Global Custody Pro - 27 August 2025

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Welcome to Global Custody Pro, read by custody professionals like you. I'm Brennan McDonald, Managing Editor. I write about the global custody industry, having spent over 12 years in financial services, including working at a global custody bank. An AI voice reads the audio version of this newsletter. Have feedback? Just reply to this email or connect with us on LinkedIn.

Table of Contents

• 🌏 Global Custody News

  • NZX H1 Earnings Rise 7.5%

  • Most Institutional Funds Underperform Market Bench …

• 🚀 Digital Asset News

  • Financial groups seek Basel crypto pause

  • State Street First on JPM Blockchain Platform

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🌏 Global Custody News

NZX H1 Earnings Rise 7.5%

NZX Limited posted first-half operating earnings of $25.1 million, up 7.5% from the prior year, despite macroeconomic headwinds that management estimates cost the exchange operator around $1 million in revenue. Revenue rose 6% to $61.7 million while expenses increased 5% to $36.7 million, improving the operating margin to 40.6%. The company declared a fully imputed interim dividend of $0.03 per share.

The results reflected divergent performance across NZX's three core divisions. Smart funds under management reached $14 billion, despite April market volatility, while Wealth Technologies grew its annual recurring revenue to $13.9 million, with 35 clients now on the platform. Capital markets faced challenges from delayed debt issuance and the loss of Fonterra's contractual revenue following its transition to the main board, although dairy derivatives volumes rose by 20%.

Management maintained full-year operating earnings guidance of $49-54 million, indicating the company is tracking toward the middle of the range. CFO Graham Law highlighted that future cash flows would grow faster than earnings as the Wealth Technologies amortisation bubble peaks and corporate capital expenditure moderates from recent levels. The NZX 20 index futures relaunch remains on track for early 2026.

Most Institutional Funds Underperform Market Benchmarks

S&P Dow Jones Indices released its SPIVA Institutional Scorecard, which reveals widespread underperformance among institutional investment accounts, with at least 80% of equity funds failing to outperform their benchmarks over a 10-year period after fees. The report examined institutional accounts, separately managed accounts (SMAs), and mutual funds to assess manager skill without fee distortions.

Small-cap managers emerged as relative bright spots in 2024, particularly within the SMA/wrap account space, where only 19% underperformed their benchmarks. However, large-cap U.S. equity managers struggled, with 69% of institutional accounts and 67% of wrap accounts underperforming the S&P 500 on a gross-of-fees basis, compared to 65% for mutual funds.

Over longer time horizons, the underperformance rates increased across most categories, though mid- and small-cap wrap accounts showed better relative performance than mutual funds. The 10-year data revealed that 57% of small-cap wrap accounts underperformed, compared to 62% for institutional accounts and 82% for mutual funds in the same category.

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🚀 Digital Asset News

Financial groups seek Basel crypto pause

Leading financial industry associations including Global Financial Markets Association, Bank Policy Institute, and International Swaps and Derivatives Association have requested the Basel Committee on Banking Supervision temporarily pause implementation of its Cryptoasset Standard, citing fundamental changes in crypto markets since the framework's 2022 adoption. The associations produced a report showing expanded use cases for distributed ledger technology in capital markets, which they say invalidates key assumptions underlying current regulations.

The groups specifically challenge the binary distinction between permissioned and permissionless ledgers for Group 1 cryptoassets, arguing that this creates disproportionate capital charges for identical economic positions. According to the associations, tokenised U.S. Treasuries on public blockchains would face a 1,250% risk weight despite having similar risk profiles to conventional Treasury holdings. Current rules also impose strict exposure limits where banks exceeding 2% of Tier 1 capital in Group 2 cryptoassets face punitive capital treatment.

The associations recommend eliminating the permissioned/permissionless distinction, allowing banks to use internal risk models for crypto exposures, and recognising regulated stablecoins' unique risk profiles. They argue the framework should align with technology-neutral principles, warning that overly punitive requirements could push crypto activity entirely outside the regulated banking sector while deterring institutional participation in increasingly liquid crypto markets.

State Street First on JPM Blockchain Platform

State Street announced that it has become the first third-party custodian to launch on J.P. Morgan's Digital Debt Service, enabling blockchain-based custody of debt securities for institutional clients. The milestone was marked by a $100 million commercial paper transaction, with State Street Investment Management serving as the anchor investor in debt issued by Oversea-Chinese Banking Corporation, and J.P. Morgan Securities LLC acting as the placement agent.

The integration allows State Street to offer clients custody services for debt securities issued, settled and serviced using blockchain technology, with the depository record maintained in a digital wallet through J.P. Morgan's platform. According to Donna Milrod, Chief Product Officer at State Street, the launch represents "a meaningful step forward in our digital strategy", enabling the company to manage digital wallets on-chain while laying groundwork for blockchain network interoperability.

The service, currently available only in the U.S., features precision-timed settlement with T+0 options, streamlined lifecycle management through smart contracts, and maintains established servicing models without requiring changes to client workflows. Emma Lovett, Credit Lead for the Markets Digital Assets Team at J.P. Morgan, said the partnership "demonstrates another meaningful step forward in the institutional adoption of blockchain-based debt securities."

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