The Big Interview: Jos Dijsselhof

After departing Euronext to talk up the mantle of chief executive of SIX at the start of 2018, Jos Djisselhof talks to The TRADE about how the first year of his stewardship of SIX has played out, reorganising the business and why the SIX Digital Exchange could be a game-changer for the industry.

Jos Dijsselhof, CEO, SIX

What have been your primary objectives since joining SIX and what progress has been made towards achieving those targets? 

Jos Dijsselhof: My top priority has been to execute on the new mandate of the repositioning and refocus of SIX, and to make things happen that were included in that mandate agreed with the board and chairman. Following on from that, the next priority was to make sure we maintain our business as usual and then drive a change in focus, culture and the way SIX engages both internally and with external partners.

Within that mandate it was decided that we would seek partnership to sell our cards business, the former Division Payment Services, to a bigger party, so that party could take that business on together with their existing business and be a dominant player in Europe. We started that process in January and concluded, in terms of signing, with Worldline in May and will conclude in Q4 in terms of closing. That was one of the big priorities, to get the right partner selected and then execute the signing and negotiation of that transaction. We are proud that we could find with Worldline the perfect partner.

The core business of SIX will remain listing, trading and post-trading, financial information and banking services.  We have streamlined these activities in four business units: Securities & Exchanges, Financial Information, Banking Services and Innovation & Digital.

We have put the former divisions Swiss Exchange and Securities Services together in one business unit. This allows us to offer all services associated with listing, trading, settlement and custody of securities from a single source. We have also bundled all data business activities in the Financial Information business unit and moved the index business to that unit. Furthermore, we created a new business unit, Banking Services, on the back of the card business sale, because we still maintain clearing for Swiss Francs, ATMs, debit cards processing and similar processes

Then we also created a new business unit called Innovation & Digital. That’s where we took all of the people within the organisation that did anything with innovation, put them all together into one unit, doubled down in terms of budget, give them CHF 50 million as a venture investment fund to really start driving innovation. I call that “innovation on steroids”. This is the best model to accelerate innovation and to really wake up the organisation and say: “We are not in the business of optimising what we do today, we are in the business of creating future businesses.” Of course, we need to optimise what we do, but we need to drive innovation through new business models, ways of working, services and products.

We’ve done that whole reorganisation in the first couple of months of 2018 and implemented some changes on the executive team. The second thing we did was to change the engagement model with our customers, because we had one model applying to most of customers and we have changed to that into a more tailor-made engagement model with these customers, so that we almost mirror on our side what the customer is looking for. We have also changed the pricing structure. We had many different individual pricing structures or exceptions to the rule – almost so many exceptions that there was hardly any rule – and we brought that back to more standardised pricing models, so everybody who does business with us in our core businesses has access to the same pricing model. Of course, if you do more you pay less per unit, but everybody has access and the opportunity to use the same pricing model.

Now we need to make sure that we deepen what we do on each individual business, so we have examined what we are going to do, where are we going to invest, in which elements we think we see the biggest opportunities and how we can optimise that value chain, as well as what other models we can start to disrupt the business.

In that second vein, we started SIX Digital Exchange initiatives. Next to our normal business, which we will optimise and further enhance, we want to start almost self-competing initiatives where we create an exchange where clients can get digital or tokenised assets on a regulated digital exchange where you can make transactions, do price formations, settlement, clearing, change of ownerships – the whole value chain – within a split-second. We believe this is a very viable model with a lot of opportunities. We will run that in parallel with our existing business; at some point in time some of our existing business might go into that model or they might not. We can include asset classes in a digital environment that might not be tradeable or suitable for an exchange today, so that’s a huge strategic opportunity and lever for us going forward. 

On the Financial Information side, we will continue to structure the business which is profitable, with a focus on regulatory, compliance, tax and risk additional services, as well as investing in digital data analytics, adding value to data, artificial intelligence tools that our customers can provide for the data and make the data we provide readier to use. In many cases people buy huge packets of data and we need to do all kinds of things to make it ready to use, so we really want to move up the value chain to do these things for our customers.

