Money Markets - Volume 4 by Money Markets Ltd.

MM MONEYMARKETS

Money Markets | 37

MONEY MARKETS

FOREWORD COVERED BONDS

The Enhancement of the EU Framework for Investment Funds European Central Bank

ATimHistoric Consensus Skeet

The Financing of Housing in France Henry Raymod

CFF Uncovered Sandrine Guerin

Transaction Management – The Next Step Hugo Doswald

More than RMBS… Isabel Almeida

Rating the Issuers Helene Heberlein and Andreas Denger

The Evolution of Fixed Income Products inMichael the Electronic Trading System Market Hewitt

MONEY MARKETS

FOREIGN EXCHANGE

Foreign Exchange Today – An Overview Scott Wacker

The FX Landscape Alain Broyon

2005/6 European Forex Platform and Brokerage Review 51 Navigating the Currency Markets 52 Uwe Wunderle

CUSTODY

New Markets, New Opportunities Jakob Zablocki

2005/6 Custody Review Nordic Custodial Roundtable Introduction Nordic Custodial Roundtable Discussion Greece – The Sleeping Giant of Custody Chris Nikolaidis

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VOLUME 4

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MONEY MARKETS

CUSTODY

REAL ESTATE INVESTMENT

EFG – From Concept to Solution Dimitrios Vassiliou & Andrew Economides

Greek Custodial Roundtable Introduction Greek Custodial Roundtable Discussion

79 81

The Commercial Property Boom Chris Hall

M&C – Building for the Future Lee Wilson

Setting the Record Straight on Turkish Investment Ines Ak

Cyprus – Making the Right Investment Kyriacos Talatinis

The UK Residential Market Seamus Nugent

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VOLUME 4

The island of Delos. Treasurer and Custodian of the Athenian Alliance.

MONEY MARKETS

EXECUTIVE EDUCATION

Charting Changes Maury Kalnitz

104

The American University in London Take off at Toulouse Business School Jacques Tournut

107 108

The Executive MBA â&#x20AC;&#x201C; Opening New Doors Scott Goddard

111

Products and Services Index List of Contributors Reader Response Form Feedback Form

116 118 119 120 VOLUME 4

CEO

Victor J. Callender

Group Editor-in-Chief

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City Editor

Jonathan Calens

Financial Controller

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Head of Production

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FOREWORD

The Enhancement of the EU Framework for Investment Funds Eurosystem Contribution to the Commission’s Public Consultation, European Central Bank

As a contribution to the debate on the enhancement of the EU framework for investment funds, the European Central Bank (ECB) would like to provide its comments on the Commission’s Green Paper on the enhancement of the EU framework for investment funds1 (the “Green Paper”) published on 12 July 2005 for public consultation. These comments represent the views of the Eurosystem, which comprises the ECB and the national central banks (NCBs) of those Member States that have adopted the euro. 1. General remarks

Investment funds play an important role in the financial system for several reasons. First, their development can contribute to a better allocation of capital and investment and thus to an overall more efficient functioning of the financial system. Second, by broadening access to financial markets and diversifying investment styles and asset allocation among investor portfolios, investment funds’ activities may contribute to financial stability.2 Third, the

Against this background, the Eurosystem has a keen interest in developments concerning investment funds and their implications for financial integration and financial stability. In this context, it should be mentioned that, in support of its tasks, the ECB is developing harmonised and comprehensive statistics about investment funds, which may be helpful also to the Commission in its further work. In addition, the ECB recalls that it provided its advice to the Council as regards amendments to the UCITS Directive,3 and stands ready to provide it on any future legislative initiative in the field.4 The Eurosystem understands that the reflections of the Commission in the area of asset management are consistent with its key political orientation for financial services policy in the years 2005-2010. In its Green Paper on the matter issued in May, the Commission highlights that future public action should focus on consolidation and simplification of existing Community legislation, while ensuring effective implementation and enforcement at national level. At the same time, a few areas, including asset

“The UCITS framework has successfully contributed to the widespread expansion of investment funds as one of the main investment vehicles in Europe for both private and institutional investors.”

European banking system has several links with investment funds, as the major European asset management companies are parts of banking groups. For some banking groups, a significant part of their revenues derive from controlled asset management companies, to which a significant part of their assets under management have been transferred in past years. Moreover, banks play a key role in the distribution of investment funds in most European countries. Therefore, any revision of the EU framework for investment funds can have effects on the EU banking system

management, were identified by the Commission as eligible for considering the possibility of further regulatory intervention at Community level. As expressed in its contribution to this Green Paper, the Eurosystem agrees with the attention devoted to the asset management industry.5 The investment funds market in Europe has grown substantially in recent years. There was a total of 42,292 investment funds by 30 June 2005, with combined net assets of 5 781,265 million euro. A great part of this amount is accounted for by collective investment funds (UCITS), of which there were at that

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FOREWORD

date around 29,000 with combined net assets of 4 527,926 million euro.6 The UCITS framework has successfully contributed to the widespread expansion of investment funds as one of the main investment vehicles in Europe for both private and institutional investors. A further effort to remove remaining legal and regulatory barriers might promote further consolidation of the European investment funds industry and a rationalisation of the products offered with consequent benefits for investors. 2. Specific remarks 2.1 Current regulatory framework The Green Paper on investment funds refers to the priority of the need to solve current difficulties in the use of the UCITS passport and to provide more guidance on investor protection safeguards. The Commission has already launched in the past a number of initiatives to tackle problems relating to the implementation of the UCITS Directive (such as the recommendations on the use of derivatives, the

In the longer term, the current ‘product-based’ approach of the UCITS Directive may be considered as limiting the ability of the EU harmonised framework to exploit financial innovation.8 Should all the stakeholders agree on the need for a new approach, the Commission may consider recasting the UCITS Directive along the lines of the model already adopted for the securities directives. 2.2 Specific issues As regards the issues raised for making better use of the current framework, the Eurosystem agrees that some areas would benefit from further clarification. In particular, it is noted that the Market in Financial Instruments Directive (MiFID)9 would introduce a new harmonised framework for conduct of business rules for financial intermediaries, which will be applicable to management companies only to a limited extent for the management of investment portfolios (Article 66 of the MiFID). By contrast, UCITS and their managers are subject only to the general principles laid down by the UCITS Directive (Article

“The Green Paper refers to long-term challenges that would require farreaching adjustments to the existing UCITS framework, and seeks views on whether and how such issues should be accommodated in the longer term.”

simplified prospectus, and the work in progress to clarify the eligibility of assets for investments by UCITS) and the important role of the Committee of European Securities Regulators (CESR) in this respect should be noted. The Eurosystem notes that the positive results already achieved by involving the CESR confirm the important role that Level 3 committees can play in ensuring the consistent implementation of EU legislation and promoting supervisory convergence.7 However, it is noted that in the case of the UCITS Directive the limited scope for comitology represents a major constraint on the effectiveness of the Lamfalussy approach and on the possibility of adapting the legislative framework to new developments. Therefore, the Commission may wish to consider the introduction of a wider application of the Lamfalussy approach within the UCITS Directive at the earliest possible opportunity.

5h), to be further specified at national level. Therefore, the Commission could consider whether and to what extent harmonised conduct of business rules, similar to those provided for investment firms and credit institutions, should be provided for UCITS, whilst allowing for some degree of flexibility necessary to deal with national specificities. In this respect, the preparation of Level 3 standards by CESR could pave the way for further harmonisation of conduct of business rules for UCITS. Equally, it is important that similar rules are applied consistently across different intermediaries when the latter are exposed to similar types of risks. The Green Paper refers to long-term challenges that would require far-reaching adjustments to the existing UCITS framework, and seeks views on whether and how such issues should be accommodated in the longer term. More specifically, the Green Paper mentions some issues (fund pooling, rationalisation of

34 | Money Markets

FOREWORD

depositary services) that would promote the further rationalisation of the European investment fund industry (as shown by the fact that the European fund size average is half that of the US average), and reduce fund management and administration costs, and thus benefit investors. On these issues the Eurosystem would like to make the following comments. First, as regards the proposal to allow fund pooling (either by master-feeder funds or virtual pooling techniques), the Green Paper notes the legal, regulatory and supervisory risks associated with such structures, according to which the master-feeder fund (where the investment decisions are taken) would be located in one jurisdiction, while the feeder funds would be in another.10 The Eurosystem supports the Commission’s

though the specific objectives of such control differ from country to country. Therefore, the Eurosystem shares the Commission’s view that further harmonisation could be sought, at least of the initial and operating conditions and of the functions of the depositary, as an essential pre-condition for being authorized to provide such functions benefiting from a European passport.11 2.3. Alternative investment market In its Green Paper, the Commission also addresses Europe’s alternative investment market, notably the market of hedge funds. In the last few years the global hedge funds sector12 has grown at a very rapid pace.

“Though hedge funds may pose challenges to the stability of the financial system, a balanced assessment should also recognise their positive contribution in areas such as the price discovery process, market liquidity, risk diversification, market discipline and financial integration.”

argument that this structure would require a clear division of responsibilities between competent authorities and careful consideration of whether additional investor protection safeguards should be put in place. Second, the Green Paper notes that the industry asks for greater freedom in the choice of depositary, which Article 8 (1) of the UCITS Directive currently requires to be located in the same Member State as the management company. In view of the prospect of a higher degree of concentration in custody services over the coming years, the Eurosystem considers that effective regulation and oversight of the market infrastructure would be beneficial to the collective investment business in Europe. However, it has to be acknowledged that the UCITS Directive attributes a fundamental role to depositaries in the oversight of many of the functions of the management company (e.g. ensuring that the sale, issue, redemption and calculation of the value of units accords with the law and the fund’s rules). In addition, depositaries are directly liable towards both the management company and the investors for any loss suffered by them as a result of unjustifiable failure to perform their obligations or the improper performance of their obligations (Articles 7 and 9 of the UCITS Directive),

It is estimated that, by the end of 2005, the world total of assets under management by hedge funds will have grown to € 685 billion, of which the estimated total of assets managed by hedge funds in Europe will account for approximately € 188 billion. While the great majority of hedge fund managers are based in the United States, the importance of managers located in the EU is growing. Similarly, while firms that provide financial services to hedge funds (‘prime brokerage’) are mainly large US investment banks, a number of European banks have also developed into important players. Finally, in a number of European countries hedge funds and similar products are becoming increasingly available to retail investors, though they still represent a relatively small share of the total asset management industry compared to UCITS. Though hedge funds may pose challenges to the stability of the financial system, a balanced assessment should also recognise their positive contribution in areas such as the price discovery process, market liquidity, risk diversification, market discipline and financial integration. A comprehensive assessment is hampered, however, by the fact that public authorities still have only limited information about the activities of hedge funds, not least because of the continued opacity of the industry.

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FOREWORD

Through its participation in various international groups, the ECB is actively involved in the current debate on hedge funds. With the assistance of the Banking Supervision Committee (BSC), efforts are enhanced to gain a better understanding of the implications of hedge funds for the European financial system. In this respect, the BSC recently analysed the links between large EU banks and hedge funds13 . The work of the BSC indicates that recent developments in the hedge fund industry may not necessarily pose a direct threat to financial stability in the EU through banks’ direct exposures to hedge funds, which mainly take the form of financing and investment exposures. Nonetheless, banks may also be affected indirectly, for example if hedge fund activities lead to dislocations in financial markets or cause strains for non-EU prime brokers with spill-over effects to EU banks. For banks selling hedge funds or hedge fund-related products, in particular to retail clients, reputational risk may be another potential hazard. Hence, direct exposures may

banks’ exposures to hedge funds. In particular the ‘supervisory review process’ will allow banking supervisors to take any specific measures to address such risks, not at least with regard to capital adequacy. The Committee of European Banking Supervisors (CEBS), which aims at achieving convergence of supervisory practices at the European level, can play an important role in this field. However, it is equally important that these different initiatives are effectively implemented by banks, without being compromised as a result of competitive pressures. Moreover, both market participants and authorities should remain vigilant to new developments in the hedge fund industry. Banks should continuously and prudently manage the risks stemming from their counterparty relationship with hedge funds, carefully monitor their investments in them and adopt very prudent valuation methodologies. At the same time, authorities should continue and enhance their dialogue with the asset management

“Banks should continuously and prudently manage the risks stemming from their counterparty relationship with hedge funds, carefully monitor their investments in them and adopt very prudent valuation methodologies.”

underestimate the true risks that hedge funds pose to EU banks and the financial system at large. The Eurosystem supports the approach taken so far at the international level to address the financial stability concerns created by hedge funds, primarily through their interaction with regulated firms, in particular banks. Both the supervisory community and the private sector have already taken important initiatives in the area of risk management, which the Eurosystem fully endorses.14 Nevertheless, any developments in the hedge fund industry that might adversely affect financial stability should be carefully monitored and the present stance of the Eurosystem might have to be reviewed if proved to be necessary for financial stability or prudential reasons. The Eurosystem is of the view that the forthcoming Capital Requirements Directive, which will introduce into Community law the new capital standards agreed by the Basel Committee on Banking Supervision,15 will provide a flexible and appropriate framework for addressing possible concerns related to

industry, in order to further improve transparency and market practices. Any debate on possible direct regulation of hedge funds should take the following aspects into account. First, regulation would be confronted with the challenge of providing a sufficiently precise legal definition of ‘hedge fund’. At present, there is no shared agreement at the international level on the exact definition of a hedge fund. Hence, a clear differentiation from other forms of investment may not be straightforward.16 Second, the Eurosystem highlights that, given the nature of the hedge fund business and the high concentration of these funds in off-shore centres, any direct regulation can only be effective if it is well coordinated at the international level. Third, and linked to the previous aspects, there are a number of financial instruments that may have hedge fund-like characteristics, such as some structured notes and insurance policies. Any regulation at EU level should therefore take into account the possible ‘level playing field’ effects across different financial sectors. Finally, although there is at present no

FOREWORD

specific regulatory regime in the EU for hedge funds, several aspects of their activity already fall within the remit of existing Community measures, such as the Markets in Financial Instruments Directive, the Prospectus Directive17 and the Market Abuse Directive.18 In conclusion, the Eurosystem fully endorses the current reflections of the Commission to assess the possible need for further Community initiatives in the area of asset management and stands ready to provide support to the further work that the Commission might undertake in this field.

The ECB is the central bank for Europe’s single currency, the euro. The ECB’s main task is to maintain the euro’s purchasing power and thus price stability in the euro area. The euro area comprises the 12 European Union countries that have introduced the euro since 1999.

10 11

12 13 14

1 2 3

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SEC (2005) 947, (COM (2005) 314 final). International Monetary Fund’s Global Financial Stability Report, 2005, p. 77. Council Directive 85/611/EEC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS), as amended. Opinion of the European Monetary Institute of 27 July 1995 (CON/94/8); Opinion of the European Central Bank of 16 March 1999 (CON/98/54) published in OJ C 285, 7.10.1999, p. 9. Eurosystem’s contribution of 1 August 2005 to the public consultation on the Commission’s Green Paper on financial services policy (2005-2010). Data taken from FEFSI/EFAMA, the European Federation of Funds and Investment Companies and the European Fund and Asset Management Association. See Eurosystem’s contribution to the Commission’s public consultation on the Review of the

15 16

application of the Lamfalussy framework to EU securities market legislation, 17 February 2005. This issue has been highlighted by the CESR in its recent advice on clarification of the definition of eligible assets for investments of UCITS regarding the treatment of asset-backed securities (CESR/05-490b, p.30). Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC, (OJ L 145, 30.4.2004, p. 1). Commission’s Green Paper, Annex, page 56. Communication from the Commission to the Council and to the European Parliament, Regulation of UCITS depositaries in the Member States: review and possible developments, 30 March 2004, (COM (2004) 207 final). All estimates are from International Financial Services London. BSC report on “Large EU banks’ exposure to hedge funds”. Basel Committee on Banking Supervision (1999), “Sound Practices for Banks’ Interactions with Highly Leveraged Institutions”; Counterparty Risk Management Policy Group (2005), “Toward Greater Financial Stability: A Private Sector Perspective”. Basel Committee on Banking Supervision (2004), “International Convergence of Capital Measurement and Capital Standards”. It should be noted in this regard that the Eurosystem is considering the feasibility of collecting euro area statistics on hedge funds, which inter alia involves the development of a harmonised definition of hedge funds for statistical purposes. Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on the prospectus to be published when securities are offered to the public or admitted to trading and amending Directive 2001/34/EC (Text with EEA relevance), (OJ L 345, 31.12.2003, p. 64). Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003 on insider dealing and market manipulation (market abuse), (OJ L 96, 12.4.2003, p. 16).

VOLUME 4

COVERED BONDS

A Historic Consensus Tim Skeet

The Financing of Housing in France Henry Raymod

CFF Uncovered Sandrine Guerin

Transaction Management – The Next Step Hugo Doswald

More than RMBS… Isabel Almeida

Rating the Issuers Helene Heberlein and Andreas Denger

The Evolution of Fixed Income Products in the Electronic Trading System Market Michael Hewitt

COVERED BONDS

A Historic Consensus Tim Skeet, ABN Amro / European Covered Bond Council

In 2005 the Covered Bond market chalked up a couple of key anniversaries, established an industry representative body, weathered a handful of storms and was poised to further expand. Despite new regulations and some credit concerns, Europe’s covered bonds had an important year in terms of new issue volume and secondary market activity. With an outstanding volume of €1,650 m of which €650 are Jumbos, the Covered Bond market has become of strategic importance to investors and issuers alike. Moreover, under issuing jurisdictions, there are some 10 jurisdictions issuing Jumbos although in all there are around 20 countries with covered bonds. If Europe and its Union is much written about and discussed, it is more on account of precisely its lack of union. The year 2005 marked a number of anniversaries that serve to illustrate the deep roots of the traditional rivalry that has divided the continent

apparently succeeded, at least in part. The Spanish have become huge users of the market with their Cedulas, the Dutch have landed and even the perfidious British have embraced the product both commercially and from a regulatory perspective. Through a series of national laws including a succession of changes to the German market through new Pfandbriefe laws, the Covered bond market has developed into a patchwork of slightly different legal and structural arrangements that all combine the advantages of solid credit ratings (mostly AAA) and liquidity tied to market making arrangements (for the so-called ‘Jumbos’). Having first emerged in the form of a series of administrative reforms in newly conquered Silesia, instigated in 1742 by Frederik the Great, the market has grown and evolved into its current form, which represents a low cost, flexible and immensely popular funding tool for financial

“The Spanish have become huge users of the market with their Cedulas, the Dutch have landed and even the perfidious British have embraced the product both commercially and from a regulatory perspective.”

and shaped the modern world. The British will remember Trafalgar, when Napoleonic ambition in one direction was curtailed; the French will celebrate Austerlitz when that same ambition found supremacy in another direction. Twice as long ago, in 1605, the British heaved a collective sigh of relief when revolutionaries and terrorists (Guy Fawkes and crowd) failed to blow up the king and parliament; Swedish forces were routed by the Poles at Kirkholm near Riga in Latvia; and Spanish forces recaptured Oldenzaal and Lingen from the rebellious Dutch states. Yet today, in amidst the budgetary battles, the foreign policy polemics, and constitutional confusion, Europe nevertheless has something to celebrate in the form of a growing financial market that represents and draws together the diversity of European jurisdictions into a common asset class. Now, where politicians, Eurocrats and generals have failed, the bankers of Europe have

institutions. 2005 was also the tenth anniversary of the highly successful ‘Jumbo Pfandbriefe’ market, another German innovation, which has been the inspiration for most of the subsequent market growth and development. A council that covers 2005 also marked the passing of the EU Capital Requirements Directive (‘CRD’), which dedicated a whole Annex to defining and regulating Covered Bonds. Arriving at a unifying European edict was no simple matter, the original drafts attracting an astonishing 887 proposed amendments that had to be sorted and deliberated upon by the officials and politicians. The result, though by no means perfect and inevitably representing a series of compromises, nevertheless represents a substantial step forward for

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COVERED BONDS

this most European of markets. Moreover, the whole process of regulating and defining the market had a salutary effect on national authorities who scrambled to respond. The patchwork of laws and spread of the product internationally to 10 issuing countries has inevitably made the investor’s life more complicated. Different national regulators and banking associations had set about promoting their own brand of the product in much the same way as companies producing soap powders promise the whiter wash. This produced an unavoidable measure of spin, plenty of bubbles and litres of hot water, if not hot air. Mercifully for the market and all concerned, a pragmatist’s view took hold. A single organisation was established with an open architecture to combine the interests of the asset class into one voice. Established in late 2004 and meeting for the first time in early 2005, the European Covered Bond Council (‘ECBC’) was set up as an offshoot of the European Mortgage Federation. Sponsored initially by the German VdH (now VdP- Association of Mortgage

models, which do not currently operate under a specific dedicated national legal framework, remain the object of some controversy. Yet both jurisdictions offer robust legal arrangements that comprehensively provide investors with access to the security of the underlying assets in the same way as purpose drafted laws. The UK, moreover, is looking closely at the possibility of introducing a measure of regulatory supervision to bring this market further in line with continental precedent. In these deliberations the Council has once again played a role. The challenges facing the ECBC in its stewardship of the market are not confined to definitional or regulatory issues. Recent events in Germany have cast a shadow over the nature of the much heralded and lauded liquidity of the market. Historically one of the largest issuers in the core German Pfandbriefe market, AHBR, also became the first major creditor to teeter on the verge of failure. Screaming newspaper headlines, rumbling rumours of impending bankruptcy, drawn out sale negotiations accompanied by the usual posturing and leaking of information,

“Established in late 2004 and meeting for the first time in early 2005, the European Covered Bond Council (‘ECBC’) was set up as an offshoot of the European Mortgage Federation.”

Banks) and the French (in particular Credit FoncierCFF), the organisation has grown rapidly and caught the market’s imagination. The Council now has around 75 members representing 17 European member states and including some 40 issuers. Members include the banking associations of many of the member states. It was this diversity of opinion and spread of representation that has already endowed the ECBC with a significant voice in its dealings with the European Commission and its committees. Given Europe’s unfortunate track record of patchy cooperation in most matters, the Council has thus far shown itself to be a remarkably cohesive body. The next challenge that the ECBC has set itself is to arrive at a brief definition of a Covered Bond that will act as a reference point for investors and market practitioners. Given the body of law, in particular the CRD, this would appear to be a straightforward task. However, the UK and Dutch structured covered bond

produced a volatile cocktail of half truths and speculation that brought trading in the name to a virtual halt. The nature of AHBR’s problems and their seriousness were the object of considerable and intense speculation. Louis Hagen, the ECBC’s eponymous Chairman combines this role with that of Chief Executive of the VdP. With a funereal demeanour he opened the most recent ECBC steering committee meeting, held appropriately enough in Berlin, on the morning that the AHBR drama took centre stage. With his mobile ringing and frequent absences for deliberations, Louis engaged in a two-hat version of crisis management. Meanwhile the various assembled market representatives on the Council’s steering committee speculated on the consequences of a potential melt down at the heart of the Covered Bond world. In the event, a few days later after some initial hesitation and confusion, the market absorbed the bad news, the situation was resolved, and the market took it all in its stride.

COVERED BONDS

High ratings and asset classes As most banks have realised, an AAA rating on an unsecured basis is probably not very efficient from a return on equity perspective. However, offering investors direct preferred access to pools of top quality assets on the balance sheet allows banks to raise longterm funds at AAA rates of interest. In this way the banks can offer competitive terms to consumers or local authorities. And this is the secret of the Covered Bond. The rating agencies have long accepted the credit quality of large, well diversified secured portfolios of mortgages. These have fuelled the RMBS markets around the world. Combining the asset quality with the additional benefit of the mortgages staying on balance sheet in most cases, gives the investor a very interesting investment. Boringly safe from a credit perspective, relatively liquid and offering

assets classes. This will be the subject no doubt of some intense industry debate in 2006. Liquidity and market maturity With the AHBR difficulties and in particular AHBR Pfandbriefe repayment dates looming in early December 2005, market participants began to focus on the nature of the so called ‘hard bullet’ maturities of Pfandbriefe. To the uninitiated, reference to bullets might suggest Dirty Harry style Magnum ammunition and problem solving. The language is un-European, having been borrowed from the obscure terminology of securitisation. It refers to the certainty of contractual maturity. In the securitisation world deal, documentation allows for repayment ‘slippage’ under certain circumstances (‘soft bullets’), not something that the investors in the covered bond world generally

“Despite new regulations and some credit concerns, Europe’s covered bonds had an important year in terms of new issue volume and secondary market activity.”

some spread to government bonds. It is important to remember that the underlying assets in the ‘cover pools’ consist of two very divergent types: public sector loans and mortgage loans. The historic roots of the market tied the covered bond into local authority and housing finance, and in recent years the rating agencies have confirmed through statistical analysis the creditworthiness of these two apparently different asset classes. The challenge for the market and its definitions will come as other consumer assets or well diversified portfolios of credit are offered up to the market as pretenders to the covered bond title. Even now, some market participants and traditionalists are threatening to close the door to new forms and categories of covered bonds. Does this make sense? Historically, the markets have been open to assets on condition that the ratings and creditworthiness were beyond reproach. Even under the existing rules and definitions there is already a cover pool asset curiosity in Germany in the form of shipping loans. These are included for historical reasons in the definition of covered assets for Pfandbriefe (‘Schiffspfandbriefe’). This suggests that provided credit quality is not compromised, the market could and should develop further. If floating assets work, so perhaps should floating charges on other creditworthy

want to countenance (investors want ‘hard’ immovable maturity dates). In the event, AHBR made everyone’s day, the bonds were redeemed and there was much relief across the market. As this article was written, AHBR itself was being sold to Lone Star, finally bringing to an end speculation about the company’s future and the possible consequences of liquidating the bank. From a credit perspective, AHBR suffered on an unsecured basis seeing its credit ratings fall sharply, but the Pfandbriefe ratings were unaffected. This illustrates clearly the efficiency of the asset ring-fencing that underpins the product. The robust legal framework of the German covered bond ensured that the investor was never exposed to anything other than an AAA rated asset, even if some concerns were expressed over the timeliness of payments. In the case of AHBR, market makers widened their bid-offers but prices were still made to investors after some early hesitation. The authorities, the principal market makers brought about a stabilisation of the sector, limiting the effects of the AHBR experience and allowing other users of the market to continue their issuance programmes unabated. Indeed, even as the AHBR story raged DG Hypo successfully issued a tap of an outstanding bond

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COVERED BONDS

“The Council now has around 75 members representing 17 European member states and including some 40 issuers. Members include the banking associations of many of the member states.”

with no noticeable price concession. The Jumbo market has flourished and grown over the past ten years, despite the odd scare. The AHBR episode has however prompted market participants to review the nature of market making and, in particular, tighten the rules to allow for controlled suspension. A working group of the ECBC will also consider what changes might be introduced to safeguard investors and the traders themselves at times of extreme market volatility, uncertainty and speculation. Broadly speaking, the jumbo market reacted remarkably well to this test of nerves and will emerge stronger as a result. What’s next? If the covered bond market has diversified geographically, it has also branched out beyond the borders of the Eurozone. Already the UK is an important non-Euro issuing jurisdiction, as is the historically significant and well established Danish market, which will shortly be joined by the Kroner Swedish sector and non- EU Norway. The question of different currencies is not limited to the issuers’ home but increasingly also to investor preferences as deals have emerged in US$, SFR, A$, C$ and £. Swaps are therefore an essential part of the technicalities of issuing covered bonds. Increasingly issuers, particularly those that do not enjoy the strongest ratings on an unsecured basis, are setting up documentation to allow the derivatives contracts to form part of the cover pool and be subject to the same collateralisation rules as the bonds issued. What shows up next in the swirling mists within the crystal ball? Besides the Swedish and likely Norwegian arrival on the scene, the major action with no doubt will be the opening of the Italian campaign. With laws in place and a regulatory framework emerging from the long corridors of Italy’s twin regulatory bodies (Bank of Italy and the Ministry of the Treasury), this country will be the location of much of the new action in 2006. Interestingly enough Italian investors will be offered potentially AAA bonds from domestic institutions, where the sovereign rating is Aa2 and AA-. This throws up the intriguing possibility of the new Italian Covered Bonds trading through the

government curve. The question will be how domestic investors will react to this. Also emerging from the fog of speculation and divination is the equally intriguing possibility of the Covered Bond emerging with a US flavour. If asset backed securities are generally recognised as being broadly an American invention, Covered Bonds are distinctly European. Could it finally be that the old continent will have something to teach the grizzled Wall Street hoards? Certainly US investment banks, which have yo-yoed in and out of this low margin, high volume business in Europe, appear more determined to return to the fray. If US commercial banks decide to issue covered bonds as part of their funding strategy, the fight is likely to intensify. 2006 is set to be another interesting and exciting year in the world of credit boring Covered Bonds, which will test the staying power of the market’s traditional players. Frederik the Great’s modest administrative initiatives have come a long way. 2005 was a vintage year for this great European market adventure and 2006 promises much.

