In the primary debt capital markets NowCM has found a formula for success that eluded others

A Future of Finance interview with Robert Koller, Founder and CEO at NowCM, and Jochen Metzger, Global Head of Markets at NowCM.

The bond and money markets have emerged, for different reasons, as early targets for transformation through the application of blockchain technology. Although the illiquidity of the corporate bond markets in particular is a tempting target for blockchains and tokenisers, several new ventures have aimed instead to improve the notoriously under-digitalised primary market issuance process. A number, despite the materiality of the opportunity, have failed already. But survival is not the only risen why the stealthier rise of NowCM is of interest. The reasons behind its steady success so far include a focus on solving primary market inefficiencies with accurate data rather than process-transforming technology; a commitment to an open rather than a closed network that attracts other specialist service providers and facilitates unthreatening partnerships with both established debt market networks and other start-ups; a recognition that it is wiser to work with the incumbent sell-side intermediaries rather than against them, not least because the buy-side continues to want them to be involved; a preference for conventional technologies that minimise the cost and complexity of connecting users and delivering services; and, lastly, a number of astute acquisitions that have secured solid revenues as well as valuable technology and useful client relationships. Dominic Hobson, co-founder of the Future of Finance, spoke to Robert Koller, Founder and CEO at NowCM, and Jochen Metzger, formerly a senior official at the Bundesbank who is now Global Head of Markets at NowCM, about the origins, products, strategy and growth plans of a business that describes itself as both a “data company” and a ”new era market infrastructure.”

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Key Insights

1. NowCM, the product of the purchase by Luxembourg-based securitisation vehicle European Primary Placement Facility (EPPF) of the regulated euro commercial paper MTF NowCP from Orange and a group of banks, is founded on the belief that the primary debt market in Europe suffers from multiple inefficiencies.

2. In aiming to overcome the fragmentation – by national laws, regulations, business rules and market customs – of European debt markets, the NowCM strategy is in close alignment with the Capital Market Union (CMU) programme of the European Union, which aims to create a single European capital market.

3. NowCM believes it can make a material contribution to fulfilling a principal aim of the CMU, which is to make the European funding of corporates (70-80 per cent of which is lent by banks off their balance sheets) more like the American model (where 80 per cent of funding is raised by corporates in the debt capital markets).

4. NowCM seeks to overcome the fragmentation in Europe not by harmonising laws, regulations, business rules and market customs but by creating a “golden source” of data about national practices, and automating the data flows and operational process by which debt issues are negotiated, documented and issued.

5. The automation of operational processes is driven by high quality data on national practices, stored and managed via a Cloud-based data model that has replaced email attachments, PDFs, faxes, scans and standard messages with a database incorporating more than 5,000 variables and 15,000-plus business rules.

6. The data model makes available to all parties to an issue in machine-readable form, accessible via APIs, all the prospectus information they need to review about an issuer, the terms and conditions and lifecycle of the issue, and associated documents such as subscription and paying agency agreements.

7. In addition to automating the issuance process, NowCM also continues (as EPPF did) to act as an issuer of debt on behalf of and guaranteed by firms that prefer to avoid the costs and administration of issuing in their own name, and claims to cut issuance costs by 80-90 per cent and issuance timetables from months to weeks.

8. The issuance vehicle service provided by NowCM is proving effective in the Green Bond market, where covenants on the “green” use of the proceeds of issues are notoriously insubstantial, because the vehicle can play a fiduciary role in ensuring that the funds raised are invested in line with the promises in the prospectus.

9. The Paris-based NowCP MTF, which was rebranded as NowCM France, currently has 43 members, of which 30 are issuers, with seven dealer banks and 16 investors that are active, which have between them completed around 500 transactions worth almost €15 billion in commercial paper outstandings.

10. The ambition of NowCM is to build a pan-European debt issuance business on the French foundation, encompassing not just other jurisdictions but debt asset classes other than commercial paper, including European Medium-Term Notes (MTNs) and all fixed and floating rate bonds on behalf of a full range of credits.

11. NowCM enables issuers to negotiate the terms of an issue on its platform and initiate automated operational processes to raise the funds, at transaction costs that are sufficiently low to make it feasible to tap the market as needed rather than attempt to contain costs by occasional borrowings that are larger than required.

12. Although NowCM confines its activities to the primary market, leaving secondary market activity to the established debt trading platforms, the ready availability of credit information and the ability of issuers to tap the debt market repeatedly does blur the distinction between the primary and the secondary market.

13. NowCM prepared for the tokenisation of bond issuance by purchasing in January 2023 the assets of Nivaura, a London-based competitor that pioneered the issuance of debt on to blockchain, and whose intellectual property included a mark-up language that maps legal language to operational processes.

14. The NowCM platform is open not just to issuers that would normally be deterred by the costs of issuing money market instruments and securities but also to exchanges and pre- and post-trade service providers that wish to distribute their services via the platform as well as use the tools available on the platform.

15. A benefit of the openness of the NowCM platform is the ability to incorporate third-party applications alongside the in-house documentation, book-building and issuance services, with the long-term aim of providing the primary debt capital market equivalent of an app store accessible via a mobile telephone.

16. The third parties with which NowCM users can interact include Liquidnet (whose MTFs enable asset managers to trade peer-to-peer and via dealers), BondAuction (a primary debt market issuance auction platform) and MarketNode (the Singapore-based credit, funds and structured products tokenisation platform).

17. An open platform with rich proprietary and independent services also enables users to economise on the number of interfaces they have to maintain because they can accomplish all aspects of an issue in one place, without incurring multiple connection and compliance costs.

18. But the most important benefit of openness is that it generates network effects, with new issuers bringing new investors, broker-dealers, exchanges and service providers, creating a virtuous circle is which the value of the platform to each existing user increases with each new user that joins the platform.

19. To reassure institutional users that pricing is fair and competitive, there is capital protection for client funds and there is minimal risk of compliance breaches, NowCM has a deposit-taking licence in Luxembourg and its MTF is supervised by three French regulators (ACPR, Banque de France and AMF) and ESMA.

20. NowCM works with intermediaries, especially the dealers which structure and trade the instruments, because issuers like the services and investors they bring, the dealers value the data and counterparty management and co-ordination the platform offers, and because transformative disintermediation is a pipedream.

21. What investors value most about NowCM is the early provision of data about new issues in machine-readable form directly into their OMS or EMS systems, which gives them more time to decide whether or not to invest, and by extension benefits dealers that are looking for quick decisions by investors.

22. NowCM recognises the potential benefits of blockchain in sharing data with the parties to an issue but chose to makes its services accessible via the Cloud using conventional technology to avoid having to on-board users on to a particular blockchain and then solve the inter-operability problem that choice would create.

23. Likewise, Artificial Intelligence (AI) has proved unhelpful, because the computational statistical models that it relies upon are ill-suited to the perfect accuracy required by the NowCM data model, whose contents must be completely reliable because they support high value contractual liabilities.

24. NowCM presently provides the service to create the payload of a token than tokenise debt instruments itself. But the company expects tokens to play a crucial role in transmitting real-time data about the performance of the real-world assets – such as buildings and wind-farms , for example – that underpin the creditworthiness of securities in issue.

25. The growth strategy at NowCM includes expansion into the Asian and North American markets and into other asset classes, such as the interest rate and currency swaps often associated with bond issues, and the market in bank loans, whose characteristics are similar to bonds and money market instruments.

26. Despite the failure of several start-ups to transform the primary debt markets, NowCM management believe they can succeed where others have failed because they are reliant on a well-developed data model rather than technology alone and are developing an open network rather than a closed environment.

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Transcript

00:14 Dominic Hobson: Hello, I’m Dominic Hobson, Co-founder of Future of Finance. My guests today are Robert Koller, CEO, and Jochen Metzger, Global Head of Markets, at NowCM, the new market infrastructure for the primary debt capital markets that provides a Cloud-based solution to the legendary inefficiencies of the bond origination, negotiation and issuance process, and also owns and operates a regulated multi-lateral trading facility, or MTF, for the primary debt markets. Robert, Jochen, thanks very much for joining us today.

00:49 Robert Koller: Thanks for having us.

