Global Investor Magazine Winter 2022/23

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A Day in the Life: Provable Markets COO Halima Butt

Northern Trust Asset Management on European ETFs

SHARON SHI

New GH Financials chief discusses opportunities for the clearing broker

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Reasons to be cheerful going into 2023

As we embark on a new year, the narrative is a familiar one. The early part of 2023 (like late 2022) is likely to be dominated by the prospect of higher interest rates in the US, UK and Europe as central banks in those markets look to rein in inflation and avoid recessions.

While escalating rates are challenging for debtors, higher interest rates are beneficial to firms that hold client assets such as futures commission merchants or custodians.

Among their ranks are some firms looking to take advantage of the macro-economic conditions to build their businesses further and expand into new areas.

Chief among them is GH Financials, the London-based futures commission merchant (FCM) that welcomed in late October Sharon Shi as its group chief executive.

Shi, as is clear in this issue’s cover feature, is a highly experienced and competent futures expert but her appointment as chief executive is remarkable in another sense because she became late last year the first Asian woman to run a London-based broking firm.

While there is much to like about her appointment, Shi herself is more focused on the job in hand, namely moving GH Financials forward into new markets.

The clearing broker has until now specialised in supporting proprietary trading firms active in futures and options but Shi sees opportunities further afield, in new regions, asset classes and client segments.

Shi said: “This is a golden time where the FCM sector could enjoy the impact of the hiking interest rate environment. We have been waiting for this normalisation for too long, so we want to optimise the benefit from the hike in interest rates to the greater extent for the company and for all our customers.”

Having served until recently as GH Financials’ head of Asia after stints at prop trading firm Futures First and the Shanghai Futures Exchange, Shi is perfectly positioned to navigate GHF through the vast and diverse Asian market.

The GHF chief executive added: “If we look at Asia, Hong Kong, Singapore and Tokyo are more advanced markets

in terms of exchange-traded derivatives but there are other, second tier jurisdictions in Asia and I think we would see exponential growth from those markets in a few years.”

GH Financials will celebrate this year the 30th anniversary of its formation, which provides an important opportunity to reflect on the firm’s past and future. With Shi as its new chief executive, the company looks set to enjoy a period of growth and diversification that should position it to move positively into its fourth decade.

Also in this issue is an article on Northern Trust Asset Management’s ambitions in European exchange-traded funds, a growth market in an otherwise difficult 2022.

Darek Wojnar, the head of funds and managed accounts at the US manager, talks about how NTAM is leaning on its more than decade-long experience providing ETFs in the US to guide its efforts in Europe.

Like Jupiter Asset Management, Northern Trust Asset Management is bullish on the prospects for fixed income given the drive to higher interest rates. Wojnar said: “Most investors have not previously experienced dramatic increases in interest rates over a short period of time but, interestingly, we expect that fixed income will start paying interest rates and be additive to income generation for clients going forward. It may still take time before that transition settles but I think fixed income will be an attractive general area.”

Similarly, Societe Generale Securities Services’ chief executive David Abitbol wants to go further in the French custodian’s digitisation journey and refine the outsourcing services his firm offers to its asset management and financial clients.

While the prospect of recession has cast a shadow over many of the world’s key markets, those firms that refuse to sit still will be those that are best placed to react to new opportunities when they eventually present themselves.

Luke Jeffs, Managing Editor, Global Investor Group

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Global Investor (USPS No 001-182) is a full service business website and e-news facility with supplementary printed magazines, published by Delinian Limited.

ISSN 0951-3604

CONTENTS

REGULAR FEATURES:

6 Trading Places: Robeco re-hires Preininger from Amundi to run sales; CIBC Mellon appoints Cullen as new CEO from BNY Mellon; Fidelity taps BBH’s McCabe to run agency lending relationships; Former Curve chief Ross joins Standard Chartered to run prime

10 Highlights from GlobalInvestorGroup.com: Hedge fund returns end year down as redemptions continue – Citco; 2022 lending revenue just short of annual record; Euro collateral market remained tight in December – ECB; ICE plans London-based TTF market to avoid European price cap

COVER STORY:

14 Sharon Shi was promoted to group chief executive of GH Financials in October and spoke late last year to Global Investor on the key opportunities for the clearing broker

DERIVATIVES:

20 Eurex global head of fixed income Matthias Graulich outlines the European exchange’s plans in European fixed income including its ambitions to grow further its Euro interest rates clearing book

25 CME Group plans to develop further its foreign exchange futures this year, as the US exchange group sees the fruits of recent product expansion

26 Trading Technologies International (TT) chief executive Keith Todd has said the firm will hire around 50 more staff this year to bolster customer services

27 TMX Group is starting to reap the benefits of a multi-year strategy that has seen the Toronto-based exchange group develop a full suite of Canadian government bond futures contracts

SECURITIES FINANCE:

54 Day in the Life: Provable Markets COO Halima Butt talks to Global Investor about the importance of maintaining a balanced lifestyle

57 State Street’s Christian Schuetze and Travis Whitmore step back to take a look at the real effect of short-selling on equity valuations

58 OpenGamma’s Jo Burnham looks at the implications of a collateral squeeze in 2023 due to a combination of factors including the onset of regulation

CUSTODY:

60 Societe Generale Securities Services chief executive David Abitbol tracks the French custodian’s progress in digitalisation and outsourcing services

62 RBC Investor & Treasury Services’ director of client coverage Mickael Fischer is working with technology to support private equity firms’ investment and accounting services

65 Philip Slavin, the chief executive of Taskize, looks to history for some guidance on the challenges posed by the US migration to T+1 settlement

Trading Places

told Global Investor: “As ESG becomes central to all parts of the financial markets, lenders and borrowers of financial instruments are increasingly interested in whether the assets they are borrowing or the borrowers they are lending to comply with their vision of responsible investing.”

Liquidnet appoints fixed income sales head

ASSET MANAGEMENT:

ICMA taps board members from BlackRock, Credit Agricole, StanChart

The International Capital Market Association (ICMA) has elected three new board members from BlackRock, Credit Agricole and Standard Chartered.

Robeco hires Prins from APG as chief operating officer

Robeco has hired the chief operating officer from rival APG Asset Management to become its COO, replacing Karin van Baardwijk who has been promoted to CEO.

The Dutch ESG manager said Marcel Prins will become its chief operating officer on June 1.

Prins takes over from Van Baardwijk who served in the role for five years before being named as Robeco’s chief executive officer on January 1 last year.

Fidelity Investments creates 12,000 jobs

Fidelity Investments said it has created more than 12,000 new jobs that it plans to fill by the end of September 2022.

The jobs will put the company on track to meet or exceed its hiring in 2021, which saw 16,600 new hires –more than double the 7,200 associates hired in 2020, the firm said.

Fidelity said: “These increases come as we sustain growth across our businesses, including in assets under administration, daily trades, and advisory assets.”

Stephen Fisher, BlackRock Investment Management, London, Jean-Luc Lamarque, Credit Agricole Corporate and Investment Bank, London and Henrik Raber, Standard Chartered Bank, Singapore, have all been elected to the board for a first term of three years.

“Additionally Alessandro Brusadelli, UniCredit, Milan, Dr. Frank Engels, Union Asset Management Holding (effective July 1 2022), Frankfurt, Kun Hu, Bank of China Limited, Beijing, and Janet Wilkinson, RBC Europe, London were all elected to the board for an additional consecutive term of three years,” the association said in a statement.

ESG impact of lending decisions to be ‘carefully considered’ - SIX Stock lending firms should “carefully consider” the environmental, social and governance (ESG) impact of their lending decisions and the processes behind them, according to Swiss exchange SIX.

The Swiss group said ESG is becoming a key part of the financial markets as stock lenders and borrowers increasingly want to know about the ESG profiles of the assets they are borrowing.

Jacob Gertel, senior content manager for legal and compliance data at SIX,

Liquidnet has appointed Nichola Hunter from MarketAxess as global head of sales for fixed income as the buy-side trading network continues to grow the business.

Based in London, Hunter is responsible for growing client relationships through the delivery of tailored and innovative solutions, the TP ICAP-owned firm said. Hunter reports to Mark Russell, global head of fixed income.

Robeco re-hires Preininger from Amundi to run sales

Robeco has re-hired Alexander Preininger exactly one year after he left the Dutch asset manager to join Europe’s largest asset manager Amundi.

Robeco, which is based in Rotterdam and manages about $180bn (£156bn) of assets, said in September Preininger will become its global head of sales and marketing on November 1. Preininger will also assume at that time a seat on the Robeco executive committee, the firm said in a statement.

The four industries covered by Global Investor

asset management, custody and fund services, securities finance and derivatives –continued to reinvent themselves in 2022

ALEXANDER PREININGER

KARIN VAN BAARDWIJK

CUSTODY:

engineering and Nitin Gaur as digital technology strategy lead, as the US group seeks to accelerate its digital transformation for clients.

In his new London-based leadership role, Otter oversees the development and implementation of blockchain technology across the US custody bank’s digital arm, the banking group said.

Markets division.

Glenn Poulter, formerly of Citigroup and ICAP, has been promoted to global head of Integrated Trading Solutions (ITS), the bank’s outsourced trading platform for asset managers and other clients.

BNY’s Regelman to replace La Salla running issuer service

BNY Mellon has promoted Roman Regelman, its head of asset servicing and digital, to become chief executive officer of its issuer services business, replacing Frank La Salla who is moving to the DTCC.

BNY Mellon said: “Regelman’s appointment further enhances the bank’s mission to create synergistic opportunities to build global scale and infrastructure for all asset types, expand access to capital around the world and further enable a resilient, capital markets ecosystem.”

BNP Paribas hires co-head of Chinese custody from Deutsche BNP Paribas has hired Stanley Song from Deutsche Bank as the French bank’s co-head of securities services in China.

Song will run the business line with Philippe Kerdoncuff, who has been in the role since 2016.

Song is based in Shanghai and reports to CG Lai, chief executive officer of BNP Paribas China Limited, and Franck Dubois, head of Asia Pacific for BNP Paribas Securities Services.

State Street hires blockchain engineering head, digital tech lead State Street Digital has appointed Rob Otter as head of blockchain

He brings with him more than 20 years of technological and transformation experience and joins from JPMorgan Chase, where he served as head of chief technology officer blockchain, application programming interface technologies, and applied research since 2019.

Euroclear appoints chief transformation officer

Euroclear appointed in midJuly Rudi Collin, formerly of BNP Paribas, as group chief transformation officer, the second senior management hire by the Brussels-based group in a week.

Collin brings over a decade of transformation, digital and finance experience to the role, and joins Euroclear after it promoted Sara Cescutti to the post of chief commercial officer for Europe, the Middle East and Africa.

Euroclear said: “In establishing the group transformation office, Rudi will be responsible for orchestrating Euroclear’s continued digital transformation and to monitor the progress of the implementation of its business strategy.”

Northern Trust makes senior hires in Capital Markets

Northern Trust has announced a raft of management changes in its Capital Markets unit including in the US bank’s new Capital Markets Client Solutions team.

Northern Trust announced in September four senior appointments within the institutional equity brokerage business of its Capital

Broadridge hires former JP Morgan head to lead UK consulting

Broadridge hired in August David Turmaine formerly of JP Morgan as UK lead for the fintech’s consulting services business.

Based in London, Turmaine is responsible for expanding the footprint of the fintech’s post-trade and digital asset consultancy across the UK, Europe and Asia-Pacific. He is also involved in the company’s securities finance activities, the firm said.

CIBC Mellon appoints Cullen as new CEO from BNY Mellon CIBC Mellon hired Mal Cullen from BNY Mellon as the company’s new chief executive officer (CEO), effective December 1 2022.

As CEO, Cullen will be responsible for CIBC Mellon’s strategy, client relationships and service delivery, the Canadian bank said.

Dan Smith, chair of CIBC Mellon’s Boards of Directors and head of Canada and Latin America Asset Servicing for BNY Mellon, said:

“Mal brings to CIBC Mellon a 30year track record of leadership in asset servicing and in particular extensive experience in key focus areas for clients, including data innovation, digital solutions and transformation toward more agile data-centric operating models. He has extensive experience in the Canadian marketplace, a deep appreciation for the importance of CIBC Mellon’s exceptional client service culture, and a global perspective that will help move the joint venture forward.”

ROMAN REGELMAN

SECURITIES FINANCE:

RBC I&TS promotes Chikhlia to run APAC lending

Royal Bank of Canada’s Investor & Treasury Services (RBC I&TS) has promoted Juhi Chikhlia to lead securities lending in the Asia-Pacific region.

RBC I&TS confirmed the appointment saying she will be relocating to Singapore from London. Chikhlia started her financial services career at RBC I&TS in London four years ago. Since then, she has held several analyst roles including product management graduate analyst, securities finance graduate analyst and client experience graduate analyst. More recently, she has been a securities lending trader since 2020.

OCC hires Knapp from BBH to lead lending business

The Options Clearing Corporation (OCC) has hired Oberon Knapp from Brown Brothers Harriman as executive director of participant solutions in the US clearing house’s securities lending business.

The OCC said: “Knapp will play a vital role in developing the strategy and vision for the future of our securities lending function.” Boston-based Knapp will report to Pat Hickey, OCC’s managing director of participant services and solutions.

JPM sets up new global trading services sales team

Eileen Herlihy, the current head of derivatives clearing sales, Europe, the Middle East and Africa at JP Morgan, has been promoted to lead a new global trading services sales team at the investment bank.

A spokesperson said the new team will be responsible for selling agency securities finance and collateral services products, and will also provide securities services coverage to the bank and infrastructure clients.

“This is a new global role for Eileen, partly in recognition of the

fact that our clients themselves are getting more sophisticated at optimising their collateral balances and financing needs on a global basis. Eileen’s experience in clearing will be invaluable too,” they said.

Based in London, Herlihy will run the sales function for Ben Challice, global head of collateral management and agency lending at JP Morgan.

Pirum hires US head of product Veneziano

from Citi Pirum has appointed Thomas Veneziano from Citi as its North American head of product, marking the latest hire by the securities finance fintech as it continues to expand in the US.

Based in New York, Veneziano will focus on expanding the company’s product range in North America and be the local subject matter expert in supporting clients and the sales team, Pirum said.

Veneziano reports to chief operating officer and head of Americas Bob Zekraus and Rob Frost, global head of product.

He joins from Citi where he was senior vice president managing the securities finance middle office since 2011.

Mizuho appoints EMEA head of repo trading

Mizuho has promoted Vivek Patel to head of repo trading for Europe, the Middle East and Africa (EMEA).

Based in London, Patel joined Mizuho in August 2020 as vice president, emerging markets and credit repo

trading from HSBC Global Banking and Markets where he was an associate for four years.

Patel replaces Amandine Triadu who held the position since June 2019. She has started a new role at Scotiabank as director, head of collateral management and funding, Europe & Asia, reporting to Robert Dias, managing director and global head of collateral management and funding, the bank confirmed.

PASLA appoints BlackRock’s Burns as new chair

The main Asian securities lending trade body has appointed Ben Burns of BlackRock as its chair effective immediately.

Burns replaces Stuart Jones of Jefferies who resigned from the position in late July, said the Pan Asia Securities Lending Association (PASLA).

PASLA said in a statement: “We would like to thank Stuart for his outstanding contribution as a PASLA director for over ten years and chair for five years. He has been instrumental in integrating our franchise with the securities lending industry and we wish him well in future endeavours.”

Burns has been a director of PASLA for over three years. As chairman, he will continue to focus on promoting open, transparent and efficient securities lending practices across Asia-Pacific, the trade body said.

Brevan Howard hires repo trader in London

Investment management firm Brevan Howard expanded in November its London office with the appointment of Wilson Chau as a fixed income repo trader.

Chau joined from Junova Capital Management where he was a repo trader for nearly four years. Prior to that he was a repo trader at Hutchin Hill Capital from 2015 until 2018. He also held vice president positions at Morgan Stanley for five years and Deutsche Bank for over 20 years.

EILEEN HERLIHY

DERIVATIVES:

Cboe makes senior sales hire in European derivatives

Cboe Global Markets has hired an SGX director for its European derivatives venue, as it looks to support volume growth amid an expansion of its product suite.

Elena Patimova, formerly director of equities and FICC at SGX, joined the US group in May, according to Cboe NL president and head of Cboe Europe Derivatives Ade Cordell.

Cordell told Global Investor: “Our new director of sales for European derivatives joins us in mid-May. We look forward to that, and further building the team over time to support that evolution.”

CME creates EMEA role amid international business rejig

CME Group created in April a head of EMEA role amid a raft of management changes in its international business including the announcement of the retirement late last year of international chief William Knottenbelt.

The Chicago-based exchange group said Michel Everaert will be its new managing director and head of EMEA based in London. Everaert has been with the firm for 11 years in its client development and sales team. He was most recently co-head of CD&S for EMEA with Serge Marston, who will now be in charge of the division.

Elsewhere, Russell Beattie was hired to replace Chris Fix as managing director and head of Asia Pacific at the firm after Fix retired in March.

Former Curve chief Ross joins Standard Chartered to run prime

The former head of LSE Group’s (LSEG) interest rates market

CurveGlobal has joined Standard Chartered in a senior role, after the closing of the venue early last year.

Andy Ross joined the London-based banking group as its global head of prime and financing segment within

its financing and securities (FSS) division in late July, according to a statement seen by Global Investor Group. In addition, Ross will take up a role as head of financial markets for the UK, the announcement said.

“Prime & Financing is core to the FSS business, and I am thrilled that someone of such high calibre joining our team to further enhance the growth momentum of our business and deliver our client commitments,” Margaret Harwood-Jones, global head of FSS, said in the statement.

In his new role, Ross will report to Harwood-Jones and Molly Duffy, head of Europe and the Americas in the financial markets segment.

ZISHI hires three experts including Apprentice winner

Tim Campbell

ZISHI has hired three experts including the first winner of the Apprentice to help manage its next phase of growth just one month after the training firm span-off from prop trading group OSTC.

London-based ZISHI hired in September as its head of marketing Tim Campbell MBE, who won the first

series of the Apprentice in 2005, Jeff Hearn as the firm’s new global head of innovation and digital strategy, and Claudia Martorana as a senior sales executive.

Chris Jenkins, the chief executive officer of ZISHI, said: “As ZISHI continues to grow, onboard additional large tier one institutional clients and seek out new opportunities to expand, we are really excited to welcome Tim, Jeff and Claudia into the ZISHI family.”

Eurex hires ex-Citi head of Asia

Pacific futures trading Hopkins Eurex has hired Citigroup’s former Asia Pacific head of futures trading Kris Hopkins to develop the Deutsche Boerse-owned derivatives market’s business in Asia and the Middle East. Hopkins, who left SBI Digital Markets in August after a little over a year with the digital assets firm, joined Eurex on September 12 to focus on selling the exchange’s equity and index derivatives to Asian and Middle Eastern clients. He continues to be based in Singapore.

BNP Paribas appoints UK head amid management reshuffle

BNP Paribas has appointed Emmanuelle Bury as head of the French bank’s London branch and UK country head effective March 1 2023. The bank said Bury will replace Anne Marie Verstraeten who will become vice chairwoman of BNP Paribas UK and report to Alain Papiasse, chairman of BNP Paribas CIB and of BNP Paribas UK.

“I am very pleased to welcome Emmanuelle Bury as our new UK country head. Thanks to her broad experience across the BNP Paribas Group, in various businesses, functions and geographies, I am confident that Emmanuelle has all what it takes to further build out our UK activities and reinforce our set-up,” Yann Gerardin, group chief operating officer and head of BNP Paribas CIB, said in a statement.

TIM CAMPBELL

Highlights from 2022

A study by reg tech firm CUBE said that regulators are overlooking the negative environmental effects of mining crypto such as Bitcoin and Ethereum.

ASSET MANAGEMENT:

Voting and collateral ‘most important’ ESG factors - NNIP Shareholder voting and collateral are the “most important” factors to consider when it comes to incorporating environmental, social, and governance (ESG) factors in securities lending, according to Dutch asset manager NN Investment Partners.