Tim entered the City in September 1981 working initially for one of the original British Merchant Banks. In the late 80s he moved on to Morgan Stanley where he was involved with UK bank clients and the early development of the asset backed securitisation market and early bank capital issues at the time of the first versions of Basle 1. During the early 90s Tim worked at Kidder Peabody (which became PaineWebber) running European origination and syndicate, joining Lehman Brothers in the mid 90s. His career evolved through various capital market positions before taking the position of Head of European Bank relationship management at Barclays Capital before coming finally to ABN Amro, where he is currently focused on the French and German speaking parts of the FI world. Tim is currently a member of the ECBC Steering Committee and regularly speaks at conferences on covered bonds. He is part of the team that won the accolade of Covered Bond House of the Years from IFR for ABN Amro for the years 2003 and 2005. Tim graduated from Jesus College Cambridge with a degree in Modern Languages and is married with three children.

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The Financing of Housing in France Henry Raymod, Caisse de Refinancement de l’Habitat (CRH)

The role of CRH

CRH, a credit institution approved as a société financière, plays a special role in the financing of housing in France. It was set up in 1985 as part of the general reform of mortgage markets decided by the French government and so received the special agreement of the Act dated July 11,1985 (article 13). Its sole objective is to refinance housing purchasers loans, granted by the credit institutions, which are its shareholders, by issuing bonds. Refinanced loans are first mortgage loans, or guaranteed loans, provided they meet the strict standards of security. With close to €30bn of loans granted since its inception, CRH has taken over from the traditional French mortgage market. Its loans are matched by bond issues and secured by a pledged loans portfolio equal to 125 % of the amount borrowed as regulated by the law of December 31, 1969, modified by the law: “code monétaire et financier” (articles L. 313-42 to L. 313-49). As a result, CRH acquires ownership of the loan portfolio in the event of a borrower defaulting, without further formality and notwithstanding any provisions to the contrary. Apart from the special supervisory duties of the Commission Bancaire, defined by the law, CRH’s audit department makes regular inspections at borrowings banks, with sample tests to confirm the soundness and proper form of the pledged loans. When invalid loans are found in the pledged portfolio, CRH will claim a complementary pledged portfolio of valid loans with respect to the borrower’s institution, thus compensating for the shortfall. Should the borrower be unable to comply with the aforementioned terms, it must immediately buy a sufficient volume of bonds from the pool corresponding to the note concerned. This in turn is passed on to CRH in order to settle the repayment. Each borrowing bank must contribute to CRH’s equity capital in proportion to its outstanding borrowings.

In March 2005, shareholders’ equity amounted to €160m, which translates in to the following: GROUPE CRÉDIT AGRICOLE SA CRÉDIT LYONNAIS GROUPE CRÉDIT MUTUEL - CIC GROUPE BNP PARIBAS SOCIÉTÉ GÉNÉRALE GROUPE CAISSE D’ÉPARGNE

44.8 % 37.0 % 6,7 % 3,9 % 2,0 %

CRH’s bonds are some of the largest nongovernment issues on the Euro market, which results in very high liquidity. In addition, they are accepted as collateral for Bank of France advances and for investment of surplus resulting from special homebuyers’ savings schemes (fonds libres d’épargne logement). CRH’s bonds are also acknowledged as tier one collateral for the European Central Bank’s open market operations and as an article -22-4 - under UCITS directive bonds. CRH outlook Looking to the future, the volume of operations will obviously depend on the growth of the French economy. Certain factors do, however, appear favorable to growth. First, the banks’ are likely to increase financing requirements as a result of the apparent diminution in regulated loan resources. Second, there appears to be a greater propensity amongst banks to retain residential mortgages on their balance sheets, as a lower level of shareholders’ equity will be required to cover these loans under the future Basel II capital adequacy requirements. Finally, the issuance conditions for CRH bonds may well improve as a result of the lower level of shareholders’ equity required for banks holding CRH bonds within the framework of the Basel II capital adequacy requirements. Henry Raymod is the Director General of CRH.

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CFF Uncovered Jonathan Calens talks to Sandrine Guerin

The French covered bond market - a CFF perspective Q. What differentiates Compagnie de Financement Foncier (CFF) from other covered bond issuers? A. Well this is very easy to answer, and at the same time not so easy. We were created in 1852 as an issuer of covered bonds by Napoleon III, which means that the group has an extensive history. Interestingly, the law governing French covered bonds (obligations foncières) - OFs - was modernized in 1999, which led many to believe that this was when OFs were introduced, but this is simply not true. In fact, the aforementioned instrument started life in 1852. The model used at this time was the very same model used in Germany today, the same balance sheet and so on. As I mentioned earlier, the modernization of the law, which took place in 1999, has made it very strong. The government decided to create a dedicated balance sheet for each issuer, which is the

for example, on the same balance sheet you can see all of the bank’s activities, including the balance sheet of the covered bond. This is the same in Spain. The only legal framework, which comes close to the one we have in place, is Ireland’s, where you also have a dedicated company. This is very secure for investors because they know exactly where they are. Thanks to the dedicated legal framework of the bondholder, if there is a problem, the issuing company will be able to identify exactly where the cash flow prevailing from the eligible loans is, and thus, channel the cash flow to the bondholders directly. I doubt, however, this is happening in countries like Spain and Germany. The other point I should mention is, in France with the legal framework, you can have mortgage loans, first-rank of course, with a 60% loan tenure and loans to local authorities or the public sector in the same company. In Germany you have the

“I would like to think, and certainly hope, that we have built a strong, confidence inspiring, relationship with these investors. We want them to feel as though they can ask us questions, we will answer, and in so doing, put value together regarding the product.”

key difference between covered bonds in France and those in say Germany or Spain, which are the most important today in terms of volume. A dedicated balance sheet means a dedicated company. This company has a unique and sole purpose, to grant or buy eligible loans and finance these loans through privileged liabilities, that means covered bonds, or subordinated debt. Q. You mentioned that each issuer in France has a dedicated balance sheet, however, are there any other major differences between French covered bonds and their counterparts? A. Well, to back track slightly, if you take Germany

public Pfandbriefe and mortgage Pfandbriefe, which are different. In our case it is the same OF, vis-á-vis, a covered pool of public loans and or mortgage loans. Inside CFF Q. CFF issued debt worth €11.2bn in 2004; will we see uplift in this figure year-end 2005? A. Obviously, yes. Our funding needs are great. I’ll explain. We are prolific when it comes to the mortgage loans dedicated to individuals, thanks to the activities of Credit Foncier de France. Historically, we have also financed local

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authorities loans. As a result, we have increased our targets. We feel that today, we need to achieve somewhere in the region of 10 to 12 bn. However, our aim for 2006/7 will be to issue around €15 bn. We would also like to increase the group’s market share, in terms of loans to local authorities throughout Europe, not just in France. In addition, I should mention that we remain active with respect to RMBS in Europe, mainly Spain and Italy. Q. With Groupe Caisse d’Epargne, CFF’s parent, taking a controlling interest in CDC IXIS last year, obviously, the group’s portfolios of mortgages and public-sector loans increased. What impact has this had upon CFF’s growth?

fact, I’m very sure that an OF is a real product for investors; this is chiefly with a spread compared to a government bond. Whilst I cannot say that this instrument is completely risk-free, unfortunately because there is no such thing as risk free, there is very little risk attached, in fact, the lowest risk you can imagine. The way in which we issue bonds is investor targeted. We don’t want to issue something and wait for investors, we prefer to listen to their needs and act accordingly. The dollar issuance was a combination of several factors, these included, investor demand, maturity and currency of the bonds. It was also a very good opportunity for CFF in terms of currency swap and funding cost. At the end of the day, we created value for all parties concerned, the

“If they need more liquidity and wish to optimise their funding costs, they will have to put a covered bond company in place.”

A. The impact has been very positive. We all work together extremely well as a group. Naturally, we have dedicated roles within the bank, which pertain to specific activities and areas of expertise. We tend to work with savings banks (Caisses d’Epargne) a great deal in addition to IXIS CIB. I feel that because IXIS CIB is present in several countries across Europe this has added significant value in terms of penetration, especially in Italy and Spain. Q. You’ve had great success amongst central banks in Asia this year with your $1bn short-dated issue. Given the appeal of short-term dollar paper to Asian investors, do you have any plans to replicate this success in the near future? A. It will be difficult to replicate this success. Naturally, we were very happy to see that our efforts, in terms of marketing, in Asia, have had such a positive impact. I can remember visiting central banks in Asia at least once a year. I would like to think, and certainly hope, that we have built a strong, confidence inspiring, relationship with these investors. We want them to feel as though they can ask us questions, we will answer, and in so doing, put value together regarding the product. In

investors, banks, lead managers and last but not least, the issuer. This is quite rare, and this was an incredible success. Funding Q. How much of your funding is done via: - Jumbo obligations fonciéres (OFs) euros/ US dollars? - Private placements? - Public issues - non-euro currencies? A. When you have more than 10 bn euros to issue per year, you must know exactly how you will achieve this, because we are not talking about an insignificant amount. You have to be well organized and have good relationships in place with numerous investors around the world. I think that you need to put in place jumbo euros, jumbo dollar and euro/dollar issuances too. You need to implement different currencies, not jumbos but syndicated issuances - sterling, Swiss franc and in our case the Australian dollar as well. Although not huge amounts, they are still significant. In order to optimize your funding costs you need to be flexible, and this means creating tailor-

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made issues for investors, via private placements, for example, which are very good for funding costs. In our case we issue predominantly in euro and US dollar. To summarize, we’ve done €1.5bn in 12 years, €1bn in 3 years, another $1bn in 3years and $1.25bn in just over 3 years, that’s approximately 5bn in total. Around 40% of our programme has been done private placements and something like 2bn (40%, which equates to roughly 4bn). Finally, we’ve done €2bn equivalent in Australian dollar, Swiss franc, yen, US dollar and British pound, which is significant. Covered bonds vs. RMBS Q. What are the differences both from an issuer’s and an investor’s perspective? A. This has been the major talking point this year. I have not been to a seminar where the issue of covered bonds vs. securitisation and RMBS was not raised. When you have to fund first-rank mortgage loans you immediately think about covered bonds or securitisation and RMBS. This is the answer from a funding point of view. As a covered bond issuer, I can answer slightly differently. From the standpoint of the dedicated covered bond company, I want to buy mortgage loan portfolios, and there are two ways I can do this. I can buy the loans, this is referred to as a whole-loan sale, or I can use the securitisation process. Securitisation is the legal framework, which allows me to buy mortgage loans and portfolios. An investor might answer this differently. For example, if I want to finance mortgage loans, I have two ways of doing this as an investor, I can buy RMBS or, I can buy covered bonds. What’s the difference? One of the main differences between covered bonds and RMBS is that the latter all have a floating rate. Even if everything was residential and the covered bond was what the investor wanted, he can find a jumbo, with a fixed rate and market making commitment from the bank, so a high liquidity bond. The permutations continue, whether dollars, euros or yens, the investor can also tap in to private placements. Other important differences relate to the security of the issuing structure. Although a covered bond issuer is not a bank; it is a company under the control of the banking

authority in that particular country. That speaks for their security and transparency. The structure is very different with RMBS. RMBS is one operation, through an SPV, for 1-5bn. In our case, we are a stable and transparent company, with 50bn in outstanding bonds. We have been around for a 150 years; I hope it will be the same in another 150 years, without me of course. Probably the most important difference is that covered bond companies have the legal framework. This is not the case with RMBS. We also have auditors, and like all banks in Europe; in our case we have two. Finally, continuing on the idea of monitoring by third parties, we have a dedicated controller, which is not dissimilar to a trustee, but he has to report to the French banking authority. He will check the eligibility of the loans as well as the asset liability management and so on. The only thing that’s really the same for both RMBS and covered bonds is the way in which the rating agencies work. Aside from that, I think that covered bonds offer a greater degree of safety, because they have to report to banking authorities. OF market summary Q. Given the maturity of the OF market, its legal framework, strong investor base and sufficient liquidity, some analysts have said that growth will be steady and not spectacular. Do you agree with this? A. I think the underlying question relates to the comparisons between French covered bonds and their counterparts in Spain, Germany and so on. Obviously, in Germany and or Spain you have more covered bond issuers, especially in Germany. In Spain the banks definitely need covered bond issuance in order to finance their eligible loans. If you look at France today, deposits tend to finance residential mortgage loans, so commercial banks don’t yet need covered bonds in order to finance mortgage loans. Q. Although the OF market is very stable, with three issuers boasting triple A ratings, some say it is not the most liquid. First, is this accurate, and second, how will this affect growth? A. No, I don’t agree. It is perhaps not the most liquid of all bond markets, but it is liquid. In order to define liquidity in the market, we

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must answer the important question of, what is a jumbo and is it liquid? You just have to remember how it was before the euro market. Think back to when we were operating in French francs, Deutsche marks, pesetas and so on. At the time, the “jumbo” tag would have been attached to 3bn French francs, which equates to €500m. Today it’s jumbo at €1bn. This is the way the market has changed. What do we need when we are an issuer or an investor? When we are an investor we need liquidity. What is liquidity? Liquidity is being sure we have a price all the time. To keep this price as an issuer, we decided that we would, in conjunction with the two other OF issuers in France, implement a market- making charter with the main banks around the world. The same is true in Germany for the jumbo Pfandbriefe. This charter defines the minimum size for benchmark transactions, and guarantees a maximum bid/ask spread at all times, as well as minimum issue sizes. In response to the question of growth for the French market, we have to consider the place and funding cost of the other French banking groups. The ratings of banks like Credit Agricole, Societe Generale and BNP Paribas are quite good. They all exceed AA- and their funding costs are therefore certainly strong. But if they need more liquidity and wish to optimise their funding costs, they will have to put a covered bond company in place and so the French market will grow. I don’t know when, but it will happen. Emerging Europe Q. How will new jurisdictions like Italy and Portugal fair, and will they use the French or German market as a model? A. Well, they are working hard to put a framework in place. I don’t know that they are using say, the French market as a model. Our model is very competitive but quite difficult to implement. In other words, when you have to transfer a loans portfolio from one balance sheet to another, a very specific and dedicated IT system needs to be set up, which is not easy to do. On the other hand, when you need to know exactly where the asset pool is in the balance sheet of the bank, as is the case in Germany or Spain, it is easier to establish. Regarding the Italian market, they just need to put a few things in place in order to achieve the covered bond legal framework they have been

working towards. In Portugal, I believe that they will have something in position by the beginning of 2006, and I am pretty sure we will see a new issuer in Portugal next year. The future Q. What does the future hold for CFF? A. Well, first and foremost, increased issuance volume. Second, consistent quality and security. Third, greater geographical diversification with respect to our investor base, which means expanding in to America, both North and South, which is not easy to do. Fourth, ongoing objectivity when it comes to market and investor demands so that we can continue to create the right product. Finally, the marketing and transparency of the product is the future for us. We need to explain who we are, what we are doing and why we are doing it. This will help us to increase the market share of our group with respect to both markets, mortgages to private individuals first, and local authorities and public sector second. I think investors need to be able to understand what you are doing and where you are going.

Sandrine Guérin is an actuary, IAF member (Institute of French Actuaries), and holds a mathematics degree from Paris Jussieu University as well as a graduate degree from ESSEC. With more than nineteen years experience in the financial markets, Mrs. Guérin is presently Deputy Chief Financial Officer of Crédit Foncier de France, a company specialized in real estate financing and owned by the Group Caisse d’Epargne, France’s third largest banking Group. As Head of the Capital Markets Department she is in charge of securitisation as well as derivatives, cash and portfolio management and funding. Sandrine Guérin is also Deputy Chief Executive Officer of the Compagnie de Financement Foncier - a mortgage bank, subsidiary of Crédit Foncier de France, and France’s leading issuer of obligations fonciëres (covered bonds). She is also Chairman of the Executive board of VMG (Vauban Mobilisations Garanties). She joined Crédit Foncier in 1992. Prior to that, she served as Chief Investor Officer at BRED, a subsidiary of NATEXIS, where her responsibilities included oversight of the company’s own portfolio activities and responsibility for derivative products.

VOLUME 4

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Transaction Management – The Next Step Hugo Doswald talks to Money Markets

The TXS value proposition Q. Kindly define your unique value proposition? A. In terms of our unique value proposition for the funding, structured finance and securitisation market, we look at the financial industry as an integrated financial value creation chain; funding, structured finance and securitisation is the link between the asset and investment side. Banks, financial institutions and even large corporates wish to, at times, reduce capital requirements and risk. They have assets and resources in the bank, i.e. consumer loans and mortgages. The key is to find the best transaction to fit the actual market condition, based upon a specific asset class. In summing up the TXS value proposition,

A. I am not an IT man, nor am I a software man; my background is in the securitisation business. I established the securitisation department of a large German mortgage bank, and was responsible for the department for four and a half years. Over this time I realized that when working with inflexible software you inevitably have to deal with IT people. In order to adapt existing software you have to spend a lot of time and money. The same is true when trying to create an original piece of software to handle a new transaction. This process can be very time consuming; it is also very inefficient and costly. As far as I am concerned, the market is changing rapidly. The level of flexibility and the products we are developing are also changing very

“To start developing new software that is generic, holistic and able to handle any type of transaction, with any asset class is a big undertaking.”

our software can carry out transactions in a highly efficient, effective and lean way. This enables banks and financial institutions to select the best alternatives to work with the resources they have. Q. Would it be fair to say that we are talking about object-oriented software? A. Yes it is object-oriented, but I would say that it is more than that. There is a lot of software in the market that can handle a certain type of asset class or transaction very well. We look at assets as a combination of attributes, cash flows and events happening to these assets. So for our software it doesn’t matter whether it happens to be a loan or life insurance. Q. Obviously TXS do not believe in a “one size fits all” methodology, but how adaptable/ flexible is your software?

quickly. Therefore, the IT you have in place needs to be as flexible as possible. This negates the involvement of IT people when changing something in the coding and implementation phase. Within seconds you should be able to adapt the software you have in place in order to reflect any requirements you may have, vis-à-vis new data fields and ratios you have to calculate, or new structures for that matter. Naturally, as a securitisation professional, this is very important. With this in mind, I developed, together with my IT colleague, a software that would enable individuals (non-IT) to make important changes without having much experience in database structure, modeling, script languages or SQL statements. Q. Although the TXSuite has the ability to replicate a number of different securitisation transactions,

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would it be fair to say that the product’s primary focus centers around commercial mortgage backed securities (CMBS) and residential mortgage backed securities (RMBS) transactions? A. To start developing new software that is generic, holistic and able to handle any type of transaction, with any asset class is a big undertaking. You have to start somewhere. We started with the main business of a mortgage bank, which is mortgage loans and residential

point of the integration cycle. For example: an investor has needs, he wants to know a number of things about the portfolio and the assets that are securitised that he has invested in. Usually he addresses the arranger or the originator (the issuer) in order to obtain new reports, information and graphics pertaining to a certain combination of factors. This is a lot of work for the banks. In my opinion, give them the data, the correct IT and let them do it by

“If a bank implements TXSuite it can then offer access to the suite, IT infrastructure and a large number of stakeholders.”

mortgages. We then went on to other asset classes and expanded in to a variety of transaction types. Basically, TXSuite is built to handle all kinds of assets and transactions. We started with mortgages, which is the most complex type of asset. Q. (a): Does your solution go as far as to integrate the selling or securitising organisation with all crosscompany processes of the investor, as well as those of the rating agencies, trustees and paying agents? Q. (b): Can you talk me through the integration process? A. Integration is a very crucial issue when it comes to securitisation. You have a large number of internal and external stakeholders that all work together on the same transaction. So, first of all, integration in-house in the banks legacy systems, with accounting and regulatory reporting is very important. Then of course you have cross-company integration, which is the development phase (three to four years). During this period, cross-company integration will take place with trustees and rating agencies so that they can gain access to the software that the originator or arranger has in their IT landscape. Naturally, the aforementioned stakeholders have to work together on the same database and on the same piece of software in order to gain access to certain functionalities and data that they need. With respect to the financial value creation chain, as far as I’m concerned, this is the starting

themselves. You save time and money. The investor’s level of satisfaction also increases. If a bank implements TXSuite it can then offer access to the suite, IT infrastructure and a large number of stakeholders. This enables them to do the job without having to use Excel anymore. Also, Excel files no longer have to be sent from the issuer to the investor or trustee, with all of the problems that can, and sometimes do, occur. They are on the same infrastructure; they can work on the same transaction and data without any conflicts occurring due to information flows and so on. Q. How do you manage data distribution? A. I talked about the possibilities that investors and or stakeholders, who need access to data in order to analyze a transaction, have based upon the software. This means that stakeholders can play an active part and start working on the data. Consequently, they do not have to wait for the data to be distributed. The software itself has a reporting and information management engine, as I like to call it. It is more than a reporting tool where you schedule and report distribution. You can define specific reports; send specific addressees at a specified date. You have complete flexibility, and in addition, a business intelligence module where you can easily build and use a portfolio management information system. Q. On to the securitisation process; whether true sale

2 | Money Markets

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or synthetic, mortgage loans or leasing claims, you assert that the securitisation process is almost indistinguishable for all types of transactions within the TXSuite, is this correct? A. There are certain differences between transaction types. However, what we have found is that 80% of functionalities attached to the basics of such software are re-usable for any kind of transaction. If you look at the German Pfandbriefe, for example, it’s a very specific type of transaction. An exact rating agency model must be applied along with a specific stakeholder like a trustee who must sign and verify that the assets are in fact eligible. There are certain reports that have to be made for this very detailed and regulated form of

one place. You then need to keep in mind that you’ve changed the results of dozens of different applications. This is one of the biggest problems that make changes to the existing landscape very expensive, both in terms of time and cost. Another problem is that the banks often have different departments that work with the same or similar concepts. This could be a net present value or cash flow concept. You often find that when it comes to market risk management the bank will use a cash flow machine, for pricing, a different cash flow machine, and for structured transactions a third cash flow machine. The question is, which cash flow is the right one? You cannot

“For the moment, we are the market leader in Germany in terms of German Pfandbriefe funding.”

transaction. If you look at what is common and what is generic, there is a huge part that can be reused, regardless of whether you’re talking about a “true sale” or “synthetic” transaction or a mixture of both. If you understand the concept it makes it very easy to develop software that fits all needs. Q. Do you offer automated transaction reports? A. Yes, in different ways. In a push way, whereby the originator produces reports and then sends them automatically to a list of addresses, or in a pull way where investors can build their own transaction reports. IT infrastructure – executing the basics Q. In assessing the IT landscape/ system environment of financial institutions today, what inconsistencies might one find? A. I think that one of the biggest problems for the IT landscape is that there isn’t one. To me, landscape suggests that something has been designed. Our customers tend to have lot of tools and software products, but the landscape tends to be more of a patchwork or spaghetti architecture. There are also a number of interfaces between different parts of the landscape. Not to mention the problems attached to changing something in

say. Certain circumstances exist where you have to choose a different cash flow model. For example, the German Pfandbriefe uses a different cash flow model, with parameters a normal bank market risk management department would not use. I think that for the last ten to fifteen years’ banks have not invested in IT, core-banking systems, or in the basic IT landscape, which becomes challenging. Today, we imagine that most of the banks we talk to are designing the IT landscape of the future. We just assume they think about integration, about a business process orientated IT landscape, as apposed to a tool and functionality-orientated landscape. I am sure that in the next five to ten years a huge amount of money will be spent on the harmonization and integration of the IT landscape in Europe and the United States. As I’ve said, the current architecture resembles a patchwork quilt, which is too complex and expensive to handle. With this in mind, I am very happy that our software offers complete flexibility in terms of the IT system it will have to be integrated with. It’s a very safe investment for financial institutions, big corporates and banks, because it is an investment that will fit in to the IT architecture of the next decade.

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Q. (a): In the absence of an integrated IT infrastructure, how are processes like loan origination or refinancing managed? Q. (b): What affect does this have on transaction costs? Q. (c): Does this not call in to question the way in which resources are administered? Q. (d): How can banks overcome this? A. The answer is simple; they can overcome this by implementing TXSuite. First of all, banks have just started to realize over the last couple of years that there is really an integrated value creation chain. It starts with the lender. Then of course you have the customer who requires the money to buy something, be it a property or machinery to produce something. Finally there is the investor in the capital market who invests in asset-backed securities, backed by these loans, which are originated. Basically, the

Refinancing strategies Given our discussion thus far, once an institution has defined its refinancing strategy, the TXSuite can be used to model the exact structure of the securitisation or private placement. Q. (a): In terms of functionality, can the TXSuite, for example, calculate the credit enhancement level of selected pools? Q. (b): What about stress tests and scenario analysis? Q. (c): What impact does this have on the economic efficiency of the deal? A. Once you have defined your final strategy, it’s very important to simulate different forms of transactions to the various pools available to you. It is a matter of optimising the resources you have as a bank. You have to optimise the usage of your resources in terms of funding, equity management

“If you have a software that is integrated and that reflects all aspects of the process, has implemented or included the evaluation methods and models of the rating agencies, you will be able to go live with the transaction once the data is collected within weeks instead of months.”

whole procedure has to be streamlined to the requirements of the capital market. You can sell anything in the capital market. However, you have to pay an enormous price if the basic materials, the resources, assets etc don’t fulfil the requirements of the investors in the capital market. There are two levels, the first is the data management level; missing and incorrect data is very expensive, not to mention time consuming. It’s a matter of resources, of people doing a lot of work to get the data in the correct format, at the right price in the correct system. The second level pertains more to the steering of the business department. If you have risk premiums in the capital market that reflect, in a very sophisticated way, the risk inherent in a portfolio, but on the origination side, a completely different methodology for calculating risk premiums you end up with a poor fit which in turn could hurt the bank. There you have it, the difficulty behind the methodology.

and risk transfer. It is therefore vital that you simulate the credit enhancement levels of a transaction. You must be able to calculate the effect of stress tests applied by rating agencies to a pool when they rate a transaction. At the end of the day, it’s a matter of economic efficiency. Imagine if you had an instrument at your fingertips that could help you within an extremely short period of time to simulate from A-Z, a transaction. I’m not talking about weeks; I’m talking about hours and days. I’m talking about being able to change the portfolio so that you can study the effect it has on the facts and figures, the ratios and the economics of the transactions. One can then decide, ok, at this moment in time and with these market conditions and spreads, for covered bonds say, the best transaction to execute is simply a covered bond with assets from Germany, an LTV bank between 65-79%, with a volume of 1.35bn euros, and then fix that pool. The next step, of course, is to go to the rating agency with that pool, and show them what you’ve

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done. Within one or two weeks you will have the rating agency’s results, the credit enhancement levels and the ratings. You can then be sure that what the rating agency tells you about your portfolio is precisely what you have seen personally in terms of the end-result. We integrated the German RMBS models of S&P and Fitch in to the software. We calibrated them together with the rating agencies so that what comes out of the machine at S&P, comes out of TXSuite. One of our customers has implemented a new type of transaction, small and medium corporate loans, secured by mortgages. From data collection to the value date, the transaction was closed in 4 months. If you have a software that is integrated and that reflects all aspects of the process, has implemented or included the evaluation methods and models of the rating agencies, you will be able to go live with the transaction once the data is collected within weeks instead of months. The next step for TXS

would like to share with our readers? A. We have finished and released 1.4; 1.5 will be released in the next six to seven months. With the release of 1.5 we will be covering all of the preclosing functionalities that we already cover in addition to closing functionalities. We will also develop replenishment functionalities, implement within the software all “true sale” functionalities and expand all of the functionalities that already exist. EDR functionality will be integrated, which is the special product for the German Pfandbriefe; very lean, very efficient. Therefore, within the next 12 months, a bank that has residential mortgages on it’s balance sheet will be able to perform transactions, whether Pfandbriefe, covered bonds, synthetic RMBS or true sale RMBS with in one IT system, one standard software; comparing the effect of each of the aforementioned transactions in different scenarios will be entirely possible. This will in turn facilitate selection, in terms of whether it would be more favourable to issue a covered bond with an 80% loan-to-value or Pfandbriefe plus a covered bond. These are the main developments looking forward.

