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Deutsche Börse Group: Summary of Liquidity Risk Management Position Paper

A. Introduction

On 17 June 2008, the European Banking Authority (CEBS) initiated a consultation on its technical advice regarding liquidity risk management, specifically the second part of the advice, in response to the Commission's call for Technical Advice No. 8. Deutsche Börse Group submitted its comments by the deadline of 1 August 2008 and participated in a public hearing on 4 July 2008.

Deutsche Börse Group operates across the entire chain of financial market activities, including trading, clearing, settlement, and custody of securities, derivatives, and other financial instruments. Based on national laws in Germany and Luxembourg, two of its companies, acting as (I)CSDs (Investor Settlement Depository), are classified as credit institutions because they settle in commercial bank money. Additionally, one of its companies, a CCP (Central Counterparty), is classified as a credit institution under German law.

However, the business model of (I)CSDs and CCPs differs significantly from that of traditional banks in the EU. These entities primarily serve other financial institutions and operate within securities settlement systems, without engaging in loan granting or deposit-taking outside of this scope. As a result, most of their deposits and receivables are short-term in nature, such as overnight cash or cash collateral, and they do not hold a trading book. Consequently, many of the specific items in CEBS' technical advice are not directly applicable to the Group's operations.

Despite this, the Group agrees with the general approach outlined in the CEBS proposal, which aligns with their own understanding of liquidity risk management. They support the close link between liquidity risk management and the management of other risks, the trade-off between cost and risk, and the objective of managing liquidity risk at reasonable cost.

The Group also expresses concern that the European Commission's current revision of the Large Loan regime, particularly in relation to interbank exposures, could have a significant negative impact on liquidity risk management. This could increase liquidity costs and affect the efficiency of modern clearing and settlement systems, which in turn could influence liquidity risk management practices.

B. Comment on Recommendations

Recommendation 1

Core Content:
Recommendation 1 assigns the responsibility of defining liquidity risk strategy, setting management policies, and providing further details to the Board of Directors.

Main Viewpoints and Key Information:

• Agreement with the Material Aspect: The Group agrees with the content of the recommendation but disagrees with the assignment of responsibility.
• Disagreement on Responsibility: The Group believes that the task should be assigned to the executive management, not the Board of Directors, especially in companies with a two-tier management structure where the Board is typically considered a supervisory body.
• Legal Basis: The CEBS recommendation is based on Annex V of Directive 2006/48/EC, which states that the management body is responsible for these tasks. Article 11 of the same directive defines the management body as being directed by "at least two persons who effectively direct the business of the credit institution."
• Alignment with Basel Committee: The Group notes that the Basel Committee's draft on "Principles for Sound Liquidity Risk Management and Supervision" published on 17 June 2008 acknowledges the different interpretations of "Board of Directors" across countries and includes a caveat in footnote 4 regarding the matters discussed in Principle 3.