SPONSORED PROFILE: Cross-border settlements

o-grimonpontOlivier Grimonpont of Euroclear discusses the drive to increase automation in the Asian funds market and the importance of developing partnerships. Euroclear Bank has been involved in a number of initiatives in Asia designed to facilitate and encourage greater automation across certain Asian markets. Its main area of focus has been on FundSettle, the platform for automating fund orders, as well as fund-transaction settlement and asset servicing, that was first rolled out in Asia and elsewhere in the world in 2001. Partnering with local market infrastructures, such as in Korea, Hong Kong and Taiwan, has been a key part of Euroclear Bank’s Asia strategy. In November, the Korean Securities Depository (KSD) rolled out a foreign funds transaction processing service for Korean distributors and trustees by linking its automated domestic FundNet platform to FundSettle, thereby offering end-to-end automated coverage for Korean and foreign mutual funds processing. Meanwhile, the Taiwan Depository and Clearing Corporation (TDCC) has introduced automation into its growing funds market and Euroclear Bank is one of three providers (along with Brown Brothers Harriman and Calastone) to work with the TDCC for cross-border fund transactions. At present, the service for Taiwanese fund investors covers order routing and confirmations – not settlement and asset servicing. “Taiwan is one of the most active funds markets in Asia; the orders are of relatively small ticket size, but it makes a lot of sense to automate this flow,” says Olivier Grimonpont, general manager and regional head, Asia-Pacific, for Euroclear Bank. “I like the fact that we are live now with three solutions, each of which has been adapted to meet the different needs of the local market (Hong Kong, Korea and Taiwan). This shows that we can build the right solution for the right market. In many Asian markets, there is no automated solution, so rather than the local CSDs build their own funds infrastructure, it makes a lot of sense for them to partner with a provider like Euroclear Bank.” One of the key trends in the Asian funds market in recent years has been the success of Ucits funds, notes Grimonpont, and this has helped to boost the cross-border funds markets in Asia. “Irish and Luxembourg funds are doing very well in Asia. Ucits funds are in 60 countries and a third of the flows are coming from Asia. And, in terms of individual markets, 40% of Taiwan’s flow is Ucits while 80% of Japan’s offshore funds go through Ucits,” he says. In addition to the popularity of Ucits funds in Asia, there has also been an influx of international asset managers that have their own Ucits funds but also want to develop a range of domestic funds. “So we will not be surprised to see Asian CSDs, like the KSD and TDCC, offer domestic solutions and then want to add on cross-border solutions. FundSettle enables orders for cross-border distribution to go straight through the domestic CSD connection to fund promoters – seamlessly. “In some countries, like Hong Kong, Japan and Singapore, however, we find some local customers using us directly – usually domestic distributors looking to expand into the cross-border market.” Grimonpont believes that Euroclear Bank has come to the Asian markets with the best solutions for these individual markets at the moment. “We are highly flexible in providing order routing-only assistance or full end-to-end STP. We will come up with what the market needs today and evolve with them. For instance, a distributor with well-established direct links with a range of promoters can easily expand its existing network by establishing indirect links with other promoters via FundSettle to reach close to 70,000 funds domiciled in 25 locations. “We already have critical mass on FundSettle and can, therefore, be very cost-effective for the Asian markets right now and over the longer term.” Another partnership that Euroclear Bank has set up in 2012 involves a common transaction settlement and custody platform with the CSDs operated by the central banks in Hong Kong (the Hong Kong Monetary Authority) and Malaysia (Bank Negara). The common platform is designed to strengthen the cross-border appeal of locally issued debt securities in these markets. It is playing a role in building overseas investment in domestic RMB-denominated bonds. Moreover, while large international investors have access to ICSDs like Euroclear Bank, the common platform helps domestic CSD counterparties settle cross-border transactions outside their home markets through their domestic CSD. The initiative also addresses the growing importance of collateral management, given that the offshore RMB business is such a growing market. It is a domestic solution combined with an international solution, says Grimonpont. “You can lend cash through the HKMA, for example, and receive collateral through Euroclear Bank. The main drivers are the need to borrow money cost effectively and the collateral taker’s willingness to accept a range of suitable non-domestic securities as collateral to lend the cash. “The remnimbi market is growing steadily. As we see more RMB demand coming into the market, with more cash-rich counterparties lending RMB to international investors, this will increase market-making activities, reduce FX risks and create a resilient RMB repo and capital market.” Grimonpont says that one of Euroclear Bank’s aims in its Asian ambitions is to develop initiatives with local partners. “In Asia, we talk with both the central banks and the CSDs, as they have been central to our activity.” This aim will also be central to its future activity in the funds market. “On the funds side, we are seeing a lot of interest from CSDs and banks in China. We have already entered into a partnership with the Shanghai Clearing House. India is also an interesting market from a partnership perspective, where we have several MoUs. There are still a lot of limits in terms of how foreigners may invest in local assets and how locals can invest abroad, so cash investment is still dominant. But, there are a lot of new, more open regulations happening there.” INCENTIVES TO AUTOMATE
Meanwhile, in Malaysia, there is the prospect of developing automated processing links for the growing Islamic finance market. The Malaysian exchange is the fourth largest exchange in the world in terms of IPOs and is a big centre of Islamic finance, which makes it a good place for the issuance of Islamic bonds. Euroclear Bank can add value by easing international investor access to these securities. “You need incentives to automate for many of these markets,” says Grimonpont. “It must be a two-way street. From the way I see it, it is all about accessing the international investor. For example, if you take a domestic Malaysian bank, it has a relatively large international investor client base and it has to provide the same ease of access as the international banks. So, it needs the skills, scale and scope that these customers demand, and we can help,” he says. Olivier Grimonpont is general manager and regional head, Asia-Pacific, at Euroclear Bank ©2012 funds global

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