Dr. Reto Francioni: Anchor of stability for the financial and regulatory centre of Frankfurt am Main

The financial crisis, which started in 2008, and the ensuing sovereign debt turbulence in both the EU and the US have fundamentally changed the world of capital markets. Advances in techno­l­ogy and an increasing focus on regula­tion have led to a series of shifts in the world’s financial centres, one being an increasing concentration on a few major players. In the wake of these developments, Frankfurt has made some good progress, strengthening its position as a financial stronghold, as a “good place” for private and professional investors, and as one of the core bases for the financial industry, especially in terms of services aimed at improving market stability and risk-management.

Throughout, in line with its roots in the city and its long-standing commitment to Frankfurt as an international hub, Deutsche Börse has acted as an anchor of stability, bolstering Frankfurt as a major financial centre by continually not only adapting to the changing needs of the markets, but also shaping relevant landscapes while supporting the backbone of European stability, that is a successful German real economy – both in Europe and beyond. The commitment to stability has influenced Deut­­sche Börse’s development throughout its history, and thus contributed to se­­­curing Frankfurt’s position in the global network. In fact, the various developments in Deutsche Börse’s own structure down through recent decades re­­flect the com­pany’s evolution as it has led ex­­­change technologies into new spheres and helped shape the global market as we know it today. A key feature of this transformation has been the advance of electronic trading first in derivatives and next in securities, along with electronic clearing, settlement, custody and collateral management, as well as market data generation and distribution.

In light of the ever shorter cycles of calm between crises of late, this is not a time to rest on one’s laurels. This is illustrated by the dramatic changes to the role of the world’s financial centres over the past years driven by advancements in technology, but also in res­ponse to crisis by ever louder calls for a return to stronger regulatory regimes. No longer defined by their spatial limits, it is these centres’ position in a virtual, global network that decides whether they will steer a successful course. How­ever, the key to success here has in Deutsche Börse’s opinion always been globalisation combined with a firm commitment to one’s regional and national roots: while it has responded with a strategy of consistent internationalisation, expanding its own reach to feature offices in 22 locations in 16 countries worldwide, it has likewise championed bringing investors and companies wanting to go public to Frankfurt from every corner of the world, transforming the city into a global hub.

After all, it is now clearer than ever that it is no longer a scramble for the top spot that marks the relationship between fi­­­n­an­cial centres but rather a matter of es­­tab­lishing one’s position as a strong part­­ner for both traditional mega-financial centres and the up-and-coming such as Shang­hai, Singapore or São Paulo. All indicators suggest that future growth will not be in the Western hemisphere, but in Asia and Latin America. Deutsche Börse has there­fore consciously targeted especially Asia in extending its geo­graphical spread. Suc­cess on these markets will help shore up jobs back home and help maintain the company and the city’s position as a pace­maker of progress in the networked world.

Cube_26102011_-108his is a time to build bridges, not fen­c­es, and in its focal point on internationalisation Deutsche Börse has for some time al­ready given Frankfurt solid global foun­­dations in the form of Xetra, its Frank­furt-based cross-border securities trading system. At present, approximately 240 partici­pants are signed up to the system from 18 different countries, with Deutsche Börse guaranteeing them a transparent level playing field that consistently features new in­­no­­vative products. Our exchange-traded funds are a classic ex­­ample of the new financial instruments the participants lock into, be­­cause these products com­­bine the fungibility of an individual share with the diversification of an in­­vestment fund. In the derivatives busi­­ness Deutsche Börse has achieved similar results, es­­tab­lishing one of the world’s major and most trans­­parent futures exchanges – with some 430 participants the world over convening in Frankfurt.

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All of this is only possible thanks to the ultramodern computer centre in the city; the company’s IT section is now itself a major local employer and guarantees massive bandwidth for all players. An­­other natural consequence of these tech­­nological and political developments is the concentration of capital in a few key financial hubs, whereby Frankfurt has an additional advantage. When it comes to financing, Frankfurt offers an environment that is attractive to global corpora­tions and small and medium enterprises alike. Deutsche Börse has recognised this as an opportunity to further en­­hance Frankfurt’s position by catering to the needs of SMEs, and German SMEs, the “Mittelstand”, in particular, and appreciating their strength and im­­portance within the economic landscape, especially thanks to their resilience in times of crisis in comparison to big cor­­porates. As such Deutsche Börse works to foster their advancement by providing cost-effective options to secure equity via the stock market, structuring new and safe OTC trading options, opening doors for those companies that would have traditionally not ventured stock flotation. Serving the German financial sector and national economy alike, Deutsche Börse secures the bedrock upon which Frank­furt as a financial centre has been built.

As part of this strategy, Deutsche Börse sees its role in the proclamation of the integrity of the markets it operates. Insis­t­­ing on transparency as a top priority in each of its segments, Deutsche Börse is leading the way in establishing a culture of regulation and openness as a way of se­­­curing systematic stability. Deutsche Börse is driving the development of se­­cure, modern products, which are vital to en­­­sure that stability is secured for the fu­­ture. These include customer-oriented offer­­­ings in the areas of risk and li­­qui­d­­ity management, which have developed into one of our core areas in recent years and make a major contribution to the stability and indeed the efficiency of financial markets.

 

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This has been part of a consistent strategy of vertical diversification and back­ward integration. One key example is our General Collateral Pooling facility, which has been in great demand since the onset of the crises since it affords market participants a secure and anonymous procurement of liquidity and thus helps to ease market tension and efficiently administer securities used as collateral.

Deutsche Börse’s Eurex Clear­ing is equipped to handle all the clearing ac­­tivities for these trans­actions as the coun­­terpart to our Eurex Repo and Clear­stream subsidiaries. Such integrated service offerings will in turn allow Frank­­­furt to further strengthen its position as a global centre for risk management. And it comes as no surprise that Deut­sche Börse chose to locate Eurex Clearing in Frankfurt. After all, the city is likewise home to the European Central Bank, the European Systemic Risk Board, and the European Insurance and Occupational Pensions Authority, all three key institutions in the on-going regulation of the various areas of the financial world. To sum up: the Frankfurt region has be­­come a good place to be for Deutsche Börse AG – and there is good reason to say that the region vice versa profits from one of its few real global players to a remarkable extent. It seems a win-win-constel­lation is well under way.

 

RThe author was born in 1955 and is CEO of Deutsche Börse AG. He has been on the executive board since 1993 and served as deputy CEO since 1999. Be­­fore that, he held various executive po­­sitions in the financial sectors in Swit­z­erland and the USA. Furthermore, he holds a doctorate in law and is professor for Applied Research on Capital Markets at the University of Basel.