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KAS Selections Volume 17, issue 4, December 2010 WorldPensionSummit offers insight on essential ‘crossroads’ in pensions Stress test for pension funds New developments in the pensions arena: performance & risk ‘Determining Share Prices’ Convention The changing value chain and its impact on broker/dealers CCP derivatives clearing KAS BANK joins the afme Post-Trading Division

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Page 1: KAS Selections

KAS SelectionsVolume 17, issue 4, December 2010

WorldPensionSummit offers insight on essential ‘crossroads’ in pensions

Stress test for pension funds

New developments in the pensions arena: performance & risk

‘Determining Share Prices’ Convention

The changing value chain and its impact on broker/dealers

CCP derivatives clearing

KAS BANK joins the afme Post-Trading Division

Page 2: KAS Selections

As 2010 nears its end, we can look back on a year that

was certainly “interesting”. This term is much used by

the British, and can often be open to interpretation.

And that, perhaps, is how best to describe 2010. The

markets have certainly been capricious, amid periods of

historically low volumes. We even faced an actual crash,

not in the traditional month of October, but in May.

And it only lasted 20 minutes: 2010, the year of the

flash crash.

This year also saw KAS BANK launch many ground-breaking initiatives, all

designed to increase our focus and attention on you, our clients. We will

continue this programme in 2011 and inform you of our progress through

your client teams.

On 15 December we hope to welcome you to our traditional year-end

reception, which promises to be very well-attended as usual. Prior to the

reception we will present our newly developed pension fund stress test, which

we anticipate the Dutch Central Bank will make compulsory next year.

Yet another innovation is an ‘app’ for our pension fund dashboard, allowing

you to view up-to-date pension fund reports on your iPad, wherever you are

and at any time. At the year-end reception we will demonstrate a prototype

version to those interested.

Another lesson of 2010 is that the financial markets change rapidly. One such

development is the implementation of a central counterparty for derivatives.

Broker/dealers must respond to these initiatives, which often have a direct

influence on their place in the value chain. Elsewhere, the impact of high

frequency trading on share prices is receiving much attention. And pension

fund trustees are under constant pressure to deliver on their most significant

promise to scheme members: the guaranteed payment of pension benefits.

KAS BANK specialists are regularly invited to speak on these subjects, both in

the Netherlands and abroad, and their reports can be found in this edition of

KAS Selections.

As you know, KAS BANK is an active member of several market steering groups

and trade associations. We have recently joined the Post-Trading Division of

the Association for Financial Markets in Europe (AFME). You can read more

about the Post-Trading Division’s plans for 2011 in an interview with Christian

Krohn, director at AFME.

We hope you find this final KAS Selections of 2010 to be interesting and

thought-provoking. For now I wish you happy holidays and a prosperous new

year on behalf of all KAS BANK staff.

Sikko van Katwijk

Chief Commercial Officer,

KAS BANK Managing Board

Editorial

Contents:KAS BANK joins the afme Post-Trading Division 3‘Determining Share Prices’ Convention 6Stress test for pension funds 9KAS Investment Servicing administers five new investment funds 9SIBOS Amsterdam well attended 10The changing value chain and its impact on broker/dealers 12WorldPensionSummit offers insight on essential ‘crossroads’ in pensions 15CCP derivatives clearing 16Client wins 17Global Custody Network News 18Client Service Review: the client speaking 20New developments in the pensions arena: performance & risk 21Personnel notes 22Laurens Vision 22

Comments on this issue, suggestions for future articles and mailing list requests should be addressed to:

Clearing & Banking ServicesAssociate director: [email protected]

Financial Institutions GermanyAssociate director:[email protected]

Fund & Investment ServicesAssociate director:Sicco [email protected]

Institutional ServicesAssociate director:Bob [email protected]

KAS Investment Servicing GmbHCEO & Managing director:[email protected]

Relationship Management UKManaging Director UK:[email protected]

Sub & Core custodyAssociate director:[email protected]

Translation:Interpret Tekst & Vertalingen

Text editor:Matthew Binnington

Editor:Carla BoogersKAS BANK N.V.Marketing & CommunicationP.O. Box 24001, 1000 DB AmsterdamThe Netherlands +31 20 557 [email protected]

Graphic Design:Ebbenhorst Design, De Meern

Print:KAS BANK,Document & Systems Services

KAS Selections is a quarterly newsletter from KAS BANK N.V.Although the information in this issue is drawn up with the utmost precision, no rights can be derived from it.

Volume 17, Issue 3, December 2010

KAS Selections

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K A S S e l e c t i o n s • D e c e m b e r 2 0 1 0 3

KAS BANK joins the Post-Trading DivisionKAS BANK recently became a member of the AFME Post-

Trading Division, which represents the views and interests

of its members regarding developments in the European

post-trade environment. KAS BANK is already an active

member of numerous market steering groups and industry

associations, and AFME and KAS BANK share a common

focus on the European markets. As a clearing, settlement

and custody specialist KAS BANK is at the heart of

discussions over T2S, CCP messaging, EC legislation

concerning CCPs and CSDs, the implementation of market

standards for corporate actions, interoperability, and so on.

Membership of AFME will enhance KAS BANK’s ability to

influence these discussions and remain abreast of key

issues and market developments, gaining insight and

knowledge that we will then be able to pass onto our

clients.

We spoke to Christian Krohn, a Director at AFME, about the

association’s plans and some of the key issues in the post-

trade space.

What is on the AFME agenda for the next

12-18 months ?

“The AFME Post Trade division is about to commence the

process of determining priorities for 2011. The process is

as follows: each of the five-strong Post Trade Committee

(Clearing, Settlement, Custody, Tax and Legal) will over

the coming weeks develop their proposals for Committee

activities in 2011. The proposals for activity/work-stream

include: the overall objective of the activity; milestones;

timelines; success criteria; and resource allocation. The

proposals will then be submitted for approval by the AFME

Post-Trade Board resulting in a consolidated action plan

similar to that for 2010. In terms of content the Action

Plan 2011 for the Clearing Committee 2011 is likely to

include: CCP interoperability and input on the EC’s

proposed regulation on OTC derivatives, CCPs and trade

repositories (aka ‘EMIR’).”

Is AFME in favour of a regulatory approach

to improving market efficiency, or will

heightened competition be the best solution ?

“We take the view that the progress to date of the

industry on the harmonisation and standardisation of

operational processes, including settlement cycles and

market standards for corporate actions processing,

demonstrates unequivocally that market participants are

best placed to develop standards, analyse the gaps

between these and local practices and on this basis

execute national implementation plans. While certain

areas of such operational processing standardisation may

benefit from targeted regulatory support, we believe that

public sector action should be strictly targeted on the

areas of securities law, fiscal procedures and risk

regulation, supervision and oversight.”