Q. To what extent has your partnership with SAP strengthened the product? A. For the moment, we are the market leader in Germany in terms of German Pfandbriefe funding. We have 27 customers running the system. We have eight landesbanks, a post bank and DG HYP. We are, by far, the market leader in Germany, which is our home base. We are also a market leader when it comes to synthetic RMBS transactions and CMBS transactions. In collaboration with SAP, we are building a funding module for them; it has been burnt on to a CD and is being shipped to SAP worldwide. Two years ago SAP developed a new strategy, prior to this they wanted to build everything themselves. However, they realised that this didn’t work and that they needed to rely on experts in several white areas where they did not have anything. The partners SAP select are “best of breed” in their business field, which is why we signed a strategic OEM partnership with them.

Q. Again, looking to the future, do you believe that TXS will grow organically? A. We are currently in an investment phase and are therefore spending a great deal on the development of the software. We are entering the market with software that can handle transactions from A to Z. Given that we are just starting to sell the software worldwide, the year ahead will be crucial. We have a 'best of breed' product that exudes the needs of market participants. This year we will see whether the market is willing to buy the product. The reaction of the market is similar to when Porsche announces a new car. People send in blank cheques and tell them to fill in the right figure. We have witnessed a similar reaction. We haven’t had any blank cheques yet, but there has been enormous interest in our product and so I am very bullish when it comes to the future of TXS. I believe that we will grow organically, and eventually, exponentially.

Q. (a): How will TXSuite evolve over the next six to twelve months? Q. (b): Are there any product enhancements you

Hugo Doswald is the Managing Director of TXS financial products GmbH.

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More than RMBS... Isabel Almeida takes us on the bank’s journey

An introduction to Banco Espírito Santo Q. Please define the funding channels used currently by BES? A. Banco Espírito Santo (BES) is the second largest private bank in Portugal with 47bn in assets. We were quick to recognize and acknowledge the importance of good positioning within the international capital markets. This is precisely why, in 1997, we were the first to establish a Euro Medium Term Note (EMTN) programme. BES has been rated for a long time and is currently rated by the three rating agencies, S&P, Moodys and more recently Fitch. However, our first international issue was in 1993, a preferred share issue in the US market. We subsequently established a commercial paper programme from our New York branch. In 1997 we set up the EMTN programme, as I mentioned earlier, however at that time the

imbalances, vis-à-vis the structure of our balance sheet. This is why, in 1999, we implemented our first securitisation transaction using consumer loans. It was a small transaction at the time-250m - but it was an important one, given that it was one of the first to come out of Portugal. In 2001 we did our second and third securitisation transactions with a leading end-consumer. In 2002 we launched the first residential mortgage-backed securities (RMBS) transaction of 1bn. This was replicated the following year. In 2004 and 2005 this increased in size to 1.2bn. Residential mortgage-backed securities Q. Regarding triple A-rated Spanish and Portuguese RMBS, why have spreads tightened this year? A. In 2002 the spread that we paid on the AAA note was 28 basis points. When compared to the UK, the Netherlands, or Spain, I know that we paid a

"In 2002 we launched the first residential mortgage-backed securities (RMBS) transaction of 1bn. This was replicated the following year. In 2004 and 2005 this increased in size to 1.2bn."

Portuguese banking sector had an excess of liquidity. This meant that most savings, both corporate and individual, were placed in deposits. The transformation ratio, which is the ratio that measures the credit of the deposits, was well below 100% at that time. However, we acknowledged that this would not last forever. We felt that the loan business would increase. When it became apparent that customer deposits were insufficient with respect to the funding of the loan portfolio, which was at the time increasing very rapidly, it was necessary to lengthen the maturity of our funding capacity, and so we issued the EMTN. However, this did not solve the transformation ratio problem. In turn it created certain

premium. That premium was around 10 basis points. However, it was a reflection of the ABS market at the time. Subsequently, the spread has tightened enormously. In 2004 and 2005, Lusitano, which is the brand that BES uses for its securitisation transactions, out-performed the market. Last year we launched Lusitano number three, which was in fact, “deal of the year”. BES has been recognised as being a very responsible issuer, we always take great care of our investors, and price our deals according to investor expectations. We launched a transaction in September 2005 and achieved 11 basis points on the AAA. However a transaction of a similar size more recently, from a Portuguese issuer, only achieved 14 basis points.

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This demonstrates the market’s perception of BES; a responsible issuer that’s committed to the capital markets. I think that this is a fair assessment. If we compare Portuguese issuers to Spanish issuers, I suppose it would be fair to say that Portuguese issuers tend to behave more responsibly, in terms of pricing. Although I’m sure

You will definitely see these types of transactions being executed in Portugal more and more. Covered bonds or RMBS? Q. Large Spanish banks are content to sell covered bonds (cedulas) over RMBS where the mortgage

“One thing that I can assure you of is that I will look at covered bonds very closely. It could be an instrument that replaces RMBS.”

the international investment community have recognised this. Although we are a small market, with a smaller issuance capacity than some, we no longer pay a premium when compared to those markets. Q. Given that RMBS deals tend to be single seller transactions, will we see BES entering in to any multi-seller transactions in the near future? A. There are a number of structuring constraints when it comes to multi issuer or multi seller on securitisation because of the equity pieces. In part, because of these constraints, we don’t really see any major benefit. We have sufficient dimension and power, as an originator, to be able to exceed the capital markets independently. The challenge will come when Portugal’s covered bond market begins. Second tier banks may start putting together portfolios with similar structures to Spain. Market intelligence – the Iberian Peninsula Q. In Spain, small and medium-sized enterprises (SMEs) are a popular asset class, is this true for Portugal? A. It will be. We have already witnessed a synthetic securitisation of corporate loans. In addition, a small transaction has been executed by a Portuguese bank with respect to SME’s. Regarding international investors, this will be the forth asset class to emerge from the Portuguese market. We are looking forward to putting together a transaction using the aforementioned asset class in the near future.

cover pool remains on balance sheet. When covered bond legislation is passed in Portugal will BES adopt a similar attitude? A. We consider securitisation to be three-fold. First you have liquidity; the other is balance sheet management, which is an issue of transformation ratio, and thirdly capital relief. However, capital relief does not require securitisation anymore. You are able to apply the same adjustment to economic capital using or maintaining the assets in your balance sheet. As you have pointed out, the spreads on the RMBS and ABS market -as a whole-have tightened up, especially on the RMBS market. This has been the case for issuers in general over the last three to four years. A great deal of this has to do with the comparisons that investors and issuers make between the covered bond and securitisation markets. Providing credit levels stay where they are, there is still room for RMBS to tighten further. I’m sure investors don’t want to kill the market. However, if they are not prepared to accept spreads tightening further, they may lose a certain amount of the supply they currently enjoy with respect to covered bonds. There is still a lot of uncertainty in Portugal even though a draft of the law has been prepared. Before the law is passed, and we start discussions with the rating agencies, it’s very difficult to say what the outcome of the covered bond law or framework in Portugal will be. Apart from the state bank, that has a double A (AA) rating, all of the other banks are single A. It’s not yet known what the maximum will be, or if we will achieve a triple A (AAA) on the covered bond deal.

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One thing that I can assure you of is that I will look at covered bonds very closely. It could be an instrument that replaces RMBS. It’s different; RMBS has a lot of potential when it comes to rated classes and equity pieces (non-rated classes). There is a large market today for all classes of note issued as a result of an RMBS transaction by BES. Decisions will be made based upon the economics of each transaction. It is very difficult to tell you today, it depends on various factors. Covered bonds - Portugal Q. As far as BES is concerned, has the absence of covered bond legislation affected you in any way? A. We feel less penalised given the current behaviour of RMBS spreads. The tightening of the RMBS note has to some extent mitigated the fact that the Portuguese banking sector cannot count on the instrument in question. However I would like to have the ability to analyse every instrument, and have the option to select one or the other depending on the economics. I am not comfortable with the absence, given that my Spanish banking colleagues have this instrument available to them. They also have the capacity to operate in Portugal using tools or funding that I do not have access to. Looking ahead Q. Where do you see BES moving forward? A. In terms of funding in general, we will continue to use our EMTN programme, executing public and private transactions in the European market. I must also mention securitisation, the structured finance required to fund various classes of assets, ranging from consumer to mortgages. Now of course you have small and medium size corporate loans and eventually you will have larger corporate loans and other asset classes. I would say that our main aim in 2006 will be to diversify structured finance in terms of new asset classes, i.e. SME’s.

Isabel has been Executive Vice President in the Financial Department, Treasury and Capital Markets, of Banco Espírito Santo, SA, since December 1996, responsible for, among other things, the execution of the funding plan for BES Group, including securitisation transactions.

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Rating the Issuers Helene Heberlein and Andreas Denger talk to Money Markets

Investor education Q. Aside from the pick-up in a low yield environment, where is the added value for investors? A. First, market liquidity is very good. Second, we have large issue sizes. Another great advantage is that you can trade covered bonds very easily, via an electronic platform. In addition, covered bonds span the entire interest rate curve; this means that you have different maturities from which to choose from, therefore, you can create your own portfolio. The high credit quality of covered bonds is of course also very attractive. Q. Would it be fair to say that one of the important factors behind the demand from financial institutions for covered bonds has been the preferential treatment of such instruments in the directive on “Undertakings for Collective Investment in Transferable Securities” (UCITS)? A. You are quite right, covered bonds do benefit from preferential treatment when it comes to the investing banks. This has certainly been one of the

existing ones, new markets will emerge. What steps have Fitch taken in order to manage this growth? A. We currently rate thirty-four issuers in eight European countries. Certainly, the number of countries that now have covered bond issuers is growing steadily, with Sweden, Italy and possibly Portugal - very soon joining the mix. Further a field, Eastern Europe is also developing and we now have draft legislation in place for the Ukraine and Turkey. One striking fact about this market is the lengthy legislative process. A good example would be Sweden. Although legalisation was agreed in 2003, regulation by the banking authorities was not passed until October of the following year. Thus far, two issuers have applied for a licence under the new framework but have yet to issue. The number of hurdles that have to be overcome when trying to push a new law through parliament are significant, not to mention the technological challenges involved; banks need to have the correct systems in place in order to issue covered bonds. To conclude, you asked what steps Fitch had taken

“Therefore, even without legislation in place, the UK may well benefit from favourable capital treatment in the near future.”

major catalysts in this market. The fact that the UK has yet to comply with the criteria set out in the UCITS directive has been a small setback. However, the FSA is expected to take a position on this soon. Therefore, even without legislation in place, the UK may well benefit from favourable capital treatment in the near future. Market expansion Q. There are around 20 active covered-bond markets in Europe. However, as national legislators adopt modern covered-bond regulations and or modernise

in order to support the aforementioned growth taking place in this market. Well, last year we created a dedicated covered bond team, the aim being to take care of existing ratings and new assignments. The team is multicultural, Andreas is a German national, I am a French national and we have a range of other nationalities, which helps when trying to match the issuer’s cultural background with our own. We are based in London, Paris and Frankfurt, and therefore cover all of the major markets. Fitch also has offices in other countries like Poland and Russia. For instance, when the Ukrainian draft

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legalisation was raised we liased with our analyst in Russia who is responsible for rating Ukrainian banks. Q. We’ve talked about the emergence and management of new markets, but what about the needs of the investors? A. We assist investors who perhaps don’t have the time or know-how required to be able to analyze the market properly. Although more and more investors in different countries are investing in covered bonds they don’t have the requisite experience. Therefore, gathering and analyzing data can be quite difficult. We, however, offer clear, concise data, thus providing investors with up-to-date information. Guidance on new structures and structuring techniques is also offered.

derived from the issuers’ promise to pay and, failing that, the investors’ preferred rights to the underlying collateral, stipulated to be of a high quality, i.e., a low loan-to-value (LTV)? A. You are indeed correct, the instrument is a dual recourse instrument; you have full recourse against the issuer and failing that, as you have explained, recourse on the covered pool; the covered pool is generally of a high credit quality. To be fair, the main risk to investors is not the credit quality of the asset, which is very safe. The main risk, in case of an insolvency of the issuer, resides in mismatches between the cover pool’s and the covered bonds’ profile. The goal, in terms of improvement, for many jurisdictions in Europe is to ensure that covered bonds continue to be paid on time despite issuer

“It is our aim to provide investors with high quality research and maintain transparency with respect to our rating approach.”

Q. Many analysts believe that Markets like France could be a lot bigger, but blame restrictive rules – over and above the legal framework governing the instruments – which have been agreed upon by rating agencies and existing issuers. Is this really fair? Surely the management of assets and liabilities falls outside of the rating agency’s remit? A. I’m surprised you mention France. I have heard similar comments about the Irish market, which some deem to be too restrictive. However, to answer your question, we actually do not interfere with legislation. We sometimes give feedback with respect to drafts, but that is different. Naturally, we do visit the issuers and we do discuss the management of their assets; asset and liabilities management is one of the cornerstones of rating analysis. Ultimately, the banks have a strategy and they implement it. We simply like to know how they perform and the decision-making processes they use; this becomes part of our operational review. However, we certainly do not tell them what to do. Ratings structure Q. Put simply, would it be fair to say that the high ratings attached to covered bond instruments are

insolvency; Austria is a good example, whereupon the bank default, the covered would accelerate automatically. However, some recent changes now give Austrian covered bonds issuers the option to declare all payments on outstanding covered bonds due and payable, or to continue payment according to their original schedule. In the first case, covered bonds investors would suffer a default followed by recoveries from the cover pool. In the second case, investors are mostly exposed to mismatches. Whilst we agree that there is a credit component, it is not the main constituent in this case, i.e. the credit quality of the asset is not the main concern. However, maturity mismatches, interest rates or currency mismatches need to be analysed carefully. Q. As an adjunct to the previous question, how is higher LTV lending being accomplished today? A. This happens in Germany; the loan is granted for a higher loan-to-value than say 60%. The portion above the 60% loan-to-value is not refinanced through Pfandbriefe, it’s refinanced through the unsecured debt of the bank. Even in the UK, there are loans in the cover pool that represent all types of LTV. However, when they calculate the volume of covered bonds that can be raised against the covered

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“The goal, in terms of improvement, for many jurisdictions in Europe is to ensure that covered bonds continue to be paid on time despite issuer insolvency.”

pool they only take into account the 0-75% portion of the loans, for instance. Therefore, banks do lend at a higher loan-to-value ratio. Q. How do you treat issuer’s like HBOS, who in the absence of covered bond legislation elected to move forward with a structured offering? A. Exactly the same. In countries which have a dedicated covered bonds legislation we pay a lot of attention to it. We review the law, talk to the lawyers, examine the regulations and speak to the banking authorities. The questions we ask ourselves are no different to those that would be raised if we were reviewing the contractual agreements upon which UK and Dutch covered bonds are based. Thus we are able to assign AAA ratings to both types of instruments, which means that in our view, the two are equivalent. We don’t treat them any differently. Of course in the absence of legislation investors must work with contractual arrangements even though some prefer, or tend to trust, legislation more. Nevertheless, we feel that contractual agreements are binding; we also get legal opinions on the validity of the contract. It is also worth mentioning that legislation is quite often changed; however these changes have always benefited the investor. Therefore, we can’t say that legislation provides more comfort than contractual agreements do, we treat them the same. Q. Although a common legal framework for covered bonds is some way off, to what extent will agencies, like Fitch, be involved? A. We wont be the driving force behind it. It might, however, come from one of the associations like the European Covered Bond Council for instance or perhaps another banking association. There has been some discussion about what they call the 26th Dimension; obviously there are 25 countries in the EU. It would basically be a unique European legislation applicable to all countries. If there is a proposal, and issuers want to use it, then of course we will review it and provide feedback with respect to rating methodology and so

forth. However, we will not push it forward ourselves. Q. It seems that the Asian investor’s appetite for more established classes of covered bond, such as Obligations Foncières (OFs) and Pfandbriefe know no bounds. However, what has prompted Asian investors, particularly central banks, to look so favorably upon this instrument? A. As we mentioned earlier, foreign investors understand that this is a high quality product. The development of the euro against the dollar is another reason. Additionally, investors look for euro bonds with superior credit quality, and where possible a slight yield pick-up over government bonds. Fitch – the year ahead Q. What does the future hold for Fitch Ratings? A. Well, we have created another two positions on the covered bonds team, which means that we will continue to grow over the coming months. It is our aim to provide investors with high quality research and maintain transparency with respect to our rating approach. We are in a good position, because Fitch is already the rating agency of choice when it comes to bank ratings. We have more bank ratings outstanding than any of our competitors. With this kind of momentum we hope to be the agency of choice, which naturally encompasses covered bonds.

Hélène M. Heberlein is a managing director and the head of European covered bonds at Fitch Ratings. She is in charge of overseeing the methodological developments in the rating analysis of covered bonds (such as Pfandbriefe in Germany, Obligations Foncières in France, Cédulas in Spain, Asset Covered Securities in Ireland, and Lettres de Gage in Luxembourg) issued by banks in various European countries with or without specific covered bonds legislation. Andreas Denger is an associate director within Fitch Ratings’ European covered bonds team. Based in Frankfurt, he is involved in the rating of German Pfandbriefe and Lettres de Gage in Luxembourg.

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Making it possible

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The Evolution of Fixed Income Products in the Electronic Trading System Market Michael Hewitt, ZBI Bonds

Since their inception in the mid to late 90’s Electronic trading platforms in both the U.S, and Europe have continued to mature and consolidate, and today online execution of fixed-income transactions has become virtually commonplace with systems such as Bloomberg, Tradeweb and MTS to name a few, carrying liquidity in thousands of issues and producing huge daily trading volumes. This hasn’t always been the case. Fixed income electronic trading has been significantly slower to develop than in the equity markets. This is largely reflective of the distinct differences between the two product types. Fixed income products are far less homogenous, with many more separate and individually less liquid issues than equities, making it technically more difficult and more expensive to introduce automated systems. For this reason the early fixed

These platforms provide customers with consolidated orders from two or more dealers, and provide customers with the ability to execute from among multiple quotes. Often, multi-dealer systems display to customers the best bid or ask price for a given security among all the prices posted by participating dealers. These systems also generally allow investors to request quotes for a particular security or type of security from one or more dealers. Participating dealers generally act as principals in transactions. In addition there are Auction systems that enable participants to conduct electronic auctions of securities offerings. Buyers submit bids for the securities on offer and the offering is awarded to the bidder that offers the highest price/lowest yield. Cross-matching systems generally bring both dealers and institutional investors together in networks that provide real-time cross-

“Fixed income products are far less homogenous, with many more separate and individually less liquid issues than equities, making it technically more difficult and more expensive to introduce automated systems.”

income platforms concentrated on creating liquidity in the US and European Government bond and agency sectors. This has changed to a large degree over the past few years, with numerous platforms offering liquidity electronically across an ever expanding range of Corporate bonds, Emerging market issues, High yield debt products, convertibles, credit derivatives and a whole range of associated products. What is also noticeable is the range of automated trading systems that have evolved to trade this range of bond market instruments. There are now order-driven platforms in addition to several automated versions of dealer markets, offering a range of participation and access arrangements for dealer, inter-dealer and customer sectors. Most prevalent of these system types are the Multi dealer systems typified by the likes Bloomberg, MarketAxcess Tradeweb and SWX Swiss Exchange.

matching sessions. Customers enter anonymous buy and sell orders with multiple counterparties that are automatically executed when contra side orders are entered at the same price or when the posted prices are “hit” or “lifted”. These types of systems typically allow users to execute complex portfolio strategies that incorporate multiple orders in different securities. The interdealer systems allow dealers to execute transactions electronically with other dealers through the fully anonymous services of brokers. All the major interdealer brokers in the US treasuries securities market currently offer or expect to offer their customers’ access to electronic brokering and this is fast becoming the norm within the European markets as well. Finally there are an increasing number of singledealer systems which allow investors to execute transactions directly with a specific dealer of choice, with the dealer acting as principal in each transaction. Dealers

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offer access through a combination of third-party providers, proprietary networks and the Internet, although in recent years there has been a pronounced shift toward access through the Internet. In total there are now some 77 systems involved in the trading of fixed income instruments, up from only 11 four years earlier. However the trend in recent years has been one of consolidation. Weaker systems that fail to attract liquidity and trade volume have fallen away, and continued merger activity across stronger platforms will ensure longevity for the strongest players. Ultimately liquidity may gravitate to a few core platforms and exchanges spread across the system types described, that can offer the depth of liquidity, trade volume and price transparency necessary for survival. What has also become evident is that the level of competition in the electronic market-making sector has increased considerably over the past three years. This has resulted in ever narrowing spreads, which has placed

range of liquidity available from ZBI will continue to be developed and deepened in the future by accessing additional multi dealer exchanges and platforms. In addition, access to single dealer systems will become an important distribution channel, most notably in the provision of consistent and transparent price liquidity to the growing retail market in fixed income. Whilst the retail fixed income market in Europe and the UK is in its infancy compared to the equity market, and the US retail fixed income market, demographic changes over the next 10-20 years will play a pivotal role in the awareness of fixed income as an asset class to the retail investor. In that regard the ability of ZBI bonds to now leverage the use of in-house technical functionality to provide distribution to this customer base, will undoubtedly assist the process of developing an electronic trading capability to this growing sector. As these electronic systems evolve, they will enable customers to directly access a larger number of markets,

“In total there are now some 77 systems involved in the trading of fixed income instruments, up from only 11 four years earlier. However the trend in recent years has been one of consolidation.”

pressure on maintaining profitability, as trade settlement costs have only been marginally reduced over this period. Indeed this was an important factor in the decision of Zions Group to acquire Van der Moolen Bonds in early 2004. Van der Moolen Bonds (now trading as ZBI bonds) are specialist market makers in “odd lot”, or retail size fixed income instruments. Similarly Zions Capital Markets operate in the same odd lot niche in the US, across a wide range of US Corporate issues, US agency, Treasury and Municipal bonds. The acquisition has created many synergies across the two entities, most notably allowing customers on both sides of the Atlantic access to a wider product base at competitive prices. The liquidity provided by the enlarged operation now includes a range of several thousand lines of inventory and will grow further as the operation responds to customer demand in the US, Europe and Asia. The acquisition has generated a clear focus for the efforts of ZBI Bonds, and hence a stronger vision of their role within this global electronic market place. ZBI Bonds already provide directly executable price liquidity in odd lot size across such multi dealer systems as Bloomberg and SWX Swiss Exchange. Ultimately, the

removing geographical access restraints and allowing continuous multilateral interaction. This in turn will continue to blur the distinctions between inter-dealer markets and dealer-customer markets. Customers will enjoy the benefits of price transparency, as the prices quoted across electronic platforms move nearer to those quoted in the inter-dealer markets. Electronic trading will ultimately contribute to more efficient price discovery through enhanced transparency, accelerated transmission of information on trades, faster trade execution, and larger transaction volumes. These systems may also positively influence financial stability by providing the access to a global pool of liquidity to a much wider range of players, through the connectivity provided by a truly global electronic marketplace. In that regard ZBI bonds are firmly placed to play an increasing role in the provision of consistent and accurate price liquidity to this growing pool of electronically connected market participants that spans the globe.

Michael Hewitt is the Managing Director of ZBI Bonds in London, responsible for commercial and strategic business development.

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Foreign Exchange Today â&#x20AC;&#x201C; An Overview Scott Wacker

The FX Landscape Alain Broyon

2005/6 European Forex Platform and Brokerage Review

Navigating the Currency Markets Uwe Wunderle

New Markets, New Opportunities Jakob Zablocki

FOREIGN EXCHANGE

Foreign Exchange Today - An Overview Scott Wacker talks to Money Markets

Despite forecasts of significant margin contraction and the threat of bank consolidation, the foreign exchange market continues to be the largest and most dynamic financial market in the world, expanding in both depth and breadth every day. While it is true that a significant proportion of the market volume has become much more streamlined and efficient, with billions of notional dollars being seamlessly transacted via automated execution channels, several other parts of the foreign exchange market are still far from standardized. This evolution continues to underscore the importance of the foreign exchange market as it continues to be the pressure valve of the free market system, reflecting immediately the influences of economic policy, financial market movements, political changes, demographic shifts, and even, weather patterns. The volatility and speed of the market keeps it far from tame and continues to create

market volume - the understanding and handling of flow foreign exchange. In the most liquid currency pairs, foreign exchange transactions pour into the banks at speeds which are too rapid to deal with manually or to be able to discern a tradable trend. Some of the flow is based on underlying business needs, but the bulk is based on market positions which react to different variables and have different trading time horizons. However, all the transactions cost money. As a result, it is increasingly important to understand the nature of the business coming in, the way in which clients (in many cases, computer trading systems) are reacting to market signals, and to determine the appropriate positions in response. Trading the flow and managing the cooperation between computer trading and human intervention is a significant change in the market which will increasingly shape the Foreign Exchange market going forward. The increase of flow and automated

â&#x20AC;&#x153;The foreign exchange market continues to be the largest and most dramatic financial market in the world, expanding in both depth and breadth every day.â&#x20AC;?

both opportunity and risk for its participants. Predicting its trajectory is almost impossible, yet there are a number of clearly identifiable trends which are strongly influencing the development of the Foreign Exchange market. Technology Technology is by far the most significant change agent for the foreign exchange market. The aspect most often discussed is the development of electronic execution. The expansion of ECNs, single bank platforms, and APIs (Automated Pricing Interface) has not only increased the volumes transacted in the market but also increased the speed with which the market adjusts to market shocks and to liquidity disequilibrium. This has given rise to a new perspective with regard to dealing with the increased

trading has also led to new pools of liquidity. It is often questioned whether or not these new pools of liquidity are real or imagined, but their existence has facilitated the proliferation of a myriad of electronic risk management and trading systems which rely on this virtual liquidity. This rise in electronic dealing is changing the landscape of foreign exchange and increasing the scale and depth of the market. However, it is not all automated. Despite the advent of technology, many active Foreign Exchange market participants still prefer a traditional style of personal interaction with the market. The combination of increased electronic dealing and the continuation of traditional human trading is additive versus duplicative and has made the market an even more diverse and dynamic forum of exchange. However, the technology revolution cannot be applied to all aspects of the Foreign Exchange market. Instead, it has compressed

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margins in the most liquid currency pairs, forcing more attention on the less liquid or less developed markets. Local markets Less liquid and more unique local markets are hot and is one of the most important and exciting areas of focus and development. Despite the emerging market crises in the recent past, the international banks with strong local presence and relevance have been developing the local foreign exchange markets at a startling pace. In particular, strong cooperation with local government entities, more progressive and open local economic agendas, a stable economic environment globally, and strong private sector growth both domestically and from abroad, have increased the

the US (Regulation FAS 133), and then by the International Accounting Standards Board in Europe (IAS 39) triggered a rush to develop tools to help meet the changing accounting requirements of the 21st century. In Europe, corporate clients are only now beginning to understand the full impact of these new regulations and the market is seeing a resurgence of the use of foreign exchange options as a hedging tool. Still, there continues to be a proliferation of accounting tools to assist corporate customers in dealing with the accounting burden. This is not likely to abate, but the lessons learned when helping customers learn to manage accounting changes are now being applied to other regulatory changes. This year has been a significant year for the inflow of funds to the US under the Homeland Investment Act. While this is related to a specific US tax opportunity, the tax perspective in

â&#x20AC;&#x153;The greatest areas of opportunity are with further harnessing technology, developing the local markets, building enhanced quantitative tools, recognizing FX as an alpha source, and linking in the Processing element to the disparate aspects of the FX business.â&#x20AC;?

requirement for increasingly sophisticated products and hedging tools. As a result, the level of liquidity in these markets is rising and market efficiency is increasing. However, differing government regulations regarding capital movement, taxes, accounting and domestic economic priorities have made full automation and efficiency impossible. Instead, these markets are developing along unique and often diverse paths. Local context and knowledge is essential for success as well as depth as hedgers and speculators require access not only to the local currency, but often times the local fixed income, money markets, equity and capital markets as well. The interdependence of these markets and the strong partnering between the large international banks and local governments will continue to make the local markets an area for increased focus and growth. Analytics Another area of rapid development in the Foreign Exchange market is in the area of enhanced analytical tools for hedging risks and extracting excess returns. The complexity of accounting rule changes initiated first by the Financial Accounting Standards Board in

many countries often affects the movement of capital, the structuring of legal entities, and as a result, the required foreign exchange activity of our clients and the market. We expect an increase in focus on the development of analytical client and trading tools as well as investment in advisory capabilities. We also expect to see a proliferation of trading style optimization models, ALM models, and return leverage models that will add value and sophistication to the management of foreign exchange. Alpha source An area which has grown and will continue to grow is the concept of foreign exchange as an asset class, or more correctly, an alpha generator. This focus will continue as an increasing number of traditional asset managers are setting up in house hedge funds to capitalize on the inherent foreign exchange volatility embedded in their international asset portfolios or to add incremental, non correlated, return to a portfolio by setting up a currency overlay approach or by establishing a separate foreign exchange trading portfolio. This ties in with the development of

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quantitative models, automated execution, and the access to local markets as generating foreign exchange sourced alpha is increasingly incorporating systematic trading models or a portfolio of trading models. A recent development is the use of structured notes which aim to capture the returns from these optimization models and quantitative approaches. This allows smaller asset managers to add a foreign exchange alpha component to their portfolio without having to develop a separate foreign exchange trading operation or a separate methodology to deal with foreign exchange as an asset class. Processing In an environment where the number of transactions are dramatically increasing, efficient processing is a potential constraint and certainly a cost. The explosion of transactions has put an unprecedented strain on the front office and back offices of the active foreign exchange banks. Therefore, processing efficiency and focus will continue to be of paramount importance. This is driving more innovative fee structures, often liked to prime brokerage and custody clearers. These costs are real for both the market makers and the users of foreign exchange and there is increasingly a well-defined balance between the type of business, which transacts between counterparties and the settlement component. Front office execution involves risk and liquidity, which requires a return. This can be offset by a fee based processing relationship, linked to the value of the front office execution. Alternatively, access to third party pools of liquidity can also be offered, provided the offering bank is used for settlement and processing. In another permutation which has been increasing, is insourcing. As the scope and volume of the foreign exchange market increases, the largest and most efficient banks are offering both front office as well as back office foreign exchange services to smaller banks which would rather focus on client interface than having to continually invest in operational efficiency. While this consolidates more volume in the hands of fewer banks, it also allows for efficient delivery to a wider spectrum of clients. This value proposition will become more important as we move into the future. Compliance and sustainability A final focus for the foreign exchange market, amongst the many, is, and will continue to be,

compliance and sustainability. With increasing pressure from the regulatory authorities, all financial institutions are going out of their way to ensure that counterparties meet the strictest tests of transparency and acceptability. Led by the US’ efforts to clamp down on terrorism, the major financial regulatory authorities are requiring all financial institutions to be open and forthright in their dealings and to take an increasingly responsible position with regard to correct dealing practices. This has raised questions in the emerging markets, where some of the greatest opportunities still lie, but also in developed markets where some of the largest and most complicated transactions take place. Understanding and implementing a clear client engagement, “know your client”, and anti-money laundering policy is a significant administrative task, but critical to success in the future. The clear focus will also be on counter party risk and transparency of execution. The themes today will be the themes of the next 12 - 18 months. The opportunities are still immense, despite some of the consolidation and efficiencies which have been achieved. The greatest areas of opportunity are with further harnessing technology, developing the local markets, building enhanced quantitative tools, recognizing FX as an alpha source, and linking in the Processing element to the disparate aspects of the FX business. The greatest obstacle facing the market will be the compliance and sustainability factors.

