[ T H O U G H T L E A D E R S H I P | S I X ]
THE NEW SUB- CUSTODIANS :
The introduction of subcustodians has been essential for improving asset servicing for banks , in particular in markets with global appeal where global investors need the services and support of local firms to handle asset servicing with the central securities depository ( CSD ). But with new innovation and an evolution in the needs of market participants , things are shifting to a position whereby CSDs are becoming the new custodians with direct access for banks to the market infrastructure . There are multiple benefits to direct access , both at the level of individual firms and for the industry as a whole , for asset safety and asset servicing needs . Firstly , direct access reduces risks for those investors with assets at a CSD . By removing the sub-custody layers you are removing possible risks associated with those businesses , ensuring business continuity . Take , for example , if an intermediary custodian bank faces a systems outage . How will this affect their clients who need corporate actions processing from ? By going direct to a CSD that can handle the activity the bank in question doesn ’ t have to face a break in operations . Being a member at a CSD also provides those banks that go directly with more of a voice . Having a sub-custodian represent you has been fine up to now . But as banks want more of a say in how activity is handled , especially due to the risk management imperative , there is a growing desire to engage directly and make this voice heard at the CSD . At a macro level , the move to more direct access to CSDs could have a standardising effect across the industry . Custodian banks require a level of service that is market leading in other regions and with other CSDs they have
The benefits of direct access to a CSD
Direct access to a central securities depository has multiple benefits around risk reduction , advocacy and a full spectrum of asset services combined with asset safety , meaning CSDs are having to be innovative to keep up with demand in a win-win for all participants .
direct connection to , forcing CSDs to adopt new best practices . With an account operator model and / or a hybrid model , direct access provides the ideal set-up for some market participants to get the best from an asset safety as well as from an asset servicing perspective . However , while more direct access for custodians holds promise as a trend in custody , the promise is dependent on CSDs providing the full spectrum of asset servicing needs . After all , what benefit is it if a custodian has more direct access to a CSD and cannot receive the services and safety it used to get from the sub-custodian ? With banks and global custodians increasingly looking for direct access arrangements , it ’ s important that CSDs are evaluating their offering to meet the high standards expected . To this end , SIX has evolved its offering to include registration and proxy voting services in the CH market thus meeting respective expectations . This is a trend to watch in the world of custody and could drive an innovation race between CSDs in order to provide the full spectrum of services with high level of security needed by market participants . This can only be a good thing for market participants and , ultimately , investors who will benefit from cash and proceeds from trade flows landing much quicker in accounts .
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