Welcome, ladies and gentlemen, thank you for joining us today to go through our Q2 2023 results. With me are Theodor Weimer, CEO, and Gregor Pottmeyer, CFO. Theodor and Gregor will take you through the presentation today, afterwards, we will be happy to take your questions. The link to the presentation materials for this call has been sent out via email, they can also be downloaded from the Investor Relations section of our website. As usual, the conference call is recorded and will be available for replay afterwards. With this, let me now hand over to you, Theodor.
Thank you, Jan. Welcome, ladies and gentlemen. Let me first comment on the strong financial performance in the first six months of the year. Afterwards, I will give you an update on the progress we've made with the SimCorp acquisition. How is the business side, the financial performance look like? The start of into the year turned out to be somewhat different from what we had initially expected. Against the high 2022 comparables, we expected more headwinds in our trading and clearing businesses, but volatility spikes in March and ongoing strong performance of our commodities business resulted in further growth against the record year in that segment. In addition, the net interest income in securities and fund services is developing much stronger than expected.
In our budget for the full year, we originally expected a level of around EUR 500 million, but interest rates have increased more than we expected, and cash balances in the first half of the year even increased modestly against last year. Therefore, we are now expecting a level of around EUR 700 million net interest income in securities and fund services for the full year, or potentially even more. It was also very encouraging to see the continued strong secular net revenue growth in the first half of the year. This is due to the many initiatives to win new clients and market share, as well as introducing new products and services over the last couple of years. As a result, the first six months this year look very much like the development last year.
Secular net revenue growth of 6% was complemented by double-digit cyclical net revenue growth. Because of this strong start of the year and a positive outlook for the second half, we are increasing our guidance for the full year. We now expect to exceed the upper end of our original net revenue and EBITDA guidance range. Net revenue of more than EUR 4.7 billion and EBITDA of more than EUR 2.8 billion are the new guidance for the full year. This brings me to the SimCorp acquisition and the creation of the new investment management solution segment on page two. Early on in our strategic journey, we identified secular trends in the broader data and analytics space as one of our key growth opportunities. Our starting point was STOXX, a strong European index franchise, as you perfectly know.
In 2019, we complemented it with Axioma, which added buy-side-oriented portfolio and risk management tools. Based on trend towards sustainable investing, the next logical step in our strategic trajectory was the acquisition of ISS, Institutional Shareholder Services, in 2021, which added one of the global leading ESG providers to our group. With SimCorp, we are now taking another leap forward. SimCorp offers an industry-leading front to back SaaS investment management platform and ecosystem. The acquisition will contribute significantly to our secular growth by helping us to address trends in the asset management industry. In addition, it will help us to further diversify our business mix, grow our buy-side exposure, and increase our recurring revenues. Therefore, there is an extremely strong fit with our strategy.
Together with the combined ISS and Qontigo business, a leading ESG data and index provider, meanwhile, we will transform our current data and analytics segment into the much broader investment management solutions segment. This is expected to result in significant value creation from cross-selling opportunities and efficiency gains. In total, we expect run rate EBITDA synergies of around EUR 90 million, of which around 2/3 are expected to come from the SimCorp acquisition. During our Investor Day on November 7, we will dive deeper into those two businesses and their excellent growth opportunities. We will present our new strategy, Horizon 2026, and provide you with our midterm guidance. The event will take place at our headquarters here at Eschborn, and we are looking forward to welcoming many of you here.
Since the announcement of the transaction at the end of April, we have made good progress as expected. The tender offer for the SimCorp shareholders under Danish law has started on May 25 and will remain open until after the last regulatory approval has been granted. We spoke to many of the SimCorp shareholders already and are expecting a high acceptance rate. As usual, momentum in such process will only build closer to the final deadline. We have already received three out of four regulatory approvals so far: the US antitrust approval, as well as the foreign direct investment approvals in Italy and Denmark. The final outstanding review is the EU antitrust process. We are well on track and currently expect a decision at some point in September. The offer will close shortly thereafter.
Conditionally, upon closing, we have already locked in the interest rate of EUR 2 billion of long-term debt at slightly above 3%. We have also already started with a combination of ISS and Qontigo, and expect to complete the transaction around the time of the closing of the SimCorp acquisition. In the Q4, we plan to launch the new investment management solution segment, as announced during the acquisition of SimCorp. With that, let me now hand over to you, Gregor.
