Where next for Securities Servicing? Is the past a good indicator - - PowerPoint PPT Presentation

Where next for Securities Servicing? Is the past a good indicator for the Future?

Philip Brown

Clearstream, 11 June 2010 2

1970’s…

v Few CSDs v No DvP v First stages of electronic

book-entry

…limited automation…

Clearstream, 11 June 2010 3

1980’s…

v Increased issuance of securities v Boost of trading companies v Surge in stock market activity

…deregulation…

Clearstream, 11 June 2010 4

1990’s…

v Rise of cross-border activity v Repo takes-off v ISD introduces “European passport”

…globalisation…

Clearstream, 11 June 2010 5

2000’s…

v Consolidation in global custody v Code of Conduct v Road to T2S…

…consolidation, and the impact of the public sector…

v MiFID triggers surge of MTFs

Clearstream, 11 June 2010 6

2010…

v Pressure for new regulatory standards v Collateralisation…securities

financing… risk management… CoBM vs CeBM…

v On-going competition smashing prices

…profit hunting…

Clearstream, 11 June 2010 7

Snapshot

1970’s …Limited automation… 1980’s …Deregulation… 1990’s …Globalisation… 2000’s …Consolidation / Public Sector… 2010 …Profit hunting…

Clearstream, 11 June 2010 8

Pace of change…

‘70 ‘80 ‘90 ‘00 2010…

Pace Of Change

Clearstream, 11 June 2010 9

Features of our industry today

n

Oversupply

n

Price driven competition

n

High degree of self-manufacturing

n

Limited loyalty value in relationships

n

Suppliers bear cost of regulatory compliance

n

Bundled fees prevail

Clearstream, 11 June 2010 10

What are the features of our industry, today?

• 1. Large number of suppliers at

all stages in the value chain…

§ Exchange layer § CCP layer § CSD layer § Agent bank layer § G. Custodian layer

(currently)

Trend

Clearstream, 11 June 2010 11

What are the features of our industry, today?

• 2. Competition is price driven…

…Market leaders are driving price reductions… …Are we just in a constant fight to the death?...

Clearstream, 11 June 2010 12

What are the features of our industry, today?

• 3. Most suppliers “self-manufacture” their products…

Over capacity in non-differentiated products No obvious scale advantages across the board Competitors trying to distinguish on the whole value chain, rather than where they truly can make a difference…

Clearstream, 11 June 2010 13

• 4. Most suppliers fail to leverage customer

loyalty in their fee negotiations…

What are the features of our industry, today?

l Clients want the best price l Pricing is “cost +”, not value based l Core products operate at a loss,

compensated by “risky” satellite products

Clearstream, 11 June 2010 14

• 5. Cost of compliance with regulatory change

is fully borne by… the supplier side…

What are the features of our industry, today?

n Further pressure on margins… n Uncontrollable costs… n Unforeseeable costs…

Clearstream, 11 June 2010 15

What are the features of our industry, today?

• 6. Pricing is bundled and does not allow clients to tell us

where they find added value in our services…

CoAcs Income Insurance Service reviews Queries Risk Mgmt Client support

• Rel. Mgmt

Reports

Clearstream, 11 June 2010 16

Product Price Cost Margin

Black coffee Espresso Double shot

1,00 1,50 R 1,95 G 2,50 V 3,25

Cafe Latte

R 2,50 G 3,00 V 3,75 0,75 0,80 1,00 1,05 1,10 1,05 1,10 1,15 0,25 0,70 0,95 1,45 2,15 1,45 1,90 2,60

How does our industry compare with others?...

Clearstream, 11 June 2010 17

How does the securities industry compare with the car industry of 20/30 years ago?

Features

1. Large no. of suppliers at all stages in value chain 2. Price-driven competition 3. Self-manufacturing 4. Failing to leverage customer loyalty in fee negotiations 5. Cost of compliance fully borne by supplier side 6. Price bundling not allowing customers to recognise value

• Secs. Services

(today)

Car industry

(20/30 years ago)

• ß

Clearstream, 11 June 2010 18

How does the securities industry compare with the car industry of today?

Features

1. Large no. of suppliers at all stages in value chain 2. Price-driven competition 3. Self-manufacturing 4. Failing to leverage customer loyalty in fee negotiations 5. Cost of compliance fully borne by supplier side 6. Price bundling not allowing customers to recognise value

• Secs. Services

(today)

Car industry

(today)

• ß

ß ß ß ß ß

Clearstream, 11 June 2010 19

How do buyers of cars display financially where they find added value?...

Basic price € 45,000

+ parking assistance… € 500 + rear side airbags… € 300 + navigation system… €2500 + heated front seats… €500 + wood interior trim… €250 + adaptive cruise control… €750 + B&O sound system… €2500 + iPod adapter… €300 + wireless cell phone link… €800 Total Price €53,400

Clearstream, 11 June 2010 20

Where is the profit in the car industry?

0% 3% 8% 15% 20% Margin

Component manufacturing (ext. suppliers) Manufacturing (vehicles only) Retail (vehicles only) Car financing Insurance Parts wholesale Mechanical repair and body shop

Used cars

Agent Network Settlement + Custody Securities Financing Customer Service

Clearstream, 11 June 2010 21

Looking at a corporate action, today…

“Example: US57632PAG54 – exchange offer”

Price Suppliers

1 8 7 6 5 4 3 2 Average

Aggregate cost: 480 Average cost: 60

Clearstream, 11 June 2010 22

Supplier

1 Average

Price Aggregate cost: 80 Average cost: 80

New co – “Global Corporate Action, S.A.”

Low price / High volume / Higher quality

Average cost to subscribers: 10

Looking at a corporate action… tomorrow?

Clearstream, 11 June 2010 23

In the car industry, how did the leaders differentiate themselves?

Ford GM

Toyota BMW

Reality today is very different…

Car industry leaders of 30 /40 years ago competed on price and commodity products

Chrysler Lean manufacturing Quality / Driver Experience

VW

Platform sharing

Clearstream, 11 June 2010 24

Where next for Securities Servicing? (i)

Our common challenges

Fee compression Total Cost of the whole supply chain Inability for clients to express added value Limited Client Loyalty Excess Supply

Clearstream, 11 June 2010 25

Where next for Securities Servicing? (ii)

n The “new normal” is not great news for the post trade

business, but neither is there a consensus on what it is.

n Other industries give us signals to guide our way

n More consolidation along the supply chain (the rule of three) n Shared service centres n Some added value pricing, some cost-plus n Choose your niche.

n We have been too focused on internal cost management n Market collaboration needs to improve for us to prosper. n Let’s compete where we are differentiated and stop fooling

• urselves about where this is….

Thank you

Philip Brown Member of the Executive Board, Clearstream Banking Luxembourg