GFF Podcast

SIBOS Debrief: Behind the Headlines with Marton Szigeti and Marcus Austin

• Clearstream • Season 3 • Episode 4

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In this episode Marton Szigeti (Head of Collateral, Lending and Liquidity Solutions) and Marcus Austin (Head of Sales, UK Ireland & Americas, CLLS) give us the insider view of this year’s SIBOS event. We go behind the headlines to explore what the implications of T+1 will mean for markets globally; how AI and data will shape collateral and lLending over the coming years; and explore a diverse range of headline topics from CBDC to the growth of Triparty Collateral Management, blockchain, tokenisation and the future of digital assets. Don’t miss this feature-length, in-depth analysis of the current state of play for global markets - plus we wish the Eurobond and the Aston Martin DB5 a happy 60th birthday.

Speaker 1:

And welcome back to the GFF podcast. Yes, we are back from our long summer break. Christian and I have been away not together, I hasten to add. I was off in the jungles of Central America. Christian, what did you do with your holiday this year?

Speaker 2:

I was just two weeks in Europe, somewhere in the south, but nothing like you. No, where have you been?

Speaker 1:

It was very exciting. Well, the family and I, my boys 16 and 12, and they got tired of going camping in Suffolk, so we went to Costa Rica, guatemala and Belize as well, which was amazing. We actually had a stopover for an hour and 30 minutes in Panama, where, naturally, I bought a hat, so I've always wanted a real Panama hat. Yeah, lots of great canoeing and shark infested waters with crocodiles and all sorts of creatures, sloths in the trees, three different kinds of monkey, a very interesting biting incident with a quatimundi, and I got to stroke a giant horseshoe ray. So, all in all, it was. It was pretty amazing.

Speaker 1:

And my son got his GCSE results as well. And you know, I thought it was a good idea we're on holiday for that, because if they're bad it would cheer him up and if it was good it would seem like we planned the whole thing. And, as far as he knows, we planned the whole thing. So it went well, he got his results. It was good. Ok, of course, when I say Christian, I do mean, of course, christian, who is Senior Vice President at Collateral Lending and Liquidity Solutions at ClearStream, specializing in business development with central banks. Christian, we've got a very special show this week, haven't we? Because it's all about Cyboss.

Speaker 2:

Yes, it is, so I think I wasn't in Cyboss so I'm just asking the questions today. So I'm very happy to have both Marty and Marcus, who attended Cyboss, in the show today.

Speaker 1:

That's great. Yes, of course, we have two very special guests. We have got Martin Sugetti, who you will know, an old friend of the show, who's the head of Collateral Lending and Liquidity Solutions at ClearStream, and Marcus Austin, who's the head of sales and client services for UK, ireland and the Americas at ClearStream. They're both joining us here, but before we bring them into the show, so, christian, a quick trivia question for you before we start the show, because I've just found this out. I've got a real kick out of it. This is the 60th anniversary, as we know, of the Eurobond, but it's also the 60th anniversary of a very, very famous action heroes sports car. Can you guess which one? You mean? James Bond? I mean James Bond, and what is the car?

Speaker 2:

Aston Martin.

Speaker 1:

Yes, the Aston Martin DB5, which, like Christian's Tesla, is fitted with an ejector seat so that if he's not getting on well with his passenger from the European Central Bank, he can just press a button and out they go. No, I'm joking, of course. Now Christian tell us there's an interesting tie up here, isn't there? Between the fact, it's 60 years since the Aston Martin came out. Now it's a highly sought after, highly investable asset, and the Eurobond as well, which is also more popular than when it launched. Tell us a bit more about that.

Speaker 2:

Well, it's you who make the analogy, but I think it's beautiful because, yes, the first Eurobond was actually issued by a corporate that was building highways in Europe, specifically in Italy. Auto Stradale was the corporate, so that was the first Eurobond, which is, by the way, listed on the Luxembourg Stock Exchange at that time. And so, talking about cars, I mean Aston Martin and James Bond. Yes, that's where your analogy is making sense.

Speaker 1:

It's an interesting one, isn't it? So imagine he's driving Aston Martin in Italy on a road that was financed by Eurobonds that were launched the same year as his car. That's a nice little trivia tie up for you. So if you're listening to the show there, I expect all the decent sandwich bars in the city of London to be awash with James Bond trivia for that. Okay, now this is enough of the light-hearted chat. It's time for us to introduce Marty and Marcus into the conversation, and I want to start off with Marty, because this year Cyboss was in Toronto and this is an interesting loop for us. So another interesting synergy about the show is, of course, earlier in the year, we had a show with TMX and with Fabrice Domenco, all about the Canadian Collateral Management Service that Clearstream has launched out there. So, although I know the agenda wasn't centered around collateral management this year, did you get a lot of positive feedback about coming back to Toronto the year they're launching CCMS?

