The Luxembourg Stock Exchange, a local player with a global outreach, is eyeing some important challenges in the upcoming months. Frank Wagener, who became Chairman of the Board of Directors last April, expects the LuxSE to take on new sectors and expand its range of services, including those dedicated to the fund industry. Discover in this issue’s Finance Interview what he has to say about the future of a central player.

Mr Wagener, what are the big projects under way today at the Luxembourg Stock Exchange and what role do you play in their undertaking?

Although I became chairman of the board of directors of the Luxembourg Stock Exchange in April 2011, I’m not a newcomer as I used to be director and I also previously was the vice chairman of the board. My chairmanship will be about continuity, however while keeping in mind that the world changes rapidly. I think that since 2008 changes in the financial world are affecting us much quicker and deeper than before. We need to pay attention to these changes if we don’t want to take it too easy or be too traditional. At the same time we will continue to keep our stand-alone position, which makes us flexible and gives us a certain neutrality compared to the major players. We will always remain to some extent a niche player.

As for the new vision, it’s all about adapting to circumstances that have changed. LuxSE must, more than before, support the development of Luxembourg’s financial industry through its core business of bonds and shares. We will support the development of the funds industry. Our subsidiary Finesti is already really active in this sector, but there are other players that offer attractive services in Luxembourg. Maybe the future of Luxembourg’s financial sector will require the players to come together and determine who does what. I think we need to open the discussion with the other players of the fund industry, while keeping in mind our role as a developer of Luxembourg’s financial industry. This role was recently highlighted by the main shareholders of the Luxembourg Stock Exchange. With this in mind we will move forward.

To prepare the future of our business, we also took the initiative to see what is being done elsewhere and to examine the technology developments that could be interesting for the LuxSE, Finesti, and for the financial sector as a whole. I’d say that the LuxSE is an international stock exchange, and a little more of that every day. Its stockholders and its shareholders come from all over the world, and it’s always more open to the funds industry.

For you it’s also possible to open the LuxSE business to the banking and insurance sectors. But now funds have the priority.

It’s not possible to do everything at once, and today the priority is given to the funds industry and its surroundings. Once we are really involved in developing the infrastructure for the financial sector, it won’t be possible to ignore the other pillars of the Luxembourg finance economy.

Was this focus on the funds industry business already acute before you became chairman of the board of directors or has it become more so since then?

The idea to have a stronger focus on the funds industry was already present in a few people’s minds and it also was a topic for the management to discuss. It has since become more obvious under my chairmanship. I do not think that it’s only about focusing on the funds industry. We have our traditional activity, the bonds and shares, and beside that we can develop services geared to Luxembourg’s core business, which is the funds industry. It’s not private banking because that activity is currently stagnating. We need to see things as they are. And if Luxembourg wants to further develop the legal and regulatory framework, as well as the infrastructure, the Luxembourg Stock Exchange must play a more active role. We can either develop by ourselves the technological and organisational infrastructure that are required for these developments, or we can start building partnerships. Throughout this process we will work on keeping our independence.

This vision was already there before your arrival.

Yes. My predecessor Raymond Kirsch always defended the LuxSE’s independence. And now if we want to move forward, we will keep this in mind while opening the business to the opportunities offered by our financial centre.

You highly prize your independence in comparison to other stock exchanges that seek mergers and opportunities to grow as multinational players.

I know from my experience in the banking sector that big does not always mean beautiful. I believe in the flexibility and mobility of decision making, which is an important advantage for any business.

Do you perceive the changes seen since 2008 as a challenge or an opportunity?

Since 2008 we can see that in the private banking world but also in the funds industry assets under administration are thinning up. All this has consequences for the LuxSE’s business and future opportunities. But if I only consider our financial results, then I can see the stock exchange a bit like Luxembourg’s orchid – a rare sight. We could wonder if there was a crisis at all. The secret is in our business: the LuxSE is not a monolith, it’s not built on only one pillar. There’s the world of shares, the world of securities, and we have access to the activity of the funds industry via our subsidiary Finesti, as well as some activity we do for third parties. New opportunities lie ahead.

How can these activities become the niches in which the stock exchange can bloom?

By talking to the other main players in Luxembourg. Maybe they also have niches that we could exploit together, joint ventures through which we could specialise, one in a specific direction and the other in another. All of us must make economies of scale, especially in a general context of cost reduction. We all want to have a profitable business, so why have four or five doing the same thing, without the possibility of having margins? As of now, I don’t have any specific sector in mind so this idea of working together will need to evolve. What I want to avoid is for us to stare at each other from each side of a fence. If afterwards, each one makes a decision that is his own, no problem. But at least, it needs to be made knowingly.

I don’t know yet where these ideas will lead us. Maybe some will prefer to keep on speaking Luxembourgish within their company and let the others speak English/American. But I have this will to bring people together, and I see an interest  among the people I’ve met so far, including the Minister of Finance, Luc Frieden. He definitely wants the LuxSE to remain a profitable tool that can support the development of Luxembourg’s financial centre. We can bring the know-how, but also the infrastructure and the organisation. We should not forget that the stock exchange is perceived as a neutral player. Being quite small, we prefer playing the role of a yacht instead of a ship that is too big to easily maneuver.

