CLEARSTREAM: WHY WE CHOSE LUXEMBOURG

Cedel was founded in 1970, exactly 50 years ago this year. A consortium of financial institutions was looking to ease the issuance and distribution of the nascent Eurobond market. Clearstream, as we are known today, has never been a bank that would issue or distribute these bonds, but instead provided the infrastructure to easily and securely settle the sale and purchase of Eurobonds for their clients. So, the exchange of cash against securities. Clearstream has grown from this initial vision into the financial institution it is today. One thing has never changed over the past 5 decades and that is our SWIFT code, it is still CEDELLULL.

Today Clearstream has three main activities. Starting with the settlement of Eurobonds and having subsequently diversified into other markets and securities such as equities, we built an International Central Securities that focuses on the settlement and custody of traded securities. Having these assets registered in our system, we then expanded our services into collateral management and securities lending. Today we see circa 500 billion euros of assets used by our clients overnight for collateralisation purposes. Similarly, our clients use their accounts with us to lend out securities.

Finally, about 20 years ago, we entered the fund share execution space, using our now well-known platform, Vestima. Today we estimate that around one third of fund transactions that go through the Luxembourg market do so through us. One point of note: our clients are banks and financial institutions; we are not a bank in the high street sense of the word.

The services that we provide make sense. Without these services, it would be much more complex for banks to operate with each other. We provide efficiency and security to the market. This being said, there is no complacency here. We continuously fine tune, enter new markets and innovate with new products and services while listening to our clients. These are the ingredients that have led us to where we are today.

The only constant is change. We need to deliver up-to-date services and products, backed by relevant technology. We look to work with our industry peers and clients in order to identify problems and find solutions to these issues. Clearstream already heavily invested in IT in the 70s and 80s. Our scale allows us to make the investments individual companies may find too costly and provide the support that market participants need. We have a huge machine room backing us up; we drive millions of transactions every hour so IT innovation is constantly needed. Innovation and technology have always been a focus of ours.

Germany is the largest European economy and the fourth largest economy in the world. Deutsche Börse Clearing was the largest domestic settlement house. Combining these two groups combined the largest European domestic market and the international market into one leading player. That was the rationale: a strong economy, growing financial markets and internationalisation. Today, Clearstream has clients in well over 110 countries.

The investment fund business is probably the most obvious driver. Deutsche Börse Group’s growth strategy has been focused specifically on one business of Clearstream’s and that is our Investment Fund Services. Being in Luxembourg, which is home to the largest fund market in Europe and the second largest worldwide, obviously helps.

Another big driver is the custody and settlement services that we provide across the globe. This has always been at the centre of our DNA and the environment in Europe for these services is undergoing significant change as a result of the Capital Markets Union project. Europe has always had a fragmented post-trade environment. We’re strong supporters of breaking down these boundaries to encourage the free flow of capital between member states and help our customers to benefit from this new environment.

And then we also foresee growth in accompanying changes in the technology stack, what is commonly referred to as Fintech. The way clients buy financial products and consequently the way financial products are sold, will change. The full chain behind the counter of the banks is changing because of Fintech; by technologies such as distributed ledger technology (DLT), also referred to as blockchain, and crypto currencies. That is why we invest a lot in technology. We work for example closely with the Luxembourg House of Financial Technology (LHoFT).

Together with our partner HQLAx, a Fintech company based in the LHoFT, we successfully launched our jointly developed DLT solution for frictionless collateral swaps on the securities lending market. Market participants have to make sure that their liquid assets are in the right place at the right time. The DLT model helps them optimise their collateral management. Unlike conventional settlement, tokens instead of securities are transferred between the custody accounts on our new platform. This model offers them more efficient liquidity management, thanks to the increased mobility of collateral between different systems and locations. It complements our offering in collateral management and securities lending by connecting the new and the established world.

Luxembourg is very international and home to the global fund industry. The financial market is an important component in the Luxembourg economy. Its ecosystem is very cohesive; authorities, financial institutions and legislators work closely together. They are all pioneers in the modern regulatory framework. The regulators here are enablers as opposed to preventors. The Grand Duchy, for example, was one of the first countries to issue regulatory requirements for the use of DTL. Then there is the multicultural workforce which eases the way we appear to the outside world as being international and very multilingual. We are very happy to be a part of the Luxembourg financial ecosystem.

As the investment fund business is a globalised one, we want to offer our clients seamless access to funds from all over the world. We want to support our clients with a one-stop customer experience where they don’t have to open multiple accounts, they can use one single account. That is why we have expanded in terms of service offering, fund distribution services and geographical presence.

We are very well-positioned when it comes to fund execution in plain vanilla funds. The Citco acquisition gave us a broader offering adding capabilities around alternative investment funds and hedge funds. With the acquisition of Swisscanto Funds Centre we extended our service even further. Geographically we expanded through the acquisition of Ausmaq, where Clearstream became a large player in a very important market, the Australian market, which is known for its gigantic superannuation funds. Most recently, we acquired Fondcenter from UBS. We have been very well supported and accepted by the local market.

I believe that diversity makes you stronger and enriches you. Working in a multicultural environment teaches you to be prepared to look at things from different perspectives. One becomes more aware of other people’s behaviour and becomes more open to different views on the same topic. Culture influences one’s view on a given situation and may induce a positive or a negative perception of that situation.

Luxembourg is the perfect place to experience this and grow from it personally and professionally. Living and working in an international environment has made me a more holistic person.

I had seen more numbers than letters when I graduated as an engineer. Finance is numbers-driven, so it helps when you are not afraid of numbers. I think the art is taking your engineering background and adding emotional intelligence to the equation. If you find the right balance, you have a perfect mix to run a business like Clearstream. Afterall, we are not just a typical financial service company. We are a market infrastructure provider and an IT company. Our systems, products and services create trust in the markets. We invest heavily there, about 230 million euros per year into our business and 150 million euros in our IT. You better have a clear focus when you decide on such sums.

One of the things I truly enjoy about living here is the high quality of life. I’m a swimmer and I like to run at lunchtime to clear my head. I have two beautiful parks where I can jog just around the corner from my office and a well-equipped swimming pool at walking distance. I also like the varied architecture in Luxembourg. The new Bibliothèque Nationale for example is truly inspirational and public, open to everyone. The ecosystem here is very dynamic and cohesive; the authorities and market participants work closely together. Luxembourg is very welcoming to people and business. Unfortunately, we have probably run out of time for me even to touch on the great selection of food and restaurants we have. Believe me, they’re here.