What is Security Services?
The overall term ‘security services’ encompasses all aspects of both custodian services and issuer services. Banks can offer either the entire suite of securities services or purely the traditional custodian services, normally using the infrastructure required to support their own banking activities in order to sell a range of services to financial institutions, pension funds, sovereign wealth funds and central banks. This is in addition to multi-national corporates requiring support for the issuance of commercial paper and bonds.
A banker wishing to work in the financial institutions or the multi-national corporate teams of that bank must have at least a basic understanding of security services, as it is not only one of the major fee income opportunities with these clients, but also provides important liquidity for the bank. The fee opportunities within this client sector are significant and it is not debt intensive, therefore, representing a low risk for the bank’s balance sheet.
It is imperative a bank’s sales force team in the financial institutions or multi-national corporate sectors are able to converse professionally with their client bases concerning all aspects of security services. This ensures the bank’s team understands the key drivers of their client’s activities in this field of banking. These activities originally stem from how the digitized owner of any securities are able to view their existing holdings, as well as their expected new holdings and any cash funding requirements, including the ability to offer services such as stock lending where appropriate. For multi-national corporates, the banker also needs to be able to discuss how Escrow accounts operate, as well as issuer services, in order to assist corporates to issue bonds and support commercial paper programs in their own name. Finally, such banks may also assist corporate pension funds with their own banking requirements.
Security services offerings ensure the client’s (financial institution, pension fund, sovereign wealth fund, central bank or multi-national corporate) are always able to view and settle all obligations in full, wherever, whenever and in whichever market or currency they fall due, on the due date. This also includes how the client reviews this area of banking, with ‘risk management’ being their main objective, followed by scalable and transparent solutions that provide the client with visibility of stock positions domestically, regionally and globally.
Importance of the Services for Banks
In order to understand how custody services became such an important income stream for banks, the banker or client needs to recognize the key drivers that initiated the increasingly regulated world in which security services operate in these days. Securities services provide all subscribers with an understanding of the history of the securities market as a whole, plus the key drivers behind custody services and the various players in the securities market and the types of solution available. All securities solutions are supported by firm foundations, from both the bank’s and the client’s perspective. A solid and amicable two-way relationship between these parties is essential. Built upon these firm foundations, bank capabilities and client needs are analysed and developed into the security services relationship, reviewing both how these principles are best offered in a single market, all the way through to multiple markets anywhere in the world, across multi-entities, across many geographies and financial centers, whether an active investor or using the world of securities to generate additional liquidity for the corporate.
Another vital component of securities is stock lending. This is based upon the bank maximizing its worth to its clients by offering introductions to those with stock they wish to hold long term, to those that need to borrow stock short term, for example, broker-dealers. With the bank positioned in the middle of these two parties, they can provide a value-added service satisfying the needs of both these client bases, whilst also taking a margin on both sides of a particular stock lending trade.
Further Services Offered by Banks
Other services which sit alongside Security Services include transactional foreign exchange, cash management and asset management. These must also be used as part of a solution suite to meet the needs of banks various client bases. This integration of FX, cash management, etc. into the security services solution is an essential part of making a client feel as though their overall needs have been met and also helps to ensure the bank continues to benefit from a stable, healthy and lasting relationship with its respective client bases.