In this show we interview senior leaders live at the GFF Summit on the rising repo markets, T+1, collateral management, intraday trading & liquidity concerns, AI in finance, Central Banks, CCPs, changing monetary policy & ECB operations, clearing US Treasuries, sustainable development goals, green finance and more - with Dr. Karsten Stroborn (Deutsche Bundesbank), Leslie Maasdoorp (New Development Bank), Jean-Marie Masse (EuroGreen Capital Partners), Richard Comotto (ICMA), Adrian Dale (ISLA), Jorge Sanz (IBM), Christoph Rieger (Commerzbank), Nehal Udeshi (BNY Mellon), Nick Short, Erica De Rosa & Charlie Amesbury (HQLAx), Catherine Pring, Elodie Putz (Clearstream), Frank Gast (Eurex Repo) and Marton Szigeti (Clearstream). Plus more. Don't miss this live show recorded at the 2024 GFF Summit in Luxembourg. With co-hosts Andrew Keith Walker and Christian Rossler.
In this show we interview senior leaders live at the GFF Summit on the rising repo markets, T+1, collateral management, intraday trading & liquidity concerns, AI in finance, Central Banks, CCPs, changing monetary policy & ECB operations, clearing US Treasuries, sustainable development goals, green finance and more - with Dr. Karsten Stroborn (Deutsche Bundesbank), Leslie Maasdoorp (New Development Bank), Jean-Marie Masse (EuroGreen Capital Partners), Richard Comotto (ICMA), Adrian Dale (ISLA), Jorge Sanz (IBM), Christoph Rieger (Commerzbank), Nehal Udeshi (BNY Mellon), Nick Short, Erica De Rosa & Charlie Amesbury (HQLAx), Catherine Pring, Elodie Putz (Clearstream), Frank Gast (Eurex Repo) and Marton Szigeti (Clearstream). Plus more. Don't miss this live show recorded at the 2024 GFF Summit in Luxembourg. With co-hosts Andrew Keith Walker and Christian Rossler.
Hello and welcome back to the GFF podcast for a very special edition, because our interviews this week are all live from the GFF Summit. Yes, indeed, the hugely successful GFF Summit put on by Clearstream and Urex took place last week in Luxembourg, and I was delighted to be there, working with my long-suffering co-host, mr Christian Rosler, the Central Bank and Sovereign Wealth Fund Forum, which was a groundbreaking event twice the size it was last year and of course, then the GFF Summit took place over the next two days. Well, I was lucky enough to be hosting a panel on artificial intelligence, but also I managed to catch up with the great and the good of the securities lending and repo industry, and we have all of that coming up for you in the rest of the show. But first of all, of course, it's time to introduce the man without whom there would be no GFF podcast. He is certainly the tango to my cash or perhaps I'm tango and he's cash management in these times of excess liquidity. It is, of course, mr Christian Rosler.
Speaker 3:Yes, Andrew, it was a great event and I think especially you and me. We kicked it off with the closed door session on the 30s with the Central Bank and Sovereign Wealth Fund Forum, where we had about 80 plus participants in the room. The GFF Summit, as you know by now, had more than 800 participants, so 10% were already in the room, which was great. And yeah, I mean it was just very interactive. But you know it, you were hosting two panels and one fireside chat.
Speaker 2:Just to give our listeners an idea of who was there, because you are the principal organizer of the Central Bank and Sovereign Wealth Fund Forum, which, as you say, is a private event that happened the day before. We had to name but a few, on stage with me we had the Bundesbank, the Bank de France, the ECB, the European Investment Bank, we had representatives from Amundi, the asset manager. We had representatives from all kinds of different organizations joining us. Of course, there was BNY, mellon and DTCC as well, so it was a real cross-industry collaboration and many old friends.
Speaker 3:Yeah, I mean it became a very global event. I mean you mentioned the different Central Banks from the Eurozone, but also NDB, which comes from Shanghai, and then DTCC from the US. So we covered basically all of the different markets that are important for Central Bankers US Treasuries, Eurozone Government bonds, but also multilateral development banks like the IB and NDB. Now we had representatives from various Central Banks around the world in the room, so some from Asia, some from the Middle East and obviously also institutions that came from Central and Eastern Europe.
Speaker 2:Okay, christian. So without further ado, I'd like to start by catching up with Dr Karsten Strobon, who is the head of markets at the Bundesbank, because, of course, all of the issues that are affecting the events and the topics we talked about are really all tied up in the transmission of monetary policy in these changing times, and he set a big picture, from a policymaker's point of view, about the headwinds that are facing the market.
Speaker 1:I think what we can see clearly now is that the scene is changing from the hope of getting back to normal, which is drawing back liquidity that was there in an abundant way, given by Central Banks so Central Bank liquidity to something that we would call normal liquidity conditions. And the question was if, at the same time, where we raise rates and fight inflation and have to withdraw liquidity after years and even decades of helping out in times of crisis, this going back to normal gets in the right direction. And one can say that we started last year. One can certainly say that now, given being somewhere near the peak, hopefully, of interest rates and raising rates, the normality sets in in two terms it's withdrawing or shortening balance sheets of Central Banks and the other one is getting to normal liquidity conditions and markets being active again, and that was a discussion with yesterday on repo markets also turning back into the mode of different investors, partners trading with each other without the helping hand of the Central Bank necessarily.