Speaker 3:

Hi Andy. Yes, absolutely, and thank you for having myself and Marcus on the show today. It's actually a really great timing. I think it was extremely fortuitous to have Cyboss in Toronto in the year that we announced what is an amazingly meaningful deal in the space of collateral management. There was a lot of noise and activity around this deal very, very positively received, and it's also very important for the Canadian market. I mean, Canada is the largest bilateral market in the world largest and, I would say, most sophisticated bilateral market in the world and for us to have the opportunity to be able to take that into not only just a tripoding platform but also using all of our digital tools to do so and make Canada the most advanced collateral market in America, it's a fantastic opportunity and we're very proud of what the team has achieved. So it was very positive feedback and a great sense of momentum in Canada this year.

Speaker 1:

And, marcus, I've got to ask you as well. I mean as head of sales and client services covering the Americas. This must have been quite an enjoyable event for you to go back and be able to engage with those market participants who can now access the CCMS system.

Speaker 4:

Yeah, absolutely.

Speaker 4:

I mean, it's the dream scenario from a coverage standpoint to come up with something that is delivering real, meaningful value for your clients and, as Marty said, having CyBus in Toronto.

Speaker 4:

We couldn't have scripted that any better. It certainly didn't make our diaries particularly comfortable last week because we had our usual set of very senior meetings with I think in total it was close to 160 clients, but we also ran a separate parallel set of meetings that we were doing specifically with the Canadian banks to really cement the partnership and ensure that people saw us while we're in town. It's a very, very hot topic with all of our clients and, from a clear stream perspective, it really enforces one of the things that we're pushing with our clients, which is clearly we are a provider of operational services, but we also want to be a provider of platforms and platform services, so engaging with clients, utilizing our collateral platform to partner and radically change the Canadian market. It goes along with other things we're doing, such as white labelling our fund services platform to large global custodians when they're investing in fund instruments. It really worked in terms of the narrative that we have with clients right now and it featured in every single meeting.

Speaker 2:

This is interesting. I think this sounds like we are ahead of the curve. I mean, now, the theme of the CyBus 2023 was collaborative finance in a fragmented world. Now, clearstream has cross border in its DNA since its inception, so for us it's mainly also there, a little bit being ahead of the curve. But what does it mean for the banks and institutions and the community collaborative finance in a fragmented world, marty, what was the theme?

Speaker 3:

That's a super good question. First of all, clearstream absolutely is cross border within its DNA. We link 60 plus markets together globally into our ICSD platform and that has a really material macroeconomic benefit. Because if an international investor can invest in a local market in a local currency or in any currency you can do it in US dollars, you can do it in euros, etc Then that increases the investability of that market and you'll find that many of the emerging markets, including the likes of Ukraine on our system, benefit from dramatically increased liquidity once the links go live and that opens the doors for international investors.

Speaker 3:

Now it's important that we keep bringing this level of harmonization right, because the world is fragmented. The pre-trade, the post-trade life cycle are full of different providers providing different things, and what a truly global infrastructure like Clearstream can bring to the market is a level of harmonization. It's not a concept of a one-stop shop Not at all. The other competitors might try to take the one-stop shop approach where you lock people into using your platform. Clearstream has a very different strategy when it comes to this. The strategy for Clearstream is ecosystem-based. So we embrace our clients, we embrace technology providers, we embrace partners and we look to enable the end-to-end users of our platform the issuers, the investors, the brokers that sit in between to benefit from this ecosystem effect.

Speaker 3:

And we mentioned this in the podcast around the partnership that we've announced with TMX, where we're going to be providing triparty at an infrastructure level in Canada. Now that model can be rolled out right, and we had conversations with multiple other local markets when we were at CyBoss and that really does augment and bring another level of harmonization to the clear stream ecosystem for our clients. Because if we can put this triparty capability into a local market and create a local market pool of liquidity, then it makes that investment opportunity for international investors even more attractive than what it is today with the standard link, because not only can you invest in the local markets, but the things that you've invested in the local market can then be better leveraged from a collateral or a financing perspective while they're there without needing them to bring them into the international markets. And if you want to bring them into the international market, you can do so directly against other exposures that you have. So it creates a much higher level of collateral velocity or collateral mobility in the markets that we are connected to.

