Tony Bisegna: Lee, I have to say, you did a great job in making me sound very important.

Lee Ferridge: I know. I try. I try. Tony, you are very important to me when it comes to bonus time.

Tony Bisegna: I figured there was an angle there.

Lee Ferridge: So this is billed as a fireside chat. But they wouldn't. They wouldn't let me build a fire. Okay, but let's start off. So, look, given your leadership position across GM and all the businesses, you obviously have to think a lot about the future of our industry and you have to plan for it. So what are the broad industry trends that you're seeing you're thinking about and you're worrying about perhaps going forward?

Tony Bisegna: Yeah, I think there's a few of them. I think the first two are really around technology. And I'd start by saying you look at technology, how it's advanced in the last five and ten years or so, and, you know, you look at the rate of change, it's been tremendous. But you look five years out, it's just going to accelerate. So I think, you know, some key themes out there now, certainly I you can't pick up and read a news story without seeing some reference to that. And then crypto and, you know, Bitcoin and cryptocurrencies both good and bad over the last year, there's been an awful lot that we've seen there on that front. And then talking to our clients, another theme that we see increasing on the buy side is looking to outsource kind of non-core functions outside of the investment management process, and we're seeing that beginning to accelerate.

Lee Ferridge: So let's dig into those. So let's talk about AI because everyone wants to at the moment. Yeah. How do you see that impacting the industry? How does it impact our business, the industry in general? What are we going to do about it?

Tony Bisegna: Well, I think it's going to have a tremendous impact. It's changing everything we do in our lives, and it's going to change the industry. It's going to change how we do our jobs. It's going to change how we access liquidity and trade, how we gather information to make investment decisions and automate trading. So, you know, from what we're doing, you know, I look at our global link platforms, we're building out tools and capabilities there to help automate peer to peer systems, to help the buy side better access liquidity, pre and post trade analytics to help them better analyze how to access the markets and the performance. So we're leveraging and building tools there. I look at our principal businesses. You know, we've built out an AI platform to stream liquidity out to our clients. That's accelerating. So the idea there would be we would automate the market making function again, taking some of that load off the traditional traders we've had. So that's a really big initiative we have for several years now and we're pushing that and accelerating that. And then more on the liquidity front to give our clients tools for equities, foreign exchange where they can leverage algo. Sometimes it's a workflow solution, sometimes it's a liquidity solution for them. So building those types of tools we've recently rolled out in our Financing Solutions businesses, a venture platform which is a peer to peer platform. So we're doing a lot with peer to peer and then more on the principle side, building out what I call kind of true AI, where we're trying to build out, you know, essentially technology to trade like a human would.

Lee Ferridge: Yeah, because I think there's a lot of, a lot of things people talk about AI and it's not really true. Ai but it's anyone.

Tony Bisegna: With a spreadsheet and a macro Now it's calling it AI.

Lee Ferridge: Yeah, but, but what we're doing there on that front, that is a true AI platform.

Tony Bisegna: Yeah, absolutely. And then you talk about crypto, you know, look, there's what, 20,000 plus currencies or tokens out there now I think there's been positive and negative news in the press around crypto. I don't think Bitcoin is going to become a universal currency that replace everything else, but it will be there and it will persist. I think really the interesting thing when I look at cryptocurrencies is the technology behind it. So I think there's some really intriguing things about tokenizing and fractionalizing ownership of illiquid assets. So you take real estate. There's been some use cases where that's been done already. I think of like private equity funds. If you could tokenize that, you could broaden the base of investors, you could create secondary markets. I think those are some really interesting things that will evolve over time, and I think that's really an exciting area that we're going to be watching very closely. You know, on the outsourcing theme, State Street's been in the outsourcing business for quite some time, many, many years ago, fund accounting, then middle office. And now the theme out there now is moving into the front office is outsourced trading. And I think recently you've seen the press that we signed a deal with CF Global and it's a small trading outsourced trading firm that gives us a presence in Europe, continental Europe and also in London and augments our capacity in APAC.

Tony Bisegna: So we're really excited about that. It will help us be able to spin that business up and we think that's going to be a high growth. Growth business. Now, you know, a lot of people look at it and I talk to clients and it's not an all or nothing type solution. So some small firms might want to outsource their entire trading team. I think a lot of firms are going to use it to supplemental trading to augment what they're doing. So in times of high volatility where liquidity is difficult, they can access other liquidity pools through it. They could outsource certain asset classes that maybe they do infrequently and don't have a lot of expertise in. So it can really supplement what they're doing. And I think that's a big piece of it that people don't understand. And I think that's going to be a trend that's going to evolve a lot over the next five years or so.

