Danske Bank issues structured bonds in both EUR and DKK at VP Securities. This gives operational benefits, while also enhancing customer satisfaction.
“There’s no difference between EUR and DKK in our routines. It’s business as usual. Of course, this gives extra volume, but since it all runs smoothly we haven’t experienced any additional workload,” says Head of Settlements Sanne Robdrup, who heads a team of six settlement officers of the VP system at Danske Bank’s Customer Service Delivery. By moving the issuance of structured bonds from another CSD to VP, the external price per issuance went from a lower European to a higher Nordic level for the issuer side, but the total cost of issuance for Danske Bank went down, as a consequence of operational simplicity. The move was initiated by customer feedback, explains Morten Juhl Lilleøre, Global Head of Securities Services at Danske Bank:
We had customers complaining about deferred coupon payments, and we didn’t succeed in solving this problem with our former provider. This is especially troublesome when investors are asset managers, since their liquidity is squeezed as a consequence of delayed payments. Now, we have resolved the entire issue by moving to VP for selected currencies, and we get the benefit of one single harmonised process for structured products.
says Morten Lilleøre.
No more customer complaints
“The key advantage for Danske Bank is that we no longer get any customer complaints. The business case is strong and also simple, due to a smooth operational process. Previously, issuance was handled by up to five departments at Danske Bank, while now it has been boiled down to two departments, giving a shorter time to market and a more automated and transparent process,” he explains.
Overall, Danske Bank is looking to streamline and simplify its operational processes, and cross-border issuance is a good example of this. Looking at the bigger picture, the cost of issuance is reduced. The reduction is achieved because VP and other Nordic CSDs have a somewhat different pricing model, splitting the cost between issuer and investor, and with VP all prices are fully transparent.
Simplicity in the process
When working with an iCSD, Danske Bank previously had the complete value chain involved in the process. Now, this process has been simplified and only involves two departments along the value chain.
“Our hypothesis was that we could handle the issuance of structured products in the VP flow with little manual intervention, which is also how it turned out. The volumes and the level of automation with VP, as well as the close integration between CSD and bank, are the key to these operational benefits,” says Morten Lilleøre.
One example of the handling benefits is the interest rate fixing. This is automated at VP, while it is semi-manual at other CSDs. The benefits of centralized issuance will increase over time, with introducing a higher number of products, more diverse and complex products, and more instruments with quarterly resetting of interest rates.
Real time issuance
“It’s important to have VP’s commitment to developing and supporting cross-border issuance through technology enhancements,” says Morten Lilleøre. “Including other instruments in the same flow would only increase the operational gains on our side. In theory, going from four operational set-ups with four different CSDs to one set-up with one CSD would reduce operations by 75 per cent. This would definitely support our long-term need to simplify post-trade operations.”
The issuance process at VP is already streamlined and one aspect is a reduction of the time spent from a number of days to a matter of hours. Danske Bank wants to automate even more and have the systems talking directly to VP, explains Morten Lilleøre:
”Our aim is to create seamless integration from our systems into VP Securities by using API technologies, thereby creating close to real-time issuance of structured bonds.”
The key aspect for Danske Bank is the ability to meet customer demands, and there is a clear trend for issuance to become significantly more tailored to customer needs. Issued amounts are declining, and the number of transactions is increasing. Rapid issuance and more automated processes support Danske Bank in this market, and cross-border issuance fits into this picture, since it makes it possible to use one Nordic CSD and to have the same process for issuance in DKK, EUR, SEK and, hopefully, also NOK in the future.
“This view goes hand in hand with our vision on full automated issuance and due to great input from our customers we have already taken the first steps in this direction – and more will come”.
Bjørn Crepaz, Head of Issuer Products at VP Securities comments
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