Speaker 1:

And Marcus, following on from that big picture, this brings us squarely into the realm of client services, doesn't it? Because a lot of the answers for fragmentation, cross-border settlement, standardization, better data quality, all those topics from cyborgs these are things that clients want, but it can provide real challenges, can't it? Innovation when you're a service provider, you're market infrastructure, you have to work closely with regulators. When your clients, they're all buzzing about ESG, digital currencies, blockchain, tokenization and all these sorts of buzzwords, but you've actually got to try and turn that into something that's workable, reliable, robust and legally compliant. I mean, there's got to be a bit of a tension when you're seeing these buzzy phrases flying by and yet you're responsible for actually delivering products off the back of that.

Speaker 4:

Yeah, look, I think the expectation of a financial market infrastructure is primarily resilience, prudence and protecting the market structure. So whenever we look at some of the hotter topics, we do it with a very conservative lens. Look, I think we want to be as innovative as everybody else, and certainly the commercial banks, but we're not in the business of solving problems that don't exist, and I think my experience, even prior to joining Clearstream, is, if you look at some of the technologies that take center stage, blockchain. In a number of occasions that I've seen, blockchain is like a hammer, with DLT written through the core and everything looks like a nail to hit, and quite often you have to start with the problem first, assess it, figure out what is the right approach and then you decide on the technology. And I completely agree with you, andrew A lot of the issues that we see in the industry are really about standards and making sure that industry participants are looking at things, talking about things using the same terminology and in the same way. I think one of the probably the natural barriers to that is we're all competitive organizations. There is probably a natural limit to how collaborative people will be when you put them in a room together and a lot of banks. When they get into dialogue around solving particular industry issues, you find a lot of the banks will be in the room but they're hovering quite close to the door in case they want to walk out. And there's an element of you go first and then we'll see how it goes.

Speaker 4:

Back to this point around FOMO. You don't want to be on the outside of something but you probably don't want to commit resources to leading it and if you think about how a lot of commercial banks operate, their cycle for return on investment is very short. So if you're proposing a project where you change the way let's say, settlements work in an industry, or you're looking at a new type of DLT platform, you're going to want very quick payback as an institution. If you're committing resources and we all know the kind of the technology stack that banks have Many of them are working on pretty age technology, particularly in the back office. So to think that we can go to CyBOS and come back and then suddenly work on a new super all-encompassing settlement platform that is consistent across the industry is a pipe dream. So it's marginal gains.

Speaker 4:

I think data was really a clear topic from the conference this year. So how can we engage together to give better insights and allow us to be more efficient, and I think that's probably the best use case, certainly for DLT the idea that trusted partners could engage with each other and share market data to remove latency around things like corporate actions. Why in this day and age should we have a situation where an issuer declares an event and it passes through the hands of five or six intermediaries and the end beneficial owner finds that they then have a couple of day window to respond to the corporate event? That makes no sense. So there were a number of discussions around this type of activity and certainly one of the investments that Clearstream has made in a company called Proximity is an example of that. Shortening the cycle, not using DLT, just simply collaboration amongst banks and intermediaries. So I think that was a key theme.

Speaker 1:

Now one of the questions that I've got to say this now, christian and I, we have this joke. We used to have a joke in the last two series, which was you know you're getting old if you can remember going to a conference where everyone wasn't talking about blockchain. But now, of course, you know you're getting old if you're still talking about blockchain and everyone else is talking about AI. So come on, get us back up to speed. The AI thing was a massive buzz phrase. All the coverage that came out over the week in all the big magazines you know, from Global Custodian right across the Fintech titles were talking about AI. Is this more than just early stage pipe dream stuff, because it's got to be a while before that can actually find its way through into products in a meaningful sense.

Speaker 4:

Yeah, no, I think it's real, but I think you always have to balance this with risk, and the kind of situations where you would deploy AI, I would suggest are quite limited, and rightfully so. So I'll give you a practical example. One of the banks I spoke to has deployed AI within an internal workflow tool. So if someone types into the internal search engine, get access to credit system, the technology they're using will take the request and not only answer the question in a kind of Google type way, but will then provide a link that says click here to request access. So it's kind of providing simple workflow tools and help to enable you to do your job. Will that same bank deploy AI to sanction screen payment? Well, if they do, it's going to be first level, you know, decisioning and scrutiny. You're going to need someone, a human being, to take risk and to approve something that falls outside of a set of parameters.

