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Asset servicing versus settlement: ensuring your securities are in the right place at all times
Asset servicing versus settlement: ensuring your securities are in the right place at all times

Asset servicing versus settlement: ensuring your securities are in the right place at all times


Cross-border flows continue to grow, as globalisation and market access enhancements provide institutional investors with opportunities for improved returns and diversification. But buying and selling on markets around the world may become complex and inefficient.

Asset managers and insurers are looking to increase scale through geographic distribution of their products. At the same time they are diversifying their portfolios through overseas investing. In many cases, the same securities may be processed on various markets and held in portfolios in different locations. If the buyers and sellers are in different places, their back-office teams must issue cross-border instructions to settle those trades. With different formats and cut-off instructions between markets, these cross-border flows are, by nature, both tricky to manage and more expensive. Many require amendments, which impacts the efficiency of the transaction processing and effectiveness of the back-office teams. This may lead to late or failed trades.

Even Europe - where TARGET2-Securities brings together 23 central securities depositories (CSDs) to create a single settlement system for European markets – can’t get around this problem. Instead, today a security may be held on an investor’s domestic market with the issuer CSD, or at the infrastructure level where it was bought i.e. on an international CSD for international markets, or via an investor CSD.

Complex chain of intermediaries stand between investors and the market

The holding chain for securities is becoming just as complicated. Where domestic assets are no longer safekept directly on their local market, additional intermediaries now sit between the investor’s custodian and the local market issuer CSD. This leads to:

  1. A less efficient securities transaction service: where the institutional investor’s custodian does not have access to the local market, they cannot interact directly with the issuing company, issuer CSD, local tax authorities and regulators. As such, they must now depend on the quality of services provided by different intermediaries further along the supply chain. This may result in less complete market and securities information, delays in receiving market announcements and important details of events that affect the securities, non-competitive corporate action cut-offs and missing options available on the local market.
  2. Increased risk and higher costs: having more third-party providers in the safekeeping chain, with their associated fees, will increase overall servicing costs. In addition, the investor’s custodian bank no longer has a direct relationship with, and thus control over, all the intermediaries, and so cannot influence the quality of service, its efficiency or level of personalisation.

By contrast, safekeeping an asset directly on its local market improves service quality in a variety of ways. Without the intermediary chain, the risk of loss of information for corporate actions decreases since local teams have direct contact with the issuers. Additionally, it allows for direct access to the local market which results in better market deadlines.

The increasing interpenetration of world markets only heightens the importance of reconciling the benefits of optimised direct asset safekeeping with the opportunities to conduct transactions on different settlement systems.

Automatic safekeeping optimisation and settlement realignment

Thanks to BNP Paribas Securities Services’ direct access to the main local markets around the globe, we can offer the best of both worlds to our customers through our powerful multi-local offering:

  • Asset safekeeping on local markets
  • Automatic realignment of securities so they can be sold cross-border in the locations where they are needed

Our Securities Inventory Management service optimises asset servicing and settlement by automatically transferring assets to and from their local markets whenever they have been received on, or need to be delivered to, a different market. The service has two components:

  • Optimisation transfers – we assess our clients’ portfolios at the end of each accounting day. Any assets that are not currently held domestically are then automatically transferred to their local markets via an electronic free of payment process (provided the security is not part of a parallel sale on the foreign market). Parameters are established with clients to determine which assets to move under which circumstances.
  • Automatic realignment – assets repatriated for safekeeping to their local market may subsequently be sold by clients on other markets around the world. In such cases, where the assets are not already held in the customer’s desired settlement place, available securities are screened and an electronic free of payment transfer is completed in real time to the place of settlement to cover the delivery. This innovative capability ensures the correct securities are available for settlement and the sale can take place smoothly – reducing the risk, cost and effort involved in clients’ cross-border transactions..

Securities Inventory Management was initially rolled out at the end of 2017 in ten investment markets: Austria, Belgium, Finland, France, Germany, Italy, the Netherlands, Portugal, Spain and the United States. Last year, as required by clients, we have extended it to six new markets -Denmark, Norway, Slovakia, Slovenia, Sweden and Switzerland.

BNP Paribas Securities Services is now working on expanding its solution to support the specific collateral pooling needs of its sell-side clients. Taking into account investment banks’ asset management related to collateral management), Securities Inventory Management will be able to review the clients’ firm and forecasted positions kept on national and international markets to automatically instruct the realignments needed. The objective is to streamline today’s complex and often labor-intensive processes and actively pool securities according to the allocation decided by front offices.

Key takeaways

  • Some domestic assets are no longer safekept directly on their local market, but through a complex chain of intermediaries, resulting in:
  • Less efficient asset servicing: lower quality of market announcement timing and completeness of information for tax and corporate actions
  • Increased risk and higher costs
  • Our offer enables, on 16 markets:
  • Asset safekeeping on local markets
  • Automatic realignment of securities so they can be sold cross-border in the locations where they are needed


Article initially published in March 2018

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