Deutsche Boerse Group

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Deutsche Boerse
DBoerse blue.gif
Headquarters Frankfurt/Rhein-Main, Germany
Key People Carsten Kengeter, CEO
Employees 5,176 (at end of 2016)[1]
Products Diverse range of trade-matching, clearing, and support services for equities, derivatives, and interest rate products
Twitter @DeutscheBoerse
LinkedIn Profile
Website http://deutsche-boerse.com
Releases Company News

Note on spelling: the German ö is equivalent to the English oe; both Börse and Boerse are correct.

Deutsche Boerse Group (German: Gruppe Deutsche Börse) is a multi-tiered exchange, technology, clearing and custody and index company which runs the Frankfurt Stock Exchange (German: Frankfurter Wertpapierbörse, FWB); Clearstream, the post-execution clearing and settlement house for multiple asset classes; the Eurex Exchange, a global derivatives exchange offering fixed income markets and international benchmarks; Eurex Clearing; and European Energy Exchange (EEX). It also owns STOXX, the index benchmark company.

Deutsche Boerse's product and services portfolio includes securities and derivatives trading, transaction settlement, clearing, market data information, and the development and operation of electronic trading systems. The company also has a venture capital business that invests in fintech companies, DB1 Ventures.[2]

Based in Frankfurt, the company has a presence in Luxembourg, Prague, London, Zurich, Moscow, New York, Chicago, Hong Kong, Singapore, Beijing and Tokyo, among other cities.

Of the $2.3 billion in revenue generated in fiscal year 2016, Eurex accounted for approximately 43.2 percent, Clearstream 32.7 percent, Market Data + Services 17.2 percent and Xetra 6.9 percent.[3]

Deutsche Boerse has a market capitalization of $19 billion.[4]

History

The Beginning

Deutsche Boerse AG was founded in December 1992 when it changed its name from Frankfurter Wertpapierbörse AG, but its origin story goes back considerably farther to the varying regional German exchanges, clearinghouses and technology providers which over time coalesced into the entity known as Deutsche Boerse. The oldest legacy belongs to the Frankfurt Stock Exchange — its rules and regulations were enacted in 1666.[5]

The 1992 name change was part of an ongoing effort to consolidate Germany's fragmented securities industry. Ten percent of the shares were distributed among the seven regional German stock exchanges outside of Frankfurt, but Frankfurt-based banks retained the bulk of the shares.

Deutsche Boerse in the ‘90s focused on organic growth and, much like its global counterparts, early electronification. In 1993, it instituted BOSS-CUBE, an electronic platform used to consolidate order routing, price determination and processing. Floor trading received electronic support in 1993 as well. In 1996, the company got a website. In 1997, the fully electronic trading system for cash markets, Xetra, was launched. Xetra replaced IBIS, a screen-based interbank system.[6]

In 1998, Deutsche Boerse entered a joint venture with Dow Jones and SIX Swiss Exchange to form STOXX, an index provider. The move was made in anticipation of the creation of the eurozone.[7]

Launch of Eurex & Clearstream

Also in 1998, Deutsche Boerse, in collaboration with SIX Swiss Exchange, launched Eurex by merging the Swiss derivatives exchange Soffex and the German DTB futures market.[8] Eurex was the fifth largest derivatives exchange by volume in 2016 according to the FIA's annual volume survey.[9]

The launch of Eurex corresponded with the launch of Eurex Clearing, a central counterparty for all Eurex transactions. In March 2003, Eurex Clearing expanded its services to include Xetra and the trading floor of the Frankfurt Stock Exchange.[10]

In 2000 Deutsche Boerse Clearing merged with Cedel International, forming Clearstream, a provider of of settlement and post-trade services for shares and bonds in domestic and international markets. Initially, Deutsche Boerse was a 50 percent stakeholder - it would acquire the remaining shares in 2002 upon which Clearstream was folded into Deutsche Boerse Group.[8] Clearstream services services domestic and international markets with 2,500 customers in 110 countries.

LSE Courtship

In May of 2000, the London Stock Exchange and Deutsche Boerse announced plans to create a European super-exchange called iX. At the time, iX would have been the third largest exchange in the world.[11]

The deal had issues from the start. The LSE's shareholders (approval of the deal required 75 percent to be on board) were skeptical and small brokerages were afraid they would be disadvantaged by a tie-up of that size.[12] Frankfurt was leery of London usurping control. There was uncertainty over regulatory oversight. Also, a leaked internal report from Merrill Lynch analyzing the proposed deal suggested it was "unworkable" and would take years for any benefits to come to fruition.[11]

Many of these issues would surface during the ensuing attempts to unite the exchanges.