00:51 Jochen Metzger: It’s a pleasure to be here with you, Dominic, and the Future of Finance.

Question: What is the opportunity in the debt markets that NowCM has identified? 

00:57 Dominic Hobson: One of the things I looked at in preparing for our conversation today was the history. And I know that NowCM emerged from the purchase by eppf [European primary placement facility] Group of the MTF [Multi-lateral Trading Facility] sister company to the ID2S blockchain-based CSD [Central Securities Depository] for the commercial paper markets in Paris. Can you tell us, Robert, what was the opportunity that eppf identified?

01:23 Robert Koller: This goes back a few years already. So we are actually a market initiative based on the instance of a few German banks that wanted to harmonise the European market. So that was actually pre-CMU [Capital Markets Union]. And I was working as a lawyer at the time and we wanted to create a more efficient marketplace. And when I started looking into this as a DCM [Debt Capital Markets] lawyer, we found together with the banks that it’s not just the documentation that needs updating, it needs also the entire process was completely out of date. As I always say, the biggest changes in the last 50 years was the introduction of email and Microsoft Word. And that’s it. In many documents you still find fax numbers and they’re still being used. So we looked into this and the initiative got really quickly into an international initiative, involved regulators and international banks and really wanted to create something that lowers the entry barriers to capital markets, makes it more efficient, creates a golden source of data and increases the certainty of execution so that funding becomes as easy as making a transfer on your mobile app to another participant, where Jochen has actually mastered a lot of things that we’re using today in his time at the Bundesbank. And hopefully we can, and I think we’re in a good way there, already achieve similar successes in the primary markets.

Question: What is the opportunity the new investors in NowCM are looking to exploit? 

03:16 Dominic Hobson: The story you tell is certainly familiar to me. Back in the 1980s, I had a brief and undistinguished career in the Eurobond markets, and I can remember the excitement when we switched from the telex machine to the fax machine. And I was horrified when I first began to look at this area in the last couple of years to find that faxes were still being used as you just described. Anyway, clearly you identified an opportunity, but you’ve taken in some other investors since then. Who are they? Where did they come from? Why did they become shareholders? What was the opportunity that they saw?

03:50 Robert Koller: Well, I think the opportunity that they saw is what investors call a deep blue ocean. It’s something that hasn’t been done and where there’s a huge opportunity to change in a good way one of the biggest markets in the world, although it’s very niche and very few investors understand actually what is going on and the processes. It took us many years to really figure out the entire value chain and what everybody is doing and how many parties are involved. So most of them are private individuals, high net worth individuals, management, of course, and we have two VCs [Venture Capital funds] in our share capital that have funded us for the past few years. And also the acquisitions that you mentioned also passed. We’ve also acquired the assets of Nivaura, which was a former competitor. And, yeah, we’re very grateful for their support and are looking forward to welcoming new investors in the near future.

Question: What are the problems in the primary debt capital markets that NowCM aims to solve? 

05:04 Dominic Hobson: Jochen, perhaps I could bring you in at this point. We’ve talked as if it’s obvious what the shortcomings in the debt capital markets, from a primary issuance point of view, are. But how would you describe the problems which NowCM is looking to solve in the debt capital markets? What are they? What are those problems?

05:24 Jochen Metzger: Dominic, we first want to overcome the fragmentation of the debt markets by national law, regulation and custom, including business rules. And, by doing so, we could create a virtuous cycle of funding where more issuers attract more dealers and more investors, pulling in even more issuers. And this goes on and on. And in doing so, this would create a really deep and liquid primary debt market. And of course, this will add a lot of strength to the European Capital Markets Union.

06:09 Dominic Hobson: Could I ask you to clarify that first point you made, Jochen, about overcoming the fragmentation? After all, that is what the whole CMU [Capital Markets Union], the whole Capital Markets Union is really about. How can an organisation like yours accomplish that? Does it not require sweeping changes in regulation, in securities law, tax laws and so on?

06:30 Jochen Metzger: I think it’s not about changing the regulation. What we try to achieve is how you can live with, let’s say, diverging regulation. That is, we want to provide you with the tools to overcome or to deal with that, let’s say, fragmentation. And this is, let’s say, quite successful. If you think of the golden source data model. The data model goes a long way because it will allow you to produce the documents according to different national laws or regulations at, let’s say, the tip of a button. That’s what we try to do.

Question: What sort of issuers and issues is NowCM supporting? 

07:13 Dominic Hobson: Okay, I see you’re adapting to the fragmentation, dealing with it more efficiently. Now we’re not talking here about a start-up either. NowCM is actually operating., you’ve supported issues, that the figure I saw was €10 billion, so this is not trivial. Can you tell us a bit about what types of issuers, by which I mean are they banks or insurance companies or corporates? And the types of issues, are you doing just bonds or are you doing shor -term, maybe commercial paper, money market instruments as well? So tell us a bit about the type of issuers, the type of issues, and what sort of services they’re purchasing from you at this point, and indeed how you expect those services and clients to evolve in the future.

07:57 Robert Koller: Yeah, thank you very much for this question. I think there’s two things we need to clarify first before going into this. One is that NowCM sees itself as a vertically integrated company. So we have three legs, and we’ll discuss this probably a bit later on in more detail. But one is where we act as issuer for other people. The other one is where we automate the issuance process. And the third one is the marketplace. So we are actually an issuer, a market participant, a market maker and an infrastructure provider in terms of digitalisation of process. The other thing which needs to be clarified and is … When we talk about transactions, there’s a lot of confusion in the market. So for us, a transaction is not just doing the documentation. You’ll see out there people that say they’ve done billions and billions of transactions, but in reality they have just prepared a term sheet or something similar. So this is what we call NowDocs, and where we have the automation and our unparalleled data model. We don’t count this as transactions because it becomes absurd in terms of numbers and really what we’re doing is we’re facilitating the process – we’re not a party in this. But where we are a party in the other two legs is what we call NowTreasury, where we have a regulated entity in Luxembourg, where we actually act as issuer, deal with all the administrative stuff, take away a lot of hassle from companies, municipalities, SSAs [Sovereigns, Supranationals and Agencies] that want to go to market but haven’t done so because of the high entry barriers. And we’ve developed with big law firms like Clifford Chance, White & Case, Simmons and Simmons, and in France we work with CMS Lefebvre, a standard documentation which we provide to our issuers, and they then can use this. It’s fully automated and the costs are down about 80-90 per cent, and the speed is for the set-up is down from months to weeks and, once set up, it’s real-time. So there we’ve done several hundreds of millions and have a pipeline of several billions for this next year, where we, for example, did the London Borough of Sutton. We’re working also with a German corporate like Haniel [Group], and have many more coming. Also, project finance is a big thing there. So this is where we actually consider transactions being done and which counts, as opposed to just providing the documentation. As to the marketplace, Jochen can tell more.

10:54 Jochen Metzger: Let me expand here a little bit about the NowCM France MTF [Multi-Lateral Trading Facility]. Currently we are having 43 members, of which 30 are issuers. We have seven dealer banks and 16 investors. And to date they have done some 500 transactions with a little less than €15 billion in CP [Commercial Paper] outstanding. And that’s, let’s say, the NowCM France marketplace.

Question: Who is using the NowCM MTF? 

11:31 Dominic Hobson: Now the MTF, which I mentioned in my opening remarks, is now branded as NowMarkets, alongside NowDocs and NowTreasury. Who’s using it? How does it work?

11:44 Jochen Metzger: Yeah, Dominic, today it’s, let’s say, French issuers, French dealer banks and French investors are using NEU CP [Negotiable EUropean Commercial Paper]. And this is the template that was developed by the Banque de France to support the money market. And of course we want to make it European. We want to bring new issuers, say, from, for example, from Germany. We want to bring new instruments. We call this NowBonds. This would include euro commercial paper, it would include euro MTN [Negotiable European Medium-Term Notes], and it would include all bonds. And we want to have, let’s say NowCM France as a primary market for all debt instruments for issuers, big and small, for corporates [and] banks. And we want to cover the full geographic and risk spectrum of the EU [European Union]. That’s the ambition.