The AMFE office at St. Michaels House, George Yard, London

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K A S S e l e c t i o n s • D e c e m b e r 2 0 1 04

What is your view on the efforts to achieve

interoperability between EuroCCP, EMCF, LCH

Clearnet, and X-clear ?

“Given that the process of establishing interoperability

commenced over 18 months ago (under the EU Code of

Conduct on clearing and settlement), we have been

disappointed by the pace of progress. We understand (and

indeed fully support, given that it is ultimately clearing

member capital at risk) the need for the regulatory

authorities of the Netherlands, Switzerland and the UK to

have assurance that the additional risks of interoperability

are properly identified, monitored and mitigated. We

understand that a joint announcement approving the

proposed interoperability arrangements is expected in the

coming weeks.”

Do you think a pan-European securities law

is likely to be achieved in the future ?

“The EC has published a second public consultation on a

new legal framework for intermediated securities. The

consultation paper is the next step in the legislative

process for harmonising the legal framework for securities

holding and transactions in the EU and arrived

considerably later than originally expected (March/April

2010). The EC hopes to produce legislative proposals on

the issue (Securities Law Directive, or SLD) before summer

2011 aimed at increasing legal certainty for investors in

cross-border situations and improving the efficiency of

securities holding and improving the protection of

investors’ rights. The consultation covers the full scope of

the possible legislative approach but excludes some issues

raised in the first consultation which will be dealt with

separately (e.g. CSDs). We shall be responding to this via

the AFME Post Trade Legal Committee. It remains to be

seen whether the potential for the SLD to reduce systemic

legal risk will eventually trump remaining member state

preferences to retain national legal specificities.”

What impact will MiFID II have on the post-

trade environment ?

“At this time (in advance of the EC MiFID Review

consultation paper) it is difficult to predict the impact of

MiFID II on post-trade processing. However, the general

political/regulatory push for a greater degree of

centralised trading of all asset classes may lead to more

centralised post trade processing (i.e. clearing)

especially by trading platforms that own/control

clearing providers.”

What role do regulators play in discussions

surrounding pre-trade risk management ?

“Regulatory change dictating new practices related to

sponsored access appears inevitable with naked sponsored

access coming under greater regulatory scrutiny and lead

to a greater degree of standardisation of sponsored access

Christian Krohn works for the Association for

Financial Markets in Europe focusing on European

regulatory and market issues. Mr Krohn is a LLM and

MBA graduate with 16 years’ experience working in

the financial services industry. Prior to his current

position he worked in the FSA Market Policy

Department focusing on the UK implementation of the

Transparency Directive and the development and

implementation of FSA policy relating to the clearing

and settlement of securities transactions. From 2000-

2002 Mr Krohn was legal consultant to the Association

of National Numbering Agencies (ANNA - international

entity standardising securities data and disseminating

financial information), and from 1995-2000 he was

in-house legal advisor to the Danish Securities Centre

(an electronic securities depository and clearing

house).

“CCPs should only clear products for which they are capable of managing related risk”

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K A S S e l e c t i o n s • D e c e m b e r 2 0 1 0 5

arrangements. While uniformity and standardsation in

requisite pre- and post-trade risk checks may go a long

way in paving the way for fair competition, all market

participants must continue with their due diligence and

scheduled audits to ensure that sponsored access

arrangements remain a beneficial force in market structure

evolution.”

Does AFME support the view that all

products should be cleared through

a central counterparty ?

“No, CCPs should only clear products for which they are

capable of managing related risk. In addition, in our July

response to the EC consultation paper on EMIR we gave

examples of contracts that should be excluded from a

mandatory clearing regime, including contracts required to

manage risk within groups; contracts required to manage

risk from non-clearable exposures; overly-directional

positions of CCP members, etc.”

The Association for Financial Markets in Europe (AFME)The Association for Financial Markets in Europe (AFME) was formed in response to the increasing globalisation of the

financial markets. A joint venture between LIBA (the London Investment Banking Association) and the European

operations of SIFMA (the Securities Industry and Financial Markets Association), AFME represents a broad array of

global and European participants in the wholesale financial markets.

The chief objective of AFME is to promote safe, sound, and efficient wholesale financial markets. They accomplish this

through their members, which include pan-EU and global banks as well as key regional banks, brokers, law firms,

investors, and other participants in the European financial markets. AFME offers its members the opportunity to engage

directly with policymakers to work towards open European and global markets that benefit from well-crafted, globally

consistent regulations; to participate in the formulation of market-led solutions, standards and practices; to

communicate authoritative industry expertise and views to public officials, private individuals, and the media; and to

participate in networking and educational events such as conferences, seminars, and workshops.

KAS BANK will be represented in the AFME Post-

Trading Division by Laurens Vis, Managing Director of

KAS BANK UK. Laurens brings a wealth of experience

to this pivotal role, having been an influential

member of several industry steering groups and

committees over numerous years.

Laurens Vis:

“KAS BANK has been at the heart of the securities

industry for many decades, and we take our

responsibilities to the post-trade community very

seriously. We are therefore delighted to be teaming

up with AFME. We bring considerable experience to

the Post-Trading Division, and hope to take a leading

role in shaping debate, developments and trends to

the benefit of the industry and, most importantly, our

clients.”

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K A S S e l e c t i o n s • D e c e m b e r 2 0 1 06

How do HFTs affect share prices?

‘Determining Share Prices’ ConventionOn Wednesday 10 November 2010, KAS BANK organised its

“Determining Share Prices” convention. Focal points were

the impact of high-frequency trading on liquidity,

determining prices of securities and the role of regulated

markets and MTFs.

The participants were welcomed by Sikko van Katwijk

(Chief Commercial Officer, KAS BANK Managing Board,

after which he gave the floor to Laurens Vis, the first of

the four speakers.

Laurens Vis, Managing Director of

KAS BANK UK, explained that the

emergence of MTFs and new clearing

organisations, such as EMCF, has

done more to fragment the securities

landscape than to harmonise it. Nor

is real pre- and post-trade transparency in place. Vis went

on to say that this is partly due to the fact that today’s

regulated markets owe approximately 30 percent of their

turnover to making their market and pricing data

commercially available, which is not exactly beneficial to

transparency and interoperability. Vis concluded his

argument by sharing his greatest wish: uniform European

securities legislation.

The next speaker was Mark

Spanbroek, Director of Strategic

Development and Market Structure at

Getco Europe, Ltd., who delivered an

enlightening talk about this global

market maker’s operating procedures

and the (alleged) influence of high-frequency traders on

liquidity and prices in the market. Speed and market

knowledge are timeless, said Spanbroek. Only now we are

talking about microseconds and algorithms, instead of a

‘feel’ for the market.

According to Spanbroek, HFTs make a positive contribution

to increasing liquidity and reducing market volatility.

