INTERVIEW | A changing understanding of geographic boundaries run as an underlying theme when Euronext CSD chief Pierre Davoust sums up the main trend observations from his own viewpoint over the last years. Scale economies drive cross-border business consolidation, operating models are re-balanced geographically, and our daily work suddenly turned more remote with the Covid-19 pandemic. Read the tenth interview in our lookback series.
This five-year lookback interview is our tenth one in a series. The first five years of PostTrade 360° were celebrated in connection with the Copenhagen 2023 conference on 11–12 October, with Pierre Davoust among the speakers.
“We are in a business of scale. There are economies of scale and these are actually reshaping the post-trade structure and landscape,” says Pierre Davoust.
“It translates into players with scale winning market share and markets, over players who don’t have the scale.”
Through the five-year period in question, his own group has coordinated four national CSDs into one business. From Portugal as the starting point, Denmark, Norway and Italy have been added.
My 5-year observations
Pierre Davoust, Chairman of Euronext Securities
• Consolidation, as an effect of the post-trade industry’s economies of scale.
• A new dynamic between local and global, in operating models and competition strategies.
• Remote working.
“So we are a pure result of that consolidation,” says Pierre Davoust, who sees the new structure as an expression of a desire for larger scale among market participants in the countries of the acquisitions.
“Because the communities saw the strength in their domestic CSDs becoming part of a larger group, and there were economies of scale in play, they decided to sell, and we bought.”
He sees the scale game playing out also in the custody bank industry, with “Nordic sub-custodians having left en masse because they don’t have the scale, and we see that everywhere”.
Not simply local against global
For a second bullet point, Pierre Davoust picks the evolving role of the geographic scope, both in operations and markets.
“We used to have local banks on one hand, and global banks on the other. Now, global banks increase their local activities, while local banks get more possibilities to align with global partners more than in the past. So the boundaries between local and global are a bit blurred,” he concludes.
“We saw many institutions coming back from a global offshoring model – because of Covid, because of the tensions to supply chains, etc. – and that is not just in finance but in other industries as well.”
Pierre Davoust refers to the outcome as a balanced model with aspects of both the local and the global – observable both in the operating models and in the competitive landscape.
“Even the consolidation actually creates advantages for purely local players,” he says, picking Denmark as his example. Many Danish banks, including the smallest ones, now need to change their platforms from old to new.
“Because they were, for a long time, constrained by the local CSD , with no clear outlook to move away from local proprietary workflows, it was hard for them to find any vendor in the world that had an off-the-shelf platform they could use.”
He sees his own company contributing to a rescue.
“The fact that Euronext now runs and standardises the CSD, will allow these banks – which are actually local – to use global platforms from any vendor, because what they need to connect to is more standard.”
Talent beyond place
Thirdly, Pierre Davoust notes the radical changes that the Covid-19 pandemic brought to how we work.
“When we bought the Danish CSD, we did the full integration completely remotely. I travelled only once to Denmark. That was outside our imagination earlier. Now, we are working across Europe on Teams and Zoom the whole day. It makes it much easier to interact across geographies – and I think it gives an advantage to the ones who are able to mobilise the best talents across different locations.”