Scott Wacker is currently Global Head of FX Sales and Corporate Sales at ABN AMRO, working from London. He joined the Dutch based Global Bank in 2002 and has been active in the Foreign Exchange and Derivatives market for 15 years having previously worked for the Royal Bank of Canada, JP Morgan and Lehman Brothers in Toronto, New York, London and Amsterdam. He has an MBA from Columbia University and a BS from the University of California, Berkeley. The FX Sales and Corporate Sales team is ABN AMRO’s Global Market’s sales group focusing on the specialised sale of Foreign Exchange products and services to all clients, Financial Institutions, Public Sector, and Corporations, as well as the multi-product Corporate Sales team focusing on full service Traded Products sales and advisory. The team comprises locally based sales professionals in 43 offices around the world.

FOREIGN EXCHANGE

The FX Landscape Alain Broyon talks to Jonathan Calens

FX market volatility

Q. Will major currency realignment continue? A. From a technological standpoint, realignment will continue. I also think that economies with similar frameworks will go through a period of realignment and or adjustment, which will certainly facilitate greater unity. Q. With respect to Asian currencies - has their support of the dollar ended? A. There are a number of factors that will keep the dollar down against Asian currencies. For example, at the end of 2001, Asian central banks; the largest holders of US dollar Treasuries, started to diversify their US dollar holdings into euro, yen and sterling. If you were to look back at the total deposits held in the third-quarter of 2001, by Indian banks, you would see that there has been a 28% reduction with respect to US dollar exposure in the last four years.

What creates volatility you may ask? There are the basic fundamentals, but then you also have panic, fear of loss and the simple ebb and flow of the market. Trading volumes Q. What are the limitations to growth? A. Well, the FX market is becoming more and more electronic; everything is online now. In order to facilitate further growth, the banks and prime brokers will need to upgrade their technology constantly to ensure that they keep up with the pace of change. We will also support complex trading. Of course online systems, not just ours, will have to work with complicated credits, market risk calculations and so on. The only limitations Dukascopy has, are the ones it sets itself. Q. So are these the only limitations you foresee? A. As far as Dukascopy is concerned, it’s about meeting the needs and expectations of our clients.

“As a broker, we do not forecast in order to manage our risk. Also, given that most traders tend to use technical analysis, the FX market is really becoming more and more scientific.”

To further underline this point, some Middle Eastern central banks are now also considering buying euros instead of dollars. Q. Moving on to the subject of World volatility, would you care to elaborate on the impact of economic forecasting on risk? A. Yes, there has been some uncertainty regarding economic forecasting. However, as a broker, we do not forecast in order to manage our risk. Also, given that most traders tend to use technical analysis, the FX market is really becoming more and more scientific.

However, as I just mentioned, the market becoming more and more electronic, banks and prime brokers will need to consistently upgrade their technology. This is not as easy as it sounds, especially for banks. A bank is not an IT company, it’s a bank. We’re different; at the beginning we were an IT company, now we are a financial company. Q. Can you identify the key drivers responsible for the growth of absolute return strategies? A. There are many drivers, but one of the most important is the investor’s perception of forex.

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“The market becoming more and more electronic, banks and prime brokers will need to consistently upgrade their technology. This is not as easy as it sounds, especially for banks. A bank is not an IT company, it’s a bank. We’re different; in the beginning we were an IT company, now we are a financial company.”

Investors now consider forex to be the new asset class. Given that other investment classes are producing fairly low returns, absolute return strategies will of course grow. In addition, hedge fund managers need to find new opportunities, as you know the equity and bond markets haven’t performed that well in recent years. Currency alpha and risk management Q. Would you care to comment on the importance of risk control in currency management? A. That’s a very interesting point. I think the risk control of currency consists of managing separately, from other investments, the currency risk attached to the international investment portfolio. I see several reasons. First, the return on equities has diminished in recent years. Therefore managers have been, and are, under pressure to preserve returns; currency overlay provides a way to save money and add value. Second, investment managers have to look for returns; they are increasingly exposed with respect to international equities and of course there is currency risk exposure. You have to bear in mind

A. It’s important because, the probability of alpha correlation is much lower, when compared to the rest of the hedge funds industry where a positive and or negative correlation has a much higher probability of occurring. Also, consider the FX hedge funds manager, only the macro player uses fundamentals. Additionally, there are as many strategies (systematic trading) as there are market players. Finally, when compared to equities, FX transaction costs remain lower and so you save money. Trivial, but it has a real impact on alpha. Emerging markets Q. In terms of adding value through emerging markets, what opportunities exist across Latin America, Central/ Eastern Europe and Asia? A. Investors have already seized upon the Polish zloty, Hungarian florint and Czech koruna, as well as many of the Latin American and Asian currencies. However, new sources of return are constantly being identified. Currencies like the Romanian leu,

“Investment managers have to look for returns; they are increasingly exposed with respect to international equities and of course there is currency risk exposure. You have to bear in mind that whilst currency movements can have a very positive effect on returns, they can also be very damaging.”

that whilst currency movements can have a very positive effect on returns, they can also be very damaging. In a tough environment, currency risk management is the key. By managing existing risk you can add yield to your returns. Q. Why is multi-manager FX such an important source of alpha?

and the Ukrainian hryvna are good examples; given the time-line to European convergence these represent lower risk investments. Hedge fund managers are also looking at more exotic currencies in terms of yield. In fact, hedge funds have been participating in emerging market foreign exchange to a much greater extent this year than they were in the past.

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Q. Do you feel that currency managers need different skills in order to derive maximum returns from emerging markets? A. Normally, emerging market currencies are regarded as being suitable only for the most sophisticated of forex investors; the aforementioned currencies are prone to shocks from political and economic risks, as well as severe liquidity crunches and potential intervention from central banks. Until recently, many investors just simply didn’t have the nerve. There are an unlimited number of skills a FX manager should have when trading in these markets: - Credit Risk Management (high degree of understanding) - Macroeconomic understanding (Social and political) but also local market understanding Q. What role does the multi-manager fund play in achieving returns from emerging market currencies? A. Basically, attract more and more money; bring

hedging currency strategies. They have also indirectly modified legal regulations and so liberalization continues. Hedge funds and the FX market Q. How do hedge funds affect liquidity in the FX market? A. As we mentioned earlier, their affect is huge, huge liquidity and volatility. Q. What affects do hedge funds strategies have on other market players? A. When you consider the large credit risks hedge funds carry, you can appreciate how easily they can affect financial stability. Given that hedge funds are rather opaque, it does affect banks’/brokers’ ability to be able to aggregate the exposure of each hedge fund. Naturally, from a risk management standpoint this can have quite an adverse affect on banks or brokers.

“Hedge funds have been one of the big factors. They’ve brought new liquidity to this market through investment in local stocks and hedging currency strategies. They have also indirectly modified legal regulations and so liberalization continues.”

greater liquidity to the FX market, develop the stock exchange and contribute to the growth of the country.

Dukascopy – the future Q. To conclude, let me ask you, where do you see Dukascopy going from here?

The changing face of Asia and the Middle East Q. What impact has economic liberalisation had on Asian and Middle Eastern Markets? A. I do not want to talk about all the philosophical and fundamental ways. Basically, liberalization helps to attract more liquidity. As far as growth is concerned, the sky’s the limit. Q. Regarding growth, what factors are driving FX in these markets? A. Hedge funds have been one of the most important factors. They’ve brought new liquidity to this market through investment in local stocks and

A. Certainly I foresee Dukascopy being at the top of its field, in terms of inter-bank access. I expect our managers to be turning over up to 100bn per month very shortly. Although we’re talking about big numbers, serious leverage, we can do this. We have all of the ingredients and to a large extent are already doing it. Dukascopy is growing very rapidly, which is good; by consistently generating big volumes our metamorphosis into a bank will be complete. Consequently, this will allow us to manage everything.

Alain Broyon, CEO of Dukascopy (Suisse) SA.

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2005/6 European Forex Platform & Brokerage Review

While online equities and futures trading have enjoyed exponential growth and widespread notoriety over the years, online foreign exchange trading is only now gaining in popularity amongst seasoned active traders, retail investors, commodity trading advisors (CTAs), and other professional money managers. Until recently, large international banks dominated the foreign exchange (FX or forex) market, only allowing access via telephonic trading to a select few, such as Fortune 1000 companies, large funds, high-net worth individuals, and so on. But now, the tide has turned and finally there are established online trading firms that provide individual investors with direct access to the largest, most liquid financial market in the world. However, given the plethora of platforms and providers available, selecting the right partner isn't easy. The Money Markets "2005/6 Forex Platform & Brokerage Review" is designed to refine the filtration procedure and facilitate the investor's decision-making process. Key Performance Indicators (KPIs): Listings have been based on the following KPIs:

Review dates and regions: Next review date, July 2006. The inclusion or exclusion of brokers will be subject to the findings of the review panel. Selected zones only: No more than five brokers have been selected for inclusion in to any one geographic territory. Central Europe ACM Advanced Currency Markets Dukascopy (Suisse) SA GFX Group Neuimex Synthesis Bank Eastern Europe Akmos Trade Fibo Group TMS Brokers Ukrsotsbank X-Trade Brokers

*Best-in-class 2005/6

USA & Canada • • • • • • •

Customer service Commission structure Margin Execution Security Spread Slippage

CMS FXCM E* Trade Gain Capital Oanda

*Best-in-class 2005/6

UK Trading platform indicators include, but are not limited to: • Adjustments permitted to the standard lot size traded • Automated systems trading via an API • Number of currency pairs • Mini accounts • Range of added value services • Reliability

Capital Spreads CMC Markets (UK) FXall Europe IG Markets Man Financial Ones to Watch Saxo Bank MIG Investments

FOREIGN EXCHANGE

Navigating the Currency Markets Uwe Wunderle discusses the topic with Jonathan Calens

Getting started.. Q. What are the chief benefits attached to trading forex with Neuimex? A. Since January we have offered guaranteed two pip spreads on the world majors, this applies to €25,000+ accounts. The investor gets the two-pip spread guaranteed, regardless of volatility. There is no increasing the spread; it’s always two pips. Another key benefit must be our platform, the Neuimex trading terminal, “NEXTT”. It’s a very professional trading platform that offers expert advice, it also facilitates full automated trading; back testing is possible, this allows the trader to see how successful his or her strategy has been. The platform is easy to install, it’s user friendly, has lots of technical opportunities and enables the trader to create his or her own indicators, and of course there is no fee attached to the use of the platform as a client.

bigger risks in order to win. We provide mini and micro accounts. Micro lots are one tenth of the mini or one hundredth of the standard lot, we’re talking about 0.01 lots. For testing purposes it’s a great tool, but it’s also good for testing your strategy under live conditions. This is where a demo account doesn’t make sense, because it’s too easy. If you’re investing real money your emotions are very different. Q. Would it be fair to say that smaller trade sizes give investors the opportunity to trade live with less overall risk? A. Yes, because it gives the investor an opportunity to optimise his tactics and in addition connect to a money management strategy. If, when trading the standard forex lot, the trader only has €2000 then of course he or she cannot trade two lots in euro/USD. The trader can always trade one lot because the margin is so high for the standard lot. If trading mini, I would

“This is where a demo account doesn’t make sense, because it’s too easy. If you’re investing real money your emotions are very different.”

Q. For those that are new to the FX market, some providers suggest mini accounts. Is this something that Neuimex offers? A. We do offer these accounts in conjunction with a number of tools designed specifically with the rookie investor in mind. An investor can start with a demo account in order to make a few paper trades. However, there is a big difference between paper trades and trading with a live account with real money, because emotions factor in to the equation. The next step we offer is a monthly trading competition. You do not invest real money but compete against other traders. If you’re successful you win prizes. Naturally, some participants take

also advise trading micro lots; a trader can trade five or six micro lots, make different entry and exit points and adopt a very good money management strategy at the same time. All professional trading participants, be they banks, hedge funds etc all use money management strategies; you never make the optimal entry or exit point, if you do, it’s luck. The way to combat this is by diversifying your entries and exits, this is money management. Beginners can learn this very important skill when they use micro or mini lots, which are fairly conservative; our minimum account opening is €250. However, this does allow the trader to develop his or her strategy. With micro lots you can trade more lots, you can

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have different entry and exit points, and you have enough margin in order not to invest all of your money with one trade. This is a very good tool and certainly a lot less risky than trading the standard lot.

wish to trade three standard forex, he or she would have to open or switch to a standard forex account. If you have this account you cannot trade mini or micro lots you can only trade standard forex lots.

Q. How important is it for traders to base decisions on pip movement and market conditions as opposed to P/L? A. Forex has, over the last few years, been more volatile than the stock market, which has meant that the forex markets have attracted more traders because people recognise the profits that can be made. It depends on the trader’s strategy, but most of

Q. What additional services and or support do you offer currency rookies? A. There are other tools we offer. We have FX analysis software called “NEXTT signal base”, which is free to our clients. The software has more than one hundred and fifty trading system permutations and strategies based upon any number of technical indicators; you could have, at times, one indicator with different values.

“The big advantage of the forex market is that, because there are so many currency pairs, the trader has options.”

our clients like the volatility of the market. However, some prefer the euro/ Swiss franc market which is very smooth, there’s not a lot of movement. This tends to suit the more conservative trader. The big advantage of the forex market is that, because there are so many currency pairs, the trader has options. If the investor wants a heart attack he can pick an explosive market. Even beginners can trade in a very volatile market by using micro lots; if the trader loses one hundred pips in euro/USD, he’s lost ten dollars, which is not huge. The experience the trader takes away from the situation though is great. Moving forward, strategies can be revised and improved in a cost-effective way. To become a professional trader takes years. Q. Is there a maximum trade volume on these accounts? A. The mini and standard accounts are slightly different. If someone is opening a mini account, he or she can trade, if they have enough money, up to 2.5 lots. That means they can trade two standard forex and five mini forex lots, that’s the maximum. They can create a number of different lot sizes, like 2.13 where the trader trades two standard forex, one mini forex and three micro forex lots, or 1.48. However, should the trader

For rookies it’s a good tool because it doesn’t take up too much time. If used once a day, you need no more than a minute and you will get a signal. You receive the data feed, end of day, not real time, but we are working on that. All quotes can be obtained from Yahoo’s site. If you would like more than forex, perhaps you want to analyse certain stocks, you can log on to Yahoo.com for the specific stock symbol and then type that in to the “NEXTT signal base” in order to carry out an analyses. In fact, every financial instrument offered on Yahoo is compatible with “NEXTT signal base”; back testing is also possible. I have customers who are trading with “NEXTT signal base” very successfully. We also offer forex seminars in Germany and Switzerland. In addition we set up seminars, which deal with the programming of trading systems, these tend to be for traders with slightly more experience. In this case we would have no more than ten people in a workshop format, which is certainly a more effective way of learning. Beyond the basics Q. Given that the market is always liquid, can we

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assume that positions can be liquidated and stop orders executed without slippage? A. More than 95% of the time you will get the fill on your stop level. However, it depends on the volatility of the market. It’s important to know the definition of a stop order. A stop order is a market order after the stop level is reached. With a market order you will be filled at the best bid or ask price depending on whether it’s a seller’s or buyer’s stop order. In normal market conditions, when making a stop order, you will get it at the stop level without question. If the market is very volatile and there’s a lot of movement - the forex market can do this - then slippage is possible.

platform fee for opening an account, there is only a charge when someone takes money out of Switzerland. This fee is levied by the customer’s bank and may be three or four euros. Q. How important are position limits? A. Professional traders have a plan and strategy that works. Position limits instil the type of discipline traders need so that they don’t become emotional or over-react. Position limits are akin to money management or risk management. If, for example, I have a signal from my trading system or would like to buy euro/USD, I start with two mini lots. Now if the market moves against me, but does touch my stop, I could add

“The forex markets have attracted more traders because people recognise the profits that can be made.”

Q. What are the advantages of dealing directly with a market maker via a purely electronic online exchange? A. Well certainly fast executuion is one major benefit. In the past you would call a broker, or several brokers, to get different prices. However, now with the internet, you can expect fast executuion, expert advice, and state of the art tading systems. The second big advantage is that it’s costeffective. We can offer small spreads and there are no other fees attached. We don’t have a platfrom fee, the client doesn’t have to make expensive phone calls, and he or she has access to charting tools. We also have a twentyfour hour trading desk, so if someone has a problem with their PC they can call us at anytime and we will action the order via our order desk. Q. Although FX traders don’t pay commissions and exchange fees are there any costs investors should be aware of when initiating trades? A. It depends, if you’re a day trader you need to look at the spread, if you’re doing a lot of trades. If you’re position trading, medium or long term, you need to look at the interest rate; overnight positions carry an interest fee. However there is no commission, exchange or

another mini lot. At this point I would have three mini lots, but this would be my maximum position size. If the market moves on, against me, then I have to stop out. It’s very important to trade with a plan in mind. Loosing control means losing money, too much money. Trading volumes Q. I think it would be fair to say that most investors recognise that the FX market is the most liquid in the world. However, can you estimate where trading volumes are today? A. It’s difficult to say, however, we estimate on our website that the daily volume of the forex market is between three and four trillion US dollars. From my time trading in the futures market, I can say that compared to forex it’s a small fish. The daily volume of the stock market is only five hundred billion US dollars. Q. What impact has the integration of the global financial markets had on FX turnover? A. Well, you have to look at the movement in globalisation. More and more companies are selling their products abroad and opening affiliates in other regions. I feel that given this development, companies have had to hedge their

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"More and more companies are selling their products abroad and opening affiliates in other regions. I feel that given this development, companies have had to hedge their income in foreign currencies."

income in foreign currencies. This is one of the reasons that turnover increased so much between 2001 and 2004. Also, more and more hedge funds are trading forex, and more are popping up. Germany is a good example. In January 2004 the government allowed financial institutions to sell hedge fund products to German customers, as a consequence, the hedge fund arena expanded. Market trends Q. The Asian crisis, the collapse of Long-Term Capital Management, the Russian debt crisis, and the fall-out from the ‘dotcom’ equity bubble triggered a general decline in risk taking and a move away from FX trading. Are we ever likely to see a repeat of this? A. I think that something like this could happen again. My prediction is that inflation will rise.

years this situation could reach crisis point. It’s up to Greenspan’s replacement to solve this. Q. Is FX trading, as an asset class, now viewed in much the same way investors consider the bond and equity markets? A. I certainly think it’s an important tool and one that investors should have some part of their money in. In comparison to futures, stocks or bonds it’s far more volatile. It’s this volatility that provides investors with returns. Impact of hedge funds Q. The growth of hedge funds is an example of the increase in speculative investment. Do you find, therefore, that hedge funds tend to trade more actively than other participants in the FX market? A. No longer the domain of large banks, now everyone can participate, and it’s our job to communicate that message. I feel that more and

“There is no commission, exchange or platform fee for opening an account, there is only a charge when someone takes money out of Switzerland.”

Crude oil and gold prices are reaching new highs and it could be that in five years gold prices will be at $100. I see a great deal of risk attached to US debt, which is rising due to the Iraq War. However, my biggest concern is the real estate boom and bubble. When Green Span was cutting interest rates the American people invested a lot of money in real estate. When they went to the bank they were granted loans easily but unfortunately house prices were very high at the time. However, as interest rates start to climb and house prices begin to fall the banks will require more security for the credit borrowed. The question is, where does this come from, their assets? In five to ten

more, hedge funds will use this market. You now have companies that offer guaranteed forex hedge funds and this type of product will continue to grow in popularity and volume. At the moment the forex market is one of the best. Q. Given that hedge funds, and other similar investment funds like commodity trade advisers, have devoted a greater proportion of their funds to speculating on currencies, has this accelerated the growth of the FX markets? A. Well as I’ve said, the main driver is globalization but certainly hedge funds would be next, followed by the proprietary trading of banks trading their own money. I should also mention

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Money Markets | 9

FOREIGN EXCHANGE

"Our next step is to get nearer to the customer and we will continue to do this through our seminars in places like Indonesia."

CTAs, which tend to be looking quite favorably upon forex right now. I feel that these forces are responsible for driving the market forward. The strength of the US dollar Q. Is the US dollar still the most frequently traded currency? A. Yes it is, of course we European’s hope that the euro will become the world’s main currency one day. Once again, I come back to the theme of globalization. Look at most US companies, like McDonalds, Coca Cola, IBM or Microsoft; fifteen to twenty years ago they went to the East, which is why the US dollar is so strong. Perhaps it will change in thirty or forty years, it depends on the real estate bubble. If the US economy

Neuimex – the road ahead Q. What do you consider to be of primary importance this year, system development, value added services or client relations? A. Our focus this year will be to set up our “NEXTT” platform in order to offer direct access to our clients with €250,000 accounts. This is the main point for institutional business, be it hedge funds, banks or CTAs. They must have a trading platform for trading systems, which facilitates full automated trading. Normally, as a company, if you approach a big bank like UBS and say that you would like to trade forex because you have to hedge your positions they will tell you that you can start up a $10m account, we start with €250,000. We are also expanding our IB business

“We estimate on our website that the daily volume of the forex market is between three and four trillion US dollars.”

breaks down, the US dollar will suffer. This might allow investor confidence to blossom in currencies like the Swiss franc, euro or British pound; this could be when the US dollar is superseded. However, for the next ten years it will be the US dollar. Q. Some say that the US dollar tends to be one side of nearly 90% of all FX transactions. Do you agree with this? A. Yes, if you compare the euro to the British pound or the euro to the Swiss franc and then compare the Swiss franc or British pound to the US dollar the volume is much higher with respect to the US dollar. However, I’m not sure it’s 90%, because it’s an OTC business it makes it very difficult to assess the percentage, but certainly it’s over 75%, which is incredibly high.

through franchising contracts with affiliates in the US, Canada, Africa and all over the world. Our next step is to get nearer to the customer and we will continue to do this through our seminars in places like Indonesia. We also now have a PAM account (percentage allocation money management) for institutional investors. We are in the process of implementing more currency pairs, and in fact will soon be able to offer more than one hundred currencies, which you will be able to trade on our platform. CFDs have also been introduced and later on we will offer futures. Ultimately, you will have one platform trading forex, CFDs and futures.

Uwe Wunderle is Head of Trading for Neuimex.

FOREIGN EXCHANGE

New Markets, New Opportunities Jakob Zablocki discusses the topic

Q X-Trade

Q. Geographically, kindly define your primary market? A. Given that we are of Polish origin, for the moment, our primary focus is domestic; we do have some overseas clients though. However, as a licensed brokerage house -in the European Union - we can operate throughout Europe and therefore will also concentrate on Central and other parts of Eastern Europe in the near future. Q. Do you cater more for the active FX trader or currency rookie? A. Well, we cater for both. It doesn’t matter whether you’re an active FX trader or currency rookie; our value proposition suits everyone.

accumulate profits slowly; we are not going to kill the yield on a few very profitable transactions just to make it systematic. Market trends Q. Aside from governments and commercial companies converting one currency into another from buying and selling goods and services, what percentage of the FX market is made up of trading, and, or speculation? A. I have no statistical data on this; however, I can give you my impression. I think that speculation accounts for 80-90% of the FX market. Most clients tend to be speculators, even firms that should hedge their position prefer to speculate, and I think this is what makes the market so great. The

“Personally, when I was trading, I used predefined stop losses. When you don’t use pre-defined stop losses you are gambling not investing.”

Q. What do you consider to be the three most compelling reasons for trading FX? A. The returns can be huge. Second, you have highlevel reach and third, the volatility of the market is great. Q. (a): Can you tell me a little about your approach to risk management? Q. (b): Do you have predefined stop losses? A. As I mentioned earlier, we are a licensed brokerage company. Therefore we are obliged to use very strict risk management procedures, which we follow. Personally, when I was trading, I used predefined stop losses. When you don’t use predefined stop losses you are gambling, not investing. Q. Would it be fair to say that your portfolio’s objective is to slowly accumulate profits and compound the gains into bigger gains over time? A. I think to some extent yes. We are trying to

share of speculation is enormous, the number and variety of investors is incredible, and the price setting mechanism is nearly perfect. Q. Would you care to elaborate on some of the advantages trading in the spot currency markets provides over trading currency futures contracts? A. First, the spot market is much bigger than futures contracts. In the spot forex market, the leverage available to investors is much greater than futures contracts, liquidity is higher and there is of course the lack of a settlement date. When you trade futures on an exchange you have a fixed settlement date, when that day comes you have to settle the trade. When trading forex, providing you have enough money to maintain the requisite margin, you can keep the position open indefinitely, you decide when to close the transaction. Q. Do you believe that buy/sell programmes control the market?