In the wake of the failed bid, the exchange went public in February 2001, with a market capitalization of €4 billion.

In 2004, it attempted mergers with both the SWX Swiss Exchange and, once again, with the London Stock Exchange (LSE). Deutsche Boerse's takeover offer was for $2.5 billion. Deutsche Boerse withdrew its offer in March 2005.[13]

The second failed attempt to acquire the LSE led to the departure of the exchange's well-known Chief Executive Werner Seifert, and Chairman Rolf E. Breuer, after a previously little known hedge fund called The Children's Investment Fund (TCI) led a shareholder revolt in early 2005. Seifert resigned on May 9, 2005, and Breuer left a few months later. Seifert is credited with transforming the Frankfurt Exchange from a provincial market to a major player on the European stage.[14]

Euronext and Expansion

In November 2005 Reto Francioni was appointed CEO. One of his first acts was to suggest a “Merger of Equals” with pan-European exchange Euronext, whereupon a bidding war with the New York Stock Exchange (NYSE) ensued. Deutsche Boerse eventually withdrew its proposal, and NYSE acquired Euronext in 2006. Deutsche Boerse officials said at the time that the companies had too little in common to integrate and that the rise in Euronext’s share price compared to Deutsche Boerse's had made the acquisition too expensive.[15]

In in 2007, Deutsche Boerse expanded into the US equity options space with the $2.8 billion cash acquisition of the International Securities Exchange (ISE), which created one of the biggest trans-Atlantic derivatives markets. ISE fell under the Eurex Group umbrella and they worked jointly. Deutsche Boerse sold the business to Nasdaq for $1.1 billion in June of 2016.[16][17]

Deutsche Boerse and SIX bought out Dow Jones' stake in 2009 in STOXX for $306 million. Deutsche Boerse acquired the remaining stake in STOXX from SIX in July 2015 for $679 million, granting the company full ownership.[18] The deal also included Indexium, the platform underpinning STOXX indices.[19]

In July 2010, a company document said the exchange parent would target fund management firms, pension funds and insurers as new clients and would offer these customers direct services rather than through banks.

On Jan. 25, 2011, Scila Surveillance, a multi-asset solution marketed by Cinnober, was selected for Deutsche Boerse Group's two largest exchanges; Eurex and Xetra.[20]

In February 2011, Deutsche Boerse announced that its subsidiary, Eurex Zuerich AG, would take a majority stake in EEX.[21] EEX is an energy exchange in Europe which was founded in 2002.[22]

In early February 2011, reports surfaced that Deutsche Boerse and NYSE Euronext were in "advanced talks" to merge. Such a merger would have created the world's largest stock exchange operator.[23] The U.S. Department of Justice approved the merger in late 2011,[24] but the European Commission later blocked the deal, saying the merged company would have a near monopoly.[25] In December of 2012, the Intercontinental Exchange announced that it would acquire NYSE Euronext.[26]

In the wake of the failed merger, the group simplified it's board structure, doing away with a board seat for Xetra, and moving the cash equities business into the oversight of Andreas Preuss, then Deutsche Boerse's derivatives head. The move was reflective of the exchange group's derivatives success and the declining fortunes of its cash equities business which had been fragmented by the introduction of other electronic trading platforms.[27] In 2012, Xetra's trading volume as measured in euros notional was down 24 percent year-over-year, and in 2013 was down 1 percent year-over-year.[28] [29]In 2016, Xetra was responsible for less than 7 percent of Deutsche Boerse's net revenue, the least of its four business segments.[3]

In February of 2013 Deutsche Boerse struck a deal with Taiwan’s Taifex futures exchange under which Eurex would list Taiwanese stock index futures. [30]

On October 24, 2013, the company announced that it had purchased a minority stake in Global Markets Exchange Group International LLP, paying a single digit million GBP sum for the stake. GMEX Group is a London-based exchange business that has launched original interest rate swap futures contracts, derivatives indices and emerging markets exchange business partnerships enabled by multi-asset trading technology.[31]

Building New Technology

One of the biggest technology projects in the company's history was the development and rollout of a new trading system called T7. The new technology was designed to make Deutsche Boerse's markets among the fastest and most robust in the world, providing more capacity, lower latency and better functionality. When the new system was first rolled out at the end of 2012, it was 14 times faster than its predecessor.[32]

