Munenori Yoshihara, BBH

The development sees Resona become the first Japanese investment manager to implement the FX solution.

InfoFX is a securities-based FX solution that enables automated FX order generation with execution netting capability.

The solution provides support for FX orders across multi-custodian accounts and covers both freely traded markets and select restricted markets.

Read more: Fireside Friday with Brown Brothers Harriman’s… Brendan Burke

Following the onboarding of InfoFX, Resona AM added that it has already seen greater operational efficiencies through trade data transmission and FX netting, as well as improved flexibility in their security-based FX workflow.

“With the launch of InfoFX, our fund managers have gained significant benefits through reduced operational burdens. We expect that these operational efficiencies will lead to enhanced investment performance,” said Resona AM.

Resona AM has also achieved improved oversight and control of its FX trading capabilities through InfoFX Live, BBH’s web-based platform which offers clients with robust pre- and post-trade reporting and analytics tools to assess execution quality.

“Global asset managers continue to look for ways to optimise their trading and operational workflows, so we are thrilled to expand upon our longstanding relationship with Resona Asset Management, a key relationship for BBH in Japan,” said Munenori Yoshihara, head of relationship management Japan and markets Asia at BBH.

The post Resona Asset Management selects BBH to bolster FX trading capabilities appeared first on The TRADE.

We consider a variety of factors, but pricing quality is first and foremost and cannot be overlooked. Under this idea is a multitude of factors including a constant assessment of bid ask spreads, counting rejects in terms of both absence of pricing and trade rejection, historical performance in terms of currency, size of trades, and importantly, the measure of bank availability in ‘crisis’ i.e. how reliable our liquidity providers are in difficult trading times. When the market is functioning well, spreads are tidy, liquidity is abundant, and quality pricing is easier to find. In those 5% of times when the market is under stress, that’s when we need to know where to look.

Fill ratios and hit rates are also important factors when considering bank performance.

How do you structure your panels?

Our process for LP selection is dynamic, meaning we can adjust our LP panels easily and there is no real lag between analysis and panel adjustment. This flexibility helps us respond quickly to changes and to maintain trading efficiency. We can segment our flow into specific currency buckets based on several characteristics such as currency, groups of currencies, and size. We then decide what tier the trade or groups of trades fit into in terms of difficulty.

Underneath this, we also consider market conditions or the desired outcome for a particular trade. While we have an idea for the number of banks a trade would ideally have, we don’t believe that throwing as many LPs as possible into an aggregator will allow us to achieve an efficient spread.  I think the market now agrees too.

How can you move into the position of ‘preferred customer’ and what benefits can this bring?

We see our relationships with our liquidity providers as partnerships, and we take a strategic approach that emphasises mutual value and long-term partnership. We don’t want or expect our LPs to be the best at everything. We value transparent communication – if you aren’t going to be efficient with GBPUSD but you are going to add value somewhere else, then let’s have a conversation and we can structure our panel accordingly.

As I’ve mentioned before, we place a lot of value on reliability and consistency in both good and bad times. All of this helps to create a more efficient environment. Moreover, the benefit of this mutual understanding is that it fosters the creation of long-term successful relationships and a well-functioning market.

How do you leverage bank relationships to get the best pricing?

We use a combination of engagement and transparent communication to leverage bank relationships to obtain quality pricing. When you reach a point in the relationship where you have regular dialogue, consistent trading volume, and productive use of technology in terms of analytics and execution, then you have a good base for building lasting relationships that support your competitiveness in the market.

The post Dynamic panel structuring is key to maintaining trading efficiency appeared first on The TRADE.

Achieving the same (or better) outcomes as trading inhouse is undeniably difficult. Buy-side heads of trading at this year’s TradeTech Europe conference explained that while of course “there will be cases for outsourcing” there are certain aspects of the trading process which are inherently convoluted and thus difficult to execute.

“Our trading group are viewed as part of the investment process with interaction and culture aligned. That’s difficult to replicate using outsourced trading,” asserted the senior panellists.

It is for this reason that only the most dedicated providers are set to reap success. Speaking to The TRADE, Dean Gray, head of EMEA outsourced trading at Jefferies, explains: “It has been well documented that the past few years have seen a significant shift in the mindset, especially of the larger funds, towards the adoption of outsourced trading. As larger funds utilise the service, other groups such as sovereign wealth and platform providers are becoming increasingly involved.