Furthermore, he also emphasised that most market players

are themselves asking for far-reaching pre- and post-trade

transparency, through the European consultation on MIFID

II among other channels.

After the break, Cees Vermaas, CEO

and Chairman of NYSE Euronext

Amsterdam and member of the NYSE

Euronext Management Committee,

discussed the changing role of the

regulated markets with regards to the

new alternative trading platforms, the MTFs. Vermaas

acknowledged that, for now, only the regulated markets

play a role in determining share prices. Vermaas also sees

a role for NYSE Euronext as a network provider and a

supplier of trading technology. Furthermore, he sees a

clear role for markets as suppliers of capital, particularly to

smaller companies and small- and medium-sized

businesses. He believes that political support for this role

is essential.

Vermaas also clarified that a single European market is a

distant concept, which he illustrated by mentioning that

Euronext already has to deal with five supervisory

institutions in five different countries.

Finally, capital market lawyer Joost

Schutte, a partner at De Brauw

Blackstone Westbroek, discussed the

legal differences in the European

regulatory systems for both regulated

and alternative markets (MTFs). One

area where this is relevant, for example, is the supervisory

regime applicable to a certain stock market. Despite MiFID,

regulation in Europe is still subject to differences in

interpretation between the supervisory institutions and

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K A S S e l e c t i o n s • D e c e m b e r 2 0 1 0 7

governments. One of MiFID II’s tasks is to find a solution

for this, by paying particular attention to post-trade

reporting and the degree of transparency required. During

an interruption, Mark Spanbroek pointed out the fact that

the market players themselves insist on a ‘consolidated

ticker tape’ for all European markets to avoid any

appearance of insider trading or ‘free rides’.

Statements and discussionThe presentations were followed by a voting round during

which all participants could vote electronically on seven

statements. After each vote, the four speakers responded

to the result and to questions from the audience.

1. High-frequency traders provide liquidity, and therefore

stability.

(agreed: 71% / disagreed: 13% / no opinion: 16%)

Cees Vermaas pointed out that on the contrary, aggressive

trading can undermine market stability. The brokers

present expressed concerns about the potential for market

abuse since HFTs can slow or accelerate the market with

their enormous numbers of electronic orders. Spanbroek

disagreed, arguing that high-frequency trading is based on

algorithms and technology. The models used all work

independently, and sometimes even against each other.

For this reason, they ultimately have no impact on

determining prices as such. While he did admit that this

may lead to frustration among brokers’ end customers, he

added that this does not have an impact on market stability.

Laurens Vis wanted to broaden the statement. He said that

stability is more than just determining prices; it also

encompasses the operational and risk management systems

used by a platform.

2. Issuing institutions should be concerned about

disintegrating liquidity and the role played by high-

frequency trading.

(agreed: 38% / disagreed: 35% / no opinion: 27%)

Vermaas pointed out that issuing institutions are concerned

about the lack of clarity over who their shareholders are,

while the increase in OTC transactions makes trading in less

transparent general.

According to Schutte, listings on several platforms make

little sense for issuing institutions. Vermaas agreed with

this. This is even less relevant to lower-liquidity funds, as

MTFs do not offer the support that regulated markets are

capable of providing.

One of the participants argued that the solution is more

likely to be found in requiring a best price rather than best

execution, as the former already includes the trading fees

for the relevant platform.

3. Is one local supervisory institution capable of ensuring

fair and reasonable trading on all platforms (dark and

light)?

(Yes: 31% / No: 69% / no opinion: 0%)

“HFTs make a positive contribution to increasing liquidity”

“Issuing institutions are concerned about the lack of clarity over who their shareholders are”

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K A S S e l e c t i o n s • D e c e m b e r 2 0 1 08

In this discussion the representative of the AFM spoke up

regularly, pleading for greater European supervision and

improved cooperation between the supervisory

institutions, among other things. He suggested that

maximum centralisation will automatically bring the

(interpretations of) regulations closer together. He also

announced the upcoming publication of an AFM research

report on high-frequency trading, which was published on

18 November 2010.

Issues surrounding supervision have implications for

sovereignty, said Schutte. The more countries that transfer

supervision to a central institution, the smaller the

possibility of ‘regulatory arbitration’, which currently still

provides the potential for competitive advantage. Vermaas

also pleaded for a uniform European supervisory

institution.

4. Computer trading has been around for years, but it is

the media that are suddenly turning it into a big issue

when actually no major changes have been made.

(agreed: 58% / disagreed: 33% / no opinion: 9%)

Laurens Vis again pointed out that the images formed in

the media are determined by the direction in which the

stock market is heading: up = popular, down = on the

chopping block. The AFM mainly looks to a fact-based

discussion for a solution, as the exchange of information

increases confidence in the market.

5. Harmonisation in Europe should take place through the

free market system instead of through increased

regulation.

(agreed: 46% / disagreed: 48% / no opinion: 6%)

Referencing his presentation, Laurens Vis argued that

further regulation is precarious. The situation already

leans more towards fragmentation than harmonisation.

The effect achieved is often different from the regulators’

intent. Therefore, the free market should be allowed to do

its job, but in a supervised manner. Vermaas agreed,

noting that the financial crisis has shown that allowing

the free market system to have complete influence on

financial structures is not desirable. He preferred that

Europe acts as a unified entity with regards to the

functioning of the market. When a member of the

audience referred back to the function of the stock

market, Vermaas said that the stock market does not equal

Europe. Enforcing the rules, for example where large

withdrawals are concerned, is better than more regulation,

which would only promote protectionist behaviour.

Schutte responded by stating that while MiFID is not ideal

in terms of its net impact, the situation in the US isn’t

either, in spite of the existence of a single CSD and

supervisory institution.

6. High-frequency traders’ computer programs are

sufficiently monitored and consequently the risk of

them causing a stock market crash is zero.

(agreed: 9% / disagreed: 58% / no opinion: 33%)

The AFM argued that direct monitoring of the manner in

which companies earn their money is undesirable due to

the risk of ‘moral hazard’. The focus of the monitoring

should be placed on the algorithms used, not on the basic

assumptions. In addition, proper emergency procedures

must be ready in case computers fail or ‘go crazy’.

Wrap-upIn his conclusion, Sikko van Katwijk

noted that there may be a positive

side to the fragmentation within

Europe. He argued that the

prevention of a rapid collapse of the

financial markets after Lehman and

the ‘flash crash’ last May could well have been due to the

existence of multiple CSDs, CCPs and supervisory

institutions instead of one central counterparty, as in the

United States.

“The prevention rapid collapse of the financial markets after the ‘flash crash’ could well have been due to the existence of multiple CSDs, CCPs and supervisory institutions”

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K A S S e l e c t i o n s • D e c e m b e r 2 0 1 0 9

Stress test for

pension funds

KAS BANK has developed a stress test for pension funds that

will enable trustees to gain a better understanding of how

resilient their pension scheme would be in times of extreme

economic crisis.