Question: Why is NowCM focused on the primary rather than the secondary market? 

12:40 Dominic Hobson: And my understanding is that NowMarkets is a primary market only. What explains that focus? Why not get involved in the secondary market as well?

12:52 Robert Koller: Maybe I can say a few words here. I think one really needs to let it sink in, what we’re doing here. It’s really the first regulated market globally, in the primary bond issuance area. Commercial paper also being bonds, legally speaking. And that is something that has never been done before. You negotiate on a platform, you agree the terms, you push a button and everything else goes automatically. So this is where we see the deep blue ocean, where we see the chance to really increase and change the funding behaviour that is currently done, instead of going to the market and fund the €4 billion benchmark [issue], because you need it for an acquisition or so. You could also go to the market several times a day. So you have much more pricing points, more liquidity, and the marginal costs due to our automation and data model have become so low that we can actually offer this service. So this is really what I think is the revolutionary part of it. And Jochen, maybe you can, I would.

14:16 Jochen Metzger: I’d like to add here. Of course, this revolution, let’s say, kind of is getting closer to the secondary market. The line between primary markets and secondary markets starts to blur when you consider the near real-time funding. But our competitive advantage, our strength, at NowCM is tied to the easy issuance process and it peters out, say, the farther you get out in the secondary market. We cannot really compete with the huge reach of, say, TradeWeb, Bloomberg, ICAP. But, let’s say. we can go, say, the first steps towards this direction, that we can do.

15:05 Dominic Hobson: As you say, Jochen, you can’t completely divorce the primary and the secondary markets. On the other hand, it’s quite a crowded field with trading platforms, secondary markets, in place already. But in your long-term thinking, are there any plans to develop a secondary market or is it just too soon to be thinking about things like that?

15:27 Jochen Metzger: Dominic, let me repeat, the competitive advantage of NowCM is related to the primary end and in the secondary debt market space we cannot do much. However, what we can do, we can provide more data to the secondary market. If you are a NowDocs client, you can really come up with, let’s say, real time credit information, and this may support, let’s say, the secondary market trading. Think of algo trading. It’s not yet possible, but that’s something we would be happy to, let’s say, assist and support. So not ourselves going to the secondary market, but making the secondary market space a better place too. That’s what we could do.

Question: How are market participants using NowDocs? 

16:16 Dominic Hobson: Robert, you’ve mentioned a number of times that this service you offer isn’t just about documentation, but the core service of NowCM is this sharing of data, but also that documentation facility, what you call NowDocs. Can you explain a bit more detail? You’ve alluded to it more than once. Can you explain a bit more detail how it works and how customers are using it? I’m talking here of NowDocs.

16:44 Robert Koller: Yes. So I wouldn’t call it a core service. I would say it’s the first service in a row of services. So in order to digitalise the whole market and make it real time, we need to get people on a digital platform. And this is what we provide with NowDocs. Whereas at the moment you have 30-40 parties sending emails, PDFs, faxes and telex I haven’t seen lately, but it’s not too long ago around, and even handwritten mark-ups with scanned copies and so on via unsecured channel like email. We’ve all consolidated this in one Cloud-based platform, [with] increased security. We worked there together with a company called ReSecure to really offer bank-grade security and where all the people that have a role to play in this process – and, as I said, there are sometimes up to 30-40 parties can access the data – can enrich it, can consume it. So I would call ourselves really a data company in the end. And all of this is based on a data model that we’ve been developing over the past eleven years. So I started the first Proof of Concept [PoC] eleven years ago with a German bank, and since then we’ve developed our data model more and it is a very comprehensive one because what we can do is we can represent the entire information that is not only in the prospectus, not only referring to the issuer, to the risk factors or to the Ts and Cs [Terms and Conditions] and with this the entire lifecycle of a bond. We also have all the site documents like subscription agreements, agency agreements. All of this is machine-readable and suddenly you have a data set that covers all the data that is spread over all these documents and at the moment inaccessible in unstructured PDFs. And you have it in a very structured data model with more than 5,000 variables and 15,000-plus business rules that link these variables together. So this is where everybody benefits. Because at the moment you have inside the banks and outside the banks a lot of people typing in this information manually into a myriad of different systems. And with our API-[Application Programme Interface] based system, which is centralised and Cloud-based, we can provide a real source of truth or golden data source to all participants. And that makes a huge difference in terms of error correction, in terms of execution. Of course, real-time becomes possible with this. And you have [it] all in one data set.

19:46 Dominic Hobson: You say everybody benefits, Robert, [but] I wonder if you’re popular with your former colleagues in the law.

19:53 Robert Koller: Well, actually, yes, they’re onboarding us as well. So there’s several reasons for that. First of all, no one in their right mind thinks we’re going back to manual. Digitalisation is happening otherwise. Yeah, I think people would challenge your state of mind if you argue the other way. They are very intelligent people so they know this perfectly well. Law firms have also difficulties to finding new recruits to do low value, repetitive work. So they’re also looking for automation solutions. And, by being more efficient internally, they can, for example, reduce the prices a little bit, but still be more profitable than they were before, because the whole process is more efficient. So it’s really win-win for everyone here. But one thing to add is there is, if we would focus only on automation without the other two legs – marketplace and issuer – in the end it will become, let’s say, a fight for fees along the value chain, that’s for sure. And that’s. I think, where other business models fall very short. What we want to do is to grow the pie really in favour of everyone in the market by giving access to people who haven’t done it yet, or entities. And there’s the famous comparison that you certainly know about American capital markets, which are 80 per cent financing the economy, whereas in Europe it’s 80 percent bank financed or 70 per cent. So it’s really the opposite. And there’s a huge growth potential for capital markets.

Question: How are market participants using NowServices? 

21:54 Dominic Hobson: It’s about increasing the revenue, lowering the costs and therefore widening everyone’s margins, I guess. Now, Jochen, can you tell me about NowServices? I’ve put it in my mind somewhere as a toolbox, which users can pick and mix, which services they want to use for their particular needs. Now, why does a, if I’ve understood it correctly, why does a pick and mix option make sense for NowCM?

22:17Jochen Metzger: Dominic, now CM is, yes, a toolbox, but it’s also more. It’s also an open platform. The issuers and all other actors involved in pre-trade and post-trade, they can use it, however, without being locked in. They can connect to NowCM. They can connect, let’s say, our tools, our toolbox to their internal systems, and they can also bring in other resources as needed. The toolbox is fast and highly flexible, and the open setup, the open platform ensures that now NowCM will work under all market conditions. Need new players? Bring them on. NowCM is about access, process and price discovery. We call this APP [Access, Process, Price Discovery], and it’s the toolbox plus the open platform that makes it worthwhile.

Question: How is NowCM aiming to improve the book-building process? 

23:13 Dominic Hobson: I guess the openness then is about attracting people, generating those network effects which will lead revenue, which Robert was describing. Talking of automation and growing the marketplace, book-building is how we all tend to think of the bond markets going back at least a century and a half. You’ve got NowBooks. This is clearly intended to improve that process. How does it improve it? Why is it better than the traditional book-building method, which took place largely over the telephone I imagine.

23:48 Robert Koller: Well, current book-building is done by incumbents already via the Internet, but very, let’s say, aged platforms. NowBooks is a project; it’s not live yet. So first we want to bring bonds to NowCM markets, which is our main focus. But it is another tool that people then can use and which is fully integrated. At the moment the book-building, you are right, investors are being checked upon by sales by phone and then they submit their orders and either the bank or they directly type it into the book-building system. But to set up the bond you already need to do some manual work and with a data model like ours, it becomes much more efficient and it becomes much easier to create the book to use the data for the issuers that they want to analyse. And because we’re regulated, we’re also a SWIFT member, so we can also automatically send – and this again is a future vision, [because] it’s in development – we could send order, settlement and payment instructions directly out of the book-building system.

Question: Now Treasury is an issuance service for issuers. How does it work? 

25.07: Dominic Hobson: You mentioned a while back NowTreasury, which if I understand it correctly, is a kind of issuance service.

25:15 Robert Koller: Correct.

25:15 Dominic Hobson: And does it derive from the eppf model of – I like this phrase, actually – capital markets as a service? Anyway, how does NowTreasury work for the users?

