Global Custodians: Custody Agreements and Securities Protection for Investors
Fabian Banchiero, VP and Regional Manager Latin America and Caribbean Division
Global Custody and Global Investments
Risks for our Clients Credit Risk Commitment Risk Technology Risk Global Investment Risk
Advantages of Bank Custody
Centralized and global control of all investments regardless of the type of security and counterparty. Client assets are segregated apart from BNY's own assets and the assets of our subcustodians. No third party has access or control over client assets. All transactions are completed according to client instructions. Facilitate entry into various global markets. Client has added protection of the custodian’s credit rating (BNY: AA-) and significant balance sheet size to provide comfort as to the security of assets held. Client Reporting- A wide range of reports is available to clients covering various elements of the client’s security. The Bank of New York’s reporting services provide clients with a high level of data and flexible functionality.
Service Level- Custody Relationship Management Team provides a more detailed level of guidance and follow-up on custody services such as Corporate Actions.
Experience handling new requirements of clients in Latin America (Changes in investment structure). Direct access to U.S. local markets (i.e. DTC, FED) and international depositories such as Euroclear and Clearstream/CEDEL. Improved flow of information via INFORM- a worldwide web internet portal to BNY which leverages Internet technology to provide our clients with interactive functionality and access to a host of applications from a single platform from initiating transactions to accessing detailed reports. INFORM is an ideal solution for users who originate instructions to back office users who need to reconcile positions.
Improved operating efficiencies including better reaction time to certain events and issues due to short time difference between NY and Central/South America.
Access to Value Added Services (i.e. Securities Lending, Cash Management, BNY Securities). BNY not only provides basic safekeeping as custodian, but offers global solutions for the entire investment lifecycle- starting from the investment decision stage through analyzing the portfolio.
International standardization of processes. Client Service Representative is assigned to client accounts to help monitor all operations.
1) In case Bank of New York shall encounter financial problems, please confirm if securities deposited by the Exchange/Central Depository, whether on its own behalf or on behalf of its clients, will be kept safe, thus allowing the Exchange/Central Depository to freely use them at any moment, without being affected by Bank of New York’s situation. Answer:
When a bank acts as a custodian, it is acting in the capacity of a securities intermediary which maintains securities accounts for its clients. As such, assets held in custody are not considered to be assets of the Bank for the purposes of satisfying any claims made by the Bank’s creditors. Clients’ securities held by the Bank and its subcustodians are segregated in a manner that legal counsel has advised protects them from claims by creditors.
2) Please confirm if securities deposited by the Exchange/Central Depository, whether on its own behalf or on behalf of its clients, are kept separate from Bank of New York’s assets. Answer: Refer to Answer #1 Clients' assets are held separately from any Bank proprietary assets. This provision is normally stipulated in a Global Custody Agreement. At BNY, this is stipulated in Article III, Section 1(a), “the Bank commits to specifically identify on its books and records, all securities and cash that are the property of its clients. This is the case whether the securities and cash are held directly by the Bank or indirectly through securities depositories or subcustodians.” In the case of client assets held at our subcustodians, the Bank further commits in Section 1(b) of Article III, “only to place securities with a subcustodian if beneficial ownership of the securities is freely transferable….”
3) Please confirm if Bank of New York, without the Exchange/Central Depository’s consent, is able to loan the securities deposited by the Exchange/Central Depository, whether on its own behalf or on behalf of its clients is accordance with the Global Custody Agreement. Answer: As a custodian, the Bank has no discretion with respect to the assets that are placed in custody with it. The powers that the Bank will exercise as a custodian are specified in the Global Custody Agreement (for example, please see Sections 3, 4, 5 and 6 of Article III of BNY’s Global Custody Agreement). Such powers do not include the ability to lend its client’s securities. The Bank has a Securities Lending Program that provides lending services through a separately managed group. However, a client must specifically indicate its intent to participate in the Securities Lending Program and must execute a separate and distinct agreement before any of its securities are lent.
Other Regulations on Segregation of Client Assets
SIPC- Securities Investor Protection Corporation SEC- Rule 15c3-3 Investment Company Act of 1940- Rule 17-f Uniform Commercial Code (Article 8)
Actual Earnings for Nine Months, 2005
The Bank of New York has a long tradition of collaborating with clients to deliver innovative solutions through its core competencies: Securities Servicing, Treasury Management, Investment Management, and Individual & Regional Banking Services. For reporting purposes, revenues generated by these activities are presently distributed amongst four categories: Servicing & Fiduciary Businesses, Corporate Banking, Financial Markets, and Retail Banking. Servicing & Fiduciary Businesses include: Securities Servicing, Global Payment Services, The Private Bank and Asset Management.
Servicing & Fiduciary Businesses 62%
Corporate Banking 16% Financial Markets 13% Retail Banking 9%
Defined by Our Core Competencies
Individual and Regional Investment Management Services Banking Services
Institutional Asset Management Services Personal Asset Management Services The Private Bank Business Banking The Consumer Bank
Execution Services Independent Research Clearing & Financial Advisor Services Custody Services Global Fund Services Securities Lending
Treasury Management Services
Global Payment Services Capital Markets Global Markets Global Trade Services Liquidity Services
Collateral Management Services
Corporate Trust Services Depositary Receipts Transfer Agency Services