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D.Boerse wins key Aussie outsourcing deal

London, August 29, 2011

Deutsche Boerse has won a key outsourcing deal with Australian exchange ASX , giving the German group a boost in the battle between the world's top exchanges to supply emerging stock markets.

Deutsche Boerse, which plans to merge with rival NYSE Euronext, said on Monday its settlement arm Clearstream had struck a deal with ASX to provide collateral management services.

"There is immense pressure on trading firms to make better use of their collateral, and this is only going to increase as tighter regulation takes effect next year," said Stefan Lepp, head of global securities financing at Clearstream.

Outsourcing will enable ASX to offer clients a collateral service more quickly and cheaply than if it had built a platform itself -- a key requirement with banks facing tough collateral restrictions, the companies said.

Global regulators are clamping down on banks' liquidity management practices following the financial crisis and plan sweeping changes to make firms more accountable for their market exposure.

The agreement, the value of which has not been disclosed, comes just six weeks after Boerse delivered a similar collateral management service in Brazil.

Deutsche Boerse said the service was proving popular among international exchanges, regulators and central banks because it handled collateral remotely, meaning the liquidity itself remained in the domestic banking system.

"This is the first service that outsources collateral management functionalities for another country without requiring the underlying collateral to move out of the domestic infrastructure," said Lepp.

The deal is the latest example of the world's largest exchange groups moving to reduce their financial reliance on trading and focus on recurring revenue sources.

Exchanges, which draw the majority of their income from fees charged on orders, have suffered in the past three years as trading has stayed way below the record levels of activity prior to the financial crisis in late 2008.

The value of share trading on all exchanges was just $63 trillion last year and $61 trillion in 2009, down from $114 trillion in both 2007 and 2008, World Federation of Exchanges data shows. In the seven months to the end of July this year, $37 trillion had been traded globally.

Deutsche Boerse, with rivals the London Stock Exchange , NYSE Euronext and Nasdaq OMX , has sought to offset this decline with more reliable income sources, such as data and technology licences.

Packaging and selling their systems to smaller, growing exchanges allows the large stock market groups to draw additional revenue from the investments they made in their own technology.

The world's main exchanges plough tens of millions of dollars into systems to stay competitive and meet the needs of increasingly tech-savvy clients, so the groups relish the opportunity to claw some of this back by re-selling systems.

The LSE struck deals with the Central and Eastern European clearing house in June and the Mongolian Stock Exchange in April. NYSE Euronext backed the Qatar Exchange last September, and Nasdaq signed the Swiss Exchange and Russia's RTS in June.

Deutsche Boerse and NYSE Euronext agreed a $10.2 billion merger in February this year but need the approval of the European Commission, which is studying the proposed combination to ensure the deal would not hurt competition.-Reuters




Tags: Outsourcing | Aussie | German group | Deutsche Boerse | Australian exchange |

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