union. To prevent the co-mingling of assets, the PPI is

required by law to separate all assets under custody.

Amongst other things, this mitigates the risk that a deficit

in one participant offsets the pension assets of another

retirement plan, so-called contamination risk. To this end

the PPI uses an independent pension custodian.

As an expert in custody and administration, KAS BANK

now combines both functions – separation of pension

assets and risk mitigation – in this new service. We also

act as an independent supervisor of the management of

the PPI, ensuring that the PPI acts according to its

statutes and prospectus.

As pension custodian, KAS BANK enables the PPI to remain

‘in control’ and thus to secure its market position, a must

for any PPI in these troubled times.

KAS BANK’s outlook on the future of PPIs KAS BANK has great expectations for PPIs as the Dutch

answer to the opening of European borders to pension

providers from all member states. Dutch expertise in the

pensions arena is clearly recognised and appreciated, with

participants in the Netherlands being able to build up

their retirement funds at much lower cost. For the PPI

itself, the risks are spread.

As an expert in custody and administration, KAS BANK now combines both functions – separation of pension assets and risk mitigation – in this new service

Because several pension funds will host their DC

investments in the same PPI vehicle, it is expected that

partnerships between pension funds will emerge within a

‘collective’ PPI. Such an approach maximises cost savings

and minimises risk, while giving pension funds direct

control of the PPI results. This leads almost automatically

to the bundling of pension expertise, also a long-standing

desire within the European Union.


KAS BANK welcomes two new members to the German branch management team

Germany is a key market for the future growth of KAS BANK.

Therefore, on 1 January, the management team of the

KAS BANK N.V. German branch was strengthened by the

appointment of Frank Vogel as Managing Director and

Günter Schuhbeck as Branch Manager, Head of Depotbank

Services.

Frank’s main objective is to reinforce the position of

KAS BANK in Germany, with the goal to become the

provider of choice for mid-sized financial institutions and

the institutional investor community. In addition, with his

wealth of experience, Günter will ensure that the quality

and flexibility of all custodian and depotbank services in

the German market will continue to be of the highest

standard.

KAS BANK has been servicing financial institutions in

Germany for many years. These core services were

complemented by the establishment of the independent

fund administration services for German funds and insurers

via its Kapitalanlagegesellschaft (KAG) KAS Investment

Servicing GmbH and the Depotbank services provided by

KAS BANK N.V. German branch. The Master KAG and

Depotbank services are geared towards the institutional

investor community.

“I have spent almost my entire career in the securities

industry and am very enthusiastic about the new and

challenging opportunities that lie ahead of us in the

German market. KAS BANK is uniquely positioned as the

only independent provider offering a complete range of

securities and investor services. Combining this product

range with a focused strategy on specific client types will

be a recipe for success – positioning is key” says Frank

Vogel.

Günter Schuhbeck: “Germany is a changing market and

I see ample opportunities in many areas. With changing

regulation, for example, Depotbanks in Germany are under

growing cost pressure. Our goal is to demonstrate the

strength of the German branch as an efficient and quality-

oriented service provider and become the partner of choice

for the investor community.”

Over the past decade, Frank Vogel

worked for Citigroup, first in

London and, from 2003, in

Frankfurt. As Head of Sales there

he was a member of the EMEA

Client and Sales Manager team.

Prior to this, he held a position

at the London Stock Exchange for three years. In 1994,

Frank Vogel obtained his BA Business Administration in

Münster (Germany) and in 1998 his MBA at the CASS

Business School in London.

Günter Schubeck joins the

KAS BANK German branch

bringing with him thirty years of

experience from CACEIS Bank

Germany and its predecessors

HypoVereinsbank AG and

Bayerische Vereinsbank AG. In his

last position at CACEIS Bank, Günter was responsible

for Sales & Relationship Management for Depotbank

clients. Previously, he was responsible for Depotbank

Services at HypoVereinsbank.


KAS BANK in 2010 and 2011On 17 March KAS BANK

published its Annual

Report for the year 2010.

In this edition of KAS

Selections we would like

to look back on the past

year with chairman of the

Managing Board, Albert

Röell. Röell certainly

expects positive

developments in 2011,

despite the lower result

achieved in 2010.

