Citigroup Global Transaction Services ® National Taiwan University Department of Finance Datong Kuo Chang April, 2005 go to View, Header and Footer to set Copyright © 2003. Citibank, N. A. All rights reserved. CITIGROUP and the Umbrella Device are trademarks date and service marks of Citicorp and its affiliates and are used and registered throughout the world.
Agenda » Investment Industry Value Chain » Who needs a custodian? » What services do custodians provide? › Service model (direct vs. global window) › Sub-custodian network (proprietary vs. third-party) » Who are the top ranking providers? » How are they measured? » What are the risks to the custodians? » Taiwan Market 2
Investment Industry Value Chain Focus on the transaction processing & portfolio administration stages of the clients investment value chain 2 1 Asset Management Asset Accumulation 5 Transaction Processing Custodians Transaction Execution Fund managers Pensions, Mutual funds 4 3 Brokers 6 Investment Accounting Custodians Performance Measurement Custodians 7 Fiduciary and Investor Services Trustee/ others 3
Definition of “Custody” or “Global Custody” » First developed with the passage of the Employee Retirement Security Act of 1974 in the US => fund managers were required to segregate client assets from own assets. » In the 90’s, the industry experienced substantial growth. Custodians also spent big money to boost their technology and efficiency. » What started off as a complementary service has become a global scale business. WHAT CUSTODY AIMS TO PROVIDE? Safekeeping and protection of financial assets Facilitating the trading of such assets Tracking the values of portfolios 4
Agenda » Investment Industry Value Chain » Who needs a custodian? » What services do custodians provide? › Service model (direct vs. global window) › Sub-custodian network (proprietary vs. third-party) » Who are the top ranking providers? » How are they measured? » What are the risks to the custodians? » Taiwan Market 5
Who Needs A Custodian? » » » Division of professional specialties Cross border investment activities Regulatory requirement 6
Agenda » Investment Industry Value Chain » Who needs a custodian? » What services do custodians provide? › Service model (direct vs. global window) › Sub-custodian network (proprietary vs. third-party) » Who are the top ranking providers? » How are they measured? » What are the risks to the custodians? » Taiwan Market 7
What Services Do Custodians Provide? » Transaction Processing › Clearing › Settlement › Cash Management › Foreign Exchange › Safekeeping › Reporting › Corporate Actions › Securities Lending › Tax Reclamation 8
What Services Do Custodians Provide - continued » Investment Accounting › Net asset valuations › Profit/ Loss › Statement – management and regulatory › Multi-currency accounting › Compliance monitoring » Performance Measurement › Alliance with Frank Russell Company 9
Service Model - Direct Custody Citibank Hong Kong Citibank Singapore Citibank Canada CLIENT Citibank France Citibank Italy Citibank UK Citibank Malaysia Citibank USA 10
Service Model - Direct Custody - continued Operating Procedures : » Direct access to local A/Cs and local service contacts » It suits sophisticated institutional investor that › has knowledge of the foreign markets; and › has set up its own back-office operations to manage the multiple accounts in various markets Benefits to Client : » Direct access to market information » Transaction timeliness » Better cut-off times » Facilitate quick turnaround of asset trading » Readiness to customize based on local conditions 11
Service Model – Global Custody Single Window Operations 12
Citigroup’s proprietary network covers 95% of Total Market Capitalization of the world Europe Depository Relationships Belgium Finland Sweden Norway Denmark Austria France Germany Greece Ireland Italy Luxembourg Netherlands Portugal Spain Switzerland United Kingdom Jersey Euroclear Clearstream Americas United States Canada Mexico Puerto Rico Colombia Ecuador Peru Brazil Chile Argentina Venezuela CEEMEA Bermuda Costa Rica - Proprietary - Third Party Czech Republic Egypt Hungary Jordan Morocco Pakistan Poland Romania Russia Turkey Botswana Bulgaria Croatia Estonia Israel Latvia Lithuania Mauritius Slovenia Slovakia South Africa Ukraine Zimbabwe Asia Australia Hong Kong India Indonesia Japan Korea Malaysia New Zealand Philippines Shanghai Shenzhen Singapore Sri Lanka Taiwan Thailand Bangladesh 14
Benefits of Proprietary Network to the Client » More favorable cut-off times » Local market knowledge » Control of services & costing » Consistent technology » Fast problem resolution » Higher STP rates 15
Agenda » Investment Industry Value Chain » Who needs a custodian? » What services do custodians provide? › Service model (direct vs. global window) › Sub-custodian network (proprietary vs. third-party) » Who are the top ranking providers? » How are they measured? » What are the risks to the custodians? » Taiwan Market 16