Lee Ferridge: So it's like an overflow outsource trading. So where your desk is swamped, then you can absolutely utilize it.

Tony Bisegna: It also alleviates for purposes, too. It can help on that front too, for the buy side so they don't have to have a full blown type stack. They can go to an outsourced trading firm for Dr. Right.

Lee Ferridge: So you save on the cost because you've got it there. That's right. Yeah. The potential to do it. So on the on the sort of crypto tokenization. So the way you see it, you know, you talk about real estate, you talk about private equity, then we get to the point where you tokenize private equity and you can trade liquid. Yeah, I think.

Tony Bisegna: Once you have a token, then the open up the whole world of a secondary market. And I think that's a really exciting thing. So I think that's where it evolves and the, you know, the dogecoins and all these other things will kind of be in the sidelines.

Lee Ferridge: Yeah, because we're going to hear a lot. Obviously we're hearing about crypto tokenization later in private markets as well. And so it does it's interesting we're hearing about that and that's that stuff you're really focused on as well. Sure. So so much of the industry. Let's talk about markets, because I know you like to talk about markets. So we had lots of discussion yesterday about inflation, about interest rate outlook. You know, and now to many, if not most in the market, Fed rates at 5.5%. They see them as anomaly. They see them as something of a shock after years of close to zero interest rates. Now, I know when you were trading back in the day, rates at these levels were not unusual. This was the norm. Yeah. So do you see, you know, how do you view the current rates? Do you think they are an anomaly and we're going to naturally return close to 0 to 1%? Or do you think we have moved into an era of persistently higher rates? What's the old normal, if you like?

Tony Bisegna: I think you got to look at where rates went recently and how low they went. And I think that was a product of severe financial shocks. You can go all the way back to 2000 with the.com bubble bursting the global financial crisis, probably the shock of all shocks to the financial system and then pandemic. Right. So I think you had a sequence of these shocks that pushed rates down to really low levels. You saw a lot of quantitative easing by the Fed. So a lot of debt issuance with the Fed seems to be buying it all the time, Right, The buyer. So we printed an awful lot of money. So I'm not surprised at all that inflation finally came back. I remember back in the pandemic, there were a lot of pundits out there saying that this is a long term trend. We're going to see zero interest rates. It's a secular change. And I remember that and I kind of made a note of that, that this is inflation is coming back. And it did and it caught everyone off guard. So I think if you look at over 50 years and you and I have spoken about this a little bit and you take out the bottom 5% and the top 5% of the years in there, I think the overnight rates are around 5.25%. And you do 40 years, it's around 5%. And you do the last ten years, it's almost 2%. And that's with extremely low interest rates. So I think, you know, there's always going to be shocks to the system. I hope we don't go back into a pandemic or a global financial crisis again.

Tony Bisegna: And assuming we don't, I think the new norm is going to be higher rates. And, you know, will it be five and a quarter or five and a half? Probably not. But it could easily be four and a half, 4.25%. And you could look a couple of years down the road and see overnight rates in that range. And you could see, believe it or not, the ten year actually rising above it and getting a normal yield curve again. So I'm in that camp that I think that's where we're going to go to. And I think you've got a whole generation now of investment professionals that have lived through these massive crises and they used to extremely low rates. So that's the normal for them. And I think that will get they'll catch the market off balance a little bit. We're seeing some repricing now of what the Fed's going to do potentially do next year. Right. It was up over five cuts next year. I think now we're three and one half, four. I think I'd lean towards the the lower number of cuts, quite honestly. And then maybe, you know, two years out, you get to that kind of four cuts, five cut range, maybe two years out. But it's going to we're going to be higher for longer. And and that's obviously assuming that we don't have a major recession. And it looks like we've kind of flying in now for the maybe the quick touch down and take off again here are no landing at all. So I think that supports higher. For longer.

Lee Ferridge: So this is the modern debate or the debate or not modern debate. The last few weeks has been about our star and where neutral real rates are. You're very much in the camp. They're not 50 basis points, right?

Tony Bisegna: No, no. I think it'll be higher than that. And real rates, let's assume it's one and one half, something like that at some point. Right. That justifiably, we're north of 3% on overnight rate I think you know, easily.

Lee Ferridge: Yeah. Three and a half, 4% range. That's right. Yeah. Okay. So let's turn to markets. A lot of debate and disagreement about the dollar. Mixed views. Yesterday I gave mine. Everyone agreed with me. I don't know why. So which side do you come down on on the dollar debate stronger or weaker over the rest of this year and into next year? Well, you and I.

