Citigroup Global Transaction Services
®
National Taiwan University
Department of Finance
Datong Kuo Chang
April, 2005
Copyright © 2003. Citibank, N.A. All rights reserved. CITIGROUP and the Umbrella Device are trademarks
and service marks of Citicorp and its affiliates and are used and registered throughout the world.
Agenda
» Investment Industry Value Chain
» Who needs a custodian?
» What services do custodians provide?
› Service model (direct vs. global window)
› Sub-custodian network (proprietary vs. third-party)
» Who are the top ranking providers?
» How are they measured?
» What are the risks to the custodians?
» Taiwan Market
2
Investment Industry Value Chain
Focus on the transaction processing & portfolio administration
stages of the clients investment value chain
2
1
Asset
Management
Asset
Accumulation
5
Transaction
Processing
Custodians
Transaction
Execution
Fund managers
Pensions, Mutual funds
4
3
Brokers
6
Investment
Accounting
Custodians
7
Performance
Measurement
Custodians
Fiduciary
and
Investor
Services
Trustee/ others
3
Definition of “Custody” or “Global Custody”
»First developed with the passage of the Employee Retirement
Security Act of 1974 in the US => fund managers were required to
segregate client assets from own assets.
»In the 90’s, the industry experienced substantial growth.
Custodians
also spent big money to boost their technology and efficiency.
»What started off as a complementary service has become a global
scale business.
WHAT CUSTODY AIMS TO PROVIDE?
Safekeeping and protection of financial assets
Facilitating the trading of such assets
Tracking the values of portfolios
4
Agenda
» Investment Industry Value Chain
» Who needs a custodian?
» What services do custodians provide?
› Service model (direct vs. global window)
› Sub-custodian network (proprietary vs. third-party)
» Who are the top ranking providers?
» How are they measured?
» What are the risks to the custodians?
» Taiwan Market
5
Who Needs A Custodian?
»
»
»
Division of professional specialties
Cross border investment activities
Regulatory requirement
6
Agenda
» Investment Industry Value Chain
» Who needs a custodian?
» What services do custodians provide?
› Service model (direct vs. global window)
› Sub-custodian network (proprietary vs. third-party)
» Who are the top ranking providers?
» How are they measured?
» What are the risks to the custodians?
» Taiwan Market
7
What Services Do Custodians Provide?
» Transaction Processing
› Clearing
› Settlement
› Cash Management
› Foreign Exchange
› Safekeeping
› Reporting
› Corporate Actions
› Securities Lending
› Tax Reclamation
8
What Services Do Custodians Provide - continued
» Investment Accounting
› Net asset valuations
› Profit/ Loss
› Statement – management and regulatory
› Multi-currency accounting
› Compliance monitoring
» Performance Measurement
› Alliance with Frank Russell Company
9
Service Model - Direct Custody
Citibank
Hong Kong
Citibank
Singapore
Citibank
Canada
CLIENT
Citibank
France
Citibank
Italy
Citibank
UK
Citibank
Malaysia
Citibank
USA
10
Service Model - Direct Custody - continued
Operating Procedures :
» Direct access to local A/Cs and local service contacts
» It suits sophisticated institutional investor that
› has knowledge of the foreign markets; and
› has set up its own back-office operations to manage the multiple
accounts in various markets
Benefits to Client :
» Direct access to market information
» Transaction timeliness
» Better cut-off times
» Facilitate quick turnaround of asset trading
» Readiness to customize based on local conditions
11
Service Model – Global Custody
Single Window Operations
Competitor Model
Local Market Expertise
industry expertise, 50 global markets
Early notification of market issues
Timely market news delivery to Investors
Access to and influence with regulators
Citibank Model
Recognized
Customer
Competitor
Global Hub
Excellent Execution
Highest industry STP rates through proprietary network
Agent
Agent
Bank #1
Agent Bank #1
Agent
BankAgent
#1
Bank
#1
Agent
BankAgent
#1
BankAgent
#1
BankAgent
#1
Bank
#1
Agent
Banks
Banks
Customer
Citibank
Global Hub
Internet delivery/data warehouse
Fast inquiry resolution through global tracking system
Global Consistency
Largest global reach
Agent
Bank #1 Citibank
Citibank
Citibank
Citibank
Citibank
Citibank
CitibankCitibank
Citibank
Citigroup
brand
Driving to a consistent customer experience
Implementing our global system set
12
Citigroup’s proprietary network covers 95%
of Total Market Capitalization of the world
Depository Relationships
Europe
Belgium
Austria
Finland
France
Germany Sweden
Norway
Greece
Denmark
Ireland
Italy
Luxembourg
Netherlands
Portugal
Spain
Switzerland
United Kingdom
Jersey
Euroclear
Clearstream
Americas
United States
Canada
Mexico
Puerto Rico
Colombia
Ecuador
Peru
Brazil
Chile
Argentina
Venezuela
CEEMEA
Bermuda
Costa Rica
- Proprietary
- Third Party
Czech Republic
Egypt
Hungary
Jordan
Morocco
Pakistan
Poland
Romania
Russia
Turkey
Botswana
Bulgaria
Croatia
Estonia
Israel
Latvia
Lithuania
Mauritius
Slovenia
Slovakia
South Africa
Ukraine
Zimbabwe
Asia
Australia
Hong Kong
India
Indonesia
Japan
Korea
Malaysia
New Zealand
Philippines
Shanghai
Shenzhen
Singapore
Sri Lanka
Taiwan
Thailand
Bangladesh
14
Benefits of Proprietary Network to the Client
» More favorable cut-off times
» Local market knowledge
» Control of services & costing
» Consistent technology
» Fast problem resolution
» Higher STP rates
15
Agenda
» Investment Industry Value Chain
» Who needs a custodian?
