Deutsche Bank has been expanding its footprint in the CEE region since going live with sub-custody services in Austria in April 2010. The bank has been actively engaging with regulators and securities depositories on T2S and the implementation of a new clearing procedure across the region and, while these initiatives take shape, it is leading in the provision of remote clearing services in those CEE markets where clearing via a clearing house has not yet been recognized.
The focus on the region follows a similar effort in Western Europe, where a string of acquisitions by Deutsche Bank in the last 20 years has made it an even bigger force in the region with considerable influence over market initiatives such as T2S. It was the magnitude of T2S that made the bank realize it had to be present in every market in Europe. That consequently led to a transition from Austrian sub-custody being run out of Germany to having a presence in Austria as part of the banks branch offering.
This presence was facilitated by the monumental poaching of the senior management team from Bank Austria (now UniCredit) in 2009, including the hires of Michael Aschauer as global head of sales and relationship management, David Penstone as director of sales for Austria and Central and Eastern Europe and Peter Peschek as head of product management.
We joined Deutsche Bank because they want to expand their T2S footprint to have experts on the ground in each market, Penstone says. He explained that this approach to having people on the ground gave Deutsche Bank contact with the local regulators and depositories and, to some degree, the people on the ground would be able consolidate the settlement process to a hub once T2S goes live. Well see when they finally deliver the end product, but thats motivation No. 1 – to expand our T2S footprint to include Austria, Penstone says.
Peschek, whose technology and infrastructure engagement background made him the architect of expanding Deutsche Banks T2S footprint in the CEE region, observed that Austria has become a bridge into Eastern Europe by way of leading the consolidation of the Vienna, Slovenian, Hungarian and Czech stock exchanges. We therefore needed to roll out the full product palette that Deutsche Bank is offering into the Austrian market, starting with a cash and custody business, clearing capabilities, agent lending and so on, he says.
In parallel, says Peschek, Deutsche Bank needed to be close to other Eastern Europe infrastructure initiatives, including the harmonization of the clearing business within the region under the so-called CCP.CEE platform. The platform, which was selected in June 2011, will see the London Stock Exchange providing clearing technology services via MillenniumIT for a new cross-market central counterparty (CCP) mechanism for CEE capital markets. The CCP.CEE platform will facilitate a standardized cross-regional clearing infrastructure for CEE markets, initially in Vienna, Prague, Ljubljana and Budapest. The project was kick-started by the Austrian clearing house at the beginning of this year and will be rolled out in the region over the next three years.
While there is no fixed timeline for the deliverability of the CCP platform across the CEE, it is expected to go live in Austria in the July next year, followed by the Czech Republic at the end of 2012 and Hungary and Slovenia at the end of 2013 or beginning of 2014, Peschek says.
While working with the stock exchanges and clearing houses on this new clearing procedure, Deutsche Bank will soon become the first bank in the Czech Republic, which currently does not have a clearing house, to offer remote clearing for remote members of the local exchange. Its remote clearing product will go live next month based on existing market infrastructure in order to meet immediate demand. Peschek, who has also been instrumental in driving this initiative from Deutsche Banks Czech office, says the bank launched this product knowing that the new CCP concept would take time to get into the Czech market.
If we were able to use Deutsche Bank technology to create a solution in the Czech republic, prior to the Vienna Stock exchange using the common new software, from MillenniumIT, then why not go for it, Peschek explains. With the Czech Republic until now having the stock exchange, clearing and settlement as a combined system, its quite likely that it [implementing a new clearing infrastructure] will take a bit longer than expected, he adds. Nonetheless, as soon as the CCP project will be launched in the market we will migrate our products into this new environment.
These initiatives have given Deutsche Bank a competitive edge, Penstone says. The fact that Peters here on the ground sitting on these user groups, sitting with the central depository on a daily basis, we’re able to build these solutions and grasp these problems before the markets do, with the remote clearing for the Czech market being an example, and were building it with them as they expand out their own harmonization project.
Peschek adds that Deutsche Banks work with the local stock exchanges and clearing houses in relation to the above initiatives enables these authorities to be more aware of what discussions are arising out of T2S meetings elsewhere in Europe to ensure all of these initiatives are working together.
He adds: We can combine two worlds being a market leader in the T2S environment on the one hand and having a center of excellence here for Eastern Europe on the other. We can translate between these two worlds because T2S is still somewhat the unknown beast in these countries. On the other hand, Eastern Europe is still quite unknown to a lot of Western European players, so we can bring these two worlds together.
In addition to its engagement in market infrastructure initiatives, Deutsche Bank is undergoing a conversion of its subsidiary in Hungary into a branch. Penstone says this will enable the bank to take advantage of EU directives such as passporting and will offer clients greater protection in the wake of increased regulatory capital requirements.
(JDC)