Speaker 2:And you have talked as well about the role of Central Banks to step in and help stabilize markets, not as a lender of last resort, but as an organ that transmits monetary policy. There is a key role here, isn't there, but is it changing for Central Banks? Are we seeing more focus on CCPs and other kinds of entity within the euro system, or does the Central Bank still have a very clearly defined role?
Speaker 1:I would say there is the role in crisis mode, for the Central Bank is providing liquidity whenever the transmission is really not guaranteed.
Speaker 1:Normally, that shouldn't be the case for such a long time than it used to be, and in that case certainly we were in, one could say, in very special conditions.
Speaker 1:In the normal times where we come from one or two decades ago despite the fact that normal is difficult to define and where we might go into in the next years to come the role of the Central Bank is to have a look on price stability and to, but at the same time, keeping two principles up, and one is letting the market do its own job, only helping if absolutely necessary, and, at the same time, doing that with minimal impact.
Speaker 1:So, on our own balance sheet, which, in the good or Bundesbank times, but also in the Central Bank understanding is that you somehow keep your balance sheet lean. So, in that respect, the market participants helping in transmission, like the CCP's that are now set up in a very clear structure, in an extremely secured way, regulated, are there to stay and help out, and it's not the role of the Central Bank to provide the infrastructure. We are in the back line, then, of providing liquidity. That is needed also because of different factors, not only crisis, but also in everyday life, and the, let's say, distribution of this liquidity is the part of the industry.
Speaker 2:Now, before we get into some of those juicy topics to do with repo and cash management, let's also do a bit of a catch up with some former guests who were on the show, and that is, of course, catherine Pring, who's head of product development for the ASL product range, so I was talking to her about new developments there. And then also I caught up with our old friends at HQ LAX yes, they roll in straight after with Nick Short, erica DeRosa and Charlie Aisbury.
Speaker 5:We are soon to be launching ETFs as a new asset class, not only into fails lending, which is ASL, asl principle, but also into the strategic lending program, asl plus. Etfs have been around for quite some time now, and so we've been doing this for a few decades. But looking in the fail space, we see a big demand, especially on the CBF side and on the ICSD side as well, and certainly on street lending. We're seeing demand, so we want to match that supply, as Clearstream holds a number of assets customer assets in custody. So you want to be able to match that supply with the demand that we're seeing and make incremental income for our customers.
Speaker 2:Catherine, it was really great to see you.
Speaker 5:Thank you so much.
Speaker 6:I mean, I think in terms of HQ LAX's progress, we just have more and more validation from the market, especially at events like the GFF summit, where we are at the moment, that there is an absolute need for greater collateral mobility in the market, and all the things that I talked about two years ago are certainly true, and we're going from strength to strength that there needs to be innovative solutions like HQ LAX, other solutions involving AI as well, to basically enable institutions to manage their collateral more efficiently and easily and get it to the places that it needs to go in order to satisfy their obligations. And so it does feel like we're here at the right time and GFF summit is just a great opportunity for us and, as you say, it's been great to see so much interest in HQ LAX here.
Speaker 7:I would say we have a bunch of different projects and streams that are upcoming this year and that we have products that are live. So we have things and securities lending. We also have focus on DVP and repo products that are slated to go live later this year, as well as working on solutions related to margin posting, which will hopefully transform the market, and all those different aspects. The idea, essentially, of having to constantly move collateral from hedge fund to a dealer, to a CCP, creates a lot of noise and a lot of headaches in the system, which could be solved with blockchain technology, and that's what we're looking to do. So I think that the more that we have these kind of solutions, the better it will be for all participants.
Speaker 8:You know, off the back of T plus one. I think we'll, if we're being honest, watching to see how the US go. Obviously they're going first. They're implementing it. We have a solution that we think can help with that, but, if I'm being honest, maybe they're sticking with what they know. The traditional structures make them more efficient, but certainly when it comes to in the next couple of years, when we get more volume on platform, we don't have to talk about T plus 1. We can talk about T0. We can do intraday securities lending and DVP repo, which may actually be a step forward compared to T plus 1.
Speaker 2:And once again, thanks to Nick Short, eric DeRosa and Charlie Ainsbury there. Now, of course, as Charlie was mentioning T plus 1, I got a really good insight with Adrian Dale from the International Securities Lending Association or ISLA as it is known, and loved all about the challenges of getting ready for T plus 1.
Speaker 9:T plus 1 impacts every aspect of how financial markets work and, specifically for security lending, of course, the relationship between the collateral and the security loan. It's more complicated for security lending because we operate within a settlement cycle. So it's T2 today, which means that security lending happens in T1 or T0, which means it's even more compressed. So you move the entire market to T plus 1, security lending now has to be T0. How do you get the collateral to move fast enough in T0 and settle the securities as well? And I call them usual suspects. So these points keep on coming up again and again. For security lending it's about inventory management. How does the borrower get the inventory so that it comes back when there's a recall? How do you get the recall to be there in the first place on time for the borrower to be able to return it?
