How has the CEE region been developing recently? What have been some significant and positive improvements?
Although it seems that the Central and Eastern European region is economically performing quite well (in comparison to the average performance of the eurozone), financial markets in the region are tied by European regulation such as the CSD Regulation, the Securities Law Directive, the European Market Infrastructure Regulation (EMIR), and so on. As well as this, market entities in the region are working on a project that aims to harmonise corporate action procedures—definitely not an easy task.
Regarding TARGET-2 Securities, there are some remaining challenges with the project, due to countries such as the Czech Republic and, that still have not signed a framework agreement with the European Central Bank.
Xetra, the electronic trading operated by the Deutsche Börse, is also evolving quite well. We are seeing a pretty constant interest from foreign brokers about the local market, and expect other entities to become a Xetra member soon.
What challenges are still on the table?
In spite of these positive changes, there are several challenges in the Czech market that will be on the table for a while. Firstly, the absence of a full nominee concept in the Czech central securities depository (CSD) is perhaps the mostly frequent debate between local providers and foreign investors.
There is also a missing SWIFT connection between the CSD and local providers, which are familiar with SWIFT communication to their clients, a switch from T+3 to T+2 settlement cycle, and a wide range of regulatory requirements adopted by local, EU and other regulatory bodies. These will all create obstacles in the coming years.
The switch to automated pre-matching on the Czech market is currently taking place (starting in December 2013), which will improve the process in terms of better STP. And with regards to the legal framework, the Czech market is now facing an adoption of a new Civil Code, that will enter into effect in 2014.
Does the diversity of the region still mean that local providers can (at times) have the upper hand?
The best custody provider in such a complex yet innovating market environment has a mixture of traditionalism, long-lasting experience, and responsiveness to upcoming changes. Apart from commonly available services, such as efficient account management, accurate settlement or proxy voting procedures, there are specific details that make the best custodian unique. This provider must bring a market expertise and be one of the leading players defining new standards. Above-standard reporting, professional assistance with a corporate actions agenda, constant readiness to technological changes, and financial stability, are some of the biggest assets from which CSOB clients benefit; not only in the Czech market—but also in the entire CEE region.
While the diversity and heterogenic environment of the CEE region might be seen as a systemic drawback, it ultimately means that more focus and expectations is given to local providers. Perfect knowledge of the local market, direct access to the CSD and accurate up-to-date informational service make local players indispensable part of the whole asset servicing chain.
How do you think your provision of custody or sub-custody services is unique, compared to a more global rival?
The global brand name of some local sub-custodians is a noticeable benefit. However, these names have a relatively short track record, in terms of providing Czech custody services. And it is not only Czech investors who will give preference to ‘local’ institutions with strong historical roots, long-term experience and significant domestic and foreign customer base.
How has Citi’s entrance into the CEE market affected your business?
Citi is perceived as a global name, which unquestionably belongs to the leading players in the sub-custody business. Any new market player means that the competition will become fiercer and that the pressure on quality of provided services will be more intense. CSOB´s goal is to keep a high level of standards, and continuously improve on our performance. Our customers benefit from our long-lasting business experience—CSOB was the first custody provider in former Czechoslovakia—and continual stability (CSOB is one of the top three providers in the Czech market).
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