Thank you, Theodor. On page three, we show the details of the results for the first six months. The financial performance throughout the first half year was very positive. The key drivers for the strong performance shifted somewhat during the period. In the Q1 , the development was partly driven by elevated market volatility, while in the Q2, we saw the full benefits from higher interest rates. The operating costs increased by 10% in the period. This is mainly organic growth, which is driven by a couple of effects. Slightly less than half of the cost growth is driven by inflationary effects from building operations, general purchasing, and higher staff costs. The rest is a function of higher investments into growth and infrastructure, as well as an increase in FTE to support the growth ambition of our organization.
For the rest of the year, we are currently expecting a decline of the organic cost growth rates. For the full year, our current operating cost forecast is still broadly in line with our original budget of slightly above EUR 1.9 billion. If the strong performance of the business continues in the second half, there might be a little bit upside to that number from variable compensation. This brings me to the details of the Q2 results on page four of the presentation. The secular growth developed slightly above our expectation, cyclical tailwinds remained very strong. The cyclical growth was driven by the net interest income because of continued high cash balances and further increasing interest rates. This has more than offset lower volatility in some of the products in trading and clearing.
The explanations I just provided on the operating cost development for the full year can generally also be applied to the Q2. We increased the provisions for variable compensation in Q2 due to the strong business performance. This includes a retroactive effect for Q1. A few small one-off effects in different line items, which I will explain within the individual segments on the next couple of pages. I'm starting with data and analytics on page five. The weaker US dollar turned into a small net revenue headwind in the Q2. Adjusted for FX, the net revenue growth of the segment amounted to 9%. After a very strong development in 2022, we already expected some normalization of ESG net revenue growth in our data and analytics segment in 2023.
The ESG analytics business at ISS still saw good constant currency net revenue growth of 14% in the first six months. This is driven by continued client demand, especially for high-quality ESG data and analytics. Analytics benefited from a seasonal renewal of contracts of existing clients, which is encouraging, and resulted in some point-in-time net revenues. The index business was partly driven by an internal repricing of exchange license fees with our financial derivatives business, Eurex. The EBITDA in this segment was affected by a one-off valuation effect of a conditional purchase price component of EUR 9 million as part of the ISS and Qontigo combination. Adjusted for this effect, the EBITDA increased by 11%. Let me turn to slide six, the trading and clearing segment. After the spikes of volatility in the first quarter, we saw some normalization of activity in the Q2.
In financial derivatives at Eurex, the improving equity market condition resulted in reduced demand for index derivatives, but the OTC clearing continued to perform very well, with a net revenue increase of 33%. In addition, we saw substantial growth in the Eurex repo business. This was the result of much more frequently used money market transactions in the current interest rate environment and a further expansion into the buy side directly. Net revenue in this business doubled compared to the last year and amounted to EUR 22 million. This lower volatility, the collateral levels in the clearing house were down compared to last year, and we saw a decline of the margin revenues to EUR 21 million.
Financial derivatives included a one-off effect in net revenue, which was a reimbursement of legal fees of EUR 11 million from one of our insurances, which we booked in the other line item. In commodities, markets continued to recover from the energy crisis. Volatility has significantly declined, and prices across our markets have seen a healthy development. This translated into a strong upward trend in power, which suffered under uncertainty last year, with net revenue increasing 31%. We also strengthened our position from a market share point of view. In power derivatives, we now account for slightly more than 60% of the market compared to OTC. Margin revenues from the commodities clearinghouse have come down sequentially, but still stood solidly above the level we saw in the Q2 last year. They amounted to EUR 25 million.
To further grow our European power business, we announced the intention to acquire and transfer Nasdaq's Nordic power volumes to our platform in June. This transaction is expected to be complementary early next year and could result up in up to EUR 20 million of additional net revenue. In the cash equity business, we saw a stabilization of market share levels at around 63%, but we are faced with headwinds from substantially lower equity market volatility. In addition, the net revenue of the prior year included a positive one-off effect of EUR 13 million, resulting from the deconsolidation of Tradegate. In foreign exchange, we also saw lower volatility levels. Therefore, the growth rate decelerated somewhat compared to previous quarters, but we still developed better than the markets.