Speaker 9:But the example I used on the stage today was the fact that there was an international panel covering all four corners of the planet, so to speak. If a client in one of those regions that say in Asia, decides that they want to buy some US securities, using a Dutch manager, for instance, at what time does the cash flow through? So T1 in the US T2, perhaps in the region where they're contracting. How do you make the cash arrive at the right time to actually buy these things? Does that mean that someone's now not gonna have it Before you even talk about FX issues and the FX markets not moving at the same time? So there's a lot to be looked at there.
Speaker 9:And the other thing that I mentioned was in both the EU and the UK, this whole topic is now a non If but a when. So there was a very interesting round table last week at the UK Commission where there was Commissioner McGinnis who said that there was going to be. It was gonna be a when, not an if. So about a third of my inbox is all about T plus one, a lot of it coming from the UK as we try and figure out. What does it mean? How do we synchronize? Do we synchronize? And there are various task forces. Actually, it's a technical working group that's been set up. Now the EU settled down a little bit, aside from the Commission meeting that was last week, but I'm aware that there are internal meetings happening. Obviously, yes, we're having internal meetings. When the report comes out, it's all gonna kick off again, and there's also cross association T plus one task forces, and that that's also kicking off. So it's every day, every day.
Speaker 2:Adrian Dale there, who, along with Farrah Mahmood, was on our show this time last year. Okay, moving on, it's time to go in a little bit deeper into the repo markets and, of course, no one is better qualified to give us some insights into what's changing in the world of repo than a former guest and a world renowned authority on the topic, richard Camotto from the ICMA.
Speaker 10:Well, what's happened, of course, is the big story is central banks withdrawing, returning collateral to the market, pulling liquidity out and, as a result of that, we have moves in yield. So we have a yield curve rather than something dead on the floor, and it all means that a lot of people have been forced back into the market and it's worth going back in. You know, spreads of the yield coast deep and spreads have widened. So we've seen new players, but we've also seen people who've been out of the market for five years, and you know this is a healthy market. This is what markets are supposed to be doing. They're doing now what central banks have previously done.
Speaker 2:Is there a sort of cyclical element to this, at least people needing to learn how to engage with repo when there's a yield curve, because it has been lower for longer, for such a long time?
Speaker 10:That's a really interesting aspect of this. We see in the background firms juniorizing. You know they're dealing capacity to reduce cost. We've seen people coming without experience. I mean, you've always had this in markets, you know. I remember in the FX market Chief dealer saying I've got dealers here who's never seen a weak dollar and then 10 years later I've got dealers here who's never seen a strong dollar. So there's always that aspect. Right, I think it's got worse and you know the SBB crisis in March of last year. What shocked the regulator was that they didn't know how to use. They may not even know you could tap the Fed, but they didn't know how to do it. People got out of the habit. They hadn't had to do it for five years because the Fed was forcing money down their throat and there is that aspect definitely.
Speaker 2:Now there's been a lot of talk about liquidity management here and some concerns raised, especially at the Sovereign Wealth Fund Forum on the very first day before the main GFF kicked off, talking about the idea that there are lots of institutions that sit on a lot of cash but simply haven't got the infrastructure to offer reverse repos and get into the sort of activities of the second nature for a debt management office. So do you think there's going to be a big change in the market? Are we going to see more market participants entering repo, cleared repo and generally that repurchasing space?
Speaker 10:Well, we are seeing it. But of course there are overheads to this process. There's documentation, there's onboarding, there are a whole raft of things. So there are scale issues. If you're below a certain size, the repo market may not be easily accessible, Although I have to say there are platforms who are trying to simplify the process. But yeah, I think it's obvious now that unsecured is not suitable, and that's not just regulatory pressure, that's people sort of waking up and realizing that's the case. And there's then also the positive attraction of a vibrant market. But I think what holds it all back at the end of the day is certainly if you went into the corporate space and said, how about doing repo? People would say, well, you know, I sort of heard of that, but what is it? So there's that learning requirement as well.
Speaker 2:I also managed to catch up with another form, I guess Christoph Rieger, who is, of course, you all know as the head of RAID's research at Commerce Bank, and Christoph has some very interesting takes on the sort of nitty-gritty technical aspects of repo and managing liquidity which are affecting the market right now.
Speaker 11:Well, we've completely flipped I think that became clear on our panel from an environment where scarcity was the prevailing theme when we were here last year towards actually one where an abundance of collateral, abundance of supply of issues could really become the major factor this year.