Xavier Bouthors, senior portfolio manager, investment solutions at the Goldman Sachs-owned firm, believes that ESG integration into portfolio management has triggered a review of securities lending programs’ parameters.

He said: “At NN IP we see voting and collateral as the two most important ESG pillars in securities lending. Shareholder voting is an important mechanism to voice concerns and expectations to companies and engage on ESG issues. The annual general meeting gives us this opportunity, so we need to ensure our voting rights are protected and available on voting day.”

SGX, ICE seal index plan as part of partnership

Singapore Exchange (SGX) and Intercontinental Exchange (ICE) have agreed to develop new indices as the two exchange groups finalised a wider cooperation deal in late July.

The Singapore-based exchange group said it would work with ICE’s Data Indices arm to develop new index products as they announced the partnership. ICE-owned New York Stock Exchange (NYSE) will also begin dual listing companies with SGX, and the agreement includes working to bring environmental, social and governance (ESG)-based products as well as new exchange traded funds (ETFs).

Regulators neglecting green impact of crypto mining – report Regulators are neglecting the environmental impact of mining cryptocurrencies, according to a new report that states less than 0.1% of proposed guidelines address the carbon footprint of issuing new tokens.

The report, entitled Cryptopia: Regulation & Crypto on a Cliff Edge, suggests there is a potential conflict of interests for banks that are committing themselves to green projects while separately investing in cryptocurrencies.

Technology key to navigate different attitudes to ESG

- BNY Mellon

Technology is key to delivering data in the right format to navigate the differing attitudes to environmental, social and governance (ESG) in Europe and the US, a managing director at BNY Mellon has suggested.

Speaking at the Association for Financial Markets in Europe (AFME) operations, post-trade, technology and innovation conference in London, Corinne Neale managing director, global head of ESG applications at BNY Mellon, argued that ESG has a different meaning in the US to Europe.

Hedge fund returns end year down as redemptions continue - Citco

Hedge funds ended a bad year badly as their December performance dipped into the red for the first time in the last quarter of the year and monthly redemptions hit $35bn ($28bn), according to a report. The paper by hedge fund administrator Citco found that overall hedge fund returns were down in December to -0.7%, compared to a positive 2.9% in November and 1.6% in October.

December is normally a busy month for cash re-allocation and this was true also last year when inflows more than doubled to $21.6bn and redemptions hit $35bn, meaning a net outflow of $13.4bn, which was lower than the $24.3bn of December outflows estimated in Citco’s last report.

2022 offered little reprieve from the pressures that emerged in 2021 with Russia’s invasion of Ukraine adding further volatility and rocking the commodities markets.

SECURITIES FINANCE:

‘Digitalising infrastructure’ helps improve client experienceSharegain

Fintech Sharegain has said that “digitalising capital markets infrastructure” is a key function in improving the client experience. Speaking after Sharegain delivered in May new connectivity options through the cloud, Benjamin Smith, senior product manager at Sharegain, said: “Digitalising capital markets infrastructure is one of the best ways to improve client experience as digital and cloud-connected services, as opposed to on-premises hardware that require manual intervention and maintenance, enable companies to provide their end clients with more control and increased transparency.”

Shareholder voting vital for ‘good governance’ in lendingBroadridge

Shareholder voting is key to “good governance” of a corporation in securities lending when it comes to environmental social and corporate governance (ESG), according to an industry fintech.

Darren Crowther, general manager, securities finance, and collateral management at Broadridge, said all of the aspects in ESG are important to varying degrees, but the one that stands out for the securities finance industry is governance.

‘Interoperable, flexible’ technology key to achieve T+0Provable Markets

“Interoperable and flexible” technology solutions will be integral to the longer-term goal of making seamless same day (T+0) settlement for cash equities tangible, a US lending fintech has said.

Matthew Cohen, co-founder and CEO of Provable Markets, believes the move to T+1 should not be a major problem for the industry to accomplish by the proposed deadline of March 2024 in the US, but that this won’t be the case for T+0 which will be much harder to achieve.

Securities finance revenues up a third in April - IHS Markit

Global securities finance revenues reached $1.058 billion (£859 million) in April, a 32% year-on-year rise, according to new research from IHS Markit.

Paul Wilson, managing director, securities finance at IHS Markit, part of S&P Global, said: “The year-on-year increase was primarily the result of equities, with all regions showing yearon-year growth. Average daily global revenues decreased 2% in the month compared with March. American equities and global exchange traded products (ETP) are notable in revenue growth driven by both year-on-year increase in balances and fees.”

2022 lending revenue just short of annual record

Revenue from securities finance increased 6.6% last year to $9.89 billion (£8.3 billion), according to DataLend, making 2022 the second most profitable 12 months ever, narrowly behind the

industry’s best year in 2018.

EquiLend, the market data service of New York fintech, said last year’s revenue total was ahead of the $9.28 billion total in 2021 and $7.66 billion in 2020 but behind the $9.96 billion in 2018. Government debt revenue in 2022 increased 9.8% year-on-year as higher fees offset a drop in on-loan balances, the firm said.

In equity lending, North American securities was the best performing region generating $295 million in revenue last year, an 11% increase compared to 2021.

Trade body calls for FCM exemption from US treasuries clearing plan

Trade body FIA has asked the US securities regulator to exempt Futures Commission Merchants (FCMs) from the planned US treasuries clearing requirement.

The FIA submitted in January comments to the Securities and Exchange Commission (SEC) in response to its proposal in September to expand the scope of clearing in the US treasuries market, including in the secondary trading market and US repo. The FIA noted that FCMs registered with the US Commodity Futures Trading Commission (CFTC) and the SEC would be subject to SEC and existing CFTC rules governing FCMs. Therefore, as proposed, the SEC rules do not align in all respects with CFTC rules, it said.

Industrials continue to be most shorted names in Europe - data

Industrials stocks were the most shorted names in Europe for the fourth consecutive month, according to new data from SEI Novus.

Short-position data from the intelligence firm based on aggregate short positions in European Securities and Markets Authority-regulated countries showed that industrials and consumer discretionary were consistently the most shorted sectors in 2022.

DARREN CROWTHER

MATTHEW COHEN

CUSTODY:

DTCC, two trade bodies publish T+1 settlement guide

The Depository Trust & Clearing Corporation (DTCC) and two US trade bodies published a guide on preparations for the proposed reduction of the US equity settlement cycle to T+1.

The Securities Industry and Financial Markets Association (SIFMA), the Investment Company Institute (ICI) and the DTCC said ‘The T+1 Securities Settlement Industry Implementation Playbook’ outlines a detailed approach to identifying the implementation activities, timelines, dependencies, and risk impacts firms should consider to prepare for the transition from the current T+2 settlement cycle to T+1.”

Trade body warns against European Mifid regulatory reforms

The main European banking trade body has warned European regulators against proposed changes to the Markets in Financial Instruments Regulation.

The Association for Financial Markets in Europe said the proposed changes to the European regulation that has been in effect since 2018 risk hampering the work of banks supporting markets by providing liquidity.

The trade body welcomed parts of the proposed changes, including those related to a consolidated tape for equities and bonds.

Komainu hires former LSEG equities head Bertrand as CEO

Digital asset custodian Komainu has appointed markets veteran Nicolas Bertrand as its new chief executive, settling an open position at the head of the joint venture backed by Japanese investment bank Nomura.

Komainu, based in Jersey, said in late September that Bertrand has become its chief executive with

immediate effect and is charged with growing its business in the face of the uncertain market environment.

Europe opens consultation on CSDR penalties process

The European securities regulator is seeking views on simplifying the process of the collection and distribution of cash penalties for settlement fails relating to cleared transactions.

The European Securities and Markets Authority (ESMA) has launched a consultation on a possible amendment to the central securities depositories regulation (CSDR) cash penalty process for cleared transactions.

Euroclear invests in ESG analytics provider

Euroclear has invested an undisclosed amount in an environmental, social and governance (ESG) technologyenabled analytics and data science solutions provider, to help firms increase their understanding of the sustainable impact of their investment strategies.

By partnering with London-based Impact Cubed, investors will now be able to compare a security’s sustainability exposure, allowing them to make more informed investment decisions.

Caceis and BNP Paribas launch new issuer services provider

Caceis and BNP Paribas have jointly launched a new issuer services provider in France and pledged to roll out the service across Europe, the firms said in January.

The new service, called Uptevia, offers issuers a range of services including shareholder recordkeeping, organising and centralising general meetings, setting up financial operations, managing employee shareholding plans and providing equivalent services for fixed income products such as bonds and negotiable debt securities.

State Street targets proxy voting to enable ESG alongside lending

State Street has said it is working to make the process of proxy voting more efficient and transparent as asset owners look to use this function to apply their environmental, governance and social (ESG) strategies alongside their lending programmes.

Speaking to Global Investor Francesco Squillacioti, global head of client management, securities finance at State Street, believes the idea of clients looking to vote through proxies has always been important from the early days of securities lending.

Clearstream, Vermeg launch collateral service for European banks

Clearstream has partnered with fintech Vermeg to launch a collateral management service that will link with the European collateral platform slated for launch in 2024. Luxembourg-based Clearstream, which is the post-trade arm of Deutsche Boerse, said it has worked with Vermeg to deliver a straightthrough processing (STP) collateral management solution that will link with the Eurosystem Collateral Management System (ECMS).

Financial firms must be exempt from EU sustainable rules - trade bodies

Four trade bodies have called on the European Union to exempt financial firms from the EU directive that requires firms to run due diligence checks on their trading partners. AFME, ISDA, FIA and EPIF published a joint paper in January that took issue with the Corporate Sustainability Due Diligence Directive’s requirement that regulated firms should apply checks not only to suppliers (upstream) but also downstream to corporate clients and trading counterparties.

DERIVATIVES:

Euronext sees volatility over ‘short-term’ as earnings jump Euronext said in early 2022 it expects trading volatility to continue in the “short-term” as the European exchange reported its strongest ever quarter by revenue and raised its cost saving expectations from its merger with Borsa Italiana.

The group that operates markets in Paris, Amsterdam and Brussels reported in May first quarter revenue of €395.7 million (£334.4m), its highest ever in a three month period.

Giorgio Modica, chief financial officer of Euronext, said: “We believe the volumes will be higher than average at least for the short term but it remains to be seen what we will see in the third and fourth quarter of this year.”

ICE switches Euroclear sale to French, Belgian state funds

Intercontinental Exchange (ICE) has agreed to sell its stake in Euroclear to two European government owned investment funds, switching from a previously announced sale to a private equity firm.

The Atlanta-based exchange agreed in October 2021 a €709 million (£598m) disposal of its stake to American fintech investor Silver Lake.

But ICE said in May it will now sell its 9.85% stake in Brussels-based Euroclear to French government owned Caisse des Dépôts et Consignations (taking 5.42%) and to Belgium government owned Société Fédérale de Participations et d’Investissement (taking 4.43%).

CME chief Duffy slams idea of limited scope for FTX

CME chief executive Terry Duffy has criticised the idea of a limited test phase to enable crypto firm FTX to secure US regulatory approval for its direct clearing venue.

The chairman and chief executive officer of CME Group told the House

Agricultural Committee in May: “We do not see how the commission could credibly make this finding or legally limit its approval even on a test basis to crypto only.”

HKEX to relax position limits for equity derivatives

Hong Kong Exchanges and Clearing (HKEX) plans to relax the position limit rules covering single stock derivatives and mini contracts on its most popular equity index contracts after the conclusion of a review process.

The Hong Kong-based exchange group said it would increase the position limits for its single stock derivatives and bring the limits on mini contracts in line with the standard benchmark equity index contracts.

CFTC commissioner hits out at Shanghai Clearing House exemption

A commissioner of the Commodity Futures Trading Commission has questioned the US regulator’s decision to extend Shanghai Clearing House’s exemption from registration despite the lack of an agreement with the Chinese central bank on the matter.

Commissioner Summer Mersinger took issue with the extension granted

by the CFTC. Shanghai Clearing House’s exemption from registration as a derivatives clearing organisation (DCO) was set to expire in late July, and will now run to the end of July next year, with the division of clearing and risk saying it does not plan to issue further extensions.

“I am troubled by Shanghai Clearing House’s lack of engagement with Commission staff regarding its application for an exemption from DCO registration, its sudden re-engagement as the expiration date for its prior no-action letter looms, and issues surrounding the feasibility of securing a memorandum of understanding with the People’s Bank of China that satisfies the requirements for such an exemption,” Mersinger said in a statement.

ISDA wants 12 months to implement UK reporting reforms

The International Swaps and Derivatives Association has recommended a 12 month grace period for firms to implement the “designated reporter” trade registration system proposed by the British regulator in September. In its response to a UK Financial Conduct Authority (FCA) consultation, the New York-based trade body recommended an implementation period of 12 months citing operational challenges.

ICE plans London-based TTF market to avoid European price cap

Intercontinental Exchange (ICE) said it is working on a London-based natural gas trading venue as an alternative for traders keen to avoid the effect of the European price cap on ICE’s Amsterdam-based market. The exchange said in January it is working to create a UK-based market for market participants to avoid the effects of the new European natural gas regime should markets tick upward and threaten to trigger the measure.

SUMMER MERSINGER

GH Financials chief Sharon Shi details global expansion plans

Sharon Shi was promoted to group chief executive of GH Financials in October after being nominated to the position in March last year. Speaking exclusively to Global Investor, Shi discusses the opportunities for the broker as it looks ahead to 2023

By Luke Jeffs

As the first and only Asian woman to run a London-based brokerage firm, Sharon Shi is rightly seen as a pioneer in a business dominated until now by white men.

GH Financials, the London-based futures commission merchant (FCM) with offices in Chicago and Hong Kong, surprised many by announcing

in March last year that Shi, the head of the firm’s Asian business, would be its next chief executive.

Six months later, after her relocation to London from Hong Kong and a protracted visa process, Shi finally took over the role in October, replacing her predecessor Mark Phelps who left at the start of last year to run the European arm of RJ O’Brien, a rival to GHF.

Speaking to Global Investor at the

end of last year, Shi was obviously relishing her chance to make an impression on GH Financials.

The new group chief executive said: “First and foremost, you are always going to need a good team, people are always the number one factor to determine whether you can run the business successfully.”

Shi added: “It took some time to re-engineer the management committee under me. I wanted to be sure we have the right people in place to enable growth in line with the long-term goal that we are trying to achieve at GH Financials. This was my number one task.”

Since Shi became CEO, Gemma Lloyd, who ran business development at GHF for almost five years, left that post to reconnect at the start of this year with Phelps at RJ O’Brien in London where she is now chief commercial officer.

GH Financials promoted in December Tony Butcher to run business relationships. Butcher, who joined GH Financials in 2010, was previously the firm’s global head of service delivery and global head of eSolutions.

Tracy Hetherington, who was GHF global head of regulatory risk, compliance and trade surveillance for over four years, left in November last year to become RJ O’Brien’s chief compliance officer for Europe, Middle East and Africa.

First and foremost, you are always going to need a good team, people are always the number one factor to determine whether you can run the business successfully

As the first and only Asian woman to run a London-based brokerage firm, Sharon Shi is rightly seen as a pioneer in a business dominated until now by white men

Since then, GHF has promoted Ben Allfree, formerly of Marex, to run risk, and hired Antonio Hernandez Laviades, formerly of Newedge and ADM Investor Services, as its new head of compliance.

The firm also hired in January 2023 Mark Millard, formerly of AMT and ETX Capital, as its group financial controller.

A constant throughout the transition has been Julian O’Leary, GH Financials’ long-standing chief operating officer, who is supporting Shi in the execution of the new company strategy.

Shi continued: “In parallel, together with my new team, I have been busy formulating the business strategy for GH Financials for the next 2-5 years which, in my opinion, needs to be jurisdiction or regionally specific.”

The chief executive is quick to stress that GH Financials is in a strong position and has the advantage of being able to draw on a huge pool of experi-

ence. Shi herself has been with GH Financials for more than a decade, having worked previously at Futures First and the Shanghai Futures Exchange.

The firm’s chairman Mark Ibbotson was the GHF chief executive for almost five years before Phelps and previously spent more than 20 years at Liffe where he was co-chief executive.

Shi said: “GH Financials has been in the market for 30 years (we will celebrate our 30th anniversary this year), headquartered in London, which is our jurisdictional base, where we enjoy a good reputation as a reliable global clearer and a solid client base and sound clients’ and stakeholders’ relationships in this region.”

GH Financials has a solid base then, but Shi wants to go further by taking the business into new markets.

Shi said: “GH Financials has been generally dedicated to serving proprietary trading groups in London. There’s no doubt that we would continue trying our very best to provide

professional services to this sector. But what about the other client segments we haven’t touched upon however could add value to? For example, asset managers, hedge funds, CTAs, or commercial end users – those socalled “inventory” clients? These could be one of the “New Client Segment” questions for us to start with.”

The chief executive sees huge opportunities for GH Financials in new regional markets, particularly those in Asia, and in new asset classes beyond GHF’s traditional focus on exchangetraded derivatives. GHF currently has its headquarters in London and two regional offices in Chicago and Hong Kong.

Shi said: “Other than London, what about the other cities in Europe? For example, we all know that there are considerable number of options traders and market-makers out there with few clearing firms serving that community. We clearly see some gaps between what is being demanded and what is being offered.

“We are not trying to compete with all the bank clearing firms serving the sector, but rather going niche by closing that gap and making lives easier for smaller options market-makers or traders.”

Given her experience and knowledge of the Asian market, it is no surprise that Shi wants to explore more closely the opportunities for GHF in that part of the world.

She said: “By region, Asia is probably the one that has the most potential to grow in terms of both inbound and outbound trading by FIA statistics. I spent November travelling on a world tour, from London to Chicago and then to the Far East. I do feel the buzz in Chicago, but, when I flew from Chicago to Asia, I said to myself: “Wow”.”

Shi, who chaired the FIA Asia Advisory Board until she moved to London and joined the FIA European Advisory Board, said the trade body’s event in Singapore late last year showcased the vibrancy of the Asian derivatives industry.

Shi: “In parallel, together with my new team, I have been busy formulating the business strategy for GH Financials for the next 2-5 years which, in my opinion, needs to be jurisdiction or regionally specific.”

“After these three years where the crypto firms tried to grab our talents and some liquidity migrated away from exchange-traded derivatives to other asset classes including crypto currencies, I thought we were probably going to see a lot of new faces but it wasn’t like that.”

Shi added: “I really appreciate the fact that many of my old acquaintances were still around. They are still full of passion for our industry and even more! Everything seems to be quite dynamic and moves fast – you could feel the energy in Asia.”

The growth of the Asian derivatives market over recent years, which has far outstripped North America and Europe, has made that an attractive destination for international traders while increasingly active traders in Asia want to tap the most liquid markets in North America and Europe.

Shi said: “Regardless of whether it is “inbound trading”, where international traders trading into the Asia Pacific markets, or vice versa the “outbound trading”, where Asia-based traders trading into the international market, both numbers are growing nicely and taking the top rankings in each segment according to the FIA statistics. There is great potential to grow even further. That’s probably where we see most of the “new blood” comes from.”

The GHF chief is looking beyond the more mature Asian markets to the next wave of regional centres that are starting to trade into the international derivatives markets.”

“If we look at Asia, Hong Kong, Singapore and Tokyo are more advanced markets in terms of exchange-traded derivatives but there are other, second tier jurisdictions in Asia and I think we would see exponential growth from those markets in a few years.”

Shi continued: “There are obviously going to be challenges for those local FCMs in some emerging markets when they first expand their offering of outbound trading to local investors. For instance, do they have the sufficient knowledge about the rules,

If we look at Asia, Hong Kong, Singapore and Tokyo are more advanced markets in terms of exchange-traded derivatives but there are other, second tier jurisdictions in Asia and I think we would see exponential growth from those markets in a few years

“Both the Board of GH Financials and the owner Gedon Hertshten were delighted when Sharon agreed to relocate to London from Asia to lead the Group. In addition to Sharon’s proven leadership skills and deep domain experience internationally - having succeeded already in futures infrastructure (exchange/central counterparty), the buy side (futures trading company) and for the past 10 years in the FCM sell-side - she brings new ideas, new perspectives and boundless energy to power GH Financials to the next level” – Mark Ibbotson, non-executive chairman of GH Financials: Mark Ibbotson, non-executive chairman of GH Financials:

regulations, norms and best practices governing the international derivatives markets, which could be vastly different from what they experienced in their local market? Do they have the proper trading front ends, back-office processing systems and pre-trade/ post-trade risk management systems for the international markets? Most of the answers I heard so far is “No”.”

