On Monday, David
Wright, Director, Financial Services Policy and Financial Markets at
the European Commission, made an interesting statement of policy work
around European Clearing & Settlement in the Securities markets.
Here’s his words as I captured them (e.g. not 100% accurate but the
"What we are trying to do is increase competition in
the market, encourage rationalisation and improve competition across
the board, so that cross-border Clearing & Settlement Mechanisms
(CSMs) costs are the same as domestic.
"On clearing and settlement, everyone here should recognise that our policy is made up of four different pillars:
- the industry code of conduct,
- our support for TARGET2 for Securities,
- removing the legal and fiscal and technical Giovannini barriers, and
- ensuring that standards are in place for CSMs in the EU from the European Central Bank and CESR.
"The code of conduct is a three-part code that will be signed by everyone in this space in the EU:
- the first part relates to price transparency;
- interoperability is the second part of the code; and
- third is unbundling and accounting standards.
have been a large number of requests – 40 or more from one organisation
– for interoperability. It’s now critical to the EC that this results
in flows of business to increase competition and to drive down prices
"The Commission will monitor this space
carefully, and we have made it plain that we will not tolerate any
anti-competitive blocking of any form. You can also expect that the
Commission will push for interoperability agreements where we receive
"Even with all of these discussions, there
are lots of players in this space. So there will be rationalisation
and consolidation, and that’s for the market to determine. The key is
that these agreements take hold. We also want our market participants
to choose where they clear and settle – that’s at the heart of MiFID –
and so these agreements are critical to this.
aspects are just as important. We are removing the legal and fiscal
barriers and are now being asked for a timeframe for the removal of
those barriers. The commission in the New Year will come forward with
a timeframe, a tight timeframe, to genuinely move forward to remove
"On the standards for securities clearing and
settlement, one or two member states and regulators have been slow on
this, but the Council of Ministers has now appointed a group to look
into this and ensure the standards are put into place.
"So we have a four-pronged strategy and will use all the equipment we have to ensure aspiration turns into delivery …
urgent priority is to get the code of conduct to work in practice in
the marketplace, not just on paper. We create conditions for markets
to function, but not the markets. Therefore, when we went down the
non-regulatory route, we put the ball into play with the industry.
It’s in their court, not ours.
"This is a real test on both
sides to see if they can work it out and, if we can help them to work
it out, we will. We’ve had an open and inclusive policymaking
approach. We’ve tried to build a system and a model that is inclusive
and takes the best from third party jurisdictions. This is an open and
transparent working method which has helped us well over the past few
"This is also why I get jumpy about reciprocity and all
that stuff. We need to be attractive to capital from all over the
world. The priority is for the industry to deliver this code. Success
or failure falls for the industry …
"Giovannini is with the
governments to resolve. We are going to work on this in the Spring
with those government offices, to set a timeframe that is realistic but
short-tem, to remove those fiscal and legal barriers."
I was pleased to hear that Giovannini’s barriers is a priority for the Commission. After all, an October Banker magazine feature started with this paragraph:
than a year after the Giovannini Group’s original deadline for removal
of all 15 barriers to the creation of an integrated clearing and
settlement system for European securities trades, only one barrier has
been fully removed."
and concluded with:
the European Commission is keen for these barriers to be removed, it
agreed to a five-year implementation period for the Swift Protocol in
March 2006. But if the proposed Target2 for Securities gets the green
light, the implementation date is slated for 2013. It will be then –
more than 10 years after the Giovannini barriers were first identified
– that the industry could become unstuck if removal work is not fully
I mentioned this to David who was a bit unhappy
with the idea that only one – the interoperability standards – had been
removed through SWIFT’s Giovannini Protocol.
The real issue is
national fiscal and tax laws that cocoon and protect the national CCP’s
(Central Counterparties), CSDs (Central Securities Depositories) and
SSPs (Securities Settlement Providers). The challenge for Mr. Wright
and his team is to get face-to-face with these national governments and
get them to change these monetary policies.
It sounds like
he’s going to give it a go but, if the track record of MiFID
transposition is anything to go by, he’s got a tough task and, seeing
as Mr. Wright is going to be the Lone Ranger, then he’ll need a very
good Tonto … any volunteers?