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From trading floor into app store

07 Mar 2017

From trading floor into app storeBy Carsten Kengeter, CEO, Deutsche Börse AG

The looming Brexit is blowing the winds of change over Frankfurt as a financial centre. We all have to be prepared for a whole new world, in which the United Kingdom and the continent of Europe are no longer walking at the same pace. For Frankfurt, this change entails significant opportunities, of which most are closely connected to the role of Deutsche Börse Group. Hence, in the past few months I have been thinking constantly about what exactly a stock exchange is nowadays – and how to communicate that in the best way possible, since I have been holding intense discussions with representatives from various stakeholder groups about locational policies, competitiveness and – most of all – about the future.

During these discussions, I have noted that when people hear the term “stock exchange”, most of them still think of a loud and hectic trading floor, on which brokers agree upon transactions directly. However, the company I head is a very different one indeed. Nowadays, stock exchanges are advanced technology companies, whose aim is to develop stable, secure and transparent markets – not only for actual trading, but also for post-trading services, data business and regulatory services.

In many other industries, such as telecommunications, the change is tangible for everyone – whereas it has gone largely unnoticed where exchanges are concerned. The public is well aware of developments in the telecommunications industry I just mentioned – and how landline telephones with rotating disks came to be replaced by smartphones – but few people know about the technological changes at Deutsche Börse, even though such progress in technology is essential for the markets to function.

Electronic order books ensure top price quality, efficiency, and transparency. In post-trading, real-time risk management and sophisticated collateral management ensure that all business partners are protected from loss through malfunction at all times. In cases of emergency, Deutsche Börse steps into action and makes sure that any defaults of individual participants don’t negatively affect the system as a whole. The better the quality of our technology, the more we can support the regulatory agenda and the better we can serve our client and the real economy. And that is exactly what our task is all about.

Therefore, no day passes without new ideas coming to light at Deutsche Börse. Our guiding principle is the key word “Börse 4.0”. We develop digital processes and computer-based tools for the analysis of large data volumes and handling via mobile devices. This will not only change our DNA step by step, but also that of the entire financial sector.

Deutsche Börse is perfectly equipped to be an active part of this transformation, because it can shape changes. When, in the 1990s, the exchange landscape was characterised by disruption, we made use of the new opportunities for electronic trading and introduced a cross-border market access, open order books and market data in real time. Deutsche Börse was one of the pioneers in this field. And it is important to acknowledge that this is one of the reasons why we are so successful today.

Exchanges will undergo further fundamental changes in the next five years. Accordingly, we have set all signals to innovation. We took the first step more than a year ago, when we acquired the digital foreign exchange trading platform 360T. The integration of this German fintech success has advanced the innovative culture of Deutsche Börse Group.

Information from within and about the market has always been the financial community’s life vein – in today’s time of big and smart data, it is becoming ever more important. Our Data Lab provides clients with new analytical tools. More specifically, we are working on the precise forecast of transaction costs, or on offers based around artificial intelligence. Börse 4.0 is set to convert data into investment tools. The goal is to establish an offer that is as varied – and hopefully also as easy to use – as an app store.

However, developing Börse 4.0 presents us with major challenges which we cannot meet on our own. Thus, we count on intelligent partnerships, e.g. in the context of blockchain technology. Simply speaking, blockchain is a digital register for electronic transactions, allowing all participants to communicate directly with each other. Thanks to our stake in fintech company Digital Asset Holdings, we are capable of developing innovative and promising prototypes in the areas of clearing and collateral management which, from today’s perspective, cover all relevant steps within our value chain. Cooperation with an international group of central depositories enables the cross-border provision of securities as collateral. Regulatory authorities have been increasingly requesting this since the financial crisis, so as to minimise risks in the financial system. The pioneering blockchain prototype we already presented, together with Deutsche Bundesbank, also uses this innovation.

Partnerships in the area of cloud computing will also be beneficial; they will make large data volumes usable, and guarantee the security and resilience of our complex platforms. I am convinced that we are making very good progress.

However, despite all the improvements, we should not forget two things: firstly, the advantages of Börse 4.0 can only be achieved when accompanied by a high level of responsibility – for clients of Deutsche Börse, and for the German and European financial infrastructure. Transparency, stability and reliability are the principles which characterise us as an exchange organisation. Our products and services should be easy to understand, have a low level of complexity, and feature risks that are transparent, not concealed. This is the only way we can create security and a level playing field for everyone. Cooperation is also an essential pillar of stability: at present, a constructive relationship with politicians and regulators is more important than ever, considering the transitional phase we are going through. Thus, we take local, national and public interests very seriously.

Convenience translation of the German article; first published on Börsen-Zeitung, special supplement “Financial centre Frankfurt”, 7 March 2017

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