In the Banking Services area – the Swiss Franc payments, ATMs and debit cards processing – that’s where we see a huge opportunity to become more of a utility or service provider to banks. We see in Switzerland, and I think you see it across the globe, that banks are being forced by regulation and cost pressure, who also probably see more strategic opportunities for themselves in the areas where they are really focusing on the customer and all the back-end processing to middle-office activities. We get a lot of demands for creating services and providing services there. That’s from certain administrative processes to running their cyber security centre or compliance utility, where we do some KYC checks or other things; there are many different flavours there and we are currently formulating what is the right scope for that.

So, I’ve been quite active and quite busy so far this year! In terms of leadership, SIX was being run, more or less, as separate companies, with CEOs of each division. We decided not to have divisional CEOs anymore; there is only one CEO and that’s me. We have business units and wherever it makes sense to look at marketing, communication, finance, and IT to some extent, that are duplicated in business units we have taken it out and put it into a more centralised model. There is an element of greater efficiency, leveraging the fact we are one company.

What are the key areas of innovation and development that SIX will be focusing on going forward?

JD: We take data from our own businesses and from other providers, aggregate it and make it the reference, then we farm it out again. I think there is a huge demand to not just be a raw data provider, but really provide analytics, tools and added value on top of that. I see that very clearly in the regulatory, compliance, tax and risk areas, where we have a huge opportunity to move into those fields. We see it already on the back of MiFID II, where customers didn’t have a choice: They needed to buy services, so they were almost scrambling to get the services in place, but there is a much bigger opportunity and some of these customers are saying they have done this. However, now there are a lot of other regulatory and compliance jobs they are currently doing which they don’t need to anymore or maintain the pace of all the changes, so they want us to do that for them.

The general story in my view is that we use tools to create more value from the data, to be directly consumed by the customer, addressing that middle layer which is currently not there, and, for instance, provide our data to many institutions who have teams who then cleanse the data, as well as taking data from Reuters and Bloomberg. It’s all very costly and the overall cost of data is growing continuously, so that’s where we can really make a difference, creating extra tools and value in a more utility-based way to drive scale.

There is never a silver bullet for technology, it’s about engaging with your customers, understanding where their customers are going and then being tenacious in delivering solutions. There’s no substitute for delivering what you promise and just getting things done. That is a change I want to make with SIX; instead of talking about potential, I would rather talk about fewer things but get them done.

What are the biggest market drivers that are affecting SIX’s clients and what are you doing to address these issues?

Cost pressure is going to be a continuous focus for our customers, so the focus, and perhaps necessity, that might not have been there in the past to do things at scale will drive more business towards us, because we are on the receiving end of creating capabilities at scale for multiple banks. I see the whole process or value chain of what banks do themselves and what an infrastructure or a service provider, like we are, is doing will change dramatically over time.

The second force is that there will be disintermediation. There is more demand from customers to go direct, for instance, a pension fund that wants direct access to the exchange instead of via bank, or retail customers who want to buy assets directly, not even through a broker anymore, but almost getting direct access to some of our services. That’s a difficult discussion, because banks are our customers and in some cases the market is driving towards services where the banks are less involved, so we need to find solutions where we still maintain that relationship and the connection while still moving the industry forward. We discussed this at board level and everybody understands that in some cases that is required. The general stance of our shareholders and customers is that we would rather have SIX do it than a big technology company coming in and taking even more away from us.

I believe companies driven by technology, big data or information will invade the banking space, and therefore also potentially invade the space of organisations that provide services to banks. SIX can leverage from the smaller tech companies and start-ups, and if they are at scale then we can buy or integrate them, but if the bigger ones, like Google, come into our space and decide that it can also run an exchange or payments that will be a serious threat. We need to make sure that our technology capabilities are always current and fresh. We cannot afford to run with legacy systems or play catch up, we need to continuously invest in technology to be able to compete, while also having the huge advantage of being regulated. That is perhaps one of the core values that we have as a company. Regulation, on one hand, is a pain, but on the other it gives us a unique position as being a regulated entity, with FINMA and regulators giving us a stamp, and having the opportunity to influence the regulations. Although I think those bigger tech companies will try to invade, we have a really good chance to compete if we keep our technology capabilities at the right level to sustain that. 