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FOREIGN EXCHANGE

A. I honestly don’t believe that buy/sell programmes control the market. I think it’s a bit of a fairy tale. The forex market is huge, there are so many investors, and the diversity of those investors is incredible. Every investor has an impact on the price. Of course smaller investors have less impact and so on. I simply don’t believe that secret programmes control the market. The forex market is a living creature. Trend vs. range Q. Whether trading stocks, futures, options or FX, traders confront the single most important question: to trade trend or range? Given that the FX market is uniquely suited to accommodate both styles, providing trend and range traders with opportunities for profit, which technique would you recommend?

A. Personally, I prefer trend trading. I have never been a range or day trader. However, investors have long faced this dilemma of trend or range. Making the wrong decision can be very expensive. I prefer trend trading generally and I recommend it. Trend Q. Can you highlight the key drivers of trend direction? A. The key drivers tend to be the fundamental factors/indicators, trade balances, direct investments with respect to certain emerging countries, like Poland and so on. Q. What do you consider to be the main aim of trend trading? A. It’s pretty obvious, but sometimes investors don’t follow the basic rules. Simply keep the position

FOREIGN EXCHANGE

open for as long as possible with a reasonable trailing stop loss so that you can change it according to your position. You never know when the price is at its lowest point and when it’s at its highest. Buying at the lowest point and selling at the highest doesn’t work. You simply have to decide at the time whether the market lends itself to trend, what direction its going in and go with it. Of course, when the trend is turning, you will need to have the aforementioned trailing stop loss so that you can close the trade. Q. When is FX leverage most dangerous? A. When using a trend trading strategy, uncomfortably high leverage is dangerous because as a trend trader you are just looking for a few profitable trades, you will certainly not have profitable trades across the board. The idea is to

should concentrate on the so-called majors, euro, dollar, Swiss and yen, because they generally tend to follow certain trends. If you are a range trader crosses are better; euroyen, pound-yen and so on. Q. So that implies that range trading is actually better suited to smaller accounts? A. Yes, it it’s definitely easier, because you don’t have the same room for error, which you do when trend trading. Summary Q. As long as the trader remains disciplined about the inevitable losses, and understands the different money-management schemes involved in each strategy, would it be fair to say that he or she will

“Most clients tend to be speculators, even firms that should hedge their position prefer to speculate, and I think this is what makes the market so great.”

look for a few “milking cows” (venture capital speak). When waiting for these highly lucrative trades to appear you have to understand that most of your trades will generate losses. Therefore you have to have enough room, and be able to sustain the aforementioned non-profitable trend, before you can kill the profit on the milking cows; very high leverage is not good for trend trading.

Q. Do range traders’ care about direction? A. Yes, they consider whether they should buy or sell, but in fact when you are a range trader is doesn’t matter because you simply open a big position, keep a very small stop loss, and try to oscillate.

have a good chance of success in the FX market? A. Yes, however, I feel that investor psychology plays a very important role. Aside from this, there are three main rules investors need to follow in order to be successful in this market. First, never think in terms of your existing position. You should think about what’s happening in the market, not your position, it should be separate. Second, in terms of market data, you should be selective in terms of what you listen to; generally, when everyone says the market is going up, it tends to go down. Finally, stop losses. Before you start investing you need to decide what is acceptable in terms of loss; this should be a very strict rule. If you are over by one or two dollars you should close the position, never think that it will get better and you will go from loss to profit. If investors keep these three very strict rules in mind, I think it’s possible to be successful.

Q. Which currency pairs are best suited to: a: A trend strategy? b: A range strategy? A. As far as trend is concerned, I feel that investors

Jakob Zablocki is the President of X-Trade Brokers in Poland. X-Trade Brokers is a leading forex brokerage house in Eastern Europe.

Range Q. What about range trading; is high leverage a good thing in this case? A. Yes, for range trading it can be good, because as a range trader you make small profits.

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CUSTODY

2005/6 Custody Review Nordic Custodial Roundtable Introduction Nordic Custodial Roundtable Discussion Greece – The Sleeping Giant of Custody

Chris Nikolaidis

EFG – From Concept to Solution

Dimitrios Vassiliou & Andrew Economides

Greek Custodial Roundtable Introduction Greek Custodial Roundtable Discussion

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2005/6 Custody Review

Selecting a custodian in today’s market is not easy given the plethora of value added services currently available to investors. As such, the Money Markets “2005/6 Custody Review” is designed to refine the filtration procedure and facilitate the investor’s decision-making process. Key Performance Indicators (KPIs): Listings have been based on the following KPIs: • Securities lending • Reporting capability • Performance measurement • Cash management • Foreign exchange • Systems/technology • STP services

Data pertaining to the activities of certain custodians operating in the geographic territories listed below is considered, in some cases, to be highly sensitive. This may affect the inclusion and or exclusion of providers from this report. Review dates and regions: Next review date, July 2006. The inclusion or exclusion of custodians will be subject to the findings of the review panel. Selected zones only: No more than five custodians have been selected per region.

Denmark

Greece

Danske SEB Svenska Handelsbanken Nordea

BNP Paribas Securities Services EFG Eurobank Ergasias HSBC Piraeus Bank *Most improved custodian 2005/6 GENIKI SGSS

Finland Hungary SEB Svenska Handelsbanken Nordea

Bank Austria Creditanstalt AG Citibank ING Raiffeisen Bank

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Ireland AIB/BNY Bank of Ireland Securities Services (BOISS) Citigroup GTS HSBC Norway DnB NOR Nordea SEB Svenska Handelsbanken

“The introduction of a single CSD platform for the entire (Nordic) region could reduce processing costs by as much as 4045 %.” - Goran Fors, SEB

Portugal Banco Espirito Santo Banco Santander de Negocios BNP Paribas Citigroup GTS Millennium BCP Sweden Nordea SEB Svenska Handelsbanken Swedbank *Most improved custodian 2005/6

“There are clients out there who are willing to pay for sub-custodial services but consider confidence in the provider mandatory.” - Peter Dahlgren, Nordea

Switzerland Credit Suisse Kas Bank Pictet & Cie SIS Segalntersettle UBS UK BNP Paribas Citigroup GTS HSBC *Most improved custodian 2005/6 Mellon GSS RBC Global Services

“The growth of the Greek capital market has been tremendous. We have implemented, very successfully, dematerialisation, derivatives and an entire infrastructure for the protection of investors.” - Christos Nikolaidis, Piraeus Bank

To register your vote online, why not visit www.cmweb.co.uk/finance and complete our 2006 custody ranking survey.

2 | Money Markets

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Nordic Custodial Roundtable Introduction Who’s Who….

DnB NOR DnB NOR is Norway’s largest financial services group with a dominant position in all business areas. The bank has the largest distribution network in Norway and wide international representation. It manages payment flows for more than 50% of Norway’s international trade.

Jorgen Krager Jorgen Krager is the Executive Vice President and Division Head of DnB NOR Securities Services. Jorgen has approximately forty years experience within the securities industry. He established the first subcustody operation for foreign investors in Norway in the late 1970s, which in spite of stiff competition still has the dominant market share.

NORDEA Nordea is the leading financial services group in the Nordic and Baltic Sea region and operates through three business areas: Retail Banking, Corporate and Institutional Banking and Asset Management & Life. Nordea has the largest customer base of any financial services group in the region, including 9,4 million personal customers, 960,000 corporate customers and 1,000 large corporate customers.

Anne-Lise Kristiansen Anne-Lise is the Head of Sub Custody and Clearing within the Custody Services unit. She has three years’ experience in custody services. Before joining Nordea, Anne-Lise worked for investment managers and other major players in the Norwegian securities market. Peter Dahlgren Peter joined Nordea’s Custody Services in March 2005. He has a background in investment banking, and both public and private asset management, within the Swedish market. During his career, Peter has worked with risk management, administration and fund management strategy.

SEB SEB is the leading provider of securities services in the Nordic and Baltic region. SEB have more than 400 bn Euro in AUC and process more than 10 million transactions per year for their institutional client base. SEB offer sophisticated and efficient solutions in combination with personalized services.

Göran Fors Göran Fors is Head of Custody Services at SEB, and has been in the securities industry for twenty-three years. Göran worked with several banks before joining SEB in 1997. He has mainly worked with SEB’s institutional clients but is also responsible for the for the bank’s retail securities operations.

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SVENSKA HANDELSBANKEN Handelsbanken (est. 1871) is a universal bank that has provided custody services in Sweden since 1983. The bank’s custody services were established in 1997/8 in connection with the bank’s expansion into the rest of the Nordic region. Since then, Handelsbanken has developed a “Nordic concept”, which allows for the same high level of service throughout the region.

Kathe Nyhus Kathe Nyhus is the Client Relationship Manager for Nordic Custody Services. She has a Bachelor of Education degree from Buskerud University College. Kathe joined Handelsbanken’s custody department in 2001. A year later she moved over to the Client Relations team in Stockholm. She has worked in the securities industry since 1998.

DANSKE BANK Danske Bank is the largest bank in Denmark and a leading player in the Scandinavian financial markets. The Danske Bank Group – which includes Danske Bank, BG Bank, Realkredit Danmark, Danica Pension and a number of subsidiaries – offers a wide range of financial services, including insurance, mortgage finance, asset management, brokerage, real estate and leasing services. Richard Quinn Richard Quinn is Head of Fokus Bank Securities Services in Norway. Fokus Bank is the Norwegian

subsidiary of Danske Bank. Richard started his career with Citibank, London in 1995 where he worked in a variety of roles and locations within the custody arena. Richard joined Fokus Bank in autumn 2005. Christel Leonhardt Christel Leonhardt has been Head of Sales in Securities Services since November 2005. She joined Danske Bank in 1984, before entering the Securities Services department she held various positions in Danske Markets, including Sales of FX/Derivatives and Head of Marketing Danske e-Markets. She also has an MBA in E-Management (2001).

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Nordea Bank AB (publ)

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Nordic Custodial Roundtable Discussion

Much has been said, and written, about the fierce rivalry that underpins the Nordic custody market. Add to this the relentless pace of consolidation, played out against a backdrop of rapid infrastructure changes and you might be forgiven for taking your eye off the ball. Despite the competitive nature of the Nordic custody scene, in pursuit of transparency and objectivity, competition was put to one side momentarily as Scandinavia’s key providers talked openly about the future of Nordic custody. Jonathan Calens, Chair

Nordic outlook A truly integrated Nordic securities trading and settlement environment, fact or fiction? Well, great strides have already been made in this direction. The implementation and adoption of SAXESS, a common trading platform developed and run by OMX Technology, has been met with great support

NOR, stressed: “Whilst a single stock exchange might be a reality in the near future, there is still much work to do at the CSD level in order to consolidate infrastructures.” And so, the debate begins… In light of the APK (Finnish Central Securities Depository - Suomen Arvopaperikeskus) / VPC merger (Sweden’s CSD), which created the Nordic Central Securities Depository (NCSD), the way, to some extent, has already been paved, a sentiment shared by Kathe Nyhus, Svenska Handelsbanken: “Whilst we still have some work to do, if you look at Sweden and Finland, they have managed to integrate, therefore, we know it can be done. However, Richard Quinn, Danske Bank, was slightly more tentative in his analysis of the situation: “If you’re talking about integration in Norway and Denmark, you’ll have to bring the CSDs to the table kicking and screaming. If this can be done then certainly there will be costs savings.” However, there is an underlying motivation for consolidation. Aside from the obvious cost savings, it seemed clear that some felt survival and future success

"The implementation and adoption of SAXESS, a common trading platform developed and run by OMX Technology, has been met with great support throughout the Nordic and Baltic territory."

throughout the Nordic and Baltic territory. As Goran Fors, SEB, pointed out: “Helsinki, Tallinn and Riga have all successfully implemented and now use the aforementioned platform, in addition to, of course, Stockholm.” Add to this the Vilnius, Reykjavik and Oslo stock exchanges that implemented the SAXESS platform earlier, and this makes for impressive reading, but it needs to; companies like Nokia, which contribute significantly to the territory’s market capitalisation, must be kept happy. Given that OMX Exchanges now reportedly offer access to 80 % of the Nordic and Baltic equity markets, one might assume that most of the hard work has been done. However, this only takes into consideration the trading side of the equation. As Jorgen Krager, DnB

would be dependent upon the rapid integration of the CSDs. Peter Dahlgren, Nordea, brought this idea in to sharp focus: ”We must bring our businesses together in the Nordic territory otherwise they will be taken over by non domestic entities from places like London. Moving forward, horizontal integration will be critical.” Therefore, whilst the desire certainly exists, time also seems to be an important issue. On this subject, Goran Fors was candid with his response: ”We all agree that we need to have one efficient, stable CSD. This will probably take a few years but as it most likely will be at least ten years for a single European CSD to come to fruition it makes sense for a consolidated Nordic CSD.” Post-trade horizontal integration seems to be marching to the beat of its own drum.

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A single Nordic counterparty The demise of projects like ”S4” (Scandinavian Securities Settlement System), some years ago, has meant that the single stock exchange, CCP, CSD vision remains, for the time being - just that - a vision. Suggestions that the breakdown of such projects, and those which followed, one example is the CCP project ”Nordiclear”, had more to do with power and less to do with the practicalities of the situation were rejected by local custodians. So why then halt the development of dual clearing and greater settlement functionality? Peter Dahlgren explained: “A cost benefit analysis was carried

also prove challenging. That said, Peter Dahlgren believes: ”If Norway, and or Denmark, withdraw, Finland and Sweden will probably continue with the integration process, which will still significantly lower costs.” Goran Fors went a step further by suggesting: “The introduction of a single CSD platform for the entire region could reduce processing costs by as much as 40-45 %.” Significant savings at an important time! He then went on to explain: ”Given that margins are shrinking we need to lower the costs for the operations in both banks and infrastructures.” However, Peter Dahlgren had some words of

"If Norway, and or Denmark, withdraw, Finland and Sweden will probably continue with the integration process, which will still significantly lower costs."

out and it was decided that the benefits did not outweigh the costs. Therefore a decision was made and the project was put on hold.” However, the dream according to Anne-Lise Kristiansen, Nordea, may not yet be over: “In 3-5 years we will probably look in to this again, but for the moment it is not an issue.” CSD activity Concentrating on CSD activity once again, when considering the future consolidation of the depositories, the significance of the merger between the Swedish and Finnish CSDs, VPC and APK, was great. However, with Sweden and Finland not yet fully integrated and operating individually, where does this leave us? Well, VP Securities Services (VP), the Danish CSD, seems to be the most likely depository to join the NCSD, given the positive stance it has taken on consolidation thus far. However, obtaining shareholder approval may be difficult. A large percentage of shares are currently in the hands of Danish mortgage institutions (28 %) and the central bank (24.22 %), which are unlikely to derive the same benefits as the commercial banks, which are present throughout the region and may well benefit from a simplified infrastructure. The Danish CSD services a significant and varied number of bond issues and catering for such specific requirements within an overall NCSD structure could

caution: “Whilst it’s important to integrate Nordic CSDs, focus has to be kept on keeping costs low, it’s all about capital flow. Why bother to integrate if these lower costs are not visible.” As Anne-Lise Kristiansen pointed out: “It’s very important for the smaller markets to keep costs low”, a sentiment shared by Richard Quinn: “The current structure creates a disadvantage for us by escalating costs, we have to start working to find the total costs.” So, whilst there are recognisable benefits in terms of savings, all seem to agree that defining costs, vis-àvis integration, is the next important step. After all, the savings cannot be overshadowed by the operational costs attached to implementation. Putting perhaps the most important issue to one side, we should also consider some of the softer issues that are sometimes overlooked. Although many consider the Nordic territory to be as one, every region is different, a fact Kathe Nyhus touched upon: “As a region we deal internally with four different currencies, cultures and CSDs.” Add to this national pride and perhaps a certain degree of stubbornness and this may prove a challenging obstacle to overcome. Having tackled some of the more immediate issues, looking to the future, Kathe Nyhus felt that harmonisation might perhaps be an easier goal to achieve than integration. Given the introduction last year (July 2005) of an established, global industry classification standard (GICS) on all NOREX exchanges, harmonisation of the Nordic and Baltic

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markets may indeed prove to be a more immediate reality. So, if and when a single Nordic CSD is realised, will this just be an interim step prior to the creation of an enlarged single European CSD? Kathe Nyhus suggested not: ”I don’t see a Nordic-Baltic CSD as being a precursor to a pan-European CSD.” Richard Quinn summed up the mood well: ”Trading will continue no matter what. When markets are in decline, interest in integrating and obtaining lower costs will be of greater value to the market.” Finally, what about settlement cycles? As Anne-Lise Kristiansen explained: “It will be important to

increasingly more difficult in this market, the survivors will be the bigger providers. In a number of years the custodial landscape will look completely different. I dare say that we will probably not recall the way things are today.” This was a sentiment shared by Richard Quinn: “There is increasing competition (e.g. Citibank), which will indeed make it difficult for the small providers. However, there will still be a place for agent banks in the market.” With competition increasing, margins decreasing and investment levels needing to be sustained, who will remain? Goran Fors’ answer was simple: ”The one that goes the extra mile will be the winner in the end.” In summary, it seems clear that custodians are feeling the

"As a region we deal internally with four different currencies, cultures and CSDs."

harmonise settlement cycles.” Goran Fors added: “Harmonisation will create greater interest in crossborder investments, in turn benefiting the markets and the banks.” Cost controls & technology spend Are clients still prepared to pay for quality? The short answer is no. Quality irrespective of cost no longer works. However, this raises another question, if margins decrease what impact will this have on things like systems investment? Will spending amongst Nordic participants continue? Well, let us first start by tackling the issue of decreasing margins. Peter Dahlgren’s approach was a simple one: “If the client wants to focus on costs, we need to start thinking in terms of scale. In order to offset falling prices you have to concentrate on volume, this prevents, to some extent, margins from decreasing.” So what about system investment? Although custodians did not talk openly about the systems and technologies currently in development, it’s perhaps safe to say that technology spend has not decreased. In fact, judging by what Richard Quinn had to say on the subject one might call it a precursor to survival: “Clients are focused on quality and cost. Given that there is not a marked difference in terms of service provision, why not use the cheapest?” Peter Dahlgren underlined this point: ”Small providers will find it

pinch, however, a glimmer of hope remains. According to Peter Dahlgren: “There are clients out there who are willing to pay for sub-custodial services but consider confidence in the provider mandatory. However, a strategy for further development is crucial.” Finally, in summing up the hopes and aspirations of Svenska Handelsbanken and perhaps the hopes of many, Kathe Nyhus laid out the bank’s strategy moving forward: ”It’s difficult to compete with new operators in the market, but we will have to continue to do what we do best, which is maintaining our local presence and loyalty. However, I think most of us here will also be present in the future.” Core vs. value added The ongoing debate over what is “core” and what is “value added” continues. Whilst most agree that one’s plain vanilla offering will not win mandates alone, value-added services are becoming core competencies, which has led to declining profits. So what is core and what is value added? What’s the benchmark? Goran Fors offered this explanation: ”I think things will level out a bit, core services will certainly become more transparent, which in turn will lead to margins going down. There are many providers operating in this space, which is also increasing competition.” Again we’re back to competition, which seems to be driving service offerings, a fact Christel Leonhard,

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Danske Bank, pointed out: “There is competition at every level in every branch of this business. We meet the same providers on different levels.” Anne-Lise Kristiansen’s outlook was slightly different: “It’s important to make sure that the product and service fits the client perfectly.” No easy task when one considers the reach and coverage most Nordic custodians now offer.

banks today seem to be able to manage on their own.” He went on to add: “The competition situation is a bit special. If the Swedish banks merge they will still be a small international bank, but as things stand now, it is unlikely that a merger will go forward given the free competition rules pertaining to the region.” However, according to Christel Leonhard, there are benefits attached to not being the biggest: “Being smaller gives us an advantage in smaller markets.”

Domestic consolidation Pan Nordic custody No one likes to talk about consolidation. Everyone hopes that the DnB/ UBN merger will be the last. However, deep down Scandinavia’s custodial gladiators know that if the past predicates the future, consolidation will be knocking on their door once again. According to Goran Fors this will not happen overnight: ”Amongst the Nordic banks there are, at this moment in time, no plans to merge. All of the

As discussed, M&A activity has been an antecedent to survival in Scandinavia, spawning a plethora of panNordic offerings. However, what about service levels? Can continuity and quality be maintained across the board? The answer has to be yes. With boundary lines fading all of the delegates present were ad idem that they must continue to deliver at the highest levels.

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Greece – The Sleeping Giant of Custody Chris Nikolaidis and Money Markets discuss the issues

Piraeus uncovered Q. Internationally, Piraeus Bank has kept a rather low profile, why is this? A. I don’t agree with that. Piraeus Bank Group has a growing international presence, which is focused on South-eastern Europe, the Eastern Mediterranean, and the financial centres of London and New York. The group’s presence in the USA is achieved through Marathon Bank, which is based in New York and has 11 branches. We also have a branch in London, in Albania through Tirana Bank, which has 33 branches, in Romania through Piraeus Bank Romania - 30 branches - and in Bulgaria where we have 65 branches of Piraeus Bank and units of Piraeus Eurobank. In Serbia we have 11 branches of Piraeus Atlas Bank and in Egypt we have 25 branches of Piraeus Bank Egypt. It is also worth mentioning that we are not new

reach 14% by the end of 2007; when the bank was privatized back in the early ‘90s the percentage was significantly lower - 0.3% -, however, since then, volume and profitability have increased exponentially. In achieving this goal, the bank’s branch network, which currently numbers 275 units, has expanded, out of which more than 120 have been established over the last five years, contributing to the group’s volume and profitability. Q. With your extensive branch network, would it be fair to say that you’re better known for the retail aspect of your business? A. Well, Piraeus Bank does possess certain know-how when it comes to areas like retail banking, SME’s (small and medium-sized enterprises), capital markets/ investment banking and leasing and financing of the shipping sector. SME servicing, in

“It is also worth mentioning that we are not new to these markets; we’ve had a presence in Bulgaria since 1993, in Albania since 1996, and in Romania since 2000.”

to these markets; we’ve had a presence in Bulgaria since 1993, in Albania since 1996, and in Romania since 2000. We have a critical mass in Albania and Bulgaria with a market share of 14% and 5% respectively. In Romania we control 2% of the market and in Serbia 1%, however, our target is to reach 5% in the next three years. For the 9m’05 period, foreign operations made up 13.4% of the group’s pre-tax profit, of which 8.1% came from SE Europe and Egypt. Our target is to have almost 20% of pre-tax profit coming from overseas operations by the end of 2007, of which 13% should be from SE Europe and Egypt. Q. Domestically speaking, kindly define your market share? A. Our market share in the domestic loan market was 11.5% in September 2005, but our target is to

particular, has traditionally been one of the bank’s key areas in terms of know-how, while retail banking and e-banking have become key business areas more recently. Expansion Q. In line with your expansion in to S.E. Europe, clearly you have aspirations to extend your custodial offering beyond Greece? A. You are absolutely right. We plan to expand our custodial services, gradually, in those countries where we already have a physical presence: Albania, Bulgaria, Romania, Serbia, Egypt, Cyprus, USA and the U.K. Q. As you continue to grow will you set up physical operations in every country, or do you believe that

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“Piraeus Bank was the first bank to develop the necessary infrastructure for STP processing together with the Greek CSD in early 2000.”

you can offer custodial services via a single European hub? A. Our short-term goal is to transfer the know-how from our base securities services center in Greece to the countries I just mentioned. This will allow us to establish local custody operations that will be able to provide all of the normal sub-custodian services that an international institutional investor expects from a provider. From a technology standpoint we like to think that we are leading the way when it comes to moving processes forward. Certainly, in the medium to long term, we aim to establish a single European hub that will service all of the aforementioned countries and more. However, given regionalization talk in the Balkans area, common trading and settlement platforms as well as a regulatory environment with Greece and some of these other countries wouldn’t be surprising. Should this be the case, our single European hub project will be implemented even sooner. Let’s not forget, since officials planned its introduction for the second quarter of 2006, the development of the Cyprus project has been going very well.

by the previous management of the Athens Exchanges in early 2003 and submitted to the Capital Markets Commission (CMC). CMC then proposed a draft law, which was submitted to market participants for feedback. Discussions are still in progress. The need for a central clearing house (CCH) in the derivatives market is far more obvious because outstanding positions build up over time; the Athens Derivatives Clearing House (ADECH) has been in operation since 1999. In the equities market, focus is given to, cutting costs of settlement through netting and reducing the submitted funds required from stock exchange (SE) members. In the case of the equities market, establishing a CCP seems to be easier said than done. Q. How damaging has the postponement been for the Greek market? A. Since we’ve known that the Hellenic Exchanges and the CMC have been taking steps to reduce risk, I don’t think much damage has been done. We know that they are looking into re-engineering the Supplement and the Common Guaranty Funds to better reflect the market’s actual risk.

Central counterparty Competition Q. A great deal of work has gone in to establishing a central counterparty in Greece and a number of custodians have leant their support to the aforementioned movement. How involved has Piraeus been in pushing this project forward? A. Actually Piraeus Bank actively participates in all projects that are geared towards, and benefit, the Greek market. Initiatives that help to reduce the risk and costs associated with post trading activities are of particular significance. We also closely monitor the actions taken abroad with respect to the single European Central Counterparty (CCP). Given that we settle a substantial amount of transactions in many different trading environments we consider CCP and netting to be a good idea. Q. Why have there been so many delays, surely politics alone cannot be responsible? A. Well, an analytical study for the CCP was prepared

Q. In order to compete with global institutions, specialist custodians say they need to expand their asset servicing product range and geographical presence. Do you concur with this and is this a strategy Piraeus has adopted? A. First of all, being a local bank in the market, we enjoy all of the obvious benefits that local subcustodians have over global institutions, one of them being in-depth knowledge and understanding of the local market. Secondly, given our technological infrastructure, we have developed and now provide retail and corporate clients with sophisticated and flexible products and services that they can use through us as their sole custodian in Greece. We will aim to do the same when we begin custodial operations in South-eastern Europe and the Eastern Mediterranean.

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Outsourcing Q. How important are outsourcing mandates to Piraeus Bank? A. Piraeus Bank has increased its foreign assets under management dramatically over the last three years, even though there are relatively big players in the cross border transaction arena. On the other hand, our clients have become extremely demanding, particularly when it comes to reporting levels. In order to become competitive, we needed to be in a position to execute transactions economically, and provide enriched and value-added services. To achieve this, we chose to cooperate with a limited number of global custodians in order to reach all of the necessary developed and emerging markets. We have also enhanced our custody systems in order to enjoy STP processing, thus reducing operating costs drastically. Q. Aside from asset managers, whom do you consider to be a target for outsourcing? A. Well, knowing first hand the amount of effort and investment that it takes to create a fully operational custody department, I would say that small to medium size local banks should seriously consider outsourcing their custody operations. STP and operational efficiency Q. Certain factions believe that the Greek market only provides a semi-STP environment and point to a lack of automation. Is this fair and if so where do you go from here? A. It might sound like a straightforward problem, providing a fully automated STP environment in the Greek market, but it’s not when you consider the time and resources required. In addition, agreement with the CSD and other market participants would also need to be reached. Piraeus Bank was the first bank to develop the necessary infrastructure for STP processing together with the Greek CSD in early 2000. At first we started with a limited number of processes and, as we speak, we continue to re-engineer our processes and procedures. Personally, I am very optimistic. I think that in the next few years we’ll be enjoying end-toend straight-through processing on all trades and custodial activities like corporate actions, proxy voting etc. Let’s not forget, in some processes, the legal framework needs to be changed in order for the

Greek market to comply with EU directives and the demands of market participants. Omnibus accounts Q. International investors are getting restless waiting for progress to be made with respect to omnibus accounts, which are still not recognised in Greece. Would you care to comment: A. In Greece, the omnibus account has been promoted, pushed, challenged, doubted and scoffed at; recognition is proving very difficult. I think everyone understands that failure to recognize the nominee concept creates additional costs for foreign institutional investors. Additionally, we cannot oversee the advantages attached to an absolutely transparent market (in terms of the final beneficial owner), i.e. end clients’ assets protected against an investment firm’s bankruptcy or account seizure etc). Q. What developments can we expect in 2006? A. Actually, I don’t foresee any drastic developments in 2006. Piraeus Bank in 2006 Q. Perhaps you can tell me what 2006 will bring? A. We expect 2006 to be another great year for the bank. After a record 2004 and an anticipated second record year for the group in 2005, in terms of profitability, we will be even closer to our targets in 2006, which are, according to our business plan: • Enhancing market share in Greece and the Balkan region; • Further improvements in service quality and customer satisfaction (the bank scores highly in customer satisfaction ratings, as evidenced by independent surveys conducted periodically for the Greek market); • Creating innovative products, further enhancing the group’s position in retail banking and SME financing; • Strengthening asset management and bancassurance services with in the group; • Strengthening profitability with a view to constantly increasing shareholder value.

