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. 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."
The
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.
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.
The
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.