And the euro crisis also continues.

We have observed clear opportunities in the Dutch and

German institutional markets. Stricter regulations result in

an increased demand for specialised services regarding risk

management and management reports. More intensive risk

management will result in an increased demand for

independent reports and support from both pension funds

and their advisers, as they must prove that they are

demonstrably in control.

KAS BANK already executes the control function on the

investment guidelines required by the supervisory

authority for many pension fund managers. With our

internally developed pension fund stress test we capitalise

on the expected obligatory stress test for pension funds

from the Dutch Central Bank (DNB). We are also prepared

for the further development of the Premium Pension

Institution, the PPI. We consider the PPI to be an

excellent opportunity for the Dutch pension sector to

further distinguish itself internationally. To support the

sector we have developed a new service especially for

PPIs: the Pension Custodian.

Stricter regulations result in an increased demand for specialised services regarding risk management and management reports

Brokers and financial institutions are experiencing an

increased need for intensive guidance of their operational

activities, including risk management. An increasing

number of larger market parties consider KAS BANK to be a

logical partner when hiring a ‘specialist with an

established reputation close to home’. We capitalise on

this development with our European Broker Services,

among other things. By outsourcing their mid- and back-

office activities to KAS BANK, brokers can increasingly

focus on their core business.

What is also paramount to our Dutch clients is the

amendment to the Securities Giro Act (“Wet giraal

effectenverkeer”) with effect from 1 January 2011. Due to

the extension of the scope of the Securities Giro Act, as

How do you look back on 2010?

“2010 was a difficult year for KAS BANK. The extremely

low interest rates again had a considerable impact on the

bank. Due to our low risk profile we have been limited in

our ability to make returns on the assets entrusted to the

bank. In addition, we also had to deal with another bad

year for exchange rates. Lower trading volumes directly

influence our commission income. The majority of our

clients operate in the financial sector, and so there is a

certain inter-dependence between the bank and

developments in the financial markets. So, in spite of

achieving lower costs, the aforementioned factors

negatively affected our profitability. Nevertheless, we were

able to maintain our dividend payment. With this we hope

to underline that KAS BANK, with its strong solvency, has

much faith in the future. With a BIS ratio at year-end of

over 23 percent we are already complying with the

recently proposed Basel III guidelines.”

What are your expectations for 2011?

“The economic prospects for 2011 for Europe are a bit

more favourable. The interest level has slightly increased

lately, which is also positive for the bank. However, the

financial markets continue to be unstable. For example, we

have to wait and see what economic consequences the

horrible earthquake in Japan will have in the long term.

Albert Röell, chairman of the

Managing Board, KAS BANK


well as the fact that KAS BANK is the only large custodian

actually established in the Netherlands, the securities of

our clients are even better protected against insolvency

risk. Our legal specialists have been intensively involved in

the discussions surrounding the bill. We will keep our

clients informed this year about any developments

regarding the Act. This also fits with our aim to share our

knowledge with our clients as actively as possible. For

example, by means of Xpert Meetings and workshops.

A perfect example is the KAS BANK Pension Academy. We

will soon organise the first meeting for our clients and

other stakeholders entitled ’Pension management in

control: the practice’.

In order to inform and service our clients better and faster, the total process chain has been considerably simplified

What is your opinion on the opportunities in

KAS BANK’s other home markets, Germany

and the UK?

“In fact we experience the same developments in these

markets as in the Dutch market. The business of securities

services within Europe is becoming increasingly complex

as a result of new regulations and ever more demanding

clients. In Germany the trend towards outsourcing fund

administration and/or consolidation of KAGs and

Depotbanks continues. The fact that we are the only

independent provider of both ‘Master KAG’ and Depotbank

services affords us a unique position. We are convinced

that we will again realise additional growth in Germany in

2011, also through acquisitions. Acquisitions in other

parts of western and northern Europe have not been ruled

out at this stage. Emphasis is particularly placed on

institutional portfolios.

In the United Kingdom we will continue to develop tailor-

made solutions for UK pension funds as well as

strengthening our position as an independent partner for

pension funds, consultants and trustees. We also expect

excellent growth possibilities for KAS BANK as a central

gateway for non-European parties to access the European

infrastructure.”