Shi believes that GHF could draw on its 30 years’ experience to help some of these local clearing brokers offer their clients opportunities beyond their local markets.

The GHF chief added: “The Asia trip was valuable in helping me with ideas about how I want to grow GH Financials for the next several years. After this trip, I’ve got a much better understanding which direction to go.”

As well as new regional markets, Shi is also interested in new asset classes.

“GH Financials has spent the last

30 years focused on exchange-traded derivatives. There are occasions in the past that we were approached by some existing or prospective clients requesting cash bonds or cash equity services. Probably this is the time we have another consideration.”

And Shi believes this is the right time for GHF to look to expand as FCMs capitalise on higher interest rates. “This is a golden time where the FCM sector could enjoy the impact of the hiking interest rate environment. We have been waiting for this normalisation for too long, so we want to optimise the benefit from the hike in interest rates to the greater extent for the company and for all our customers. That’s why we are more inclined to bring onboard asset managers, CTAs or even small or medium-sized commercial end users.”

Of course, Shi is mindful that new regions, asset classes and client seg-

ments require investment, in people, resources and technology.

She said: “Again, the most important pre-requisite are the people. If we are going to start cash bonds tomorrow, we have to make sure that we have the necessary knowledge base, expertise and skills within the team. Otherwise, we should be hiring to ensure that we are equipped with the necessary weapons before going into battle.”

The GHF chief said there are, of course, restrictions to what a nonbank FCM like GH Financials can do related to its balance sheet and new markets bring with them new regulatory requirements.

“As well as the expertise related to some particular asset class, there is the regulatory and compliance knowledge to understand how the new asset classes might affect GH Financials from a regulatory point of view.”

And new products and geographic markets require technology investments which are expensive and timeconsuming.

Shi said: “On the systems side, from the front end to the back end, the systems need to be able to support the new product series or asset classes. This can be challenging because like all firms we will be third-party dependent. All the other areas, we could make them happen, but the last, system one, we are going to be dependent on a supplier which could add some uncertainty or another layer of complexity.”

She continued: “In futures and options, GH Financials is engaged with at least ten different ISVs in order to meet our global clients’ requests. It is difficult if not entirely impossible to locate one single ISV solution that can offer all asset classes including ETDs, OTC, cash bonds and cash equities. Some F&O traders might like one particular front-end which may not be that strong in terms of offering other products.”

Choosing vendor solutions is never easy but GH Financials’ decision is

simplified because its clients will typically have a preference.

Shi said: “At the underlying customer level, they made the choice on behalf of us which ISV to engage. We couldn’t and shouldn’t make the choice on behalf of our customers.”

Sharon Shi’s plans for GH Financials are ambitious, and neither is she wasting any time.

“We have implemented some of the strategy mentioned above, so these are not just ideas. Where we would need to be a member of a new exchange for example, we have already kicked things off and now we just need to fine-tune wherever needed.”

She continued: “I have restructured the management team. We did things differently before because each generation of chief executive thinks different. But there is really no right or wrong answer. I’ll just do my own way. I have reorganised the responsibilities and created some new roles in my management committee team while some former roles may not be replaced.”

The GHF chief said Asia is the firm’s top business development priority and she plans to hire there a sales team and a marketing manager to promote the firm more widely across the region.

“When we recruit sales team, we would prefer people that have different experiences or backgrounds - not only futures and options because we have already had profound knowledge within the firm. New staff joining us ideally could have a diversified background or knowledge base complementary to what we already have.”

Shi also envisages opportunities arising from partnerships with tech firms and exchanges similarly keen to increase their exposure in Asia.

“Speaking of the road-shows with stakeholders such as exchanges and ISVs, FCMs are only one link in the chain. We need to work together with others to better serve the underlying customers. It is important that we develop strong strategic partnerships with other stakeholders in order to

serve as a one-stop-shop clearer to the new jurisdictions in Asia.”

It is still early days for Sharon Shi. The new GHF chief executive has outlined a bold strategy based on expansion by products, regions and client types which will keep her busy for

years to come.

She will likely enjoy success and disappointment but, whatever happens, her achievement of becoming the first Asian female to run a Londonbased brokerage should not be underestimated.

The future of FCMs in a dis-intermediated world

The second half of 2022 was dominated by a (sometimes heated) discussion about the future of the listed derivatives clearing model. Long before the crypto exchange collapsed, FTX angered the US futures market by applying to the Commodity Futures Trading Commission (CFTC) for permission to offer clearing of margined product direct to clients, that is cutting out the futures commission merchant (FCM).

CME and ICE attacked the proposal at a CFTC hearing in May, suggesting it would set a precedent that could undermine the US financial market.

Then CME Group filed in August a regulatory application to the CFTC to launch its own FCM, further blurring the lines between exchange and intermediary.

The FTX application was ultimately withdrawn after the crypto firm spectacularly collapsed in November but the debate continues about the respective roles of exchanges and FCMs.

As the chief executive of a global FCM, Sharon Shi sits at the heart of this discussion and these are her thoughts:

“The last couple of years have been very interesting. This whole idea of disintermediation has arisen and this has engaged a lot of the industry’s resources and energy. Now we have come to the point where it is the traditional intermediaries such as the FCMs versus the new

disruptive disintermediation model.

The debate has been much more fierce in the US than in London but the impact is going to be to the global intermediaries.

The market dynamic is changing and that is why there is a lot of uneasiness and uncertainty, and we may see some FCMs say that disintermediation is actually a good thing because they were otherwise going to close down or do something different like crypto.

Nothing has really happened yet but just talking about it is already impacting us on a daily basis. This is not about GH Financials, this is about the whole industry changing.

The industry has been in this status quo for too long and something has to happen given the industry cycle, but no one is sure about what the changes are going to be. People have been talking about different ideas and when there is a trigger like FTX, people tend to start moving in different directions due to the lack of uncertainties.

This is a very interesting time to be running an FCM. I wish I had a crystal ball but unfortunately I don’t. That said, I know it will be exciting to be part of it. We may just be one of the non-bank FCMs in the market but I am confident that we can influence the industry in one way or another as it continues to evolve.”

Enhancing the euro yield curve: Eurex rates come of age

It has been a difficult twelve months for many swap users, buffeted by a combination of geopolitical risks and regulatory headwinds, but for Eurex the

By Radi Khasawneh

The origins of the Deutsche Boerseowned interest rate swap clearing business can be traced to the fateful decision by the UK to leave the European Union – the result of a referendum vote in 2016 and finally enacted in 2020. The move undermined

the status of the dominant interest rate swap clearing house based in London – London Stock Exchange Groupowned LCH.

From the beginning, Matthias Graulich, global head of fixed income, funding and financing strategy and development at Deutsche Boerse and member of the executive board at

Eurex Clearing, says its strategy has been to create an integrated regional hub for cross product trading across interest rate products, setting it apart from competitors.

“We have strived over the last couple of years to build out this idea of creating a platform that is the home of the euro yield curve,” Graulich told

uncertainty has tested the mettle of its nascent position at the centre of Europe’s post-Brexit rates market structure.

Global Investor. “We firmly believe that the efficiencies we can achieve as a central counterparty (CCP) across products through multilateral netting, within the common denominator of the euro currency are significant and we believe this is much more sustainable and systematic than what others do across currencies. This preference is likely built on the historic organisation of banks where trading desk were setup along products across currencies, but the need for higher efficiencies have also started to change set-up in banks.

“These different products – bonds, repos, swaps, futures in euro all have something to do with each other in a systematic way. This is what we are continuously rolling out and expanding. So it would be shortsighted when you look at our progress and strategy to look at individual products but rather the development of this broad approach.”

The euro rates strategy has reaped initial rewards for Eurex’s clearing arm. Annual notional outstanding volumes have grown from €12.9 trillion (£11.3 tn) at the end of 2019 to €26.2 trillion in 2022, rising 30% yearon-year (the overall figures include overnight index swaps).

Significantly, its market share in euro denominated interest rate as measured by swaps notional outstanding was estimated by the exchange at 20% at the end of last year, having been 11% in December 2019 and 6% a year before. That is not to say there have not been significant headwinds as the exchange has sought to grow its presence. Last year saw a resurgence of volatility across markets as macroeconomic policy expectations shifted and the effects of continuing regulatory uncertainty around the post-Brexit framework hit activity.

“On the swaps side, 2022 was a challenging year on the one hand but

global head of fixed income, funding and financing strategy and development at Deutsche Boerse and member of the executive board at Eurex Clearing

also pointed to the successes we have had to date,” Graulich says. “Clearly our liquidity pool is still smaller than for example the LCH liquidity pool, but as volatility increased the positive result was that people stayed with us and liquidity provided by the banks was absolutely competitive compared to the liquidity provided to clients for LCH-cleared swaps. So, there has been a consequential increase in volumes compared to 2021.”

In figures released in January, Clarus Financial Technology estimated that the Eurex market share of euro denominated swaps, as measured by single-sided gross notional, held steady at 6.2% in 2022, compared to 93.8% for LCH.

“From a turnover perspective the growth trend has slowed compared to our main competitor, but this is a natural consequence of the client pool we have intentionally built through the years,” Graulich says. “Pension funds,

We have strived over the last couple of years to build out this idea of creating a platform that is the home of the euro yield curve

Matthias Graulich,

asset managers, small and mediumsized banks traditionally have lower turnover but hold inventories with the CCP, in contrast to hedge funds and dealer banks that still do most of their business at LCH. In particular, the inter-dealer hedging business makes up two thirds of the market’s average daily turnover.”

The exchange intentionally targeted those clients because of their different risk profile and behaviour, and that has proved effective through the turbulence of last year.

“First and foremost, our objective is to get clients active on Eurex who are

natural risk holders,” he adds. “That means directional exposure on the receiver or payer side. That is where we have continued to be a reliable source of liquidity.”

The next year promises to be pivotal for the exchange after a major regulatory obstacle shifted. The European Commission in December published the latest version of its European Markets Infrastructure Regulation (EMIR).

The updated rules include changes such as the mandatory opening of accounts with EU-domiciled CCPs and a requirement to set a minimum

threshold for activity in those accounts for European firms. In the previous month, Eurex launched its own incentive program aimed at encouraging activity from clients that had set themselves up to clear but had yet to fully engage.

“The client activation program came out just before the EU announced its fresh legislative approach to promote clearing activities within the EU,” he said. “We have 600 clients and clearing members, but half of the accounts are not active yet. Having set up their contingency accounts with us they had been waiting for further guidance from Brussels. We hope that this clear signal from the European Commission that activity is expected within the EU, together with our incentive program, will create a catalyst to activate dormant accounts and grow activity with already active clients.

“The early indications are good –we have a good number of clients who have signed up already, and there is a significant pipeline of people actively considering it.”

As well as activating dormant accounts, the low thresholds and rewards on offer are expected to significantly increase buy-side participants at the CCP. Eligible clients can reap a €50,000 incentive reward once they start clearing OTC IRS, OIS, basis swaps and zero-coupon inflation swaps this year, with the registration period open until the end of March. That in turn will allow the exchange to expand its activities beyond that core client set over the medium to long term horizon.

“Once we have shifted a lot of risk and exposure from the ‘real’ end clients to Eurex, maintaining this fair balance between receivers and payers, we can start to develop an interdealer liquidity pool,” Graulich adds. “The clear focus in 2023 remains on activating those 300 accounts and onboarding another 100 to 150 that see the regulatory requirement to do something in the EU and choose to act.”

The early indications are good – we have a good number of clients who have signed up already, and there is a significant pipeline of people actively considering it

Outside those visible drivers for growth, there are technical indicators that reflect the increasing maturity and resilience of the market, according to Graulich. One example of this is the price differential between the two main euro denominated clearers for the same swap transactions (the Eurex-LCH basis).

The basis can create windows of beneficial pricing for one side of the trade flow, but in functioning markets should be evened out as participants seek to reap the benefits.

“As we have developed our swap clearing offering over the last five years, there have been occasions where there has been an observable widening in the Eurex-LCH basis at certain points,” Graulich says. “The nice thing about it, from my point of view, is that although it has moved out, it tightened again relatively quickly. In November/December we saw a dramatic example of this,

and our data shows that participants benefited from it.”

Analysis by Graulich and his team published in late 2022 showed the basis was elevated at certain points in the second half of last year, with 10 year and 15-year swaps in particular peaking above 2.5 basis points in November. That opened the door for a different type of user to emerge and absorb the effect of that variance.

“Where there is a 2.5 basis point differential, with no fundamental reason behind it, then this is a great opportunity to arbitrage,” he adds.

“So, in our case, this has brought clients like hedge funds or other clients with a natural receiver position, to prefer doing this business with us because of their price advantage resulting from the basis. Banks came to us in October to explain why the basis was moving out, and we found that the profile we are seeing from the end users is fairly stable and, in many cases, close to a 50:50 payer-receiver profile cumulated across tenors. It is more than natural that the 30-year side is seeing more receiver than payer interest now, but even there it’s closer to 60:40, so a reasonable balance even at that long end.

“The belief is that some people just positioned to take advantage of the basis, and then certain players like hedge funds stepped in and they arbitrated until the basis came in again. This is a very healthy situation which has demonstrated that there is sufficient liquidity on the Eurex side to deal with temporary mispricing of swaps.”

The wider portfolio of interest rate products has been a significant factor in the way the exchange has demonstrated resilience in the past year.

“We have already built a 20% market share in euro denominated outstanding,” Graulich said. “That figure represents buy and hold accounts. Clients like pension funds are increasingly active on the fixed receiver side which is nicely balanced by the flow from the small and medium sized banks on the payer side. I think here our overall service portfolio plays a very important role in how we see the market developing.”

The belief is that some people just positioned to take advantage of the basis, and then certain players like hedge funds stepped in and they arbitrated until the basis came in again

One key example of that interconnected dynamic has stemmed from the way pension funds have been squeezed for cash to fund their derivative positions. European authorities have pointed to the issue and are still debating the possibility of creating liquidity backstops to support users, but in the interim Eurex has seen a growth in demand for cleared repo services to meet ballooning cash variation margin needs. Graulich says

the firm has a pipeline of 20 buy-side firms looking to be onboarded this year.

“Pension funds combine both products, interest rate swaps and cleared repo, for different purposes. They manage their interest rate risk with the swap product and their liquidity risk with the repo product,” Graulich says. “This sometimes goes together when we see a market environment that features both rising

rates from a macro perspective and increased variation margin calls for receiver portfolios that pension funds typically hold. The cleared repo market allows these firms to source the liquidity they need to fund the variation margin required for their swap positions.

“Being able to have these two pools in the same place really differentiates us from other CCPs, who have a swap pool in one place and a repo product in another, so they are to some extent separated and you incur transition risk and lose netting efficiencies by using two separate legal pools.”

The demand for client cleared repo has driven overall repo volumes up more than half in 2022, year-on-year, to €144.4 billion in average outstanding volume last year.

Innovating to support the home of the yield curve

The German exchange identified an issue for clients in their collateral and cash management strategies – single security repo had to be collateralised and would tie up scarce resources at the time when clients might need them most.

It reacted in 2005 by creating general collateral (GC) pools that allow electronic money market trading in specific currencies collateralised by “baskets” of grouped central bank eligible collateral. Fast forward to today and Eurex covers 1,500 eligible securities across its baskets in five currencies through the solution.

“The cheapest-to-deliver GC pooling basket allows us to box the securities but still use them for funding purposes until the last day when the securities need to be delivered in the future,” Graulich says. “It addresses a long-standing issue we have observed in the market. With the rising rates we have indeed seen some traction and

interest in using this product ahead of the next delivery date.”

That same innovative approach will apply to the problem currently plaguing customers – how to most efficiently manage margin requirements across products. The exchange has ambitious plans for extending the coverage of its clearing house margin netting and optimisation model (called Prisma).

“Cross-product margining has also increased after a long lead time, and we are now seeing requests to integrate repo margining into this ecosystem,” he added. “We have prioritised that in our mid-term roadmap starting in 2023 with the first step bringing repo margining into Prisma and then linking them to the futures in step 2 and eventually swaps in step 3. The great value it would generate for market participants was confirmed in many conversations over the last couple of months.”

These developments go alongside significant recent expansions in its traditional core futures markets to meet that ambition to create an autonomous and resilient European rates market.

Following customer demand, Eurex on January 23 launched its first euro short term rate (€STR) future, entering the battle for a European Libor alternative products. CME Group launched its contract referencing the rate in October. The move is only the first step in Eurex’s plans to develop the short term interest rate and fixed income product suite.

“In terms of new areas for growth, we have seen a shift of interest which has spurred the launch of our own futures referencing €STR, and there is certainly scope for further development of the short end of the euro-denominated interest rate product suite,” Graulich says.

“Similarly, the issuance of EU bonds has increased. I believe this is not a temporary program anymore, so we have been in intensive discussions with the EU Commission and market participants about a possible launch of a future on EU bonds to complement the futures we have on other European sovereign bonds.”

Pension funds combine both products, interest rate swaps and cleared repo, for different purpose

CME targets monthly FX futures after record trading year

CME Group plans to develop further its foreign exchange futures this year, as the US exchange group begins to see the fruits of recent product expansion reflected in record volumes, by Radi Khasawneh.

Speaking to Global Investor, the exchange group’s global head of FX products said he plans to focus on in its monthly futures this year.

“From a product perspective, we have developed the FX futures offering to give a lot more choice and that very much feeds in to where we see demand developing,” Paul Houston said in an interview. “We will be working with liquidity providers to further develop the monthly futures in 2023 as a complement to the quarterly contracts– to feed that choice of execution to a broader range of clients such as the buy-side.”

CME reported an FX futures average daily volume record of 945,000 contracts in 2022, up 24% on the year before. That goes alongside records for both futures and options, with a combined daily open interest total of 2 million lots on average last year.

“In 2022 we saw the return of some FX volatility which affected volumes across the industry,” Houston added. “At the CME in particular we made a number of changes in the preceding years that have made our markets a stronger complement to over-the-counter (OTC) and more attractive particularly for buy-side participants. Those two factors and regulatory change

have combined to drive volumes.”

Last year saw the implementation of the final phase of the Uncleared Margin Rules (UMR) and the updated Standardised Approach to Counterparty Credit Risk (SA-CCR) calculations under Basel rules that govern derivatives exposures on bank balance sheets, driving interest in OTC alternatives.

Market experts have said the impact of SA-CCR based calculations on bank balance sheets, starting in January last year, has been more pronounced – particularly in the use of short-dated forwards.

“We expect UMR and SA-CCR to continue to be impactful,” Houston said. “Generally, 2022 was all about the market becoming compliant with the regulatory changes, and 2023 and beyond will be where we might see that trickle down to material changes in trading behaviour. We have prepared for that by focussing on creating what we call execution choice.”

CME also reported records with its FX Link platform, which provides central limit order book trading on spreads between the OTC spot market and FX futures. FX Link had an ADV of 24,500 lots and block trading of its listed products saw 10,600 contracts trading each day on average last year. FX Link’s

market data and order entry functions were made available to Bloomberg terminal clients after an agreement in June 2021, widening access to new firms.

“CME FX has long been synonymous with an electronic central limit order book, and it still is our core strength,” Houston said. “The cost of trading in that central limit order book has become less expensive over the years as we changed the contracts, reducing tick sizes and building liquidity for example.”

The exchange has reduced 12 times since 2016 minimum price increments for its FX spread and outright contracts, and extended its block reporting window while also reducing minimum price increments for those trades. Within FX options, CME has changed expiries to more closely align that product with the OTC market, while also offering exchange-for-related positions (EFRP) to allow institutional buy side clients to arrange trades with a liquidity provider while enjoying the benefits of central clearing. That work will continue as CME seeks to capitalise on that trend, Houston says.