“These groups have an inherent nature of complexity that require outsourced trading providers to heavily invest in human capital and technology to meet all of their requirements effectively.”

Despite a degree of caution being exercised by the buy-side, the fact that around 40-45 firms across the industry identify as utilising outsourcing trading in some capacity, is telling. And the number is climbing.

In tandem, 50 providers are now dedicated to handling the gamut of trading needs. This is a significant reality, and a true sign that the industry is changing irrevocably.

As Rebecca Crowe, managing director and chief operating officer, BNY Markets, previously told The TRADE, “Years ago, it was the middle-office who were contemplating outsourcing and people couldn’t even consider that you would allow somebody into your books and records in that way.”

Broadly, the providers are independent firms, prime brokerages, and custodians, all with their own pros and cons, unique approaches, and distinct strategies.

The frontrunners across this space are clear to see. The next step for key industry players is now more important than ever as the gap between market leaders and ‘the rest’ seemingly widens.

Cost must be balanced with effectiveness

When it comes to outsourcing trading, seeking offerings with clear value-add and a smooth operational set-up has been front of mind for firms.

Brendan Burke, Brown Brothers Harriman’s (BBH) managing director and head of Americas FX sales and business development tells The TRADE: “Managers need to be comfortable that execution via an outsourced platform is comparable to managing the process in-house. It is important to be clear in terms of identifying activities that are in and out of scope to consider outsourcing.”

However, though execution quality is of course front of mind, the cost saving aspect is becoming an ever-more important consideration for the industry as participants are increasingly forced to juggle mounting regulatory, technological and data-related burdens.

Fees are mounting and when it comes to business strategy, this factor is demonstrably taking precedence – but at what ‘cost’?

Aaron Hantman, chief executive of Tourmaline, agrees that, despite the pursuit for quality, the decision to outsource – specifically where to outsource – often comes down to economics, explaining that in some cases this can have negative repercussions.

“If firms can receive front, middle and back-office solutions packaged as one and have to sacrifice the trading quality to get those economics they often do it,” he explains.

This can in many ways be put down to the decision to outsource generally coming from the c-suite and other senior leadership individuals – a controversial reality which many in the market have openly criticised for being an approach which omits important insight from trading teams.

“In terms of who makes that decision [to outsource] of course it is down to the people who are motivated by, and tasked with, looking at overall operating model transformation and cost efficiency – which are generally COO’s and CFO’s,” said Crowe.

She added that even when it comes to how decisions are being made as to the structure of outsourced offerings, capital considerations are commonly at the fore, specifically cost efficiency and more variability with costs.

Of course, this is an understandable reality, given the current state of the market, however, potentially sacrificing trading quality in the pursuit of capital saving is a high price to pay. Advice about cutting off noses to spite faces comes to mind, but as Hantman tells The TRADE, many times this situation arises not through any nefarious means, but because of a certain degree of naivety.

“People truly do not understand in many cases just how badly trading could be compromised,” he says. “Those who make wholesale changes without understanding the impact at the trading level will soon have to reverse out of them a year or two later.”

As firms continue to place a growing degree of trust in these providers, this should theoretically work to foster effectivity.

“Like many managed services, a provider needs to have scale and be able to deliver a quality offering combining client service, technology and trading expertise. It can’t simply be shifting trading responsibility from a manager to the provider,” highlights Burke.

The buy-side agree and discussions at conferences across this calendar year have focused on the importance of alpha retention in this space.

As one TradeTech Europe buy-side panellist affirmed: “Understanding the clients and the markets you trade is essential. You need to think of the trading desk as the engine that drives the room. Those conversations around news flow and pricing are central. An active manager needs an active desk.”

However, the crux is that this is not so easily achieved by an outsourced trading provider. Across the outsourced trading space, the barrier to entry has historically been low, but the barrier to success arguably remains high.

As Gray explains, “as the industry has begun to mature, each offering is becoming more clearly defined. The reality is many are not prepared to make the significant investments required to maintain or grow their share of the market.” 

The important impact of changing market sentiment

Demonstrably, things are ramping up and outsourced trading providers are highly cognisant of the importance of keeping up with the pack in this high-stakes game.