In the banking code the client is the centre

point. How is this principle translated into

KAS BANK’s services?

“Last year, we further solidified contact with our clients by

introducing client service reviews. Nearly all clients have

participated. Several process and quality improvements

have been realised in consultation with our clients. This

process will continue in 2011.

In our daily operations, focus will fall on faultless

processing. In order to inform and service our clients

better and faster, the total process chain has been

considerably simplified. Requirements and complaints are

dealt with much quicker and more efficiently. Specialist

product managers have also been appointed to advise our

clients on new products or support them to improve

existing products. And our app for the IMS Dashboard will

make an essential contribution to pension funds that aim

to be demonstrably in control 24/7.”

The business of securities services within Europe is becoming increasingly complex as a result of new regulations and ever more demanding clients

What is your opinion on investor relations in

this context?

“We pay much attention to informing shareholders as

transparently as possible and making visits to potential

new investors. We believe it contributes strongly to the

liquidity of KAS BANK’s shares. Of course we are receptive

to suggestions from shareholders to improve and advance

this. The same applies to feedback on our annual report

and other statements made by our bank, as we are

convinced that good investor relations are in the interest

of all KAS BANK stakeholders.”


Amendment to the Securities Giro Act extends legal protection

The Securities Giro Act (Wet Giraal Effectenverkeer, or WGE)

has been amended with effect from 1 January 2011. The

amendment relates to the way in which banks in the

Netherlands, including KAS BANK, hold securities in custody

on behalf of, and for the account of, their clients. As a result

of this amendment almost all securities will now benefit

from the legal protection of the WGE1. This means that

KAS BANK is no longer required to maintain a separate

depository company for the custody of securities that now

fall within the scope of the WGE.

The WGE governs the book-entry delivery of securities and

the protection of investors in the event of the bankruptcy

of their bank (insolvency risk). Banks in the Netherlands

are obliged to realise an adequate segregation of assets

whereby the securities that they hold on behalf of their

clients are segregated from the bank’s own assets.

Until 1 January 2011 the scope of the WGE was limited:

the protection only applied to securities that were held in

custody by a bank that was admitted as a “participant”

(as defined in the WGE) to Euroclear Netherlands.

Furthermore, Euroclear Netherlands was able to decide

whether securities fell within the scope of the WGE or not.

As a result, the protection afforded by the WGE was

effectively limited to securities that were traded in the

Netherlands through NYSE Euronext.

In order to provide adequate protection for those client

assets not covered by the WGE, KAS BANK deposited these

securities in a special purpose vehicle: KAS Depositary

Trust Company (the trading name for KAS BANK

Effectenbewaarbedrijf N.V. – KDTC). KDTC is a separate

legal entity, entirely distinct from KAS BANK and therefore

exposed to very limited insolvency risk.

Expanding the scope of the WGEThe scope of the WGE has now been expanded to include

securities that are held with banks that are not admitted

as “participants” to Euroclear Netherlands. Furthermore,

this protection extends to all securities, money market

instruments and units in collective investment schemes, as

defined in the Dutch Financial Supervision Act (Wet op het

financieel toezicht, or WFT) regardless of where they are

held or traded.

Consequences for KAS BANK Effectenbewaarbedrijf N.V. The extended scope of the WGE, and the broader

protection it now offers, will allow KAS BANK to introduce

a more uniform way of segregating assets. KAS BANK is

currently reviewing its use of KDTC, and evaluating

whether this will be in the best interests of our clients due

to the operational efficiencies that a simpler structure will

generate. It is important to note that the amendment of

the WGE does not mean that banks in the Netherlands

must discontinue the use of special purpose vehicles such

as KDTC, which remain an effective way of segregating

assets held in safekeeping from banks’ own assets.

Partial dematerialisation The physical safekeeping of bearer certificates of securities

involves cost and risk. The WGE therefore also contains

provisions for a further dematerialisation of securities that

fall within its scope. The WGE stipulates that all physical

securities that are not embodied in a global note or global

share will need to be converted into global notes, global

shares or registered securities before 1 January 2013.