“We also made our market more attractive to some OTC participants who prefer and choose to execute on a relationship basis by providing blocks and EFRPs,” he added. “We now have 20 plus liquidity providers providing pricing to customers this way. We are also working with bank FX desks and a number of third-party platforms to electronify the block and EFRP execution more. We see it as an added execution choice. Having grown out from a relatively small base we have achieved a material growth and we see that trend growing further.”

Generally, 2022 was all about the market becoming compliant with the regulatory changes, and 2023 and beyond will be where we might see that trickle down to material changes in trading behaviour

TT to hire 50 more staff to realise growth plans - CEO Todd

The chief executive of Trading Technologies International (TT) has said the firm will hire around 50 more staff this year to bolster customer services and accelerate the Chicago-based firm’s growth plans, by Radi Khasawneh.

A year after taking the helm at TT, Keith Todd says the time is right to accelerate TT’s growth plans which requires more staff.

“As we transition into 2023, we are going to be accelerating growth,” Todd said. “The customers now benefit from a wider offering and more stable platform, the team is very aligned and motivated for the future, and the investors have good visibility into our trajectory for the future. We are intending to add approximately 15% more to the company next year in terms of resources across various roles, which translates to just under 50 people so that’s a big investment. Alongside that we will continue to globalise our presence and footprint across regions.”

TT announced late last year the roll-out of its revamped algorithmic execution service to four Asia Pacific exchanges, leveraging its acquisition of algorithmic trading provider RCM-X in March. Behind the scenes, Todd says a lot of work has been undertaken to improve customer experience.

“What I will say is that the last year has seen a very serious focus on service quality, and we have been able to build on that significantly,” he added. “Certainly feedback I have had from customers has included an appreciation for that heightened service quality of the platform and expansion of our offering, enabling us to achieve better than planned growth and profitability. We have created a customer service team dedicated to improving communications on that with our users.”

TT was acquired in late 2021 by a consortium called 7Ridge comprising private equity, Cboe Global Markets

and Singapore Exchange. As part of the deal, the 7Ridge bought 25% of KRM22, the risk tech firm that Todd ran previously.

That relationship came to fruition late last year with the launch of a realtime post-trade risk service aimed at futures commission merchants (FCMs), brokers and traders. And Todd sees potential for further collaboration.

“Interest rates are rising, volatility continues to be in existence and high, and that has translated into record volumes and performance among our client community,” Todd said.

One negative market events has been the dramatic sell-off across crypto markets this year, leading to FTX’s collapse earlier this month.

“Without doubt, the FTX news was tragic; events are still unwinding and might be for some months,” Todd said. “There are roles in business for innovators, but the adults need to lead the business. We as a company have been very adult about our approach. As it happens, I’m more optimistic about the future of digital assets than I was before, because there is almost no way that this marketplace cannot now be regulated properly, and some order and protection will be put in place for those who need assistance to avoid some of the downfalls of it.

“What we have indicated to the market is we are going to be bringing other attributes to this KRM22 Risk Manager on the TT platform, with a particular focus on the data that comes out of the surveillance world,” he added.

TT sealed in November a partnership agreement with post-trade technology firm ATEO Finance to deliver an allocation service to its largest customers. The recent shifts in market sentiment across various asset classes have solidified the conviction that customers are looking to benefit from flexible technology infrastructure as they navigate shifting markets.

“What I see going forward is a more natural, healthy and regulated marketplace. That will take a little bit of time as people take a timeout, and we see a drop in trading for a while, but that shouldn’t be interpreted as a long-term trend. Once confidence comes back in the underlying marketplace for the digitalisation of assets, I think it will be healthy for TT going forward.”

TT partnered with digital assets technology specialist Talos in June. It has also steadily grown its connectivity to crypto exchanges since first connecting to native crypto venue Coinbase in 2018, adding BitMEX, Bakkt and Deribit as well as CME Group cryptocurrency futures and options.

Once confidence comes back in the underlying marketplace for the digitalisation of assets, I think it will be healthy for TT going forward

TMX’s Government Bond Futures Market Shines

TMX Group is starting to reap the benefits of a multi-year strategy that has seen the Toronto-based exchange group develop a full suite of Canadian government bond futures contracts and make them available to the world through extended trading hours, by Luke

Montréal Exchange (MX), the derivatives arm of TMX, has for years offered a deep and liquid market in the Ten-year Government of Canada Bond Future. This year, the Five-year Government of Canada Bond Future has continued its recent strong growth trajectory with volumes up more than a third and volume in the Two-year Government of Canada Bond Future, which only launched two years ago, has exploded.

Simon Hughes, Head of

Jeffs

Institutional Sales at TMX, said: “The Canadian market has grown up in recent years and we now have the whole curve in place from the front end STIR (short-term interest rate) contracts all the way through to 30 years which we never had previously.”

Hughes is quick to reference Canada’s strong investment credentials – a mature, open market with world-class regulation supporting a solid, G7 economy

– while admitting the exchange group’s fixed income market is benefitting from the fast-changing macro-economic environment.

“We are in a unique situation from an economic standpoint. In the past ten years since the Global Financial Crisis, central banks were all racing to cut rates and even go negative, leaving little room to trade the front end of the curve, but we don’t have that problem anymore. Now, we’ve got diverging central bank

policies, we have inflation spiking in certain parts of the world, we’ve got commodity countries, including Canada and Australia, doing exceptionally well.”

Hughes added: “We’ve also got divergence in currencies with the Japanese Yen hitting 150 to the dollar and the Pound nearing parity against the dollar so finally we are seeing a lot more alpha back in the market. We’re getting curve inversions in the bond markets and curves steepening elsewhere so there are huge opportunities now.”

“Coupled with this, our launch of the two year futures was one of the last pieces of the yield curve jigsaw and followed the successful five year futures launch around four years ago. We can safely say this has become a key contract for the Canadian market.”

He added: “Getting the five years off the ground took a lot of hard work as well as support from the Canadian banks. Mortgages are fixed off the five-year part of the curve in Canada so it was always critical to make this contract a success. Once successful, it allowed us to develop curve strategies around the 5, 10, 30 ,, and subsequently the 2 years.”

The Two-year Government of

Canada Bond Future (CGZ), which only launched in late 2020, traded in the 10 months to the end of October over 4 million lots, up an impressive 170% on last year.

The Five-year Government of Canada Bond Future (CGF) traded in the year until the end of October 7.5 million lots, an increase of 33.8% on last year, while volumes in the flagship Ten-year Government of Canada Bond Future (CGB) were flat on last year at 27.7 million lots, according to the exchange.

The longer-dated 30-year Government of Canada Bond Future (LGB) is less liquid, but Hughes is equally optimistic about the prospect at the longer end following some recent technical changes to the contract specs.

“In terms of contracts, the 30-year should really come back strongly in January since we tweaked the contract due to the ‘wild card’ option on the physical bond coupon.”

Hughes said trading in the March 2023 contract of the MX 30-year Government of Canada Bond Futures contract has resumed with the new spec which has reduced the delivery period to a single day.

Canada, like the US and the UK, is also moving away from IBOR-based

lending rates to so-called risk-free rates (RFRs). The Canadian RFR is the Canadian Overnight Repo Rate Average (CORRA).

For Montreal Exchange, this means winding down its futures product that references an IBOR rate– the Three-month Canadian Bankers’ Acceptance Future (BAX)and replacing it with a Three-month CORRA Future.

Hughes said: “The BAX contracts this year have come off slightly because we are at an inflection point where CORRA is going to be taking over from the BAX contract. ”

MX’s BAX trading volume has fallen 37% this year on last year to 12.5 million lots in the ten months to the end of October while trading in the alternative CORRA futures has rocketed from a low base to 210,000 lots over the same period.

And these numbers should continue to rise from early next year as Canada has established January 9 as the first of two CORRA First days when its dealing banks will switch en masse to quoting swaps with CORRA rather than the previous standard.

Hughes said: “CORRA is very much front-of-mind with us. January will see all the banks start to use CORRA for swaps and so we will see the transition gain momentum in the next three to six months.

“We are starting to see volumes build already with CORRA’s open interest at over 30,000 lots and growing. BAX open interest is currently around 750K contracts however so we should not forget there is a long way to go but once the swaps start it will be the trigger.”

The Canadian market has grown up in recent years and we now have the whole curve in place from the front end STIR (short-term interest rate) contracts all the way through to 30 years which we never had previously

We are starting to see volumes build already with CORRA’s open interest at over 30,000 lots and growing. BAX open interest is currently around 750K contracts however so we should not forget there is a long way to go but once the swaps start it will be the trigger

Asked if the transition to CORRA presents any opportunities for TMX, Hughes added: “We may get some of the more focused European funds to start to look at it [CORRA] whereas they haven’t looked at it before, thinking of Canada as the third market [after the US and UK]. Our job is to ensure that it is liquid, supported and it is widely recognized for its unique value.”

The growth of the TMX government bond futures business is partly due to increased international participation in the Canadian market made possible by TMX’s long trading hours spanning Asia and Europe. About 5% of TMX volume is outside of Canadian trading hours and about a fifth of volume within Canadian hours comes from outside of Canada, according to the exchange.

Hughes said: “We’ve got a Hong Kong Operation now with four people. Clients there mainly trade the SXF (S&P/TSX 60 Index Standard Futures) and the ten-year contract with growing interest in the fives and twos out of Asia. At some stage we hope to launch CORRA contracts in Asian time zone.”

TMX extended its trading hours in two phases, to include Europe in 2018 and then to cover Asia in the middle of last year.

Hughes said: “The extension to include European hours was a great

success and that opened us up at 7am London morning whereas the Asian hours now take us to 20.5 hours. For example, a fund based in Australia can start to trade later in the day in Australia and then follow the sun with their orders.”

“They still do the bulk of their trading when Canada is open but the liquidity is growing all the time. The ten year trades very actively trade but we are now seeing liquidity flow into the five and two years.”

Hughes has a particular interest in Australia as the former head of European capital markets for ANZ, a position he held for nearly five years before seven years as head of EMEA fixed income distribution at Canadian bank TD and joining TMX in 2019.

He said the extended trading hours combined with the maturing product set is also attracting a broader range

of trading clients.

“We’ve had a lot of support from the liquidity providers, the prop shops and the banks but we are getting more and more asset managers, sovereign wealth funds and central banks. It’s really important to get a mixture of clients because you want the hedge funds and props to do the STIR contracts out to five years and you want the asset managers to trade the fives, tens and thirties while the sovereign wealth funds are a bit of a mixed bag.”

With investors keen to avoid problems in other parts of the world by boosting their allocation to North America, Hughes wants funds to look at Canada: “Anyone can trade the US. As a fund manager or hedge funds, you want to stand out from the crowd by making more alpha so I would say step away from the herd, there is the opportunity to make good returns in Canada.”

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It’s really important to get a mixture of clients because you want the hedge funds and props to do the STIR contracts out to five years and you want the asset managers to trade the fives, tens and thirties while the sovereign wealth funds are a bit of a mixed bag

Northern Trust Asset Management moves into European ETFs

Speaking as Northern Trust Asset Management nears the second anniversary of the launch of its first European exchange-traded fund, Darek Wojnar, the head of Funds and Managed Accounts at the firm, reflects on the opportunity for the US manager, by Luke Jeffs.

Northern Trust may be one of the most established and trusted US financial services brands but the asset management arm of the US group is still establishing its track record in European exchange-traded funds.

Northern Trust entered the European market in March 2021 when it launched through its Flexshares business two funds – a Developed Markets Low Volatility Climate ESG UCITS ETF and a Developed Market High Dividend Climate ESG UCITS ETF.

These were followed in September 2021 by the Flexshares Emerging Markets Low Volatility Climate ESG UCITS ETF and the FlexShares Emerging Markets High Dividend Climate ESG UCITS ETF.

Northern Trust Asset Management made available its listed private equity

UCITS ETF in Amsterdam in December 2021, then in London in February 2022 and on Deutsche Boerse in March 2022.

Darek Wojnar, the head of Funds and Managed Accounts at Northern Trust Asset Management, said the fledgling European business crucially draws on the experience of the firm in the US, where the asset manager has been offering ETFs for more than a decade.

Wojnar told Global Investor: “We design products globally but focus on the specific requirements of local markets. That said, the common element of our Flexshares products in the US and EMEA is that they are outcome-oriented. We are seeking to solve some of the everlasting challenges that investors face globally.”

Capital appreciation, income generation, risk management and

liquidity are some of the basic outcomes that investors can expect from Northern Trust Asset Management exchangetraded funds, Wojnar said.

US investors have in the past year used Northern Trust Asset Management ETFs to address higher inflation through natural resources ETFs or specialist tools such as Treasury Inflation Protected Securities.

“EMEA investors focusing on ESG want to know that their investments are exposing them to income generating dividend paying stocks or lower volatility stocks, for example, but it is also important for them to know that their investments are also lowering carbon emissions,” said Wojnar.

The European ETF market was resilient in 2022, as positive flows of €78.4bn (£68.8bn) helped offset the

decline in equity and bond valuations which cut European ETF assets to €1.32tn last year from €1.41tn at the end of 2021, according to Morningstar.

Environmental, social and governance (ESG) ETFs accounted for €51bn or 65% of inflows in 2022, meaning these sustainable European ETFs now have assets under management worth almost €250bn.

ESG ETFs then are popular at the moment but Wojnar said Northern Trust Asset Management is looking to add to the European market rather than take assets from existing funds.

He said: “We do not want to compete with a product where investors already have five or ten to choose from, rather we are trying to be additive to the marketplace by offering a unique perspective through our research and engagement with clients.”

The Northern Trust Asset Management European exchangetraded funds reflect client feedback on the rapidly-changing European ESG regulatory framework.

Wojnar said: “Clients came to us and said they would like our help with bringing various frameworks together so we built a framework that incorporated Taskforce for Climate Related Financial Disclosures, materiality standards from SASB and additional measures on carbon emissions.”

Naturally, one challenge with a new product portfolio is attracting anchor clients when there is no performance to reference.

“Investors also look for track records which is our distinguishing factor. While we find that some investors come in early and others choose to wait, we try to be additive to the marketplace and serve investors over a long period of time.”

But Wojnar said lower fees are typically ineffectual when it comes to building critical mass in a new ETF.

“At the end of the day, it is an investment portfolio that has a factorbase and sustainability considerations, so clients need to be comfortable with products having consistent measures with their portfolios. At NTAM, we

adopt a patient approach and invest in clients through education.”

With passive ETFs enjoying strong demand at the end of 2022, Wojnar feels that European investors are preparing for sustained period of economic uncertainty linked to the situation in Ukraine.

“Investors have re-evaluated their outlook for not only this year but the next decade to reflect the macroeconomic environment and the geopolitical instability with Ukraine and Russia. At the same time, inflation is no longer viewed as transitory, rather it is persisting in various parts of the world.”

He added: “All of these factors prompt firms to engage with managers like NTAM more deeply. That said, investible capital is always more scarce in times of asset depreciation, so we have to be more careful towards how we continue to make these investments going forward. The challenge for us is to sustain our investments, but to not overextend ourselves.”

Wojnar said the sustained interest rate hikes in the US, Europe and UK over the past year have presented an unfamiliar challenge to some debt ETF investors.

He said: “Rising global interest rates have caused investors to think about fixed income differently, which presents an interesting and attractive opportunity for Flexshares and ETFs more broadly.

“Most investors have not previously experienced dramatic increases in interest rates over a short period of time but, interestingly, we expect that fixed income will start paying interest rates and be additive to income generation for clients going forward. It may still take time before that transition settles but I think fixed income will be an attractive general area,” Wojnar added.

Wojnar draws here on his 20 plus years’ ETF experience as BlackRock’s former managing director and head of that firm’s US iShares product and the former head of US iShares product strategy and research at Barclays Global Investors. He joined Northern Trust in early 2018.

“If I look back over that time, I think most of the prognoses for ETF growth underestimated the opportunity. We have around $8.5 trillion in AUM globally but if you look at CAGR over the past five years, it was ranging between 18-23% so growth has been consistently high and current projections continue to be positive with percentages ranging from 15 to 20%.”

Stepping back, Wojnar said the outlook for European ETFs is bright. “There are opportunities for large numbers of investors to start using these tools in a way that is additive to their portfolios. In my opinion, the opportunity will remain high for years to come, particularly in those areas that have been covered less.”

We do not want to compete with a product where investors already have five or ten to choose from, rather we are trying to be additive to the marketplace by offering a unique perspective through our research and engagement with clients

Rising global interest rates have caused investors to think about fixed income differently, which presents an interesting and attractive opportunity for Flexshares and ETFs more broadly

A change in fortune for bond markets? - Jupiter’s Ariel Bezalel and Harry Richards

Optimism around fixed income was rare in 2022, but there are reasons to believe 2023 may see a change in fortune for bond markets, say Ariel Bezalel and Harry Richards, managers of the Jupiter Strategic and Dynamic Bond Funds.

We expect economic growth around the world to slow this year. That’s a relatively consensus view today, but it’s something we have been calling for some time and, importantly, we believe the depth of the slowdown ahead of us is not currently priced into bond markets. While macro data remains fairly strong, with decent

headline GDP in many areas of the world and resilient job markets, many leading indicators suggest this may not last.

In 2022, there was an extreme amount of monetary tightening. As this tightening feeds through economies over the next 12 to 18 months, growth should soften further. Indeed,

Purchasing Managers’ Indexes (PMIs) are already pointing south in many regions of the world. Interestingly, the new orders component of the PMIs is showing this in an even more pronounced way.

Furthermore, confidence from CEOs, which can drive investment and hiring intentions, is at very

While macro data remains fairly strong, with decent headline GDP in many areas of the world and resilient job markets, many leading indicators suggest this may not last

depressed levels. Consumers are facing tough times in many countries with negative real growth for wages, increasing credit card debt and pretty depressed sentiment. Consumption, which is roughly 70% of GDP in the US, should therefore be watched closely as the year unfolds. Tighter financial conditions are driving down activity in housing markets, with prices decreasing across most regions in a meaningful manner.

Inflation is receding – will rates follow?

Meanwhile, inflation, the bane of the bond investor, looks to be moderating based on recent data reports. Costpush inflation is receding, with China and US Producer Price Index (PPI) trending down on a year-on-year basis, improving supply chain pressures and shipping rates collapsing. Commodity inflation is slowing down, with many segments of the commodity market showing lower or even negative growth. Shelter, which constitutes roughly one-third of US Consumer Price Index (CPI), can also be expected to slow down as house prices decrease. If we look at more timely indicators of rental inflation such as live market rental prices, we see negative growth on a month-on-month basis.

Should cost-push inflation fall back as expected and commodity prices ease, central banks will change their stance with regards to monetary policy. We still see rate cuts in the second half of 2023 as a solid possibility from the US Federal Reserve, and in that scenario government bond yields should keep receding. Additionally, financial stability risks or rising unemployment can bring forward a pivot in central bank policy. Falling house prices, the third point

of our inflation outlook, leads us to take a very constructive view on government bonds particularly in the United States, Australia, New Zealand and South Korea, where we expect much lower government bond yields going forward, with the potential for compelling total returns.

Pockets of opportunity

While our overall outlook sees lower growth/recession in many areas of the globe we find some attractive pockets of opportunity in credit markets, both in developed market investment grade and high yield bonds. Within high yield, in particular, we see good overall return prospects for senior secured bonds in defensive sectors such as telecommunications, healthcare and consumer staples. Recent volatility has in our view created interesting opportunities across bank capital securities, while we also see some more idiosyncratic opportunities within the gaming and cruise lines sectors.

While we have high conviction that central bank policy will change as growth slows, and better times lie ahead for bond investors, the timing will always be uncertain. In the past, however, yields have moved a long way quickly when central banks pivot on policy. Fortunately, given the rise in

yields we saw last year investors are now being ‘paid to wait’ with a much more attractive income return than has been available for many years.

Historical perspective

Although we foresee a more positive environment for rates in 2023, the outlook for credit spreads is more uncertain. Indeed there might be some additional widening or volatility in spreads ahead, especially for high yield, to reflect the weaker macro conditions.