However, importantly, various sources speaking to The TRADE have confirmed that a shift of market sentiment has contributed to the development of this space. What started as a foot in the door, has widened into a significant entryway, with market participants – who were at one time not just hesitant, but hostile – now tuning into the importance of embracing change.

A recent LSEG and Coalition Greenwich report from Q4 2023 highlighted exactly this uptick in views around outsourced trading, wherein 66% of buy-side respondents confirmed their belief that outsourced desks could provide them with better access to liquidity, while 63% highlighted improved execution quality and trade performance.

The responses included views from 45 buy-side equities market participants across the US and Europe, of which 28% expect their firms to ‘at least consider’ adding an outsourced provider over the next two years. One respondent specifically commented that “outsourced providers act as an extension to the trading desk and understand our trading goals”.

Hantman tells The TRADE: “Between 2017-2019, especially in the UK and Europe, there was a lot of pressure for traders to justify their worth, especially considering things like Mifid II unbundling. At that time, the last thing that a trader wanted to hear about was the wonderful attributes of outsourcing.

“If you look at the last couple years there has been an evolutionary rate of acceptance which has accelerated recently. It suggests that the concept of outsourcing or supplemental trading has become institutionalised.”

Traders, and portfolio managers, across the industry are seemingly eager to be part of these conversations – not just about the dawn of outsourcing but also when it comes to technological change across the market.

When it comes to those truly at the coalface of the trading processes, overlooking their acumen should be done at a firm’s own peril.

“We as an outsourced trading community are always going to come up against the ‘fear factor’. However, by not being present in the set-up of a new regime [buy-side traders] are missing opportunity to have a say and effectively create even greater job security with a hybrid approach,” asserts Hantman.

Across firms, senior executives appear to be increasingly taking this on board, attempting to find the perfect balance between saving costs and weighing the true, long-lasting impact of making those big moves.

The market is moving, keep up

Against the backdrop of the growth of the outsourced trading industry, the landscape is set to continue its evolution in marked ways.

Gray predicts two key developments, which are now beginning to emerge: “That growth would lead to new entrants and to more consolidation amongst providers. This would result in polarisation, with a few key players and a larger number of smaller specialists leading the growth.”

Recent times have seen swathes of bigger and bigger firms turning to outsourcing in one way or another, however The TRADE understands that some of the largest firms have been embracing this strategy for quite some time and big moves have already transpired.

Examples just from the last six months include UK-based investment management firm Waverton – which has £9.1 billion AUM – outsourcing some of its trading to Northern Trust Integrated Trading Solutions (ITS), Nordea outsourcing the portfolio management of its emerging market bond funds to Metlife Investment Management, Singapore-based investment manager New Silk Road outsourcing its trading to Northern Trust, and most recently Stifel and Marex unveiling a new outsourced trading partnership under a broker referral scheme.

From Tourmaline’s perspective, Hantman asserts that the firm has been trading for multiple trillion plus asset managers for years, though these are unwilling to be named publicly.

Similarly, Crowe confirmed to The TRADE earlier this year that BNY “absolutely” has large scale clients on its books already. BNY announced a partnership with Goldman Sachs Asset Management in March concerning global trade execution services in EMEA, the US and APAC markets across fixed income, FX, derivatives and ETFs.

Speaking to The TRADE about the FX space specifically, Burke shares that BBH has also seen continued interest from larger managers who have FX resources and technology in-house.

“Many of these mangers are multi-asset class who may manage FX related to fixed income in-house, then lean on a provider to solve for equity related FX, coverage of restricted markets, or for rules-based share class and portfolio hedging programs,” explains Burke.

In The TRADE’s inaugural Outsourced Trading survey, it was discovered that around 72% of clients had less than $5 billion in assets under management, 15% had between $5-10 million, 8% were in the $10-50 billion category while 2.5% were in $50-100 billion and another 2.5% in the $100 billion-plus range.

While historically, this has very much been a space taken up by smaller funds – some large funds are demonstrably turning, or have turned, to these solutions. So, with ever-larger players making real moves in the space, what’s next on the agenda?

“Many articles have reported that better execution and cost-effectiveness are the principal motivations behind outsourcing, but we have noted the ability to cover multiple regions and asset classes are just as important,” Gray tells The TRADE.