Speaker 4:

But I think it's real, andrew, there are pretty wild levels of speculation as to what AI could do in terms of financial services generally and the number of jobs that could be lost as a result of it and the number of functions it could displace. But I think we all have to look at it very, very seriously and I think there are some really meaningful options to deploy it. I mean, just from a question perspective, we have a massive user guide that we regularly and routinely point our clients to, allowing them to put a query using natural language, and having an AI tool that gives them an answer based on a voluminous set of market data would be genuinely accretive. But, of course, we have to think about well, what if we give them the wrong data? What if we misinterpret? So that's always a challenge, but that would be a really obvious use case for us.

Speaker 3:

We've actually already released an AI-based product in the collateral and lending space called OSCA, and OSCA is a digital or let's call it electronic, because digital, like you said, gets confused with blockchain quite a lot, and this definitely isn't blockchain, but it's an electronic collateral schedule tool which looks a lot like a GUI. And what it does is it combines natural language processing with an AI engine off the back end that we've developed in partnership with a company called IntelliSelect and they're partners of ours and we have exclusive rights to this thing that we've co-developed and, effectively, what it does is it just simplifies down the creation of collateral schedules as a process. In the olden days, you had to fill out a form, right, and it was actually broadly paper-based or email-based or whatever, and there was no inbuilt sense check as to what you were doing. You just filled out the form based on what you thought the Isons were, etc. Etc. Came up with a schedule, gave it to us and then we would have to validate that for whether that schedule was actually eligible to be traded on our platform, and then you would tell us who your counterparties were and we would go to them and see if they would accept that, and then we had to manually set the thing up in the back end, right, the whole process would take weeks.

Speaker 3:

So what Oscar does is it uses this natural language processing where you can just type in what you want government bonds from this country with this credit rating, three thoughts of all of the Isons which are eligible on our platform already and creates an already eligible schedule. You then tick a few boxes as to who you want of your counterparties to trade this with. It asks them to confirm. They just confirm it and it's done right, and it's created in the back end. The whole thing goes from zero to being able to trade in about three minutes and it seems really simple, right. When you think about it, you think, oh well, this is just filling in the form. Where's the AI, etc. Right, the AI is what actually runs all of the queries off the back end while you're filling out the form to do all of your eligibility checks, to make sure that this thing is a fully eligible schedule, and it adjusts the form for you while you're kind of filling it out. So there's a bit of a brain that sits behind it, and then we're doing a lot of development now with this AI platform, now that we've got it right.

Speaker 3:

So it's funny you kind of build one little widget and then you can expand on it, and we're using the same engine to do analytics around what happens on our platform, not at the specific client level, because that's not really allowed, but more in aggregate what are the flows, what's interesting? And we're using that to provide tools to our clients where we can suggest to them how they could optimize their portfolio better based on what happens in the world, right? Or what they hold in custody, or etc. Etc, etc. So we are heavily investing in this type of data technology.

Speaker 3:

Now to Marcus's point. It is efficiency-based, right. It's going to be great to not have to make these things manually, but really, what it is is it's reacting to the world's need to become more real-time and it's doing things which a person could do in three weeks. It does them in minutes, right, and I think that's where we're looking to find benefits in this space. I guess the beautiful thing about AI over something like DLT is you don't need to change the whole market structure fundamentally to implement it. You can put it on top of the platforms you have and you can create small-focused benefits for us and for our clients.

Speaker 4:

Cool. Well, just another example, andrew, that is really absolutely personal, for Clearstream is, given the 60-plus markets we operate in, if you think, every time we onboard a client that's investing in a specific market, we have them fill in a range of different tax documents, all of which, as Marty said, are basically paper-based forms. There's no guidance to the client. They have to fill it in, they send it in, we tell them whether they filled it in correctly, and this can be weeks. So, again, using an AI tool that, based on the client's first set of responses, tailors the document or makes suggestions. It's pure process efficiency. Now, ultimately, the client still has the responsibility for what they put in, but we're just giving that helping hand through an AI tool that is not a tax expert, of course, but it's got the benefit of huge amounts of back-end data to know what a probable and acceptable response in those types of situations. So, again, I think the application for this exists all over our business. I think that's really what banks are focused on.

Speaker 1:

Well, alongside AI, obviously, and the incredible pace of technological change within the sort of collateral management space, we also have discussions of T-plus-1. That really dominated a lot of the news coverage coming out from CyBus. We know that Canada is going to be implementing T-plus-1 in Q1 of 2024, which means that's going to be a busy year, isn't it? We've got Amir Refit coming through, we've got the ECMS coming online and T-plus-1 as well, it seems to be. This is something that is a global movement across various different markets, many of which, of course, represent CyBus talking about T-plus-1 and increasing settlement velocity and managing risk more effectively. Marty, tell us more about the T-plus-1 discussions.

