12.11.2019
By Shanny Basar

LuxSE Makes First Fintech Investment

Robert Scharfe, chief executive of the Luxembourg Stock Exchange, said fintechs will play a crucial role in the evolution of capital markets over the next five years as the exchange invested in Origin, a firm automating the process for issuing bonds.

Robert Scharfe, LuxSE

Scharfe told Markets Media: “We are an exchange unlike any other and in the business of listing international securities in order to increase transparency as investors can access data on our website for free. We have 36,000 listed securities, of which 27,000 are fixed income.”

He continued that LuxSE is interested in using technology that either changes the  quality of service, helps improve the market or simplifies the listings process. For example, three years ago the exchange incorporated blockchain for ongoing regulatory reporting requirements.

LuxSE made its first investment in a fintech when it acquired a 10% stake in London-based Origin, which was founded in 2015 to simplify and automate bond issuance.

“I have spent 40 years in capital markets and the process of bond issuance has not fundamentally changed,” Scharfe added. “Origin optimises the connection between issuers and investors.”

The fintech connects frequent borrowers and investment banks in the international debt capital markets in a convenient global marketplace for private placements through Origin Marketplace, it’s origination platform. Two years after launching, 22 investment banks and 85 issuers are using Origin and debt instruments worth $20bn have been originated so far this year.

Scharfe continued: “Origin is a great piece to add to our value chain as it’s digital deal execution and automated documentation flows will help automated listings.”

LuxSE said that one of the features on the Origin platform is the possibility to generate, share and approve fully customisable term sheets and final terms, directly on the platform. Once the final terms are agreed, the securities can be listed electronically on an exchange via the Origin platform.

Raja Palaniappan, chief executive and co-founder of Origin, said in a statement: “We spent over 12 months designing, developing, and testing our documentation tools with our growing and committed group of dealers and issuers.”

The proceeds from the LuxSE investment will be used to fund Origin’s growth as the firm recently opened offices in Paris and Hong Kong, and aims to double its headcount over the next twelve months.

Scharfe said: “LuxSE has more than 90 years of history and we are open-minded on working with new fintechs as it can be a win-win situation.”

However, he continued that the exchange is not a private equity firm and so is not under pressure to make more investments.

”We look at our value chain and will take opportunities if we feel we have a role to play,” Scharfe added. “Making our first investment was a major achievement and any follow-up investments will probably be easier.”

He continued that LuxSE is working on a concrete project on artificial intelligence.

“We have a huge warehouse and we have handed the keys over to the users and said ‘come in and  help yourselves’” added Scharfe. “We want to help investors find the relevant data for them.”

Sustainability

LuxEx celebrated its 90th birthday in May last year.vThe exchange said at the time that it is evolving in line with Luxembourg’s economic agenda which has a strong focus on fintech, sustainability, green finance and China.

Scharfe said: “We are a world leader in sustainable finance with more than 50% of listings.”

Climate Bonds Initiative awarded LuxSE the 2019 Green Bond Pioneer Award in March. In addition, the Luxembourg Green Exchange, launched in 2016, and dedicated exclusively to green, social and sustainable securities won the green bond listing venue category.  Climate Bonds Initiative is an investor-focused not-for-profit, promoting large-scale investment in the low-carbon economy and the awards’ jury is made up of a buy-side advisory committee.

Scharfe said the exchange is looking to improve environmental, social and governance data and allow investors to extract the relevant information automatically.

“We have data on green bonds tied to regulatory reporting,” he said. “The ESG elements are voluntary but are of crucial importance to investors who want quality and quantity and the ability to compare between instruments.”

He said it was urgent for the industry to agree ESG taxonomies to avoid greenwashing, i.e that companies issue green securities without taking the necessary acton.

“For example, we are launching a project with the Inter-American Development Bank on  Latin American green bonds at COP25 in Madrid,” he said, “Databases that materialise need to have a common denominator so they are comparable.”

Outlook

When LuxSE turned 90, Frank Wagener, president of the board of LuxSE, said in a statement: “Big data, driverless cars, climate change, crypto-currencies, smart grids, shifting geopolitical powers are becoming our day-to-day reality. There is place for nimble and focused players, such as LuxSE, provided we clearly identify and anticipate the key determining factors for the ten years to come.”

Scharfe said at the time: “Our slogan is ‘always in motion’, we will keep on moving.”

He explained that for financial institutions, and exchanges in particular, to stay competitive they need to take stock of these trends and embrace them to ensure the best service delivery and to keep costs in check.

Scharfe told Markets Media: “In five years time capital markets will not be the same as change will come very quickly.”

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