Devil in the detail on best execution(4)

Historically, the industry's record of cooperating on common initiatives is poor. There are few examples of successful cooperation in the post-trade arena, notes Van Stappen at Equiduct.

By None


the industry’s record of cooperating on common initiatives is poor. There are

few examples of successful cooperation in the post-trade arena, notes Van

Stappen at Equiduct. What is more, the effects of the code of conduct are

unlikely to be felt short term. He cites Euroclear’s efforts to harmonise clearing

and settlement for Euronext, which incorporates the Amsterdam,

Brussels, Lisbon

and Paris stock

exchanges. "It took them three to four years," he says. "This is

not something that happens overnight. In a way it is easier to launch an additional

trading venue and list ISIN codes on it than to make these post-trade

environments work together."


Commission has defended its decision to opt for a code of conduct. A code,

unlike a more rigid directive, is faster to implement and more flexible, it argues.

"Binding legislation would take a significant time to draft, negotiate and

implement," explains Oliver Drewes, EU Commission spokesman for internal

market and services. It could take up to five years to implement, he points

out. In a market which is undergoing rapid development, "the danger is

that what is agreed now would be carved in stone," says Drewes. "In

an environment where you have consolidation of stock exchanges and all manner

of developments which have an impact on the post-trade sector we would rather

have a rapid-reaction mechanism, which we believe the code of conduct delivers,"

he concludes.

PJ Di GiammarinoThe power of one

Despite the

Commission’s assurances, the concept of coordinating the various European

clearing and settlement structures may not go far enough for some. What Europe needs, they argue, is a central clearing and

settlement infrastructure. Many point to the US as an example. The US has had a

highly fragmented market since the market-pricing rule of 1997 set the stage

for a raft of alternative trading venues to be established. Here, the DTCC functions

as the central clearing and settlement mechanism that brings everything together

on the post-trade side.

In the

absence of a central clearing and settlement facility, the post-MiFID landscape

predicted by many, of multiple execution venues competing for liquidity, could

flounder. Speaking to The TRADE earlier in the year, Jerry Lees, head of

electronic brokerage at CA Cheuvreux, argued that clearing and settlement is

the biggest obstacle to overcome for MiFID to achieve its goals. Given that there

is no equivalent of the US’s

DTCC in Europe, Lees argued that if, for example, a stock is listed in five

places in Europe, there could be five different settlements rather than the one

that would be necessary in the US.

"At this stage, slicing and dicing an order into lots of smaller orders

would be more costly than to send the entire order to one venue," he commented.


potential benefits of a single clearing and settlement system are not lost on the

powers that be in the Eurosystem. The European Central Bank (ECB) has completed

a feasibility study on setting up a pan- European settlement system

TARGET2-Securities (T2S)

– and is

now in the process of consulting potential users on their requirements. The Commission

has acknowledged the ECB’s proposal, declaring that it could help eliminate

many of the inefficiencies in Europe’s clearing

and settlement system.

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