Christos Nikolaidis is the Head of Securities Services at Piraeus Bank.

The island of Delos. Treasurer and Custodian of the Athenian Alliance.

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EFG – From Concept to Solution Dimitrios Vassiliou and Andrew Economides talk to Jonathan Calens

Greek custody today Q. With respect to custodial services, would you care to comment on the current climate in Greece? A. Greek custodial services have improved a great deal. There are many providers in Greece and competition is very tough. At the end of the day, the more competition you have in a market, the better the providers will be. Q. Domestically, what do you consider to be the main tasks and challenges facing local providers? A. I think that the main focus for local providers will be to expand service offerings to the type of clientele, that today, we do not service in the Greek market. Although the Greek market has a large number of pension funds, they tend not to invest in the same way as pension funds abroad. Most of them only invest in Greek government bonds and assets. As custodians, we don’t yet really service pension funds in Greece. It is not so much that the law prevents pension funds from appointing a custodian; the problem is that they don’t have the right to invest in certain instruments. As far as we are concerned, we don’t have the clientele that other custodians have in Europe. In many major European markets, pension funds tend to be one of the biggest player’s in this business. However, this is something that will change in Greece in the near future. The ever-expanding presence that we have as a bank in the Balkan countries is exciting. We hope to start selling our custody and clearing products to markets outside of Greece. Our mission is to become a regional provider and not simply work domestically as we do today. However, this will be a big challenge. Growth strategies Q. Investors generally don’t want to speak to a call centre when they ring up for advice. However, is there a danger that pan-European expansion will remove the one-stop-shop, single point of contact

approach that clients really want? A. Domestically, we are probably the only bank that services all types of clientele. We have great mutual funds, retail and private banking clients in addition to foreign institutional investors, global custodians, and both foreign and domestic broker dealers. Q. With respect to outbound business, how does that work in terms of clearing? A. In this case we have two sets of clients, Greek and foreign institutional investors. We provide foreign institutional investors with custody and clearing for the Greek market. For local institutional investors we also provide them with custody and clearing for the Greek market, in addition to any other area they may wish to invest in. This means that today, as a bank, we have a network of around 40 agents worldwide that we use to service our Greek institutional investors. We have activity in France, the US, Italy and in several other markets. It is only in the last couple of years that Greek institutional investors have really started to invest abroad. We are probably the only Greek bank that has active network management in terms of the agents that we use worldwide. This is something that we are constantly expanding due to client demand. Outsourcing Q. Domestically speaking, has there been significant demand for outsourcing? A. There has not been significant demand for outsourcing in the Greek market thus far. However this year a new legislation was introduced regarding mutual fund companies, which complies with the euro directive that permits outsourcing. I think it’s important to mention that outsourcing is still quite a new concept with respect to the Greek market. As soon as the market understands the benefits and profits that can be derived from transferring to a fixed cost, they will at some point, in the near future, adopt the idea.

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The evaluation, selection and monitoring of a custodian Q. How often should investors review existing custodial arrangements? A. It depends on the client. Most global custodians and broker dealers have a very active network management team. They constantly review the arrangements they have with other countries. We have visits from certain clients on a yearly basis. They come to Greece to discuss new services

might be able to offer a certain service to a client that our competitors cannot.

Consolidation and cost reduction in the securities processing industry Q. How much are costs really being reduced? A. I think that now, most custodians are comparable with western and or continental Europe. Greek custodians are charging less and less every year.

“Our mission is to become a regional provider and not simply work domestically as we do today.”

that we can offer. Or, if they are an existing client, they may wish to review the service that we have been providing. This is something that most of the big players are currently doing with the agents that they use worldwide. Q. How much do investors’ gain by switching custodians? A. What you gain by switching is probably better quality at a more competitive price. On the other hand there also certain risks involved. Q. Given that service offerings tend to be fairly similar, has price become the most important factor when selecting a custodian? A. Well, pricing is not the main reason why foreign institutional investors select or switch custodians. There are other reasons. It’s about the quality and added value services the agent can offer. The overall relationship between the banks is also very important. In fact, I would say that pricing is the last thing to be discussed. If at the end of the day the agent and the client have solved everything else, and want to work together, they will find a price that’s acceptable to both parties. The important thing is to be able to differentiate yourself from the competition. You have to be able to offer a value added service and build a relationship with the institution that you are working with. Each client, and this is the most important thing, has a different set of needs. Something that may be important to one client might not be to another. This is crucial, because we

However, global custodians are not reducing their fees in the same way. I think that global custodians have greater competition in the major markets where their clients can achieve substantial savings. I don’t believe that Greece is really one of them. When and if the nominee concept is recognised in Greece global custodians will reduce their fees immediately. The finishing line Q. We’ve talked so often about EFG’s rise, however, is the finishing line now in sight, and if so, how do you stay there? A. Although to some extent we feel that we have arrived, there is still a long way to go until we reach, what we consider to be, the top. I think that when we get there, our aim will be to maintain quality across the board with respect to all of our products. We will continue to look after our clients as we have done in the past. This is why we have been number one with domestic investors for so many years. The same strategy will be applied to our foreign clients.

Dimitrios Vassiliou is the Manager of Operations and Business Development for EFG Eurobank Ergasias. Andrew Economides is the Director and Head of Securities for EFG Eurobank Ergasias.

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Greek Custodial Roundtable Introduction Who’s Who... HSBC BANK HSBC Bank has been operating in Greece since 1981 and entered the Greek custody business in 1991. Its Custody and Clearing division provides a full array of custody services to foreign and domestic institutional investors. The HSBC Group in Greece includes a private bank, stock broking company, mutual funds company and insurance broker’s. Dinos Kamaris Dinos Kamaris has been with HSBC Bank in Greece since 1991 and is the Head of Treasury & Capital Markets. Before joining HSBC, Dinos worked on the floors of C.M.E. and C.B.O.T. He is a member of the Bank’s Management Committee and a Board Member of HSBC Pantelakis Securities S.A.

GENIKI SGSS GENIKI SGSS has over 13 years of experience in the Greek custody market. It has been attached to the SG Securities Services business line since 1997. It is fully committed to the Greek market, this has been demonstrated by the purchase of General Bank of Greece (GENIKI Bank) in 2004.

Lianna Biniaris Lianna Biniaris is the Head of HSBC’s Custody and Clearing Business Development/ Foreign Client Service team. She has been with the Bank since 1998 and was previously employed on the trading side of a leading stock broking firm. Lianna has a Bachelor degree in Business Administration and a minor in Psychology. Nataly Koumoundouros In her function as supervisor of Custody and Clearing’s Business Development side, Nataly is responsible for the relationship management of the foreign client side. She has served in the banking sector since 1984 and previously headed up the Corporate Actions team. Nataly holds a Bachelor degree in Business Administration.

Panagiotis Papapetrou Panagiotis Papapetrou heads up SG's local securities services arm (GENIKI Bank-SGSS) and has done since 1997. Panagiotis created the local unit under the auspices of the HO in Paris, which was part of SG Bank HELLAS -the former branch of SG Group in Athens that was recently absorbed by GENIKI Bank. Pascal Jacquemin Pascal Jacquemin entered the SG Group in 1998 as a business analyst for the SGSS business line. Pascal worked on the implementation of the new securities Platform tool in SGSS NY as project manager before joining GENIKI bank – SGSS, Athens, as Operational Manager in February 2004.

NATIONAL BANK OF GREECE (NBG) The National Bank of Greece is the oldest and largest amongst Greek banks. It boasts a dynamic profile internationally, particularly in SouthEastern Europe and the Eastern Mediterranean. Founded in 1841, it has been listed on the Athens Stock Exchange since 1880, and on the New York Stock Exchange since October 1999.

John D. Avgoustis Mr. Avgoustis heads NBG’s Financial Institutions Services Division, and is responsible for the bank’s corresponding bank relations, and the transaction business for payments, custody and trade. He is the national representative of the FBE’s European Securities Infrastructure Group for the EU harmonization of Clearing and Settlement as well as the national representative of EPC’s ROC committee for SEPA.

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PIRAEUS BANK Piraeus Bank Group is one of the most dynamic financial organisations in Greece today. Founded in 1916, Piraeus Bank went through a period of stateownership before it was privatised in 1991. Since then, it has continuously grown in size and activities.

EFG EUROBANK ERGASIAS EFG Eurobank Ergasias was first established in 1990 as Euromerchant Bank. Today it offers a full range of banking products aimed at individuals, corporations, and institutions. EFG Eurobank Ergasias is Greece's leading provider of consumer loans and credit cards, small business and SME lending and mutual fund management.

Christos Nikolaidis Christos Nikolaidis is the Head of Securities Services at Piraeus Bank. In early 1993, the Greek CSD hired Chrsitos. He actively helped in the design, analysis and implementation of the Dematerialized Securities System. In 1999 he joined Piraeus Bank to head up custody business development. In January 2003, he was promoted to his recent position.

Andreas Sotiropoulos Andreas Sotiropoulos is a manager of business development and operations at Eurobank EFG. Andreas joined the company in May 2004. However, he begun his career at Citigroup in 1990 in "Global Transactions Services", before joining Hypovereinsbank AG (Corporates & Markets) in 2000 as an account officer for institutional clients. Dimitri Vassiliou Dimitri Vassiliou is a manager of business development and operations at Eurobank EFG. Dimitri joined the company in October 2004. He began his career at BNP Paribas in 1998 in the "Securities Services" division gathering seven years experience as the Head of Sales & Relationship Management.

BNP PARIBAS SECURITIES SERVICES BNP Paribas Securities Services is the leading European provider of securities services to the worldâ&#x20AC;&#x2122;s financial institutions. Present in Greece since 1997, the bank's Athens branch delivers solutions to a range of clients including brokers, banks and institutional investors - and has been 'Top Rated' by Global Custodian magazine seven years in a row.

Theofilos Mitsakos Theofilos Mitsakos is the Deputy Head of Banking Operations. Theofilos joined BNP Paribas Securities Services (Athens) in 2000 as the Head of Corporate Actions. Prior to this he spent three years with Bank of New York, Brussels. Theofilos moved in to his current role in June 2003 and is jointly responsible for overseeing all operational activities of the branch. Nikolas Fitros Nikolas Fitros is the Head of Product Development. Nikolas joined BNP Paribas Securities Services (Athens) in 1999 as an account manager for Institutional clients (fixed income and equities). In 2001 he set-up the branch's product development department and since then has co-ordinated all major internal projects and market changes.

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Greek Custodial Roundtable Discussion

In order to look at the Greek custodial landscape objectively, Money Markets invited a cross-section of providers to take part in a roundtable discussion. Apart from objectivity, transparency was also high on the list. The candid debate, which follows, dispels many of the myths and half-truths preferring instead to deal in the hard currency of fact. Let’s take a closer look. Jonathan Calens, Chair

However, were these just two voices in the wilderness? No, all delegates were unanimous in their summation of the Olympic effect. Dinos Kamaris, HSBC, summed things up very well: "Getting the Olympics in 2004, and hosting the games, was extremely fortunate for the Greek economy. When the rest of the world was going into recession, the period after September 11, the average growth across the EMU was around 1% - Greece was running at 4%."

Post Olympic market conditions

Failed trades

Much has been written and said about the last Olympics. Certainly no one can deny that Greece got the job done. They now have an impressive infrastructure, which has benefits and consequences. The benefits being, improved road and rail links, significant enhancement of IT and telecommunications, first-class sporting facilities

The procedural mechanisms attached to failed trades have been a talking point for some time. As reforms are introduced thick and fast, one is left wondering whether a workable solution has been found. Two new products, "Spot 1 and Spot 2", have taken over from "Method 6" and STRA (special type repurchase agreement) has been

“There has been a significant boost, post-Olympics, in the Greek market and new profitable prospects lay ahead.”

and a booming tourist industry. The consequences, higher taxes, a price most consider worthy of the regeneration that has taken place. Therefore, why have so many analysts suggested that this great sporting event and local triumph did not provide the required, desired stimuli needed to accelerate the economy’s fortunes? John D. Avgoustis, NBG, addressed this question by saying: "There has been a significant boost, post Olympics, in the Greek market and new profitable prospects lay ahead." Panagiotis Papapetrou, GENIKI SGSS, further underlined this point by adding: "Post-Olympics, the Athens Stock Exchange has experienced tremendous growth, specifically, 60% since last December."

introduced to the market, so where are we? Lianna Biniaris, HSBC, provided some background: "Method 6 was just another word for the buy-in procedure. This stemmed from the fact that Greece operates on a multi-lateral settlement system. You have a pool of sales and a pool of purchases, which should match. If something does not match, i.e. if someone does not affirm the trade accepted in the dematerialised securities system then someone will be left with no stock. That’s where it all begins. Given that this is still the case, we have multi-lateral settlement. The former Method 6, or buying procedure, has been replaced by Spot 1 and Spot 2, depending upon the entitlements, which is just another fancy word for

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buying procedure." Fast forwarding to impact, Theofilos Mitsakos, BNP Paribas, looked to some of the positives: "Most importantly, for us, what’s been very helpful is the window for reassignment, which has been extended from 1.30 pm to 4 pm. This means that if you have missing or wrong instructions, particularly from the US, when clients may not be

say: "The new dividend payment process has been approved by the Capital Markets Commission (CMC) and will soon be operational, providing the Greek Central Securities Depository’s (CSDs) systems are in place. Under the aforementioned new process the issuer appoints a paying agent (local bank) to deliver the dividends to its shareholders. The introduction of the new system

“Post-Olympics, the Athens Stock Exchange has experienced tremendous growth, specifically, 60% since last December.”

awake, there is sufficient time to get the correct instructions, which means that the trade wont fail." In keeping with the outpouring of support for these measures, Christos Nikolaidis, Piraeus Bank, went on to say: "The major breakthrough is that with Method 6 not taking place at the end of T+3 or maybeT+4 we can achieve settlement on T+3. The main advantage is that it’s a lot less expensive, you decrease the exposure to risk, and it’s easier to handle corporate actions. Overall institutional investors have a lot less to worry about." Clearly change has served the market well. In summary, with the elimination of market risk, minimization of broker and market fees as well as taxes (tax on sales) this ongoing saga may well be winding down. The dividend payment process Dividend payments, another thorny subject. Should there be a system in place, which facilitates dividend payments directly from the CSD to local custodians? Or, should the CSD relinquish its payment function all together and act solely as an information provider? Views on this subject vary greatly. However, Christos Nikolaidis had this to

means that the CSD will no longer act as the paying agent." Pascal Jacquemin, GENIKI SGSS, however, wasn’t quite so unanimous: "The solution that the Greek market has chosen is right in the middle, meaning that it wont solve everything. I think we’re talking about something that will evolve over time, we may have a central paying agent, which could be the CSD or perhaps a subsidury of the CSD." Switching focus, Dimitri Vassiliou, EFG Eurobank Ergasias, suggested: "I think that one of the major issues we have in the Greek market is that it’s completely manual, which is very time consuming for all of us. As far as I’m concerned this is the most important area to be addressed." However, Nataly Koumoundouros, HSBC, was quick to point out that progress had been made: "The systems of today have come a long way from the days when issuing companies would issue cheques and send them via post to shareholders." Certainly this is true, Greece has come along way, but Ms. Koumoundouros, like her peers’, also acknowledged the fact that there is still work to be done: "Although things have improved significantly, clients would like to see more

“Getting the Olympics in 2004, and hosting the games, was extremely fortunate for the Greek economy. When the rest of the world was going into recession, the period after September 11, the average growth across the EMU was around 1% - Greece was running at 4%.”

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“The new dividend payment process has been approved by the Capital Markets Commission (CMC) and will soon be operational, providing the Greek Central Securities Depository's (CSD's) systems are in place.”

structure. From our point of view it doesn’t matter whether payments come from a paying agent or the CSD, what you must have is a timely and structured method and procedure in place so that everyone knows when, and by what time, the payments are actioned."

very well: "Now, there is no need to rewind trades as was the case when we only had one settlement cycle at the end of the day. We now have greater safety and less risk."

Settlement optimisation

After much debate it seems that the CCP, for the moment at least, has run out of steam, a point Lianna Biniaris underlined: "It was perceived back then, that if it's not a priority, and if everyone's not on board, it's just not worth doing. " However, Dimitri Vassiliou left the door open by saying: "Whether you want it to happen or not, it depends on how it will be structured and how it will be achieved. We feel that it could be positive for the market. We have a Central Counterparty on the derivatives side, therefore, it makes sense to have one on the equities side."

Greece introduced an RTGS system for the settlement of Greek government bonds in June of last year. The settlement process incorporates real time gross settlement with three or more net settlement cycles for optimisation. The question is, has the implementation of the aforementioned system been welcomed by all? One has to say yes! The domestic bonds market received a muchneeded boost; in addition, Greece has been able to align itself with other European markets.

The Greek Central Counterparty

“We feel that it could be positive for the market. We have a Central Counterparty on the derivatives side, therefore, it makes sense to have one on the equities side.”

Was it all plain sailing though? Theofilos Mitsakos suggested it was: "As far as we are concerned, the transition to RTGS was quite smooth, there were no problems. Cooperation with the Bank of Greece was efficient and effective at every stage along the way." He went on to say: "Going back to failed trades. There has been considerable added value for foreign investors who now have their failed trades settled earlier, which inturn reduces risk and allows for re-alignment to ICSDs. What’s important is that during the first cycle we have the settlement of coupons and redemptions, and some very early liquidity, given that these transactions settle very early in the morning." Nikolas Fitros, BNP Paribas, summed things up

Omnibus accounts Let us consider then for a moment, the much anticipated and long overdue omnibus account. Local custodians have campaigned for it; certainly foreign investors would welcome the introduction. So, why hasn’t it happened? Greece is a developed market after all and this is what investors expect today. Dimitri Vassiliou helped to shed some light on the subject: "Overall it’s a very complicated issue, there are many legal implications to be solved before it can be introduced, even allowed. Under today’s laws, custody can be provided by any institution that is a member of the Greek CSD, which means that banks and local brokers are

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“As far as we are concerned, the transition to RTGS was quite smooth, there were no problems. Cooperation with the Bank of Greece was efficient and effective at every stage along the way.”

providing custody services". Additionally, because accounts have to be segregated, this provides the final investor with a certain degree of protection. All of these factors will have to be sorted out before omnibus accounts become a reality." Andreas Sotiropoulos, EFG Eurobank Ergasias, went on to add: "All of these issues are very well known to the regulators. What I can share with you is the announcement made during the FTSE classification by the President of the Athens Exchange, Mr. Spyros Capralos. The Athens

The needs of local investors Once again, if we were to believe everything we read, one might assume that post.com Greece spiralled into decline and local investors ran for the hills. However, this is not entirely true, as Panagiotis Papapetrou was quick to point out: "Post.com, the market did not suffer. We did not have a Nasdaq situation in Greece. To a large extent the Athens Stock Exchange index mirrored the technological index, this was not the case with Nasdaq.

“At the end of the day, the most important thing is the protection of the final investor. As long as this is something which can be achieved, we can move forward.”

Exchange, in cooperation with the Hellenic Market Commission, is working on those areas in need of improvement. These include the free delivery of securities, the use of omnibus account facilities, and the streamlining of certain trading arrangements. He has also indicated that decisions from the CMC on these issues will be announced very shortly." Dimitri Vassiliou concluded by saying: "At the end of the day, the most important thing is the protection of the final investor. As long as this is something which can be achieved, we can move forward." Whilst the omnibus account may soon be a reality, it does not make the CMC’s job any less difficult, a point Dinos Kamaris highlighted: "Although the authorities have to balance, on the one hand, transparency and safety issues, on the other hand they are sympathetic to the needs of foreign investors, and with foreign investment increasing in this country they are very open to the concept."

Companies didn’t particularly suffer. The big bubble in 99 affected all companies operating in the .com space, Greece wasn’t any worse or better off. " So, what of the retail investor? Dinos Kamaris explained: "Unfortunately the confidence is not back in the local market yet. Although the market has experienced significant growth over the last two to three years, the local investor has been absent, both in retail and institutional terms. I think they’re going to be late in this rally." He went on to add: "However, I should mention that the performance of this market, compared to others over the last few years, has been tremendous, especially now. This leads to instances when the market in fact does not follow the trend of other European markets. Therefore, although the confidence hasn’t come back, foreign investors continue to feed the market." Pricing With

prices

being

driven

down,

many

VOLUME 4

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42 | Money Markets

CUSTODY

“I should mention that the performance of this market, compared to others over the last few years, has been tremendous, especially now. This leads to instances when the market in fact does not follow the trend of other European markets.”

custodians feel that they have reached an all time low threshold and therefore further movement seems unlikely. However, the market is not sitting still as Andreas Sotiropoulos explained: "The associated costs on the trading side are being scrutinised by the Hellenic Exchanges Group to see if they are comparable with other major markets. Are they similar, higher, lower? This has to be done in order to ensure that the total cost the investor sees remains attractive. This is important in terms of current and future investment in to the market. Therefore, when you consider the cost attached to the custodial element together with the relevant trading costs, the total needs to be competitive when compared to other European markets. In this

realise that perhaps everything we read is not necessarily fact. Looking back, as we have done over the last couple of years, Greece like most developed markets has had certain challenges to overcome, with some calling in to question its status as a developed market. However, let’s first, putting market dynamics to one side, understand that the Olympic effort was indeed a success. Second, whilst certain procedural elements may have been reminiscent of an age gone by, reforms have been implemented and steps have been taken to bring Greece in line with its counterparts. The results so far have been impressive. However, this appears to be just the tip of the iceberg as Theofilos Mitsakos explained: "The potential for Greece to become a regional hub has been discussed for some years now,

“As long as there is market share, and potential clients to compete for, there will always be institutions who will want a percentage of this business.”

way the Greek market will continue to be attractive to current and future investors." Consolidation On the subject of consolidation, whereas certain market analysts feel that there will be considerable consolidation and eradication of custodians over the next decade, Dimitri Vassiliou was not in agreement: "As long as there is market share, and potential clients to compete for, there will always be institutions who will want a percentage of this business." Greek custody- 2006 and beyond So, when we consider, digest and contemplate the information gathered from a cross-section of highly qualified individuals who sleep, eat and breathe this business we call custody, we start to

but what’s changed is that things are starting to materialise. Developments with Cyprus start soon, and in fact the president of the stock exchange has gone to Romania in order to explore the potential for something similar. This has been backed up by the CMC’s cooperation agreements with Israel and Serbia. Countries like Bulgaria are also looking in to the possibility of using the same platform." Christos Nikolaidis finished with a rallying cry: "When I look back six years ago, before the dematerialisation of Greek equities took place, and then consider what we’ve discussed today, Greece becoming a regional hub, I have to say that the growth of the Greek capital market has been tremendous. We have implemented, very successfully, dematerialisation, derivatives and an entire infrastructure for the protection of investors. I think that everything that’s taken place over the last six years will be doubled in the future."

VOLUME 4

REAL ESTATE INVESTMENT

The Commercial Property Boom Chris Hall

M&C – Building for the Future Lee Wilson

Setting the Record Straight on Turkish Investment Ines Ak

Cyprus – Making the Right Investment Kyriacos Talatinis

The UK Residential Market Seamus Nugent

101

REAL ESTATE INVESTMENT

The Commercial Property Boom Why investing in retail and offices is the new ‘buy to let’ Chris Hall explains.

It all started back in 2003. When the stock market entered the doldrums, and insurance companies disclosed that the returns on private pensions might not be what they had promised, investors nationwide resolved to draw their money out of pensions and take care of their own investments. By mid 2004, with the residential buy to let market already in full swing and prices hiked by huge percentages, slowly but surely residential investors began to swing towards the better value afforded by commercial property. The rewards were obvious;

remarkable examples of this frenzied investing recently. An investment property let to a local estate agent went on the market in November 2005 with an asking price of £265,000. Due to unforeseen demand it ended up going to ‘best and final offers’ just four working weeks later and, as part of an investor’s SIPP, achieved a price well in excess of this. Another recent example occurred with the sale of a purpose built light industrial unit, which sold subject to contract within just 14 days for the asking price of £189,000, again through a SIPP. Both of these

“Residential landlords and amateur investors have been quick to spot the viability of commercial property.”

with substantially longer leases offering secure rent periods, trouble-free management, lower prices and higher yields, investors immediately saw the potential for simple, hassle-free investment. Now, 18 months later, the investment market for commercial property is incredibly buoyant, even booming. Residential landlords and amateur investors have been quick to spot the viability of commercial property, especially with Self Invested Personal Pensions (SIPPS) in the equation. With the

properties fell within the price band of between £200,000 and £300,000, where we are especially seeing a huge demand from the ‘new’ investors to this market wishing to take advantage of the SIPP investment vehicle.” Yet perhaps the most astonishing example of the phenomenal demand for freehold investment property came with a recent office investment in Harrogate, which had an independently valued guide price of £650,000. It sold at auction for £1,030,000,

“The demand for investment is across the board. Although retail and offices are doing particularly well, freehold or long leasehold factories are also in demand.”

ratio of loan to value at a favourable 75 per cent in SIPPS until April 2006, after which time it will be reduced to 50 per cent, the market has been whipped up into a frenzy in the flurry of activity to buy and complete before April. Michael Hare, member of the NAEA Commercial Working Group says; “We have seen several

£380,000 above the guide price. So why is commercial investment proving so popular? In essence it is a combination of factors including the low cost of borrowing, negative perceptions of the stock market, lack of returns on pension funds and the sense that a ceiling has been reached for growth in the residential property market.

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REAL ESTATE INVESTMENT

Charles Smailes, chairman of the NAEA Commercial Working Group says; “These elements combined are drawing a much broader range of investors to the market than has ever been seen before. Aside from the traditional very wealthy

taking less yield for a long term investment.” But how long will this commercial property boom continue? There certainly does not appear to be any sign of a slow down. As Michael Hare says; “Out of all the commercial agents we have spoken to, every

“Residential landlords and amateur investors have been quick to spot the viability of commercial property, especially with Self Invested Personal Pensions (SIPPS) in the equation.”

company investor, we are seeing private investors with perhaps £200,000 rather than £2m to spend coming to us for advice. Most of these investors are drawing their funds with assistance from banks or mortgage lenders, as well as an element of cash.” Substantial demand is also coming from small businesses, who would rather buy the freehold of their property in the name of their partners or directors than pay rent. This makes sense, as they then have the double security of knowing what the

one says that they have never, ever been so busy on sales. I am working longer sustained hours than I have for a long time just to keep on top of my work load, mainly on trying to satisfy keen investor clients. Throughout 30 years in this business I don’t think I have ever seen such a busy market. ” Perhaps the picture will become clearer once the reduction in ratio from 75 to 50 per cent of loan to value for SIPPs takes place in April this year. Either way, if this period of low interest rates continues, the

“But how long will this commercial property boom continue? There certainly does not appear to be any sign of a slow down.”

rent is going to be and that it will be paid on time. And it is currently cheaper for them to borrow money on loan from a mortgage than pay rent to a commercial landlord. What’s more, the demand for investment is across the board. Although retail and offices are doing particularly well, freehold or long leasehold factories are also in demand, and the industrial or ‘shed’ sector is also booming where such properties are in short supply. “This is happening nation wide,” says Charles Smailes. “While London and other big city agents are dealing with the acquisition of landmark office blocks in the urban centre, the man in the street is making smaller purchases in towns. There is simply not enough commercial property out there to satisfy the market place, which means that, inevitably, prices are going up and yields are decreasing. Yet investors seem happy to take a longer view and pay a bit more,

only thing which could perhaps queer the pitch for the commercial sector is a recovery in the stock market, which could draw investors back into it. However, as Charles Smailes says: “Although stocks are already in a period of sustained recovery, it is by no means certain how long this will last, or indeed whether world events will let it last.” In the meantime, it appears that most investors are content to just wait and see, while looking seriously at putting their investments into the new buy to let - commercial property.