Looking ahead, he shares that he foresees the next phase to be towards key players investing significantly in their offerings, providing services in a wider range of asset class coverage, such as fixed income, and also, importantly, emphasises the potential for further consolidation in the market.

Speaking from the Jefferies viewpoint, he shares that “from a technology standpoint, the ability to not only access but develop your own proprietary trading software will continue to be important.”

In the same vein as Gray, Crowe also highlighted a trend of expansion into further asset classes, away from just equities: “Fixed income is probably the next most logical volume traded asset class in the market […] but there’s also a lot of further interest in derivatives and other instruments.”

In terms of consolidation, the market has seen a range of key moves in recent times as firms seek to further deepen relationships and widen their reach.

Earlier this year, State Street acquired CF Global, a significant development in the outsourced trading world, which allowed the firm to considerably expand its geographic reach. Just prior to this, commodities specialist Marex completed its acquisition of TD Cowen’s outsourced trading and prime brokerage business.

Both transactions, among others, could fairly be considered a net reduction in the community, however the synergistic approach has been widely hailed as the future as the industry continues to battle costs, keep up with increased global correlations, and maintain effective processes. The industry will therefore likely see consolidation continue. 

Evidently, the gap between the most successful players in the space and ‘everyone else’ is continuing to grow ever wider. As the market ramps up in terms of the size of key players, heavier expectations on providers, and the consistent battle to strike the best balance between costs and effective trading, outsourced trading strategies are set for continued and significant evolution. The future landscape looks set to be markedly different to what the market is seeing today.

The post Outsourced trading: Easy to do, difficult to get right appeared first on The TRADE.

It’s a good question, the baseline costs associated with opening a North American desk, or a desk anywhere, includes hiring two traders minimum. One trader for full-time responsibilities, and a backup for BCP (Business Continuity Planning) purposes or holidays, etc. 

Each trader will need a terminal depending on the trading platform being used, which carries a considerable cost. Speaking from the practical side, you could be looking at a high price for office space depending on the region. All of that is the bare minimum set up and the cost of those items are necessary when considering opening a trading desk. However, after the initial setup you are also looking at regular ongoing costs as operations continue. 

This is very much an operational challenge. In the current state with T+2 you have 48 hours to execute a security trade, match that trade with brokers, execute the FX and get everything settled. Obviously now it’s a shorter window of time to complete all required steps, and that puts pressure on managers’ operating models. 

Even looking across the evolution of FX activity over the years, about 12 years ago the industry was facing issues with transparency and custodial FX programs, which required more oversight for managers and asset owners. This challenge ultimately led to transaction cost analysis (TCA) now being a requirement in FX. Jumping ahead in time, covid-19 was another external factor which put a lot of pressure on asset managers in terms of how and where work was being done.

For a lot of managers, FX can be considered an uncompensated risk since you’re not really being paid to manage the FX. Therefore T+1 is yet another consideration in their overall operating models, especially when it comes to operational foreign exchange.

Have the UK, Europe, and Asia taken diverse approaches to the looming shift to T+1? If so, how so?

In the US, there’s been more interest in automation and outsourced solutions – with the thought of what and how processes can be automated best. This line of thinking has led to an uptick of interest in outsourcing FX.  Obviously, the bottom line is ensuring quality execution within any process. For managers in the US it’s about having global capabilities and ensuring that you can execute foreign exchange transactions around the clock, time zones and regions. For some larger managers, it has put the question of increasing global coverage back on the table. Whether it’s outsourcing or active in-house execution, global coverage is critical now more than ever.

With regards to managers in the UK and Europe, it’s a similar story.  Some of the larger entities, who have the resources in terms of technology, employees, and budget, decided to open a desk in the US in order to have crucial time zone coverage. However, we’re also seeing interest in outsourcing and automation from asset managers in the 50–100-billion-dollar ranges. These managers are taking a step back to examine their internal focuses and goals and are acknowledging that this kind of activity is not really core to driving performance, but rather operational FX could and should be automated and outsourced to a foreign exchange expert. 

In Asia, the focus is a bit different and the theme we’re seeing and hearing about is around pre-funding the FX settlement-related trades. Ultimately, this is due to time zones and Asia having the shortest amount of time with the upcoming move to T+1.  

