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 Boerse) 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.[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.

Deutsche Boerse has a market capitalization of $19 billion.[3]

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 — it’s rules and regulations were enacted in 1666.[4]

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 the IBIS system and allowed access to the exchange wherever one had a connection.[5]

Launch of Eurex

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.[6] Eurex was the fifth largest derivatives exchange by volume in 2016 according to the FIA's annual volume survey.[7]

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 inlcude Xetra and the trading floor of the Frankfurt Stock Exchange.[8]

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.[6]

First LSE Attempt

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.[9]

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.[10] 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.[9]

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.

LSE Take Two

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.[11]

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.[12]

Another Expansion Attempt

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.[13]

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.[14]

In February 2011, Deutsche Boerse announced that its subsidiary, Eurex Zuerich AG, would take a majority stake in EEX.[15] EEX is an energy exchange in Europe which was founded in 2002.[16]

Euronext Take Two

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.[17] The U.S. Department of Justice approved the merger in late 2011,[18] but the European Commission later blocked the deal, saying the merged company would have a near monopoly.[19] In December of 2012, the Intercontinental Exchange announced that it would acquire NYSE Euronext.[20]

In February of 2013 Deutsche Boerse struck a deal with Taiwan’s Taifex futures exchange under which Eurex would list Taiwanese stock index futures. [21]

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.[22]

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.[23] 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.[24]

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 are calling a merger of equals, Deutsche Boerse stockholders would get 54.4 percent of the enlarged group in an all-share agreement, and Chief Executive Officer Carsten Kengeter would run the new business. The board would be equally split between directors from LSE and Deutsche Boerse. [25]

Britains' vote to leave the EU ("Brexit") dealt a blow to the planned merger, as Felix Hufeld, the head of the BaFin regulator, said 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 in favor of the merger later that month. [26] [27]

However, yet again, the merger was derailed when in March 2017 European regulators formally quashed the deal.[28]

Company Structure

Deutsche Boerse has multiple business areas:

  • Xetra organizes the cash market.
  • Eurex organizes the derivatives market. It also includes:
European Energy Exchange for energy derivatives and CO2 certificates
Eurex bonds offers a platform for inter-dealer off-exchange trading in fixed income securities
Eurex repo for secured money market business, such as securities lending
  • Clearstream is responsible for post-trade processes in the cash and securities markets.
  • Market Data & Analytics calculates indices and distributes content related to Deutsche Boerse products.
  • Information Technology builds and operates trading platforms.

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 will each own 40% and China Financial Futures Exchange the remaining 20% of the venture.[29]

On January 18, 2017, Deutsche Boerse announced that it was teaming up with four members of the Liquidity Alliance (LA), an international group of central securities depositories, to launch a blockchain technology initiative targeting cross-border mobilization of security collateral. The distributed ledger technology-based "LA Ledger" prototype aims to enable a centralized and more efficient allocation of fragmented security positions to cover financial obligations of participants in multiple jurisdictions.[30]

Key People

  • Carsten Kengeter, chief executive officer
  • Andreas Preuss, deputy chief executive officer, responsible for IT & Operations, Data & New Asset Classes
  • Gregor Pottmeyer, chief financial officer
  • Ashwin Kumar, global head of product development
  • Hauke Stars, member of executive board, responsible for Cash Market, Pre-IPO & Growth Financing
  • Jeffrey Tessler, member of executive board, responsible for Clients, Products & Core Markets

References

  1. Working at Deutsche Boerse Group. Deutsche Boerse Group.
  2. Deutsche Boerse Company Business Areas. Deutsche Boerse Group.
  3. Deutsche Boerse Market Cap. YCharts.
  4. History of the Frankfurt Stock Exchange. Deutsche Boerse.
  5. Deutsche Boerse Company History 1990 to 1999. Deutsche Boerse.
  6. 6.0 6.1 435 Year Anniversary Booklet. Deutsche Boerse.
  7. 2016 Annual Volume Survey. FIA.
  8. Eurex Milestones. Eurex.
  9. 9.0 9.1 UK-German market deal off. CNN Money.
  10. LSE faces hostile $1.2B bid. CNN Money.
  11. D Boerse ditches LSE bid plans. BBC.
  12. Deutsche Borse Company Profile. Referenceforbusiness.com.
  13. "Deutsche Borse Ends its Quest for Euronext". The New York Times.
  14. Deutsche Borse Taps Cinnober New Market Surveillance Technology. Cinnober.
  15. Deutsche Boerse unit buys majority in EEX. Reuters.
  16. About EEX AG. EEX.
  17. Analysis: Boerse/NYSE deal markets global endgame. Reuters.
  18. German financial authority approves Deutsche Boerse / NYSE merger. FuturesMag.com.
  19. Mergers: Commission blocks proposed merger between Deutsche Boerse and NYSE Euronext. European Commission.
  20. Intercontinental Exchange to Acquire NYSE Euronext For $33.12 Per Share in Stock and Cash, Creating Premier Global Market Operator. Intercontinental Exchange, Inc..
  21. Deutsche Borse plans derivatives clearing house in Asia. The Financial Times.
  22. Press Release: Deutsche Boerse supports market innovation by acquiring a stake in GMEX Group. GMEX Group.
  23. Realignment of Executive Board responsibilities. Deutsche Borse.
  24. press release. Finextra.
  25. London Stock Exchange, Deutsche Boerse Agree on Merger. Bloomberg.
  26. London Stock Exchange wins shareholder support for Deutsche Boerse deal. The Telegraph.
  27. Deutsche Boerse gets shareholder approval for LSE deal. Reuters.
  28. EU vetos Deutsche Boerse-London Stock Exchange merger deal. Reuters.
  29. Deutsche Boerse Starts Yuan Market With Chinese Exchanges. Bloomberg.
  30. Deutsche Boerse launches joint blockchain collateral project. The Trade.