Speaker 3:

From a collateral and lending perspective, something like T-plus-1 brings a real-time pressure to a market. That's when fragmentation starts to have an impact, because you need to simplify your structure I don't mean your structure as an organization, I mean the structure of market in order to make things faster or just flow more smoothly. From just a pure settlement perspective, as in doing a settlement, if it's an internal settlement, we don't really need T-plus-2 for this. There's a much broader market ecosystem and we need to be sensitive to the fact that what we're settling is trades and those trades need to be funded or financed. As a result, there needs to be potentially collateral movements of the back of creating the money to finance those trades. All those trades have been done to raise money in order to do something else. So FX and repo and securities financing and central bank pledge and margin management are all things that happen around the settlement cycle where we need to effectively create velocity. We need to take time out, we need to simplify, we need to create tools to make things better.

Speaker 3:

The US market is going T-plus-1 fairly soon, a major focus for the US institutions and ultimately Canada will most likely follow suit. So when we look at the CCMS the Canadian Capital Management Service that we announced just prior to CyBus. That's a really important tool to help the Canadian market move in this direction because we're introducing, really for the first time, a triparty capability that's digital I guess you could call it right from the collateral schedules, because all of our full suite of automation, ai, digital what have you that wraps around our triparty platform or goes live at once in the Canadian market. There'll never be a paper collateral schedule in Canada for triparty, which is excellent. It puts the Canadian market at a significant advantage because triparty management the management of repo, the management of securities financing happens at an infrastructure level in a single legal framework on a single platform for the entire market.

Speaker 3:

The frictional time delays and the frictional costs that go into doing this in a multi-market environment, like in our international platform, aren't there. It makes it much faster. There's various other discussions that go on around fragmentation, for example, fx, to raise the financing to fund trades, especially across time zones. For this reason, fx is becoming quite a big focus for us in the liquidity space, because we're realizing now that, irrespective of whether we are a T plus one market or not, our clients might need to take collateral and cash out of other markets to help their T plus one operations and we need to provide the tools. So we're looking at how we can reduce the timelines around our basic FX capabilities to help facilitate clients getting the right currency to the right place at the right time. Marcus, potentially you could have some views on this as well if I could bring you in.

Speaker 4:

Yeah. So I would say from a client perspective, marty, it's really about the operational implications of this. I think you hit the nail on the head with FX. From a market infrastructure perspective, t plus one is not a technical challenge for the clear stream. We can facilitate trades. T zero it's not an issue. But where the problems lie are those clients that are probably sitting in Asia or parts of Latin America where their window for positioning themselves from a cash perspective for trades in the US is dramatically shortening as a result of this. So I think our CLLS products will become even more important. Covering failed trades is going to be absolutely critical. It's going to be very interesting to see how Europe reacts to this.

Speaker 4:

T plus one in Europe is something that's been talked about, but no clear guidance as to when that might come. We have this issue of how long can the Europeans have a different settlement cycle to the US. I think that's not really a great outcome for the market to be operating on a different basis. We have a very interesting situation within clear stream in that we have quite a large quantity of US instruments that are within the clear stream. The last time I checked this it was over 11,000 ICINs, so potentially we have a huge amount of trading of US assets still trading on a T plus two basis in Europe, which is again is also an interesting angle here that I don't think has been. It hasn't really figured in the decision making and the thought process of the US authorities and potentially we could have market participants who choose to settle their US trades in clear stream just simply because of the extended window. So we'll remain to be seeing what kind of behavior we see.

Speaker 1:

But I think it really comes down to operating logistics for those firms that are quite far away, those investors that are quite far removed from the US market Now, marcus, on that front, I wanted to ask you this because a lot of the news coverage that came out was saying that the whole T plus one thing is really Europe, mexico, south America, various other territories, asia, playing catch up with the big players China and India, who have been T plus one for a while and could easily go T zero. In fact, sometimes they already settle that way already and this is a big sort of wake up call for the rest of the world to sort of upgrade their tech, upgrade their processes, so that they can move at a faster velocity. Is that right or is that just the press getting an angle on it?

Speaker 4:

Yeah, look, I think there's an element of truth in that. I mean, ultimately, if you think about why settlement cycles should be reduced, it's to cut risk, right? If you're trading an asset and you're waiting two days to take receipt of that asset, that's a problem, right, markets can move. So the notion of T plus one or even T zero, from an academic and a regulatory perspective makes complete sense. I think what you also have to factor into that is the operational processing environments of the market participants. Yeah, we talked earlier in the show around technology.