This implies that the classic negative correlation between government bond yields and spreads might reassert itself, rewarding a diversified barbell strategy such as the one we employ in our own strategy. While we think that credit investors are currently being paid to wait, we do believe that government bonds can offer not only the potential for positive returns but also an important hedge to counter volatility in credit.

Our strategy’s asset allocation, when paired with scrupulous credit selection aimed at avoiding default situations or permanent loss of capital, can help to deliver strong risk-adjusted returns, especially during moments of higher volatility for credit markets.

While our overall outlook sees lower growth/recession in many areas of the globe we find some attractive pockets of opportunity in credit markets, both in developed market investment grade and high yield bonds

Although we foresee a more positive environment for rates in 2023, the outlook for credit spreads is more uncertain. Indeed there might be some additional widening or volatility in spreads ahead, especially for high yield, to reflect the weaker macro conditions

What fund managers need to know about tokenisation

Looking back on the key developments in 2022, it is clear that whether you have concerns about innovation, regulation, or changing stakeholder roles, tokenised funds are set to transform the investment management industry and that change is coming fast, by Daron Pearce, the founder and CEO of Daron Pearce Associates.

Private market investment firms

Hamilton Lane and Partners Group have already launched tokenised funds. Digital Funds recently filed to launch a tokenised S&P 500 EW Index Fund and Abrdn plans to launch a tokenised fund.

The Investment Association (IA) is lobbying for the approval of blockchain based funds. This is no surprise given that increasing investor demand for tokenised funds coincides with a time when the funds industry is seeking to boost its competitiveness in a rapidly evolving global market.

Chris Cummings, IA Chief Executive argues that, “Greater innovation will boost the overall competitiveness of the UK funds industry and improve the cost, efficiency and quality of the investment experience.”

Nadine Chakar, until recently head of digital assets at State Street views tokenisation as a more fundamental shift, quite simply that it will “… change everything that we do.”

In this context, it is key that fund managers understand:

• How today’s investors have changed

• What the pace of change might look like

• The benefits and challenges of tokenised funds

• How to manage industry scepticism

The bottom line is that fund managers need to recognise and begin to influence those factors shaping end investor preferences, as well as the

necessary investment architecture. This will enable them to lay strong foundations for their future success.

Investors have changed Fund management operating models can be highly complex, structured around a web of intermediary relationships which stand between the fund manufacturer and the end investor. These models, perhaps designed to mitigate investment risks, have resulted in an inaccessible market that multiplies transactions and increases costs for the end investor. Such an inefficient model was immediately challenged by the blockchain vision of a peer-to-peer distributed ledger which removes multiple intermediary layers, supporting a simpler and arguably more effective model for fund governance and distribution.

But this wholesale disruption of the traditional market is not simply down to innovations in technology. In a report earlier this year, the IA identified three societal factors driving the adoption of tokenisation in the UK fund industry:

1. A gradual shift from ‘deference’ to ‘reference’ which could challenge the role of fund managers and see them facing increased competition to remain relevant.

2. Hostility from millennials towards the traditional roles of capitalism: This creates opportunities for alternative or new disruptors— especially since millennials are set to inherit over £5.5 trillion in the next 20 to 30 years.

3. New variations on the traditional understanding of investment driven by the pandemic, specifically an increase of direct investing by Gen Z (18-23), the rise of ‘amateur’ traders, alternative investing, and influencer advocated investment strategies.

Fund tokenisation is being driven by the persistent pressures of economic disruption, customer expectations, and a drive towards investment democratisation. Fund managers need to reconsider investor objectives or risk being left behind in an increasingly fast paced industry.

The pace of change

While it is true that shifts in societal attitudes towards investment are key to the disruption of fund management, the future of tokenised funds depends on the level of technological change that the industry adopts in response to these changes.

There continues to be an increase in the pace of the move towards tokenised funds. For example, On September 13 2022, Securitize, a leading digital assets securities firm, announced the launch of a fund tokenizing an interest in KRR’s Health Care Strategic Growth Fund II (“HCSG II”) on the Avalanche public blockchain.

John Wu, President of Ava Labs, which is part of the strategic partnership, explained that “Financial markets demand innovation, and over the last two years we’ve seen dramatic leaps forward in the evolution

of real-world assets moving onchain and delivering on the promise of breakthrough technology for institutions.”

To open up funds to a new audience of investors, leading investment firms need to form a technology strategy for fund management. But what could this vision of the future look like?

Once again, The IA has identified three possible scenarios for change:

1. Business-as-usual enhancement: This is a more efficient version of today’s funds, which enables improved speed, scale and efficiency with new technologies. tokenisation is used to enable fund shares and underlying assets classes to be traded.

2. Innovative evolution: This scenario uses technology to change the nature of the key stakeholders and the investment opportunity set. It supports more tailored portfolios through investor preferences and broader market access.

3. Transformative change: Technology changes the relationship between the customer and their portfolio, so risk and return can be tailored at stock and securities level, instead of fund level. The role of the investment manager is changed as customers exercise greater control.

Whether tokenised funds will become a more efficient version of existing funds – a T share class for example – or a completely new concept depends in part on the level of participation that consumers demand.

The benefits of tokenised funds

The market opportunities for tokenisation could be game-changing for an industry that suffers from low margins and high competition.

Some industry experts see tokenisation as an opportunity for a better system that works for investors and fund managers with tokenised funds delivering greater transparency, improvements in data and analytics and perhaps most importantly instant atomic settlement.

It’s no surprise then that fund managers are already thinking about the possibilities. In 2022 Token City found that 73% of fund managers identified private equity assets and 65% pointed to hedge fund assets as most likely to be the first to see significant levels of tokenisation.

The impact on investors can only be positive, especially as there is fundamentally no difference between investing in a tokenised fund and a ‘traditional’ fund. The investor simply holds tokens in a digital wallet via an App on their phone.

So, what are the expected benefits driving the expectations of different industry stakeholders?

The key proposition for fund managers is:

• Instantaneous settlements with appropriate payment methods

• Immutable transaction records for quality reporting

• Reduced risk with less intermediaries involved

The benefits for investors include:

• Democratized investment through lower lot sizes or partial ownership of assets

• Increased access to private markets currently only accessible to institutions

• Improved accessibility with realtime digital access

Regulators will have the ability to:

• Track the movement of tokens in realtime to ensure the integrity of data

• Encode investor’s rights, legal responsibilities and limitations, and ownership records into funds

• Use smart contracts to automatically notify of regulation breaches While these benefits lay the

groundwork for the creation of a financial system that revolutionises how investment funds work, the challenge is to realise the benefits for all parties.

The challenges of tokenised funds

Change will always be uncomfortable, but tokenised funds fundamentally challenge the way that existing financial systems work.

That said, in a recent address, Mairead McGuinness, the European Commissioner for Financial Stability reminded her audience at the Banque de France conference that “regulation and innovation are not in conflict.”

The desire for change is clear. So, what are the challenges that fund managers need to overcome?

• Regulation prevents change: Existing regulation supports the current financial model, so international rules and regulations are needed to enable cross-border funds

• Systems constrain interoperability: There is a risk of creating siloed assets that don’t communicate with each other and limit the traceability of transactions

• Blockchain technology is immature: Modernising and updating the existing financial infrastructure will occupy budgets and resources in difficult economic times

• Complex stakeholders make consensus slow: Change depends on the collaborative efforts of investors, asset owners, banks, regulators, industry associations and global financial markets

• Limited investor knowledge: Investors need to be equipped with

The impact on investors can only be positive, especially as there is fundamentally no difference between investing in a tokenised fund and a ‘traditional’ fund

the knowledge to make informed choices when new products become available

• An evolution of existing roles: Tokenised funds cut out intermediaries, so traditional institutions will need to adapt to new competition in the market

It is critical to the growth of the industry that different stakeholders work together to enable new products and solutions, especially when these challenges could be an opportunity to future-proof UK investment funds.

How to manage industry scepticism

Tokenisation still raises mixed views from established fund managers.

Catherine Valega, a wealth consultant at Green Bee Advisory says, “Retail investors will often skip the more boring financial planning tasks— emergency funds, insurance, maxing out retirement contributions—and jump right into these investments.”

Securitize CEO Carlos Domingo takes a different view: “Tokenization has the potential to address many of the biggest challenges for individual investors seeking to participate in private market investing by enabling technological and product innovations that were not possible before.”

So, what are the tokenisation skeptics worried about and how can we address their concerns?

The most common objections to tokenisation are:

• The technology is not ready for mainstream adoption: Fund managers are often concerned that digital accounts can be manipulated or that the blockchain can be altered. Organizations can mitigate these risks by monitoring the development of the technology and establishing robust risk management strategies that include governance and security.

• Infrastructure needs to evolve to support tokenisation: As new tokenised funds emerge, legacy players will need to evolve their

issuance, risk and compliance, and identity management to innovate their offerings. Funds that take advantage of partnerships with new tokenisation platforms will be able to accelerate their infrastructure maturity.

• The pace of innovation makes the future of funds hard to predict: The future landscape is hard to predict, specifically in terms of the role of traditional funds and the speed of change. Organizations will need to adapt to demands for new functionality and improved user experience as value propositions evolve with technological innovations.

It is evident that tokenisation has the potential to transform today’s financial infrastructure. The pace and depth of change depends on the ability of fund managers to confront industry skepticism and to offer solutions that resolve the challenges of tokenisation.

How to reinvent funds for tokenisation

It is evident that, to reinvent funds for tokenisation, we need to let go of traditional ideas of fund management in favour of the democratization of investment.

However, a difficulty for fund managers is that traditional operational and regulatory structures need to be changed to support tokenised funds.

A 2021 report by Roland Berger identified a four-step approach to preparing for the shift towards tokenisation:

1. Evaluate the implications of tokenisation: Fund managers should evaluate the potential impact of tokenisation on their business model and assess the relevant risks and opportunities

2. Define your target position: Decide whether you want to be a frontrunner or follower and draw up scenarios for development and score them against their value, feasibility and cost

3. Develop a capabilities roadmap: Map the capabilities that you need to achieve your target position in terms of technology, business model, and regulation

4. Think about implementation: Start to develop your in-house skills and either build a user interface or partner with technology vendors

In addition to developing an internal strategy, fund managers need to develop broader industry relationships that help them to:

• Push for an established framework for tokenised funds to operate in the UK

• Address the need for regulation that adapts quickly to emerging developments

• Enable transparent digital information and disclosure to investors

This will help the industry to protect the UK’s position as a cutting-edge financial centre focused on supporting new developments.

Conclusion

There’s no mystery as to why customers want increased customisation and participation and greater control over their portfolios. With no end to technological innovation in sight, the need for financial institutions to reduce complexity, cost, and improve accessibility has never been greater. The industry’s ability to modernise investment funds will rest on their understanding of the challenges and opportunities that underpin the global adoption of tokenisation.

The pace and depth of change depends on the ability of fund managers to confront industry skepticism and to offer solutions that resolve the challenges of tokenisation

GLOBAL INVESTOR MENA AWARDS 2022

Emirates NBD has been selected as winner of the Best Asset Manager award at the Global Investor MENA Awards 2022 while Boubyan Capital secured the Best Wealth Manager title.

EFG Hermes also performed well in the past year resulting in the Egyptian financial services company not only being awarded the Best Broker nod in the MENA region but also in Egypt, Kuwait, Oman, Saudi Arabia and the United Arab Emirates.

CI Capital was also recognised as the Best Cash Manager award and Best Asset Manager – Egypt.

The Dubai Gold and Commodities Exchange has once again won in the Best Exchange and also secured the Best Clearing House categories, while CME Group returned to win the Best International Exchange title.

Saudi Arabia’s Al Rajhi Capital has remained on track, leading them to secure the Best Equities Manager and Best Asset Manager – Saudi Arabia awards once again.

HSBC stayed strong and placed first in the sub-custodian category but also managed to win the Best Custodian title for the MENA region. The multinational bank also secured the Fund Administrator award for 2022.

Citi has been awarded the Best Transition Manager award once again. In addition to winning the Best ETF Provider and Sharia’ Manager nods, Al Rayan Investment has also been recognised as Best Asset Manager in Qatar.

SCL Advisory has earned the Best Consultant award, while Best Sukuk Manager was handed out to SICO who has also managed to secure the Bahrain Asset Manager and Bahrain Broker wins.

Methodology

The 2022 MENA Awards opened on 5 October 2022 and saw firms across the region submit their entries for a chance to win an award across 17 regional and 24 country categories. Entries shut on 21 November.

The companies were asked to submit their entry form along with any supporting evidence. The consideration period for the companies ranged from the 1 September 2021 to 31 August 2022.

The selected winners win not only the prestigious title by Euromoney’s Global Investor Group but also an opportunity to contribute to a profile in a new project coming out in 2023, The MENA Finance Guide.

The full list of winners:

REGIONAL CATEGORIES

Asset Manager: Emirates NBD Capital

Broker: EFG Hermes

Cash Manager: CI Capital

Clearing House: Dubai Gold and Commodities Exchange

Consultant: SCL Advisory

Equities Manager: Al Rajhi Capital

ETF Provider: Al Rayan Investment

Exchange: Dubai Gold and Commodities Exchange

Fund Administrator: HSBC

Global Custodian: HSBC

International Exchange: CME Group

Sharia’ Manager: Al Rayan Investment

Sub-Custodian: HSBC

Sukuk Manager: SICO

Transition Manager: Citi

Wealth Manager: Boubyan Capital

COUNTRY CATEGORIES

Bahrain Asset Manager: SICO

Bahrain Broker: SICO

Egypt Asset Manager: CI Capital

Egypt Broker: EFG Hermes

Jordan Asset Manager: Al Arabi Investment Group

Jordan Broker: Al Arabi Investment Group

Kuwait Asset Manager: NBK Capital

Kuwait Broker: EFG Hermes

Kuwait Wealth Manager: Kuwait Financial Centre

Markaz

Oman Asset Manager: Bank Muscat

Oman Broker: EFG Hermes

Qatar Asset Manager: Al Rayan Investments

Qatar Broker: QNB Financial Services

Saudi Asset Manager: Al Rajhi Capital

Saudi Broker: EFG Hermes

UAE Asset Manager: Al Dhabi Capital

UAE Broker: EFG Hermes

EMIRATES NDB CAPITAL

Asset Manager of the Year

Dubai-based Emirates NBD Capital (EMCAP), the global investment bank of Emirates NBD Group, was the recipient of the 2022 Asset Manager of the Year award. Its reach covers the GCC region, Asia, Africa and Europe. Between January and November 2022, the firm participated in nearly 20 public transactions spanning the GCC and Asian regions, raising over USD15bn for sovereign, financial institutions and corporate clients. It has three areas of focus: equity capital markets and corporate finance advisory, loan syndications and debt capital markets.

EMCAP highlights the work of its equity capital

markets team, which closed several initial public offering deals in 2022, including that of several regional utility companies (for instance, Dubai’s DEWA), Dubai-based school operator Taaleem and real estate company TECOM. The total cumulated IPO proceeds reached USD8.5bn and total demand raised over USD170bn. It has also acted on a number of high-profile privatisation transactions.

Hesham Abdulla Al Qassim, EMCAP Vice Chairman and Managing Director, noted in a recent financial report that ‘Emirates NBD played a leading role in the country’s recent IPOs, enabling new and existing customers to access and trade shares on the Dubai Financial Markets.

EFG Hermes was recognised several times in Global Investor’s 2022 MENA awards, including in five regional broker categories and for the coveted MENA Broker of the Year award.

Its securities brokerage business covers 12 markets in the MENA region as well as over 75 frontier emerging markets (FEMs). This global coverage is reflected in the growth of the brokerage’s client base, which comprises over 1,800 Western, GCC and high-networth institutions, as well as over 140,000 retail and VIP individuals. In parallel, its research team now covers 83% of the MENA market capitalisation (or 327 companies), and 37% of the coverage universe for FEMs (or 120 companies).

The Egyptian financial services company has had another good year, capitalising on the market recovery in the aftermath of the Covid pandemic in 2021 and 2022.

In Egypt, EFG topped market rankings, rising its market share to 44.6% in the first half of 2022 (up from 33.8% in 2021). The firm was the preferred broker for foreign investors, capturing over than 61% of the foreign flow in the market during the same period. Two successful advisory roles the firm highlights include its role in the dual listing of Integrated Diagnostics Holdings in Egypt and the UK, and the sale by Bank

Audi of 100% of the share capital of its Egypt-based subsidiary, Bank Audi S.A.E, to First Abu Dhabi Bank PJSC.

In Kuwait, the firm grew its market share to 31% in the first half of 2022, placing it in second position, though it captured nearly two-thirds of the foreign flow in the market.

EFG Hermes was in the top six in terms of market share in Oman (15% in 1H22). EFG Hermes Oman also captured nearly 15% of the foreign flow during the same period.

The firm was also strong in Saudi Arabia, placing among the top independent brokers and foreign brokers in 2022. In terms of foreign market share, EFG Hermes was successful in capturing a growing proportion of the qualified foreign investor market. It’s worth noting that the firm’s market share from Swaps and QFI business was around 5% in both FY21 and 1H22.

In the UAE, EFG Hermes notes that it was in second place in the first half of 2022, growing its share to 21.3%.

For Dubai, EFG Hermes was first, on account of a 43.8% market share, and in Abu Dhabi, it was second with a 16.5% slice of the market. The firm captured 42% of the foreign flow on both exchanges combined during the same period.

AL RAJHI CAPITAL Equities Manager of the Year

Al Rajhi Capital, the investment banking arm of Saudi Arabia’s Al-Rajhi Bank, won the 2022 Equities Manager and Saudi Arabia Asset Manager of the Year awards.

It is one of the largest fund managers in Saudi Arabia and the MENA region, with assets under management around SAR60 billion (GBP12 billion), one of the largest financial advisors in the debt markets, and a global leader in the issuance of sukuk. The firm notes it is a ‘high-quality Islamic Shariah compliant investment solutions provider that constantly endeavours to launch innovative products and customer-focused initiatives’.

Al Rajhi Capital was in the news in late 2022, advising on the public offering of Al-Rajhi Bank’s Tier 1 Sukuk on Saudi’s Tadawul exchange, which attracted over 125,000 subscribers. This is the first sukuk of its kind for a financial institution in the Saudi Arabia.

The firm highlights several contributing factors to its success. Its ‘strong structured and well-defined analytical approach, which includes quantitative and qualitative

AL RAYAN INVESTMENT

filters to select investments, coupled with a good analysis,’ is the foundation of its strategy. In addition, real-time monitoring and updating of pricing, market opportunities and trade volumes ensure it is well-placed to support clients’ investment objectives.

It also credits several principles as an integral part of its strategy:

Superior risk adjusted performance: Al Rajhi Capital products are structured to deliver ‘superior risk balanced investment returns’ in various market conditions and are ‘benchmarked against competitors to ensure optimal performance’.

Stringent risk management: the firm adheres to a rigorous risk management framework which ensures ‘accountability to both regulators and investors via monitoring and reacting to market volatility, credit and operational risks’.

Shariah compliance: Al Rajhi Capital business is governed by principles of Islamic shariah policies and procedures.

Al Rayan Investment (ARI) is a leading investment management firm that specialises in Gulf-listed equities and sukuk, backed by a unified research team.

The firm’s investment approach is focused on identifying and taking advantage of the significant valuation and information discrepancies that exist in the Gulf region. All ARI’s investments are in compliance with Islamic laws, allowing investors to gain a broader perspective from researching and investing on both sides of the capital structure.

ARI manages the Al Rayan GCC Fund, which is the second-largest Shariah-compliant GCC Fund in the region, with assets under management of $96 million. The fund has achieved a 14.5% return over the past 12 months with relatively low risk, as reflected in a high Sharpe ratio of 0.77. Since its inception, the fund has returned 153%.

In March 2018, ARI listed the Al Rayan Qatar ETF (ticker QATR) on the Qatar Stock Exchange. As of the end of August 2022, QATR is the second-largest Islamic equity ETF in the world, with a market capitalisation of $175 million. In addition, ARI manages several segregated mandates, totalling $1.2 billion, for institutional investors and family offices.