25:29 Robert Koller: Indeed. So Now treasury or eppf, as it were called before, which stands or stood for European Primary Placement Facility, we changed the name because we found out there is actually a terrorist organisation with the same abbreviation, so we thought it was not the best name to continue with and took the takeover of NowCP as a chance to become NowCapitalMarkets [NowCM]. But basically we have a regulated entity in Luxembourg that is an issuance vehicle that can be divided into compartments which are completely ring fenced, self-sustained pockets, really similar to a finance subsidiary in the Netherlands or even in Luxembourg, but without all the costs. Having a compartment gives you basically a company, but you don’t have to wear all the costs. It’s audited by PwC, we have professional directors, and it’s regulated. So it allows for real pass-through or treasury management as well. You can use it for more than just issuance, of course, but it reduces the cost and it provides a lot of benefit, us being legally the issuer. You would still … If you look up London Borough of Sutton, you will find London Borough of Sutton in Bloomberg, but it would say Sutton via NowCM. What that means is that the underlying borrower really doesn’t have to deal with all these complex issues touching CSDs [Central Securities Depositories] and listings and other things which we have all automated and connected to. The issuer really gets only, or the underlying borrower, only gets a loan from our vehicle in Luxembourg and has the same experience as they would go to a bank. The loan is 100 per cent pass-through, so there’s no deductions or anything, no withholding. The only thing the underlying borrower has to do is to guarantee the bond so that we’re speaking about the same credit. It’s obviously not the credit of the SPV [Special Purpose Vehicle]. And when I say just to guarantee, this requires a very sophisticated framework, which we’ve been developing for more than two years with auditors, regulators and mostly rating agencies, so that there is no deduction in terms of pass-through and then participate in the roadshow and explaining their credit story. But everything else is done by us. And that’s why we coined the term `capital markets as a service.’

28:23 Jochen Metzger: And, Dominic, let me add here this combination of the marketplace with the NowTreasury that allows or brings in borrowers that would have shied away from the market for the hassle. This is, let’s say, broadening the investment universe. This is also attracting the dealers and the investors. And let me make again reference to this virtuous cycle of the capital markets. New borrowers bring, let’s say, new dealers and new investors, and this attracts, again, borrowers. So this makes, let’s say, the marketplace a lot richer. The execution brings certainty and speed, and, let’s say, for investors, they can get better, diversified and richer investment portfolios. So the combination makes it more valuable.

Question: How well integrated are the services, from the customer perspective? 

29:22 Dominic Hobson: Now, from a user’s point of view, you’ve got, we’ve got, NowMarkets, we’ve got NowTreasury, we’ve got NowDocs, we’ve got NowServices, we’ve got NowBooks as well. If I’m a customer coming to use some combination of these services, do I experience these as silos or do they interoperate seamlessly from my point of view as a customer?

29:42 Robert Koller: We’re just rolling out a new user interface where all of these services will be seamlessly integrated. We have already integrated NowDocs and NowSpace. Next step is NowMarkets. And what we’re building is basically an operating system where we can add additional services based on a shared standard, which in the end, again, goes back to this comprehensive data model, which is really the most important part of it, and where we also can add third-party options. Like, for example – I think we’ll talk about this later – but bond auction is a part of ours and additional services can build upon this. So you can think about it like in the mobile phone, the operating system, which gives you a calendar and the calculator, and you can do the basic functions, but if you want to have something highly specialised, then you can additional apps and tools.

30:54 Jochen Metzger: And Dominic, let me add here. We are not a silo. We are an open platform. The openness is part of the DNA. You can invite your service providers to, let’s say, join NowCM, the platform. You can do also things outside NowCM, but let’s say this is it. If you want to be, let’s say, the new data standard, the new model, you have to be open. So we are an open silo, if you want. But this is, of course, a contradiction. No, we are open.

Question: What additional services for issuers is NowCM planning to develop? 

31:31 Dominic Hobson: Robert, you used the word `comprehensive’ a minute ago, and it sounds to me like you’re covering the full gamut of the primary debt capital markets here. But have you got any other additional services planned or in mind for the near future?

31:49 Robert Koller: Well, we’re on-boarding lots of additional applications. As I said, I wouldn’t call it an App Store yet, but it might become something like that in the future. We also have additional services that work in the background, like, for example, NowAccess, which is a very sophisticated user management and access control system, where we are connecting now to several issuers’ banks, and manage the users there as well. So there’s a lot of things going on where we hope, because we’re such an open platform, as opposed to other island solutions, where we will add additional functionality. So we connect it to several stock exchanges, for example, which you can just click a button and say, send to exchange XYZ, and this triggers a listing process, or we can send to SWIFT payments instructions and so on and so forth. So the ecosystem is growing really day by day.

Question: Why does NowCM place such emphasis on being regulated? 

33:04 Jochen Metzger: But the marketplace, Dominic, is also a very important component of that ecosystem in a way that it provides, let’s say, a fair execution on a regulated MTF [Mult-lateral Trading Facility] platform. And of course, let’s say, pricing is being monitored for its competitiveness. So it’s the combination of, let’s say, an open ecosystem with a regulated marketplace that gives extra value.

33:29 Dominic Hobson: Okay. And it’s a regulatory requirement to demonstrate those fair prices.

33:34 Robert Koller: Yes, sorry to jump in here. You’re raising a really good point. And we’ve seen this in the crypto space. As I said, we’re the only regulated market in the world. There’s others around that call themselves marketplaces, as we’ve seen with Binance and FTX and so on. It’s really dangerous to participate in those, because you can become a contributor to an unregulated marketplace. And this is something that we take a lot of pride and effort into to be regulated. It’s a huge cost, and also effort, but we want to be institutional great, and not just some geeks that set up a marketplace which is unregulated where you have no control. We don’t know whether the parties are KYCd [Know Your Client], have AML [Anti Money Laundering] checks and so on. So you really get into very dangerous territory, especially if you’re thinking about the counterparties that we’re actually working with, which are the largest SSAs [Sovereign, Supranational and Agency] in the world, the largest banks. They have very high demands on compliance, and this is what we are providing with this fully regulated environment.

Question: How does NowCM recruit issuers? 

35:00 Dominic Hobson: You have both used that term `openness,’ but can we be a bit more specific about exactly how you’re going about recruiting issuers? You’ve mentioned, for example, the London Borough of Sutton a number of times. I don’t know what the story is, how they came to you, but it sounds from what you’re saying that their advisers invited them to take part or they invited their advisers to take part. So any issuer can say, `Well, we’re working with this investment bank, this law firm and we’d like to issue these securities onto this stock exchange,’ and you can accommodate that. So

35.30 Robert Koller: Correct, yes

35.31 Dominic Hobson: … the question is how are you going about finding and getting issuers to use your services?

35:36 Robert Koller: Well, there’s several ways. I mean, we speak to the large issuers directly, what I would call key opinion leaders. They are..

35.53 Dominic Hobson: EIB [European Investment Bank], World Bank [the International Bank for Reconstruction and Development, or IBRD]?

35.56 Robert Koller:Yeah, for example, these are the names and there’s also inside the banks we’ve gone through several selection processes where these key opinion leaders have checked out the market, have compared us to any other available services and, with some pride, I can say that we have won 100 per cent of any competitive processes. And I think the work that these key opinion leaders are doing is extremely valuable for the market because they spend a lot of time and money. Some on-boarding processes take two years and have 40-50 people involved from different offices, time zones and so on. So it’s a lot of work for us of course, as well. But it’s a real service for the market because not everybody has the resources that this big institution have to really check all the services and then say, `Well this is the one I want to work with,’ and this is the best in the market and we’re going to on-board them. And this process takes them to two years because of all the complexities and different areas that it touches. So apart from that we work of course with partners, with law firms, with software providers, with banks of course, most importantly. So we’re also planning some direct campaigns with issuers. There’s several ways of doing this, but I think the confidence comes from the key opinion leaders having taken these decisions and having spent the time and money to really check out the market and say, `This is the platform I want to work with.’ Because one thing we notice also is that neither investors nor issuers, which in the end are the two principals in this value chain, they don’t want to connect to 20 different platforms. They want one platform where they can do everything. Because, as you can imagine, connecting nowadays to anything is a huge compliance and IT effort. So, yeah, these things tend to be kept at the minimum. And therefore this pre-selection, I think is really important. I don’t know, Jochen, if you want to add something, maybe.