The new service examines the likely impact of several

worst-case scenarios in terms of the funding level of their

scheme, and can be implemented on an annual, monthly

or quarterly basis. This stress test, which is also available

in the Netherlands and Germany, is in response to the

more stringent requirements in the UK market and around

the world following the global economic downturn.

Commenting, Stephen Isgar, UK Business Development

Manager, said: “Since the collapse of Lehman Brothers and

the subsequent economic turmoil, there has been greater

demand for services that help prepare pension funds for

the worst possible outcome. The new stress test identifies

risks in a pension fund’s portfolio, enabling trustees to get

a full grasp of the dangers potentially facing the pension

scheme in the event of severe market movements. This fits

perfectly within the ongoing development of innovative

institutional risk management services at KAS BANK.”

KAS Investment Servicing administers five new investment funds

In cooperation with Postbank Financial Services,

KAS Investment Servicing GmbH has launched five

new funds for investors in the German market. All

funds meet the guidelines for special funds

(‘Sondervermögen’) for investors and have been

approved for public sale.

The new ‘fund family’ consists of a fund of funds

(‘Dachfonds’) and four sub-funds. Each fund has its

own investment strategy and will invest in various

financial instruments. These include equities, money

market instruments, mortgage bonds and corporate

bonds.

This structure allows the investor to create a portfolio

drawing on the various funds within the fund of

funds. The funds have been established in cooperation

with the experienced asset management team of

Deutsche Postbank Financial Services GmbH in

Frankfurt, who also act as fund manager.

KAS Investment Servicing GmbH acts as ‘Master-KAG’

for these funds, and KAS BANK German branch as

‘depotbank’ and custodian.

“These five new funds represent

a significant expansion of our

fund administration services in

the German market,” says

Jörg Sittmann, CEO of

KAS Investment Servicing GmbH.

“As an independent ‘insourcer’ of administrative

services we provide services for German financial

institutions and institutional investors that are no

longer in their core service area. We are also the only

independent provider of Depotbank services as well as

so called KAG services. We expect a further expansion

of our services in other German-speaking countries

such as Austria and Switzerland.”

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K A S S e l e c t i o n s • D e c e m b e r 2 0 1 010

SIBOS AmsterdamMore than 8,700 participants visited this year’s SIBOS

conference and SWIFT fair in Amsterdam, the ultimate

networking event for the financial industry. KAS BANK was

also present at the Amsterdam RAI congress centre, with a

stand at the show. We can look back upon a very successful

event as the congress resulted in over 100 appointments.

KAS BANK was delighted to welcome so many delegates to

our home city of Amsterdam.

A large number of participants visited KAS BANK’s green-

liveried stand during the week where our team of

specialists informed them about KAS BANK’s products and

services.

This year the Sibos conference programme has been built around three big themes:1. Regulation

We will look at the industry’s collective response to

regulation following the financial crisis and examine

the operational impact of financial reform. We will also

consider whether we should – and if so, how we should

engage with regulators earlier and more

collaboratively.

2. Rebuilding trust

We will explore how the industry should go about

regaining the confidence of its customers, its

counterparts and the public at large. How do we tackle

Henk Brink presents

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K A S S e l e c t i o n s • D e c e m b e r 2 0 1 0 11

the inevitable conflict between reducing risk and

reducing costs? We will consider, for example, whether

we should change the measure of success beyond

profits and share price. We also intend to showcase

some pragmatic, actionable CSR ideas for the financial

industry.

3. Recovery

There are differing opinions about when and how it

will come about but the one thing everyone agrees on

is that a recovery is coming. We will discuss what

financial services players can do to be ready to

capitalise on it. Can we “innovate our way out of this”

as Steve Jobs once said? How do we best leverage

technology? We will also examine the uncertainty that

prevails in the marketplace and discuss where to

compete and where to collaborate.

KAS BANK at SIBOSFurthermore, Henk Brink, Director of Network Management

& Global Custody, organised a much-appreciated workshop

on ‘EU harmonisation’. Brink focused on Target2Securities,

the European Central Bank’s new settlement system.

As at other events, the traditional KAS BANK shuffleboard

competition proved to be a great success. Some visitors

returned to our stand several times to improve their

personal scores. The daily prizes went to Juha Mokka

(Pohjola Bank plc, Helsinki), Ulf Rohloff (Nord/LB,

Germany), KB Larsen (Nordea, Denmark) and Mike Clayton

(Butterfield Bank, Guernsey).

The KAS BANK stand

Meeting at the KAS BANK stand

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K A S S e l e c t i o n s • D e c e m b e r 2 0 1 012

The changing value chain and its impact on broker/dealersThe financial markets are changing rapidly. The main factors

behind these changes are the regulatory environment, the

‘Europeanisation’ of the financial markets and the

incredible pace with which new technologies are changing

the way that trading is conducted. This has also influenced

distribution models for financial (and trading) services and

the need for all market participants to focus on costs to stay

competitive. All these developments change the way the

different participants in the financial markets interact with

each other – and therefore change the value chain of a

trading order from the

moment it is generated

until the moment the

transaction is settled

and confirmed. How

this impacts broker/

dealers is explained by

Ryanne Cox, Managing

Director KAS BANK

Germany, at the third Annual bwf/ICMA Capital Markets

Conference in Frankfurt, Germany.

The different stages of the value chain

Order generation

One of the main developments we have seen in the

execution phase is that the sheer number of alternatives

for executing blue chip/equity products is baffling

nowadays – just looking at RMs and MTFs, for some stocks

25+ different trading platforms are available. If MTFs and

other (secondary) platforms continue to gain market share

from the primary exchanges, it can be expected that

sooner or later a definition of best execution as “always

execute the transaction on the primary market”, possible

even today, will no longer sustainable. Either regulation

(the MiFID review) or commercial pressure is likely to

enforce links to multiple platforms.

Order execution

The incredible pace of new technologies has changed the

heart of a broker/dealer’s business: it no longer involves

physical contact between traders, but can take place

entirely on the basis of computerised models. Increasingly

sophisticated algorithms analyse any movements stock

(and other parameters in the system) make and react

within nanoseconds. It has had a major impact on the

number and composition of transactions.

More sophisticated systems have also made trading access

to stock markets so much easier for institutional as well as

retail investors. But in order to facilitate this, you need a

system that can instantaneously compare different

markets; smart order routing systems. And while you have

such a system in place, the possibilities to make use of

arbitrage opportunities between these different platforms

are within reach. The forerunners to these technology are

liquidity providers/market makers on these platforms. They

have been the first to adopt new technologies and have

established multiple memberships. Their constant,

automated order flow ensures highly liquid markets where

any price differentials are minimised.