Furthermore, physical delivery of securities from the WGE

system to an investor will no longer be possible as of

1 July 2011. Despite this, these changes are likely to have

little or no impact on the majority of end investors.

1 Securities that do not benefit from the protection of the WGE are registered securities whereby (i) a notary deed is required for the transfer of such securities, and (ii) the possibility of transferring such securities is restricted or ruled out under the relevant articles of association or the securities’ terms of issue, unless they have been admitted to official listing on an exchange or a multilateral trading facility as defined in Article 1:1 of the WFT.


Back-office outsourcing services now available in the German marketFollowing the Dutch market we are now able to offer our

clients in Germany the opportunity to use the front-office

module of SimCorp Dimension, one of the world’s most

advanced systems for investment accounting. Both the

extent of operational outsourcing and the requirements of

operational control can be determined.

There are two main alternatives:

1) Outsourcing of fund administration for public funds

and special funds: application service provider (ASP)

2) Comprehensive business process outsourcing (BPO)

plus ASP for the front office (BPO+).

This service has been offered to clients in the Netherlands

since 2007. At the end of 2010 we also introduced BPO+

to two German asset managers, one of whom (AVANA

Invest GmbH) already had the SimCorp system in place,

making the transition very smooth. For the other asset

manager (ELAN Capital-Partners GmbH) we provided more

in-depth training and introduction to the system, so that

the service could run successfully from the start.

The asset manager enters the trades directly into the

Dimension front-office tool and then conducts the pre-

compliance checks. The legal and contractual limits are

stored in the system (entered by KAS Investment

Servicing). When all limits are checked and approved, the

asset manager can trade in Dimension with a broker of

their choice (pre-approved by KAS Investment Servicing).

After the trade has been executed, the asset manager

enters the price he received from the broker and

KAS Investment Servicing’s back-office receives all details

for further automatic processing in the system.

KAS BANK’s BPO+ service is a cost-efficient solution for

asset managers, without the concern of IT issues. Access

to a state-of-the-art application is provided, including

support from KAS BANK specialists, enabling asset

managers to remain in complete control of their

operational risks.


Global custody network newsEurope

GREECE – Possible postponement of CGT until 2012

The Greek Ministry of Finance has indicated that the

implementation of Capital Gains Tax, planned to become

effective as of 1 January 2011, will probably be postponed

until 1 January 2012.

CROATIA – Introduction of OTC reporting requirement

The Croatian Financial Services Supervisory Agency (CFSSA)

has introduced reporting requirements for OTC transactions

which will include the trading price, ISIN code, nominal

amount and transaction time.

Accordingly, a non-resident professional investor is obliged

to report details of the purchase transaction to the Zagreb

Stock Exchange (ZSE) at the end of the trading day.

Transactions conducted after official trading hours should

be reported at the beginning of the next trading day. Credit

trading activities covering repo and reverse repo

transactions as well as buy- and sell-back transactions or

Lombard loans are not subject to these new reporting

requirements.

NORWAY – Statute of limitations, clarification

The official Statute of Limitations (SoL) in Norway has been

reduced from three years to one year with effect from 1

January 2011. The Norwegian tax authorities have based

this on the legal right to practice a shorter SoL for the

reclaim of dividend taxes.

However, the local tax authorities, COFTA, have announced

that they will continue to practice the three-year SoL. If

and when a one-year limitation is introduced, COFTA will

announce this in

sufficient time.

We recommend that

reclaims are filed

continuously and as

soon as possible after

the dividend season.

ICELAND – Tax increase for

foreign investors

The Icelandic parliament has

accepted a bill increasing

capital gains tax, interest

tax and dividend tax from

15% to 18% for foreign legal

entities (foreign corporations) and from 18% to 20% for

individuals. The tax increase is effective as per 1 January

2011.

Outside Europe

BRAZIL – Tax changes

Several tax changes will become effective in Brazil as of 1

January 2011. The most important of these are:

• The IOF tax rate applicable to ADR cancelations into

local shares has been established at 2% (formerly

2.38%).

• The IOF tax rate applicable on conversions of 4131

Direct Investment to Resolution 2689 Portfolio

Investment has been established at 2% (formerly

2.38%).

