1. Clearstream Communications
Good afternoon Ladies and Gentlemen,
First of all, let me congratulate the American Institute of
Contemporary German Studies for the impressive line-up of
speakers today. This clearly shows how relevant the theme of
this symposium is “Fueling the Recovery – The Role of Capital
Markets and Banks”. This topic is obviously of great importance,
not only for Frankfurt as a financial centre, but also for the
European and US economy – in fact, for the global economy as
a whole. Deutsche Börse Group is therefore more than happy to
host today’s event.
My name is Jeffrey Tessler and I am a member of the Executive
Board of Deutsche Börse, responsible for its banking business
and the post-trade activities.

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I am doubly pleased about this opportunity to talk to you today,
not just from a professional but also from a personal point of
view. As an American who has been living and working in
Europe for more than two decades and for whom London,
Frankfurt and Luxembourg have become second homes, the
relationship between the EU and the US is a topic that is close
to my heart. Events like this are also very important to ensure
that the relationship between these leading economies is
constructive and driven by a spirit of mutual respect for each
other’s interests. This includes an awareness of what we have in
common, but also of where we differ – and especially, where we
can learn from each other. The AICGS and its President, Dr
Jackson Janes, are doing a great job here – so thank you once
more for making this get-together possible at Deutsche Börse’s
traditional trading floor.
Today’s theme is about recovery and how the banking business
and markets can become more transparent, safer and more
resilient. We believe that exchange organisations have a major

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responsibility and a fundamental role to play in achieving these
goals. At Deutsche Börse Group, we process any transaction
end-to-end from the initial trade until the securities are
deposited on our books. We are involved in all steps of the
trading, clearing, settlement and custody cycle and as a result
we are affected by the majority of regulatory developments that
have been or will be implemented during the recovery from the
crisis. Managing this necessary but very heavy regulatory
agenda – also in support of our customers – is one of the ways
in which we as Deutsche Börse Group are contributing to
market recovery. We are an intermediary between the market on
the one side and the political and regulatory stakeholders on the
other side and our intention is to facilitate and take a very
active role in this market dialogue.
I think we would all agree that financial markets should be
based on principles such as stability, transparency and fairness.
Regulation is helping us to amend current shortcomings where
the market alone failed to meet security and risk mitigation

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standards, in other words, the shortcomings of pure market-led
behaviour. What we need, however, are cautious regulatory
measures and increased collaboration between the market and
regulators. We also need a regulatory level playing field, a
concept which is particularly relevant to today’s transatlantic
theme.
I would like to start my speech today by taking a closer look at
the financial crisis of 2007 / 2008 and the following re-
regulation. In order to better understand how it came about, it
helps to have a look at what came before the crisis, which was
a lengthy period of deregulation. This deregulation actually
started back in the 1970s and peaked in the 1990s. At the
time, regulation was seen as an administrative burden which
stifles innovation and creates inefficiencies in the market. There
was a drive to give the markets greater freedom and to let them
find their own balance and create their own rules.

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This deregulation unleashed the leverage potential of financial
markets as a reaction to a period of stagflation and supported
the reconstruction of whole economies in Eastern Europe after
the fall of the Iron Curtain.
While it may have served its purpose well during its time the
rule of deregulation suffered a severe blow with the onset of the
financial crisis in 2007. The crisis exposed ineffective risk
management practices, a lack of transparency and questionable
incentives for individual behaviour. The increasingly deregulated
and highly leveraged markets created in the years before the
crisis did not perform as efficiently as some economic theorists
believed they would. So it should have come as no surprise that
the key response by policymakers to the crisis was to launch a
period of re-regulation. But does this mean that we should give
up the idea of markets as instruments of rational decision-
making altogether? Definitely not.