Post-trading services

Clearing providers have responded quickly to the

developments in the trading leg of the process. Parallel to

MTFs trading pan-European equities, pan-European

“Either regulation (the MiFID review) or commercial pressure is likely to enforce links to multiple platforms”

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clearing houses have emerged. It

is however not an option for a

trading platform to appoint just

one clearing house for their

transactions. Under pressure from

the European Code of Conduct for

Clearing and Settlement Services,

trading platforms need to be open

to multiple clearing houses. In

order for this to work effectively,

these clearing houses should be

interoperable: they need to enter

into cross-connectivity agreements

in which risk management and

margining is organised between

both clearing houses.

Whereas this direct competition between clearing houses

has brought clearing costs down, it has introduced a new

level of operational complexity: in order to have full

flexibility, multiple clearing links need to be maintained,

each with their own margining and operational

procedures.

The introduction of CCP clearing for instruments until now

traded bilaterally, such as OTC derivatives, will lead to

exploding clearing volumes, placing further focus on the

margining systems, collateral management and risk

profiles of the clearing houses and their members alike.

Among the central securities depositories, competition is

also increasing, albeit from existing rather than newly

established players. As the European authorities stimulate

competition between CSDs they will need to compete for

clients and therefore will need to ensure they can

differentiate themselves from other CSDs: increase scale,

differentiate on client services, value added, etc.

Therefore, CSDs can be expected to move up the value

chain: become hybrids between infrastructures and agent

banks. This may make the option to link directly to a CSD

(instead of doing so via an agent bank) more realistic for

broker/dealers.

These developments in the CCP and CSD environment

increase transparency and reduce direct costs under

pressure of competition. While transaction processing

becomes more and more commoditised, the focus shifts to

risk management: managing collateral and financing the

trade flow. Is this realistic in the short term?

What will the new value chain look like ? In the new value chain the different order generators

(not just end-investors but also proprietary traders) can

themselves submit orders to various, multiple, fairly

standardised and efficient trading platforms; upon

execution the transactions are cleared and settled

potentially via the order generator’s own accounts at one

(or several) of the multiple clearing houses and CSDs of

the generator’s choice; who confirm the transaction of the

settlement and report these to the relevant authorities.

What does this all mean for the broker/dealer?Multi-platform trading is more complex to clear and settle

“While transaction processing becomes more and more commoditised, the focus shifts to risk management”

“The service broker moves between the order generator and the trading platforms”

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– broker/dealers typically need more new links and margin

must be adequately allocated. If the broker/dealer has

appointed a clearing and settlement agent to take care of

this, it needs to make sure this agent is ready for this

added complexity – not many are!

When trading across various platforms it is more important

than ever that an agent bank can efficiently manage

margin requirements across those markets/CCPs and ensure

that settlements are financed. Failing to do so will

constitute a risk and cost!

Finally, while execution services are increasingly

commoditised, a differentiator for a broker/dealer can be

the quality of settlement it can offer, also on alternative

trading platforms – whether this is done by the broker/

dealer itself or its agent bank.

How should broker/dealers react to these developments ?We see two main strategies:

- Broker/dealers differentiate on service. For instance by

focusing on specific types of clients and adapting their

service model and added-value services to this.

Margins are gained from added-value services (for

instance, personalised advice) rather than the

execution or trading services themselves, which are

mainly offered in a facilitating role.

- Broker/dealers become ‘order gatherers’, i.e.

concentrators of flow. Decreasing margins are made up

for by attracting greater flow. Typically, in this case

the broker/dealer makes effective use of technology

(or even teams up with a technology provider) – for

instance by facilitating excellent connectivity to

multiple platforms, trading systems for end-investors.

This means that the service broker moves between the

order generator and the trading platforms. Effectively

executing the order is not core business anymore for this

broker; the order gatherer focuses on the trading venues

and offers more than pure execution services, it also

provides technology.

What will the new value chain potentially look like ?The traditional broker/dealer that becomes a service

broker is effectively also an order generator in this value

chain. A new breed emerges however: the order gatherer,

providing efficient trading access across multiple venues.

This model allows broker/dealers to specialise in

something other than execution services. The execution

process – in particular exchange connectivity and smart

order routing technology – is the specialism of the order

gatherer, potentially in tandem with a technology

provider.

We expect that, similar to the order gatherer in the

trading phase, a ‘transaction gatherer’ emerges in the

post-trading phase. This transaction gatherer has the

systems and the processes in place to efficiently link to

the necessary clearing houses and CSDs and, perhaps most

importantly, organise the financing of trade flows and

collateral management in an efficient and cost-effective

way.

How does KAS BANK fit into this picture ?

KAS BANK has effectively been a transaction gatherer

since 1806. We are the independent specialist for

transaction and asset servicing as banker to broker/

dealers, other banks, asset managers and institutional

investors. We focus on European securities services via our

direct processing platform, linking into all major European

markets and interwoven with our back-office outsourcing

services for broker/dealers. In doing so we support the

effective service delivery of ‘service brokers’ as well as the

’order gatherers‘ since we facilitate seamless trading on

25+ platforms. Which means our place in the value chain

is right in the centre.

“The excecution process is the specialism of the order gatherer potentially in tandem with a technology provider”

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WorldPensionSummit offers insight on essential ‘crossroads’ in pensionsBetween Wednesday 17 November and Friday 19 November

the Westergasfabriek in Amsterdam hosted the

WorldPensionSummit. KAS BANK’s Sikko van Katwijk gave a

presentation on ‘Trustees under pressure’.

The WorldPensionSummit is a top level environment for

pension professionals and a platform for the exchange of

business insights on essential ‘crossroads’ in pensions.

WorldPensionSummit is a unique platform for international,

high-level networking.

Some 260 professionals listened to a great number of high-

level speakers from around the world. On Thursday Sikko van

Katwijk (member of the KAS BANK Managing Board)

illuminated the role of trustees in his presentation on

‘Trustees under pressure’. How can trustees manage

expectations regarding the pension fund’s most important

promise: delivering your pension entitlements? Answer: by

organising their investment and information processes as

efficiently as possible.

Sikko van Katwijk’s presentationTrustees deal with many and varied parties. All these groups

perform parts of the overall pension fund management

process. It is important that trustees are able to use a

single source providing independent data. By doing so,

pension fund trustees benefit from a solid basis for

decision- making and control. It is also critical that trustees

fulfil their fiduciary role supported by an interactive tool

and that compliance monitoring is actively taken up by an

independent party (KAS BANK for example).

Custodians such as KAS BANK do not only provide basic

information for the financial administration but also deliver

relevant management information that helps the pension

fund board to remain in control. They can also play an

explicit role in monitoring the execution of the investment

policy within the risk and policy framework determined by

the board. In this way, the board provides an effective

counterweight to commercial asset management providers.

