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Euroclear Bank…
The beating heart of the financial world …
Robert Adriaans
Incrowd’s editorial team wondered what the world would look like
without the beating heart of the capital markets… Euroclear… which each day it
pumps 1,700 billion euros worth of securities through the financial arteries,
rhythmically and faultlessly…
In order to find out more about the “bank of banks”, I travelled to Brussels,
Beijing and Hong Kong, to visit a few of Euroclear’s offices and interview
Philippe Dirckx (General Manager and Regional Head Asia Pacific), Gaetan Gosset
(Head of Client Services Euroclear Bank Hong Kong Branch), Martin Gregson and
Stéphanie Heng (both Managers in Euroclear’s Corporate Communications team).
Euroclear has set foot ashore the promising mainland of China. In so doing, it
is further establishing itself as world-class service provider.
Philippe Dirckx
Gaetan Gosset
Euroclear’s activities worldwide
Euroclear offers three main services: “Settlement”, “Asset Servicing” and “Asset
Optimisation”. When it comes to settlement, Euroclear is the world’s leading
provider for domestic and cross-border securities flows for the settlement of
purchase and sell orders and related services for fixed income, equity and fund
transactions. Asset servicing comprises the safekeeping of these securities
(also known as “custody”) and issuance of new securities. Asset optimisation
includes services such as triparty collateral management.
Euroclear’s history in Asia
With more than twenty years of experience in Japan, and about twenty years in
Hong Kong, Euroclear is an established force in Asia. For some time now,
Euroclear has been the gateway towards Europe and other international
destinations for Asian investors. At first, Euroclear’s operational services
were provided exclusively from Europe, but it quickly became clear that
Euroclear had to open offices elsewhere in order to optimally serve clients, in
their own language and time zone. As Japan was the second largest investor in
Europe, and still is as a matter of fact, the first Asian office was opened in
Tokyo. Activities in Singapore and Hong Kong would soon follow.
“Arrival in China”
 In
the past few years, most countries have experienced financial consolidation, and
China has shown a considerably higher economic growth rate than the other Asian
countries. Although India also experienced solid economic growth, it still has
some way to go in terms of international investment to and from India. India has
many rules preventing these international investment flows, whereas commercial
and state-owned banks in China are allowed to invest internationally. This is
where Euroclear has an added value as the gateway towards Europe and other
international destinations.
Previously, Chinese clients were mainly served from out of Hong
Kong. However, in order to maintain the optimal service level, which Euroclear
attaches great importance to, it needed to open an office in mainland China. The
high level of processing automation is evidence of the importance that Euroclear gives to always being “connected” with its clients. In addition, the
requested service levels in China are considered to be higher than in the rest
of the world, which also played a determining factor in the decision. Moreover,
the Chinese culture is very meticulous and service provision has to happen
extremely quickly.
Opting for Beijing
The reason for opening a main office in Beijing, and not in Shanghai, is that
most of the Chinese banks have their main offices in Beijing. In Shanghai, a lot
of securities are traded, but banks mainly perform corporate-finance activities
from here. Asset managers are also well represented in Shanghai, but they mainly
use local custodians for local trade. For possible international trade they can
call upon Citibank or HSBC, but then it often involves tailored solutions and
not “wholesale” services, which Euroclear offers to its clients on a major
scale.
One central system, but with local service
Chinese banks access the same Euroclear services and systems as other Euroclear
clients in the rest of the world. Every Euroclear client is logged on to the
same central system. All transactions, even those between two Chinese banks,
pass through the central system of Euroclear in Brussels. However, the
difference lies in the day-to-day service Euroclear offers its clients. Client
service may be related to problems regarding securities settlement or on a
corporate action impacting a security, but it can also be advice on how to
conduct or organise business in a more efficient manner. These extra dimensions
give doing business with Euroclear added value for its clients. Euroclear is
convinced that this service has to be offered locally in order to offer the
client optimal efficiency.
Organisation of the Beijing office
The organisation of the Beijing office is the same as the organisation in
offices in the rest of the world, with the exception of operational activities.
In fact, there are two main services offered from Beijing: “Sales and
Relationship Management” and “Client Services”. Sales and Relationship
Management provides daily services to both existing and potential new clients.