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Let me make this very clear right away: At Deutsche Börse
Group, we have always supported regulation and it is my deep
belief that there is no free market without rules and regulations.
What we need is a form of regulation that gives reason a chance
– market freedom and regulation do not need to be at odds with
each other. Regulation that is both efficient and effective
provides the framework for competition that is free in the sense
that no participant enjoys an unfair advantage over another.
This means that we must stop to see regulation and free
markets as a contradiction. To put it strongly: Only regulated
markets are free markets – with the important condition,
however, that regulation needs to refrain from intervention. Any
hidden national, political or economic agenda behind regulation
will inevitably make a level playing field impossible and will
result in regulatory arbitrage.
I feel that the crisis has exposed certain core values which
policymakers are now trying to protect and which, in fact, all

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market participants should strive to adhere to with our without
regulation:
 The first value to be rediscovered after the crisis was a
greater emphasis on safety and an individual responsibility for
risk taking.
 The second value to be rediscovered after the crisis is a sense
of integrity and the avoidance of excessive exposures. In
response, we have seen a greater emphasis on risk
management and collateral solutions which we will talk about
more later.
 The third value to be rediscovered after the crisis is efficiency
and transparency which is being brought about by a
simplified market structure. For example, regulators are
striving to dry up dark pools and are pushing for the clearing
of more OTC trades.
Being a Member of the Executive Board of a regulated exchange
organisation, I welcome this rediscovery – while I am also

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concerned about its possible costs. However, some imbalances
are perhaps inevitable in the implementation of rules in support
of these new values, especially when carried out on a global
scale at G20 Summits.
One of the big disadvantages is that we are currently witnessing
uncertainty about the regulatory changes in Europe. Some of
these changes are so complex that even experts find it difficult
to gain an overview of their impact. Until they have become
established in the market, they will in any event cause
uncertainty – and thus restraint.
We have also noticed concern in the market about the
increasing cost of regulatory compliance – which is a side effect
of the fact that the regulatory agenda is heavily charged. What I
get to hear from our customers is that they struggle with costly
adaptations in times where revenue generation is more difficult
than ever.

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We are also witnessing an increasing politicisation of financial
markets. This is not surprising since the current regulatory push
means that financial regulation is moving closer to the top of
political agendas and hence also to party politics. The financial
transaction tax is a good example of how a rather technical –
and ultimately counterproductive – financial regulation can end
up topping political agendas and expose rifts between countries
and political parties both at EU and national level.
The danger of this politicisation is that it could undermine
certain established economic values such as entrepreneurial
spirit and free trade. The more politicised financial markets
become, the more rigid the rules. However, free trade
necessitates a certain amount of tolerance, for example it
implies the acceptance of different industrial norms and trading
practices but also understanding for trading partners with
different values and cultures to our own. I am of course thinking
about the ongoing negotiations for the free trade agreement

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between the EU and the US, where we are witnessing different
opinions despite our common aims.
However, while the financial crisis and the following re-
regulation have brought many changes, I have noticed that two
overriding principles have remained untouched: investor
protection and system protection. In other words: fair and equal
treatment of each market participant, as well as rules,
regulations and technologies that guarantee systemic stability.
And it is no coincidence that these core principles of investor
and system protection are also the objectives of exchange
organisations.
In my opinion, while regulated markets are definitely part of the
solution to stabilise the global financial services industry, they
must be duly embedded in a diversified exchange system. In
fact, I believe that diversified and regulated exchange
organisations that are oriented towards the real economy will
contribute to improving stability and fairness in the financial

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industry in the new re-regulated market environment. Exchanges
not only support regulators through risk management but also
offer solutions for banks and even the economy at large through
collateral management services. Market infrastructures such as
Deutsche Börse not only played a stabilising role during the
crisis, we are also helping to pave the way out of it.
Our strategy is to ensure greater safety and integrity, but also
greater efficiency, for uncollateralised and unregulated markets.
We are expanding our risk and liquidity management
capabilities to those areas of the capital market that hitherto
have been uncollateralised and unregulated. To this end, we are
currently focusing on two major global projects: firstly, clearing
for OTC derivatives, and secondly, collateral and liquidity
management. I do not wish to become too technical here, so
suffice it to say that they are essential and innovative offerings
to improve risk management in line with new regulatory
requirements, while keeping costs for market participants at
bay.