Furthermore, on the basis of the reports provided they are

able to inform the fund’s participants and pensioners in a

transparent manner of the results and the fund’s risk

management.

Thanks to these stable checks and balances the pension

fund can focus on its core business and the board will be

continuously in control of the entire investment process.

With this, the fund will be prepared for 21st century

pension governance.

White PaperA KAS BANK white paper on this topic will be published on

our website shortly.

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CCP derivatives clearingThe financial crisis has brought over-the-counter (OTC)

derivatives to the forefront of regulatory attention. The

near-collapse of Bear Stearns in March 2008, the default of

Lehman Brothers on 15 September 2008 and the bail-out of

AIG the following day highlighted the shortcomings in the

functioning of the OTC derivatives market. Within that

market, regulators devoted particular attention to the role

that credit default swaps (CDS’s) played during the crisis

and obtained a commitment from the major dealers in the

market to start clearing European-referenced CDS

transactions through a central counterparty (CCP) by the

end of July 2009. In October 2009 the European Commission

set out the future policy actions intended to increase

transparency, reduce counterparty and operational risk,

enhance market integrity and oversight in derivatives

markets and also announced that it would come forward

with legislative proposals in 2010.

The European Commission has presented a proposal for the

regulation of the OTC derivatives market. The general

objective of this proposal is to reduce the systemic risk by

increasing the safety and efficiency of the OTC derivatives

market.

What are the preferred options presented in this draft ?1. To report all requested information on outstanding OTC

derivatives contracts to trade repositories. Or if that is

not possible, directly to supervisors

2. To publish aggregated data on OTC derivatives for the

benefit of the general public

3. To clear all contracts that meet pre-defined eligibility

criteria via a CCP

4. To improve collateral management procedures for all

OTC derivatives that are still cleared bilaterally

5. The adoption of more standard contracts and processes

by market participants.

There was a unanimous plea from non-financial

institutions to be excluded from any kind of future

legislation on OTC derivatives, among others by the

Federation of German Industries and umbrella

organisations for Dutch pension funds. Their main

argument, besides their exposure to a significant increase

in their costs, was that their dealings in OTC derivatives

do not represent a systemic risk. And the European

Commission has taken that into account.

The preferred solution is now to leave non-financial

institutions outside the scope of the proposals unless their

positions are substantial. In this case the non-financial

institutions represent an indirect risk if their failure could

cause the failure of an important market participant.

What are the advantages of clearing through a CCP ?A CCP environment reduces counterparty risk. A market

participant always knows its own exposure to its

counterparties. What it does not know, however, is what

the exposure of any of its counterparties is to other

market participants including, most importantly, its other

counterparties. In other words, a market participant knows

the direct, but not the indirect exposure that is created

when it enters into an OTC derivatives contract.

central counterparties (CCPs) mitigate their counterparty

credit risk exposure through four lines of defence, typically

including access restrictions, risk-management tools (such

as collateralisation), and loss mutualisation. These

mechanisms are jointly known as the ‘risk waterfall’ of the

CCP.

• Access restrictions (such as membership requirements)

are a CCP’s first line of defence. CCPs only deal with

parties that meet their standards for creditworthiness

and operational capability and may revoke access

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K A S S e l e c t i o n s • D e c e m b e r 2 0 1 0 17

privileges for those who fail to maintain these

standards and meet other obligations to the CCPs. This

permits the CCPs to limit their risk exposure to those

parties they are able to monitor.

• The second line of defence is represented by the CCP’s

counterparty credit risk management techniques. A CCP

usually uses several of them. For example, positions

and payment requirements are multilaterally netted.

CCPs also typically impose collateral requirements (i.e.

initial margin) on market participants that have direct

access to the CCP. In addition, gains and losses due to

mark-to-market fluctuations in open positions are

posted to a clearing member’s margin account on a

regular (usually daily) basis and result in calls for

variation margin.

• If the initial margin posted is not sufficient to offset a

loss resulting from failure of a clearing member, the

third line of defence is activated. After exhausting the

failed clearing member’s initial margin, a CCP will use

the latter’s contribution to the default fund to cover

any residual losses. If this were to prove insufficient,

the CCP can then proceed to share any remaining loss

among all (or certain classes of) clearing members by

using their default fund contributions.

• The fourth, and final, line of a CCP’s defence is its own

capital.

One of the consequences of introducing a clearing

requirement is that those market participants that would

not meet the criteria to become clearing members of a CCP

would have to access it indirectly, through a general

clearing member (GCM).

As a specialist in CCP clearing KAS BANK will arrange

meetings with its clients to explain the implications of

this new settup.

Client winsAmstel Securities, Netherlands:

Clearing and Settlement

Charity Bank, UK:

Custody

Credo Banka, Croatië:

Custody and settlement

Launch of five new Fund to Funds, KAS BANK Germany

(see page 9):

Generali Group, Netherlands:

Global custody, investment and financial administration

Haywood Securities, UK:

Securities and back-office outsourcing services

Jefferies International, UK:

Treasury services

Method, UK:

European clearing and settlement services

Oikocredit, Netherlands:

Custody, securities lending

Orca Finance, Netherlands:

Global Fund Services

Pensioenfonds Medewerkers Apothekers, Netherlands:

Global custody, investment and financial administration

Portaal, Netherlands:

Global custody, settlement and order execution

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Global Custody Network NewsEurope

Netherlands – implementation of registration date

shares for general meeting of shareholders

With effect from 1 July 2010, a new act has become

effective in the Netherlands regarding the rights of

shareholders of listed organisations. With this, the

Netherlands has put into effect the EU guideline 2007/36/

EG. The aim of the new act is to increase shareholder

participation in the decision-making process during the

general meeting. According to the legislator, the new act

also provides shareholders with increased clarity about

whether their shares have been borrowed with the

objective of voting. Due to the amendment shareholders

no longer have to block their shares during a particular

period prior to the general meeting of shareholders.

Instead, the 28th day prior to a meeting will become

‘registration date’. All parties possessing shares on this

date have the right to cast a vote during the meeting.

This is unrelated to whether the shares are actually in

their possession on the day of the general meeting. As the

shares are no longer blocked, they can be traded

immediately after registration date. In the former

situation trade during the blocked term was impossible.

Furthermore, listed organisations are obliged to publish

the agenda at least 48 days prior to the announced

meeting date. This term is also applicable to extraordinary

general meetings.

Netherlands – new law to prevent misuse of tax reclaim

possibilities

The Netherlands has implemented a new law to prevent

misuse of tax reclaim possibilities. The new law will be

effective for any securities that have an ex date of

22 November 2010 onwards and applicable to ISIN codes

that come under the Dutch withholding tax legislation.