• The IOF tax rate applicable to foreign exchange inflows

for the purpose of investment in private equity/

venture capital funds has been reduced from 6% to

2%; these investments include funds known as FIPs

(Fundo de Investimento em Participações) and FIEES

(Fundo de Investimento em Empresas Emergentes), as

well as investment funds that invest in these two types

of funds.

• The IOF sliding scale on short-term holdings (for

redemptions within 30 days) will no longer apply to

corporate bonds, but only to government bonds.

EGYPT – Stock exchange requirements

The past weeks have seen many reports that the Egyptian

Stock Exchange (EGX) was to open again, which were later

recalled. The latest news is that the exact date of


resumption of trading will be decided following

discussions with the new Prime Minister.

New trading/investment requirements

Custodian banks are to submit immediately the

shareholding ownership structure for all closed-ended

funds with an existing unified code (investment permit)

on the Egyptian Exchange (EGX). Clients are required to

send the shareholding information on all closed-ended

funds to us. We will then inform our local custodian,

HSBC.

Furthermore, a list was published by Egypt’s Attorney

General, detailing the Egyptian individuals that are

currently restricted from investing in Egypt, effective

immediately. This list of individuals is available on EGX’s

website (www.egyptse.com,NewsDetails, the website was

down at the time of writing).

Clients are requested to review urgently all their accounts

in Egypt and provide details of the shareholders and their

ownership levels in the closed-ended funds to ensure that

none of the individuals named by the Attorney General of

Egypt are among the fund’s shareholders or certificate

holders.

Five percent holdings

The Egyptian Financial

Supervisory Authority

(EFSA) has announced

temporary investment

restrictions, which

include the mandatory

disclosure of holdings of five per cent or more in any

investment fund or when requesting a new unified code

(investment permit) in the Egyptian market.

Failure to comply with these requirements may result in

the suspension of existing unified codes in the Egyptian

stock market.

PHILIPPINES – Excess funds may be repatriated

Since early December 2010, foreign investors have been

able to repatriate excess pesos funded with inward

remittances of foreign exchange, including refunds arising

from the disapproved additional subscription of PSE-listed

shares during a rights offering, subject to certain

conditions and documentary requirements. The new policy

cannot be applied retrospectively.

INDIA – Fixed pay date for dividend and bonus

payments

The Securities and

Exchange Board of

India (SEBI) has made

several amendments

to the equity listing

agreement, key among

which is the introduction of a fixed pay date for dividend

and bonus issues. The fixed pay date is applicable to

payments decided at any board/shareholders’ meeting

convened on or after 1 January 2011.

Previously, the concept of fixed pay date did not exist and

companies had up to 30 days from the Annual General

Meeting to pay the final dividend and up to 30 days from

the record date for bonus payments. A fixed pay date will

enable investors to manage their cash/securities flows

more efficiently.

INDONESIA – SID required when trading directly with

local broker

Under the new rules issued by the Indonesian CSD (KSEI),

clients trading directly with an Indonesian local broker

require a Single Investor Identification (SID).

Local brokers will be required to quote the SID of their

client (who placed the order with them) in their trade

orders. Clients may want to contact their local broker to

ensure the availability of the SID for trading.

SINGAPORE – Remote membership proposed by SGX

Singapore Stock Exchange (SGX) proposes to expand

membership on the securities market to foreign brokers

based abroad. These brokers, regarded as remote trading

members, will observe their home rules and deal only for

foreign investors.

This initiative aims to extend the reach of SGX into the

international market, as with the introduction of the

remote trading members, foreign investors may be served

by a wider pool of trading professionals with access to the

Singapore market.


Positive responses to KAS BANK’s stress test for pension fundsRecently, KAS BANK launched a pension fund stress test,

anticipating the stress test that the Dutch Central Bank

(DNB) is likely to make compulsory for Dutch pension funds.

The responses during the presentation were enthusiastic.

The audience had several questions and remarks that we

will take to heart when further developing the stress test.

It is relevant to review both peaks (like in 1987 and 2008) and lows during the test.