The company has developed in-house research capabilities to identify broad trends and identify individual opportunities. The use of primary research is at the core of ARI’s decision-making process. With the listing of Al Rayan Qatar ETF, ARI has established itself as the leading ETF issuer in the Gulf, with an ETF that is half as large as all other ETFs in the region combined. Listed on the Qatar Stock Exchange, QATR tracks the QE Al Rayan Islamic index, which includes Shariahcompliant stocks in Qatar. Over the past 12 months, the NAV tracking error has been just 0.07%. As of the end of August 2022, QATR is the world’s fifth-largest Islamic equity ETF. It has two peers that also offer exposure to Qatari equities, but QATR is the largest and most costeffective of the three.

Al Rayan Investment has developed in-house research capabilities to identify broad trends and identify individual opportunities.

CI CAPITAL

Cash Manager of the Year • Egypt Asset Manager of the Year

Egypt-headquartered CI Capital received this year’s Cash Manager and Egypt Asset Manager of the Year awards in recognition of its efforts in the asset management space.

Abol-Enein, CI Capital Asset Management (CIAM) CEO and Managing Director said the firm’s aim in 2022 was to increase the size of its asset management portfolio. It grew the size of its assets under management (AUM) from EGP 14.5 billion (GBP392.1 million) to EGP 49.7 billion, making it the largest asset manager in its home country and one of the largest in the Middle East region. It credits the increase in year-on-year AuM to factors such as the onboarding of new client accounts across most asset classes.

In the year ending August 2022, CIAM increased its offering of money market funds, fixed income funds, and balanced funds. It currently manages Egypt’s largest portfolio of cash management tools, which includes

13 money market funds, including Egypt only foreign currency-denominated funds, and four fixed income instrument funds. In 2022, the firm announced plans to launch three new funds, a cash fund investing in short-term debt instruments, including a large segment dedicated to individuals and companies, as well as a fund for commodities.

CIAM’s money market and fixed income funds have been ranked among the best performing according to reports by the Egyptian Investment Management Association. The firm grew across all asset classes including equities and Shariah-compliant and fixed income. It notes that it achieved first quartile ranking among peers and delivered positive alpha in its discretionary equity portfolios relative to the main benchmark.

Established 16 years ago, Dubai Gold & Commodities Exchange (DGCX) is the largest and most diversified derivatives exchange in the Middle East, providing guaranteed settlement and reduced counterparty risk through the Dubai Commodities Clearing Corporation (DCCC), a subsidiary 100% owned by DGCX.

DCCC started clearing several new products launched by DGCX over the course of the year, including the Israeli Shekel Futures Contract in June 2022, following the receipt of a permit from the Israel Securities Authority in 2021.

DGCX continues to witness strong investor appetite for its currencies portfolio despite the economic turbulence taking place around the world causing continuous foreign exchange (FX) and global market volatility. DGCX’s bluechip Indian SSF offering allows local and regional traders access to the price performance of a total of 50 stocks listed on the major trading indices in India, traded and settled in USD thus removing foreign exchange risk, with the advantage of centralised clearing.

DGCX also signed an agreement with FinMet Pte Ltd to review the physical bullion market and identify opportunities for DGCX across global markets, and already launched new Physical Gold Futures and Spot Gold Contracts, expanding its existing product offering.

Dubai Commodities Clearing Corporation (DCCC) provides clearing, settlement, and risk management services to DGCX and is the only Central Counter Party

in the Middle East that offers clearing services across multiple asset classes: Currencies, Base and Precious Metals, Hydrocarbons and Equity derivatives, both index and single stock.

DCCC also remains the only clearing house globally with a proven track record in clearing and delivering a physical, exchange traded Shari’ah compliant product, the DGCX Spot Gold contract.

In addition, DCCC is a member of CCP12, a global organisation of CCPs which work together to minimise global systemic risk and enhance the efficiency and effectiveness of international markets, and a member of Euroclear Bank and Clearstream for collateral solutions.

During the qualifying period, DCCC cleared nearly 8.65 million contracts, with a cleared value of more than USD 173.90 billion, cementing its leading position within key markets.

DCCC also remains the only clearing house globally with a proven track record in clearing and delivering a physical, exchange traded Shari’ah compliant product, the DGCX Spot Gold contract.

DGCX Exchange of the Year • Clearing House of the Year

SCL has scooped up the Consultant of the Year award in 2022, taking over from previous winner Insight Discovery.

Founded in 2017, the firm supports several securities exchanges and other financial institutions across emerging and frontier markets including in the MENA region, SubSaharan Africa and South Asia, and since adding data monetisation and data services in 2020, it has seen its client base grow further.

The firm notes it has won tenders/requests for proposals against its competitors for the provision of data services and data monetisation to securities exchanges.

‘Our clients have indicated our success against these global players is due to SCL Advisory’s unique perspective on the data monetisation market as well as dedicated service to its clients,’ notes managing director Selloua Chakri.

HSBC won the Fund Administrator of the Year 2022 award, taking over from Northern Trust who was the winner last year. The Anglo-Asian bank was one of the first financial institutions to launch fund administration services in the MENA region and manage funds in key markets in the region.

It plays an active role in the MENA fund markets, and has relationships with many of the region’s asset managers supporting services such as transfer agency, performance measurement and investment compliance monitoring.

It has also picked to the Global Custodian and SubCustodian of the Year awards, the latter for the second year running. The lender had US$10.8 trillion in assets under custody as of the end of 2021 and is one of the most

active custodians in the MENA region, counting sovereign wealth managers, asset managers, pension funds and insurance companies as clients. HSBC came out top in Bahrain, Egypt, Kuwait, Oman, Qatar, Saudi Arabia and the UAE in Global Investor 2022 Sub-Custody survey.

According to Nabeel Abdul Rahim Albloushi, HSBC’s head of corporate sales for the Middle East, North Africa and Turkey, and head of markets and securities services in the UAE, HSBC’s banking and markets capabilities in the UAE and the wider region helped clients in the Middle East and North Africa raise more than $19 billion from investors worldwide in 2021 and more than $15bn in the first half of 2022.

Citi has returned for yet another year to win the MENA Transition Manager of the Year award. Year to date, the US-headquartered bank has transitioned over $15bn of assets for its MENA-based clients while continuing to build new relationships across the region. Notably, it credits its ‘tailored solutions-based approach’ to each transition mandate which ensures all client requirements are met and risks are managed efficiently.

In the equities space, Citi leverages its own infrastructure, with local trading desks in over 70 countries, while in fixed income, it can minimise costs associated with a transition by utilising other broker-dealers and its own bond inventory.

‘Our strong performance is highlighted by a 90% win rate for transition bids this year,’ it notes. ‘Our drive to deliver transparency around our transitions is achieved via our detailed Pre-Trade, Interim and Post-Trade reporting…

the extent of the reporting is reflective of both our clients’ expectations and the specific asset class being transitioned.’

The bank, which has over 30 years of experience in the transition management space, has shared some highlights which have underpinned its recent strategy.

While last year Citi was focusing on supporting MENAbased clients in their global post-Covid recovery efforts, it notes that more recently, the strategy has moved to addressing the ‘significant rise in volatility’ and its impact on the near and long-term shift in asset allocation. As such, Citi has executed multiple fixed income transitions on an agency basis across the entire liquidity and risk spectrum during the height of market volatility. Across equities, Citi’s MENA clients have shifted into active emerging market portfolios focused within single countries and sectors.

SCL

GROUP International Exchange of the Year

CME Group is a leading and diverse financial marketplace offering a wide range of products for managing risk in uncertain times. It is the only exchange that allows customers to trade all investible asset classes on one platform.

For example, CME Group offers unique tools to manage interest rate risk during Libor transition, including Eurodollars, SOFR futures, SOFR swaps, Term SOFR, and BSBY. In addition CME Group actively educates local markets in MENA on Libor transition and facilitates access to CME Term SOFR.

CME Group introduced new products to help clients with their ESG goals, including Global Emissions Offset futures, Nature-Based Global Emissions Offset futures and Cobalt and Lithium Futures. They also launched new futures and indices, such as Ether Futures, Micro Bitcoin Futures, Micro Ether Futures (Crypto), BSBY futures, Micro Yield Futures, Trade-at-Settle (Interest Rates) and Micro WTI Futures, Japanese Power Futures, (Energy) to diversify their product offering. Additionally, CME Group has developed more than 40 Implied Volatility Indices (CVOL) which are the first cross-assets class volatility indices in the industry.

CME Group is extremely focused on meeting the needs of their clients through various engagement efforts such as hosting events and providing educational resources. They saw a 17% increase in customer engagement in 2021 and hosted a variety of online and in-person events in the Middle East. Additionally, the group hosted the first ‘MENA Derivatives Trading Challenge’ and embedded educational content on our partners’ websites.

CME Group’s total volume has steadily increased during non-U.S. trading hours, reaching a record 5.5 million in average daily volume (ADV) in 2021. The MENA region has seen strong growth in volumes across all client segments, with an over 50% Year-on-Year growth in 2022.

CME Group is extremely focused on meeting the needs of their clients through various engagement efforts such as hosting events and providing educational resources.

SICO also once again won the Sukuk manager of the year and Bahrain broker of the year awards.

SICO is a well-established and reputable firm in the financial industry, known for its exceptional performance in asset management, brokerage, and investment banking. The company has an impressive track record with over $4.75 billion in assets under management, making it a leading player in the region. SICO operates under the oversight of the Central Bank of Bahrain, which ensures that the firm adheres to a strict regulatory framework, providing clients with full confidence in the services offered.

The company caters to a diverse range of clients, including sovereign wealth funds, pension funds, endowments, insurance companies, commercial banks, and funds. These clients are primarily based in five of the six GCC states, and SICO’s unique selling point is its inhouse research team that covers hundreds of companies in the GCC. This team provides investment managers with daily ideas and insights, giving SICO a competitive edge

over other firms that rely on external or delayed research to make investment decisions.

SICO’s brokerage division has consistently been named as Bahrain Bourse’s number one broker for over two decades. In 2017, SICO launched its SICO LIVE online trading platform, which provides clients with seamless multi-market access across regional and international stock markets.

In 2022, SICO took a step further and launched a simplified digital onboarding process for SICO LIVE, empowering customers in Bahrain to open an account using only two IDs and a selfie through an eKYC service by BENEFIT. This move made SICO the first investment bank in the Kingdom of Bahrain to obtain an accreditation certificate from the BENEFIT Company, which facilitates the process of securely registering customers to enjoy SICO LIVE’s online trading services. The eKYC identification service enables SICO LIVE customers to register quicker, more seamlessly, and more securely.

WHERE RISK MEETS OPPORTUNITY

Whatever the obstacles, CME Group provides the tools that global market participants need to manage risk and capture opportunities. With 24-hour access to futures, options, cash and OTC products across all major asset classes, you can drive your trading strategy forward with confidence and precision.

VISIT CMEGROUP.COM/OPPORTUNITY

Sarah Kemp LPGA Player

BOUBYAN CAPITAL Wealth Manager of the Year

Boubyan Capital, which is the investment arm of Boubyan Bank, is a company that specialises in providing wealth management solutions to its clients, primarily in the form of investment funds. The company boasts a dedicated team of 40 professionals with expertise in asset management and brokerage. Boubyan Capital offers a range of solutions that cover diversified asset classes. These solutions include:

Boubyan KD Money Market Fund II: The fund is an Islamic investment fund that generates competitive shariah-compliant returns by investing in short and medium-term money market instruments, wakalah and mudaraba deposits, and high-quality government and corporate sukuk.

Boubyan USD Liquidity Fund: The fund aims to generate shariah-compliant returns with high liquidity by investing in short and medium-term money instruments such as bank deposits, sukuk, deposit certificates, and repurchase agreements.

Boubyan Multi Asset Holding Fund: The fund aims to

QNB FINANCIAL SERVICES

Qatar Broker of the Year

Qatar National Bank Financial Services (QNBFS) had a successful year in 2022, continuing to grow and expand its offerings, while maintaining continuity for its customers during uncertain global economic conditions.

QNBFS has established itself as a top player in the Qatari brokerage industry by addressing the lack of Qatar-specific information and analysis among both local and international investors and offering investment opportunities for local individuals and corporations to diversify their portfolios outside of Qatar.

In 2022, QNBFS had a successful year, remaining a leading institutional Qatari brokerage with a market share of 60% of all domestic and foreign corporate volumes, and over 25% of total QSE market share. The company also achieved the top broker status in Listed Qatari Bonds and organised 150 quarterly earnings calls for major listed Qatari companies, which helped the QSE lead the region in the adoption rate of earnings calls and their transcripts. Additionally, QNBFS developed an initiative called Liquidity Provision (LP) to support locally listed companies and overall market liquidity. The company also expanded its Margin Trading offering and became a leader in the space, upgraded its online trading system for retail investors,

gain shariah-compliant returns by investing in various Islamic funds, diversifying its holdings across different asset classes and sectors such as fixed income and global equity ETFs.

Islamic Global Sukuk Fund: The fund aims to generate long-term positive returns with balanced risk by investing mainly in investment-grade sovereign, quasi-sovereign, and corporate sukuk denominated in USD, from local, GCC, and global markets.

Local and GCC Equity Fund: The fund is a regional equity fund that seeks to generate competitive returns with acceptable risk by investing strategically in bluechip companies listed on Boursa Kuwait and other GCC markets.

Boubyan Capital offers a wide range of investment options to its clients that cater to different investment needs and objectives, and it is committed to providing its clients with a diversified range of Shariah-compliant investment solutions.

and provided insightful and independent research as a core offering. The research team covers over 20 major companies listed on the QSE, in addition to market and sector reports and covering key stocks in GCC. QNBFS is the only broker that covers Qatari equities from Qatar.

QNBFS’s key differentiators include being an agencyonly broker that specialises in trading on behalf of clients. They are known for providing efficient execution for large blocks of stock or thinly traded securities through block trading. QNBFS also can trade multiple markets in multiple currencies. Research is at the core of their offering, providing insightful and independent analysis. They are in close proximity to the companies they cover and have long-established quality institutional relationships.

Qatar National Bank Financial Services (QNBFS) had a successful year in 2022, continuing to grow and expand its offerings, while maintaining continuity for its customers during uncertain global economic conditions.

AL

ARABI

INVESTMENT GROUP

Jordan Broker of the Year • Jordan Asset Manager of the Year

Al Arabi Investment Group Co. (AB Invest) is the investment banking arm of Arab Bank, a well-established financial institution in the region.

AB Invest offers a wide range of services, including brokerage, research, asset management, corporate finance, and private equity. The company is particularly well known as the leading private asset manager in Jordan, managing a significant amount of third-party assets. Additionally, AB Invest has launched several funds that focus on the MENA region and are both conventional and Shariah-compliant, investing across different asset classes.

In 2022, AB Invest’s brokerage division experienced substantial growth, more than doubling its market share in the first eight months of the year. This allowed the company to increase its market share to 8.83% from 3.87% in 2021 and move up the rankings from 7th to 1st among 56 licensed brokers in terms of value traded of listed securities on the Amman Stock Exchange (ASE).

AB Invest is also a leading broker for Jordanians who invest in the MENA region and internationally, in Europe

and the USA. The company, in partnership with Arab Bank, launched e-Tadawul, a digital platform that allows Arab Bank clients to easily access AB Invest’s foreign brokerage services in a paperless manner. Despite the uncertainty and geopolitical risks in 2022, such as the war in Ukraine and rising inflation rates leading to large interest rate hikes by central banks, AB Invest’s Fund achieved a return of 2.23% as of the end of Q3 2022 on a year-to-date basis, which was better than the -2.08% return by the Dow Jones MENA Index and -2.44% return by the S&P Pan Arab Investable Index.

In 2022, AB Invest’s brokerage division experienced substantial growth, more than doubling its market share in the first eight months of the year.

AL DHABI CAPITAL UAE Asset Manager of the Year

Al Dhabi Capital is a reputable investment management company that focuses on managing assets in the Middle East and North Africa (MENA) region.

As of August 2022, the firm has over $500 million in assets under management, including portfolios for UAE, long-only MENA, and MENA dividends. The MENA Equity team has consistently achieved outstanding returns since the portfolio’s establishment in January 2012, with a return of 374.60% compared to the S&P Pan Arab’s return of 149.65%, resulting in a significant outperformance of 224.95%. On an annualised basis, the MENA Longonly Equity Strategy has consistently outperformed the benchmark across all time periods and has delivered high returns compared to its peers. The strategy has delivered consistent returns in the upper quartile and has outperformed the median manager in the MENA Equity universe over the past 10 years. The portfolio has performed well in both up and down markets.

In 2021, Al Dhabi’s MENA equity portfolio performed exceptionally well, returning 51.8% to its investors. Despite global challenges, the team is on track to deliver another

year of strong returns for shareholders in 2022. With more investors turning to MENA equities as a bright spot in a challenging environment, Al Dhabi is well-positioned to assist clients in achieving their investment goals. The firm has a stable and experienced team with a long tenure, and a diverse team of investment professionals with nearly 80 years of combined investment experience and strong academic credentials such as CFA, PhD, MBA, and master’s in finance and economics. The team comprises of both male and female investment professionals from four different nationalities, each with unique specialisations within the MENA markets.

In 2021, Al Dhabi’s MENA equity portfolio performed exceptionally well, returning 51.8% to its investors. Despite global challenges, the team is on track to deliver another year of strong returns for shareholders in 2022.

Bright future

Al Dhabi Capital is a focused and active manager based in Abu Dhabi’s financial centre, specialising in MENA equities. It is a local asset manager which also has a dedicated global long/short fund.

Since inception, it has harnessed its competitive edge by generating consistent returns on its portfolios (MENA Equity strategy has returned 361.04% since inception versus S&P Pan Arab 119.33% and the Global Long/Short Strategy has returned 137.68% versus MSCI World 102.12% during the same time frame*).

The firm’s investment specialists are experienced professionals with strong academic qualifications, whose blend of diverse skillsets and backgrounds enables them to effectively navigate market cycles and deliver exceptional performance for our clients. Al Dhabi Capital’s objective is to deliver longterm value to investors and contribute to the growth and success of the MENA region as an asset allocator.

Nabil Sleiman (pictured above), Chief Investment Officer at Al Dhabi Capital, caught up with Global Investor to discuss some of the main trends in the region.

Can you discuss the current state and potential growth prospects for MENA equities, specifically in the GCC region?

We believe the MENA region is entering a period of unprecedented growth, both for the real economy and capital markets. We are bullish on energy prices, particularly the outlook for oil, given the long period of lack of

capex, a recovery in demand coming from India and China, Russian sanctions, and low inventories. On average, a US$70 barrel of oil can continue to support the capex boom cycle for Saudi Arabia and the UAE. We are also very constructive on the real economies in the GCC such as Saudi Arabia, where a capex boom is happening as the country leverages its investment prowess to create a more diverse and sustainable economy. Saudi Arabia is also pursuing initiatives to increase tourism to 10% of their GDP*, and has huge ambitions to increase female participation in the work force (currently at 37%)** which has a positive impact on productivity and bringing new talent to the economy.

Reforms will also have a positive impact. For instance, the Golden visa initiative in the UAE aims to attract long term foreign talent – this could translate into consumption as foreigners buy houses, invest in their children’s education and look to make the Middle East their second home. Similarly Saudi Arabia is targeting an increase of their population from the current 36 million to 50-60 million by 2030***, with half being expats. These positive drivers for economic growth translate into positive returns for specific names in the local stock markets.

What are the benefits and risks of investing in global long/short funds?

A global long/short fund can invest across sectors and countries and can benefit from market upturns as well as downturns. By going short during market downturns, a global long/short fund can make profits even during market downcycles. Its ability to diversify across sectors and geographies also protects it from single sector/market risk. Our global long/short strategy uses a combination of top/down and bottom/ up approaches. From a top-down perspective, the team selects their preferred and less preferred sectors and geographies every year and then from a bottomup perspective look for the best single names to represents these sectors and geographies, both on the long and short sides. The fund has cumulatively outperformed the MSCI ACWI Index since 2012****.