Under the new law tax reclaims may only be based on the

securities amount of the dividend statement. As this

securities amount is fixed at the record date, market

claims may not be included in the entitlement. Therefore,

market claims do not result in a dividend payment but in a

compensation payment which is 85 percent of the gross

dividend. Consequently, no tax reclaim can be submitted

with regard to this compensation.

The record date is also applicable to securities lending,

both the balances of lent and borrowed securities.

Nevertheless, reversed market claims (trades with a trade

date on or after the ex date that are settled between ex

date and record date or on the record date) may occur

incidentally. With a reversed market claim, the securities

balance is mentioned on the dividend statement issued to

the buyer, while the dividend itself is paid to the selling

party. The buying party could reclaim taxes with regard to

a securities balance of which he holds no rights.

To minimise reversed market claims, both parties should

adhere to the Dutch settlement cycle of T+3 where

possible. To prevent a buyer from reclaiming tax with

regard to dividends not received, both the buyer and seller

should adhere to the Dutch settlement cycle of S+3

(= T+3) where possible.

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Outside Europe

CHINA – retrospective dividend tax payment, B-shares

B-shares dividends paid to non-resident investors in 2009

out of profits generated in 2008 without tax being

withheld could be taxable retrospectively and subject to

penalties. It has become increasingly certain that such

retrospective payments are being viewed as a mandatory

requirement.

INDONESIA – government debt trades interest

calculation

The Indonesian Debt Management Office has issued an

official guideline that the accrued interest calculation for

Indonesian government bonds is to be based on the

‘Actual/Actual’ method. The accrued interest is calculated

in order to establish the total settlement amount of a

trade.

Although this interest calculation method (for all series of

government debt securities) is officially only applicable to

trades with the Debt Management Office, Ministry of

Finance, for the secondary market to avoid failed

settlements we highly recommend that traders agree with

counterparties to ensure that the same method of interest

calculation is used.

ISRAEL – corporate bonds settlement on T+1

The Tel Aviv Stock Exchange has announced that with

effect from 28 November 2010, corporate bonds are settled

on trade date +1 (T+1). Currently, settlement takes place

on T+0 for the securities and T+1 for the cash leg. Since

28 November, both legs will settle on T+1.

JAPAN – fail charge on government securities

With effect from 1 November 2010, all trades in Japanese

Government Securities (JGS) including cross-border

transactions will be subject to a charge on failed

settlements on and after the effective settlement date

with the following exceptions:

• Settlement fails caused by buyers (receivers)

• Free of payment transactions.

The fail charge is calculated as follows:

(3%-overnight call rate) x settlement amount x (number of

days failed / 365)

The amount of the fail charge may be netted between

parties during the month.

THAILAND – tax on government debt as per 13 October

The Thai cabinet has endorsed the Finance Ministry’s

proposal to impose a 15 percent withholding tax (WHT) on

interest income and capital gains tax (CGT) on government

bonds.

The new tax imposition on government bonds became

effective on record date 13 October 2010. Your holdings in

debentures until 12 October 2010 are exempt.

The re-imposition of the WHT tax scheme is in line with

other types of bonds and debentures. Non-resident

investors are presently subject to a standard rate of 15

percent WHT on capital gains plus a WHT of 15 percent on

interest income earned from bonds issued by corporates

and any other bonds. For non-resident investors, domiciled

in countries that signed the double tax treaties (DTT) with

Thailand, they are subject to tax rates as agreed in those

treaties.

The measure aims to curb the strong baht and restricts

inflows into the bond market. This is to revoke a long-

standing waiver on WHTs for foreign investors in the local

bond market which has been effective since 25 January

2005.

BRAZIL – IOF tax increased twice

In October 2010, the Brazilian government has raised the

Tax on Financial Operations (IOF Tax) twice by 2 percent

to reach the current rate of 6 percent. Please find below

the IOF tax details and the changes:

1. Different IOF tax rate for fixed and variable income

investments

2. Account structure (renamed)

3. Funds transfered between a variable income strategy

account and a fixed income strategy account

4. ADR conversions.

For additional information please refer to our Global

Custody Network News dated 16 October 2010 which can

be found, for our clients, on KAS-Web Documentation,

News Archive.

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Client Service Review: the client speaking

Clients are the central focus at KAS BANK. Therefore, we

attach great value to clients opinion about the quality of

our services and how we can further improve them. That is

why at least once a year the client receives our online

service survey, the Client Service Review.

Client Service ReviewThe Client Service Review (CSR) consists of a ‘customised’

questionnaire on the specific services that KAS BANK

provides to the client. A score from 1-7 can be awarded to

each part of our service. Furthermore, the client can also

add remarks per subject about our services, the clients

relationship with KAS BANK and the added value of our

services in realising the objectives of the clients

organisation.

After the results of the survey have been processed, the

client relationship manager will schedule a Service Review

meeting at the clients office. During this meeting, which

will be attended by other members of the client team and

the product managers, if required, he or she will discuss

the results and remarks from the CSR with the client. To

closely monitor the improvement process a list with

follow-up actions will be drawn up. The client will be

informed of the progress on a regular basis.

ResponsesWe would like to thank all clients for the participation in

the Client Service Review. Their responses are a valuable

instrument for further improving our services and products

as well as the relationship with KAS BANK. That is why the

Client Service Review is conducted annually. In 2010, over

400 surveys have been completed and returned. In general

our clients appear to be satisfied with their relationship

with our staff at all levels within the bank. Certain product

groups score highly, as well as the majority of the basic

services in the area of custody, clearing and settlement.

Issues such as flexibility, decision-making and time-to-

market have been awarded lower scores on average. We

will actively study the points for improvement clients have

shared.

Our goal is to achieve better more regular contact with our

clients.

“Customer Service is very good. Always someone to answer phone calls”

“Meet expected benchmark”

“Personal contact has considerably improved since last reform”

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New developments in the pensions arena: performance & riskNew developments happen in rapid succession in pensions as

a result of which pension funds are confronted with

fundamental questions about their investment portfolio, such

as the optimal asset mix, currency hedge ratio, overlay, etc.

Performance analysts therefore use state-of-the-art software

packages which enable them to efficiently execute

performance and risk calculations.

In general, fund managers calculate the return figure of your

investment portfolio on the basis of the time-weighted return

method. KAS BANK calculates the performance of your asset

managers not only on a money-weighted basis but also on a

time-weighted basis.

Money-weighted return (MWR)This method calculates the performance over the average

capital invested, which is particularly useful if influence can

be exercised on deposits and withdrawals. The average capital

invested is calculated by adding the sum of the weighted

deposits and withdrawals to the starting market value. This

implies that a deposit or withdrawal at the beginning of a

period has more weight than at the end of the period.