With the development of this stress test for pension funds,

KAS BANK aims to help its clients to meet the stricter

requirements set out by the government and supervisory

institutions. The new stress test will give pension fund

managers and investment committees a better

understanding of the consequences (and with this the

risks) of several worst-case scenarios relating to the

funding level of their schemes. In addition to three

standard scenarios they can also opt for a tailor-made

service and a more comprehensive analysis of the results.

The stress test can be implemented on an annual, monthly

or quarterly basis. The stress test is also available in

Germany and the UK, where it has attracted a great deal of

press attention.

Stress test presentationThe presentation of the stress test attracted a great deal

of attention. Ard de Wit and Chris van der Gulik, both from

our Institutional Risk Management (IRM) department and

closely involved in the development of the stress test,

responded to several questions and remarks from the

audience. Please find below the most significant of these.

Does KAS BANK advise clients on how to

mitigate tail risks?

The two main risks for pension funds are securities and

interest risk. Securities risk can be hedged through

options. Depending on the fund this can be done by

simple or more complex option constructions. KAS BANK

can support you to analyse and implement these

85

90

95

100

105

110

115 Equity 25%

Interest rate shock in %

Equity 0%

Equity -25%

Actual

-1%1%-0%-1%-1%

Scenario analysis: coverage yields equities vs interest rate shock


strategies. To hedge the risk on interest rates, swaps and

swaptions can be used. KAS BANK’s order desk can execute

these transactions for you.

The aim of introducing a stress test is to make pension funds consider their scale and to be aware if, and how, they are prepared for the future.

What is the objective of the stress test for

the DNB?

No concrete data are available yet. A pension fund is a

financial institution. In that respect the risk models are

comparable to Solvency II and Basel II, and the stress test

for financial institutions forms an essential part of these.

A determination of the Value at Risk alone is not

sufficient.

The aim of introducing a stress test is to make pension

funds consider their scale and to be aware if, and how,

they are prepared for the future.

To conclude, there is also political pressure to make stress

tests for pension funds compulsory.

On what principles is the historical stress

scenario based and to what extent do

‘shocks’ from the past appear to be relevant

for an adequate comparison of data?

In the event of a historical scenario the main question is

whether a pension fund can survive a comparable hit. Two

things are important in this context: 1. What risks play a

role?, and 2. What will happen? So-called lows may have a

considerable impact, however, in the event of small

movements it is often much more difficult to assess what

risks the fund runs. That is why it is relevant to review

both peaks (like in 1987 and 2008) and lows during the

test.

The DNB for example does not include liquidity risk in the

test, which is actually quite relevant.

How does KAS BANK integrate the stress

test in its package of services?

The stress test falls within KAS BANK’s regular risk

management services, as does the IRM Monitor. For the

execution of profound analyses, data arising from the

performance measurement and performance accounting

services are required. For ex-ante calculations only fund

accounting is required.


Productive partnershipStephen Isgar, KAS BANK, considers the role of the

custodian as regards contingent assets and scheme funding.

In the canon of great sporting rivalries, none inspires

more passion, romance or nostalgia than the biennial

battle for the Ashes. For those not familiar with the arcane

traditions of cricket, this contest dates back to 1882 and

commemorates the first time that Australia beat England,

their former colonial masters, on an English ground. The

Sporting Times ran a satirical obituary lamenting the

death of English cricket, and a group of Melbourne women

presented the England captain with a small terracotta urn,

thought to contain the charred remains of a cricket bail.

Since then this contest has been known simply as The

Ashes. Steeped in history and post-colonial grudges, it

now embodies the spirit of all sport like no other.

Cricket itself is a complex game, requiring a unique blend

of specialist sporting skill, teamwork and tactical nous. So,

despite the myriad disappointments that have followed,

England’s hour of glory this summer remains an epic

achievement. Remember when Alastair Cook and Jonathan

Trott were the most productive batting partnership on

Australian soil? Even if you are not a cricket fan, you

cannot fail to appreciate the duo walking into bat against

a ruthless Australian side on the verge of victory, only to

rake in 329 runs and steal a draw.

As partnerships go, that one evidently worked under the

enormous pressure of expectation. I am not one for

tenuous analogies, but this cricketing news did make me

think of the partnership between pension scheme and

employer and the balancing act both must maintain to

keep the team in the game: the trustee managing assets

and liabilities and the employer maintaining a financially

robust company. Each needs the other for the greater good

of the company.

