The proposed merger between Deutsche Borse and the London Stock Exchange (LSE) will create “the leading local market infrastructure group in Europe,” according to Jeffrey Tessler, member of the executive board at Deutsche Borse.

Speaking at Clearstream’s Global Funding and Financing Summit, held in Luxembourg this week, Tessler described the merger as “the only way we are going to be able to tackle the competition coming out of North America and Asia”.

“It is the point in time that the Deutsche Borse business model is put to the test of coping with increased market turbulence.”

The €24bn merger of the two exchanges will be a “vital post-Brexit lifeline between these two cities” and a “liquidity branch between Frankfurt and the global financial centre of London,” said Tessler.

“The bridge will help channel some of the enormous pool of globally mobile investment capital which, let’s face it, will continue to gravitate towards London.”

T2S opportunities

The merger will be further driven by Clearstream’s TARGET2-Securities (T2S), placing “Deutsche Borse at the centre of the European capital markets,” according to Wille. The main scenario foresees the migration of Clearstream’s CSDs in Germany and Luxembourg in wave 4 to take place on 6 February.

“We are now at an important milestone of that project, as Clearstream is set to become the CSD entry point for the eurozone.”

T2S will provide new added value, setting a new standard for the industry. “After nine year of dealing with this, I will be very glad when it’s up and running,” Wille told delegates.

Gareth Allen, co-head of repo trading at UBS, similarly acknowledged that there is a perception of T2S as a “huge change in the operational line.” Allen said that UBS is taking a cautious approach before going live.

Deutsche Borse announced in November that Clearstream had teamed up with Citi and UBS for an innovative T2S solution, providing market participants with a single point of access to T2S, along with a single integrated collateral pool and post-trade services.

Wille said: “Potentially we created a structure where UBS Group has the ability to put all their European assets into one place , but critically we have the structure in terms of the pooling of Clearstream.”

Allen stated that the initiative addresses the common issues managing inventory. “We want to keep securities as static as possible and also pool securities as much as possible for obvious benefits. So the idea of coming together with Citi to create a virtual pool gives the best of both worlds.”