Speaker 11:So that's really probably the big picture thing, but then there were a number of really interesting, more technical issues I thought that we needed to do I'm not having to do with the ECB, minimum reserve requirements, the operational framework and actually perhaps even more relevant near-term, there could be things like moving to a shorter settlement cycle yeah, t plus one, maybe even T plus zero. Instant settlement is being discussed, which would really be disruptive for the industry, for central clearing houses, for banks, et cetera. So that's something we need to get our head around or mandatory clearing houses and the other things. So really lots of, I think, important bigger picture, but also, I would say, technical issues, which I think all have the potential to derail the funding markets which are so important, which are really the heart of all the capital that needs to be mobilized for a lot of things in the future.
Speaker 2:And now, of course, we're entering a period where cash is no longer desirable as collateral because it seems to be too expensive. Does this mean that we're going to get into a stage again where everyone's hanging onto their bonds and they don't know what to do with their cash?
Speaker 11:Well, actually, I think a lot of market businessmen need cash and for that they need their bonds. And the thing that also became clear in our panel is that the positioning in the market has completely changed from one where everyone was just short of cash and now, basically especially the head funds, they're along the bonds and that means they need the cash, so they need to fund them in the repo market. So they're putting the collateral actually back into the repo market to fund their position and that basically adds to this actually abundance of collateral supply that we have been seeing. That's great. Now I know you've got a dash, thank you very much for joining me, Christoph.
Speaker 2:One very final question. Two word answer will do. What are we going to be talking about in next year's GFS?
Speaker 11:Gosh, too much to think about right now, for this year already. But we have an important election coming up in the US in November and if Donald makes it and right now I think it's probably more than just a risk scenario then some of these topics we were talking about today especially bigger deficits and then in an environment of maybe even rising inflation again could really become the game changer and the biggest issue.
Speaker 2:And, of course, this is a chance for me to catch up with another former guest and also the global head of sales for Eurex repo and someone who 100% understands the challenges ahead. Frank Gast and I got him on the last day as we were all clearing up to see what his view was of repo in 2024.
Speaker 12:For clearing, in particular on the repo side. It's been for years for 20 years. We're operating it on a voluntary basis and we have about 35% on outstanding volumes cleared. We don't think we need to push this for mandatory clearing. There are other clearing obligations on the OTC side and derivatives have unclear margin rules as well. So there are a lot of regulations. We think CCPs are a crucial part of the market and probably market shares up to 50%, but we don't think the clearing house is a solution to all the problems. There's a lot of collateral not eligible for CCP to accept that collateral. So there's always a way for a triparty for bilateral repo. But the CCP allows netting, balance sheet, netting, risk management and crucial elements on the multilateral framework we have in place. So it's an important element and we from a clearing house will not push for mandatory clearing on the repo side.
Speaker 2:Now looking forwards, another crystal ball question for you. Volumes moving through your Xrepo and GC went up about 140% last year A huge leap. So how do you, as head of the global sales outfit, how do you scale your team to meet that kind of demand?
Speaker 12:Yeah, so we are hiring at the moment to really support the increasing number of participants. We onboarded 17 new participants last year and we have now a total of 166 clients from across 20 countries, mainly in Europe. But we got the first broker dealer out of the US and we'd like to expand to other regions. So saying that we think like we'll scale it up from more people and more capacity and, at the same time, why do the volumes grow so fast? Because we have a good balance and diverse set of participants, meaning cash providers are mainly non-banks IE agencies, central banks, super nationals and the buy side and you've heard, buy side is particularly of importance for clear repo entering the market and making use of operational efficiency, making use of risk management and making use of access to 160 clients, potentially without individual legal frameworks.
Speaker 2:Now the other big clearing story obviously is the mandatory clearing of US treasuries, and at the Central Bank and Sovereign Wealth Fund Forum I had the pleasure of a fireside chat with Brian Rowane and Laura Clemball Brian, of course, from BNY Mellon and Laura from DTCC about the challenges of implementing that for market participants, and on that topic and others, I also caught up with Nihao Deshi, who is the head of securities lending at BNY Mellon, and she had this to say yes, on my side of the business I have both of the agency lending piece our cash reinvest and then also our principal business, which includes our FICC sponsorship business.
Speaker 13:So we sponsor clients into FICC and act as their route in to doing clear trades. And so, yes, from a treasury clearing perspective, when it comes to mandatory clearing, there's a lot of conversations going on right now about readiness. Are our clients ready, are we ready, and what do we need to do to help our clients be able to get on board? That comes into a few different conversations. You've got operational readiness, which Brian and the team can do a lot with. You've got documentation and what needs to be done there. And do we have the resource? Does the market, does the industry have the resource for all the documentation that's going to be needed? And then, really, do we have the liquidity, the default fund, the contributions that are required there? How can we figure out the best way to be able to do the scale of clearing that's going to be required for the market?
Speaker 2:Now, this is a huge challenge, as you say, but also, is it the way of things to come? Is clearing going to become the norm? Are we going to see OTCs going out of the window and everything from repo right the way through to securities lending goes through a CCP?
