The European Commission yesterday published plans to regulate on a pan-European basis the clearing and settlement of securities trading.
The commission has decided that a European Union-wide directive is needed to ensure that there is fair competition in the market for post-trading activities - essentially the processes of transferring ownership of the security in one direction and payment in the other.
Launching the outline of his legislation yesterday, the European commissioner for the single market, Mr Frits Bolkestein, said: "There will be no real single securities market in the EU unless we can make cross-border clearing and settlement as efficient, safe and cost-effective as at national level."
The commissioner has added the proposal to his Financial Services Action Plan believing that the EU has to address head-on the problem that the support systems for securities trading, apart from eurobonds, have developed nationally with their own technical, regulatory, tax and legal peculiarities.
The various national systems interact with each other poorly, although there has been some consolidation of clearing and settlement at an EU level.
But clearing and settlement remains fragmented compared with other parts of the financial services industry and the commission wants greater competition and consolidation.
A study presented to the commission last year found that cross-border trading was saddled with three types of higher costs: direct costs in the form of higher fees for the services provided; indirect costs in the form of extra back-office facilities that must be maintained or bought in from an intermediary; opportunity costs from inefficient use of collateral, a higher incidence of failed trades and trades that are simply foregone because of the difficulties involved in post-trade processing across borders.
Mr Bolkestein's aim is a genuine internal market in clearing and settlement services which would give all parties in the process of clearing and settlement freedom to choose with whom they work.
Past reaction would suggest that the financial institutions have a greater appetite for legislative action than the infrastructure providers. The commission has given interested parties until the end of July to respond.
IBEC wants the action plan fully agreed and implemented.