In the fund services segment on page seven, the continued onboarding of new clients and funds helped us to offset the ongoing cyclical headwinds and develop better than the market. Cyclical headwinds currently mainly arise from the trend away from active equity funds into passive funds and fixed income. Market valuation has been a broadly neutral driver in the Q2. With the new setup for Clearstream, the core businesses, security service, and the fund services business, have started to become more independent entities. We decided this to reflect differences of the service offering, the client focus, as well as the regulatory framework. It will also increase our strategic flexibility. Therefore, we have launched a new entity in Luxembourg in April for our global funds businesses, Clearstream Fund Centre S.A..
The new entity operates under a commercial banking license in Luxembourg and will provide fund execution, distribution, and data management to the fund industry. The Q2 still included some one-off effects related to the carve-out in the operating costs. There are some ongoing cost effects relating to duplication of some functions. The Q2 also included a small impact from a revaluation in our venture capital portfolio. Adjusted for that effect, the EBITDA increased 6% in the quarter. Our security services segment on slide eight saw a further acceleration of growth in the Q2. Custody continues to be positively affected by the ongoing high level of fixed income issuance activity. Fixed income assets under custody in the Q2 increased by 8%, which is above the historic average. This is despite the slightly weaker US dollar.
Since fixed income assets account for almost 80% of the whole custody business, issuer activity is a very important driver for us. We also expected an above-average development in this area going forward. Within custody, we also saw a strong performance of our collateral management business. Those are valued added services that help our clients to make more efficient use of the assets they are safekeeping with us. Net revenue in this business increased 12% in the quarter. In the security services net interest income, we saw a further sequential step up to EUR 178 million. This excludes the EUR 16 million net interest income that are now reported in the fund services segment. Total cash balances on average amounted to EUR 17 billion in the quarter, which is only slightly less compared to last year, despite significantly higher interest rates.
Since the market now does not expect many incremental hikes, the level of the net interest income in the Q2 is a good proxy for the rest of the year. Because we are expecting higher for longer, probably also for next year. This brings me to the outlook on page nine. Theodor already outlined our revised guidance for the full year. We are now expecting net revenue of more than EUR 4.7 billion and EBITDA of more than EUR 2.8 billion. Main function for the outcome at the end of the year will be cyclical factors, like the market volatility and the interest rate development. In addition, we are expecting the consolidation of SimCorp in the Q4. This will also affect our full year guidance because of the additional SimCorp contribution, as well as one-off costs related to transaction and integration.
We plan to update our guidance again with the release of the third quarter results at the end of October. This concludes our presentation. We are now looking forward to your questions.
Ladies and gentlemen, if you would like to ask a question, please press nine and star on your telephone keypad. We kindly ask all participants to limit their questions to one per person. The first question comes from Johannes Thormann, HSBC. Please go ahead with your question.
Good afternoon, everybody. Johannes Thormann, HSBC. Two questions actually from my side. First of all, on the cash balances, which dropped to around EUR 17 billion in the Q2 from EUR 18 billion the Q1 . What is the current trend in July? Is there a slowdown due to summer trading, or do you see stronger impacts there? Do you reiterate your sensitivity to rate hikes, additional revenue contribution, or would you lower this? Secondly, just on your statement of the 60% power market share or power derivatives market share. Is this Europe? Is this global? How is the situation in the US? Thank you.
Yeah. Thanks, Johannes, for your questions. The second question, the 60% or even more than 60% market share in the power derivatives business relates to Europe. The first question, with regard to the cash balances, yes, there was a slightly drop from EUR 18 billion-EUR 17 billion in the Q2. In July, currently, we see the same level in, between EUR 17 billion and EUR 18 billion, no big changes here. Usually summer, there's a little bit less activity, potentially it could be a little bit lower. Overall, our assumption is that the Q2 one rate is now a good proxy also for Q3 and Q4. Your question with regard to the sensitivity, that's basically unchanged here.
50% is US dollar denominated, 35% is euros, 15% is other currencies. We depend on the rate development of ECB and Fed. All is the far majority is short-term invested.
Okay, thank you.
The next question comes from Mike Werner, UBS. Please go ahead with your question.
Thank you. I have two questions as well. I apologize in advance. Quick question on the OTC clearing. You indicated that you saw, you know, a good uptick. I think it was +33% for OTC clearing and trading and clearing. The numbers I calculated in terms of new volumes that were cleared were actually down, I think, about 33% year-on-year. I was just wondering if you could help me better understand, you know, how the volumes translates into revenues and what other factors drive the revenues. Second, just a quick question. You know, we've heard a lot of companies talking about artificial intelligence, AI, particularly generative AI, recently.
