Europe's clearing houses will tomorrow face an ultimatum from Brussels to break the logjam that makes securities trading in Europe so much more expensive than in the US.

Charlie McCreevy, head of internal markets at the European Commission, will tell the clearing houses - which arrange the clearance and settlement of equity and derivative trades - either to agree a strict timetable to make sweeping changes to allow them to compete with each other and reduce costs, or face regulation.

Mr McCreevy wants to create a code of practice aimed at dismantling many of the barriers to competition between exchanges, clearing houses and securities settlement systems.

These are currently embodied in the so-called vertical silos run by some of Europe's largest exchanges.

The new code is likely to fall hardest on the Deutsche Börse, Borsa Italiana and the Spanish stock exchange, the BME, which is scheduled to launch its initial public offering of shares this week.

Such moves have been urged for years by the investment banks which are the largest customers of trading services and have support among some politicians who believe the current barriers raise the cost of capital for European business.

Mr McCreevy has previously urged European exchanges and clearing houses to take action themselves, warning that in the absence of a market solution, a directive would be forthcoming.

While most bankers privately concede they do not want a directive, they acknowledge that the commercial incentives to retain the current barriers are so strong that it may, in the end, be necessary.

The new codeis intended as a half-way step between a voluntary and a mandatory solution.