We're competing on reliability
Can I trust you with my data, my business and my partnership?
This is the core question in an increasingly global financial industry, according to CEO Niels Olsen from VP SECURITIES. In this interview, he discusses internationalisation, competition and future trends in Nordic post-trade.
Q: For many years, European harmonisation under T2S and regulatory frameworks such as Basel, MiFID and CSD regulation have been setting the stage. You have previously stated that the old-fashioned CSD is a relic of the past, as the winds of liberalisation are sweeping through the European CSD landscape. How do you see this competition play out in 2018?
A: At first glance, the post-trade landscape in the Nordics seems unchanged, as the CSDs and the major pan-Nordic banks are still the same. But if you dig just a little bit deeper, you’ll see that VP has obtained its European passport and is now regulated under CSDR. Other CSDs in the Nordics have set the same course. This is important, as it creates a level playing field and reduces national regulation and tradition, opening up access to cross-border competition. It is also true, however, that we’ve not yet seen a tidal wave of competition rolling in and changing how and where clearing, settlement and safekeeping are handled in the Nordics. The core of the CSD business is still relatively unchanged, while competition has set in when it comes to issuance, especially regarding bonds and SIPs. Prices are going down, since this competition is about attracting issuances that have usually taken place elsewhere, and in the long run attracting issuances means growing your core business as a CSD.
Q: Do you see the same picture for the European marketplace?
A: The ECB’s pan-European settlement platform, TARGET2-Securities (T2S), will bring a surge in cross-border settlement. Just recently, we saw the announcement from a CSD of an investor-CSD strategy allowing customers to access all T2S markets in central-bank money through a single point of access. As the offering includes asset servicing in Belgium, the Netherlands, France, Germany, Italy and Luxembourg, it is pretty significant, and for me, this is just one example of the internationalisation that lies ahead of us. The same trend for consolidation and re-use of infrastructure for more markets, more products and more currencies will also appear in the Nordics.
Q: What are market participants looking for in terms of issuance in the Nordics, and what are the benefits they can achieve?
A: The nature of the post-trade environment and the business benefits related to it, makes it quite a conservative market, and I’m a firm believer in reliability as the key component in the value proposition from the CSD. A lack of reliability in execution translates into increased costs and delays in the roll-out of new market initiatives. We’re competing on reliability in every aspect of the word. This concerns system reliability, relational reliability and trustworthiness. Can I trust you with my data, my business and my partnership? That’s the fundamental question in a financial sector with many uncertainties and lots of changes. Reliability also comes first with regard to attracting new issuances. Customers are already issuing in e.g. EUR, DKK and SEK, so why shouldn’t they be able to use one infrastructure for all issuances? They’ll also be asking for investor reach and reactions. And they will ask for technical assurance. Is this possible, and can we get access to the right currencies and services? Once these two features are safely anchored you can start looking for the operational benefits, efficiency and cost reductions related to using one CSD for issuance across borders and markets.
"Can I trust you with my data, my business and my partnership?"
Q: The price of issuance in the Nordics is going down. Will we see continued price reductions in the post-trade landscape?
A: At VP at least, we’ve reduced prices for issuance so as to align our pricing model to European standards. When it comes to clearing, settlement and safekeeping, benefits of scale created through consolidation could lead to lower prices, and this is the long-term scenario in the Nordics. Here and now, I regard cyber security as a very serious concern, and in the short term, the CSDs will have to invest in security, in order to stay reliable. This factor drives more costs, which will push up prices. The ECB has recently increased prices for T2S and one of the drivers was the increased costs related to cyber security. In Denmark and the Nordics, we’re fortunate to have strong industry collaboration on security, giving us effective means to mitigate this growing threat.
Q: Last year you were quoted for the term “partnership is the new black”. Do you still subscribe to that point of view?
A: Yes. Partnership is not going out of style, and I think we will see more partnering, at both Nordic and European levels, in response to the growing speed and complexity in the marketplace. Most market participants need partners to drive efficiency and create the optimum degree of simplicity. In terms of its depth and breadth, partnership extends beyond a traditional customer relationship. For me, true partnership means solving unforeseen problems together as they occur. This means that you need to look more closely before choosing a partner than when choosing a vendor. You’ll also need a good ballast of common values and understanding, in order to create a strong partnership. For an infrastructure company, reliability should be at the heart of the value set, and our aim is for VP to be perceived as having reliability in its DNA. "For me, true partnership means solving unforeseen problems together as they occur"
Q: VP now has the tagline “investing in the future” as part of the company brand position. Why is that?
A: We’re currently investing in relationships with customers and partners, in order to stay competitive. To some extent, the tagline simply states that we’re investing in technology in terms of product development, T2S and cyber security. The financial industry is strategically focused on innovation and as a CSD we can contribute ideas and know-how to create innovation in terms of more efficient and simpler processes. Our basic belief is that building a better future requires investments, and we need to keep on learning and getting closer to our customers, in order to understand how we can form future partnerships. Again, this is where reliability is at the heart of a company like VP. We need to be reliable and predictable in every aspect of what we say and do. This will make it attractive for customers and partners to invest in the future with us.