There is general agreement in the market that the cost
of cross border settlement – in particular for equities
- remains too high.. Much progress has been made in understanding
the so-called technical issues of the “plumbing”
of the European financial markets. There has been a wide
and open debate involving stakeholders and authorities
over the last few years although there are still a variety
of views as to how costs can be reduced most effectively.
Market practitioners generally agree on the objective
of an efficient, safe, transparent and integrated system.
There is not yet a consensus on which final scenario is
more desirable: a single infrastructure service provider
or a reduced number of interconnected service providers
competing with each other. Moreover there is still a lot
of concern whether a directive would contribute to the
achievement of progress.
The main practical initiatives from the authorities
over the last two years are (i) the establishment of the
CESAME group chaired by DG Internal Market and of its
three working groups looking at legal barriers, fiscal
barriers and the functional definitions within the industry
and (ii) the launch by DG Competition of a general inquiry
into the relationships between trading, clearing and settlement
systems, the results of which were published on 24 May
2006.
At the same time the market has made considerable progress
in removing the nine private sector Giovannini barriers
to low cost cross-border clearing and settlement, one
of which has already been effectively removed (Barrier
number 8).
As the options for further stock exchange consolidation
in Europe develop, the focus of the post-trade discussions
has shifted from settlement to clearing and to the respective
merits of horizontal versus vertical integration of trading,
clearing and settlement systems.
DG Internal Market has recently announced that it will
decide whether to propose any new legislation by July
2006. Any resulting proposal for a draft directive is
expected in the last quarter of 2006 or start of 2007.
There is still uncertainty as to when the Commission will
publish its full Regulatory Impact Analysis (“RIA”).
At the end of May, parts of what could be the final RIA
were made public and are available for comments but it
is not a formal consultation process.