The Client Services department, however, is directly connected to the client and
offers support when necessary, even to the end client’s bank. Euroclear
considers working with local Chinese employees an advantage. It opens more doors
and shows commitment to the Chinese community.
Software, time zones and training
Euroclear serves clients in their own different time zones in all parts of the
world, including in China. It is because of this that Euroclear has set up local
offices. Clients no longer have to wait for operations which are performed in
Brussels six or seven hours later, as they can attain the required expert
service locally during the local business day. Those operations are also
supported by local training sessions, on the one hand to ensure a good knowledge
of using the Euroclear system, and on the other hand to create an efficient
connection with the bank software. Above all, it is important that the major
settlement banks have centralised their contact with Euroclear. Moreover,
Euroclear helps the Chinese banks with standardisation in accordance to tested
international standards and working methods based on past experiences.
The Chinese domestic market, its aims and competitors
 The
focus of Euroclear Bank, as an international central securities depository (ICSD),
is clearly aimed at cross-border securities activities and not at the Chinese
domestic market. Therefore, the different local stock exchanges do not really
have Euroclear’s attention in China, nor are there any ambitions to play a role
in domestic markets here. At this moment, there is no real competition in China
in providing the level of local support that Euroclear does with its insightful
and experienced team. That said, in some areas Euroclear does compete, such as
with large multi-national firms that offer asset servicing. Euroclear’s main aim
in China is to build a solid network and presence. Undoubtedly, the new office
in Beijing will shortly become one of the most important offices in Asia. In the
coming years, clients will be supported as their growth, turnover and profits
rise. Euroclear clearly wants to be THE gateway to the rest of the world from
Asia. That is why Euroclear puts permanent strategic cooperation on the top of
its agenda, and not just in China, but worldwide.
The risks of doing business in China
Euroclear does not consider China a ‘high-risk’ country. Banks are under stern
government scrutiny and the government realises that banks (and companies)
(will) have to meet international standards regarding risk management. Even in
countries where one would expect risk management to be full embedded in
corporate governance, many things can and do go wrong. Therefore, Euroclear is
always on its guard and frequently re-assesses creditworthiness and the like.
The Euroclear heart can also pump the other way…
In the future, when currencies in Asia will be freely interchangeable, Euroclear
also wants to be a gateway towards Asia for the rest of the world. This involves
a considerable growth potential for Euroclear Bank, which links up well with the
present cross-border activities, which currently flow exclusively in the
opposite direction. It is perfectly possible that Asian companies will look to
raise capital internationally to support their further growth and expansion,
e.g. via issuing bonds or other forms of loans or securities abroad. This is
likely to happen in the following five years. Also, for this reason, a local
presence is now of the utmost importance to optimally benefit from that
opportunity when it presents itself. Of course, Chinese banks hold a lot of
cash, but much of it is now being used to reorganise banks, which are still
government-owned to a large extent. If major Chinese companies like China
Telecom, Sinopec, PetroChina, etc., wish to increase their international
visibility and grow, they will have to increasingly turn to the capital which is
available on the international market. An issue of bonds in euros or dollars
will be more likely than an issue of bonds in
Renminbi (RMBs) on the local market, which is not fully developed yet.
Another reason is that an increasing part of their profits will be in euros and
dollars. It will be a challenge for Euroclear to face this new landscape, as
regulations in China strongly differ from those in other countries.
Additionally, legislation is now quickly changing to prepare China for
international access regarding capital. Nonetheless, in due course Euroclear
wants to be the first to give the rest of the world access to the Chinese
capital market.
Euroclear’s view of China
In general, Euroclear feels the Chinese government is managing well from an
economic point of view. The gradual transition to a more liberal economy has
been successful so far. The development of the special economic zones serves as
a good example. More and more things are being de-regulated in a controlled
manner, avoiding excesses like those seen in the Soviet-Union in the past. The
day will come on which the RMB will be freely transferable. And it goes without
saying that Euroclear understands that some criticism is well-grounded, but
China needs time to liberalise its economy and the world needs to understand
that as well. That is why Euroclear aims at staying the Number 1 in China.
- Euroclear has clients in over 80 countries, including 14 Asian
markets
- About 15% of the volume of Euroclear’s activities are generated
by Asian institutions. |