38:38 Jochen Metzger: Let me emphasise again the charming feature of a regulated MTF [Multi-Lateral Trading Facility], where an issuer can expose his curve to, let’s say, a variety of dealers and investors, let’s say, in a fair and regulated and monitored environment. Some issuers prefer it that way.

Question: How do users connect to NowCM? 

39:03 Dominic Hobson: Robert, you mentioned that investors and issuers don’t want to invest a lot of time and money in connecting to 20 platforms. How hard is it to connect to NowCM? Is it a very simple process or do they have to …

39:16 Robert Koller: Technically, it’s straightforward. Where the complexity comes in is with the rules and regulations. So we have banking outsourcing rules, which are already very strict. In Germany, they’re even stricter than elsewhere, thanks to Wirecard. And we have the DORA [The Digital Operational Resilience Act] rules coming into place. So there’s … For example, Brexit also made it more complex. If you’re a UK service provider under DORA, you will have a substantial presence in the EU [European Union], where you will also have need to give access to the regulators and so on. We’ve already been through this exercise with several banks and issuers that are regulated, so we can tell the story. Even the agreements had to be made completely new from scratch because no one had anything like this. And funding being a critical function for many issuers, this is a critical outsourcing, then. So this is really where the complexity comes in and where you need to prepare reports, you need to have an ISO [International Standards Organisation] certification, you need to be regulated, you need to have a regulatory capital. I read a very funny email newsletter recently from one of our competitors that, after Silicon Valley Bank went bankrupt, and they said, `Oh, we had a really bad weekend because we didn’t know whether our funds were lost or not.’ So this happens if you work with a non-regulated entity, because as a regulated entity, we need to have a capital buffer. These are all these things that get checked and checked and checked again from myriads of departments in the banks, because in the end, if you mess up a comma, or if you’re not able to do it in German and English, but you have a German issuer who wants to make his contract under German law, then, yeah, it’s very hard to provide the service. So this is really where this data model again comes into play, that it needs to cover all of these possibilities.

41:41 Dominic Hobson: So technically, an interface is quite straightforward. To have a compliant interface is a bit more complex. You’re gathering enough experience to help people get over that hurdle now.

41:52 Robert Koller: Yes, actually, we have developed processes to help issuers and banks to come on board and make this process simpler and more straightforward. Having gained the experience with the key opinion leaders and others, we actually have developed these processes quite well.

Question: NowCM has chosen to work with existing intermediaries in the capital markets. Is that an unavoidable choice? 

42:14 Dominic Hobson: Now, another issue which businesses like yours face is whether to work with the incumbents or work against them. It’s always tempting to think, `Well, the market needs transformation. Let’s go from where we are now to a glorious future in one bound.’ That’s a very difficult thing to pull off. You have made a virtue of working with the existing intermediaries. Is my explanation sufficient to explain why you’ve done that? Or does it make sense for reasons other than you can’t change the world overnight?

42:47 Robert Koller: Well, we didn’t want to change the process because, as you say, changing the process upside down. You’ve seen this a lot in the blockchain world or DLT [Distributed Ledger Technology], where …

42:59 Dominic Hobson: Yes, plenty in that area.

42:47 Robert Koller: … A lot of very intelligent people just said, `Let’s bring issuers and investors together, and that should work.’ But the market has developed for a reason over the past 100-150 years in such a way. There’s regulation which you cannot ignore. There is market customs and habits which you cannot ignore, and you cannot …. There’s this experiment. If you ask anyone in an organisation, if anyone wants change, everybody will say, ‘Yes.’ But then if you ask who actually wants to change themselves, then their hands will stay down, because we are all used to what we are used to. Also, before we really started, we did a lot of academic research. There’s a lot of papers, for example, from the Fed [Federal Reserve Bank], that intermediated markets are more efficient than disintermediated markets. And it makes sense, because if you’re a big issuer, you have potentially a thousand or more investors, like now, the EU [European Union] or ESM [European Stability Mechanism] or KfW [Kreditanstalt für Wiederaufbau] or the likes. You would need to build a huge investor relations department to deal with all these investors, keep them updated and so on. So this is really where the banks can play their strengths. But what we want to provide is that they can focus on their strengths and not lose their time in the boring but important part, which is process and back office and other stuff. So I think what we can provide is more focus for each participant on their strengths.

44:53 Jochen Metzger: Dominic, let me add an element of speed and scalability to what Robert just has said. If we want to set a new standard and if we want to improve the funding market fast, however, without jeopardising its current liquidity, we better work with the existing intermediaries. We better support today’s guys that support the primary market just now, rather than working against them. And, Dominic, we are convinced that we can convince them as well.

Question: How does NowCM persuade intermediaries to work with it? 

45:30 Dominic Hobson: Let’s talk about how you convince them, with the services that you’re offering to them, because the debt markets are not short of intermediaries. You’ve got the investment banks, you’ve got broker dealers, you’ve got paying agents, you’ve got securities depositories, you’ve ultimately got custodian and sub-custodian banks as well. So what is NowCM offering all these intermediaries? What’s good about what you’re offering for them?

45:54 Robert Koller: Well, as I said before, we have two principals, which are the issuer and investor. So these are the main parties, and everybody else in there is an intermediary in the value chain to a higher or lesser degree in terms of contribution, the most important ones being the banks in bringing them together. And as I said before, what we think we can provide them is focus on their strengths and not lose time on mundane tasks that can be automated and bring them all together and make this faster. But Jochen, I’m sure you can add to this.

46:42 Jochen Metzger: Kind of. Dominic, if we bring all those intermediaries that do their bits and pieces, if we bring them all in one environment, one open environment, of course we are solving the coordination problem and we are cutting lead and lag times. And this is, let’s say, why it works. And this is also where we start convincing them, because they get better in what they do if they, let’s say, are using our platform.

47:12 Robert Koller: And as we said, we’re growing the pie. So everybody benefits from this.

47:18 Jochen Metzger: Think of the data that is machine readable. Today’s data probably is not machine readable. It’s, let’s say, a collection of PDFs. And this is, let’s say, where the difference really kicks in. Machine readable, digital data for everyone along the value chain. This makes the process faster and more efficient.

47:42 Dominic Hobson: And that’s what you mean, Jochen, by this term you used earlier, the `golden source.’

47:46 Jochen Metzger: Yes, yes. You don’t need the duplication. You take it from the golden source, you use it for whatever you are supposed to do. And everybody else, let’s say, can see this, it’s transparent. And that is the new, let’s say, the new thing. I would argue this is the new paradigm. This is where the new standard is emerging.

48:10 Robert Koller: We actually, internally, we are not thinking in documents anymore. We see the documents as one manifestation of many of the data that we collect and enhance. So of course, at the moment, regulation requires these documents. Maybe in the future we can get rid of them because everything is machine readable, the computers can speak to each other, but at the moment it’s a requirement. So we collect the data and we send it to the documents and it manifests there, but we can also send it to other systems, to a treasury system, to, as I said, SWIFT or anywhere else. So this is really the change, is that it’s not captured anymore in unstructured PDFs or documents.

Question: Does NowCM recruit investors directly or has it chosen to leave those relationships with the intermediaries? 

49:04 Dominic Hobson: Yes, I think anybody listening to this conversation won’t miss that point, that this is about a transition from talking about documentation to talking about data, because data is what computers eat and exchange and process more efficiently than human beings through paper and email and so on. So, yeah, it’s a glimpse of the future, in a way. Now, Robert mentioned the two principals here, the issuers and the investors. And we’ve talked a bit about your dialogues with potential issuers. Does it also make sense for you to be looking to recruit investors directly, or do you prefer to leave that side of things to the intermediaries that you’re working with?