I know you guys have a stake in Clarity AI, but was just wondering how you guys are investing or how you're incorporating or seek to incorporate AI into your operations. Thank you.
Yeah. The first question is with our AI specialist, Theodor.
I will respond to it, Mike, but go ahead.
Okay. The first question with regard to the OTC clearing. Overall, we are in the range of a 20% market share, and overall, we benefit from the market growth in general, and overall, we are quite happy with the situation we see here. Overall, from OTC clearing, we expect to have this year more than EUR 100 million net revenues. Really six years ago, we started from zero here, so quite a positive development. Also the discussion from the EU perspective when we talk about active accounts will give also us some tailwind what we expect here.
With the introduction of the new products, so the STIR, so the short-term interest rates, we cover now the full range of the interest rate curve. Overall, we are quite positive and optimistic that we continually increase our revenues in that business segment.
Thanks, Theodor.
On the AI side, Mike, it goes without saying that AI is a new big topic, right? What we have seen on technology side a couple of years ago was the cloud, now AI is coming into place, right? Generative AI is the name of the game, and as a technology company, we cannot afford not to try to become at the forefront of this technology per se. Point number three, we are pretty advanced in terms of use cases. We use language-driven bots, right, called Albert and Ferdinand and all this stuff. We use AI already right now on a use case basis. That's the third point I want to make. Point number four is.
... what we are doing so far is predominantly driven to optimize the efficiency of the company rather than creating new revenue sources. Point number five, we are, as you are fully aware, in a partnership with Google Cloud, and Thomas Kurian and I, we have agreed that we will also extend our partnership into the field of AI. We are currently exploring how we can do that. Point number six, you will hear more about this on November seventh when we do our Capital Markets Day. It goes without saying, that's the next big thing, right? On the cloud side, we have been a protagonist, and it's our explicit wish and our ambition, right, that we are not becoming a laggard in this field.
Thanks, Theodor.
The next question comes from Ian White, Autonomous Research. Please go ahead with your question.
Hi there. Thanks for doing the call and for taking my question. Just a couple of short follow-ups, please, on the net interest income. I just want to get my head around the numbers really for this quarter. If I look at the total NII across security services and fund services, you know, adjust for the Bank Markazi cash balances, it looks to me like the yield across the whole cash balance is about 500 basis points on an annualized basis, if I've got my math right. I'm just wondering kind of how you've generated that, basically, given that the policy rates, the sort of three main central bank rates, were kind of all below that level in the Q2.
Is there something I'm missing there in terms of the investment strategy or the yield management that's helping you to achieve these much higher numbers? Also just a clarification on the guidance. Are you saying basically that sort of EUR 194, I think, was the total across fund services and security services, NII, that's the quarterly number we should expect for about the next six quarters? I think you were saying sort of maintained at this level through 2024. Do I understand that correctly, please? Thanks.
Yeah. Thanks, Ian, for the potential here to clarify here, the NII number. Obviously, you do not get 5%, right? We do get exactly the rate for U.S., yeah, it's 5%, obviously, right? For EUR, it's a 3.5 what we get today. For the other currencies, it's slightly a bit higher than the 3.5, it's an average of the different currencies. What is missing? There are obviously some blocked accounts, right? That's in the year, EUR 1.7 billion, where we share of some of the revenues.
We just keep a handling fee here for that level. As this is a big number, it's 1.7, so that's a reason why we do not get exactly that number you calculated from a rate perspective. Overall, when I see the treasury side for Clearstream NII is close to EUR 200 million in the Q2, so adding up front services and security services. That's why we say that's also the runway we expect for Q3 and Q4
Okay. Thanks very much. Maybe just to make sure I've understood on the first point. Is there anything on the investment strategy in terms of the treasury management that involves putting money out at longer tenors? Should I think of this as sort of three month returns rather than overnight returns? Like I said, it just seems difficult to square the numbers that you've actually delivered with the idea that you're depositing money overnight in these major currencies. Perhaps I'm missing something else.
Yeah. not going in the details of obviously, but there are also in some own funds we have here in that range, and the own funds, we invest obviously more longer term than short term.
