fall of the Iron Curtain. Since the late 80’s we’ve maintained a lasting presence that has grown considerably since inception. Thus, from a custody point of view, we are not simply focused upon the foreign investor who seeks to invest in the CEE region, but on the domestic market as well. Therefore, in addition to the services that we offer foreign investors in most of the 15 markets in which we are active, we also offer administrative services to local pension funds, retail custody services to our retail network, and custody services to domestic insurance companies and/or banks. For new entrants it would be very difficult to build up the same business model. In the event they tend to focus on the big markets like Poland, Hungary, and maybe Russia, but these markets are already over banked on the custody side. Naturally, those providers operating in CEE want to offer a harmonised level of service. However, given the infrastructure challenges attached to certain markets, is this feasible? Given that the markets are so
different, a truly harmonized level of service is difficult to offer, but not altogether 34 | Money Markets
impossible. In our case we give our clients a harmonized service by organizing operational training throughout the region and maintaining full communication with our colleagues across the region. Additionally, we offer the whole operational aspect based on SWIFT reporting; where manual reports are necessary, we try to employ the same layout everywhere. As for software applications, again we implement enhancements throughout our network ensuring that the same systems are in use everywhere. Obviously, from a capital markets and post-trade infrastructure perspective the goal is to harmonise local rules and market practices in order to mirror the standards set by Western Europe. In real terms, how far away are we from this becoming a reality? We need to recognize that, from
an infrastructure point of view, the region is not harmonized at all. First, it is necessary to identify the two groups of markets in the region; there is the segment which is already part of the EU and the segment which is outside. Naturally, EU legislation is applicable to the former group. Therefore, the degree of harmonization possible is far
greater in this group than it would be in the second group, which includes big markets like the Ukraine and Russia. These markets are far removed from the principles of the EU. Consequently, and for this reason alone, you cannot operate the entire market using a single system. We know that post-trade infrastructure development varies hugely across the region. However, as more and more CEE markets start to invest in the requisite technology etc. in order to handle things like securities lending and omnibus accounts, what impact will this have on liquidity across the region? The more standardized the markets
become, the more the CEE region will be able to comply with Western standards, and this will have an impact on liquidity.
Given that Poland is the largest capital market in the region, has an efficient CSD in KDPW and a strong local funds industry, do you feel, therefore, it offers the greatest potential for direct custody and clearing business?On the custody side, the volumes
in the Polish market are probably the biggest in the region; but it is a very competi-