Clearstream has once again finished first in the Global Investor/ISF tri-party survey, winning the overall table, overall EMEA, overall Asia, overall repo and overall securities lending. JPMorgan came second and BNY Mellon third in the overall table. Last year places one and two were identical but this year BNY Mellon bumped Euroclear to the bottom of the overall table.
Client satisfaction rose across the board this year and the scores were more tightly grouped. In 2011 the overall scores were spread between the winning score of 5.47 and the final place of 4.91. This year the spread was between 5.94 and 5.43. It meant that despite Euroclear increasing its overall score from 5.07 to 5.43 it actually slipped a place in the table.
The result for Clearstream replicated its success in 2011 when it cleared the board in all overall and regional tables with the exception of one; once again only JPMorgan challenged Clearstream in the regional tables by winning in Americas, its home country, where Clearstream did not achieve a ranking. However, the win was not as straightforward as in previous years. Clearstream topped the table of just three service category tables compared to nine last year; collateral reuse re-hypothecation, dividend collection and implementation of collateral sets schedules.
Crucially though, lifting it over the finishing line in first place, Clearstream was second in the majority (10) of the 17 service category tables. It was third place in a further four service category tables. One client said: “Responsiveness to requests from agent lenders needs improvement at BNY and Euroclear, JPMorgan is significantly better and ClearStream is best.”
Other comments on Clearstream included: “The staff are highly responsive and always delighted to help me out even when I send in a query late in the evening”; “In collateral management, Clearstream are leaders in this field compared to others”; “Clearstream offers a very competitive, smooth and professional tri-party service. Also the Clearstream team – account manager, sales and back office – is very friendly and professional with minimal response time.” Another said: “Almost without fail, any reporting, custody, or clearing issue we request is answered immediately. In this environment, getting timely information is imperative and they have always met our reporting demands in a timely and efficient manner.”
There was an overwhelming amount of positive comments but not unanimously so. One respondent said of Clearstream: “Client service team [needs] to improve,” in terms of curing fails and being more proactive,” while another noted “bilateral instructions are not prioritised versus triparty trades which lead us to fails.”
A further respondent reported: “The only small complaint I would have at the moment is the manual process of checking the eligibility of the trade basket. I have to email Clearstream the list of securities which I would like to put into the tri-party basket, and they check before replying back to me. It’d be better if there could be a website/software in which I could upload the list of securities and get immediate reply on the eligibility of the securities, and the reason why not if they have been rejected.”
JPMorgan, meanwhile gained pole position in six service categories and Six Securities in five. BNY Mellon was first in two and Euroclear in one service category. Last year Euroclear was second in its home geography of EMEA in the regional tables but this year slumped to last place. One respondent said: “BNY and JPM have excellent client service. Euroclear needs improvement.” However, other respondents were not entirely happy with BNY Mellon and JPMorgan either.
One said: “The new confirmation system with JPMorgan for MSLA transactions is not as efficient as it could be. Perhaps due to documentation issues, there are delays in the approval process.” Another respondent took issue with BNY's inability to accept messages from both Tradeweb and Bloomberg in order "to allow for a streamlined confirmation process." A further respondent noted: “Euroclear’s Triweb is excellent. BNY and JPMorgan would benefit with a similar tool."
A speedier procedure for RSA implementation would be welcomed. Individual tweaks ensure the time taken is too long.” Six Securities, which did not feature in last year’s overall tables, finished a creditable third place in the overall EMEA table.
Considering the importance of the service categories, respondents rated dividend collection most highly (won by Clearstream), followed by quality of static data (won by JPMorgan), timeliness of margin calls (won by Six Securities) and ability to manage equities as collateral (won by BNY Mellon). Quality of reporting/ client interface, level of STP offered, substitution capability, collateral re-use/ re-hypothecation and handling of fails were thought next most important.
Breadth of market coverage, breadth of supported eligibility criteria, implementation of collateral sets/schedules and timeliness of settlement were thought moderately important. By comparison, ability to create bespoke schedules, access to counter parties, accuracy of margin calls and quality of client service were less important. The trend over time is also noteworthy. Overall, satisfaction with tri-party providers has increased, bouncing back from last year.