» What services do custodians provide?
› Service model (direct vs. global window)
› Sub-custodian network (proprietary vs. third-party)
» Who are the top ranking providers?
» How are they measured?
» What are the risks to the custodians?
» Taiwan Market
16
Who Are The Top Ranking Providers?
» Well capitalized banks
› Citigroup
› JP Morgan Chase
› Bank of New York
› HSBC
» Specialized banks
› State Street
› Mellon Trust
› Northern Trust
› Brown Brothers Harriman
› BNP –Paribas
17
Agenda
» Investment Industry Value Chain
» Who needs a custodian?
» What services do custodians provide?
› Service model (direct vs. global window)
› Sub-custodian network (proprietary vs. third-party)
» Who are the top ranking providers?
» How are they measured?
» What are the risks to the custodians?
» Taiwan Market
18
How Are They Measured?
» Size
› Asset Under Custody (AUC)
› Transaction Volume
» Information Delivery
› Accuracy
› Speed
» Service Quality
› Advise on market/ infrastructure change
› Technology
› Flexibility in handling exception processing
› Ability to influence market/regulation change
› Competitive fees
19
Citigroup Securities Services - a core business
Clients
2,500 global
investors
and issuers
served;
70% fund
managers &
brokers
Assets
Transactions
More than
$6.6
Trillion
Assets
Under
Custody
50,000
transactions
processed daily
with average
turnover of
$60 billion
Network
Network
spanning 70
markets.
Largest
proprietary
network with 45
countries
Credit
Ratings
Citigroup
S&P AAMoody’s Aa1
Fitch IBCA AA+
Citibank N.A.
S&P AA
Moody’s Aa1
20
Agenda
» Investment Industry Value Chain
» Who needs a custodian?
» What services do custodians provide?
› Service model (direct vs. global window)
› Sub-custodian network (proprietary vs. third-party)
» Who are the top ranking providers?
» How are they measured?
» What are the risks to the custodians?
» Taiwan Market
21
What Are The Risks To Custodian?
» Operational
» Credit
» Technology
» Regulatory
22
Agenda
» Investment Industry Value Chain
» Who needs a custodian?
» What services do custodians provide?
› Service model (direct vs. global window)
› Sub-custodian network (proprietary vs. third-party)
» Who are the top ranking providers?
» How are they measured?
» What are the risks to the custodians?
» Taiwan Market
23
Characteristics of the Taiwan Market
» Regulations define both products and clients
» Taiwan is well known for tight regulatory control
» Market-induced efficiency
› Fully automated trading systems
› Tight T+1 settlement cycle
› Severe penalty on failed trade
» Restrictions minimize credit exposure
› No or very restricted financing allowed
» Continuous lobbying for deregulation
24
Global Securities Services in Taiwan
» Established in 1989
» Current asset under custody: US$54 billion
» Transaction volume: 11,000 - 21,000 per month
» Client base
› Foreign Institution investors (FINI)
› Domestic investors
› Insurance companies
› Public funds – Pensions and Postal
› Securities Investment Trust Enterprise
› TAIEX listed companies which sponsor Depositary Receipts
25
Citigroup as Viewed by Clients and the Market
•
•
•
•
Best Bank in Asia, Awards for Excellence, July 2004
Best at Cash Management in Asia, Awards for Excellence, July 2004
Best at Investor Services in Asia, Awards for Excellence, July 2004
Best at Cash Management and Payments Globally, Awards for Excellence, July 2004
• Ranked 2nd Best Regional Trade Bank, Trade Finance Poll, September 2004
• Best Cross-Border Corporate Cash Management Bank in Asia (>$500 million category), June 2004
• Best Cash and Trade Finance House in Japan, April 2004
•
•
•
•
Best Corporate/Institutional Online Cash Management Bank in Asia Pacific, September 2004
Best Corporate/Institutional Internet Bank in China, Korea and Singapore, September 2004
Best Overall Bank for Cash Management, April 2004
Best Bank for Cross-Border Pooling and Netting in Asia, 2nd year in a row, April 2004
• Best Cash Management Specialist in Asia – Financial Institutions, December 2003
• Best Bank/Best Commercial Bank in Asia, December 2003
Best in Class in Mutual Fund Administration Survey, June 2004
Best in Class in Hedge Fund Administration Survey, June 2004
Most Acclaimed Network globally – Top Rated or Commended in 95% of markets, January 2004
Top Rated in 13 countries in Asia – Australia, China, Hong Kong, India, Indonesia, Japan, Korea,
Malaysia, Pakistan, Philippines, Singapore, Taiwan, Thailand, December 2003
• Best Global Custodian in Asia, Unweighted, May 2004
• Best Global Custodian for Insurance Companies, Unweighted (global award), May 2004
• CitiDirect® Online Banking ranks #1 Best Cash Management website (2nd consecutive year)
Greenwich Associates, 2004 Cash Management Internet Benchmarking Study, May 2004
Results for 2003/04
26
Why Citigroup?
»
»
»
»
»
»
»
»
»
One of the strongest financial services companies in the world
Largest proprietary sub-custodian network in the world
Most diversified product range of securities services in the world
Commitment to the custody business
Automation and technology
Focus on providing value-added custody services
Continuous improvement in service excellence
Consistently voted best in class in independent surveys
We are a relationship bank and view ourselves
as partners to our clients
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