These companies have deep pockets and that’s why we need to continue to invest in our technology. We need to make sure we are relevant, agile and cost efficient, that we are able to deal with volumes and other elements that the industry requires, benefit from cloud solutions and not keep everything in a private data centre because that’s the way it used to be. We need to look at which data sets to keep very private, which need to keep at country level and which can be moved into the public cloud. If we don’t do these kinds of things, then we will become a dinosaur. 

How has work progressed on the SIX Digital Exchange and do you see this as a viable model for the industry to follow?

We announced that we will go into this space and did so with some courage, basically saying that while we are entering the space, we do not have all the answers yet. Every day we get closer to what we think is the right starting position, in terms of the technology solution, potential asset classes we will start with. Let me clarify that we will not start with cryptocurrencies and we will stay away from that for a while. Only if that becomes regulated, mainstream and safe, will we consider admitting that onto our exchange, but we will probably start with existing assets, digitalised or tokenised, on the exchange.

The biggest work ahead of us is to define how this is going to work from a regulatory and legal perspective. There is still a lot to be done with the regulators, with FINMA and the lawyers, making sure that ownership transfer really does mean ownership transfer.

In terms of the operating model and the way we are going to set it up internally, we’ve created a separate company with clear, dedicated leadership in parallel to existing businesses that are co-mingling. We have seen progress in these areas, whereas on the regulatory and legal side there is still a lot of work to be done, which is probably also the hardest work. 

In my view, the whole crux of this is not the technology or applying blockchain, it’s about how we make sure that this is a safe environment where ownership and finality of transactions is safeguarded, both in good and bad weather.

The digital asset ecosystem could be a real game-changer. T+2 and the whole value chain that is currently in place, where all the individual parties make money out of each step, could disappear. It could go into a system where the moment you do a transaction everything else is done as well and you don’t need all of these individual players anymore. You can bring all types of other asset classes onto an exchange like that – buildings, wine collections, art collections, all the things that you read about, in a fractionised manner. 

There is also a potential opportunity to allow more direct access into this model. Currently you must go to a bank or a broker or others, so there could be some distintermeditaion. If this works and it takes out huge amounts of risk, because T+2 inherently means you need to keep collateral before the money is there and you manage that risk in basically two days in the whole process, and if that is gone then collateral, the kind of margin you need to put in and all of these things are gone. 

So, it can dramatically increase the efficiency and the risk profile of that business, and it opens up the many more classes. If that works the way I have it in my mind and our teams have it in their minds, this can be a radical game-change and it could very well be that you and I will be sitting in the future and existing business is completely marginalised because the whole digital exchange set-up is taking over. 

We have done the calculations, there is an element of cannibalising what we have but we think the opportunities of doing more on the digital world and the advantage of being a first mover – which is extremely important, I push my teams really hard to make sure we get there on time – means that the upside is much bigger than the downside.

You have an extensive history across the sell-side; what were the key lessons you took into the new role with SIX?

While working at banks I have always been, to some sense, frustrated or annoyed about the lack of risk-taking at institutions that are built to manage risk. I know that whatever we do, the biggest lesson that I bring to SIX is that we need to be clear about the vision; where things are going, why we think this makes sense, why we think this is a better solution in the long-term, and take our customers along with us step-by-step. I have seen too many infrastructure initiatives where nobody uses these new, shiny technologies. 

Engagement and taking people along on your journey, explaining why it is beneficial to all key stakeholders in the ecosystem is crucial. If we don’t do that then we will not get the sell-side or the banks along with us.

I have also seen that if you want to be successful in banking or financial business, technology is a differentiator, so you have to invest in technology and you need to make sure that your core technology is fit for purpose. You can’t just wait for the big investment projects, you need make sure your core technology and the way you use your data centres, set up your security, organise your data distribution and application development is top notch. If that is not the case, you will always run behind the curve.