Deutsche Boerse’s plans go well beyond clearing, IT and trading. Here’s a look at the exchange, following a 2-day informational meeting with members of the Deutsche Boerse team in Frankfurt last week.
Deutsche Boerse, and its subsidiaries Eurex, Clearstream and Eurex Clearing and its market data and services division (which together represent 93 percent of its revenues) are looking for new and innovative ways to drive growth in the new global regulatory structure.
In other words, this isn’t just about trading volume anymore.
In Deutsche Boerse’s view, the recipe for success hinges largely on this – leveraging Clearstream and Eurex Clearing – to provide a global banking and custodial services to customers. And one thinks “Gee, that sounds like a bank.” And you’d be correct. What makes Deutsche Boerse’s strategy interesting is that Clearstream and Eurex Clearing are technically and officially registered banks, and are looking to act like banks that also offer clearing or settlement services. The obvious reason is that Clearstream alone represents 34 percent of the exchange’s revenues and holds more than €12.1 trillion in assets. It’s a strong facility that is looking to expand further as a collateral management unit for all kinds of purposes.
For one, Clearstream wants to become the middleman between buy-side and sell-side firms, whereby buy-side firms can put up collateral with Clearstream apart from the sell-side firm. That protects the buy-side from any major collapse or bankruptcy.
And given the onslaught of new regulations and collateral requirements for banks and their customers, capital efficiency is king. Clearstream is offering collateral services not just on Deutsche Boerse products, but on those traded elsewhere such as SGX in Singapore. The goal goes well beyond that. ClearStream is planning what it calls a worldwide “Liquidity Alliance” which tentatively includes LCH Clearnet, CME Group, ICE, DGCX, CETIP, ASX and Federal Reserve Bank among others.
More simply put, Deutsche Boerse and other clearinghouses are building the infrastructure that can shift cash, securities and other instruments around the globe as needed. Along side of that, Clearstream can also provide other services such as securities lending, bi-party and tri-party services to cover exposures across many asset classes, in multiple currencies and multiple time zones.
If such a network can be accomplished, it will be a major boost to Deutsche Boerse’s long-term goal of growing net revenues by 20- to 40 percent from 2013 to 2017. The exchange is also looking to leverage its MD + S, or market data and services division, with new big data offerings and technology for member firms and new exchanges.
There are other moving parts to Deutsche Boerse’s grand plan and it will be interesting to see how its next CEO, Carsten Kengeter will be able to navigate this plan starting next June, after Reto Francioni steps down.
But in the meantime, this exchange is looking well beyond its traditional services and traditional borders for opportunity.