2012 Top International Operations Executives
2012 TOP INTERNATIONAL OPERATIONS EXECUTIVES:
The More Things Change, The More They Stand Out | DIANA CHAN: Shaking Things Up, In European Clearing | CHRIS REMONDI: Increasing Information, Reducing Risk | NEERAJ SAHAI: Marrying Large-Scale Technology With Boutique Service | KEVIN MILNE: Making an Exchange Succeed By Working With Rivals | THOMAS ZEEB: Gold Standard in Securities Processing | CHRISTOPHER JAYNES: Cutting Out the Custodian Bank | PATRICK COLLE: Going Global, But Not Everywhere | TONY FREEMAN: Targeting Two-Day Settlement
THOMAS ZEEB: Gold Standard in Securities Processing
December 19, 2011
In September, SIX Securities Services said it will treat gold as a currency.
Gold would be accepted as payment against the delivery of securities. One troy ounce would act as one unit. The value of the unit gets set in U.S. dollars, one gram valued against one dollar.
That’s innovation, in post-trade processing.
But this “wasn’t a particularly difficult change” to make, said Thomas Zeeb, the chief executive of SIX Securities Services.
That’s because SIX is not your ordinary provider of custodial services. It has a vault in the middle of Switzerland, with three-foot-thick walls and a four-foot-thick ceiling. It’s been called the Fort Knox of Switzerland.
And it stores gold, for banks.
“Gold is interesting,’’ said Zeeb, “because we have had numerous banks come to us over the last two or three years, saying, we’d like to outsource our vault to you.
“You do all our processing for other securities, can you take on our precious metals,’’ he said. “They cost too much” to store and handle, for an individual bank.
So SIX has been taking in a lot of precious metals into its vault, for companies that it already processes trades in stocks, bonds and other securities. Now, it is turning gold into a settlement currency, known as an XAU. The X means there is no country. AU is symbol for gold in the table of elements.
Within a month, Scoach, an exchange joint venture between SIX Group and Deutsche Börse, began offering trading in structured products such as “multi-barrier reverse convertibles” denominated in gold. SIX Securities Services is responsible for the processing. And to use gold as the currency, traders must open an account with SIX Securities Services.
“Creativity” and “securities processing” don’t normally fit into the same sentence. But it’s applying new ideas to back offices that has gotten the Canadian-born Zeeb notice over the course of his fairly far-flung career.
He got his master’s degree in business administration from the Katholieke Universiteit in Leuven, Belgium. This is a town better known as the home of Stella Artois beer, but also home to the Center for Operational Research, which is helping the Society for Worldwide Interbank Financial Telecommunication establish its barometer of world financial health, currently referred to as the SWIFT Index.
Zeeb didn’t plan on becoming intimately familiar with the processing of securities when he took his first job, with Ontario’s Toronto Dominion Bank in 1986. “You slide into it,’’ he said, at SWIFT’s International Business Operations Seminar in, ironically enough, Toronto, in September. “Nobody knows about the post-trade business, until you’re actually in it.”
In the early ‘90s, TD Bank was scaling back its securities processing business … but Deutsche Bank was planning to build its up.
So Zeeb went to Franfurt to work with Deutsche Bank and put his German and English language skills to use. And found a home in the multiple layers of detail that permeate post-trade processing, clearing and settlement.
“It’s an interesting mix of operational discipline combined with really digging into the plumbing of how the capital markets work,’’ he said. “It’s an interesting business and it’s amazing how big it is.”
But investors don’t care – that much – about what happens “behind the radar screen” when they get a statement, a dividend payment or a tax report. “They just don’t think about it,’’ Zeeb said.
Zeeb and his peers, instead, do.
At Deutsche Bank, Zeeb got familiar with corporate action processing, income processing and settlements. In Frankfurt, he became responsible for all non-German, non-European business.
He wound up in Florence, Italy, when it looked like Deutsche Bank was going to acquire an investment management firm.
But that didn’t happen and he wound up, instead, at Bank of New York in London. At a time when “the custody business was going gang busters.
Bank of New York had just bought J.P. Morgan’s custody business and there were a lot of customers, worldwide, looking for ways to get a boost to their bottom lines by outsourcing the management of their assets.
That meant, if you were a custodian, figuring out in great detail how to take over that potential customer’s staff, systems and operations. And delivering a 30 percent savings on top. Or, rather, the bottom.
This isn’t a matter of presenting numbers better. The client just “wants to know am I making money or losing it?,’’ Zeeb said.
Instead, it’s looking hard at how a firm’s processes actually work, standardizing them and, in the end, finding a better way, for instance, to allocate trades into individual accounts.
By the time Zeeb reached Clearstream Banking London in 2004 as its general manager, the move that mattered was to install new tools known collectively as “customer relationship management” software. So that efficiency could not just be tracked, but measured and managed.
In customer service operations, measurements, for instance, are often applied to the speed of answering calls in a a calling center. And the success rate of solving problems.
That way, the average response time in one center is two seconds and 85 percent of queries are solved on that call or within a half hour, that gives a benchmark to manage by. If another office takes 15 minutes on average to pick up the phone and has a hangup rate of 40 percent, an operations manage has a pretty clear idea of where to focus attention.
At the outset of 2008, Zeeb was approached by the SIX Group, which had just been formed by the integration of the SIS Group, which was a custody and securities processing business, the SWX Group, which operated the Swiss Exchange, and Telekurs Group, a market data supplier. The head of SIS wasn’t going to stay on and Zeeb moved in as head of the post-trade business that was renamed SIX Securities Services.
One of his first initiatives in his new position was to make sure an existing innovation got exploited fully. This was the “automatic realignment” of securities.
This purpose was to make sure that SIX’s customers bought securities in the cheapest place they could. And then held them in the cheapest place that made sense. That could depend, for instance, on pending transactions and historic activity in the security in question.
The realignment got calculated by an algorithm, almost like trading, which figured out the “most cost-effective location” for, say, shares in Siemens AG, the German technology firm.
For SIX Group, Zeeb’s challenge is to increase the cross-border and cross-culture business of the securities processing business. Right now, only 30 percent of its asset base is outside Switzerland. More than 50 percent of its clearing business, however, is.
But clearing prices have come down 90 percent in five years and settlement prices 60 percent.
This is putting a premium on finding more and more customers outside Switzerland, just like Vevey-based Nestle did a century ago in food products. In 2010, for instance, SIX Securities Services’ cross-border settlement transactions increased by 16.7% to CHF $6.6 million. But the total quantity of settlement transactions decreased from 28.8 million to 23.4 million.
SIX Securities Services, overall, saw its revenue grow 6 percent in 2010, to $280.8 million, from $264.1 million in 2009 and forecasts “a slight increase in revenue.”
Which, in Zeeb’s world, means you don’t necessarily grow revenue, even if you grow activity. Unless you automate. And innovate.