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European Post-Trade Infrastructure : Dreaming of an integrated market

2016-01-26

Executive Summary The European Commission wants to create an integrated capital market in which funds can be distributed seamlessly across Europe and where a single point of entry would be sufficient to conduct post-trade activity on a pan-European basis. Yet, as long as the European Commission is unable to tackle the discrepancies in national regulations, most notably around fiscal and corporate laws, its objective of creating such a market will remain a fantasy. Although Alternative Investment Fund Manager Directive[1] and UCITS V[2] certainly improve investor protection and transparency, they also significantly increase the complexity of operating a European fund business. By imposing new constraints on depositary banks, these regulations will push participants to reconsider their current infrastructure and drive significant reorganization. In addition, several barriers will impede the creation of a standardized framework for distributing Alternative Investment Funds across Europe through a pan-European passport under AIFMD. First is the intricate web of distribution options available to AIFs depending on their domicile (EU vs. Non-EU), marketing activity (direct vs. reverse inquiry), targeted customers (institutional vs. retail), addressable market (pan-European vs. select countries). This complex distribution coupled with discrepancies amongst national regulators’ interpretation of the directive and National Private Placement Regimes (NPPR) creates an insurmountable barrier to the standardization of AIF distribution in Europe. The Target 2 Securities[3] platform will bring benefits and efficiencies to post-trade securities processing on a pan-European basis, but numerous local specificities in market practices and national regulations, such as corporate laws, will limit its reach. Even post 2017, once all the Central Securities Depositories (CSDs) who committed to the project will have joined the platform, market participants will not be able to centralize their operations across all European markets through a single provider and will still need to operate a spaghetti-like network of connectivity with local agents to conduct the asset servicing processing. Therefore, while we can expect some efficiency gains in European post-trade thanks to T2S, the benefits are unlikely to be shared evenly across all EU countries and numerous discrepancies will remain. The emergence of a European equivalent to DTCC is unlikely to happen anytime soon. The combined impact of T2S and CSD Regulation[4] is insufficient to foster a consolidation of CSDs across Europe. Its likely outcome is to reduce the scope of activity of the smallest local CSDs, for the benefit of the iCSDs, Clearstream and Euroclear. As for the increased competition among CSDs due to Art.47 of CSDR, we expect an analogous development to the one fostered by MiFID I implementation: a fierce competition for the most profitable issues and a status quo for the market majority. Local CSDs will not disappear, but if they don’t act, they will eventually be marginalized in the future European post-trade industry.  However, moving up the value chain and competing with sub-custodians is a strategy that will be difficult to implement for most participants, in fact we believe that they should identify niche markets in which they can leverage their existing experience to develop new and innovative offerings.

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We are a team of financial industry veterans and strategists that have worked at leading financial institutions, giving us a practical understanding of the transforming business model and the challenges clients face today.

Octavio Marenzi
om@opimas.com

Octavio Marenzi is the co-founder and managing director of Opimas. At Opimas, he directs the firm’s research in the areas of equities trading and asset management.

Octavio has performed a variety of consulting engagements including the: Creation of an international expansion strategy for a major US derivatives exchange;

Analysis of the impact of two major Austrian banks, including identification of cost and revenue synergies;

Delineation of the strategy for the merger of the back-office and technology operations of two major Wall Street brokerage firms ;

Review of non-Japan Asia equities markets for a major Japanese bank. This involved market sizing, competitive landscape, and recommendations for acquisitions.

Prior to joining Opimas, Octavio was the CEO and founder of Celent, which was acquired by Oliver Wyman. At Oliver Wyman, he served on the firm’s management committee, overseeing 2000 consultants globally. Previously, he worked at UBS in their asset management division in Zurich, as well as at Booz, Allen & Hamilton’s financial service group in New York. He received his MSc and BSc degrees in mechancial engineering from MIT.

Axel Pierron
ap@opimas.com

Axel Pierron is the co-founder and managing director of Opimas. At Opimas, he directs the firm’s research in the areas of market structure and FICC (Fixed Income Currency and Commodities).

Axel has performed a variety of consulting engagements including the: Assessment of the impact of the post-trade infrastructure regulatory evolution in Europe for a leading securities services provider ;

Due diligence on a global securities servicing and IT provider for a leading European private equity firm ;

Evaluation of the options available (business and trading model) for a major European exchanges to develop a fixed income trading platform Creation of a multi- market entry strategy for a global derivatives exchange ;

Prior to joining Opimas, Axel was the founder of Bedade a network sourced data platform. Previously, he was the manager in charge of the global capital market practice at Celent, an Oliver Wyman company.

He received his Master from SKEMA business school.

Medy Agami
ma@opimas.com

Medy Agami is the co-founder and managing director of Opimas. At Opimas, he leads the firm’s risk management and public policy practice.

Medy has performed a variety of consulting engagements including the: creating an Enterprise risk management (ERM) framework, infrastructure design, governance and strategic risk workshops for senior managers and board of directors ; Designing and implementing a model and liquidity risk management governance and framework; Stress testing (CCAR, DFAST, Liquidity Stress Tests, IMF Financial Sector Assessment Program, BoE and PRA stress testing framework) enhancement, design, and execution.

Prior to joining Opimas, Medy was the head of governance at Northern Trust. Previously, Medy has also held a number of consulting, credit risk, market risk, finance, strategy, and asset management positions at Celent/Oliver Wyman, TCB, JP Morgan and FSCM/Zone C.

He studied financial engineering and quantitative risk management for his Masters in Financial Engineering from IIT. He also received an MBA from the University of Chicago where he studied capital markets.

Cesar Pereira
cp@opimas.com

Cesar Pereira is a partner at Opimas. At Opimas, he is responsible for leading the firm’s global business development strategy for financial institutions.

In this role, Cesar sets the overall vision and strategy, directs sales and revenue growth, and oversees client relationship management. He brings to Opimas more than 15 years of experience in the financial services industry.

Prior to joining Opimas, Cesar was Head of Business Development for Global Securities & Investments at Aite Group. Previously, he has held various sales and management roles in the financial services industry for various companies, including TowerGroup; Boston Financial Data Services, Fidelity Investments, as well as CDC IXIS Asset Management.

He studied at Worcester Polytechnic Institute with a concentration in Electrical Engineering. He has a passion for sailing and is an avid runner having completed several marathons, including Providence, Chicago, and Boston.

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