Jeffrey Tessler Deutsche Börse cautious on Bitcoin and big mergers, but ready for new ventures

Blockchain technology, artificial intelligence and machine-learning are all part of the stock exchange’s growth strategy, a top manager says.
Not exactly the beachwear he had imagined.

Deutsche Börse has grown a bit more cautious as it moves through a leadership transition. The operator of the Frankfurt Stock Exchange is no longer seeking to grow through a big merger. And it has no regrets that CME beat it to the punch in launching Bitcoin futures while the German exchange studies the matter further.

But Deutsche Börse is not out for the count. The new CEO, Theodor Weimer, has a number of seasoned veterans to help him settle in, including Jeffrey Tessler, the American executive board member who heads up clients, products and core markets for the stock exchange company – businesses that account for three-quarters of Deutsche Börse’s revenue.

If everything had gone according to plan, Mr. Tessler would be enjoying retirement at his Florida home instead of wintering in his office in the Frankfurt suburbs. But hardly anything went according to plan last year for Deutsche Börse, so the former Bank of New York executive agreed to postpone his retirement for a year.

The drawn-out controversy over Carsten Kengeter’s tenure as chief executive came to an end last fall when an ongoing probe of alleged insider trading in connection with Deutsche Börse’s failed merger with the London Stock Exchange finally forced him to step down. The board appointed Mr. Weimer to take over as CEO at the beginning of the year, and asked Mr. Tessler to stay on.

To keep calm and carry on wouldn’t be enough. Jeffrey Tessler, Executive board member, Deutsche Börse

“I already canceled my flat, my bags were packed,” Mr. Tessler said in an interview with Handelsblatt. “But the resignation of Carsten Kengeter changed everything.”

Many felt that the first order of business under the new CEO would be to calm things down. But Mr. Tessler rejected the notion that this is the company’s top priority. “To keep calm and carry on wouldn’t be enough,” he said. The financial sector, like the rest of the world, is rapidly changing in what the Davos meeting called the fourth industrial revolution.

“Ideas like artificial intelligence, machine-learning and blockchain, the technology behind the cryptocurrencies, will change the world profoundly,” Mr. Tessler said. Though he was long skeptical of some of these developments, he is now working intensively on applying these concepts to the exchange business. Deutsche Börse has made initial moves into cloud computing and artificial intelligence. It has built its own digital platform and invested in blockchain technology.

The company announced Monday it would work with financial management firm HQLAX to develop a blockchain-based system for securities lending on the Corda platform of startup R3. This not only illustrated the company’s ambition to incorporate new technologies but also its willingness to do so in increments through partnerships and small acquisitions, rather than by pursuing a mega-merger.

“With modern technology, you’re not dependent on mergers to grow your business,” Mr. Tessler said. It’s possible to build common platforms without merging the companies. A prime example, he said, is the Target2-Securities system launched last year by the national central banks for securities settlement in central bank money.

By the same token, however, Deutsche Börse is not unhappy that US-based CME became the first in December to launch a Bitcoin futures product. Bitcoin is so volatile – it plunged from a peak of more than $19,000 to $6,000 – that a certain amount of caution is justified, he suggested.

“Before my area moves into a field that is so volatile, we have to be sure that we understand all the characteristics that move those products,” Mr. Tessler said. The company has formed a team to look at the issue and determine what clients want. “We don’t see tremendous pressure from our clients to develop products relating to cryptocurrencies.”

As Monday’s announcement of new securities lending project demonstrated, however, the blockchain technology itself – use of a distributed ledger platform to track transactions – is interesting for the company. In addition, Deutsche Börse is interested in expanding its data business. Mr. Tessler acknowledges that it is a competitive business but feels the company has an edge.

“We are the only company in the world that has a trading platform, a clearing house and a settlement and custody platform,” said the American executive, who is also chairman of Deutsche Börse’s settlement and custody subsidiary, Clearstream.

Likewise, the company’s Eurex clearing house plans to grow its business by getting a bigger share of the OTC swaps business currently monopolized by Britain’s LCH. That market, with $270 trillion in nominal value, is enormous and grew by another third last year, Mr. Tessler observed. “These figures demonstrate that we could grow significantly if we obtain market share in that business,” he said.

In short, Mr. Tessler has much to keep him busy in a year he thought would be the beginning of a sunny retirement. “My retirement plan was to never wear long pants again,” he joked. Instead, he is working full time this year in Frankfurt and for next year has committed to working part-time as consultant and board chair for Clearstream. “So I won’t be in short trousers in Florida all year,” he said. “I will put on a suit once in a while.”

Handelsblatt reporters Andreas Kröner and Michael Maisch conducted the interview in Frankfurt. Darrell Delamaide is a writer and editor for Handelsblatt Global in Washington, DC. To contact the author: [email protected].