In 2013, its Eurex derivatives exchange migrated onto T7. Other subsidiaries followed including the European Energy Exchange and Eurex Bonds. Frankfurt Stock Exchange's Xetra moved onto T7 in July 2017. That was significant in the development of the exchange's core technology, as the securities and derivatives exchanges were now onto the same T7 platform. One system meant easier access to both markets for participants and that regulatory requirements and updates would be easier to implement. [33] [34]

The company also rebuilt is clearing architecture and launched its new C7 system in June 2014. The new clearing system replaced clearing platforms for derivatives and securities. The system was also designed to support clearing of listed OTC products and provide regulatory compliant models for participants. It also works in tandem with its Eurex Clearing Prisma product, designed to help customers with collateral efficiency issues.[35][36][37]

Changing of the Guard

Francioni, who led the exchange for 10 years and was on the executive board for 17, stepped down in May 2015. He was replaced by former UBS investment bank head Carsten Kengeter. Kengeter's experience in regions outside of Europe was cited by the company when it hired him after an extensive search for Francioni's replacement. He set upon a major management and structural change for the company. The strategy, called "Accelerate," was designed to change the Deutsche Boerse culture and increase growth across all of its divisions.[38]

On January 1, 2016, Deutsche Boerse reshuffled the structure of its executive board, culminating in the creation of a Clients, Products & Core Markets division, led by Jeffrey Tessler.[39] The new division combined derivatives trading businesses (including International Securities Exchange (ISE)), the clearing house, and Clearstream’s settlement and custody business. Clients, Products & Core Markets is also responsible for coordinating group-wide product development and global sales activities.[40] The restructuring also resulted in a new division called IT & Operations, Data & New Asset Classes" led by Andreas Preuss who had just stepped down as CEO of Eurex the prior year. [41]

On May 27, 2015, Deutsche Boerse agreed to a joint venture with the Shanghai Stock Exchange and the China Financial Futures Exchange to launch a Frankfurt-based exchange for investors outside China to trade yuan-denominated securities. The venture, called China Europe International Exchange, started offering cash instruments in the fourth quarter of 2015. Shanghai Stock Exchange and Deutsche Boerse each own 40 percent and China Financial Futures Exchange the remaining 20 percent of the venture.[42]

In July of 2015, Kengeter made his first deal as CEO, buying 360T, a German foreign exchange platform, for $796 million and beating out CME Group in the process. It was the exchange's biggest deal since the acquisition of ISE in 2007. Kengeters' second move was the aforementioned buy-out of SIX to give Deutsche Boerse full ownership of STOXX and Indexium. [43]

In October of 2017, Kengeter resigned from the company amid a continuing investigation into possible insider trading. The allegations involved shares Kengeter bought just months before Deutsche Boerse announced merger talks with the London Stock Exchange. He will stay on until there is a transition plan.[44]

Another LSE Merger Proposal

In March of 2016, after failed attempts to take over the London Stock Exchange in 2000 and 2005, Deutsche Boerse and LSE agreed to merge into what would be the world’s biggest exchange operator by revenue and second-largest by market cap. In what the two entities called a merger of equals, Deutsche Boerse stockholders would get 54.4 percent of the enlarged group in an all-share agreement, and Kengeter would run the new business. The board would be equally split between directors from LSE and Deutsche Boerse.

Britains' vote to leave the EU ("Brexit") dealt a major blow to the planned merger, with Felix Hufeld, the head of the BaFin regulator stating that London could not host the headquarters of the merged exchange nor could it remain a center for trading in euros.

In addition, an EU official said the European Central Bank would push for the clearing of euro transactions to move to the common currency area within two years. In spite of Brexit, LSE's shareholders voted in July 2016 to approve the merger; Deutsche Boerse's shareholders voted 89 percent in favor of the merger later that month. [45] [46]

However, the merger was derailed in March 2017 European regulators formally quashed the deal.[47]

Looking for Growth and Investment

Deutsche Boerse also has invested in a variety of businesses aimed at assisting firms through investments and technology innovation. The company has invested in everything from blockchain to Liquidity Alliance, an initiative established in 2013 aimed at helping institutions address collateral issues in a new regulatory framework that constrained capital.