Okay. Thanks very much.
The next question comes from Bruce Hamilton, Morgan Stanley. Please go ahead with your question.
Hi there, thanks. Just if I could just ask one on a couple of revenue points. I think you mentioned some point-in-time revenues and data. Can you quantify those, and were those, you know, unusual in their quantum in the quarter? Then on the kind of C margin evolution in equity derivatives, it looked like revenues lower than volumes would have suggested. Anything going on there? Then second, just a follow-up on AI, and I realize we're going to get, you know, something more later. But in terms of the most interesting use cases from your initial look, can you give us any sense in thinking through where those might be within the, you know, business? Thank you.
The first question with regard to point-in-time revenue and data. We do not want to disclose all the details. Obviously, we acquired new customers here, and obviously, they are according to the IFRS principles, we have to book something as point-in-time revenue and something as maintenance revenue, obviously. Yes, in any time, we make new contracts here or expand the contract. There's always a point in time revenue component, but we don't want to disclose all the details here.
With regard to the Eurex, obviously, you have always to consider the, the product mix, so that's obviously one element, where you see some deviation in the revenue per contract, and the other is the 3% price increase we made in average for this year, 2023. That also have a positive impact on the RPC. The product mix and price increase are the main driver for that.
On the AI side, Chris, it's way too early to calculate, right, the efficiency gains out of AI as of today, and I strongly argue that we should not do this at all. Of course, we do currently, an example, coach coding, right? Where you use language models in order to improve the speed, right, of the coding. It's easier to train young people on the coding side and so forth, right? If you were to burden the new AI initiatives immediately with efficiency gains, right, guess what happens on the IT side and beyond? People are saying, "Why should I cannibalize myself?" Right? Therefore, I strongly advocate not to do this. Let's wait.
This will take, as we have seen on the cloud side, this will take 12 to 18 months or whatever, what do I know, and then will come into play on the efficiency gain side. You should not expect really meaningful numbers here short term.
Got it. Thank you.
The next question comes from Arnaud Giblat, BNP Exane. Go with the question.
Yeah, good afternoon. If I could come back on the electricity market share, please. 60% market share across Europe. I think, from memory, you disclosed a year ago that that was at 40%, so that's quite a big step up in the space of a year. Is this linked to the near, I suppose, missing on margin calls when we had very heightened volatility of the counter? Is this environment, part environment incentivizing people to move on exchange? I'm wondering, where do you see that 60% market share go? I suppose in more mature markets, typically it's 70%-75% traded on exchange versus the rest over the counter.
Is that sort of the go-to point for European electricity?
Yeah. As you rightly mentioned, it's really remarkable that we increased our market share from 40% to more than 60% this year. The main reason for that is the clearing solutions or the risk management perspective we offer here to the market, and as we have here, superior solution. That's the main reason, that and you know, if you have exposure towards a CCP, at least when if a bank is trading, then you have just a 2% risk-weighted assets. If you do it on a bilateral basis, it's 20%, and corporate's 100%. This risk management component is key, and that's a big, the key success factor for continue to increase our market share here.
I do not know where it ends, but the 70%-75% is not unreasonable number.
Maybe if I can just follow up. I suppose, as, if I think about the virtuous circle, what sort of level of activity on electricity markets come from various quant hedge funds, algos? How does that compare to other more mature markets?
In terms of the participants in commodities, you mean, Arnaud?
Yes.
Yeah. Well, I mean, it's obviously a different product, right? And some of them are even physically settled, so if you're talking about the spot market. I guess a lot of participants don't want to receive physical delivery. In derivatives, that's different, so that's cash settled. Here we have seen, you know, native participants joining, but I would say in the overall context, it's still a reasonably small and more supplier-user-oriented market. That might still gradually change over time, but we guess, you know, the nature of this market will not change. And will never be comparable to, say, financial derivatives on Eurex.
Thank you.
The next question comes from Tom Mills, Jefferies. Please go ahead with your question.
Good afternoon. You, you disaggregate your 18% year-on-year revenue growth for 1H as being 6% secular and 12% cyclical. Your disclosure suggests almost 17% of your year-on-year revenue growth relates to treasury income. Could you help me understand the nature of the treasury income that you are ascribing to secular growth? I guess some of it relates to OTC derivatives, but any other color you can provide would be helpful. Thank you.
