Deutsche Brse-NYSE Euronext Merger Off, Deutsche Brse to Focus on Growth in Post-trade Collateral Management and Derivatives
Deutsche Brse said it will focus on growth in the areas of derivatives, post-trade collateral management and market data & analytics, in response to the European Commissions (EC) decision to prohibit the merger of the group with NYSE Euronext. Based on its definition of the market for derivatives trading, the EC considers the merger to be inadmissible under competition law.
Deutsche Brse said it regards the decision as wrong and is disappointed by it. This is a black day for Europe and for its future competitiveness on global financial markets, it said. Deutsche Brse said the decision is based on an unrealistically narrow definition of the market that does no justice to the global nature of competition in the market for derivatives. The over-the counter (OTC) derivatives market, the major part of the market as a whole, is completely precluded, it added.
Deutsche Brse it said it is well equipped and strong enough to grow further and be successful even without the merger.
In collateral management especially, Clearstream will continue to step up its activities and to support clients into the future with services that provide them with access to liquidity, said Deutsche Brse. Thanks to its global lineup with nine locations in Europe, Asia and North America as well as access to 52 domestic markets globally, Clearstream is outstandingly well positioned to go on supplementing its global liquidity pool and forging further strategic alliances. Clearstream also plans to further increase its proportion of earnings in Asia, where it currently generates 20% of earnings.
Deutsche Brse said its derivatives group Eurex will continue its growth strategy both for products and geographical expansion. Eurex will systematically expand business activities notably in the Asia-Pacific region, it added.
Market Data & Analytics (MD&A), which generates strong growth through its capacity and strategic acquisitions, will focus on new customer groups in North America, Latin America and Asia regions alongside institutional investors and trading firms not previously served on a direct basis, said Deutsche Brse.
Speaking at the Clearstream Global Securities Finance Summit, weeks before the ECs decision, Reto Francioni emphasized the role of the post trade sector in improving market safety and good risk management. Electronic administration and custody means that the risks associated with the physical storage and transport of securities are much reduced. These assets also serve as collateral which banks can use to draw liquidity from other market participants or from central banks. Such contributions are clear signs that the post-trade sector increasingly sets the pace for the exchange industry as a whole.
He added that collateral management is an area offering huge growth potential: Efficient collateral management can free up liquidity for banks, and thus enable them to meet these new regulatory requirements with greater ease, while at the same time use the liquidity for other purposes where it is perhaps needed even more urgently. We are talking about enormous amounts of money here: Accenture estimates the total value of cash and securities used as collateral in the financial system globally to be more than 12 trillion Euros.
Francioni emphasized the potential of collateral management outsourcing through a new concept of partnerships between Clearstream and a growing number of global infrastructure providers (Brazilian fixed income CSD Cetip, the Australian Stock Exchange and more recently South African CSD Strate) , saying that the partnerships lead to substantial benefits for their mutual customer base.
Francioni also talked about a new collateral management concept designed by Clearstream, Eurex Repo and Eurex Clearing that will enable banks to respond to growing demands coming from non-bank institutions such as insurance companies. He said the GC Pooling product would respond to the ever-growing number of regulatory changes and dedicated market requirements. The enhancement to the GC Pooling product allows insurers to offer collateral to banks on a non-anonymous basis, but via CCP, enabling these insurers to meet Solvency II requirements. At the GSF Summit, Eurex Repo announced its plans to launch the new service this year, but did not specify a date.
(JDC)