Why did Deutsche Boerse decide to integrate the businesses of Eurex, Eurex Clearing, the International Securities Exchange and Clearstream?
We are known for providing collateral management services, running a large clearing house and having a very liquid trading platform. So we decided that we needed to bring all of this together, along with GC pooling, our securities lending solution and all our other services. This allows us to develop functionalities for our clients with a focus on supporting the buy-side.
Why now?
The onslaught of regulation is just beginning to affect the banks as factors such as the leverage ratio and the impact of the net stable funding ratio come into play. They are all designed to make the banking system safer but at the same time they downsize balance sheets. In the past, banks were able to do all the repo and securities lending transactions they wanted. Now they simply can’t act as freely anymore because they are facing balance sheet constraints. The regulations have all been developed so that capital costs are reduced if the transaction is done with a central counterparty (CCP) which brings a certain advantage for our business. For those transactions that are not cleared by a CCP we offer collateral management solutions. Clients now come to us and ask for solutions that allow them to keep their current relationships by being able to move their transactions to the CCP and at the same time getting the transaction off their balance sheet. We haven’t seen this in the past.
How do you see T2S changing the European market?
Without question, T2S is one of the longest and most complex projects in the history of securities servicing. The project dates back to 2006 so it is rather drawn out. Deutsche Boerse has always been supportive as we believe T2S is the right solution for Europe even though one of T2S’s initial objectives, to reduce the cost of cross-border settlement, will be more difficult to achieve than originally thought. From a harmonisation point of view T2S is the right move. I was
pleased and rather surprised at how the industry has come together in support of the project.
How have the delays of T2S affected Deutsche Boerse?
Initially we were planning on a September 2016 launch date. Then we heard that some participants would not be ready for their migration date which was shocking as we’d spent so much time and resources on our T2S project in order to be able to meet the migration schedule. And we were ready to migrate in September. Now everybody will face extra costs due to the delay, but our approach is still the same.
What do your blockchain investments currently look like?
When about a year and a half ago I kept seeing headlines about fraudulent Bitcoin developments I didn’t think anybody would want to take it any further. But then very smart guys from our technology department approached the board of Deutsche Boerse and started to explain the value blockchain technology can create for our business. They were convincing and we thought maybe there was something to it but frankly we were still slightly nervous about it. However in the past year, I’ve learned that the idea of one ledger makes sense. Before, a dispersed ledger would lead to other clients having their own ledger which leads to us doing transactions together which leads to a bridge. Ultimately it becomes much more convenient if there is only one ledger. We are interested in exploring the technology, this is one the reasons why we recently invested in Blythe Master’s company Digital Assets.
Will this become a standard for the industry?
It is important to understand that we are talking about a technology that supports our business but not about a new business. Blockchain technology requires universal acceptance as there are a lot of people in the chain including the central securities depository, the stock exchange and the bank. This could lead to a fair amount of inertia.
Why now?
The onslaught of regulation is just beginning to affect the banks as factors such as the leverage ratio and the impact of the net stable funding ratio come into play. They are all designed to make the banking system safer but at the same time they downsize balance sheets. In the past, banks were able to do all the repo and securities lending transactions they wanted. Now they simply can’t act as freely anymore because they are facing balance sheet constraints. The regulations have all been developed so that capital costs are reduced if the transaction is done with a central counterparty (CCP) which brings a certain advantage for our business. For those transactions that are not cleared by a CCP we offer collateral management solutions. Clients now come to us and ask for solutions that allow them to keep their current relationships by being able to move their transactions to the CCP and at the same time getting the transaction off their balance sheet. We haven’t seen this in the past.
How do you see T2S changing the European market?
Without question, T2S is one of the longest and most complex projects in the history of securities servicing. The project dates back to 2006 so it is rather drawn out. Deutsche Boerse has always been supportive as we believe T2S is the right solution for Europe even though one of T2S’s initial objectives, to reduce the cost of cross-border settlement, will be more difficult to achieve than originally thought. From a harmonisation point of view T2S is the right move. I was
pleased and rather surprised at how the industry has come together in support of the project.
How have the delays of T2S affected Deutsche Boerse?
Initially we were planning on a September 2016 launch date. Then we heard that some participants would not be ready for their migration date which was shocking as we’d spent so much time and resources on our T2S project in order to be able to meet the migration schedule. And we were ready to migrate in September. Now everybody will face extra costs due to the delay, but our approach is still the same.
What do your blockchain investments currently look like?
When about a year and a half ago I kept seeing headlines about fraudulent Bitcoin developments I didn’t think anybody would want to take it any further. But then very smart guys from our technology department approached the board of Deutsche Boerse and started to explain the value blockchain technology can create for our business. They were convincing and we thought maybe there was something to it but frankly we were still slightly nervous about it. However in the past year, I’ve learned that the idea of one ledger makes sense. Before, a dispersed ledger would lead to other clients having their own ledger which leads to us doing transactions together which leads to a bridge. Ultimately it becomes much more convenient if there is only one ledger. We are interested in exploring the technology, this is one the reasons why we recently invested in Blythe Master’s company Digital Assets.
Will this become a standard for the industry?
It is important to understand that we are talking about a technology that supports our business but not about a new business. Blockchain technology requires universal acceptance as there are a lot of people in the chain including the central securities depository, the stock exchange and the bank. This could lead to a fair amount of inertia.