How feasible is outsourcing FX workflow? What should firms bear in mind?

While the outsourced FX space is now very mature, asset managers still need to ensure they have oversight and control embedded in the process. For example, a manager can take the approach of “set it and forget it” whereby they would send copies of equity trades to an outsourced execution desk, have the orders filled, with settlement messages routed to custodians, and a confirm sent back to the client. However, managers may also wish to consider how to maximise netting opportunities to reduce FX exposures and minimise latency (time between security trade execution and FX trade execution), as well as understand the most appropriate time(s) to execute their FX orders, depending on currency pair and market liquidity.

Reporting is critical. Our clients require real-time access to their post-trade data to review that execution expectations and standards are being met. Customisation is also an important factor to consider in any outsourcing model. Many of our clients are utilising our outsourced FX solutions work with custodians and providers who have their own unique set of requirements. Every client’s FX program is different, with their own file translations, custom connectivity or additional reporting requirements in certain emerging/restricted markets. In addition, there are various trade types to account for, such as corporate actions or investor flows, that are different from the traditional security RVP/DVP FX transaction.

And of course, execution quality is essential for both the asset manager and stakeholders. Interactions with market participants have shown that outsourced FX space has now matured to a point where execution quality can be comparable to what a manager might typically achieve with in-house trading via an industry platform. Given that this type of FX activity is operational in nature, it can make a lot of sense for asset managers to consider an outsourced FX provider who can deliver a similar outcome to running your own FX trading desk in-house. Another trend we’ve seen emerge recently are larger managers who have FX capabilities in-house but have supplemented their FX process by leaning on expert outsourced providers for a subset of accounts, trade types, or difficult-to-trade currencies like emerging/restricted markets.

What are the main benefits of doing so?

The outsourced trading space has come a long way in the last several years, where managers can now access FX solutions that combine the operational ease of a custody FX ‘autoFX program paired with the execution quality of managing trading in-house. For this type of activity, whether it is FX related to settling global securities, repatriating corporate actions or investor flows, or even hedging currency exposure within a fund or through hedged share classes, many asset managers view this as operational in nature and potentially risky and costly to manage in-house.

A primary benefit of an outsourced FX model is achieving execution quality that can be on par with running an in-house FX trading desk, while mitigating the associated risk and removing the need to reallocate trading, operations and technology resources. Operational resilience is also an important consideration and potential benefit to be gained by outsourcing operational FX. The key is to optimise your trading and operations strategy to be ready for the future. With changes like the US market moving to T+1 in May 2024, partnering with an outsourced FX provider allows managers to tap into a team of subject matter experts who can build custom workflows to meet ever-changing industry standards. Once we get past the move to T+1 in the US and Canada, the UK and EU moving to T+1, likely in 2027 or 2028, is just around the corner. This will require managers to review their operational FX program once again from a different perspective. 

Partnering with the right FX provider can help managers prepare for both the planned industry changes like T+1, as well as the unknown, like regulatory changes and spikes in volatility due to geopolitical or market events.

The post Fireside Friday with Brown Brothers Harriman’s… Brendan Burke appeared first on The TRADE.

All speakers on a panel exploring the market’s shift to liquidity provision analytics confirmed that buy-side trading desks have a better picture than ever when it comes to TCA. When asked what their core focus was going forwards, the answer was unanimously centred around better in-flight monitoring.

“There’s not enough transparency around what’s going on during the trade. There could be more around that,” said Bhavesh Trivedi, dealer at AustralianSuper.

“Banks are making advances but from a platform perspective it’s very different from a single bank platform that is using proprietary data. We have a good idea of how much is done and where it was filled but we’d like to understand more around where and how something is internalised for example or who would do X% at what level.”

This view was corroborated by BidFX’s head of data and analytics, Daniel Chambers, who agreed in-flight was a core focus for the firm, in particular with how the relationship between monitoring liquidity and how that relates to incurred execution costs could be improved.

LPA is the new TCA

The morning’s panel was focused on liquidity provision analytics as the next stage for TCA and speakers confirmed that its use offers traders more of an understanding around “why” costs have been incurred whether that be due to market impact, timing, method or the use of a particular liquidity provider, for example.