Chris Hall is the President of the National Association of Estate Agents (NAEA).

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REAL ESTATE INVESTMENT

M&C - Building for the Future Lee Wilson talks to Money Markets

Q. Where in Turkey are M&C based and how long have you been operational for? A. Our main office is in Alanya and has been for the last 8 years. We also have another office over in Antalya; this enables us to cover the whole of the Turkish Riviera. Our construction company, Asta, has been based here in Alanya for 12 years. We, therefore, benefit from their experienced and qualified team. Between us we run a very successful business An economy on the move Q. Turkey’s economy, which is surging ahead thanks to soaring exports, an upsurge in consumer spending, and increasing bonds with the EU, grew 9.8% in

We obviously don’t want things to spiral out of control. The government is doing everything in its power to control this by implementing laws which restrict the amount of land foreign investors can purchase. The current limit has been set at 10,000sq meters. This is to stop people from buying land in bulk, which in the long run will benefit everyone. Q. There has never been a better time to buy property in Turkey. The message at the moment seems to be ‘get it while you can!’ as property prices continue to increase, along with the rest of Europe. To what extent will the market rise over the next 12 months? A. Over the next year I foresee rapid growth. This year the company surpassed last year’s figures within the

“Over the next year I foresee rapid growth. This year the company surpassed last year’s figures within the first three months.”

2004, the fastest among the OECD’s 30 nations. Can Turkey sustain this kind of growth and to what extent has the real estate market contributed to Turkey’s flourishing economy? A. I believe that Turkey can defiantly sustain this growth. They have a thriving domestic market and are a very self-sufficient country. They can clearly cope with the high demands. The real estate industry has not had a huge impact on Turkey’s economic growth; however, it has impacted greatly on tourism. The government has started to implement a new system to control the growth of construction. The pace has been immense over the last 2 years.

first three months. It is important that the government controls what is happening in terms of construction, because this will enable us to continue to offer value. Q. In 2004 exports were up by 36.7%, imports were up to 40.2% (aprox. $97.2bn) and the automotive sector reached new heights. How does the real estate market compare in terms of growth? A. Tourism is by far the biggest sector in the Turkish economy, it actually accounted for a quarter of Turkey’s growth last year, and this year alone it has risen by around 30%. We foresee this growing year on year. The real estate industry is catching up fast, and at the

“Our aim is to take care of the client and ensure that they have everything they need whilst they are here.”

REAL ESTATE INVESTMENT

“The real estate industry equates to 7% of Turkey's economy, but we are expecting this figure to double, if not treble, over the next 2 years.”

moment is responsible for 7% of Turkey's economy, but we are expecting this figure to double, if not treble, over the next 2 years. Q. Is it fair to say that most of your clients come from overseas? A. Yes it is. The Dutch market is very big for us, as is Norway, Germany, Denmark, Sweden and also the UK and Ireland. Buying in Turkey Q. Inspection trips are imperative when buying abroad; do you at M&C offer this service and if so, how does it work and what can an investor expect to gain from it? A. The length of inspection trips vary, the most popular one in my opinion is the four-day trip. This allows us to guide our clients through the entire investment process. It also gives them the opportunity to meet the team, visit a number of our projects and assess build quality.

connecting your water supply. We will even go as far as to pick up a client’s family from the airport if they are coming out to visit. We never just hand over the keys Q. How easy is it for foreign investors to navigate their way through the Turkish legal system? A. Very easy indeed, we take care of this process for our clients. Once the initial deposit has been received, we do the paper work, groundwork, and we apply to the government for the Tapu (title deeds). We also have a legal team, should clients want the legal aspect taken care of. Q. How does the general cost of living compare to the UK? A. The cost of living in Turkey is much cheaper than in the UK. An example that I use quite regularly is council tax, assuming the average in the UK to be around £1200 per year. In Turkey you pay 0.03% of the value of the property in your first year, which equates to around 60 euros (£40). In your second

“Europeans visiting Turkey expect the highest standards and service from us and I believe that we deliver every time.“

We can help to arrange flights, accommodation, and have clients picked up from the airport. We then plan out a four-day itinerary, including trips to the construction sites, local tours to get a feel for the area, and we take care of any paper work that needs to be done here in the office. We can also provide assistance with setting up bank accounts; this is done so that the investor feels more established. At this time we will arrange a tax number, because this is needed in order to purchase property. Our main aim is to take care of the client and ensure that they have everything they need whilst they are here. Post inspection/ purchase, we can help with everything from, furnishing packages to

year the charge is reduced to 0.01% of the value, which then works out to about £25 - £30, it then stays at this price. So as you can see, there is a huge difference. Q. Once a client has decided upon a property how much should they allow on top of the purchase price for costs/expenses? A. We charge 3% of the purchase price; this covers the sale and service, applying for the tapu, and all of the paperwork that is involved. If you purchase through us we will refund the cost of your inspection trip. There are a lot of companies out here that will charge between 5 and 10% for the same service. Where M&C are concerned, the only additional

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REAL ESTATE INVESTMENT

“The number of Europeans who have bought second homes has also risen dramatically. These are people who have decided to move out here on a permanent basis and take up full residency in order to enjoy all that Turkey has to offer.“

cost consideration the client needs to factor in to the equation is the Tapu. The signing of the Tapu costs around 600 euros. Everything else is included. So, in summary, the investor pays the purchase price of the property, in this we include the 3%, and then 600 euros for the title deeds. Q. Our research suggests that Alanya is becoming extremely cosmopolitan and that there may be as many as 10,000 European residents. Do you believe this to be an accurate figure? A. We estimate the figure to be around 15,000; the number is increasing day by day. We have noticed an influx of Europeans over the summer months that have purchased a holiday home, which they come and visit for lengthy periods of time. The number of Europeans who have bought second homes has also risen dramatically. These are people

centres with state-of-the-art gym equipment, weights, running machines etc. There are house managers who live onsite, available 24 hours a day. They take care of the grounds, gardens and cleaning of the pool. All of these services are backed up by a team of fully qualified tradesmen who are there to deal with any issues or problems that may arise after the purchase of the property. We also offer a 10-year building guarantee on any new construction. Looking to the future Q. Where do you see M&C going over the next 12-18 months? A. To the top! M&C together with Asta are at the forefront of all new major developments. We have projects approved by the government, which will take us through the next 3 years. We are

“M&C together with Asta are at the forefront of all new major developments. We have projects approved by the government, which will take us through the next 3 years.“

who have decided to move out here on a permanent basis and take up full residency in order to enjoy all that Turkey has to offer. Q. When buying an M&C property what facilities might one expect to see as standard? A. Western Europeans visiting Turkey expect the highest standards and service from us and I believe that we deliver every time. When it comes to our complexes, clients and investors can expect many onsite facilities as standard, such as security, landscaped gardens, and swimming pools. We also have a barbeque area within our complexes. We find that this helps to build relationships with other people living in the area, as it gives them a chance to eat, drink and cook together. We also have fitness

anticipating year on year growth, which will far exceed the record set last year. We work closely with the government, and are currently building with the Mayor of Alanya. I believe the reason for our success, and the reason that we will always be a major player in Alanya is that we have the drive and desire to build, sell and maintain the properties. You get the full package. All in all we are very excited about where M&C is going over the next few years.

This interview was conducted with Lee Wilson, who is the UK Sales Manger for M&C Property in Turkey.

REAL ESTATE INVESTMENT

Setting the record straight on Turkish Investment Ines Ak talks to Money Markets

Q. How long has Sun Life Real Estate been present in the Turkish property market? A. We started, Sun Life, as a company in 2002. So we have been active in the Turkish market for 3 years. We are a German – Turkish company. I myself am German but have been living here in Turkey now for 11 years. Our clients mainly come from Germany, England, Denmark and Holland, although recently we have had interest from other countries such as Russia. When we first started the company, I thought that the majority of our clients would be from Germany, but this has not been the case. I believe that the vast majority now come from England and Denmark. Turkey is still a very new market. Up until 2 years ago foreign investors could not purchase property here, this has kept real estate prices very low, and, due to this interest is growing rapidly. Q. How do you target your clients? A. Most of our clients find us via the internet. Once we

recently, which suggest that the Turkish government have stopped non-domestic investors purchasing real estate. Is this the case? A. No, this is not true, I would just like to clear this up. A law was passed in 2003, which allowed foreign investors to buy property. The problem that the government found was that people were coming over and due to the low price of land were buying vast plots. They would purchase 20,000 – 100,000 sq meters and build small communities. There were also cases of foreign investors buying whole villages. Of course the government did not like this. They subsequently introduced a law to restrict the amount of land one can purchase. This limits the individual to 5,000 sq meters. This is the only change in the law; you are still free to purchase apartments and villas. So I would just like to say that the stories in the newspapers recently that suggest foreign investors cannot purchase property in Turkey are completely untrue. Q. Prices in Turkey still lag behind those of European

“Turkey is still a very new market. Up until 2 years ago foreign investors could not purchase property here, this has kept the real estate prices very low.“

have made initial contact we will go about setting up a 4 to 5 day trip, where they can come out and see a selection of properties and locations. Other agents will set up group trips, where they may have up to 20 people all coming over at once, we do not do this. We like to deal with each client as an individual. In our experience people have very different wants and needs when it comes to purchasing a property. We will arrange flights, accommodation and even pick them up from the airport. Q. With respect to foreign investors buying land and property, there have been a number of stories

cities - good news for investors - despite property prices rising sharply. Should real estate continue to soar, will Turkey overtake its European counterparts? A. I believe that the price of property will continue to rise, but hopefully it will be a gradual process, not a steep increase. The cost of new accommodation is rising faster than that of older properties. This is due to the fact that the standard of these houses is getting higher and higher. Most new properties now come with a pool, sauna and many other facilities, so you are getting more for your money. Hopefully the prices will not rise too much, like in Spain for example. It is now so expensive to buy

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REAL ESTATE INVESTMENT

property in Spain that lots of people are coming here instead. Q. Although segments of the Turkish real estate market have experienced something of a boom in recent years, Turkish property still remains relatively inexpensive by Western European standards. What is the average price of a family home in Alanya? A. The average price of a two-bedroom property is around 35,000 euros, but this is rising. I have just sold a luxury one-bedroom property for 40,000 euros; this apartment was of an extremely high standard with air conditioning and a pool. For a 3bedroom property in the centre of Alanya you are looking at around 70,000 euros, if you compare this to the prices in the UK, you can see why we have so many English people buying here. Q. There is always a certain amount of red tape involved in buying overseas.

should an investor expect to wait before completion? A. (a): At Sun Life we will also rent out your accommodation for you. We have apartments on our books at the moment that generate between 300 and 450 euros a month for our clients. The price does vary depending on the season and facilities that are available. There are other factors involved as well, if your property has a sea view you should expect a higher rental income. A. (b): Once you have chosen your property it will take around 3 or 4 months before completion, this is the same amount of time as it takes in Germany and I believe also in England. Q. What separates Sun Life from the competition? A. We make enough time for each and every client, thus enabling us to give them exactly what they are looking for. Unlike our competitors, we treat every client as an individual. Fulfilling their needs is the

“Our main aim has always been to keep our clients happy and find them their dream home in Turkey, and this is what we will continue to do.”

A. The procedure for buying a property in Turkey is the same whether you are from England, Germany or Denmark etc. First you will sign a contract with us and you will be asked for a down payment, we then apply for the tapu. All the paperwork is done in your name, and within about 3 months you will be asked to pay the remainder of the purchase price. The property is then yours. This is the same procedure if you are buying the property to live in or as a holiday home. If you are planning on renting out your property as a holiday accommodation for one or two weeks at a time you will have to pay tax on this income, because it is treated as a tourist business. If you rent it out for say a year, or two years, at a time this tax is not applicable. Q. It has become increasingly popular for foreign investors to buy residential properties in Alanya as rental investments: (a) What kind of rental income can investors expect from such a property? (b) After an offer is accepted, how long

most important thing. We also offer a very valuable after sales service. It is not a case of “ok you have your property now, bye, bye”, we continue to have a good relationship with our clients after they have purchased. We find that this is very important because then they are happy to recommend us to their friends and family who are also looking to buy in Alanya. Q. Where do you see Sun Life going over next 12 – 18 months? A. We as a company are growing all the time, and we will continue to do so. There are plans to start up a construction company later this year. We will be starting with a small development of apartments and hopefully this will prove to be successful and we will grow from there. Our main aim has always been to keep our clients happy and find them their dream home in Turkey, and this is what we will continue to do. This interview was conducted with Ines Ak. Ines is the owner and Managing Director for Sun Life Real Estate in Turkey.

Inspired. Motivated. Involved.

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Money Markets | 9

REAL ESTATE INVESTMENT

Cyprus – Making the Right Investment Kyriacos Talatinis talks to Money Markets

Introduction Q. Can you tell us a little bit about the history of Rois Nicolaides - K. Talatinis - PH Christodoulou Chartered Surveyors & Valuers? A. The late Rois Nicolaides established the firm in April 1988, after having served as “Minister of Communications and Works for the Department of Lands and Surveys” for 33 years. He rose from the post of Valuer to Senior Land Valuation Officer and finally Director of the Department. Today the firm is managed by two partners, Philippos Christodoulou and myself. We have offices in Nicosia, Limassol, Paphos, Larnaca and Famagusta. Q. Property is no different from other investment vehicles, before taking the plunge, certain key factors must be considered, e.g. location, price, property type etc. Are there any other variables

amount of security and the risk is minimal should you decide to sell. This is, I think, one of the main variables that an investor should take into account when investing, especially abroad. As far as Cyprus is concerned, because we were under British rule from 1878 – 1960, a lot of our legislation is based upon the English legal system. We have the freehold of property tenure, and of course leasehold, which you would come across in flats and other big buildings where you have common areas to share. For example, apartments in a block or a large tourism complex where you have small villas with shared pools and so on. The most important factor in my opinion, as a professional, is that investors should take all of the necessary precautions in order to get the title deeds for what they are buying. Most buyers that have purchased holiday

“As far as Cyprus is concerned, because we were under British rule from 1878 – 1960, a lot of our legislation is based upon the English legal system.”

investors should be factoring in to the equation? A. The basic principals of property are well known. However, some of the variables that an investor, especially in a foreign market, must take into account include the legal frameworks governing the property tenure, registration, and of course, town planning legislation. That said, town planning is only relevant if the investor is looking to buy land with development potential. Going back to my first point, property tenure and registration, this has to do with the issuing of title deeds, in other words, when you buy something are you entitled to the title deeds given that these are issued separately? Once in procession of the title deeds one has a certain

homes or retirement homes have the title deeds so they can sell, mortgage, or extend to relatives and or children as a gift. This is one of the most important things Cyprus offers, backed up by an extremely good legal framework and land registry system. Why invest in Cyprus? -

What makes the Cypriot property market conducive to investment? Which areas do you consider will be among the region’s key real estate hot spots in 2006? Would it be fair to say that the best real estate opportunities in Cyprus tend to be off-plan purchases?

REAL ESTATE INVESTMENT

“We have been a member of the European Union since May 1st, 2004. In 2007 we hope to adopt the euro currency.”

Which types of properties generally offer the best return on investment? - What kind of rental income can investors expect from such a property? - Must foreign investors pay tax on rental income? A. First of all, we should break down the property market in Cyprus. We have two main categories, one that is driven by locals, and the other, which is driven by foreign investors who buy holiday homes and come to Cyprus to retire. The major towns of Nicosia and Limassol have the highest populations on the island. In the Nicosia area alone there are around 250,000 people, which equates to one third of the islands total population. The local market is a very stable market with good capital gains. If you go back in time you will see that on residential land we have an average of around 10 – 12% capital growth each year. Industrial land and commercial land have more ups and downs. I would say that commercial land appreciates by 10% on average each year. So far we have not seen the big commercial investor in Cyprus, I’m talking about the big

telecommunications and airport connections are concerned. There are around 3 to 4 flights to the UK per day, so this is very good news, especially for British investors. Q. What sort of income can an investor expect to derive from a rental property? A. We have two ways of renting. One is the shortterm; lets say on a weekly basis. I will give you an example, for a three bedroom villa, with a swimming pool, the rent per week will range from between £650 - £850 depending of course on the proximity to the beach and facilities offered. This, of course, is still a cheaper alternative to a hotel, because we are talking about a threebedroom villa, which can accommodate a whole family. For long-term lets, usually between a month and 6 months, the rent for a three-bedroom villa is around £500 – £650 per month depending of course on the characteristics of the villa. Q. Now what are the tax implications for the investor who is renting? Does he have to pay tax? A. Yes, for the investor who is renting, if your income is over £10,000 then you have to pay the

“We have to take into account that in Cyprus the only serious investment available is in property. People have been driven away from the stock exchange after losing, not just confidence but a great deal of money also.”

property developers from abroad. However, we have witnessed companies like Lidl buying land in order to roll out supermarket chains and so on. Some hoteliers and banks, like Société Générale, have also purchased property here in order to operate in Cyprus. The main of advantage of having a property in Cyprus, and the reason that people buy here, is not just because we have great weather, the infrastructure is very good as far as

same tax as everyone else in Cyprus. I have to make something clear before I go on, from the gross income, the Inland Revenue grants a 20% allowance for everything from maintenance and repairs to the management of the property. So from the gross income you take out 20%. If the net income is over £10,000 you are taxed, if it is less then you are not taxed. Depending upon the level of one’s net income, the percentage of tax paid differs; from £10,000 –

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“The local market is a very stable market with good capital gains. If you go back in time you will see that on residential land we have an average of around 10 – 12% capital growth each year.”

£15,000 the tax rate is 20%. From £15,000 – £20,000 it is 25% and over £20,000 it is 30%. Financial drivers Q. (a): According to our research, property prices in southern Cyprus rose by 18 per cent last year. Can the market continue to sustain such growth? Q. (b): Once Cyprus becomes part of the European Union in 2007/08, what effect will this have on foreign direct investment?

market from aboard is concerned, we have seen a lot of people who have invested in Cyprus. Investment has to some extent focused on buying property either for rental or retirement purposes. Additionally, there are investors who have bought multiple properties off plan with the expectation that when they are built they can sell them for a large profit. This demand is due in part to the island’s many advantages, which I mentioned earlier, and because of the accession of Cyprus into the European Union.

“This firm is determined to maintain its key position in providing services which adhere to the highest professional standards.”

A. Over the last three years we have experienced a boom in the property market. Although last year and this year growth has slowed down, we now have more realistic figures. As I have said, although the pace seems to have slowed down, I actually think in the long run this will benefit the property market and the economy in general. The big rise started around 2001 after the historic change, and the crash, this is when people started to look at property as an investment. We had the lowest interest rates ever in the Cypriot market, and they are still quite low today. So people have the necessary capital to invest, either by borrowing or by using their own money. We have to take into account that in Cyprus the only serious investment available is in property. People have been driven away from the stock exchange after losing, not just confidence but a great deal of money also. Q. That is applicable to the domestic scene isn’t it, not externally? A. Yes mainly internally. As far as the external

We have been a member of the European Union since May 1st, 2004. In 2007 we hope to adopt the euro currency. If we do take on the euro, it will bring a lot of confidence and stability. When you become a member of the “Euro club” then obviously your currency becomes much more stable and of course one’s interest rate goes down as well. Cyprus – the future Q. What does the future hold for Rois Nicolaides K. Talatinis - PH Christodoulou Chartered Surveyors & Valuers? A. This firm is determined to maintain its key position in providing services which adhere to the highest professional standards. In addition, we hope to expand our operations in Greece and the Balkans.

Kyriacos Talatinis B.Sc (Hons) is the Regional Manager for Rois Nicolaides - K. Talatinis - PH Christodoulou Chartered Surveyors & Valuers in Nicosia, Larnaca and Famagusta.

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REAL ESTATE INVESTMENT

The UK Residential Market Seamus Nugent, Dandara Holdings Ltd

Despite the volume of negative comment in the media about the UK Residential Market, the facts paint an altogether brighter picture. UK house builders are still reporting record profits, and the general trend is echoed in the results of the countries largest house builder Barretts. Their UK housing profits of £396m rose 8% on sales of 14,351 units, or £2.472bn, up 2%, and achieved an operating margin of 16%, very healthy figures indeed. The second largest house builder Persimmon increased its average unit price by £12,000, in the last year. Barretts Chairman, David Pretty, summed up the situation by saying, “the fundamentals of the housing market remain sound, supported by low interest rates and good employment levels. Theses are underpinned by restricted supply caused by constant planning delays, and the enormous need for new housing which will have to be met in the long run.”

economy with some of Europe’s lowest unemployment figures and over 300,000 immigrants entering the country each year. The UK Housing Minister, Yvette Cooper, stated recently, ‘’over the last 30 years, while housing demand has gone up 30%, housing production has gone down 30%.’’ The Treasury-commissioned “Barker Report” calls for a build rate of at least 300,000 homes per year to meet demand. So why is the UK not building more homes, the answer in a single word is, ‘’ planning’’. Over the last four years, in a period of unprecedented demand and house price inflation, planning approvals on large housing schemes dropped by 15%. As we know, housing sites come from one of three sources, Greenfield, Brownfield or Inner City

“It may be a surprise to some, but the UK is now producing fewer houses than at any time since the Second World War.”

All of the above is very reassuring to the vast number of people who invest in the UK property market. Supply and demand It may be a surprise to some, but the UK is now producing fewer houses than at any time since the Second World War - over the last three years the average is approximately 150,000 per annum for a growing population of 60m.. For perspective, in Ireland, with a growing population of 4 million, we build between 75 to 80,000 homes per annum and prices are still rising, demand is still not being met. Ireland is building houses at 7.5 times the rate of the UK per head of population. For the UK’s 60m population, 150,000 is well short of the requirement, especially in a strong growing

redevelopment. However, the greenbelt and NIMBY (Not In My Back Yard) lobby are highly active and they elect the local councillors that decide on planning permissions and zoning. Brownfield sites in the UK often have very expensive remediation problems and are often not well located. Inner-city sites are preferred for redevelopment, but often need to be assembled from multiple owners, leaseholders or both. Previous uses, ground obstacles, rights of light, historical and archaeological issues all have to be dealt with first and all take time. This is good news for investors - the demand for housing is set to exceed supply for the foreseeable future, keeping upward pressure on prices. This basic shortage has seen eight consecutive years of high property inflation. It took five interest rate increases to

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slow it down, but it didn’t stop it; house price inflation last year was still between 5-6%. The root cause of the inflation, i.e. lack of supply, has not been addressed and the demand pendulum has already begun to swing back into play. From a demographic viewpoint, pressure is building up from all fronts. First, people are living longer; homes are not being passed to the younger

residential property market has a mine of past statistics and performance figures to enable analysis against other markets and other asset classes. So when viewed against all other asset classes, for example, equities, gold, funds, and so on, over the last 40 years property has increased in value by an average of 11.3% per annum. Over the last 100 years it has been 8% and this includes the low inflation decades in

“According to the 'Council of Mortgage Lenders', the average age of a first-time buyer is now 34 and home ownership among the 25-29 bracket is dropping.”

generation. Many couples are waiting until their mid to late thirties to start families, as opposed to mid to late twenties - 25 years ago. Consequently, household occupancy is dropping putting evermore pressure on existing stock. Single occupancy household levels are due to double over the next 15 years from 5m to 10m. Relative Performance Residential Commercial property Gilts Equities 1997-2004

Cash 0

5 10 15 Annualised total return (% pa)

Source: IPD/Nationwide/LIM

According to the “Council of Mortgage Lenders”, the average age of a first-time buyer is now 34 and home ownership among the 25-29 bracket is dropping. Renting is now more affordable; in addition, it has also fulfilled the young person’s need for flexibility. Many claim that by renting, and not buying, they have been given access to better areas and nicer properties. More and more young people, now and in the future, will not be working in factories on industrial estates but in city centre office blocks or business parks in service industries; they will live in city centre rental properties near to the leisure facilities they enjoy. Past Performance: On top of a huge economy, that a 60m-population G8 country generates, the UK

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the 20’s and 30’s. It exceeds all other classes in the last 10 years and whilst average growth consists of highs and lows, the increase is still relentless. In addition to capital growth there is also the added bonus of rental income. The other main advantage of property over equities is that property can be leveraged and the rental stream used to finance borrowing on the property. The average gross yield on new property is around 5%, which rises as a percentage of the initial purchase price as rent increases. Combining yield and capital growth gives an average of approx 16% per annum, which doubles the value of an initial purchase every five years. Most investors borrow part of the capital required to make the initial purchase at say 35% equity, 65% borrowings, so that equity is growing at an average rate of 33% whilst rental income pays off the loan. This return is six to seven times what bank or building societies deposits can achieve. Many people now regard this form of investment as the most viable alternative to providing for their pensions. The UK property market is one of the world’s most liquid property markets, meaning investments can be sold and easily turned back to cash. Most UK citizens can afford to buy or rent property at current price levels - compare this to Eastern Europe where the average income per head is between €4,000 and €6,000 per annum. Such populations cannot afford to buy property at today’s inflated prices and liquidity in these markets will be an issue for many years.

Seamus Nugent is the Managing Director of Dandara Holdings Ltd.