Speaker 13:There's always going to be a place for bilateral trades, but we need to work out which ones, as you think about the impending regulatory landscape. Basel 3 is a big example. We've got different constraints across each of the different dealers, lenders, participants in the market, and each of those are going to have slightly different constraints, but capital is a key one of those. The benefit of clearing generally is that it can solve for the challenge that both sides have, and many of the solutions that you see, whether that's pledge or other things, don't necessarily solve for both sides. So there is definitely a direction around clearing. We're thinking about it heavily, as you say, for both our securities lending business and also on the repo side, and it's trying to work out whether those solutions can actually work for all the players.
Speaker 2:Now I was delighted to host a panel at the GFF as well as at the Central Bank and Sovereign Wealth Fund Forum, and that was the panel on artificial intelligence and two of my guests there, bart Coppins from IntelliSelect and Jorge Sanz from IBM Research, who's the director of banking and finance industry research there. They joined me to talk about Bart's work with Oscar and Jorge as well, talking about the immediate future for AI within the industry.
Speaker 14:Oscar is indeed quite a nice example of where different techniques in AI come together to create what we believe will be next generation business applications. A lot of the AI these days is focusing on data driven and regression type of AI, but there's also the automated reasoning and the logic based AI. Bringing those two together, like Oscar does, creates highly intuitive interfaces in natural language, but locks you into the data model and the rules based engines that actually make sure that it understands the securities you're talking about, can do analysis on the back of that, provide explanations on differences, gaps between profiles, explain fully why things are eligible, not eligible, and that's because it's a combination of these AI things that actually make that happen. So that's a really cool example of that.
Speaker 2:Now for our listeners. Just very quickly, can you explain the difference for us, Because you're using a mixture of symbolic and non-symbolic AI, as it's called. This is a technical term. I'd love you to explain that.
Speaker 14:Non-symbolic AI you should see as data driven. So can I find a pattern in the data that teaches me something? Symbolic AI is actually referring to rules, implications, logical deductions, and you could actually go back to the 80s in terms of these all time rule based engines. Now, also, that part of AI has evolved significantly and you are actually capturing the essence of the relationships between different objects in the world in logical phrasings and then you let an engine think it up, think up the solution, think up the answer, and that's the key difference between the two and I think maybe the listeners should check out. Last week, google DeepMind came out with their alpha algebra. That was beating the mathematics Olympics globally. So they take a question in algebra written in natural language, they deduct and decipher it, but then they throw it to a rules based engine to find the actual mathematical solution and they feed it back through the language. So same thing that Oscar is doing.
Speaker 2:And finally, I mean all the unnies this conference are on repo, the resurgent repo. The yield curve is back, Cash collateral has got expensive. Returns are going up. We're looking at a very different financial system. Is AI going to be the secret to generating the efficiencies that are needed to stop some of these types of asset from becoming just too expensive to keep in the bank overnight?
Speaker 14:I mean, take again Oscar as an example. If you see what it does, it facilitates the negotiation process of the type of collateral to be exchanged, including haircuts. This type of negotiation or renegotiation can take today up to three to six months. So what do people do? They put the haircuts way too large. It's a bit like almost a liquidity risk that you're calculating in. It's almost a renegotiation friction risk that you're calculating into that haircut when, oscar, you renegotiated a matter of hours. So you can actually adapt your haircuts a lot closer to the real liquidity risk that is being implied. That should free up a bunch of your liquidity to be used. That's where the type of suit is Oscar going to do the repotrait for you, maybe in the future watch this space, but not just yet. But that doesn't mean there's already capture opportunities that you can capture today.
Speaker 2:Okay, bart Coppens, co-founder of IntelliSelect, and to me, mr Oscar, thank you very much. Thank you, andrew. Oh, hey, thank you for joining me. We covered some huge topics today in a very short period of time, but give us an idea of the big picture for the adoption of AI when we talk about generative AI and machine learning and AI systems within the finance industry. Is it all just hype, or should we expect it to start landing soon?
Speaker 15:Well, this is a great question. Anyway, the panel was phenomenal and you did a wonderful job in coordinating that and making it lively and participation right, so that was great. In the nutshell, the financial industry has two big areas of opportunities for AI. One is text-based problems documents, processing of marketing, collaterals, anything that has to do with customer interactions. Those are very promising areas. And the other big one is anything that has to do with transactions how much money, timestamps, names, destination, bank, origination, intermediary bank, right.
Speaker 15:This structured data is analyzed very differently from what you do in natural language applications. Now, things that we don't have in finance are the most creative things that the arts generate with generative AI, things like marketing, for example, when you create a new logo, a new video for doing something that is a storyboard or movies, things that you do a lot of creative work from scratch based on generative AI. That side of the industry finance doesn't work in that way, right, we don't create fancy demos or things that are videos or so. We work more on concrete footprints and artifacts. And those two areas are cost savings for anything that has to do with documents, big cost savings, operations that have to do with documentation in natural language. And the other big area is forecasting for anything that has to do with transactions. Those are very different techniques, different risks, different ends of market targets, opportunities and different innovation needs, which is what I do for a living in both areas.
Speaker 2:Technology was a thread that ran through many of the panels and I was lucky to catch up with another panel moderator, grant Davies from Blended Finance, to talk about developments on that front in the OTC space.