Why do you believe active management is suitable for investing in MENA equities and what opportunities does the current IPO market within MENA present for local fund managers? GCC markets are still inefficient and illiquid compared to developed markets such as US and Europe,

particularly during this period of tight liquidity which creates dislocation. Accessing the market through an established team of experienced MENA investment specialists who have in-depth knowledge of the market and listed companies can help investors meet their investment objectives. There is a huge drive in the GCC to optimise capital markets, and the flurry of recent IPO activity is attracting both domestic and foreign capital. As more companies decide to float, it provides greater opportunities to invest in many sectors within the GCC that were previously inaccessible to investors. As more companies decide to list, the closer investors get to the real economies of the GCC and take part in the growth story. As investment increases, this will impact the weight of the GCC in emerging market indices. Currently the region is still a heavy underweight in the emerging market space, therefore there is huge scope for growth.

How do you see the growth trend of MENA companies continuing? How can Al Dhabi Capital capitalise on this growth?

The prospects for listed GCC companies are bright in the immediate future, with oil prices sustaining levels which are comfortable for the fiscal health of the region. The current state of transition for oil-producing nations is both critical and fertile with opportunities. At Al Dhabi Capital, we intend to capitalise on this opportunity by investing in firms that stand to benefit from this rising tide of liquidity, government

reforms, and measures to enable economic diversification (away from hydrocarbons).

What is Al Dhabi Capital strategy to success?

Our approach is consistent and disciplined using rigorous top/ down and bottom/up stock selection, combined with precise risk management. We perform indepth industry analysis and quality research to identify well-managed companies that can generate attractive returns on invested capital along with sustainable growth in cash flows and earnings. We invest in companies where we see intrinsic value but have the flexibility to be opportunistic where we spot market inefficiencies leading to price anomalies.

Can you highlight any plans and initiatives to develop Abu Dhabi as a finance centre and attract more investments to the region?

We are very proud to be based in Abu Dhabi, which continues to grow as an exciting leading financial hub and business centre and is attracting a wealth of new companies and talent to relocate their offices to the ADGM (Abu Dhabi Global Market).

Abu Dhabi’s sovereign wealth funds deployment of capital in both local and international projects combined with the role of Abu Dhabi’s financial centre will continue to attract investment to the region.

*Source: Vision2030.gov.sa

**Al Arabiya News,10/01/2023

***www.argaam.com,26/01/2023

Source: Bloomberg, Al Dhabi Capital Global Fund SI Returns 137.68 versus MSCI World 102.12%.

Nabil Sleiman, Chief Investment Officer, Al Dhabi Capital

Nabil is a co-founder of Al Dhabi Capital. Previously he was Chief Investment Officer at Al Dhabi Investment PJSC. He has over 35 years of experience in the hedge fund industry. Before joining Al Dhabi Investment PJSC, he was Chief Investment Officer of SFG Asset Advisors in San Francisco, US. He also held portfolio management positions at Manning & Napier Advisors and at the Abu Dhabi Investment Authority.

Nabil holds a CFA charter and has PhD in International Studies from the Josef Korbel School of International Studies, University of Denver in the US, and an MBA in Finance as well as a Master’s degree in International Management from the Daniels College of Business at the same university.

He is a member of the Security Analysts of San Francisco. Nabil is a Board member and a member of the Investment Committee at Emirates Insurance.

We invest in companies where we see intrinsic value but have the flexibility to be opportunistic where we spot market inefficiencies leading to price anomalies

Oman Asset Manager of the Year

The Bank Muscat Oryx Fund is a flagship offering for both retail and institutional investors. The fund, which is focused on the MENA region, has a strong performance history, having delivered a 35.3% return in 2021 compared to a gain of 31.4% in the regional benchmark index during the same period.

The fund is the top performing MENA-focused fund among its peers, which includes 17 funds, and has outperformed the average competitor by 1.2x over the past 10 years. This success is due to a disciplined and dynamic approach to investing in regional markets that prioritises long-term value over short-term gains. The fund has received multiple awards for its outstanding performance, such as the Refinitiv Lipper Fund award for the best performing MENA fund over 3 and 5 year periods

in 2020.

Bank Muscat’s Asset Management division (AMD) is a highly reputable asset manager in the MENA region, with assets under management of around $2.5 billion as of September 30th, 2022. The division has a strong track record of managing funds and portfolios since 1993 and offers a wide range of investment options including equities, fixed income, real estate, and alternative investment classes. The success of the bank’s AMD is due to the skilled team of fund managers and their solid performance.

Bank Muscat’s customer base includes reputable Omani and regional institutional investors, such as pension funds, sovereign wealth funds, corporations, and high net worth individuals/family offices.

Kuwait Asset Manager of the Year

Investment manager NBK Capital, part of the National Bank of Kuwait, won the Kuwait Asset Manager award. It has highlighted the team’s ‘in-depth knowledge of local and regional markets, strong research capabilities, and disciplined investment strategy [enabling] it to be among the top asset managers in Kuwait and the MENA region’. The firm, which also has a presence in Dubai, Istanbul and Cairo, had USD7.8 billion in global and regional assets

Kuwait Wealth Manager of the Year

Kuwait Financial Centre (Markaz) received the Kuwait Wealth Manager award in Global Investor’s 2022 MENA awards, testament its strong track record as one of the leading asset management and investment banking institutions in the Arab region.

The firm, founded in 1974, had assets under management of USD 3.78 Billion as of June 2022. It manages a range of funds, which invest in both Kuwaiti and GCC equities, fixed income and real estate, as well as Shariah-compliant instruments. Its wealth management business provides local, regional and global asset allocation across five asset classes: equities, fixed income, currencies, commodities, and real estate.

Markaz highlights the development of new investment products as a key to its success. It recently launched new

under managements as of December 2022.

NBK Capital manages four equity mutual funds as well as separately managed accounts investing in regional and global equity fixed income instruments.

The firm’s NBK Kuwait Equity Fund invests primarily in Kuwaiti domiciled and listed equities, and its performance is measured against the S&P Kuwait Custom Index benchmark.

focused strategy mandates: the ‘Opportunistic Portfolio,’ which invests in stocks that address certain market themes and trends to deliver a higher level of absolute returns, and the ‘Dividend-Yield Portfolio,’ focusing on companies that have sustainable dividend growth strategy.

The firm prides itself on helping ‘widen investors’ horizons’.

Its wealth management business provides local, regional and global asset allocation across five asset classes: equities, fixed income, currencies, commodities, and real estate.

BANK MUSCAT

NBK CAPITAL

KUWAIT FINANCIAL CENTRE K.P.S.C. (MARKAZ)

A Day in the Life…

As long as you continue to tap into those things that drive you, you will find the excitement

Halima Butt

Global Investor Group is proud to introduce a new feature in our quarterly magazine: “A day in the life of…”, where we shine a spotlight on inspirational women and trailblazers in the financial industry with the hope to further break barriers and crush glass ceilings. For our first feature, we have spoken to Halima Butt, Chief Operating Officer (COO) at fast-growing New York-based fintech broker-dealer Provable Markets, and winner of the 2022 Markets Media U.S. Women in Finance Award for Excellence in Fintech.

Halima Butt is widely recognised for her impressive career in the financial industry across Europe and the US, and is known to be a strong advocate for women in the industry, especially for those in minority groups and for those who come from less privileged backgrounds.

When did you start working in finance and what was your idea of the industry at the time compared to how it is now?

From a very young age, I was fascinated with financial markets. I was drawn to the seemingly endless possibility to design and control your own future at a fast pace, and in an intellectually stimulating environment. I thought that was incredibly exciting, and that the energy was intoxicating.

I had worked a back-office job at ING Bank in the summer of 2005 and thought “Yes! I like this!” But when I got my first real job in liquidity management at ABN AMRO Bank, fresh out of college the following year, I was not impressed. I found myself slightly shell shocked by my first glance inside the machine and realising that a lot of what goes on is very outdated and lacking both the drive and the leadership for innovation. I quickly became

bored, and it didn’t take me long to find myself a job on the trading floor. This is where I was fortunate enough to meet my first real mentor and advocate, who helped me tap into my natural drive for change and advancement, whilst maintaining a high level of integrity and a laser focus attention to detail and structure.

Up until this very day, I still work according to the foundational principles that he taught me during that time, with the most important lesson being that this industry, like any other, is only as exciting as you make it. As long as you continue to tap into those things that drive you, you will find the excitement. For me, things that excite are ‘growth’ and ‘advancement’, but also ‘structure’, ‘collaboration’ and ‘ethics’, and it just so happens that the financial industry is at this pivotal moment right now, where widespread technological innovation has created new business

opportunities across a broader group of market participants, to a point where there is greater need for more industry alignment and pragmatism in order to collectively level-up.

What changes have you noticed – if any – in work/office/client relationships?

The biggest (and very welcome) shift that I have experienced in the financial industry is in the underlying cultural dynamic. As a young female in the industry, I certainly encountered and witnessed numerous situations that nowadays would not be tolerated for even a split second. Gender biases, social stigmas, bullying and harassment in the workplace have thankfully become prominent subjects within the boardroom and beyond, and an increasing number of people are willing to stand up for themselves and for others. Now, more than ever, there is an almost relentless focus on diversity, inclusion and humanity in the workforce. Being a bully is not cool and it doesn’t pay off – not for yourself, not for others and not for the company.

How do you maintain a healthy work/life as an executive?

Maintaining a balanced lifestyle is non-negotiable for me. If I don’t do this, both my happiness and cognitive functioning (and thus my presence in my work and personal life) severely diminish. Like a lot of other people, this is something I have become more aware and accepting of during COVID. Maintaining this balance naturally requires a bit of planning and structure in the sense that I try to be incredibly clear on what my goals and objectives are on

From a very young age, I was fascinated with financial markets. I was drawn to the seemingly endless possibility to design and control your own future at a fast pace, and in an intellectually stimulating environment.

any given day, I maintain a regular work and sleep schedule, and I prioritise my physical and mental well-being over anything else. Over the years I have also learned how to be a lot more forgiving towards myself and to recognise that sometimes I just have an off-day and that this is totally fine.

You are part of the WISF group, what motivated you to become a member and how has this initiative been beneficial for the industry?

The Women in Securities Finance (WISF) Group is an exceptionally wellorganised, strong and inspirational network of people (women and men), who strive for more equality and diversity in the workforce. I was driven to become a member of WISF at the recommendation of several men in the securities finance industry who were inspired by the level of

engagement and education that this group had provided. As soon as I applied for membership, I received an incredibly warm welcoming email from the founding members and global chairs: Elaina Kim Benfield, Arianne Collette and Jill Rathgeber. The level of honest, vulnerable, and pragmatic support that this group has provided to me and other women in the industry in general is unlike any female in finance association I have ever been a part of. I am beyond excited to see what else this group is capable of.

What advice would you give to new joiners from minority groups?

It is difficult to give generic advice on specific work principles, because everyone is different, with different backgrounds, interests, brain chemistry, etc. However, three core principles that I have learned

throughout my life and career, and that may be worth sharing in this context, are:

1. Be ruthlessly self-aware; try to spend as much time as you possibly can to figure out who you are, what sets you apart, what drives you, and what drains you, and try to steer clear of the latter.

2. Trust your intuition above anything else but learn to differentiate between what is your gut, and what is your ego (which includes your insecurities).

3. Never let the labels, judgements or stigmatisation of others define who you are and what you are capable of. You define who you are, and you determine your own success.

What is 2023 looking like for you?

2023 is going to be an incredible year! We have a number of exciting developments coming up with Provable Markets, and it is a true joy to be working with such an amazing, and brilliant group of human beings. More broadly speaking, I am looking forward to seeing the securities lending industry, as a collective, picking up steam in defining new standards for operational efficiency, and market structure. On a more personal level, my focus will continue to be on supporting women in the financial industry, and particularly those in minority groups and those who come from less privileged backgrounds with the hope of shining a brighter light on these communities in the near future.

On a more personal level, my focus will continue to be on supporting women in the financial industry, and particularly those in minority groups and those who come from less privileged backgrounds

I was driven to become a member of WISF at the recommendation of several men in the securities finance industry who were inspired by the level of engagement and education that this group had provided

Securities Lending - bad for share prices and fund performance?

By Travis Whitmore, Senior Quantitative

“To lend or not to lend” has been a question regularly debated in the financial community since securities lending gained traction in the early 1970s. There is no doubt that participating in securities lending programs is a way to generate additional revenue for asset managers, the debate on the subject is about whether short-selling contributes to or facilitates price declines of underlying holdings at the detriment of overall fund performance. In fact, many would also ask the question: If an asset manager holds a long position in a stock, why would they lend their holdings to eventually enable short selling which could be counterproductive to long-term creation of value?

Short-selling, which is facilitated by securities lending, has earned a bad name in the public media especially during financial downturns1 . To evaluate whether securities lending has a negative impact on share prices (and fund performance), we wanted to take a purely objective and evidencebased approach. While lending supply can affect the level of short-selling demand and vice versa, it is critical to isolate the effect of short-selling demand from lending supply when studying the impact of securities

lending on stock prices.

Over the past few decades, numerous academic studies have used a wide range of methodologies, rigorous quantitative approaches and differentiated datasets to address this question. Having analysed more than 20 studies on the topic published in high quality peer-reviewed journals, the evidence is clear in that securities lending is not detrimental to asset prices and plays a critical role in improving market efficiency and providing liquidity.

It is true that research suggests high levels of lending utilisation predict negative returns or share price declines. However, when we took a closer examination of the evidence available, we found that while shorting demand is an important bearish signal and may anticipate negative earnings surprises or analyst downgrades, lending supply is not the cause of stock price declines. In fact, the empirical evidence suggests that supply-constrained stocks tend to underperform those with higher levels of supply on a forward-looking basis.

One of the studies in our analysis was a live controlled and randomised experiment during a volatile period in 2008, and the experiment was repeated when markets stabilised in 2009.

Conducted by academia in partnership with an asset manager, a significant supply shock was artificially induced to significantly reduce loan fees and increase quantities on loan for stocks. However, there was no detectable adverse effects on security prices. This demonstrated that the supply withheld and later released in the study resulted in significant changes in loan fees but had a negligible effect on security prices.

More recent, market-wide studies pointed out that a lack of lending supply may lead to certain stocks in the hard-to-borrow universe (or “special stocks”) to be overvalued as they are hard to short, which resulted in disappointing future quarterly returns. A study (published in 2015) on the US equity market over a ten-year period found that “special stocks” with higher lending supply outperform those with lower supply.

Given that the empirical evidence suggests securities lending is not detrimental to stock prices, it should come as no surprise that studies have found funds who engage in lending outperform their peers.

1 Most recent example was the short selling bans regulators imposed across Asia and Europe during the COVID-19 market downturn in 2020.

Researcher at State Street Associates, State Street’s research think tank, and Christian Schuetze, Head of Financing Solutions, Europe, State Street Global Markets.

2023 - the year Liquidity Risk Management focuses on collateral squeeze

By Jo Burnham, risk and margining SME at OpenGamma.

consider moving some business to clearing. In addition, new participants are likely to be brought into scope as they breach the related Average Aggregate Notional Amount thresholds.

There is no sign that the current volatility will abate. War is still raging in Ukraine, China is only just starting its exit from Covid restrictions and inflation continues to be an issue across the world. Which means that margins will continue to be higher putting further pressure on available liquidity.

CCPs

2023 is likely to see a real focus on the collateral squeeze. There are many factors that will be making it harder to source the collateral needed to cover margin requirements.

The EU pension fund exemption will expire in 2023, meaning they will be subject to clearing obligations and therefore needing to post margin. In addition, phase 6 of the Uncleared Margin Rules (UMR) will begin to take effect. The slow build up towards the regulatory threshold will continue, with more margin needing to be posted. At this point participants may

There is expected to be a continued growth in clearing. Central counterparties (CCPs) are expecting firms who are now paying margin under UMR to look to see if they can reduce their requirements by moving to clearing. This is a distinct possibility given the difference in holding period assumed for over-the-counter versus cleared trades.

The expiry of the European pension fund exemption could also see increased flows towards clearing. This could be the push required for Repo clearing to take off. The solutions have been in place for a long time, but 2023 could be the year when they start

attracting business in the same way as swap clearing.

2023 could also be the year for FX clearing. Many CCPs are promoting their services, including introducing new products to cover a larger range of the OTC market. They are also highlighting the potential benefits of clearing, in particular the higher efficiency that CCP margin algorithms provide compared to Standard Initial Margin Model requirements.

The pressure on funding costs, particularly with the predicted increase in interest rates, could also see participants making use of the cross-margin services provided by the CCPs. To date, the costs and process changes associated with combining exchange traded derivatives and OTCcleared business have been considered too high compared with the margin benefits of combining them under a single margin algorithm. However, the balance has now swung in favour of these facilities.

2023 will also see more CCP moves from Standard Portfolio Analysis of Risk (SPAN) to Value-at-Risk (VaR) based methodologies. Firms will benefit from the more efficient margin calculations, but the analytics required to replicate the margin calculations

There is no sign that the current volatility will abate. War is still raging in Ukraine, China is only just starting its exit from Covid restrictions and inflation continues to be an issue across the world. Which means that margins will continue to be higher putting further pressure on available liquidity

and provide additional functionality, such as forecast, will become more complex.

Solutions

Liquidity management is going to become more important, and this is going to require solutions that can support it.

Capacity management and limit monitoring are going to be key areas of functionality. Firms recently captured by phase 6 of UMR are using tools to help stay below the threshold and prevent the need for exchanging collateral.

Brokers will need to consider how they allocate limits in view of regulatory thresholds and capital constraints. More sophisticated allocation may be needed, for example based on portfolio level margin impact. And that will require brokers to provide tools to clients, improving visibility on limits and certainty of trade acceptance.

Continued volatility will result in more intra-day margin calls, and it’s to be expected that brokers will pass even more of these directly onto clients. This focus on intra-day means that all market participants are going to require sufficient liquidity to meet these margin calls - and that will need analytics that allows the optimum level to be assessed.

The cost of funding is already high, and it is expected to increase further over the next year. This makes it even more important that firms are able to minimise their requirements. This will have an impact on the technology required, from more automation, to ever more complex analytics and pretrade optimisation.

Collateral optimisation will also become more important. There are moves to increase the range of eligible collateral, especially by some of the larger CCPs. The way that collateral is exchanged is also potentially going to change, with more digitised or tokenised collateral being available. Treasury solutions will need to become more automated and include

the ability to determine cheapest collateral in a given situation.

With increasing margin and liquidity related costs, firms are going to be looking to make savings elsewhere. This is likely to lead to a rise in the adoption of managed service models, with the best providers looking to include additional functionality, including margin analytics, within their solutions.

Conclusion

Capital efficiency and liquidity risk management are key themes that need to be on everybody’s radar when planning for 2023.

Increasing interest rates and persistent market volatility will result in higher levels of margin being called at higher funding costs.

On the regulatory front, in-scope UMR phase 6 firms continue to use up their regulatory thresholds and some will find themselves needing to post initial margin for the first time fairly soon. The EU pension fund clearing exemption rules are also set to expire in June 2023 adding to the collateral liquidity challenges real money managers will need to solve for.

In response to various market shaking events that have unfolded this year, we are likely to see a big year for CCPs, with a greater emphasis on the role that clearing can play in the repo, FX and crypto derivative markets.

Ultimately, firms will need to invest in capital and liquidity risk management solutions as a means to build in organisational resilience while minimising the cost of trading.

Capital efficiency and liquidity risk management are key themes that need to be on everybody’s radar when planning for 2023

European regulation is set this year to increase the collateral pressure on trading firms

Societe Generale Securities Services doubles down on digitalisation and outsourcing

By Luke Jeffs

Societe Generale’s custody and fund administration business had a strong year in 2022 despite significant economic headwinds. Societe Generale Securities Services reported revenue up 3.9% in the third quarter to €161m (£141m) while revenue for the first nine months of the year rose 17.3% to €575m.

This revenue growth came despite the French firm’s assets under custody falling 4% in the first nine months to €4.275bn, Societe Generale said in its third quarter earnings.