Who Are The Top Ranking Providers? » Well capitalized banks › Citigroup › JP Morgan Chase › Bank of New York › HSBC » Specialized banks › State Street › Mellon Trust › Northern Trust › Brown Brothers Harriman › BNP –Paribas 17
Agenda » Investment Industry Value Chain » Who needs a custodian? » What services do custodians provide? › Service model (direct vs. global window) › Sub-custodian network (proprietary vs. third-party) » Who are the top ranking providers? » How are they measured? » What are the risks to the custodians? » Taiwan Market 18
How Are They Measured? » Size › Asset Under Custody (AUC) › Transaction Volume » Information Delivery › Accuracy › Speed » Service Quality › Advise on market/ infrastructure change › Technology › Flexibility in handling exception processing › Ability to influence market/regulation change › Competitive fees 19
Citigroup Securities Services - a core business Clients 2, 500 global investors and issuers served; 70% fund managers & brokers Assets Transactions More than $6. 6 Trillion Assets Under Custody 50, 000 transactions processed daily with average turnover of $60 billion Network spanning 70 markets. Largest proprietary network with 45 countries Credit Ratings Citigroup S&P AAMoody’s Aa 1 Fitch IBCA AA+ Citibank N. A. S&P AA Moody’s Aa 1 20
Agenda » Investment Industry Value Chain » Who needs a custodian? » What services do custodians provide? › Service model (direct vs. global window) › Sub-custodian network (proprietary vs. third-party) » Who are the top ranking providers? » How are they measured? » What are the risks to the custodians? » Taiwan Market 21
What Are The Risks To Custodian? » Operational » Credit » Technology » Regulatory 22
Agenda » Investment Industry Value Chain » Who needs a custodian? » What services do custodians provide? › Service model (direct vs. global window) › Sub-custodian network (proprietary vs. third-party) » Who are the top ranking providers? » How are they measured? » What are the risks to the custodians? » Taiwan Market 23
Characteristics of the Taiwan Market » Regulations define both products and clients » Taiwan is well known for tight regulatory control » Market-induced efficiency › Fully automated trading systems › Tight T+1 settlement cycle › Severe penalty on failed trade » Restrictions minimize credit exposure › No or very restricted financing allowed » Continuous lobbying for deregulation 24
Global Securities Services in Taiwan » Established in 1989 » Current asset under custody: US$54 billion » Transaction volume: 11, 000 - 21, 000 per month » Client base › Foreign Institution investors (FINI) › Domestic investors › Insurance companies › Public funds – Pensions and Postal › Securities Investment Trust Enterprise › TAIEX listed companies which sponsor Depositary Receipts 25
Citigroup as Viewed by Clients and the Market • • Best Bank in Asia, Awards for Excellence, July 2004 Best at Cash Management in Asia, Awards for Excellence, July 2004 Best at Investor Services in Asia, Awards for Excellence, July 2004 Best at Cash Management and Payments Globally, Awards for Excellence, July 2004 • Ranked 2 nd Best Regional Trade Bank, Trade Finance Poll, September 2004 • Best Cross-Border Corporate Cash Management Bank in Asia (>$500 million category), June 2004 • Best Cash and Trade Finance House in Japan, April 2004 • • Best Corporate/Institutional Online Cash Management Bank in Asia Pacific, September 2004 Best Corporate/Institutional Internet Bank in China, Korea and Singapore, September 2004 Best Overall Bank for Cash Management, April 2004 Best Bank for Cross-Border Pooling and Netting in Asia, 2 nd year in a row, April 2004 • Best Cash Management Specialist in Asia – Financial Institutions, December 2003 • Best Bank/Best Commercial Bank in Asia, December 2003 § § Best in Class in Mutual Fund Administration Survey, June 2004 Best in Class in Hedge Fund Administration Survey, June 2004 Most Acclaimed Network globally – Top Rated or Commended in 95% of markets, January 2004 Top Rated in 13 countries in Asia – Australia, China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Pakistan, Philippines, Singapore, Taiwan, Thailand, December 2003 • Best Global Custodian in Asia, Unweighted, May 2004 • Best Global Custodian for Insurance Companies, Unweighted (global award), May 2004 • Citi. Direct® Online Banking ranks #1 Best Cash Management website (2 nd consecutive year) Greenwich Associates, 2004 Cash Management Internet Benchmarking Study, May 2004 Results for 2003/04 26
Why Citigroup? » » » » » One of the strongest financial services companies in the world Largest proprietary sub-custodian network in the world Most diversified product range of securities services in the world Commitment to the custody business Automation and technology Focus on providing value-added custody services Continuous improvement in service excellence Consistently voted best in class in independent surveys We are a relationship bank and view ourselves as partners to our clients 27
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