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So at last we have a compromise agreement on the AIFM Directive wording. This doesn’t make it law but does give us something to work with so we can start to make decisions.
One of the most illuminating decisions was the announcement this week by JP Morgan that it is going direct. It will start to self clear a number of markets – this will be a 3-5 year rolling programme. This may seem an obvious thing to do, given its footprint in the exchange traded derivatives space, but is it really going to take on Citi for securities?
If Article 17 of the AIFM is to be believed then the global custodian will be on the line for mistakes at the agent bank (unless unavoidable). This is a big risk to underwrite, so banks like Citi that do most of their securities clearing through their branch or subsidiary network will be better placed (they already underwrite the branch or subsidiary via their own balance sheet, so they don’t need to double up).
What of the trust banks in this brave new world? Will they be able to afford the insurance premium, will they be able to pass this on to the client or will they lose business to the custody direct model (Citi, BNP Paribas and now JP Morgan). Either way network management becomes a much more critical function – for those that can afford to run a network.
The spin off, of course for JP Morgan, is squeezing the expensive franchises operated in the emerging/frontier markets where there is only one ranked provider. Expect the Middle East and Africa to become more affordable.
Tim Reucroft, Director, Investor Services
treucroft@thomasmurray.com |
