Deutsche Börse Group: Year in review

From a press release issued by Deutsche Börse...

The year 2011 was defined especially by the uncertainties surrounding the European sovereign debt crisis and the associated volatility in the financial markets. This led to greater hedging needs for market participants. In 2011, Deutsche Börse AG acted again as a guarantor of safety and stability for the financial markets, with a positive impact on the real economy. The Group will therefore continue its growth initiatives in the areas of risk management, clearing, sales and products in 2012.

The Eurex, ISE and Xetra exchanges operated by Deutsche Börse all increased their trading volumes in 2011 compared with the previous year. Year-to-date, Eurex grew by around nine percent, ISE by five percent and Xetra by 13 percent. This also benefited the post-trading areas Eurex Clearing and Clearstream – the volumes cleared and settled/held in custody grew year-on-year by two and eleven percent, respectively. Market Data & Analytics also achieved considerable growth in its business activities of eight percent year on year. The growth in transactions and business would not have been possible without best in class IT infrastructure, in which Deutsche Börse has made significant investments over the past year. One example of this was the successful launch of Optimise – the new proprietary trading architecture of Deutsche Börse – at ISE. Another was the launch of the world’s leading client segregation solution by Eurex Clearing.

Developments by segment

EUREX – Deutsche Börse Group’s derivatives business secured its market position with two major transactions. In March 2011, Eurex acquired the majority share in the European Energy Exchange AG (EEX). From 1 January 2012, Deutsche Börse will become the sole owner of Eurex, which is currently a joint venture. Established product segments, particularly equity index derivatives, contributed to the growth in trading volume, as did products introduced more recently. An example of this is the Eurex KOSPI Product introduced in late August 2010 in cooperation with the Korea Stock Exchange, which in November 2011 reached the monthly record of 4.2 million contracts traded. This represents a daily average of around 190,000 contracts. A daily record of 387,935 contracts was achieved on 9 November.

The U.S. derivatives subsidiary International Securities Exchange (ISE) succeeded in raising its market share in the second half of the year in a highly competitive market environment. The launch of the Optimise trading infrastructure, which was newly developed by Deutsche Börse Group’s IT division, significantly reduced latency and considerably improved performance of ISE’s trading system, and served as a strong contributor to growth.

In 2011, Eurex Clearing fulfilled its role as a risk manager and market stabilizer once again. The existing infrastructure was complemented by new functionalities such as Client Asset Protection. Eurex Clearing is the first central counterparty to offer full protection for clients’ assets at the clearing house, as well as immediate portability of positions and assets in the event of default by a clearing member.

CLEARSTREAM – Efficient management of the collateral that protects and thus enables financial transactions is absolutely essential if markets are to remain operative, particularly in times of massive loss of confidence. Clearstream offers solutions precisely for this. The Brazilian central securities depository Cetip has been using the Clearstream service in collateral management for its domestic market since July 2011. Thus far this has been a national model – national exposure is secured with national assets. This is to be expanded: Cetip clients, for example, could then use international assets to hedge against risk by accessing Clearstream’s collateral pool, the Global Liquidity Hub. This service has already attracted widespread interest and has also been welcomed by national regulators. No other post-trading services provider is currently capable of offering this service. Further talks are underway with international partners, including the Australian stock exchange organization ASX Group.

A second focus of activity has been on liquidity management. Eurex Repo, Eurex Clearing and Clearstream jointly offer GC Pooling, an integrated market consisting of trading, central clearing, collateral management and settlement for secured and anonymous funding. This innovative solution – combining electronic trading, mitigation of counterparty risks by Eurex Clearing and the efficient collateral management via Clearstream Banking AG, as well as the re-use possibility of received collateral for refinancing within the framework of ECB (via Bundesbank) – is used by more than 80 market participants. Thus, GC Pooling has developed into an important instrument in the inter-bank market. Since its launch in 2005, average outstanding volumes have grown by around 80 percent each year.

XETRA – Deutsche Börse’s primary market was also influenced by the difficult market environment. Nevertheless, Deutsche Börse recorded a total of 17 initial listings (2010: 17), of which 15 companies placed shares as part of an IPO, five of them from China. Twelve companies made their debut in the Prime Standard (2010: 8), the total issue volume in this segment was 1.5 billion euros. One company took the leap onto the stock exchange in the General Standard. There were four new entrants in the Entry Standard. Furthermore, nine bonds have been included in the Entry Standard for Corporate Bonds segment, which was launched in 2011. The total placed volume of these bonds is 340 million euros as of today.

An important project in the cash market was the migration of floor trading to the Xetra specialist model in May 2011. The harmonization of the trading infrastructure strengthens the position of the Frankfurt Stock Exchange amid growing competition in Europe: the number of trading participants doubled as all Xetra participants also have access to products that were previously only traded on the floor. The specialist trading model proved itself particularly resilient during the very volatile period in August 2011. At its peak, turnover at the Frankfurt Stock Exchange was more than three times the average daily trading volume. Liquid, orderly trading was nevertheless maintained at all times.

MARKET DATA & ANALYTICS – Globalization plays an important role, and this is also true in the area of Market Data. Decisions by market participants are significantly affected by the complex interrelationships of the international capital markets. STOXX Ltd., Deutsche Börse’s index subsidiary, has responded to these needs in its index business and since February 2011 has provided a global index family with more than 1,200 indices for the global stock markets. The offering is continually being expanded and includes indices for the economic regions Americas, Europe and Asia-Pacific, as well as for sub-regions such as Latin America, or the BRIC countries (Brazil, Russia, India and China).

Global reach also drove the expansion of Market Data’s real time signal offerings. In this context, Market Data & Analytics expanded its algorithmic news feed AlphaFlash by adding international new indicators, corporate news and global treasury auction data to its existing offering of more than 290 global macroeconomic indicators.

In particular, Deutsche Börse acquired the assets of U.S. firm Kingsbury International in June 2011, which includes the Chicago Business Barometer – also known as the Chicago Purchasing Managers Index, or “Chicago PMI.” This purchase further strengthened the Market Data & Analytics segment by adding a widely used barometer of U.S. economic activity to its global product offering.

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