49:51 Robert Koller: So the feedback we get from the banks and from the issues mostly, actually, is that they prefer to have the banks on board because they do a valuable job, they do a good job, and they prefer to do so. I think. Jochen, in the marketplace, in NEUCP, we have a few investors connected directly, which is kind of the exception to the rule, but most of the trades are done anyway by the banks.

50:21 Jochen Metzger: Let me expand here. Indeed, we have investors directly connected to our marketplace as members. However, let’s say our experience shows, our data shows, that nevertheless, let’s say, 99 per cent of the deals are intermediated. Nevertheless, so let’s say even the investors directly connected to the NowCM France marketplace prefer the additional liquidity and service provided by the dealer banks. And therefore, let’s say we rather think growing the pie by bringing more issuers and more dealers to the market will actually help. This does not preclude some direct trades between issuers and investors. But this is certainly, let’s say, not the main meat. Let’s say the main meat is, let’s say, intermediate transactions to the benefit of both parties involved.

51:19 Dominic Hobson: I guess, Jochen, part of your thinking here is that liquidity is a chronic problem in the, certainly in the corporate bond markets, if not the government bond markets, and so you need those dealer banks to create it artificially. So I can see why investors take the view they do, and why you take the view you do.

51:39 Robert Koller: What we can do with investors, on the other hand, and we have the cooperation with Liquidnet, where we are connected actually to investors, is we can provide them data, which makes the work of the banks also easier, because nowadays investors complain that they get the prospectus just two hours before the book opens and don’t have really time to look at it, and so on. With our real-time documentation engine and the connection via Liquidnet, we can provide all the information in a machine-readable format right into the EMS [Execution Management System] or OMS [Order Management System] of the relevant investor, which makes their life easier and the interaction with the banks as well. So again here, the data plays a huge role.

52:31 Jochen Metzger: And Dominic, maybe let me add one more thought here. As part of, let’s say, promoting the European Capital Markets Union [CMU], let’s say there will be a single access point for investor information. And we are of course happy to contribute to this, let’s say, information to be gathered there with our data model and with, let’s say, our machine-readable data. This is, let’s say, the way to, how to say, to enable investors to do more. Not necessarily, let’s say, to disintermediate the dealer banks.

53:11 Dominic Hobson: You’re talking there of a single European consolidated tape plus, right?

53:15 Jochen Metzger: Yes. And the access point for investors, the consolidated tape, is then a second step. And of course, let’s say the earlier you get the primary market information, that is, the execution of an issuance, on the tape, the better the tape gets, of course.

Question: Green bonds are often cited as an opportunity to make use of innovative technology and techniques to use data to counter the risk of “greenwashing.” Is this area of the debt capital markets of interest to NowCM? 

53:34 Dominic Hobson: Yeah, I can see you better go and see your friend Christine Lagarde to talk about what you’re doing. I think you’ll have a supporter there. We’ve talked about data a lot. Which brings me to the subject of green bonds, which have been identified not just by you but by others as a potential opportunity here. Is data the strength you bring to the green bond market, by which I mean avoiding `greenwashing’ primarily?

53:57 Robert Koller: There is a data aspect to this, but this was more of a, let’s say, find by the market. We’re providing the tools, and now the very intelligent people in the market, seeing these tools that we provide and finding more use-cases than we ever thought of, which is great. And one of these was dark green bonds. So at the moment you have green bonds, they are never binding. The use of proceeds clause is always, `We intend to do.’ And then you have a green framework, which has 80 pages, this is written by lawyers and has 700 escape clauses. So I read recently one of a large car manufacturer, it says they have two years to invest the proceeds into green things. So they could theoretically take the proceeds of a green bond, develop more diesel, and then after two years put it into some green stuff. So, the reason why issuers don’t do that, and contrary to the loan market, where they actually have binding covenants, is that if you put the binding covenants, especially use of proceeds, into the bond, anyone can buy a bond and then can start suing you. So we would see probably a lot of frivolous lawsuits where activist investors, hedge funds or whatever, go to New York because you haven’t 100 per cent complied with your green covenant. And then in the worst case of all, trigger even a cross-default. And it’s understandable that the market didn’t want to go this way because there was no solution available over the past 20 years or so since green bonds came up. But with our issuance vehicle, we found that actually we can enhance the way green bonds are issued by protecting the issuer. So we would include the green covenants just in the loan between our vehicle and the underlying borrower, and the bond would be issued without green covenants, but investors would know that the bond is linked to the underlying loan. And given how Luxembourg securitisation law, which is applicable there, works, we would be basically a trustee and we would have a pre-defined way of dealing with infringements of the covenants. So you would have binding covenants, which means a third-party reviewer would have very clear criteria whether this is fulfilled or not. If it’s not fulfilled, then we have an automatic process that gives you a certain grace period to repair it. If that doesn’t help, then there is an interest step-up or a penalty with a shorter grace period. And if all of this doesn’t help, then the underlying borrower is knowingly, willingly going the way to not comply with the covenants, he has the obligation to pay back the bond at 100 per cent, which protects investors. Because in other cases where green bonds became brown, they had to fire-sale the bonds at a very low price, because obviously no one wants to buy a green bond that is not green anymore and didn’t have any additional protection. But with our structure we can now solve this because we have this regulated environment and the law playing here, making us a kind of a trustee for this intermediate solution where activist investors also cannot sue you for the covenants directly because there is a step removed but still binding. So also let’s say the surveillance task that an investor has towards his investments are much easier and much lower than at the moment where you need to see, `Does it fit into the green framework?’ Actually, green frameworks would fall away with this solution because you have a clear covenant. `I’m going to invest this money into this project or into this change of my electricity grid or whatever it is.’

58:39 Jochen Metzger: And there is also a political dimension to this, Dominic, this, let’s say, dark green bonds via NowTreasury that Robert has just, let’s say, explained. We also made a presentation of this to the Capital Markets Working Group of the Sustainability Finance Beirat [advisory council] of the German government and we are also talking, let’s say, with French initiatives, government initiatives, that is, that go that way.

59:09 Dominic Hobson: So you’re building yourselves into the political momentum behind sustainable financing as well.

59:15 Jochen Metzger: Yeah, we could contribute to resolve the problem.

Question: What regulatory licences does NowCM possess and what do they allow the company to do? 

59:22 Dominic Hobson: You mentioned a while back, Robert, very forcefully, that you’re determined to be a regulated, institutional-grade organisation. And I promised to come back to the regulatory issue. Can you explain in more detail what regulatory licences NowCM actually possesses and what those allow the company to do or not do?

59:46 Robert Koller: Yes, with pleasure. So I’ll speak about Luxembourg and Jochen can then speak in detail about France. But in Luxembourg we are regulated as a securitisation vehicle. It’s a bit of an unfortunate name because it doesn’t really have to do anything with securitisation. It’s actually a deposit-taking licence under CRD [Capital Requirements Directive] III, which is a national option for each country, and Luxembourg has implemented this. So it’s basically a banking licence light where you can take deposits, but allows [you] to issue also bonds in lower denominations, which is similar to deposit-taking. And we aim to do this because we always thought that for trust-building and to work with all these counterparties that we have, these huge institutions we need to have, discover, which implies for us a lot of cost and additional work. But we are convinced that this is worth it. So in Luxembourg we are allowed to issue bonds also to retail and general public, which we rarely do, but the licence covers for this. And it also means that we need to report our transactions to the central bank, we need to report our transactions to the regulator. All our directors and management and shareholders are checked on fit and proper. We don’t have any oligarchs that are sanctioned or anything in our shareholding, because this is all checked very detailed by the regulator in Luxembourg. Our, let’s say, software environment, is not regulated because there’s not really regulation for it. It’s indirectly regulated via the outsourcing rules of the banks. But we have, of course an ISO [International Standards Organisation] certification for our software that is some kind of, let’s say, voluntary regulation and which we are very keen to maintain and to keep because it’s also a quality seal. The heaviest part of regulation is in France with the MTF [Multi-lateral Trading Facility].

