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In perspective (part I): The times they are a-changing

Release date: 28 Mar 2019 | Eurex Exchange, Eurex Clearing

In perspective (part I): The times they are a-changing

The world is on its way to a new paradigm. We see fundamental changes in many areas without knowing what the new status quo will look like. But it is also times like these that allow us to explore new opportunities – together with our clients and our regulators.

Even though their size has grown, the number of global exchanges has decreased significantly over the last twenty years. The need for global scale has made it harder for new entrants to compete at all levels of our industry. Is it possible for a new exchange to compete with the reaming players? Has consolidation made our business ripe for disruption?

We believe that there is always a chance for innovative ideas – both for new incumbents and for established FMIs like Eurex. Let’s take crypto currencies as an example. There is much more to it than just a new asset class. There is a whole technology behind it. A whole new market structure needs to be shaped. And shaping markets is at the core of the business of exchanges. We need to take a very close look at crypto currencies and reflect both the advantages of such an innovative asset class as well as potential issues that need to be addressed.

The blockchain technology behind it is also very exciting. Compelling but it seems that it is also a solution waiting for its problem. Everybody seems still to be looking for applications. So far, it is more or less all about pilots, and it is unclear what a large-scale application can look like.

However, the technology is there, and the industry better take it very seriously because this is again one field where market structure changes substantially – which is an opportunity.

There are many interesting paths ahead for the financial industry

To stay ahead of the curve, Deutsche Börse just entered a strategic partnership with Swisscom and Sygnum to build a trusted digital asset ecosystem. Core elements of this new ecosystem to provide issuance, custody, access to liquidity and banking services is the Distributed Ledger Technology.

The tokenization of assets, the next major phase of asset securitization, has the potential to reshape global financial markets.

To fully unfold its potential, the emerging tokenized economy needs a trusted, comprehensive and regulatory compliant ecosystem. This integrated ecosystem around digital assets, developed by strong and experienced partners, will enable investors to tap into these new asset classes and adapt to future client needs. The strategic partners will jointly grow and enhance these foundational elements of the digital asset ecosystem in alignment with the requirements of market participants.

Other challenges are the rise of the buy side, the opening of China’s capital markets, and, last but not least, new technologies continue to potentially disrupt the way we have been designing our market infrastructure over the last decades.

Interesting times are ahead of us all. More about this in part II of this article.