Thanks, Tom, for the question. Very easy answer. The increase in the treasury side, we completely allocate into cyclical growth. In this 12% cyclical growth, all the positive treasury sides NII effects are included on that side. That's obviously very conservative, as we could easily argue that hundreds of that NII is obviously not cyclical and will not disappear. So far, we did it in the most conservative way and included it 100% in the cyclical part.
Okay, thank you.
The next question comes from Kyle Voigt, KBW. Please go ahead with your question.
Hi, thanks for taking my question. Theodore, it's widely reported in the press that you will not pursue another term as CEO next year. Obviously, it's still a bit early, but I was wondering if you could provide any broad commentary regarding what the board is looking for in a successor. Will the search be both internal and external? Is the search already underway? If not, when do you anticipate that search will begin?
Thank you, Kyle. As you said, it's way too early. I've got another 18 months to go at least, right? The situation was such, there was too much speculation about, right, potential prolongation on my side. I simply wanted to make sure that people understand, right? I'm turning 65, end of next year, right? Therefore, I wanted to avoid a deeper speculation here. Now for successors, it's not on me, it's on the Supervisory Board Chairman and the Supervisory Board to decide. It's way too early, I'm sure I can provide you with further color further down the road, but not now, quite frankly.
Understood. Thank you very much.
The next question comes from Tobias Lukesch, Kepler Cheuvreux. Please go ahead with your question.
Yeah. Thank you very much. Also, two quick ones, if I may. Firstly, I would be very interested in your expectation with regards to the derivative business for the second half of the year, and also especially on the commodities power derivatives, which again, you know, showed a lot of strength, basically. I was wondering if that is also a scene for Q3 and Q4. Secondly, quickly on costs. I mean, I know you do not want to go into detail with the segments. However, a top-down, in the past, you guided secular growth, you know, should be also the cost growth number, not more. Now, we have the 6% secular growth and currently also kind of 6% cost guidance, up to 6%.
I was wondering, you know, like, you know, how surprised should we be that costs might go above that 6%, or are you very confident, actually, to stay within the 6%? Thank you.
Tobias, thank you. With regard to the costs, we explicitly mentioned that we are in the range of slightly above EUR 1.9 billion cost. That's basically in the 5%-6% cost range. We always guided, and we are quite confident to achieve that level, even if you have seen in the first half year a 10% cost increase. There is some seasonality in it, and latest in Q4, I expect that we could be even below the level of last year. That's why we take always the full year into account.
So far, without any SimCorp and transaction and these impacts, on the basis of the business where are we today, quite confident to achieve that 5%-6% cost increase, what would be perfectly in line with our 6% secular growth. As regard to your first question, what about the business development, financial derivatives, and commodities in the second half year? Obviously, specifically in the financial derivatives business, it depends on the market volatility. We are quite optimistic with regard to our initiatives. We can influence or continue to have a 6% secular growth, and specifically also in the financial derivatives area. It's a little bit difficult to judge about overall, what is the market volatility for the full second half year.
So far in July, it's obviously quite low. It's below 15, though, the volatility levels, 12, 13, 14, in that range. Overall, we gave you the overall guidance, what we expect, so that we are above EUR 4.7 billion, and therefore, we are quite confident to achieve that. As regards to the commodities business in the second half year, the roughly 25% revenue increase was a positive surprise also for us, because do not forget, last year, we grew 39% from in the commodity business. Again, to have here a 25% revenue increase is obviously remarkable then.
To be up a little bit on the cautious side, I do not expect another 25% for the second half year, but it also depends on the volatility here. Therefore, it's difficult to judge it, to give guidance on a specific segment level, but overall, I think we are quite confident to achieve now more than EUR 4.7 billion revenues.
Thank you very much.
The next question comes from Enrico Bolzoni, JP Morgan. Please go ahead.
Hi, good afternoon. Thank you. Just a quick comment on the decision at the European level of consolidated tape. I mean, it seems that they're finding some sort of agreement. I just wanted to get some comment from you in terms of how do you interpret it, whether you think it's gonna be beneficial for European equity markets overall, and if maybe can lead to further homogeneity within the, within European markets going forward?