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EXECUTIVE EDUCATION

Charting Changes Maury Kalnitz

The American University in London Take off at Toulouse Business School Jacques Tournut

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The Executive MBA â&#x20AC;&#x201C; Opening New Doors Scott Goddard

Products and Services Index List of Contributors Reader Response Form Feedback Form

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Charting Changes Maury Kalnitz talks to Money Markets

Trends in Executive MBA education are increasing value for students and organizations The 2005 Executive MBA Council Conference in Barcelona, Spain attracted more than 300 participants from Executive MBA Programs all over the world. A non-profit association of colleges and universities, the council brings together administrators, staff, and faculty from Executive MBA Programs throughout the globe. As the annual conference’s first non-North American location, Barcelona represented a milestone for the council – and an indicator of a key trend for Executive MBA Programs. In so many ways, the world of Executive MBA students and the programs that serve them is decidedly flatter. Globe-trotters Location is no obstacle for students today, as the reach of today’s Executive MBA Programs extends beyond the boundaries of countries. Executive MBA Programs have developed many

schools and work in virtual global teams on assignments. They come together for four, one-week sessions in Asia, Europe, and North and South America as part of the 21month program. Another alliance, the TRIUM Executive MBA Program involves four schools: The New York University Stern School of Business, the London School of Economics and Political Science, and HEC School of Management in Paris. International collaborations often involve two partners, such as the Olin School of Business at Washington University and Fudan University, which launched a joint program in Shanghai, China, in 2001. Students who do not participate in these new models of international Executive MBA Programs need not worry about missing international business lessons. Most Executive MBA Programs include an international trip as part of their curriculum and cover international business issues in classes. For students who are interested in learning more about Executive MBA Programs, the Executive MBA

“Location is no obstacle for students today, as the reach of today’s Executive MBA Programs extends beyond the boundaries of countries.”

creative models to both expand internationally and to offer students unique international business perspectives and experiences. For example, the OneMBA allows executives to accelerate their careers in a global setting. Five business schools collaborate on the OneMBA Program: • Chinese University of Hong Kong Faculty of Administration • Fundacao Getulio Vargas, Escola de Administracao de Empresas de Sao Paula in Brazil • Technologico de Monterrery’s Graduate School of Business Administration and Leadership in Mexico • RSM Erasmus University in the Netherlands • University of North Carolina at Chapel Hill KenanFlager Business School in the United States Students take core courses at their home business

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Council offers a directory of its member programs, which provides details about programs worldwide. Available at www.embac.org, the online directory allows you to compare programs side-by-side on a number of features, including whether they offer an international trip. Frequency and flexibility Executive MBA Programs also are changing in other ways to meet the needs of students and organizations. In the past several years, Executive MBA Programs have been making adjustments to formats and schedules, as well as incorporating elements of distance learning. Because Executive MBA Programs serve experienced

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“Almost 80 percent of Executive MBA graduates say their value increased to their organization as a result of entering the program.”

business leaders who are pursuing their degree while continuing to work full time, the formats of such programs seek to minimize the amount of time away from the job. Students typically attend classes in more convenient blocks of time, such as all-day sessions. More than 90 percent of students complete their program in less than two years, but research shows that programs are offering shorter schedules. In 2000, more than 50 percent of programs finished in 21-22 months, according to results of the Executive MBA Program Survey, which offers the most comprehensive data about Executive MBA Programs worldwide. In 2005, that number dropped to 27 percent. Conversely, the percent of programs that take 19-20 months to complete increased from 9 percent in 2000 to 17 percent in 2005, and the percent of programs that are 17-18 months in length increased from 10 percent in 2000 to 17 percent in 2005. In addition, more programs are incorporating some element of distance learning; in 2004, 17 percent of all programs used distance-learning tools, but in 2005 that number increased to 36 percent, according to council research. Those tools are helping programs increase the access to students who may not work near Executive MBA Programs, as well as helping students expand their base of colleagues. Value for all Executive MBA Programs demand a commitment of time and resources from both students and their organizations. As a result, students and organizations are eager to know the value of pursuing an Executive MBA degree. There is much good new to share about the impact of an Executive MBA education on students and their organizations: • On average, a sponsoring organization receives its return on investment in only 17 months from the start of a student’s program, according to research by the Graduate Management Admission Council (GMAC). • Almost 80 percent of Executive MBA graduates say their value increased to their organization as a result of entering the program, according to council studies. These statistics show that most organizations

gain immediate benefits even before a student completes a program. They are consistent with students who report that they are able to take what they learn in the Executive MBA classroom one day and apply it at work the next day. • Almost half of Executive MBA graduates r e p o r t new responsibilities as a result of entering the program, and about one-third receive a promotion during their program, according to Executive MBA Council research. Those new responsibilities may result from the skills that graduates gain from the program: • According to GMAC studies, 91 percent of Executive MBA alumni said their ability to think strategically improved either a great deal or a good deal as a result of the program In addition, graduates rated sizeable improvement in networking, leadership, and creative skills. And significantly, graduates of Executive MBA Programs report great satisfaction with their programs and are willing to recommend them to others: • More than 80 percent of Executive MBA participants rate the quality of their program as excellent, according to council studies. • Almost all graduates say the program either met or exceeded their expectations, and the vast majority would recommend the program to others. In fact, 78 percent of Executive MBA students definitely would recommend the program, compared to 59 percent from Part-Time MBA Programs and 65 percent from Full-Time MBA Programs, according to GMAC research. Changing focus At the Executive MBA Council Conference in Barcelona, a panel of deans from distinguished business schools around the world talked about current and emerging trends in the Executive MBA market. The complexity of business is increasing and is affecting Executive MBA Programs, said Xavier Mendoza, dean of ESADE Business School in Barcelona. “We are shifting from a very strong content in terms of knowledge base and increasing requirements to enhance behavioral and leadership skills.” Mike Page, dean of Post-Experience Programs at

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RSM Eramus University – Rotterdam, the Netherlands, concurred with Mendoza about the speed of change and the demands on education to prepare business leaders who can effectively respond. To help leaders face their challenges, programs are building their capacity to manage – in both the content they offer and in the behavioral skills, says Page. “We have to help them improve their practice and develop networks.” To bolster leadership abilities, many Executive MBA Programs are increasing their focus on strategy and leadership and on higher management functions. In addition, they are integrating the curriculum to ensure that students not only understand functional areas, such as finance and marketing, but the ways in which functional areas combine to strengthen an organization’s competitive position. Many programs also are emphasizing skill development in key leadership areas, such as

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communication and negotiation. The changing focus of programs will remain consistent in one goal: to offer the knowledge and tools that participants need to become complete business leaders. Maury Kalnitz has served as managing director of the Executive MBA Council since 2000. He oversees council programs and services and council collaborations with related educational associations and organizations throughout the world. He has held leadership positions in both industry and higher education. The Executive MBA Council fosters excellence and innovation worldwide in Executive MBA Programs. The council has more than 200 member colleges and universities worldwide, which offer more than 300 programs in 25 countries. Additional information about the council is available online at www.embac.org, including the Visitor Search, a directory of Executive MBA Programs worldwide.

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The American University in London (AUL) American University London

AUL is a thriving institute operating over the last fifteen years in the heart of London with a rich portfolio of taught, full-time, distance learning and research courses for Master Degree in Business Administration (MBA) and PhD’s in numerous disciplines. AUL offers, full-time on the campus master’s and Bachelor’s degree courses in a variety of subjects such as Business Studies, Banking and Finance, Strategic Planning and Management, International Marketing, Computer Science, Hardware/Software Engineering, Information Technology, Database Management, Human Resource Management and Law. Our faculty focuses on current issues of commercial, social and technological worlds in the process of delivering courses to ensure that our students gain strength in academic abilities, experience in applying knowledge and confidence in interpersonal relations in order to compete in job market with the cutting edge skills. In addition to fulltime courses we have successfully introduced distance learning courses through research for those who are in fulltime employment. While continuing their employment, our distance learning students have contributed invaluable knowledge to the University and have earned their Master and Doctoral Degrees. AUL works with a network of affiliated institutes all over the world from East to West (including Malaysia, Taiwan, Bangladesh, Pakistan, Middle East and Canada). Our aim is to offer equal opportunities to all those who intend to achieve higher education in the most advanced disciplines. We are proud of our alumni who work for Governments, Universities and International Companies around the world.

Management, International Marketing, Human Resources Management, Financial Management, Project Management andEconomics. MS/PhD in Computer Information Systems, Computer Science, Information Technology, Telecommunications, Management Science, Healthcare Management, Public Sector Management, Management Information Systems. MA/PhD in Middle East studies, Islamic Studies, Education, Mass Communications, Sociology, History, International Relations, Political Science, Modern English Studies LLM/PhD in International Law, Business/ Company Law, Islamic Law, Banking Law and Criminal Justice.

Why you should consider AUL? -

…in the classroom outstanding education value knowledgeable professors a low student to faculty ratio gives individual attention

…in your life - flexible scheduling - supportive environment - growing international community

Educational opportunities available BBA in Business Administration, Accounting, Banking & Finance, Hotel Management, International Trade, Marketing, Human Resources Management, Economics and Management. MBA/PhD in Accounting, Business Administration, Banking, Management, Finance, Hotel

Based in the heart of London, AUL is a thriving institute offering a rich portfolio of taught, full-time, distance learning and research courses for Master Degree in Business Administration (MBA) and PhD’s in numerous disciplines.

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Take off at Toulouse Business School Jacques Tournut, Ph.D. discusses the topic

Q. What are the fundamental characteristics that differentiate Toulouse Aerospace MBA from other schools? A. In Toulouse, at the heart of a world-class aerospace complex located in an exceptional industrial, academic and research environment, it was inevitable that the Toulouse Business School share its management expertise with the aerospace world. Unquestionably, managing in the aerospace sector, be it customer relations, finance, production or human resources, requires a specific knowledge for specific practices and constraints. By carefully blending the expertise of our faculty with experience of top practionners in the field, readily available in Toulouse, we have given ourselves the means to meet this ambitious challenge. The enthusiastic participation of these world-class competitors gives the program and participants significant added value. This MBA is very much linked with the industry’s major players (and recruiters) and proposes an attractive pedagogical approach thanks to its matrix structure.

• Alan Mulally, CEO BOEING Commercial Airplanes, Graduation Ceremony 2001 • Jean Paul Bechat, CEO SNECMA Group, Graduation Ceremony 2002 • Noël Forgeard, CEO Airbus, Graduation Ceremony 2003 • Jean-Cyril Spinetta, CEO AirFrance, Graduation Ceremony 2004 Q. Could you describe the structure of your programs (Full Time and Part Time)? A. The Aerospace MBA is a generalist MBA in its approach and a specialized MBA in its application. There are 2 formulas: - Executive (Part Time): 4 sessions over 2 years - Full Time: 1 year The program consists of 5 stages and objectives are: To develop a flexible and creative learning process To broaden knowledge rather than deepen it To encourage innovative thinking and openmindedness To enhance managerial skills To emphasise international issues - Stage 1: Team Building Seminar - Stage 2: Core Courses: 6 Foundation Courses - Stage 3: Process Workshops: These 8 process workshops enable participants to work on crossfunctional management problems. - Stage 4: Elective Specialization: the program then proposes 4 specialized tracks dealing with aerospace sub-sectors, namely O.E.M, Airlines, Airports, Defense and Space (which consists of 4 specialized process workshops each). - Stage 5: Application: the program ends with a 4month individual project: a Corporate Mission (inhouse company project) or a Research Project (at CERMAS). In addition, participants have to undertake a multicultural team project on an aerospace industry issue. They also have additional courses for soft skills development.

Q. What are the links between the Aerospace MBA and the Aerospace industry? A. - Top experts of the industry are lecturing and sharing their experience, expertise and knowledge with the MBA participants. - Companies send executives to our programs as well as hire graduates at the end of the program. They also welcome MBA participants for their 4-month corporate mission as consultants to work on a specific management problem. - The steering committee: the members are decision makers (CEOs, Executive Vice Presidents, Vice Presidents and General Managers) of the aerospace industry. They guide us in the program’s contents and evolution. They come from the following companies: Airbus, Boeing, Eurocopter, Thales, SNECMA, GE, ATR, Jetblue Airways, CALyon Aviation Group, IBM Global Services, Institut Aeronautique et Spatial… - The graduation ceremony is presided over by a major decision maker: • Philippe Camus, CEO EADS, Graduation Ceremony Q. How global is your program, and what is the school 2000 doing to reinforce this position?

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A. Our program is global in terms of the curriculum, where a lot of attention is paid to international aspects of the business world. Q. Who are your professors? A. The theoretical and academic parts of the program are mainly delivered by permanent faculty members of the Toulouse Business School or other prestigious academic institutions. They are all Ph.D. holders and research active. The practical parts of the program are delivered by professional experts from top companies of the aerospace industry. They have high positions in their companies, broad expertise and are usually MBA or Ph.D. holders. In both cases, more than 65% of them are international lecturers coming from more than 15 countries.

fellows at CERMAS are the module leaders for most of the Aerospace MBA courses. Much emphasis is placed on translating current research findings into learning forums. For example, research on alliances, security, very large aircraft and electronic markets has been presented to the students, either as special seminars or as part of established modules. The CERMAS research on collaborative learning has been successfully incorporated into Process Workshops. 3WIM approach, 3 Way Interactive Method, is combined with simulations in most of the workshops, which generates a lot of discussion through a very realistic approach. Q. Finally, would you care to elaborate on the future of the Aerospace MBA? A. At first, I would say that the market is more and more international (which is already the case at the

“Our participants come from all over the world - 32 countries have been represented from the very beginning, and 12 to 15 are represented every year and the proportion of international participants is always above 75%.”

Q. What is the participant profile? A. Our participants come from all over the world-32 countries have been represented from the very beginning, and 12 to 15 are represented every year and the proportion of international participants is always above 75%. Participants are 80 % aerospace executives with various backgrounds (engineering, finance, marketing, law…). The typical profile has on average: Master’s degree (Bachelor’s degree is the basic requirement) 12 years of significant experience (3 years of experience is the basic requirement) Q. What is Toulouse Aerospace MBA doing to be innovative? A. To be innovative the aerospace MBA programs are linked with CERMAS (CEnter for Research and Management in Aeronautics and Space of the Toulouse Business School, directed by Professor Sveinn Gudmundsson). The Aerospace MBA program provides an ideal and challenging environment for developing synergies between teaching and research. Research

Toulouse Business School) and European MBAs are now more than targeted by candidates especially for their innovative curriculum. It is more and more difficult for companies to allow their staff to leave for one or two years to attend an MBA Program. As a consequence, last year we launched an Executive (Part Time) formula: 4 sessions over two years, requiring only a 12-week attendance on site (for the first year: 5 weeks in February and March, then 3 weeks in September; for the second year: 3 weeks in April then 1 week at the end of October). Although participants and companies are still looking for academic knowledge and tools, experience and expertise shared with our guest lecturers, they are now more and more focused on communication skills development as well as leadership development. That is why we encourage open-mindedness and innovation at the Toulouse Business School.

Jacques Tournut, Ph.D. is the Director of MBA and Post Graduate Programs at the Toulouse Business School.

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EXECUTIVE EDUCATION

The Executive MBA – Opening New Doors Scott Goddard talks to Jonathan Calens

Nottingham today Q. Nottingham offers eight AMBA-accredited MBA programmes; do you intend to expand upon this? A. If we do, we will be focusing on areas of particular strength, perhaps a named MBA in entrepreneurial studies. The other potential development is an expansion of MBA’s onto our new campus in China. We will probably be offering MBAs over there in due course along side the MBAs we already offer in the UK, Malaysia and Singapore. Q. Some schools prefer to use senior faculty members when teaching courses. Is this something that you advocate at Nottingham?

course, be it full time or executive, you have to offer a total package. I think that it is not just a question of the students and staff; there are other factors to take into consideration. You do need good staff, with relevant experience, you also need first-rate students, without these you can’t get anywhere on an MBA. Our students have an average of 7 to 8 years experience on the full time programmes and 12 years plus on the part time. The interaction of people with experience is a contributory factor towards the quality of the MBA. On top of that you need excellent facilities, the working environment is something that must be first class. A good selection of modules that are at the forefront of business knowledge are essential,

“We typically have at least 30 different nationalities on a programme and this is intentional. We want the mix of cultures and experiences that you get, and obviously business practice differs in various countries.”

A. I think it is almost essential; to put a junior, or inexperienced member of staff, in front of an MBA audience is to more or less invite a massacre, because the MBAs demand both forefront of knowledge plus business experience. So our most experienced faculty members, be they professors or practitioners, or those who have come into education a little later on in life, are the sorts of people that we need to teach MBAs. They have to be able to present a very good mix of theory and practice, and give real business experience and information as part of the learning process. Q. The quality and background of the professors charged with teaching and motivating Nottingham’s students is clearly very important. However what set’s Nottingham’s faculty apart from other schools? A. In a sense, to be an excellent provider of an MBA

you also need a selection of elective modules to allow people to focus on their career aspirations. If you’re offering part time programmes you need to make them flexible, in order to allow people to fit in their business commitments simultaneously; if they want to stop for 6 months and not take a module, that’s fine, if they want to speed up and take 2 or 3 modules very quickly, that’s fine also. You must provide support in terms of career development, alumni facilities, networking facilities and indeed a social package. The last thing we want is for people to come onto an MBA course and find it so intensive because there is no social dimension to the experience. We also need to bring in the benefits of having 11 advanced research centres within the business school, and link them directly to the MBA. It is important that the professors who are doing the research on the

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forefront areas, such as CSR, venture capital, or entrepreneurship, can feed the results of the research directly in to the programme. Q. A number of schools have introduced e-learning platforms. How technology driven is Nottingham? A. We have e-learning portals, for both staff and students within the university and business school; as time goes on the “e” element of programmes will increase. I don’t think that they will take away entirely from face-to-face communications, because that is one of the major strengths of MBAs. That said there are some excellent distancelearning programmes that are exclusively e-based. We provide on-line, full text journals, sometimes even database software packages, which can be accessed from wherever the MBA course member is. This facilitates the progress of people throughout the programme, particularly part time and overseas course members. It is often useful to supplement the lecture and seminar process by having things available for people to work on in their own time. So for example, we provide an interactive CD for some of the subjects that people have most difficulty with, which tend to be things like accounting, finance and IT. Some people don’t

diversity of the programme. Strangely enough, this is also happening with executive programmes, the bulk of our executive MBAs are obviously UK based, but at our last count we had people flying in from 8 different countries. We have a contract with a key organisation in Germany who send people regularly, we have also got people flying in from Canada, the Middle East, France and so on. This is adding a new dimension that we hadn’t really anticipated. Q. The Nottingham University Management and Business Alumni (NUMBA) have more than 1500 MBA alumni worldwide. How important are alumni networks? A. They are very important indeed, I think we, in the UK are typically under emphasising the value of the alumni network. The States have developed very strong links with alumni over the years. The UK, and I’m afraid to say Nottingham, have been rather more backward than we should have been. In recent years we have devoted more resources to the alumni, including the development of websites and so on. We have already got very active alumni in the UK, Singapore and in Hong Kong, but want

“We as a business school have adopted the philosophy that we try and keep fees to a reasonable level, and we do offer a limited number of scholarships.”

need it because they are already quite strong in that area, whereas others find it very valuable. Q. The traditional draw of the Executive MBA program was from the local area. However, schools now describe classrooms with students from the four corners of the earth. Is this something you’ve experienced at Nottingham? A. You have to differentiate between full and part time MBAs. With the full time, we typically have at least 30 different nationalities on a programme and this is intentional. We want the mix of cultures and experiences that you get, and obviously business practice differs in various countries. We find that bringing people together from so many countries is a great asset, and you benefit tremendously from the cultural

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to develop in other key parts of the world where we have groups of students. Economic drivers Q. As the world economy shows signs of consolidated growth, and corporate results bring renewed confidence to boardrooms, would it be fair to say that demand for Executive MBA programmes is growing? A. Yes, on a global basis it certainly is. Online demand is growing because it is fairly easy to encompass both that and the executive MBA whilst continuing a career. The executive MBA is relatively expensive, but none the less, organisations seem to be increasingly taking the view that it is a worthwhile investment.

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Q. For some time there has been massive under investment by the Government and commercial enterprise in people and training. Is this ever likely to change? A. Well obviously we hope that it will. The government has always under invested in the UK, relative to many other countries. Companies themselves also tend to under invest in training. We believe that we have a very good product to sell in the business schools, and the feedback that we get is very positive from the organisations that employ our graduates. As I was saying before, it is not something that organisations prioritise. They perhaps should take a longer-term view, and think of the implications if they cut back on training and don’t invest as much as they potentially could.

involve twelve weeks over anything from 2 to 4 years. You can choose how quickly you want to move through the programme. On top of that you would need to spend substantial time on a management project, typically a practical look at something within your own organisation. In terms of work on projects and reading, you need double the time you spend on the lectures and seminars in order to do justice to the MBA. Q. You’ve mentioned in the past that students attending your part time MBA programme receive more financial support from their employers than those attending full time. As unlikely as it may be, has this dynamic changed?

“To be an excellent provider of an MBA course, be it full time or executive, you have to offer a total package.”

Investing in human capital Q. An executive MBA programme requires a considerable investment of both time and money. However, how much time and money are we talking about? A. Executive programmes vary in cost depending on the organisation. Nottingham’s cost approximately £17,500 for the fees; on top of that you have to cover living expenses for 12 weeks of the programme, and probably another £500 - £1,000 on books and other expenditures. There is also the opportunity cost, which organisations have to take into account when you are not working. We do try to encourage public sector, and notfor-profit organisations, as their fees are much lower. We are aware of the problems, particularly amongst charitable organisations that are in as much need of high quality managers as anyone else. Some MBAs are much more expensive, you can pay in excess of £30,000 for an MBA in the UK, and the US ones are even more than that, so It’s a fair commitment. In terms of physical attendance, this will

What incentive and or motivation do potential students/ applicants have when it comes to enrolling in a full time programme? In percentage terms how much support/ financial assistance do students generally receive from their employers? Has this percentage increased over the years? Is the number of self-funded EMBA students growing? A. I must start by differentiating between part and full time. Full time support, if anything, is diminishing in the UK. There are very few employers willing to provide full support for someone to take a year off in order to complete the MBA. Part time is somewhat different, if anything, support is rising. Some organisations pay fees in full; some want a commitment from the course member (employee) as well. Typically a contribution of between 25 and 30% would be the sort of commitment that an employer would look for when asking for a contribution from an employee. Support can also come in the form of time. If you are doing an executive MBA, twelve weeks over a period of four years is a substantial

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commitment. Other support could be mentoring; people who may have experienced MBAs within the organisation could act as internal mentors. Of course support could be more directly linked to the business school. One of the things that we and other business schools can offer, if organisations wish, focuses on the provision of bespoke courses, tailored specifically to the student’s requirements. Internationally, I’m afraid to say there is a great deal more support than there is in the UK. A lot of international students do get support quite often from their organisations and that can be full time students as well. We as a business school have adopted the philosophy that we try and keep fees to a reasonable level, and we do offer a limited number of scholarships. There are a number of half-fee scholarships and a very limited number of full fee scholarships, which include accommodation in some cases. These are mainly linked to our corporate social responsibility MBA, trying to encourage people possibly from the developing

tackle managerial problems in different ways. This is one of the great things that can come out in an MBA programme. If you are going to develop as an organisation you’ve got to have exposure to this, many companies tend to be very traditional in terms of how they tackle issues. They need an influx of new ideas and the MBA does this very well. Q. Across the board, applications to full-time courses have plummeted, but for those business schools offering executive MBAs (MBAs for working managers), the coffers are filling up. Does Nottingham have this problem and what can be done to address the balance? A. The full time numbers at Nottingham have fluctuated, and are down on previous years, but we are still doing better than many other leading business schools. It tends to be linked to countries. There was a phase when huge numbers were enrolling in MBAs from China, but numbers are declining. I think that they are down about 40% in

“We provide on-line, full text journals, sometimes even database software packages, which can be accessed from wherever the MBA course member is.”

world to come to the UK. When you compare us, or many of the British intuitions, with a lot of US schools, we don’t offer as many scholarships. We believe that it is better to price the course at a realistic fee level in the first place, in order to enable more people to attend, than to have a higher fee and offer more scholarships. EMBA – the way ahead Q. What can the Executive MBA offer in the future, is it outdated? A. There have been a lot of comments in the press over the last year, criticising MBAs, particularly in the States. Nonetheless, I feel very strongly that MBAs still have a great deal to offer to managers who are aspiring to senior and top positions. Not only do they provide a great knowledge base, and the skills base from the professors, but the mix of many different organisations coming together in a class. It is amazing to see how similar organisations

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the UK and in general this year. I suspect that some organisations might have to stop providing full time programmes. Q. What other innovations do you see in the pipeline that will help you stay on top? A. There has been some debate about where MBAs have to change; the criticism has been that they are not necessarily relevant to today’s managers. I think the crucial factor is that you have to try and maintain the quality of the programme and, in particular, the quality of course members. Some institutions have tended to start taking young, and inexperienced managers. This doesn’t do the MBA any good. We’ve taken a decision to try and maintain standards, even if numbers drop on some programmes; we will not lower the intake standard, nor will we reduce the number of year’s experience we ask for. In many respects, I think that some of the US schools have more problems than their UK and European counterparts. If you take a look at the

VOLUME 4

EXECUTIVE EDUCATION

average age of course members, in the UK and Europe, most of them are older and more experienced. We are focusing much more on soft skills and hard skills than we did in the past, which are part and parcel of today’s managerial trends. As long as we make sure that the quality of the staff, students, and the environment are being maintained or enhanced we will stay among the forefront of MBA providers. Another thing worth mentioning is that we get quite a lot of people saying, particularly on the executive MBAs, “we don’t actually think we need the MBA qualification for our job development, because we are already fairly senior managers, but we want it for the learning experience. We want the knowledge, skills, and we want ideas from the programme in order to develop ourselves. If we get

the letters after our name that’s nice, but it’s incidental, the main thing is our own personal development in the context of what is going to be best for us in our organisation.” I think that’s a very refreshing and realistic way of looking at things.

Before becoming Director of Postgraduate Progammes at Nottingham University Business School, Scott Goddard held teaching and research posts at Birmingham University, Aston Business School and Nottingham Trent University. His Interests and publications are in financial management and international finance and he is the Examiner in Financial Strategy for the Association of Chartered Certified Accountants (ACCA).

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Products & Services Index Asset Management Page 20

TXS financial products GmbH Tel: +49 (0) 4106 7777 219 Web: www2.agens.com

Page 48

Bank of New York Tel: +1-212-495-1784 Web: www.bankofny.com

Page 24

ZBI Bonds Tel: + 44 (0) 207 959 4000 Web: www.zbibonds.com

Page 41

Goldman Sachs & Co. Tel: 0207-774-1578 Web: www.gs.com

Custody Capital Markets Lloyds TSB Tel: 0207-661-4650 Web: www.lloydstsb.co.uk European Central Bank Tel: +49-691-3440 Web: www.ecb.int

Bank of New York Tel: +1-212-495-1784 Web: www.bankofny.com

Page 20

Page 10

BNP Paribas Tel: +30 210 74 68 000 Web: www.bnpparibas.gr

Page 81

Page 8

Danske Bank Tel: +45 33 44 00 00 Web: www.danskebank.com

Page 67

Covered Bonds

116

Banco Espirito Santo Tel: +351213501157 Web: www.bes.pt

Page 34

DnB NOR Tel: +47 915 04800 Web: www.dnbnor.com

Page 70

Caisse de Refinancement de lâ&#x20AC;&#x2122;Habitat Tel: + 33 (0) 42894910 Web: www.anil.org

Page 21

EFG Eurobank Ergasias Tel: +30 210 335 7228 Web: www.eurobank.gr

Page 77

Compagnie de Financement Foncier Tel: +33 (0) 157448000 Web: www.foncier.fr

Page 22

GENIKI SGSS Tel: + 30 210 6975000 Web: www.geniki.gr

Page 81

European Covered Bond Council Tel: +32 2 285 40 30 Web: www. ecbc.hypo.org

Page 16

HSBC Tel: + 30 210 696 2100 Web: www.hsbc.gr

Page 81

Fitch Ratings Tel: +44 (0) 20 7417 4222 Web: www.fitchratings.com

Page 37

National Bank of Greece Tel: +30 210 3340283 Web: www.nbg.gr

Page 81

VOLUME 4

INDEX

Nordea Tel: +47 22 48 50 00 Web: www.nordea.com

Page 67

Foreign Exchange Page 44

Piraeus Bank Tel: + 30 210 92 94 900 Web: www.piraeusbank.gr

Page 73

ABN Amro Tel: +44 (0) 20 7678 6145 Web: www.wholesale.abnamro.com

Page 53

SEB Tel: +46 771 62 10 00 Web: www.seb.se

Page 67

Bank of New York Tel: +1-212-495-1784 Web: www.bankofny.com

Page 48

Svenska Handelsbanken Tel: +46-8-701-2988 Web: www.handelsbanken.se

Page 72

Dukascopy Tel: +41 (0) 22 791 7050 Web: www.dukascopy.com European Central Bank Tel: +49-691-3440 Web: www.ecb.int

Page 8

Neuimex Tel: + 41 (0) 418 0455 Web: www.neuimex.com

Page 52

X-Trade Brokers Tel: + 48 22 520 22 80 Web: www.xtb.pl

Page 58

Enterprise Solutions TXS financial products GmbH Tel: +49 (0) 4106 7777 219 Web: www2.agens.com

Page 28

Executive Education American University in London Tel: +44 (0) 20 7263 2986 Web: www.aul.edu

Page 107

Page 104

Dandara Tel: 01624-693-300 Web: www.dandara.com

Page 62

EMBA Tel: + 1 877 453 6222 Web: www.emba.org

Page 110

M&C Property Tel: 0871 226 8325 Web: www.mandcproperty.com

Page 91

IFTDO Tel: +41 22 791 6714 Web: www.iftdo.ch

NAEA Tel: +44 (0) 1926 496800 Web: www.naea.co.uk

Page 88

Nottingham University Business School Tel: 0115-951-5500 Web: www.nottingham.ac.uk/business

Real Estate Investment

Page 87

Page 108

Rois Nicolaides & Associates Tel: +357 22 675577 Web: www.rnicolaides.com/

Page 97

Toulouse Business School Tel: +33-561-294947 Web: www.esc-toulouse.fr

Page 106

Sun Life Real Estate Tel: + 90 242 5116735 Web: www.sunlifeimmobilien.com

Page 94

University of Wisconsin Whitewater Tel: +1-262-472-1945 Web: www.uww.edu

117

List of Contributors L

A ABN Amro American University in London

Lloyds TSB M

B M&C Property Banco Espirito Santo Bank of New York BNP Paribas

C Caisse de Refinancement de lâ&#x20AC;&#x2122;Habitat Compagnie de Financement Foncier

NAEA National Bank of Greece Neuimex Nordea Nottingham University Business School P

D Piraeus Bank

Dandara Danske Bank DnB Nor Dukascopy

R Rois Nicolaides & Associates E S

EMBA EFG Eurobank Ergasias European Central Bank European Covered Bond Council

SEB Sun Life Real Estate Svenska Handlesbanken T

Toulouse Business School TXS financial products GmbH

Fitch Ratings G

U GENIKI SGSS Goldman Sachs

University of Wisconsin Whitewater X

H X-Trade Brokers

HSBC

I IFTDO

118

ZBI Bonds

VOLUME 4

Money Markets | 37

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34 | Money Markets