Speaker 4:

I think history has told us that to move an industry to a new technology is really, really tough.

Speaker 4:

And to push a lot of institutions, large institutional investors who, let's not forget, quite often don't even own their own back office They've outsourced it to somebody else it's quite a lift.

Speaker 4:

When I talk to people about T zero and of course this comes up regularly as a benefit of distributed ledger technology, moving to atomic settlement, you can see the color draining out of the faces of the heads of operations of these firms when they think about their current processes that are required to allow a portfolio manager to trade an asset, or how they manage their risk systems.

Speaker 4:

We're basically suggesting, the market moves to a pre-funded model in many cases. So I think there's definitely some catch up required and I think we have to look at the Asian market, what they're doing and the innovation they bring. But I think some of those markets are not burdened with the same kind of legacy technology and legacy market infrastructure. So I think it's the direction of travel, but it has to be done in a really careful and considered way, because it's the law of unintended consequences If you push a market too fast and the participants are not ready, the opportunity for anomalies and failed trades and settlement fines and all these other things that are there to really provide to make market players act in a responsible way and can deliver some pretty unexpected consequences.

Speaker 1:

And I mean, on that front, swift is nearly as old as Clearstream, isn't that right, christian? You had some amazing stats about Swift, because this is the 45th CyBOS that's just gone, but of course Swift's older than that. Tell us a bit more about the sheer size of the Swift operation now, because I've got a question about the future of CyBOS off the back of that.

Speaker 2:

Yeah, I mean, it's true that I had to do a bit of research, because I think I already talked in the beginning about the 60 years of the Eurobond markets and I think this is also where Clearstream, as ICSD, launched its operations in 1970.

Speaker 2:

Now, swift actually was founded in 1973, so three years after Clearstream. So in the beginning it was about 239 banks and 15 different countries and in 77 only they went live and there already they had 518 banks and they were from 22 countries, and in 1983 they connected the first central bank in their messaging. In the beginning, as you know, it was a payment cross-border payment messaging system, but in 1987 they added the securities messaging to it, which also enlarged, obviously, the number of messages that they were processing, and today they have about 11,000 institutions which are connected out of 200 and more countries worldwide. So, and yes, the conference itself the first one was actually hosted in Brussels, where there's the headquarter of Cybers, in 1978, and they've done every year a conference. There were two years in the pandemic where it was digital, in 2020 and in 2021. So, yes, they've been doing conferences for 45 years.

Speaker 4:

So we have a colleague who probably won't mind me mentioning this because he spoke openly about this last week in Toronto, but Philip Sayle, who is the CEO of Clear Shims funds business, has been to 33 of them, which is the most I've heard of anyone, but I'm sure there are other people out there who can maybe beat that. But that's a pretty impressive track record of CyBus attendance.

Speaker 1:

But, marcus, okay. So I want to ask you this then, because you've been in the business for a good 20 plus years. I mean, you started out, obviously JP Morgan, in the 90s, a long stint at City, which of course, is its securities, its custody, is all the things that we know and love in the show, and now, of course, you've joined ClearStream. You must have been to plenty of CyBus's yourself, and this is what I wanted to ask you, someone who's never been to CyBus despite dropping many, many hints to my clients, they never asked me to go and also for Christian as well. Has it gone less about networking and more about technology, do you think now? Or is it more of a sort of a business thing, like so many conferences, where it's just nice to hook up with the community again and catch up after the long pandemic years?

Speaker 4:

Well, I'm ashamed to say this, andrew, but I have been to nine CyBus conferences, other than making engagements that I've had on various panels. I've only ever attended one session in those nine years and that was probably more out of personal curiosity the year that Bill Gates spoke, and I was just interested to hear what he had to say, given that I follow him and I regularly look at his reading list that he publishes so the year. So I was just curious as to what he had to say. But my experience is that CyBus for a lot of participants is effectively corporate speed dating, and I mentioned it earlier. But across Clearstream, across our various delegates, we had an excess of 160 individual client meetings, which were mostly of half an hour duration, some were an hour, all of them meticulously prepped in advance by the underlying coverage people or business people that look after those clients, and it really is a Ubersenia health check with many of our clients and an opportunity to ensure that we are both aligned around the strategic priorities of our organizations. So it's very much a networking conference. I would say it's completely different to the likes of Buns Forum or the Network Forum or some of the other conferences that you see on the calendar. This is really quite a formal event and the opportunity to get into detail and the minutia is limited. So it's very much about ensuring that senior connectivity with people that probably you don't see through the course of the year. It's like the crystallization of all of the work that you're doing with that client throughout the course of the year. So it's very much a networking event.