The increased revenue despite falling assets under custody partly reflects SGSS’ commitment to digital services that draw on state-of-the-art technologies to empower clients.

David Abitbol, the head of Societe Generale Securities Services, said the recent success also relates to the company’s geographic focus, on Europe, specifically France, Italy, Luxembourg, Ireland and Germany, and Africa. In terms of clients, SGSS targets asset managers, asset owners, financial intermediaries and brokerdealers, Abitbol said.

More recently, SGSS has been working hard, Abitbol told Global Investor, to support alternative asset managers such as private equity and debt specialists.

He said: “We have seen strong growth over the last few years and this has continued into 2022, reflecting the comprehensive range of solutions that we have built for these alternative asset managers and private market funds. Here, we have also developed advanced middle office services, which allows these firms to outsource part of their operations.”

Asset managers, asset owners and financial firms outsourcing functions to their custodians has been a slow burn in Europe compared to the US but this opportunity is now emerging as clients become more comfortable with digital services and firms like SGSS get better at delivering them.

Abitbol said: “The trend for some years now has been towards more digital solutions, which accelerated through Covid, and outsourcing solutions, as our asset management clients come under strong pressure from clients and regulators. This has led them to look for solutions to improve their own profitability.”

The SGSS chief said its outsourcing services have focused on reducing operating costs and taking care of commoditised functions in the middle and back offices to leave investment managers to focus on what they are good at, that is, investing.

“For some medium sized clients, we have been developing front-to-

back solutions, starting from agency execution to portfolio management, trade matching, middle office solutions and so on,” he said.

“Clients are looking for more digital solutions to improve their time-tomarket and efficiency. On our side, we are addressing this growing demand and expectations through large investments on technology and data and a profound change in the way we offer our service and how we interact with our clients.”

Abitbol said he is keen to address one area where the custody industry has historically been poor. “One of the most challenging areas is onboarding, especially when clients are coming from other providers, and this is something we have been focusing on, mainly to improve the time and efficiency to enhance the client experience.”

The SGSS boss said European has been slower to adopt these models than their US counterparts because Europe is simply a more complex environment in which to operate.

“For our industry, the situations in the US and Europe are very different. The US has quite homogenous regulation, whereas in Europe it is still very fragmented with different market practices and regulations. This can make the core service and further outsourcing options a different proposition to the US.”

The trend for some years now has been towards more digital solutions, which accelerated through Covid, and outsourcing solutions, as our asset management clients come under strong pressure from clients and regulators.

He continued: “That said, I believe the requirements are there and it is up to the asset servicer to offer something that is more efficient, secure, and costeffective. Digitalisation will accelerate this trend by making outsourcing far easier.”

A potentially powerful technology, of course, is distributed ledger and this is being rolled out in various industry projects to address some of the challenges that SGSS and its clients face every day.

For SGSS, blockchain is part of its global digital asset strategy, Abitbol said: “Societe Generale group has a global approach when it comes to crypto assets. One brick of our offer is in place with our subsidiary, SG Forge, a pioneer in the issuance of crypto assets.

“The latest move has been to develop the crypto custody offer through a partnership. At Societe Generale Securities Services, we are developing the record-keeping service for crypto assets, and we have already onboarded one client, Arquant Capital SAS.”

The crypto assets industry took a massive reputational hit late last year with the collapse of US crypto market FTX, an event that only served to affirm most institutional investors’ innate scepticism about the new asset class.

But Abitbol said: “We are convinced that crypto assets will expand in the coming years and when you look at the pace of the development and the size of the traditional asset management market, we need to ensure that we are offering our clients the access and a bridge between both worlds.”

Events of the past 12 months, including the effects of the Russian invasion of Ukraine on the European energy market, have also posed some interesting questions for the stillevolving ESG market.

But Abitbol is convinced the drive to more sustainable investing is a longterm trend.

“Regulation is urging the industry to work on a common taxonomy, so I don’t see a lot of flexibility in not complying with that. I believe that over

time clients will move more and more to ESG types of investments.”

But ESG does have a problem with standards and definitions, Abitbol explained. “When you look across Europe, the ESG criteria differs from one country or asset manager to another, and this criterion depends on the local regulation and client expectations towards investment. It is already the case that ESG doesn’t have a homogenous and single target, the regulation is for everybody.”

Here again custodians like SGSS

have a role to play. The SGSS head concluded: “Data is now a key driver for business growth, but it is not yet as well developed as it should. Hence why we have the ambition to further improve the offer for normalised data with the quality that is required for regulatory and client reporting to capture more services and to strengthen the business relationship.”

Abitbol added: “ESG is part of that, but data more generally is key in further developing services for better client satisfaction.”

Abitbol: At Societe Generale Securities Services, we are developing the record-keeping service for crypto assets, and we have already onboarded one client, Arquant Capital SAS

RBC I&TS tracks trends in private equity investing

“We wear a double hat - one is business development and the second is relationship management,” Fischer says.

His team covers the alternative investment fund manager space, and his portfolio is based on European, North American and a bit of Asian asset managers, focusing on real estate, private equity, infrastructure and private debt. Fischer has been with RBC for almost 16 years.

Could you share with our audience some of the specific areas within the tech space that private equity firms have been interested in investing in? How has this translated in terms of deal flow and deal value over the past few years?

Fischer reflects to a decade ago when some experts were predicting that software and technology would become the dominant sector. Those predictions have materialised, to some extent, with examples such as Amazon, Booking. com, Uber, Airbnb, Facebook, Netflix, even Tinder having disrupted our everyday life.

“Smartphones, online references sites and encyclopaedias did the same

with our access to technology,” he says. “Again, if you think about corporates today, I think it will be very difficult for somebody to go into the office and be able to work without using some of the leading software companies like Microsoft, Cisco, Salesforce, Zoom or SAP Concur.”

“Without these, I don’t think we would be able to spend a day efficiently at work. Technology changes the way we are, we live and work.”

Moving the focus towards the investment areas, Fischer says there is no clear market when it comes to technology investment but comes up with 10 main themes. The first one is AI (artificial intelligence), the second is blockchain, followed by cloud, cybersecurity, Internet of Things, Metaverse, robotics, self-driving, software, and 3D printing.

“If we look at some of the studies published in the market, there was a very good one from Bain & Company in March 2022 which showcased that private equity-led technology deals totalled US$284 billion in 2021, corresponding to 25% of total buyout value and 31% of deal count, making it the biggest sector in the industry’s overall portfolio,” he says. “Technology is a

key investment theme. If you deep dive into technology, out of the 10 sectors I mentioned before, the dominant one is software. Some US$256 billion out of the US$284 billion private equity-led technology investments I just mentioned was for software alone - 90% of the investments.”

“If you look at it from an asset manager standpoint, I think there is growing interest - many asset managers are looking to get a technology fund,” says Fischer. “If we are talking about specialised asset managers like Thoma Bravo, Vista Equity, Silver Lake, or even the multi-sector ones like Blackstone, Bain, KKR or the Rothschilds of this world, everybody has had a technology fund over the past five years.”

There has been a clear push from the market to go into technology investment.

Why are those sectors of specific interest to private equity managers - what challenges or questions do they tackle in practice?

Fischer believes that private equity (PE) asset managers want to “go back to basics”. He says that money and

Mickael Fischer, Director of Client Coverage at RBC Investor & Treasury Services (RBC I&TS), talked to Amélie Labbé, Managing Director at Global Investor/ISF in an exclusive interview about how technology is reshaping private equity, investing and operations.

returns are what PE asset managers are looking for.

“If they’re able to find the so-called 2.5x multiples, this is an area where they will invest in. I think software investment has been good in that sense,” he says. “Disruption is key here. If you are investing in a disruptive company, a company which can modify people’s habits or behaviours and is widely accepted, you will have potentially great returns - again 2.5x or greater - which is why PE asset manager houses have focused on technology.”

“Another example is Tesla. When Elon Musk initially entered the relationship and became a shareholder, he only put $6.5 million on the table back in 2004. The Tesla shares were introduced in June 2010, at $17, with a peak at $300 this year. Now, of course, we can say 2022 was a downturn year for the technology sector though we’re facing a slowdown in the economy more generally. However, $6.5 million was on the table initially, with shares at $17 and at some point, they reached $300. It’s better than my 2.5% multiple. Return is a key element.”

Apart from returns, Fischer says there is a need to look at the characteristics of the technology deals, and how they match to some of the key criteria PE asset managers look for in an investment: a secure, stable and cashflow consistent investment.

During the recent pandemic, when people were stuck at home and certain business models were impacted due to supply chain or other COVID-related difficulties, software companies managed to weather the storm, because they were providing stability in a global market with little assurance.

“Software is a key theme because of the safe, stable and predictable revenue. We are often speaking about a subscription-based fee. It’s recurring, it’s not a one-off where you go to the shop, you buy and then don’t come back. There is an annual feature, which is key for some of the

PE houses, as it shows stable and consistent cashflows,” says Fischer.

What you said is interesting because from a general perspective, every sector you have mentioned including software has a common thread: how they store, manage, process, and disseminate data. How do you think private equity managers are responding to increasing investor demands about timeliness of the delivery of this information and the quality of that data?

Fischer says that, as an asset servicer, they are seeing more queries come in.

“PE asset managers may have been too kind with their limited partners [LPs] and have agreed to provide a lot of tailormade reporting which can turn out to be very time-consuming and complicated. I think asset managers have realised that too personalised and specific reporting is not only time-consuming but it’s also difficult to produce as you need to identify, extract, clean, analyse the data, build the reporting and send it within the agreed timeline. All these tasks come with a price tag. However, if you’re spending too much time to get there, you’re losing money. That’s why more and more PE asset managers are turning to their asset servicers to see how they can assist,” he tells Global Investor/ISF.

“I’m also seeing a clear trend towards the development of investor portals: you let the LP take care of sourcing the reporting and play with the data. For example, in your LPA (limited partnership agreement), if your quarterly reporting needs to be done 15 days after quarter end, you will put everything into your investor portal, where each investor will then get access to the reporting. You can even add a lot of reports for them to search, for any specific information they need, maybe provide some data analytics tools for them to play with the data, do the work themselves

because they know what they want. Only in case a LP is not able to find the appropriate data, it will come back to the asset manager for further information and support.”

This plays into the theme of the investor being savvier, not only on the data side, but more generally. How are managers adapting their own infrastructure, network systems to this growing savviness, or sophistication within their investors?

Fischer believes it’s one of the paradoxes of the subject being discussed.

“While there is a push really from PE asset managers to do tech investments on behalf of the fund they are managing, some of them are still operating with pretty outdated technology,” he says. “It’s pretty funny because they’re investing heavily in technology for their LPs. But are they doing that for themselves? Not sure.”

“I think we all see endless manual input in spreadsheets, databases on different systems that can lead to an experience for firms that is far from optimal. I think the leaders within the PE house are really focusing on their internal solutions to help their staff be quicker, more efficient towards the LP. Again, PE houses are competing against each other. Blackrock is competing with KKR, which is competing with Rothschild & Co.”

“You need to give your staff the modern experience and the tools to be able to deliver what you promise to your LPs. Again, within RBC or even within some of my clients’ companies, I’ve also seen the development of mobile applications for the staff, so not only for the LP. Some may argue that this makes you work a bit more, but mobile ready applications, strong analytics, reporting and communication tools are key. We have all been working under COVID so we know Microsoft Teams, Zoom and WebEx by heart.”

He points out that staff should be

provided with the means to achieve the goals towards the LP.

“It’s not only the investment you’re doing on behalf of the funds, it’s the investment in your staff and within your company.”

A less discussed topicdistributed ledger, Blockchain - has seen some initiatives, but they are still small scale. What needs to be done specifically for those areas to become more attractive investment opportunities?

Fischer refocuses on the unstoppable growth that the tech industry has enjoyed over the past five to 10 years. He fast forwards to 2022, where the global economy slowed down. Tech companies of all magnitudes laid off staff due to inflation, rising interest rates and lower sales which added pressure on the financial outlook and on their capabilities.

“When the market is going down, you need to go back to basics: what

is the most important item? Trust. I think the difficulty for new, ‘emerging technologies’ like crypto, digital assets and, as you mentioned, DLT, has been a lack of trust.”

“I was reading a study from Ernst & Young from March 2022. It showed that only 3% of larger managers are investing in crypto-related or digital assets. So, very limited penetration. I think the managers were a little uneasy because of the volatility of the asset class alongside the absence of corporate regulation and price fundamentals.”

“If you take a step back and look at what happened recently with the spectacular collapse of FTX, that won’t necessarily improve the feeling of some asset managers because that big cryptocurrency action platform wiped out millions of people’s investments and dealt a massive blow to trust in cryptocurrency. Trust will take time to be rebuild and make private equity investors and asset managers go back into the asset class.”

“For the ones that are already

investing there, I think we should not throw the baby out with the bath water. I think FTX was an issue, and the market managed the issue by itself. But I think distributed ledger technology (DLT) can still help. I’m far from being a DLT specialist but the way I’m seeing that and what I’ve been told by some of my colleagues either within RBC or by peers in the market, is that these solutions can offer greater transparency, easier auditability, more speed and efficiencies, cost reductions and automation. Why should we not give it a try?”

“If we want a solution that can help us do business faster and with more accuracy, we should jump into it. This is also why PE houses may come back. For the ones that are currently suffering, they may come back and keep on investing in a technology that is not super mature. Cryptocurrency and DLT: how long have we been speaking about that? Not that much: 10 or 15 years which is not that much from a macro perspective and compared to the generic investment themes.”

Amelie Labbe, Global Investor, Mickael Fischer, Director of Client Coverage at RBC Investor & Treasury Services (RBC I&TS). Video also available by following the link to the digital magazine at www.globalinvestorgroup.com

T+1: looking back to determine the future of settlement

Looking at the road to T+1, Philip Slavin, CEO of Taskize, delves into some of the historical challenges the industry has faced to get to this point.

towards the adoption of T+2 did not happen until last decade – with the UK adopting in 2014, and the US following suit three years later.

Fast forward to today, and the move to T+1 is currently due to go live in March 2024. However, given the fact that it took hundreds of years for settlement cycles to shorten, history is against T+1 happening by this date. Some may point to how, for instance, India has started to make a shift to T+1.

The Asia asset manager in question will not be receiving the order fill until the following day (Asia time). In essence, this means that an entire day has been lost. The investment firm would have sent the order in, got the fills back, but they would then have to allocate the fills to the relevant funds. All this before then starting to match the trade before ultimately settling the trade.

Sometimes, it is good to look back to see what the future may hold. Nowhere is this more the case than with the shift to T+1. Back in the 1700s, the Dutch Stock Exchange and the London Stock Exchange were almost brothers in arms – often listing each other’s stocks.

When it came to clearing each other’s stocks, time was needed to get hold of a physical copy of a stock certificate or cash to move from Amsterdam to London and back. Hard to believe given how far the markets have come, but this led to a staggering industry standard settlement time of 14 days which was the time it usually took for a courier to make the journey by ship, and sometimes horseback.

Even harder to believe is that this settlement model, at least between the UK and Holland, lasted for hundreds of years. It took the not so small matter of a stock market crash in 1987, infamously dubbed Black Monday, for settlement times across most global exchanges to significantly reduce. In fact, the move by most stock exchanges

This is all well and good but, unlike the global nature of the US markets, the vast majority of trading in India is domestic. Financial institutions may be able to shorten batch cycles, shorten cut off times, even throw more bodies at a trade dispute, but they can’t do anything about the time difference between the US, Europe and Asia. Therefore, the ability to get tasks done quicker is not just about efficiency in the local market, it is the fact that time waits for nobody while clock ticks, and there is a time zone issue that has to be addressed.

As a prime case in point, take the example of an Asian asset manager placing an order at the end of the trading day for a basket of US stocks needing to be filled at the end of the US day.

Time waits for no financial institution. Reducing breaks and improving straight through processing (STP) has to be the primary objective. The problem is the amount of time and effort the settlement process takes –especially when using inefficient forms of communication like email or phone.

The continued use of these antiquated methods of communication, which are the modern equivalent of sending a securities certificate by ship or horseback, significantly increases the chances of firms failing to make T+1.

Even the adoption of more modern forms of communication, such as chatbots, will not make a drastic difference. To seek out real efficiencies, there is a need for a specific tailored and integrated workflow that is designed to help firms manage and accelerate collaboration across operations teams.

Time waits for no financial institution. Reducing breaks and improving straight through processing (STP) has to be the primary objective. The problem is the amount of time and effort the settlement process takes – especially when using inefficient forms of communication like email or phone

What is ‘AUM & Flow’ data and why does it matter?

By Mark Simpson, Richard Warrington and Nathan Alliston, directors at Room Zero

Virtually everyone in investment management will have heard of the terms ‘AUM & Flow’, but do they understand how its accurate calculation is mission critical - and what a strategic weapon it is in the hands of the informed?

What is ‘AUM & Flow’ data?

Mark Simpson: “AUM & Flow, together as a dataset, is something special in the investment management world. Most people will recognise investment flows. For example, in the retail space, firms will be aware of the reporting from their transfer agency (TA), informing them of what is flowing in and out of their retail products.

AUM (Assets Under Management) is probably the most common metric by which asset management firms are compared. AUM is a point in time measure of the total assets being managed by a buy-side firm.

the explanation to a far broader set of perspectives. AUM & Flow is therefore a reliable measure of a firm’s assets under management, where they have adhered to the rules and principles of double counting. Between two points in time, AUM & Flow seeks to describe and explain the change.”

Why is this of particular importance to asset management firms?

Richard Warrington: “AUM is a commonly used measure of success – generally more assets equals ‘good’ and less assets equals ‘bad’ due to the revenue model used by asset managers (where fees are charged on the amount of assets retained). Flows are important in terms of changes in the AUM. If a change stems from Flows, looking backwards can act as a measure of success or failure for a firm’s marketing and distribution strategy.

AUM & Flow is also important for a geographically holistic view of a business - and will deliver insights. Firms can tell where the actual Flows are coming from e.g. Singaporean retail investors. This information is invaluable as it informs and shapes the distribution strategy going forward.

then they will be unable to calculate the revenue or profitability of the business. AUM & Flow is therefore a key building block.

The topic of revenue is very broad and complex, with different issues depending on which component of revenue is being considered. Simply relying on the transfer agent for revenue figures is not enough. The TA will typically calculate Distribution expenses (Trailer Fees/Commissions), but asset managers often struggle to validate these numbers, or use this data to forecast. Furthermore, a TA can typically only handle vanilla fee types, so complex arrangements are handled manually by the asset manager. Lastly, many of the Distribution expense arrangements can be with clients who invest through an omnibus account. The TA will not have visibility of the underlying AUM in the omnibus account which blocks any automation for this type of arrangements.“

Who uses AUM & Flow data?

AUM & Flow as a dataset looks to explain the change in AUM from one point in time to another. It doesn’t just include the flows that have been reported by a transfer agent; it should include other factors such as the impact of currency and the performance of the funds themselves. Ensuring Product and Client information are woven into that mix appropriately then opens up

Also, firms can carve up their AUM ‘pie’ by various product dimensions, such as the strategy these funds are using or their geographic investment focus. This will show an asset manager where they may have gaps in their offering.

In essence, AUM & Flow is an important strategic tool for planning and an important source of MI for measuring success or otherwise. For publicly listed firms, it is an important metric for analysts and shareholders. AUM is also crucial to the calculation of revenue, profit and loss. If a firm’s AUM is not determined accurately

Nathan Alliston: “AUM & Flow is essential data that is used by a number of different teams for different purposes, including at the highest level of strategic planning for an asset manager. If the CEO and CFO do not have a reliable view on the firm’s AUM & Flow data then they bear an immense risk to the business.

In particular it is vital that the CFO and Head of Distribution, when working with the CEO, have an agreed set of numbers that they can both work from and that gives each of them what they need. The data should allow them to see into the underlying clients (for KYC purposes) and also the distributors, to ensure that their products are being distributed responsibly.”

AUM is a commonly used measure of success –generally more assets equals ‘good’ and less assets equals ‘bad’