01:02:23 Jochen Metzger: Yes, indeed. NowCM France has a licence as an investment firm and multi-lateral trading facility by ACPR [Autorité de Contrôle Prudentiel et de Résolution], by the Banque de France, banking supervision, and also by the AMF, the Autorité des Marchés Financiers. And of course, what Robert has explained about the board of directors and the shareholders also applies to, let’s say, NowCM France. And of course, let’s say, this makes us a multiple trading facility, a multilateral trading facility [MTF] that can, let’s say, safely execute trades. And we are also doing the reporting, let’s say, to Banque de France, and also to ESMA [European Securities and Markets Authority], so issuers, investors and dealers can be sure that this is, let’s say, a safe and well-monitored environment.

Question: Are the NowCM regulatory licences passportable throughout the European Union? 

01:03:18 Dominic Hobson: Are these three licences you’ve got – the banking licence in Luxembourg, the investment services licence in France and the trading licence in France – these are passportable? It enables you to provide services throughout the EU [European Union]. Does it? Do they?

01:03:32 Robert Koller: The France, the French one, yes. The Luxembourg one, as I said, is the national option. It’s not passportable, but it’s not necessary because everything happens in Luxembourg, so there’s no need to passport it.

01:03:50 Dominic Hobson: And you don’t envisage needing a banking licence on a pan-European scale anytime soon?

01:03:55 Robert Koller: No, I think this is exactly what we’re trying to avoid, because banks do much more business than we do, so we want to have this focused licences that cover our business. We’re not providing loans, we’re not writing derivatives, or anything. So this would go far, too far.

01:04:21 Jochen Metzger: If you want to remain a neutral marketplace, we cannot put, let’s say, transactions on our balance sheet.

Question: What technologies is NowCM using and why did it choose them? 

01:04:31 Dominic Hobson: Technologies. It’s been a while since I had a conversation like this where we didn’t talk about blockchain much earlier. Can you tell us a bit about the technologies that you’re using? You mentioned Cloud, obviously. What else are you using? Why did you choose those technologies over others?

01:04:48 Robert Koller: Well, what we wanted to create is an accessible platform for everyone that is scalable and can be shared easily. So we spoke about the principles and the intermediaries in between. So how we build our platform is that these intermediaries, they don’t need to be our clients, because otherwise we would need to on-board everyone first before we can do any transactions. So we devised a system that, even if they’re not our clients, they can participate in transactions. Obviously, if you’re a client directly, you have much more benefits and you can use the platform in a more comprehensive way. But I think this is one of the key features, and that’s why we’re using Cloud providers and the Cloud platform. We looked into DLT [Distributed Ledger Technology], but again, we had the same problem. If we would base ourselves completely on DLT, theoretically it would probably be the best solution. But practically you need to on-board everybody first on this blockchain, and we’re not big enough, nor do we have the market power to decide which blockchain is now the right one to use or which inter-operability provider. So we leave this completely to the market to decide. What we do is we are blockchain-ready in the sense that all our data is machine-readable. And if you look at the blockchain bonds that have been issued so far, they’re relatively simple smart contracts, not so smart contracts because the data wasn’t available until now. So, for the lifecycle of the bond, so we have now all this data available and we can inject this either into a DLT or into a treasury system. It doesn’t really matter. It’s all in a machine-readable, easily translatable way, so that you can make really smart contracts that cover the entire lifecycle of a bond and any actions there afterwards. In terms of AI [Artificial Intelligence], we’ve been experimenting with it. We’re using it internally, of course, for development and other use-cases that are well-known. But we try to look whether we can use it for our data model. And we found that this is rather complicated because in the end AI are statistical models. You can find, by the way, very interesting research on that, also by AQR, the fund. And for finance you cannot rely on statistics because the bond needs to be 100 per cent correct. And if, you know, lawyers like myself in the past and my colleagues, we will go berserk if there is a comma not in the right place, or if there’s a paragraph, but not because we are so pedantic, but because it can change the meaning of a sentence. So this is why we really spend so much time developing our data model that it can replicate all this information in a correct way. Because if you start issuing a bond that is 90 per cent correct, I think no issuer, no bank, would like to take the liability for the 10 per cent that might not be correct. And the models, the data models, at the moment at least, are not yet there to provide full reliance. It really needs to be a structured data model like we have and Jochen implemented for Europe, like in ISO 2022 or in ISDA [International Swaps and Derivatives Association] FpML [Financial Products Markup Language]. These are all data models that are fully structured and don’t rely on AI. But we see in the future, for example, in the marketplace, AI could play a role to find patterns that are not visible on the first place or other things. Jochen, I think you can …

01:09:15 Jochen Metzger: I have, let’s say, one extra piece of information for Dominic, because Dominic had mentioned earlier the ID2S CSD [Central Securities Depository] that was, let’s say, fully working on the blockchain. And when NowCM France was still, let’s say, named NowCP, this custody service of ID2S unfortunately had to be decommissioned because the investors did not find it sufficiently attractive to split their assets under custody between, let’s say, ID2S on-chain and the other CSDs they were using. And of course you can argue that also the competitive pressure by existing CSDs played a role to make ID2S not commercially viable. So let’s say ID2S was decommissioned before, let’s say, NowCM took over NowCP France, and before, let’s say, we, let’s say, re-positioned the company as a marketplace, working together, let’s say, with existing CSDs.

Question: Does tokenisation play any part in the NowCM strategy? 

01:10:26 Dominic Hobson: That certainly accords with our understanding of what happened at ID2S, which we wrote about shortly after it all happened. Tokenisation. What part does this play in your thinking? And I ask this because if I look at the list of security token issues which we maintain here at Future of Finance, I find the bond markets feature quite heavily, less in terms of issuances, though there are some of those, much more in terms of Proofs of Concept, pilot tests, partnerships, acquisitions, announcements and so on. There is a kind of focus, some of it on the primary market segment which you are focused on, but certainly people see the bond markets as a more immediate opportunity for tokenisation than, say, the equity markets. So does tokenisation form any part of your strategy or thinking now or do you think it might in the future?

01:11:21 Robert Koller: Well, I think tokenisation is here to stay and will play a part in the economy. So, as we said before, and as you mentioned, these Proof of Concepts are just that, Proof of Concepts. We’ll need to see the implementation in a broader marketplace. And this means that, again, these smart contracts will need to become smart so that the data comes in. But as my co-founder, Fred Creutz also always says, we are heading to a digital economy. So we see tokenisation also taking place in other parts. For example, you build a wind farm, each windmill will have, might be represented by, a token, and this token might feed data into the capital markets about production, about wind, about repair cycles, about whatever this windmill does. And this is actually real-time credit information. So we will get this real-time credit information from, from issuers, from projects, or wherever it comes from. And this needs to be then integrated into the contract. So, for example, if you have a project finance going on and the wind farms are linked to the production, and you need to put more money into the reserve account if the production of the wind farm is not as much as it is, all of this can be automated, because then suddenly you have the credit information and you have the tools that we provide, which is the automated data model that can reflect the lifecycle of the instrument. And therefore, marrying these two, we see huge potential for the future. The other thing is, as Jochen mentioned before, algo [algorithmic] trading, you have huge market-makers in the equity space, because equity is a share, it’s a perpetual instrument. Maybe you have two or three, but that’s it. Bonds, you have myriads of different types. Large companies have many dozens of bonds outstanding, and information about those bonds has been very scarce. Again, there could be algo tradings or smart contracts on the buy-side. In the end, it’s the same. It’s programmable automated trading, which needs more information, and which we can now bring to the market. And as Johann said before, also to the secondary markets.

01:14:17 Dominic Hobson: It all comes back to data, doesn’t it?

01:14:20 Robert Koller: In the end, yes.

Question: Does NowCM envisage becoming the market infrastructure for the debt side of a European Capital Markets Union (CMU)? 

01:14:22 Dominic Hobson: It’s surprising how often we’ve ended up there. I described NowCM as a market infrastructure in my opening remarks. You yourselves have described NowCM as a `new era market infrastructure.’ I just wonder if that new era you’re referring to looks forward to a single European capital market. Joachim, you’ve touched upon the CMU [Capital Markets Union] a number of times in this conversation. Is NowCM the market infrastructure for the debt side of a single European capital market?