Speaker 16:Look the panel. I actually think the panel actually leverages some of the other panels. On the day, the challenges are still the same. Clateral is very important. Mobility of collateral is important. The future and the direction of collateral in the tokenized digital space that sits across various different requirements, whether it be repo, security, lending, collateralization and, of course, otc markets. And if you talk to one of our panelists was PGGM. Her role as a collateral and treasury manager is to look across her book of business, so she cares about all of those things. So having that intraday speed of liquidity and view means things need to change and things need to become a lot more connected.
Speaker 2:Now talking about things becoming a lot more connected. There was a lot of talk about collateral fragmentation across Europe and you're working in that space, aren't you? You're actually involved in trying to unlock pools of liquidity which otherwise are locked up and not moving and not going through the traditional channels, not eligible for GC and that kind of stuff.
Speaker 16:So I'm working with a variety of different institutions, whether it be, I suppose, second dirtier banking institutions, wealth retail platforms, where there's assets that are locked. They want to enable them from a revenue point of view, and finding ways to unlock that in partnership with a technology that exists, ensuring that people are educated and understand that it's hard to access our markets. They're relatively simple I borrow a stock and I give you cash collateral or securities as collateral and I use it for a purpose that is up to me, whether it's because I need the asset to cover a hedge position or I use it to cover collateral that I need elsewhere. There's an inherent need for more liquidity, more diverse counterparties, and what I'm doing is working with a number of those different institutions to enable that.
Speaker 2:Now, one of the major themes at the Central Bank and Sovereign Wealth Fund Forum, and a theme that ran through many of the panels, was greening the financial system, and we had a really uplifting talk from Leslie Marsdorff, who is the Chief Financial Officer of the New Development Bank, which is a multilateral development bank set up by China, brazil, india, russia and with many other participants involved, and Leslie had a very powerful message which I think carried through the whole three days.
Speaker 17:I feel very optimistic about the prospects for development finance over the next few years. I say that because, as you know, the climate revolution really started in 2015, where, in 2015, with the Paris Agreement, the first legally binding agreement by countries was endorsed. Then, in 2021, in Glasgow, the entire financial services industry banks, asset managers, financial regulators and so on made commitments to using and leveraging the financial sector as a lever for the net transition revolution. What we are now seeing in 2024 is a lot of these moments, if you like, all of these processes leading to some kind of breakthrough, if you like. So 2024, in my view, represents a potential transition moment where a lot of things are coming together. Let me give you an example of what that means.
Speaker 17:Number one multilateral banks used to be focused on just growing their own balance sheets in the past. We are now focused on using every bit of our capital, every dollar, in such a way that we act as a catalyst, that we act as one to mobilize more private sector capital. We want to bring in more institutional investors, asset managers, insurance companies, all these pools of capital that has never really been used for development. So the first thing is that we have gone to the engine room to the laboratory to look at what can we do differently, and that is now finally happening. The second major thing that is happening is financial regulators. Central banks have come together.
Speaker 17:Around 2017 or so. They formed the network for the greening of the financial system. At that stage, it was led by Ravi Menon from the Singapore In Monetary Authority. They have now come out with new propositions that will lead to central banks doing climate related tests on banks. So banks will be forced effectively to lend more towards industries that is linked to the new green economy and to lend less and to move out of what will eventually become stranded assets. If you have a big core portfolio, in 15, 20 years time, you will sit with stranded assets and it's going to affect the valuation of your companies and so on. So on the regulatory side, there are also major changes happening. There is also consumer revolution happening. More and more people want to buy electric vehicles and so on. So what I am saying is, on multiple levels, the financial services sector, regulators, consumers all of these are now coalescing to produce the best enabling environment for green finance.
Speaker 2:Of course, there was a huge amount of technical expertise available at the event, and that's one of the things that makes it so special. And to give you some examples of how green finance and sustainable development goal mechanisms are evolving, I caught up with Jean-Marie Maths, who has been working with the IMF and many other agencies to bring together some interesting innovations in the green finance space.
Speaker 4:I would like to highlight in particular the IMF because that's what I've been working on last year which has raised $42 billion special funding pocket called RST Resilience and Sustainability Trust, to finance emerging market countries with long term concessional funding. So then they create fiscal space to finance climate adaptation mitigation. So there is a movement going on on the public sector side to mobilize capital. Now at the IMF level, the way they quantify the current situation versus the need, they consider that for $1 public money today you have $1 of private capital mobilization, but the needs are five times bigger than that, or five to ten times. That means that for $1 of public money, the IMF would like to see mobilization of $5 to $9 of private capital. So that has to come with product innovation which meets the requirement of private sector investors, and that's what I'm working on how to utilize that.
Speaker 2:Now I know you can't talk about the details, but you are working on some really interesting projects right now which could well set a new template for the way that we drive investment into developing economies. And so I mean, tell us how important is it that we can reassure the global north that investing in the developing south is safe and effective and also essential for hitting climate goals, but also protecting their economies from the systemic risk of climate change?