Clearstream’s winning score was 5.94 compared to last year’s 5.47 and almost up to the 5.95 it achieved in 2010. The respondents There were 195 responses to this year’s survey, this year the majority of which were commercial/private banks (41%) followed by broker/dealers (21%). Hedge funds, custodians and money market funds, pension funds, insurance companies, corporates, central banks and mutual funds accounted for the remaining respondents. The largest group (30% of respondents) said 10% of their activity was conducted via tri-party, while one in ten (11%) said 20% of their activity was conducted via tri-party and a further 15% of respondents said 30% of their activity was conducted via tri-party. Nearly half of respondents (49%) said the percentage of their activity done via tri-party had increased over the past 12 months, 14% said it had decreased and 37% said it had stayed the same.
Asked how they expected tri-party volumes to change over the next 12 months, almost two thirds (63%) predicted an increase with only 5% saying its activity via this route would shrink. The remaining third expected triparty volumes to stay the same. Quizzed as to the importance of the ability to customize and fine-tune their eligibility schedule, four fifths (81%) said this was very important, with a further 17% gauging it slightly important. Asked which collateral they accepted through their tri-party agent, 63% accepted G7 government bonds; 52% investment grade corporate bonds; 50% US treasuries and agencies; 36% other OECD government bonds; 30% equities; 29% euro cash; 29% ABS/MBS; 24% G7 equities, primary index; 24% US dollar cash; 21% convertible bonds; 20% certificates of deposit; 16% G7 equities, secondary index; 16% ETFs; 15% UK gilt DBVs; 14% unrated corporate bonds; 11% non US euro cash; 9% UK equity DBVs; 4% warrants; and 2% letters of credit.
No respondents accepted gold. Asked for the percentage split of their tri-party activity by term, the aggregated response was: 38% overnight; 14% one week; 15% one month; 12% three months; 4% six months; 6% more than six months; and 11% open. Most respondents covered Western European markets (32%), followed by North America (22%), Asia Pacific, developed (16%), emerging Europe (10%), Asia Pacific, emerging (8%), Latin America (5%), Middle East (4%) and Africa (3%).
Respondents to the survey were asked to give reasons for adopting the triparty model. The most popular reason for adopting tri-party was highly ‘automated process’ – for which almost half, 46%, gave a top importance rating of 7. This was followed by: automatic substitution of ineligible collateral (44%); daily margining (40%); and more sophisticated eligibility filters (37%). Considered relatively important reasons were: book entry environment (31%); access to new counter parties (28%); accuracy of pricing (28%); and collateral re-use (23%).
Considered less important reasons were: better reporting (20%); supports more diverse collateral types (17%); and new markets (12%). Respondents were also asked which areas of tri-party needed improvement.
Among areas cited were: work with local regulators and exchanges to get more emerging markets on board such as Korea and Taiwan; netting of tri-party transactions at a client level and substitution capabilities; valuation of structured finance securities such as ABS and CLOs; late return of funds impacting management of cash; STP instructions; fails handling; static data; supported eligibility criteria, as no agents can apply haircuts based on duration for fixed income instruments, only maturity; better reporting and quicker implementation of collateral schedules; more transparency around real time reporting; link between different triparty agents for collateral exchange; and ability to manage/change eligibility criteria more dynamically/quicker and with greater granularity.
METHODOLOGY
Commercial/private banks, broker/dealers, hedge funds, custodians, money market funds, pension funds, insurance companies, corporates, central banks and mutual funds were asked to rate their tri-party providers across a number of service categories, on a scale from 1 (very poor) to 7 (excellent).
Service category tables
For each provider, all respondent scores in each service category were averaged to give a single score per service category. Additional service category tables were added this year: ability to create bespoke schedules; ability to manage equities as collateral; and implementation of collateral sets schedule. All tables are presented in the magazine:
Ability to create bespoke schedules
Ability to manage equities as collateral
Access to counterparties
Accuracy of margin calls
Breadth of market coverage
Breadth of supported eligibility criteria
Collateral re-use/re-hypothecation
Dividend collection
Handling of fails
Implementation of collateral sets/schedules
Level of STP offered
Quality of client service
Quality of reporting/client interface
Quality of static data
Substitution capability
Timeliness of margin calls
Timeliness of settlement
Overall table
Tri-party providers required a minimum of 10 responses to qualify in the overall table and qualify in a minimum of two regions. Each respondent’s scores were averaged to give a final respondent score.
Regional tables
Each of the regions required a minimum of five responses. The respondent’s location was used when calculating the regional tables: EMEA, Americas and Asia Pacific.
Overall repo-tri-party table
Each repo respondent’s scores were averaged to give a final respondent score. A minimum of five responses was required to qualify.
Overall securities lending tri-party table
Each securities lending respondent’s scores was averaged to give a final respondent score. A minimum of five responses was required to qualify.