Speaker 4:

Back to what I said earlier, that's the view from established banks, established market infrastructures. If you're in the tech business and, as we said, we're seeing more and more tech companies attend and service providers attend it's all about building that connectivity with banks. So one of the interesting things is when you sign up for CyBus and you buy your ticket, you instantly start getting heppered with requests to meet from any number of process, workflow automation companies, digital asset companies. I lost count after a while this year, but I would say I probably got 50 invites to meet the tech companies and, given my role, I'm not the right person to meet those names, but some of our product folks who went, I know, certainly took advantage of that. It was an opportunity to really hear what's going on in the market. So I would say as a vehicle for engaging your clients, it's second to none, and as an opportunity for product partners to really hear what people are working on and what tech is coming in the market, it's also incredibly valuable.

Speaker 1:

It's interesting actually because the key themes when you read on the CyBus agenda, the key themes are things like data harmonization, data quality, better security, cybersecurity, obviously people talking about door and that kind of thing. Plus, then you've got people talking obviously about AI and then many topics coming from that, and interesting one actually was central bank issue, digital currencies, cbdc, wholesale digital currency, and we know there's experiments going on with that. So I mean, what was the mood there around that? Is it coming anytime soon? Is the digital one setting the template everyone's going to follow, or do you think the digital euro is going to be a different type of fish?

Speaker 4:

Yeah, it's such an interesting topic because I think, just like commercial banks, central banks would probably admit there is an element of BOMO there as well fear of missing out. I think there are a lot of central bankers around the world who feel obliged to have a project to look at this, but are questioning what first mover advantage exists for them in terms of getting a digital currency out. As you said, obviously, the Chinese have launched. There are some other countries that have put things out there for a variety of reasons, but I think the real challenge that all central banks have is what type of digital currency do they launch? You have something really quite broad which touches retail. Then you have the question of well, do you end up competing with your commercial banking segment for deposits, which is not a great place to be, or do you do something quite narrow and you restrict the access to CBDCs just to the commercial banking sector? I guess, if you look at the digital one, that's really how this has been deployed. As a customer, if you want access to the currency, you open up an account with one of the large Chinese banks and that's how you access. I think that seems to make the most sense, because ultimately, I don't think we want to create an entirely new legal instrument or disrupt the banking market. What we want to do as an industry is achieve all of the benefits of a 24-7 currency that is programmable and can lead to the next wave of innovation around payments and securities and such like.

Speaker 4:

I think all of these things have been weighed up by central banks, but they're very cautious about pulling the trigger on something too soon. Again, the location of Canada was really quite timely. The Canadians were one of the first central banks out of the blocks with this. They had a project to evaluate a digital Canadian dollar. My understanding is they concluded that it's viable, but are unconcluded on whether it's something that would be beneficial for the market as well. I think all major central banks are thinking hard about this. I think they are also still evaluating what it means for the banking sector. I'm really trying to weigh that up.

Speaker 4:

My own personal opinion is a CBDC launched by the Europeans or the US is the massive enabler of all subsequent tokenization efforts. Again, what I mean by that is we've seen examples of bond issues put out into the market in tokenized form by some pretty prominent issuers. Now Supernationals have done these. The World Bank did a kangaroo bond a few years back. That was on blockchain, but what doesn't tend to appear in the press releases too often is the way those bonds are settling is in commercial bank money.

Speaker 4:

You have a AAA rated issuer that issues a bond, but the investors have to open up a bank account with the underwriter, which might be a single A rated bank. You detract from the safety and soundness of a DVP settlement environment where you don't have a digital form of central bank cash to facilitate the trade. It explains why most of the digitization efforts amongst market infrastructures are really contained at the national level, because there you have a national market infrastructure that accesses its home central bank. You don't see it in the international environment right now because there is no way of settling DVP with a central bank currency. It's all commercial bank money. A CBDC will turbocharge tokenization. It will turbocharge the whole agenda around digital assets, in my opinion.