Have you found at the LuxSE open-minded people ready to explore new roads?

Certainly. In the board of directors there are private bankers, bankers who know the stock exchange business, fund managers, private persons, etc. It’s a very large panel of different kinds of knowledge, which is a clear advantage compared to companies that are the extended arm of an American or English monolithic group. The people who work in the world of the Luxembourg Stock Exchange are openminded, dynamic and involved. We saw this when we discussed the possible developments towards the funds industry: the management and the entire personnel really want to go forward. It’s a very good team on which we can build solid projects. We can have ideas and a vision but without the right people it won’t work. We have a coherent management that is capable of enabling the board of directors’ vision.

Can you tell us more about the current changes within the LuxSE leadership?

Our CEO will step down from his role of president of the executive committee at the general assembly in April 2012. He has spent almost 40 years at the Luxembourg Stock Exchange. From then on his successor will take over, someone who comes from outside the LuxSE, who knows the financial centre well. This change will really be about continuity. Each person has his own mentality, his character but the vision and the philosophy of the stock exchange won’t change.

According to you, is the intelligence needed for these new developments present in Luxembourg, or will LuxSE have to recruit abroad?

We need both. We need people who know the Luxembourg financial centre and its various players really well, including the insurers and bankers. On the other hand, some fresh ideas are always nice to have around. We cannot be blind to what’s happening outside the borders. All banks represented in the centre, except for two, are not from Luxembourg. Almost all funds are non-Luxembourg funds if we look at the end promoter or the one at the beginning. So in the end the Luxembourg financial industry and the LuxSE are anything but national. And we want teams that reflect that.

It’s obvious that if we have ambitious projects, as the funds industry one, we will need to recruit people of quality both from Luxembourg and from abroad.

What about your personal involvement at the LuxSE?

Until September, I was in charge of the BIL’s day-to-day management. Now I have more time on my hands. But everyone has a different role to play. The chairman of the board of directors and the board itself are there for the long-term, sometimes also for the mid-term, and to control the executive committee. But I’m not concerned by the delegation of tasks on a daily basis. For that I’ve organised myself to have regular and frequent contacts with the LuxSE’s management.

What are the big undertakings of the financial centre today to which you’re particularly paying attention?

Tomorrow’s client will be tax-transparent. This will provoke certain changes in European and national laws to which we must quickly adapt. This can create niches, new opportunities for us.

Then, there’s also the fact that each country is more prone to become protectionist than before the crisis, so as to keep clients and the decision centres at home. This creeping patriotism can also create niches for a small company like LuxSE. Being neutral, it’s not perceived as a big American or German or English player that comes to Europe and wants everybody to do business with him. We’re more of a player that can show its advantages to Paris, to Brussels, to Frankfurt. Opportunities will bloom but we need to closely follow the Luxembourg and European regulations and even more so in the neighbouring countries, to see where these future niches are. Now, we’re only at the start.

Being a yacht, we can sail faster towards these opportunities, by having in place the right multi-language and multi-product technology infrastructure. We will need to make business cases over several years to study the commercial niches that are both promising and long-lasting. We must also keep in mind that the advantage of being small can also be a disadvantage. We don’t always have the possibility of positioning ourselves in the right way to make the most of these opportunities.

Could this slow you down in the future?

The LuxSE is known by those players that need to know us. Professionals know what our strengths are. The LuxSE is the place to be and it can provide the right solution from early morning to late evening. It’s not known by the wide public but it’s not what matters. We are known by our potential targets in Europe. A little less in the Anglo-Saxon world but this could change. Hasn’t Luxembourg the ambition to be and remain a threshold for doing business in Europe? Our main business is within Europe. We have opportunities on the continent and we cannot even always cover them all, so going to Asia or the Middle East now is too soon to fathom. We do have clients that come from there. But voluntarily having a marketing approach for these markets is not a goal for us now.

Considering the regulations wave that could increase the cost of fund management, how does the Stock Exchange plan to support the funds’ development?

There’s a permanent communication between the world of funds and the LuxSE. Idem with the European Commission. As we are not amongst the big players of the financial centre, we can make decisions much faster. Again, it’s all about Luxembourg’s advantages of taking rapid ways to facilitate decision-making. We see very clearly that when we answer calls for proposals, we’re much faster and more flexible than the big players. We can quickly tell the client how long it will take for a product to be in place. Some tenderers prefer a more formalised approach, others appreciate our pragmatism, and the fact that our solutions are tailor-made. It’s very important to have a management committee that shares this pragmatic approach and seeks solutions in a permanent exchange with the client. We cannot always offer standard solutions. We work hand in hand with the ABBL and the ALFI so as to make our solutions the best.

By Delphine Reuter