Deutsche Boerse invested in Digital Asset Holdings, a blockchain fintech firm. It also created fintech venture capital funding through its DB1 Ventures in June 2016, focused on finding firms that are of strategic value to the parent company. It also was an early investor in 2015 with Markit in the fintech venture capital fund called Illuminate, aimed at early-stage start-ups. The company is also a supporter of FinTech Hub in Frankfurt, aimed at helping start-ups in Germany.[48][49][50][51]

It's pre-IPO network called Deutsche Boerse Venture Network helped raise more than €1 billion of financing and it also created a new listing segment for its equity markets called Scale, to help match investors with small to medium enterprises.[52]

In July 2017, the company invested $10 million for a minority stake in Trumid, a broker-dealer that provides an electronic trading network for corporate bonds. Deutsche Boerse previously invested $28 million in Trumid earlier in the year through its DB1 Ventures group.[53]

In September 2017, Deutsche Boerse announced it took a minority stake in Trifacta, a firm specializing in data wrangling, in a continued effort to boost growth after its failure to merge with LSE.[54][55]

Company Structure

Deutsche Boerse reports financial results in four segments:[3]

  • Xetra, the electronic trading platform which represents the cash markets (including the Frankfurt Stock Exchange).
  • Eurex, which represents the derivatives market. It includes:
European Energy Exchange for energy derivatives, commodities and CO2 certificates
Eurex Bonds offers a platform for inter-dealer off-exchange trading in fixed income securities
Eurex Repo offers secured money market business, such as securities lending
Eurex Clearing handles risk management both on- and off-exchange and is the largest central counterparty in Europe.[56]
  • Clearstream is responsible for post-trade processes in the cash and securities markets, such as securities financing, collateral management and settlement services.
  • Market Data + Services provides information and technology services to markets, including prices, indicators and data for the DAX and STOXX indices, real time analytics and assistance with regulation. More than 30 platforms and exchanges use Deutsche Boerse Group's technology.[56]

Deutsche Boerse Group also runs the Deutsche Boerse Photography Foundation. Deutsche Boerse started to collect modern photography in 1999 and in 2015 formed the non-profit to continue its efforts in exhibiting and promoting photography.[56]

Key People

References

  1. Working at Deutsche Boerse Group. Deutsche Boerse Group.
  2. Deutsche Boerse Company Business Areas. Deutsche Boerse Group.
  3. 3.0 3.1 3.2 Deutsche Boerse 2016 Annual Report Key Figures. Deutsche Boerse.
  4. Deutsche Boerse Market Cap. YCharts.
  5. History of the Frankfurt Stock Exchange. Deutsche Boerse.
  6. Deutsche Boerse Company History 1990 to 1999. Deutsche Boerse.
  7. Dow Jones Selling Its Stake in Stoxx Indices. Seeking Alpha.
  8. 8.0 8.1 435 Year Anniversary Booklet. Deutsche Boerse.
  9. 2016 Annual Volume Survey. FIA.
  10. Eurex Milestones. Eurex.
  11. 11.0 11.1 UK-German market deal off. CNN Money.
  12. LSE faces hostile $1.2B bid. CNN Money.
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  14. Deutsche Borse Company Profile. Referenceforbusiness.com.
  15. "Deutsche Borse Ends its Quest for Euronext". The New York Times.
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  17. Nasdaq Completes Acquisition of International Securities Exchange. Nasdaq.
  18. Deutsche Boerse buys full control of Stoxx and Indexium. Reuters.
  19. Deutsche Börse in talks to buy Stoxx stake in $697m deal. Financial Times.
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  21. Deutsche Boerse unit buys majority in EEX. Reuters.
  22. About EEX AG. EEX.
  23. Analysis: Boerse/NYSE deal markets global endgame. Reuters.
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  30. Deutsche Borse plans derivatives clearing house in Asia. The Financial Times.
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  40. press release. Finextra.
  41. Deutsche Boerse reshuffles Eurex leadership. The Trade.
  42. Deutsche Boerse Starts Yuan Market With Chinese Exchanges. Bloomberg.
  43. Deutsche Boerse buys forex trading platform 360T for $796 million. Reuters.
  44. Deutsche Boerse CEO to step down amid insider trading probe. Reuters.
  45. London Stock Exchange wins shareholder support for Deutsche Boerse deal. The Telegraph.
  46. Deutsche Boerse gets shareholder approval for LSE deal. Reuters.
  47. EU vetos Deutsche Boerse-London Stock Exchange merger deal. Reuters.
  48. Liquidity Alliance. Clearstream-Deutsche Boerse.
  49. DB1 Ventures. DB1 Ventures.
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  51. Illuminate Financial Management successfully launches fintech venture capital fund. DB1 Ventures.
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  53. Deutsche Börse announces strategic investment and partnership with Trumid. Press Release.
  54. Deutsche Börse Announces Strategic Investment In Trifacta. Mondovisione.
  55. Deutsche Boerse to Take Stake in Big Data Company Trifacta. Bloomberg.
  56. 56.0 56.1 56.2 Deutsche Boerse Group Business Areas. Deutsche Boerse.