Tony Bisegna: Have talked about this a lot, and I think this time you favor a higher dollar. Yeah. And I think it's one of the few times we agree. Yes, true. So I would say I would favor that as well. You look at the interest rate outlook, I think we roll into next year and we don't get the cuts. The market is kind of pricing in. That's a big tailwind for the dollar. I also think, too, when you look at the economies around the world, if we succeed in having, as Eric was very optimistic, maybe a little less optimistic, but still optimistic that maybe we have a little touch down and take off again somewhere in that range. You look at what's going on in Europe, UK slowing down, high inflation, really kind of stagflation. You look at Continental Europe, they've got inflation. They're going to keep cranking rates up to crush it and they'll probably really cause a recession in their economy. You go to China. China's kind of falling off into the economic abyss here. So the first time in a long time we're seeing a real divergence in economies around the globe. And the US is on the positive side of that. So I like the dollar.

Lee Ferridge: What about the sort of recent downgrade of US debt? What about I mean, I touched yesterday about debt levels and you talked about the balance sheet. Does the debt downgrade worry you? Does the level separate? So does the debt downgrade worry you? Or separately to that, does the level of debt worry you?

Tony Bisegna: Yeah, the downgrade doesn't worry me in and of itself. It's the level of debt and how sustainable that is. So if you look at it now, debt is about 120, 25% of GDP. Yeah. And if you go back, I always benchmark things back to the before the financial crisis, I think it was like half of that then. And more importantly, you look at the size of the balance sheet, the Fed balance sheet compared to GDP, it's like 25%. And you go back pre crisis that's been five, 6% forever. Right? So, you know, that's just telling me that we've issued a lot of debt and who's the buyer? The Fed. Right. So we're just printing money and I don't know how long we can do this. I don't think the politicians are going to solve this. I have a very low expectation that they'll solve this through fiscal policy. I think, you know, if there's if there's an out here, it's going to be we're going to have to grow our way out of it or inflate our way out of it. And I worry like, I don't know, it's it can't keep going on forever at this pace. At some point it's going to break. And I just don't know when that would be. And my hope is that we grow our way out of it before we get there.

Lee Ferridge: Yeah, I hope so too. But yeah, the way it looks at the moment, it's not going to be easy, particularly. I mean, I talked yesterday about demographics. That's going to make it harder as well. Sure. So unrelated or slightly related, but but what about emerging markets? So the carry trade, the FX carry trade has been a favorite this year. We're obviously emerging markets is big for our business. We've been expanding into emerging markets. So both from a business point of view and an investment point of view, do you still like all things or are you more selective now?

Tony Bisegna: Yeah, I think you have to be selective. Certainly, you know, China's separate case, but there's still positive aspects of emerging markets. When I look at APAC, you know, certainly Korea and some of the markets look stronger. I think Latin America looks pretty good overall. I think Latin America now, a lot of the trade with the US is going to be a tailwind for them. There's a lot of the imports are coming out of Mexico and whatnot. So I think Latin America is in a pretty good position. I think, you know, Eastern Europe, we've got geopolitical problems there, but if those ever get resolved, there could be opportunities there as well. So I think it's going to be a very market by market. As you look around the globe.

Lee Ferridge: Okay, it makes sense. So I'm starting to get some questions in on Slido. And if you have a question, please, please push them through because I will see them here. So what I got is do you do you foresee a role for blockchains to settle international payments?

Tony Bisegna: Yes, I think the central bank digital coins is a great example of that. So you think about that, that will speed up payments in euros and dollars and all of that through central banks. I think that's where it ultimately goes. I don't think it's going to be something outside of that. I think it will be within the central bank network that they leverage that technology. But absolutely, I think it will speed up settlements as a potential to speed up movements of collateral, too. Yeah, and you can tokenize that and move it around so that that's where it's not so much about Bitcoin, it's about the technology and what you can do through tokenization where I think the real value is and that will evolve over time.

Lee Ferridge: So another one T plus one is coming next year in US equities. Any thoughts about the impact on markets?

Tony Bisegna: I think it's going to make it more challenging and we've talked to clients around the globe on this. If you're a European investment manager, if you're an Asian investment manager somewhere in APAC, I think you're going to struggle with trading your US securities and being able to fund them in such a short window. I think also too, if you're selling a, for example, a UK security and buying a US security, you're going to have a funding gap. So that's going to create complexity for the buy side and how they manage that. Some of it will be tools available. We have some available things like our street platform can help with that. It can handle settlements very quickly in a short, you know, T plus one, even T zero type timeframe. Our indirect products can help. So I think there's tools that we have that can help, but it's going to cause disruption in the execution side is the way I look at it. Yeah.