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So now that we have established the pros and cons of the
current re-regulation, let’s take a closer look at the regulatory
approaches in the EU and US.
As I said before, in implementing the re-regulation on a global
scale such as at G20 Summits, some imbalances are perhaps
inevitable.
According to the Bank for International Settlements, the volume
of OTC derivative markets, measured in notional amounts
outstanding, amounted to more than 600 trillion US Dollars last
year. So far, the percentage traded on derivative exchanges and
cleared via CCPs is very small in overall trading. This means
that up to the present day, a huge amount of extremely complex
financial instruments allowing highly-leveraged trading
strategies is left completely unregulated and unsupervised which
creates a huge risk. To tackle this enormous problem, the US
have implemented the Dodd Frank Act and Europe is catching

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up with the US in this respect with EMIR. However, it should be
noted that EMIR is stricter on OTC derivative clearing than the
Dodd Frank Act, especially when it is taken together with the
EU’s Capital Requirement Regulation. So while the EU might be
slower than the US, we feel that the EU standards are stricter
and we would welcome their implementation as a global
benchmark.
Similarly, the EU is looking into ways of capping trading in off-
exchange trading platforms tellingly referred to as “dark pools”.
The reason for this is, to quote the “Financial Times”, a “lack of
transparency”, which has “damage[d] the role of a stock
exchange as a venue for investors to establish asset prices”. I
could not have said it more clearly and concisely. Let me
underline again that increasing transparency is of chief
importance for regaining confidence in markets, which logically
implies limiting dark trading. The proliferation of off-exchange
trading platforms has made the US securities markets
increasingly unstable in recent years. This is an area where

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Europe enjoys a definite advantage, and we need to do all we
can to keep it this way.
It is often claimed that the American way of regulating capital
markets is superior to what we have in Europe and that this
applies in particular to the German regulatory regime because
far too much attention is paid to security here. The regulation of
high-frequency trading, which has recently hit the headlines
again in the US, seems to me to be a good example that the
opposite holds true. Here in Germany, the law regulating high-
frequency trading unites sensitivity to the market with investor
protection. Deutsche Börse combined computerised trading with
a range of security functions a long time ago. We have equipped
our trading systems with mechanisms that restore trading to
calmer waters if it is hit by irrational fluctuations. In addition,
the European market structure is different from the US market,
it is considerably less fragmented and is organised differently. I
can only hope that European policymakers will ensure that
these differences are adequately reflected in future regulation.

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And my preference would be for this German law to be a model
across Europe and the US.
Capital requirements are another area in which the EU and the
US have different regulatory approaches. In Europe we have
Basel III and CRD IV, in the US – to our knowledge – the
implementation is partly ongoing and several planned regulatory
initiatives are not yet published. Likewise, here in Europe, we
are discussing a financial transaction tax whereas the US are
currently not considering such a move.
In general, I think it is safe to say that the US remain a pioneer
in many respects, even though certain occurrences there
triggered the financial crisis. They are ahead of the EU in the re-
regulation of capital markets and they made use of the crisis to
quickly create new, effective banks and stock exchange
organisations which are strengthened through mergers and
disciplined through sanctions. We in Europe do our best but all

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too often quarrel over dubious bureaucratic and wrong
regulatory hurdles.
In general, we have observed that the US have moved on
quickly after the crisis despite party politics and that the EU is
slower than the US in adopting regulations. While I believe
there are merits to both regulatory approaches, it is of utmost
importance to aim for a harmonised regulation of financial
markets as these markets are global markets. A level regulatory
playing field is of essential. Even when regulators strive for
common solutions at a global level such as at G20 summits,
differences in the implementation speed and scope endanger
this level playing field and open the door to regulatory arbitrage
and should therefore be avoided.
So let me now come to the end of my speech by giving you a
little summary:

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Financial markets should be organised based on integrity,
stability and fairness and the current period of re-regulation can
achieve just that as long as the regulatory measures are
proportionate and do not get over-politicised. While regulated
markets are definitely part of the solution to stabilise the global
financial services industry in a sustainable manner, they must
be duly embedded in a diversified exchange system. Exchange
organisations such as Deutsche Börse Group play a key role in
ensuring transparency and fairness in line with upcoming
regulations as they provide efficient price discovery, risk
management and collateralisation services.
While we support the current push for re-regulation, there are
some considerable differences in the scale and scope of
implementation of global regulatory initiatives between the EU
and the US. I believe there are merits to both regulatory
approaches, but it is of utmost importance to aim for a
harmonised regulation of financial markets as these markets are

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global markets. A level regulatory playing field is absolutely
essential to meet the goals of transparency and fairness.
I will now hand over to the first panel that will delve deeper into
the subjects I have just touched upon by examining the role of
capital markets.
I wish you a successful conference, with insightful discussions.
Thank you very much for your attention.