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1 Carsten Kengeter: final comments for the New Year s Reception Date: 16 January 2017 start of event: 7 p.m. Place: Eschborn, The Cube Key message: Deutsche Börse will create Exchange 4.0 through innovation and cooperation, to the benefit of Frankfurt as a financial marketplace. Madam Secretary, dear Larry Fink, Ladies and Gentlemen, It is my pleasure to welcome you today, on behalf of Deutsche Börse s Executive Board, at our Group headquarters. One year ago, I spoke to you as this company s CEO for the first time. Back then, in line with our newly introduced strategy, I focused on the topic of growth growth for Deutsche Börse, growth for the German real economy, and growth for Frankfurt as a financial marketplace. Public interest has mainly focused on a single aspect of our growth agenda since then: our planned merger with the London Stock Exchange Group a project where we have now made significant progress. We want to strengthen Frankfurt, as a city and as a financial centre and we will strengthen it. This is why we are determined to bring our planned merger to a successful conclusion as soon as possible. It is a merger that would act as a growth catalyst for our city. We are therefore doing everything we can to ensure that we will fulfil all regulatory requirements, and that we will achieve our economic objectives. Yet, our planned merger is but a part of a larger growth story. Tonight I would like to tell you about the other part of this story. I am committed to building an Exchange 4.0 and hence, the financial centre of the future. 1

2 The financial services sector is undergoing tremendous change: digital processes, new, ITbased analytical tools for large amounts of data, and mobile devices will not only change its appearance they are about to effectively give it a DNA transplant. Of course, running an exchange is already a digital business today. Yet over the next few years, this business will also experience a new wave of innovation; a powerful development that is set to change the industry. Disruption a radical break from the way things used to be is the keyword for this change. As one blogger put it recently: Disruption is the new normal. Frankly, I do not consider this an exaggeration. Disruption was already very evident in the 1990s, when Deutsche Börse seized the new opportunities offered by electronic trading: cross-border market access, open order books, real-time market data all of this, has become the new normal. Today we are faced with another disruption of this magnitude, with concepts such as big data, smart data, machine learning, artificial intelligence, cloud computing and blockchain paving the way towards Exchange 4.0. We want to assume a pioneering role in this change process, just like we did in the 1990s. Actually, many other industries are facing (and dealing with) similarly disruptive challenges. For instance, the automotive industry is working on developing solutions for autonomous (driverless) vehicles, and emission-free transport. The key difference is that change in the exchange industry happens much faster. Which is good news we must re-define disruption, with a positive connotation. Exchanges will have an altogether different design in five years time: they will be digital and datadriven, and will be offering new services on this basis. We are focusing on cooperations to offer such services with technology partners, with other capital markets players, with policymakers and with regulators. 2

3 It is my personal mission that all those highly innovative start-up providers out there will get to know Deutsche Börse as a dynamic and competent partner. Last year we opened yet another chapter in our history as innovators and creators of international markets. Our deep roots within the financial centre of Frankfurt have helped us in this context. Allow me to give you some examples: Firstly: more than a year ago, we successfully asserted ourselves in an international bidding contest, with the acquisition of 360T, an innovative digital foreign-exchange trading platform. 360T is also the most successful start-up to have evolved from the German fintech sector to date. We not only added a highly attractive asset class to our product range we also enhanced the culture of innovation throughout the Group. This is what cooperation means in real life: a start-up cooperating with a DAX Group. Together we are defining the company of the future. In the meantime, we have added further examples to this list, with investments in additional fintech companies. One of them is figo, a financial services provider based in Hamburg which offers application programming interfaces so-called APIs. We can use these APIs not only to facilitate access for our clients in the future, but also to explore new client groups. Secondly: I already mentioned the key words of market data, big data, smart data. Cooperating closely with our clients in this context as well, we will enhance the way in which we connect data, and we will offer new analytical tools to our clients for predicting transaction costs, to name just one example. We are also looking at offers based on artificial intelligence. This is particularly interesting for insurance companies, pension funds, and asset managers just like the one Larry Fink manages. For instance, together with Silicon Valley firms specialising in artificial intelligence, we are working on a prototype for optimising the risk exposure of institutional portfolios by reducing regional overlaps using publicly available data. Another project where we cooperate with artificial intelligence specialists involves a prototype that predicts implied trading costs within milliseconds. 3

4 Thirdly: in February, the European Central Bank will conclude the fourth wave of TARGET2-Securities settlements, with the migration of the German market. For us, this will represent yet another major milestone on our way towards establishing a pan-european market infrastructure. We have been actively involved in this changeover for numerous years. Hence, we are well prepared for the migration deadline. Taking a longer-term view, blockchain technology will trigger a true quantum leap for the exchange industry. Simply speaking, blockchain is a digital register for electronic transactions. Blockchain entrepreneur Blythe Masters summarised it this way: We should take blockchain as seriously today as the evolution of the internet in the early 1990s. Of course, blockchain-based settlements still take a long time, and use up lots of storage resources. Much development work is still required here. Yet we will seize opportunities in this area as soon as they arise. We were the first organisation to present a blockchain prototype in collaboration with a central bank. Moreover, two further promising prototypes related to clearing and collateral management are underway. We are certainly prepared. Only if innovation turns into good business, will the financial marketplace thrive. Exchange 4.0 will use blockchain intelligently. Exchange 4.0 will convert data into investment tools. Finally, Exchange 4.0 will be as varied and perhaps also as easy to use as an app store. To lead means to serve this is the motto I stated here a year ago. To me, this means keeping in touch with reality, focusing on the issues at hand (rather than on oneself), and in particular, assuming responsibility. For the new year, it s all about taking responsibility for Deutsche Börse s clients, for Frankfurt as a financial marketplace, and for a European financial infrastructure. After all, the principles we uphold now are the same principles which we have always emphasised: transparency, stability and reliability. Our products and services should be easy to understand, with risks that are transparent not concealed by excessive complexity. We create security and a level playing field for everyone. Our horizon is global, yet we take local and national concerns very seriously indeed. 4

5 Whenever we talk about creating value, it is sustainable value we are talking about. Sustainability must turn into a natural element when allocating capital. Exchange 4.0 will also be an exchange that supports sustainable growth with the necessary sense of perspective. Taking responsibility for Exchange 4.0 also means taking responsibility for Frankfurt as a financial marketplace. Over the last few years, we have invested significant nine-digit euro amounts here, each year creating hundreds of new jobs last year in particular. We will persevere with these investments. Yet we will only be able to do so if we take a leading position in global competition. That means: if we prevent any loss of substance; if we recognise and acknowledge change, and if we can turn great ideas into good business; if we develop entire series of attractive offers for our clients; and if we grow, and become stronger, in order to fulfil our mission. At the same time, we will be supporting Europe s future cohesion. As Jean Monnet, one of the founding fathers of the European Union, said: We are not uniting any States; we are bringing people together. In this spirit, Germans and Britons can continue to expand the economic cooperation between their countries: bridges between the UK and Germany will become vital arteries for both national economies. A bridge between the two financial centres of Frankfurt and London would ensure a stable connection between two strong partners. This bridge would hold the potential for extending Europe s capital markets infrastructure, and ensure that the two financial centres continue to play leading roles in global competition. This is my wish for the new year. Together with yourselves, I will do everything in my power to turn this wish into reality. This also involves a steadfast will to maintain dialogue. And that is why we are gathered here today. Thank you very much! I wish all of you a successful year, and good business. 5