Speaker 4:Yes.
Speaker 4:So I would say I feel that we are at a crossroad now because, with the rise of interest rates in developed economy, the developed economy investors are retracting from emerging markets because they can get better yield in developed markets for the relative to the risk than what they can get in emerging markets.
Speaker 4:For example, at yesterday's panel, timo Tijola from Amundi said that in the US you can get 11.2% yield in dollars with corporate, which I think was rated double B or triple B, but it's 11.2% is high return for investors. And what we observe in the JPMorgan market data is that you have a retraction of investment from emerging markets to developed markets. So to me it's an issue because the emerging markets need to constantly raise debt, because they have borne outstanding that mature, they need to refinance. But if the pool of investors willing to buy this instrument is shrinking, it could create vast stress in emerging markets. So that is, to me, one of the elements and what I'm working on is to try to do a paradigm shift by attracting non-emerging market investors to emerging markets via risk mitigated transactions, which would reduce the risk for to attract this new class of investors.
Speaker 2:Now I was really pleased to be able to grab a minute with possibly the busiest person at the whole event, someone who stage manages the smooth running of the GFF and, of course, the sovereign wealth fund and central bank form, and that is Elodie Putes, who's the vice president of business management for the collateral liquidity and lending solutions team, and she had been running literally all over the place to make sure that speakers were there on time, that panels went off smoothly, that the caterers were in position and everything was perfect, and she did a great job, but she rarely gets the opportunity to talk about it because she never slows down, so I ran alongside her for a bit so I could get a few insights.
Speaker 18:Last year. The watch tells me I've walked 50 kilometers in three days, so it's an enormous amount of work that goes into just making sure people are where they should be. Events are going smoothly because logistics have briefed. People are there on site and it's not always easy to find the right guys and give them the speaker pass, put them on stage, making sure the plain delays and harm the agenda. A lot goes on but despite a few last minute issues, I think it's seamless. People are happy. I think, frankly, the catering is amazing. This year We've upgraded to sustainable food. I love it. A lot of vegan options, vegetarian options, a lot of changes. Again, a lot of upgrades. People are super happy. It's tiring, but I'm still to be with you, andrew.
Speaker 2:You've also worked quite hard to mitigate the carbon footprint for the event, and that goes quite a long way, including encouraging delegates to come here. I actually spoke to someone yesterday who came over on the ferry and drove here because it was cheaper than flying in carbon terms, even though it took them much longer to do it. Tell us more about that. I mean, what are your goals? The GFF, it can't just talk the talk right, it's got to walk the walk.
Speaker 18:Exactly so. We are, of course, for the organization, try to make sure everything is sustainable. Of course, our providers work with us, but we have a great guideline with the Luxembourgish government here to help us do that. And, of course, we ask our speakers, participants, to make an effort. We give them, ahead of the event, some guidelines on how to try to sustainably avoid plastic. Try to use a tram. We have free public transportation here in Luxembourg. That is really helpful for that. It's amazing. It's actually not that hard to be sustainable in events. It's just a global effort. A lot goes into doing it, but we manage, I think so. And no plastic, no single use, limited goodies and giveaways. The food is locally sourced, organic, so lots of efforts have been done. We'll keep monitoring, of course, to be better and better, but huge already in impact and I can see that our guests really pay attention. They tell us as well that they like this sustainable, local food, so going definitely in the right direction. Super happy about this.
Speaker 2:Now, in a moment, we're going to have Martin Segeti joining me in the virtual studio to talk about the event and bring together some of these big topics. But before we do that, here's a few words from Grant Davies about a very special event. You know a thing or two about fantastic events because you host a charity ball for the securities industry benefiting very worthy causes. Tell us more about that. When's the next?
Speaker 16:one, so next one, 9th of May 2024. Put it on your diary. We've done it since 2019. The intention is, and always has been, to help underprivileged children. The events in London, so within London, to help them have a financial education, to give them a leg up. We do also help a couple of other charities. Last year we helped one year we helped Crisis for Homelessness. Last year Anthony Nolan Trust. We also helped Feed Poverty with the Felix Project. Look, we have a lovely community here.
Speaker 16:The intention of the event, its first inception, was to bring that community together for a different purpose rather than just let's talk about what we do as a day job. We quite like each other as an industry. We have good fun, and coming together to do it for good cause as well has just gone down really well. So it's growing. From 220 people We've had four events, it's 500 this year. Tables are going very quickly. I think we'll be sold out. I hope so. It means we raise more and more money for the charity and I'm already planning next year too. We're in the Guild Hall in London, which is an amazing event. And how do people get tickets? Contact me, so info at SecuritiesFinanceBallcom or ping me on my LinkedIn profile, grant Davies.
Speaker 2:And that was that. The event came to an end and it had been a fantastic event. And one man who, of course, was pivotal in the opening, the organisation and also closing it was none other than the head of collateral liquidity and lending solutions, martin Sugetti. Marty, welcome to the show. Now, I couldn't grab Marty at the time because he was quite literally mobbed by people and had to go straight off to many, many high level meetings. So Marty's joining me here in the virtual studio. Marty, what a week that was. That was a fantastic three days of events at the GFF.