Buy-side speakers from AustrailianSuper and Brown Brothers Harriman (BBH) confirmed they were now using LPA as an additional tool to feed into their TCA models.

“It’s trying to build a picture around the prices that liquidity providers give us, what they show us and how reliable they are. We will use that going forward in a circular fashion where we feed it into our engine before we trade,” said Joseph Forde, trader at BBH.

LPA is contributing to a “feedback post-loop” Chambers agreed. “It’s a way to curate liquidity. You make a decision much earlier than the point of execution and at the point of execution you can make improvements as well. It helps to direct execution flow to LPs based on previous performance.”

Liquidity provision analytics is mutually beneficial for both parties on both sides of a trade, the panel confirmed, and is an important tool for relationship building.

“When you go into a trade you have an expectation of what you want to happen. That all feeds into liquidity provision analysis and how to trade that trade in the most effective way,” said Trivedi.

The post TradeTech FX Europe 2023: Buy-side focus their attention on in-flight monitoring as next stage of liquidity provision and transaction costs analytics appeared first on The TRADE.

Regulations, such as MiFID II, have highlighted to buy-side firms that they are responsible for compliance and data quality, regardless if they use a third-party provider for certain non-core functions.

“Relying on any partner is a challenge, especially when the regulations have made it clear that we are responsible for the service regardless if we outsource. If that service fails, we have to demonstrate that we can step in and fix it,” said John Marsland, chief operating officer, investments, Schroders at the InvestOps Europe conference in London.

“It doesn’t matter whether your supplier has the best business continuity plan or how many sites they operate across, you have to be able to operate your business without it. The only way to do that is identify overlapping providers and partner with them strategically.

“This means deepening partnerships with a smaller number of vendors, but the expectations of monitoring and governing them is quite enormous.”

Asset managers have to also ensure the data on their funds is accurate, both for regulators and their own end-clients.

Fund administrators and custodians have come under fire from regulators about the soundness of their outsourcing services, prompting buy-side firms to adopt governance procedures in the event that their providers do not provide a sufficient service.

Earlier this year, JP Morgan’s fund administration business in Ireland was fined €1.6 million for three breaches of the country’s outsourcing requirements. The UK’s Financial Conduct Authority (FCA) has also conducted thematic reviews of the business models of third-party outsourcing providers.

However, some providers have brought new solutions for buy-side firms to enhance the governance process of their outsourced providers. Last year, Brown Brothers Harriman (BBH) launched a new tool allowing asset managers to oversee the new asset value (NAV) function performed by their third-part administrators.

At the start of 2019, technology vendor Temenos partnered with Bloomberg to allow its asset manager users to generate their own NAV estimates independent of, and in parallel, to their fund administrators, enabling accurate daily oversight and ensuring continuity of operations in the event of an outage.

Earlier this year, The TRADE took a closer look at how outsourcing providers really operate and differ from agency brokers, and examined what benefits opting for outsourced execution can offer to the asset management industry.

The post Asset managers pressured to enhance oversight of outsourcing partners appeared first on The TRADE.

The research, conducted by Brown Brothers Harriman (BBH), showed that a greater number of Mainland China investors have warmed to investing in ETFS. Over 60% of respondents in Mainland China have at least a quarter of their total assets under management (AuM) in ETFs, and 77% plan to increase their ETF allocations.

In the context of the global exchange traded fund (ETF) market, Greater China represents a small proportion, accounting for only 2.1% of the $5.1 trillion industry. However, international investors are beginning to pay attention to the region – comprising of Mainland China, Hong Kong and Taiwan – which promises rapid growth even though adoption of ETFs is still significantly behind the rest of the world.

“These findings highlight the unique investor preferences and differing stages of ETF use across Greater China. ETFs are becoming an increasingly important component of institutional investors’ portfolios across the region,” says Chris Pigott, senior vice president, BBH Hong Kong.

“Looking forward, regulatory development and enhanced ETF market infrastructure are areas of focus that will provide the foundation to support the expected growth.”

The catalyst

Behind this push is the MSCI’s inclusion of China A-shares at the beginning of last year, followed by the Bloomberg Barclays inclusion of Mainland bonds to its benchmark index in April.

