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25 years of Deutsche Börse AG – shining the spotlight on a unique company

11 Dec 2017

25 years of Deutsche Börse AG – shining the spotlight on a unique companyDr Jörg Franke

Werner G. Seifert, former CEO of Deutsche Börse AG, is not only the subject of a number of noteworthy anecdotes; some of his own bon mots have become firmly embedded in the urban myths of the financial centre Frankfurt. He once compared his own management style to jazz players improvising together – an obvious analogy for the passionate Hammond organist.

Just another company?

The most characteristic image conjured up by Seifert, which was emblematic for the casual and in some respects wild nineties, was his likening of Deutsche Börse to a biscuit factory. It was a striking illustration of a somewhat more lacklustre verdict popular at the time: that it was “just another company”.

The assessment that Deutsche Börse was just another company was perfectly in line with the zeitgeist, not only from a communications perspective. It marked the starting point of a process – driven by, amongst others, Rolf Breuer, Chairman of the Supervisory Board at the time – which completely transformed German stock exchanges as well as the financial centre Frankfurt and the entire German business landscape. Technically speaking, it was the process of “demutualisation”, i.e. the gradual repeal of the traditional, quasi-cooperative structure, in which owners and market participants were identical.

The time was right for the transition due to the introduction of electronic trading. Holding on to outdated, albeit comfortable and familiar structures would have prevented the necessary change for reasons of self-interest. Therefore, it was probably helpful to start putting the exchange’s special status into perspective, despite the public tasks it was – and still is – obligated to fulfil.

Technology upgrade, organisational integration

The founding of Deutsche Börse AG was followed up by a rapid technology upgrade and the consolidation of the various puzzle pieces scattered across Germany that had made up exchange trading. The late 1990s saw the swift development of an integrated and increasingly internationalised corporation, uniting securities and derivatives trading as well as data business, settlement and custody under one roof. Among the most important milestones was the merger of Deutsche Terminbörse with its Swiss equivalent to create Eurex, and the integration of the new derivatives exchange into Deutsche Börse Group. Its superior technological set-up, alongside exponentially rising liquidity, allowed Frankfurt to overtake London in futures trading on German government bonds, a segment previously dominated by the UK capital. Eurex, in turn, became the derivatives exchange with the most turnover worldwide – within a mere nine years after its creation.

The IPO of exchange operator Deutsche Börse AG in 2001, which was the logical consequence of the AG’s foundation, completed the demutualisation. The old shareholders made a return on their investments and Deutsche Börse entered international terrain, in terms of both clients and shareholders.

Taking these bold and even visionary steps, the company’s management attracted investors with an agenda of their own – they intended to break up the Group into its individual parts. This was due in part to the company’s brimming coffers but also to an attempted takeover of the London Stock Exchange, which failed due to the resistance of “active investors”.

Re-stabilisation despite the financial crisis

The ups and downs of the global capital markets had fully arrived in Frankfurt. However, they also called positive forces into action: new CEO Reto Francioni did not only prevent a break-up of the company – as demanded by the “active investors” among its shareholders. He also drove the vertical and horizontal integration of Deutsche Börse Group. Applying a steady hand and great tact, he steered the company through the financial crisis, which started in 2007 and entailed consequences that resound to this day. Under Francioni’s leadership, Deutsche Börse evolved from a mere integrated exchange organisation to a full-blown financial markets infrastructure provider.

One of his endeavours, however, remained unsuccessful: the planned transatlantic merger with NYSE failed – not due to resistance among the company’s shareholders, who supported the plans, but due to objections by the EU antitrust authority.

In the last years of his ten-year tenure, Francioni drove the expansion to Asia and successfully formed partnerships with China’s key capital markets institutions. He also initiated the full takeover of index provider STOXX.  

“Another company”: a class of its own!

Carsten Kengeter was appointed CEO of Deutsche Börse AG by Supervisory Board Chairman Joachim Faber, who believed Kengeter would be able to ready the company for ever swifter global change. Given that electronisation had evolved into digitisation, this was of utmost importance. Kengeter coined the term “Exchange 4.0” to descrive this transformation.

Kengeter successfully strengthened corporate culture in terms of innovation, speed, client focus and agility. Only few people doubted that a merger with LSE would have been beneficial for Europe. Unfortunately, his plans – like those of many fellow supporters of the European project – were stopped short, in part by the UK’s Brexit vote. In addition, there was a realisation that an exchange is not “just another company”. As Francioni put it in his recently published book, it is “another company” entirely – a class of its own.

The article was first published in the Börsenzeitung on 9 December 2017.

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