Speaker 19:Yeah, andrew, look and thank you so much for your help. I mean having you help us with the central bank and sovereign day, as well as moderating some of the sessions on the second day. We're so grateful for your support. It was an amazing event. I mean, over the three days, I think the attendance and the feedback from the industry was really great. I mean it was overwhelming the support that we have for this event.
Speaker 19:As you know, we've been doing this for 28 years, which is also, you know, you sort of think about how much effort goes into it over time. But we had over 825 participants this time go to the main two days the central bank forum. There were over 100 participants at that, which is a lot more than what we had the year before. Same with the GFF working group, almost double the participants at that this year. And we had, you know, separately while the actual event itself was running. You know there were hundreds of client meetings going on in the background, in the networking area.
Speaker 19:So very well supported by the industry, and I think we achieved what we wanted to achieve, you know, is to provide a place for the industry to come together and kick off their year. It's very important that we hold a summit this time of year we know that we're going to be back same time, same place next year to allow this and people come here to meet their counterparties, meet their partners, decide their trading strategies for the year, understand the directions the industry is going in, adjust their book of work and then it's kind of you know off for the year. So we have confidence that we managed to achieve that.
Speaker 2:And something I didn't get the chance to ask you at the time, and you know I'm sure lots of people did privately collateral management, liquidity management, especially when it comes to things like entry day trading, these have become really big topics, haven't they Transforming really the conversations we had compared to a year or two years ago? So what's your view, sitting there at the helm of, you know, a massive collateral liquidity lending solutions team with loads of tech and, you know, faced with a lot of challenges, headwinds and also, I suppose, opportunities, what's your view for the year ahead? What's going to be the biggest challenge and the biggest opportunity ahead, do you think?
Speaker 19:I mean, I think you're right. The main focus of the conference of your life, the main topic that everyone was talking about, was liquidity. The ECB is very open about reducing its footprints. It's over a trillion downs since it started reducing, changing its policy. The ECB's perspective is it's working because banks are finding new sources of liquidity and that's what they want. They want that adjustment right. They want the markets to facilitate this change.
Speaker 19:New lenders are coming into the markets that weren't there before. Old lenders that were active are now becoming more active because of the interest rate environment, and liquidity is shifting around and finding a place right, but it remains constrained. It remains challenged. There's concerns in the market that what happens when interest rates continue to drop? Right, we're on a trajectory. We don't know when they're going to drop, but I think, if you look what's priced into the market as a good indicator, it's going to be the middle of the year when maybe the interest rate environment starts to drop and go down. Are there thresholds that we go past? Maybe 4%, maybe 2%?
Speaker 19:I don't know where these new liquidity providers in the markets corporate hedge funds, what have you start to pull away because no longer interesting to them. And then what do we do? Especially, people are, and the clients and partners at the forum are discussing how do we then make what we have go further? This is where the technological discussion comes into it, right? What if we don't have to think about liquidity as an overnight concept? Why do we think about liquidity as something where you're borrowing overnight? Why can't we leverage technology in so much as it advanced so far over the last three to five years, to help us borrow money as and when we need it, for only as long as we need it, right?
Speaker 19:I think that that concept is gaining real attention and real traction. It came up in multiple panels on the first and second day. Let's see where we go. Primarily, that's my concern, right, I think. On the securities financing business that I run, we operate as an agent and we operate as a liquidity provider to the market. Our investments in AI, in data, in digital and what have you is ultimately there to facilitate clients accessing new sources of liquidity and giving them data so they can make better decisions around how they do so right, and to better leverage the collateral liquidity that they have at their disposal. That's really our focus. If you look at the investment budget that we have this year. The vast majority of that is dedicated towards data automation, digital right and identifying new sources of liquidity where possible.
Speaker 2:Well, marty, listen, I know you're a very busy man. Thank you for joining me here today and I just have to say thanks so much for having me at the event. The GFF really is something that, if you've never been, you've got to try and get there one day. But, of course, in the meantime, if you can't, you can always connect with all those people right here on the GFF podcast, and you can connect with Marty and everyone else on our LinkedIn channel that's linkedincom slash company, slash Clearstream. And that really is the end of the show now.
Speaker 2:So it's a big goodbye from me, andrew Keith Walker, from my long suffering co-host, christian Rosseller, and, of course, from Martin Segeti, head of collateral liquidity and lending solutions at Clearstream Bank, and do make sure you come back and join us on March the 1st for our next very special show with a very high tech theme. That's all I'm going to say for now. We'll see you in a month. Bye, bye, bye, bye, bye, bye, and don't forget. This show is brought to you by Clearstream Banking, one of the major sponsors of the GFF summit each year in Luxembourg, and features members of the Clearstream team and special guests expressing their personal opinions, not the opinions of Clearstream as an organisation and, of course, don't forget that none of the information in this podcast should be taken as legal, tax or other professional advice. See you next time.