01:14:53 Jochen Metzger: Yes, it could be the infrastructure for the debt side of the capital markets, because we can overcome the market fragmentations and the frictions that are holding back the evolution of the Capital Markets Union (CMU). And this is to the detriment of the European issuers, of the European dealers and the investors alike. And of course, this is to the detriment of the economy at large. I mentioned earlier the virtual cycle of primary debt markets and how this will add strength to the CMU. And this is where we see ourselves being, let’s say, the accelerator. We are the nucleus; we are the accelerator of this and the new standard will help here. And we are part of this. And this is also why we are, let’s say, rightly determined to work with the current eco-system and the current players. That’s the only way to get this moving fast enough. And let’s say improving EU [European Union] competitiveness and boosting the financing of the, let’s say, economy at large of SMEs [Small and Medium-sized Enterprises] and more particularly of the transformation towards a digital and a more sustainable economy. This is worthwhile and this is, let’s say, something, let’s say, we absolutely want to support and this is where we can help.

01:16:18 Dominic Hobson: So a switch from bank financing to capital markets finance in Europe would be good for the investment banking side of the commercial and investment banks, not so good for the commercial banking side.

01:16:29 Jochen Metzger: I would argue this goes hand-in-hand, because if you look at commercial banks, how they structure their loan books today, I guess we could work with them together. Usually an issuer would, let’s say, show up at the door of NowCM with his banker hand-in-hand almost, yeah? So it’s usually a kind of a joint decision-making here. And that’s why we think it’s, let’s say, rather adding value than, let’s say, just shifting market share between the loan book and the funding market.

01:17:05 Dominic Hobson: I guess there are capital savings for the banks too, are there not?

01:17:09 Jochen Metzger: Yes, there are. And therefore I think this is a continuum. You do loans, you do bonds, you do kind of German Schuldschein [bi-lateral loans under German law] in between. You have to play the full scale. And this is also why bankers are working with us.

Question: What benefits do the relationships with BondAuction and MarketNode bring to NowCM? 

01:17:26 Dominic Hobson: Interesting. Growing the business in the future. You mentioned your relationship earlier, Robert, with BondAuction. You also have a partnership with MarketNode in Singapore. What are these relationships bringing to your growth strategy?

01:17:45 Robert Koller: Well, as I said, we are an open eco-system, so what we’re trying to build, and these two are prime examples, is additional benefits for users of the platform. So we are not specialists in auctions, so, but BondAuction, they are, and they can sit on top of our eco-system, of our operating system, if you want to call it like that. And if an issuer wants to, thinks he has enough market power to actually command an auction, they can just sign up, send the data with a push of a button to BondAuction. They do the auction, they send the data back to us with the pricing and we finalise all the legal documentation. So it’s really adding capabilities and benefiting others mutually to work in an open eco-system where you can, like, as I said before, you can push the share button on your phone and share a document to a myriad different apps. The same you can do with our data with a push of a button. MarketNode, the same thing in Asia, where we work with them in various ways together. So one is providing data services. They have a fantastic tool on green bonds, a database. They have another fantastic tool on … a database on covenants of bonds. So all of this can be integrated, provide additional benefits and services to users of the platform.

Question: Does NowCM have ambitions to grow internationally outside Europe and expand beyond the debt markets into other asset classes? 

01:19:43 Dominic Hobson: And the fact you’re working with MarketNode in Singapore indicates your ambitions are certainly not limited to Europe. Perhaps you could tell us a bit more about how you see international growth going forward. But also one, I suppose, theme which has been very clear in this conversation, is that debt is your primary focus. I just wonder if you’re thinking that you might stray into other asset classes as well. So there’s a two headed question there. Are your ambitions limited to Europe, and are your ambitions limited to debt?

01:20:18 Jochen Metzger: Okay, Dominic, let me grapple with the geographic dimension first. And certainly our ambitions are not limited to Europe. We are also developing services for the US market and for Asia. And of course, our partnership with MarketNode is a case in point. And of course, let’s say this improving and digitalising primary markets, the debt markets, that is, this is not confined by currency or geography. The data model works its magic across the board. And, of course, let’s say, if you take this comprehensive advantage of the data model, you could also extend this into the loan market. So loans are very close to bonds. The data model is similar. So we would, let’s say, also be able to support the growth of loan markets. With equity, this is more difficult. Equity in by, let’s say, by definition, is not issued so often. So let’s say the virtue of the data model will work, let’s say, on lesser opportunities. So we find, let’s say, bonds and perhaps in the future also the loan market, more attractive. For equity, we can probably not do so much. And other asset classes, if you think of the crypto[currency] space, we discussed this earlier, we can support, of course, tokens. We can, let’s say, populate tokens with the information required. That’s also something we are certainly looking at.

01:22:01 Robert Koller: And one additional area which I forgot is derivatives. So there’s a lot of, I mean, a lot of bonds are issued alongside a derivative. And we already cover, for example, swap term sheets with cross-currency or interest rate swaps. So from there to really filling out then the data into the swap documentation is a very short step as well. Are we working there also with others that are already further down the road, like Linklaters with their derivatives platform? They’ve done a great job there as well. But this again shows the open ecosystem and again how data can flow. I think there was a study by one investment bank which, I’m not sure if 100 per cent put it rightly, but when they issue a bond they have to type it in manually into 27 systems, which is not surprising. And this manual input can of course stop with this API [Application Programme Interface] database with API connection that we offer.

Question: A number of start-ups have seen primary market issuance as an opportunity but failed to make a breakthrough. Why should NowCM be any different? 

01:23:26 Dominic Hobson: Okay, that’s interesting. You’re incorporating currency and interest rate swaps into your model as well. It’s certainly a big driver of debt issues. This is my final question. I promise it’s my last one. And we touched upon it earlier when we talked about a number of start-ups which have addressed the primary capital markets and the lack of secondary market liquidity as well. Not an area of interest to you, but some looked at that. So this area has been identified as an area ripe for reform by entrepreneurs before you and a number of start-ups, some of which we have entertained at Future of Finance, not all of which are still with us, I might say. So a lot of time and effort has been invested in this area to achieve reform, but success has proved pretty elusive. You’ve obviously got some traction, you’ve got issues, you’ve got investors engaged, you’ve got the intermediaries engaged. What makes you as the management of NowCM, confident that you can succeed where these other startups have struggled to achieve a breakthrough?

01:24:32 Robert Koller: Well, I think what differentiates us is that we, and that’s maybe down to where we started, which was an industry initiative in Frankfurt. We have a little bit of the German mindset where we build a product that really works well and then go out, we don’t go out with half-baked stuff and make a lot of marketing, which some also told us is actually a weak point of us. A lot of people didn’t even know us for … until some time ago, but we really put a lot of effort in and thought and also academic rigour to develop a business model that is not only attractive for investors but also supports the market. And that’s why we are regulated. That’s why we have this data model that took ten years plus to develop and many other things. As I said, we see now the benefits of this hard work by having won all competitive RFPs [Requests for Proposals] where we participated. And I think this gives us the benefit of this work that we’ve done. I think also what we need to see here is also, as we mentioned before, this is a place where one platform, mostly, maximum two, will take the brunt of the market because the principals just don’t have the time to check which platform is the one that suits them best and which can do what they want. I think being the platform with the broadest basis, being vertically integrated, and also being the only one that is based in Europe, I think that this helps a lot in the decision-making for the key opinion leaders.

01:26:44 Jochen Metzger: Let me add two flavours here, if I may, Robert. One flavour is openness. We are an open platform, we are not a closed environment. Therefore, I think this willingness to share, to support and to work with others is also something that, let’s say, helps us in having success. And the other flavour is regulation. Or you put it, Robert, a regulatory-grade company. Let’s say we are reliable in this respect and I think this is also one factor that is, let’s say, arguing in our favour.

01:27:24 Dominic Hobson: That’s a great place to stop. A combination of German thoroughness and Anglo-Saxon openness is going to lead you to be the winner in this race to transform the primary debt capital markets in Europe. Robert Koller and Jochen Metzger, thank you very much for taking so much time to share your knowledge and your experience and your insights with the members of Future of Finance.

01:27:47 Robert Koller: Thank you very much. It was a pleasure.

01:27:49 Jochen Metzger: Yeah, it was. Thank you, Dominic.