First mover Danske Bank endorses cross-border issuance
Customer needs and internal efficiency gains will give cross-border issuance a strong future, predicts Global Head of Investment Solutions FICC Heikki Ruoppa from Danske Bank.
Customer needs and internal efficiency gains will give cross-border issuance a strong future, predicts Global Head of Investment Solutions FICC Heikki Ruoppa from Danske Bank. In 2017, Danske Bank issued in EUR several times in Denmark in order to reach retail investors outside Denmark, and the bank is now a firm believer in cross-border issuance.
Since 2017, Danske Bank has issued all structured products in EUR towards customers at one CSD, VP SECURITIES. Instead of local CSDs in each market, Danske Bank is now turning to its usual CSD partner in Denmark and undertaking cross-border issuance in the very same set-up as for issuance in DKK. Heikki Ruoppa is in charge of structured products at Danske Bank and leads three teams in Copenhagen, Stockholm and Helsinki, respectively. In this interview, he outlines the drivers and perspectives regarding cross-border issuance.
Q: What do you see as the key drivers, when it comes to cross-border issuance?
Heikki: There is a clear trend for issuance to become significantly more tailormade compared to earlier. We are adapting products more to customer needs, and our customers want to be able to choose. There is also a trend for issued amounts to decrease, and while the total issued amount is quite unchanged, the number of transactions is increasing. To be cost efficient while meeting these customer needs, we need to be faster, and have greater automation and more simplified processes. Cross border issuance fits nicely into this picture, as it allows us to use the same CSD and the same process for issuance in DKK, EUR and SEK, and hopefully also NOK in the future. I think this trend for growth in the number of issuances and their decreasing size will continue in the future. To me, it is evident that cross-border issuance will be a key benefit for us and for the market, as it will pave the way for automation and simplified processes.
Q: Is it fair to connect cross-border issuance with harmonisation on a greater scale?
Heikki: Definitely. Harmonisation in the Nordics will happen, and as a Nordic bank we are obviously looking for ways to streamline our offerings and operations. If we are able to handle all currencies in one and the same process, we will become faster and more responsive to customer needs, while at the same time increasing cost efficiency. Of course, we also need to have the same advice for our customers on, for example, buying or selling positions in Mærsk, regardless of whether the advisory team is located in Helsinki or Copenhagen.
Harmonisation, standardisation and regulation have come to stay, and will not go away. By streamlining issuance in all relevant currencies into one process, we are also making life easier in terms of compliance with MiFID and adaptation to T2S.
“Our rough calculations tell us that we will be able to save 70-75 per cent of the costs compared to having four different operations running in four different ways in Denmark, Norway, Sweden and Finland. But the key concern here is for us to give the customers the benefit of speed and low risk,” says Global Head of Investment Solutions FICC Heikki Ruoppa from Danske Bank in a comment on the role as first mover in cross-border issuance.
Q: You are among the first movers for cross-border issuance. Did you encounter any barriers?
Heikki: I think there is a lot of tradition in the way we think about issuance, and we will have to leave that behind. For example, we met some anxiety as to whether Swedish and Finnish investors would react negatively to Danish ISINs, and this proved to be just old habit talking. What did the customers say? Nothing. The customers buy in if the product is right and positioned right, and the ISIN is not relevant. We are selling the product, not the ISIN. In the long run, these mental barriers will disappear, and I expect more banks to start using cross-border issuance. This will eventually also be a long-term advantage for Danske Bank, as it will support standardisation and a centralised system approach, and we will need that in order to stay competitive on a global scale.
Q: What are the central business benefits from cross-border issuance for Danske Bank?
Heikki: Having one process for issuance in all currencies in central bank money is a strong position if you want to speed up a placement process. Ten years ago, the processing time was around ten days. For some of the other local Nordic markets it is around five days, and with VP we have brought it down to two hours. Is this good enough, you can ask, and no, I know that in the near future we expect to be able to issue instantly and in a fully automated process with VP SECURITIES. The key for us is the ability to meet the customers’ demands and to serve our customers.
Our rough calculations tell us that we will be able to harvest direct cost savings of 70-75 per cent. The biggest cost saver, however, concerns our internal processing, and in future we will be able to reduce the number of processes from four to only one – and that really makes a difference!
Q: How do you see this developing in the years to come?
Heikki: At Danske Bank we set high standards and it’s my belief that the same applies to VP SECURITIES. They are the ones who are challenging and seeking to change the existing Nordic market infrastructures, for the benefit of our customers. It’s therefore my hope that our colleagues from the other Nordic banks will also be able to support this development. If that happens, my prediction is that VP SECURITES would also be able to support issuances in USD, GBP and JPY.
For more information:
Contact Senior Relationship Manager Henrik Høj or Customer & Relations Director Henrik Ohlsen.