Time-weighted return (TWR)This method calculates the performance over the start-up

capital, which provides a true picture of the performance if

no influence can be exercised on deposits and withdrawals. In

the event that several deposits and withdrawals are made in

the reporting period, the market value of the entire portfolio

must be determined for each external cash flow.

In example 1 it becomes clear how these different methods

influence the return figure. A deposit of 50 euros (20 + 30

euros) amounts to 5 percent of the start value and results in

a small return gap, namely 0.02 percent.

In the event that a deposit in a portfolio amounts to more

than 10 percent of the starting value, the return figures will

deviate significantly, which is clearly exposed in example 2.

The difference in return now amounts to over 0.20 percent.

This is a considerable difference and may become the

difference between outperformance and underperformance.

Time-weighted methodFund managers want to be assessed on the basis of decisions

that they are responsible for. They do not have any influence

on cash flows, however. For example, in the event that in the

course of a month cash is added to their current account on

an unfavourable day, this will have a negative effect on the

total return if the MWR method is applied. That is one of the

reasons why fund managers apply performance measurement

on a daily basis. Furthermore, the Global Investment

Performance Standards (GIPS) have prescribed this

performance measurement method since 1 January 2010.

However, with regards to the entire portfolio the figure in

conformity with MWR does correctly represent the result over

the average capital invested, as the MWR performance

calculation considers the result in euros compared to what has

been invested on average and therefore provides a correct

representation of the result in euros.

KAS BANK provides the following solutions:• Fund manager performance figures are calculated on a

daily basis so that the result of their actions is not

influenced by external cash flows, the time-weighted

return method.

• On an aggregated level the return figures for your fund

are based on the average capital invested (MWR).

• Dependent on the structure of your portfolio these

different methods can be applied to your performance

report.

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Laurens Vision

The Association of UK Investment Companies has recently

counted 420 investment trusts with over £95 billion of

assets. When an investment trust is formed, shares are

offered to investors in order to raise the required funds for

investment. After the initial launch period, the number of

shares is fixed and quoted on an exchange. The trust has

commenced its ‘closed-ended’ investment life, and its share

price is now free to move with the flow of supply and

demand, with a temporary discount or premium to the net

asset value a possible consequence.

Winterflood Securities has analysed the returns of

investment trusts compared to ‘open-ended’ vehicles (such

as unit trusts, OEICS and ETFs). In most popular

investment categories, they comfortably outperformed

them. The investment trusts, having their investment pot

closed upon introduction, seem to allow their managers to

take a more long-term view than ‘open-ended’ colleagues,

who must worry about inflows and outflows of cash in

good and bad times, and often end up buying and selling

to manage their cash flows rather than delivering

investment performance.

That having been said, open-ended exchange traded funds

(ETFs) have become very popular in the US. Introduced as

index funds in 1993, they are structurally a mixture of unit

trusts and investment trusts. And as of 2008, the

Securities and Exchange Commission has also allowed the

creation of actively managed ETFs. These are fully

transparent and publish their underlying securities

portfolios daily. This very fact has put these ETFs at risk

from arbitrage activities by market participants who are

driven by momentum rather than long(er) term investment

strategies.

In May this year, ETFs underwent a severe test in this

regard during the so called ‘flash crash’. The regulatory

review of the flash crash in the US stock markets showed

that almost 90 percent of all broken trades had limit

prices, and were not market orders in search of the best

available liquidity regardless of price. On that day, price

Personnel notesGermanyFrank Vogel will become Managing Director, Sales of

Germany with effect from 1 January 2011. He will be

responsible for all sales activities in Germany, Austria and

Switzerland. His appointment emphasises KAS BANK’s

ambitious growth strategy in the German market.

Client Management NetherlandsJan-Albert Koopman and Jan-Willem Bakker are

appointed as Specialist Relationship Manager Institutional

Services, as well as Veronica Cherekhovitch per 1 January

2011.

Product ManagersPol de Jaeger, Maarten Aarts and René Hoogeland have

been appointed as the new product managers at

Investment Management Services, Global Fund Services

and Broker Services.

The role of Product manager is a new position at

KAS BANK. Based on their product, market and client

knowledge they will seek new opportunities to further

improve our products. Furthermore, they will analyse our

products in collaboration with you and will also advise

during the intake of new clients.

For operational issues your Client Team remains your

single point of contact.

SalesFloris Jan Zwijnen is appointed on 1 December 2010 as

Product Sales Manager

United KingdomSarah Aziz started on 1 September 2010 as Assistent to

the Sales Department.

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limits for stock orders were resubmitted over (and over)

again in a free-falling market until many executed as

‘penny’ stocks. Overall, nearly 20 billion shares were traded

and even the low turnover ETFs became exposed to hectic

price swings, with only one market maker who, having

abandoned ship, took the remaining liquidity with him.

And, as such, they became a major factor in the crash as

they became literally decoupled from their underlying

baskets of stock, while the prices of some specific stock

simultaneously swung wildly.

Fortunate were those who did not panic and only heard

about the crash after the equally sudden recovery after

fewer than 15 long ‘crash’ minutes. Where the investment

trust is best run by a patient manager, the ETF needs a

patient investor. An investor who refrains from making

(loss) stopping orders, which, in volatile markets, are a

certain recipe for financial damage.

And yet, patience is on the back foot where the financial

markets are concerned. Even in times of orderly markets,

the average duration of equity holdings fell from five years

in the 1970s, to two years in the 1980s, to one year at the

turn of the century and to just six months as I write.

Corporate secretaries of some quoted companies have

already waved goodbye to shareholders before the first

quarterly financial report hits their doormats.

But there is no doubt that the Formula 1 class of investors

in this day and age are the high-frequency traders. They

who trade in milliseconds, who consider holding a stock

for 20 seconds to be ‘long’ and who now dominate the

equity markets with a market share of around 70 percent

in the US and 40 percent in Europe. Having said this, their

market share of 10 percent in the Asian markets is dwarfed

by the 80-90 percent for day trading activity by small

retail investors on the Shanghai Stock Exchange.

What unites these Chinese day traders with the high-

frequency traders in the US and Europe? All positions are

closed before the markets do, and the global markets

could soon begin to haunt them. Because in volatile

markets correlation is high, between unrelated stocks,

sectors and markets.

But towards the end of the year the financial markets

themselves slow down and come to a halt over the

Christmas period, a time of reflection where even the

quick quick become slow. Which makes my mind drift to

the lyrics of that famous Quickstep tune:

“Give me the quick quick slow,

Get there before you go,

Give me the quick quick slow,

Lay it down far below,

Let’s get on with the show,

Give me the quick quick slow.”

But for now, we at KAS BANK wish you and your loved

ones a well-deserved and peaceful cross-over into the New

Year.

Laurens Vis, Managing Director, KAS BANK UK

Page 24: KAS Selections