One such approach is for employers to set aside assets for the scheme to meet its funding commitments, without transferring them directly

Vital link It is the trustee’s primary duty to protect member benefits

and their ability to do so depends on a financially robust

sponsor, especially in volatile economic times. So the

employer covenant is a vital link between the company

and its pension scheme and requires diligent monitoring

(recent Mercer research shows 37 per cent of respondents

carried out formal monitoring once per year or less – out

of 119 schemes surveyed).

Indeed, the Regulator has indicated that trustees should

scrutinise this as rigorously as they would fund

performance and many trustees have been revisiting this

as the issue moves up the risk register. Perhaps a general

lack of understanding between trustees and employers

makes it unlikely that the employer will approach the

trustees with an open chequebook. Nor should trustees be


willing to ride out these uncertain times in the hope that

the finance director will inject a bundle of cash into the

scheme.

With this in mind, trustees have been investigating

alternative ways to tackle deficits, while sponsors are keen

to avoid overfunding the scheme. One such approach is for

employers to set aside assets for the scheme to meet its

funding commitments, without transferring them directly.

This offers trustees security against employer default,

safeguarding future contributions should the employer

find itself in difficulty.

Perfectly placed to assist The Pension Protection Fund (PPF) has issued guidance

and the custodian’s role is also vital, since pledged

securities must be safeguarded through a separate account

structure – ringfenced from the scheme’s assets and the

sponsor’s balance sheet, for the scheme to have a claim on

those assets in the event of employer default.

There are many benefits to this approach. The most

significant for the employer is a sizeable reduction in PPF

levy contributions, allowing money that would have gone

to the PPF to remain on the employer’s balance sheet and

under their control, resulting in greater financial stability.

For trustees, this translates into greater certainty for the

scheme’s future: continued support from the employer and

a stronger employer covenant as a result. Trustees will also

benefit from bespoke account structures, supported by

Stephen Isgar is Business

Development Manager,

Institutional Investors. This

article first appeared in the March

issue of Pensions World.

In a nutshell• the partnership between trustee and employer is

crucial – each needs the other for the greater good

of the company

• one approach to tackling deficits is for employers

to set aside assets for the scheme to meet its

funding commitments which offer trustees security

against employer default

• a custodian is vital since pledged securities must

be safeguarded through a separate account

structure

their custodian, and access to independent and neutral

analysis. Such analysis offers an impartial valuation of the

assets pledged based on mark to market accounting, with

an option on margin calculation to remove price risk.

the custodian’s role is vital, since pledged securities must be safeguarded through a separate account structure

Custodians are perfectly placed to assist in these

structures – it has been reported this year that some are

strengthening their links with trustees by making more

intelligent use of the data they hold through regular

valuations, collateral calculation and transition

management, as well as regulatory compliance reporting.

And our cricketing metaphor? How about this: the

employer and trustees, two batting partners walking to the

crease, with their consultants to coach them and the

custodians acting as umpires, keeping a watchful eye and

updating the scoreboard.


Laurens Vision

The European Commission

has once again elevated

clearing and settlement to

the top of its agenda, from

the depths of what were once

called the salt mines of the

securities industry.

No fewer than seven expert

groups are in the background

coaching and advising the Commission on the best way

forward or, as some market commentators have

suggested, how to extricate itself from the relative mess

the European markets are currently in. I refer to the

CESAME Group, the CESAME 2 Group, the Legal Certainty

Group, the FISCO Group, the Tax Barriers Business

Advisory Group, the Monitoring Group of the Code of

Conduct and the Expert Group on Market Infrastructures.

Not satisfied with internal voices alone, the Commission

launched a consultation in January on central securities

depositories and the harmonisation of “certain aspects

of securities settlement” in the European Union.

Legislative proposals are due in June 2011 and the

ultimate goal is a transparent and stable financial

system for Europe.