In March, MSCI announced it would quadruple the weighting of A shares on its Emerging Markets index from 5% to 20%, which is expected to attract international fund flows of $80 billion.

As a result of these developments, 70% of European and US respondents of the BBH survey plan to invest in the China capital markets this year via ETFs or through the Mainland-Hong Kong Connect programmes.

Of these respondents, half said they would invest in an ETF, while others stated they will buy stocks or bonds via the Connect or the two qualified foreign institutional investors (QFII) programmes.

As well as these capital markets developments, ongoing education efforts around the structural benefits of ETFs are resonating with investors in the region. Mutual funds in the region have increased their awareness of smart-beta ETFs, as nearly all of them within the survey said they have at least one smart beat ETF in their portfolio, and 38% purchased a smart beta ETF to replace an actively-managed mutual fund.

The report outlined how regulatory developments will continue to be the catalyst for further investor adoption of ETFs. “In Mainland China, the regulatory landscape is evolving with a clear focus on deleveraging and strengthening the asset management industry. The development of the third-pillar pension scheme is a key factor to watch, as ETFs and other passive products may become important building blocks for target date funds,” the report stated.

The post Greater China on brink of ETF boom according to new research appeared first on The TRADE.

The asset manager is working with three trust banks – Nomura Trust and Banking (NMTB), Japan Trustee Services Bank (JTSB), and The Master Trust Bank of Japan (MTBJ) – to provide access for 21 Japanese-domiciled investment trust funds.

Nomura Asset Management and the trust banks are supported by a number of global custodians, including Brown Brothers Harriman, Citi and Sumitomo Mitsui Trust Bank (USA).

The introduction of Japanese funds onto the FX settlement service follows a multi-year effort to onboard the Japanese buy-side community to CLSSettlement.

Japan’s markets regulator, the Financial Services Agency (FSA), has sought to promote payment-verses-payment (PvP) settlement and netting for FX market participants, and assist the industry in adopting CLSSettlement.

“We are managing a wide range of funds and trading foreign exchange with both domestic and foreign counterparties. We need to mitigate settlement risk, and think that CLS is effective in that respect. We are preparing to further expand CLS settlement in the future,” said Kunihisa Ono, managing director, Nomura Asset Management.

In August last year, CLS onboarded its first Japanese-domiciled funds to the settlement platform, conducted between Fidelity International and MTBJ.

“There is increasing appetite amongst our buy-side clients to mitigate settlement and operational risk and we are pleased to be able to support our clients in achieving this as a major direct CLS participant since its establishment,” added Toshikatsu Furumi, head of prime, future, securities services in Citi Japan.

The post Nomura to provide Japanese funds access to CLSSettlement appeared first on The TRADE.

Paul Walsh – What is the biggest regulatory challenge that you are seeing within the industry at the moment?

Sean Tuffy- Our business is primarily asset servicing so from our asset manger clients, MiFID II is the biggest event that is happening. 

Then on a global basis, the SEC (Securities Exchange Commission) is taking steps to modernise the regulatory framework for asset managers.

These are indirect issues because most of the regulations are more buy-side focused because if you look at the pattern post-crisis, the initial regulation e.g. Basel, Dodd-Frank were all sell-side focused so the next wave is aimed at buy-side and asset managers. 

For asset managers, once we are at the other side of MiFID it should be slowing down in terms of regulatory environment. 

PW – What is the key focus point for our industry at the moment?

ST – In a macro sense away from regulations, for the financial services industry in Europe, it starts and ends with Brexit.

It is a known unknown, everyone knows Brexit but nobody knows what that means in the short-medium term so this is the biggest issue for everyone in the industry, from banks to asset managers to broker dealers.

People are looking at London and are thinking about what its relationship with Europe will be like after the breakup. 

PW – Will we see volatility once Brexit takes shape? 

ST – Where things get choppy is when it comes to inflection points, so article 50 is the next inflection point when we see markets react and then they will calm back down again.

It wouldn’t surprise me if we would see increased volatility once article 50 is triggered because the clock will have started but no-one will know when it’s going to end. 

I think there will be a lot of speculation about how transparent the negotiations are, so what I think the market would like to see is the government outlining a Brexit manifesto showing goals which would give a slight amount of certainty.

The post BBH’s regulatory expert talks buy-side challenges appeared first on The TRADE.