Investors seeking diversification beyond their domestic markets are driving progress at different levels of the world’s custody market, but also new challenges. Which collaboration model will do the job for you?
In a deep article headlined “Is custody a white label brand?”, Global Custodian seeks out the pros and cons of different main strategies to getting the custody jigsaw puzzle together – both for custodian banks and their investor clients.
For some investors, the right thing could be to go with a global sub-custodian present in the domestic market. For others, it could be to stay with a domestic provider who could, in turn, plug in the services of a global or regional sub-custodian – or an international central securities depositary (ICSD).
“It is hard for local providers to acquire the necessary scale to build a network, while margins on sub-custody are thin,” says Ryan Cuthbertson, head of product management for securities services at Standard Chartered, in the article.
In hiring a provider with a global sub-custody network, investors will meet a trade-off against the cost of keeping two custodial relationships.
Nordic institutions stick with globals
Some industry seniors observe local investors turning to purely domestic custodians for their global market access too. Yet, as for the Nordic market, SEB’s head of investor services Ann Magnusson is quoted as giving a contrasting picture:
“We have not seen this development in our region. Financial institutions in the Nordic countries continue to use the services of global custodians. As one of the largest sub-custodians in the Nordics, we have a strong and longstanding relationship with financial institutions, and recently, we have also noticed an increase in demand for our services from large sovereign wealth funds (SWFs) in the region,” says Ann Magnusson.
While scrutinising the drivers behind various cooperation models, the Global Custodian article does not lend itself to generalised advice. For example, while one observer points out that ICSDs could be well positioned to support transactions in European corporate bonds – a low-touch activity – traditional agent banks could add more value in the area of equities asset servicing.