Lee Ferridge: So another one would State Street ever consider adding adding digital assets or Bitcoin to its balance sheet?

Tony Bisegna: Yeah, I don't think that's in the near future for sure.

Lee Ferridge: Yeah that would be my yeah yeah. So China and their slowdown right now how confident are you this will continue are what about potential government intervention in the economy. Do you have a more do we have a more optimistic longer term view for China or do you think there is a shift going on there.

Tony Bisegna: Putting some of the geopolitical issues aside? Yeah, I'm more optimistic on China maybe than most people. You know, the geopolitical piece is a wild card with Taiwan and all that where that ends up right. That really heats up. And we don't repair that bond between the US and China. It's going to be a problem. But if that gets solved, I think their economy has a potential to recover. You know, the numbers in China, you have to take it with a grain of salt and they can be managed. But yeah, I'm more optimistic. It's still, you know, it's a massive economy. It's come a long way in a very short period of time. So there's still opportunity. Now there are some demographic headwinds they're facing, which I think, you know, could over the next 5 or 10 years cause problems for them.

Lee Ferridge: So we still seeing it for State Street as an opportunity rather than a problem there. That's how I see the longer term. Yeah.

Tony Bisegna: Yeah. And again, the geopolitical piece of the wild card, if that really flares up, then becomes less of an opportunity for US firms. So.

Lee Ferridge: So in terms of I mean sort of related in terms of near-shoring friend shoring, you know, there's a view that sort of this anti-globalization will lead to reduction in trading. Do we have any concerns on that front or, you know, you're still going to see the investment flows even if you're not seeing the actual supply chain?

Tony Bisegna: Yeah, I would say particularly the area that we're heavily involved in on the investment side, I think that's going to continue. The trade flows that might have some impact, but I don't think it's going to cause the market to shrink in a meaningful way.

Lee Ferridge: No, I don't. I mean, you expect markets to carry on growing?

Tony Bisegna: I would assume so, yes.

Lee Ferridge: So related to that, how do you think upcoming changes in settlement rules will impact where and when f x is transacted?

Tony Bisegna: Oh, like G plus one.

Lee Ferridge: T plus one or rules in Europe, I think. I'm not sure which one they're referring to. It shouldn't affect where F is transacted.

Tony Bisegna: Right. Well it, it might like t plus one could I mean if you're buyside firm and you're trying to manage that and let's say your firm is based in APAC and you don't have a desk in the state, you're probably going to want to spin one up as well, too. So I think there's going to be you know, it'll it'll be global. I think it will impact some of the offshore investment managers and how they go through their process of executing trades.

Lee Ferridge: So a lot of questions about China. Everyone's still asking, so China or India, which region is more favorable to State Street's future investment?

Tony Bisegna: I would say India. You look at the growth rates, both of them very vibrant, you know, growing economies. We've got a lot of operations out of working out of India. So I think that's the factor that makes it really important to State Street, probably more so than in China. So I would say I'd say India probably, yeah.

Lee Ferridge: Okay. Just one final time. One final one. Could you elaborate on peer to peer initiatives you mentioned earlier? Would why would a bank promote this since it's now the main counterparty? What is State Street's edge?

Tony Bisegna: Well, there's a technology play here, obviously, right? So if you have the right technology, you can make it work and you can provide the platform. So you think about our global link businesses, those are trading platforms. So that's an opportunity for State Street there to play in that place, in that space. So I think there's opportunity to do that. You know, some of the models, too, they need a principal in the middle, a principal bank to clear. So like in the space and we've got all our clients set up right now to trade with us. So that gives us an edge as well if we build peer to peer there. So it's an alternative. It's not an end game in f x, f x is still unlike some other asset classes like equities, highly liquid. So the fact that it's liquid, that trading profile is a bit different than equities. So the market impact is lower on reasonable sized amounts. You know, to even use an algo, I think algo's will continue in f x, but I don't think it'll ever get to the same level of usage they do in equities because if you have a relatively small trade ten, 20, €50 million to do, you know, doing it over an algo or T or VWAP over a period of time, you might want to consider the event risk and just hit a streaming price with a very small bid ask spread and cost to it. So I think that's the dynamic there. So I think I think when I look at it, I think is in a different space given the liquidity.

Lee Ferridge: Sadly, we're out of time. That was quick. I went quick, didn't it? Tony, thank you very much. Thank you. Cheers.

Thank you. Thank you.