Yeah, I make sense. Thank you for the question. With regard to the consolidated tape, maybe you are aware of our announcement that we built here a joint venture with other European exchanges, with Euronext, Nasdaq, and so on, and many others. I think overall, it's 13 exchanges, where we build a consortium and are in the bidding process and from the EU, who is organizing the consolidated tape, how does it exactly work? That's our stake, what we have in here, and it would be obviously very good and very positive for us if we would win the bid here so that we are able to operate here, the consolidated tape. Defining all the details, how does it exactly, is it post-trading?
Is it real time? All of these things. That would be obviously good that we have some hedge here, being part of that kind of joint venture. Overall, obviously, we expect some headwind out of that, right? It's not in a material range. Maybe it's a very low double-digit million EUR level for us, but it's definitely not material for Deutsche Börse.
Okay, thank, we come to the next question here, Mr. Jochen Schmitt from Metzler. Please go ahead with your question.
Thank you. Good afternoon. One question on interest rate derivatives. Regarding the average rate per contract on slide 13 of the presentation, you state an improvement by 14% year-on-year in Q2. What's the driver for this in terms of product mix traded? The pure pricing effect was, if I got you right, around three percentage points. That's my question. Thank you.
Yeah, thanks, Jochen. Obviously, the main impact here is from our OTC clearing initiative and also from a, from a repo perspective. It's, again, it's, it's a product mix. With regard to OTC clearing, that is basically, without having the contract, but allocating the revenues here, and the same, including the repo business. These are the two drivers why the rate per contract increased for the overall interest or fixed income segment.
Thank you.
The next question comes from Benjamin Goy, Deutsche Bank. Please go ahead with your question.
Yes. Hi, good afternoon. Just one question left, also on the latest EU proposal, regarding a ban of payment order flow. I was just wondering how this might impact your position in Xetra and the market share and revenue development going forward after the three period. Thank you very much.
Yeah. Like, with all the other regulatory processes, it's obviously early stage, and things might still change a lot. Generally, I would say that this could be modestly positive for an exchange because potentially less order flow would be routed away to internalization in our retail brokers and so on. Looking at the overall size of the cash equity market, obviously, even if it's positive, then the impact for the group would probably be rather negligible.
Mm-hmm. Fair enough. Thank you.
The next question comes from Andrew Coombs, Citi. Please go ahead with your question.
Good morning. I just first want to come back to SimCorp. I think you previously said you plan to fund the acquisition EUR 3 billion via debt. Anything on the time frame for that and coupon expectations, especially in light of movement of rates? And then secondly, big picture question. Obviously, huge cyclical strength coming through in your numbers, but if I look at the secular growth that you flagged, it's running at 6% for the first half, down from 8% this time a year ago. If I look at Q2 secular growth, it's at 5% year-on-year versus 7% in Q1, does appear to be slowing. Anything you can say just to put our mind at comfort on the secular growth trajectory? Thank you.
Yeah, Andrew, with regard to your first question of the funding for the SimCorp transaction. We guided now that we already hedged roughly EUR 2 billion with this 3% interest rate level at the beginning when we signed the contract, because we do not want to speculate whether rates and debt level increase or decrease. We hedged roughly 3%. Don't forget, on top of that, we just hedged the interest rate. On top of that will be the spread, so the credit spread we have to pay, when we do that term bond investment. Roughly EUR 2 billion, not roughly, exactly EUR 2 billion, we hedged.
The other up to EUR 2 billion, depending on obviously the acceptance rate we create, we will use our cash on hand, even some short term or even some medium term. We will finally decide when we know what is the result of the tender offer, so that we know exactly the amount we have to fund. That's with regard to the SimCorp question. With regard to the secular growth, the 6%, you said it was 8%, was higher last year. Obviously, all this secular component, it's not a science here. We have some rules, and the rules are defined specifically in the trading and clearing areas, defined by product, right?
As we say, if we created some new product, a new and also products that are two or three years old, basically the MSCI derivatives, for instance, or the Total Return Futures, the dividend derivatives. These products are classified as secular growth elements, and the NII, for instance, is defined as a product, as a cyclical component. We go through, but on a primary, on a product level, and therefore it depends how the product develops here. It's basically then a different product mix contribution and increase or decrease.
I have all. Thank you.
All right. We don't have any further questions in the pipeline. We would like to conclude today's call. Thank you very much for your participation. If there's anything else, then please do feel free to reach out to us anytime. Thank you.
Thank you, guys. Bye-bye.
The conference is no longer being recorded.