Speaker 1:

Marty, finally, I'm asking you, let's look into those crystal balls and looking forwards. We know next year CyBOS is going to China, which is a pretty big deal because obviously that means that Swift has got a presence out there. It's a huge market. We know that there's going to be a huge amount of interest as well by then in more AI, faster systems, faster settlements, central bank-issued digital currencies the digital one. It's all going to be on the agenda. The year after it's CyBOS Frankfurt in 2025, which is a big deal because, of course, it's the home of Clearstream's ICSD, it's the home of the ECB, it's the home of the Deutsche Börser Group. Tell us, looking forwards from a securities lending point of view, can you give us a bit of a prediction about what's going to be big next year at CyBOS in Beijing and then what we're going to be talking about at CyBOS in 2025 in Frankfurt? I know it's a prediction and, as everyone says, in journalism, predictions are a mug's game, but everyone knows you're no mug. So come on, marty. What does he think?

Speaker 3:

I think we're looking very forward to both. We're looking very forward to both. We had absolutely amazing momentum and traction at CyBOS this year in Toronto. Beijing should be no different. We are looking very forward to going there. I think China is a massive market and with respect to the internationalisation of that market, that's something that's yet to occur. There's a very big market and there's a lot of interest around that, generally speaking. And then CyBOS coming home to Frankfurt for us is going to be fantastic. We feel like we're hosting, or helping to host, cybos in one of our major home markets and that's going to be a great experience for us.

Speaker 3:

In the collateral space, I think the trends that are going to be continuing to gain momentum are going to be around AI and data. In the collateral space, especially next year, I think AI and data is going to come to the fore. We've released our Oscar tool, which is our digital collateral tool. There's a lot of work that we're doing now around implementing AI and data tools around digital collateral, and we should have a very advanced offering by CyBOS next year with a high level of market adoption. Right now, it's an enormous amount of interest Some users but the full tool set isn't rolled out, and this is one of those things that, as the tool set gets rolled out, you get a lot more interest and you start to realise the real potential of this thing. So we should have a lot to talk about in Beijing around our data and our AI tools, and then in Frankfurt, when we come, I think it's going to be a lot more towards the realisation of digital benefits.

Speaker 3:

Ai and data tools are great because they work well in the legacy world and you can actually implement them based on your current infrastructure and they feel the results. It's not like digital, where you have to reinvent the market structure in order to get a benefit out of it. But I think we are very close with our partners HQLAX that we started. This has been a long road, but we are getting to the tipping point now whereby I think in 2020, we are starting to see sustainable volumes ramping up on that platform. We certainly have a much broader market adoption than what we've had before and by the time we come to Frankfurt, I think it's going to be the D7 HQLAX benefits of digital collateral and flattening the market structure and the value chain when it comes to enabling clients to pledge and move collateral from place to place or specifically not move collateral at all and rather just transfer the ownership rights via token.

Speaker 1:

Okay, now, sadly, that is it. That is it for our feature length CyBoss special, with really in-depth chats about the big topics that are going to be setting the agenda from now through until Beijing CyBoss in 2024. And all that really remains for us here is to give a huge GFF podcast. Thank you to our very special guests at Solutions, someone who is an old friend of the show now and will be back on again, no doubt in the next season. That is, of course, marty Sugetti. Marty, thank you very much.

Speaker 3:

Thanks very much appreciated. Oh, look at that, I get applause now. This is great. I'll definitely be coming back. Oh, yes, well, after a couple of questions, no, look, thank you so much. We love the show and we're very, very grateful for the work that you do and the work that Christian does and, personally, looking very forward.

Speaker 1:

Great, well, that's good. Okay, christian, this is possible. Praise, indeed, you better crack out the Aston Martin. Take Marty for a spin, as you promised, and if you're coming my way, you can pick me up too and you can take us to the pub. There we are Filmed in front of a live studio audience, as you know, and a very special guest we're first timer on the show but definitely someone who I hope is going to be coming back to join us again with more in-depth insight and analysis and that's Marcus Austin, head of sales and client services for the UK, ireland and the Americas.

Speaker 1:

Marcus, thank you very much. My pleasure, andrew. Good, great and that's it Okay. So, christian, that is it for another successful GFF. We will be back and, in the meantime, if you want to connect with us, join us at linkedincom, slash company, slash clear stream, where you can network with Marty and with Marcus and with Christian and with myself, and, if you ask, very nicely, christian will send you a picture of his Aston Martin with the ejector seat. And, in the meantime, from both of us, have a good month, have a safe month and we'll see you in a month. Bye, bye, bye, bye, and don't forget that this show was brought to you by Clear Stream Banking, one of the main sponsors of the GFF summit Every year in Luxembourg and features members of the Clear Stream team and special guests expressing their personal opinions, not the opinions of Clear Stream as an organisation. And remember none of the information in this podcast should be taken as legal, tax or other professional advice. See you next time.