The most notable difference, however, is the number of central counterparties and securities depositories: just one in the US but no fewer than 23 in Europe

When comparing the US and European equity markets it

is striking to note not only that the US produces roughly

the same gross domestic product with 200m fewer

people, but also that the companies representing that

GDP are quoted on four systemically important trading

venues, compared with 28 in Europe. The most notable

difference, however, is the number of central

counterparties and securities depositories: just one in

the US (the Depository Trust & Clearing Corporation, or

DTCC) but no fewer than 23 in Europe. The DTCC was

Personnel notes

GermanyOn 1 January the Relationship Management team was

strengthened by Dijaneta Sokolovic.

Natalie Nabibux was appointed as Sales Manager on

1 March.

Netherlands – Client management Sandra Könisser was appointed on 1 March as Specialised

Relationship Manager, Fund & Investmentservices.

Matthijs Verweij and Niels Bodegraven were appointed

on 1 February and 1 April respectively as

Accountmanagers, Institutional Services.

Jetze Dalmeijer supports Institutional Services as of

1 February as a commercial trainee.

On 1 March the Clearing and Banking Services Relationship

Management team was strengthened by Andy Heideman.

On 1 March the Sub & Core Custody Services Relationship

Management team was strengthened by Sjef van Waard.

SalesPatrick van der Sloot was appointed on 15 January 2011

as Product Sales Manager, Treasury.

Product managersHester Blaauw, Gerrit Groot, Bram Bressers and Ramses

van de Nes have been appointed as the new product

managers at Clearing & Settlement, Derivatives Clearing &

Settlement, Treasury and Corporate Events.

United KingdomMartin Nadel, was appointed on 1 March as Head of

Relationship Management UK.

Client winsNyenburgh Vermogensbeheer Custody and

settlement

Rigi Capital AG Order execution

St. Bedrijfstakpensioenfonds Risk monitor,

Detailhandel Asset administrator

and custody


born of a crisis, when its numerous predecessors in the

1970s forced the stock exchanges to close down for one

day each week to catch up with the trading volumes and

the associated manual, paper-intensive processes that

were an inevitable part of the transfer of securities

ownership in those days.

Small wonder then that the DTCC, as the exclusive

depository gateway in the US, claims the credit for

attracting the investment capital that fuels the US

economy, by means of an efficient, low cost and

centralised infrastructure. In comparison, and despite a

few severe crises of our own, Europe continues to

struggle along with an infrastructure that remains

completely fragmented along national lines. One

wonders why. This is no doubt partly due to the

inevitable vested interests, bearing in mind that Europe’s

exchanges still derive approximately 25 percent of their

annual revenues from post-trade services. And partly

because the European Commission cannot make up its

mind on how best to tackle the substantial challenges of

achieving cross-border post-trade consolidation. The

inescapable question is how to divide this project

between the private and the public sectors. Thus far the

Commission has opted for a bottom-up approach, hence

all the advisory and consultation exercises. The private

sector is supposedly best placed to drive interoperability

– i.e. the technical requirements of the securities

industry – but the public sector is inexorably bound with

the legal, regulatory and tax issues.

Unfortunately, technical progress in the post-trade

landscape is intertwined with cross-border legal and tax

issues and therefore integration to date has taken shape

very slowly, if at all. On top of this, Europe does not

seem able to decide whether horizontal consolidation

(between exchanges and central counterparties across

member states) or vertical consolidation (between

exchanges, CSDs and CCPs) will best address their

concerns over the competitiveness of the markets.

Europe does not seem able to decide whether horizontal consolidation (between exchanges and central counterparties across member states) or vertical consolidation (between exchanges, CSDs and CCPs) will best address their concerns over the competitiveness of the markets

And in the midst of all this, the clearing, settlement and

custody providers keep performing their balancing act to

accommodate traders and investors, as if a single market

in Europe is already a reality. In doing so, are they merely

making money from Europe’s inefficiency? True or not, this

probably best symbolises the crossroads facing the

Commission – the question of whether to regulate or

promote competition in protecting the welfare of end-

users and intermediaries alike. But another viable

explanation of the stalemate in Europe is that the

dominant behaviour of post-trade service providers is to

do the right things for existing market participants in

given market circumstances. Which is not necessarily the

same thing as doing the right thing for the market at

large.

This column was first published in Portfolio Institutional.

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KAS Selections, April 2011