But some
question how effective T2S will be. Paul Symons, director and head of public
affairs at Euroclear, is unsure whether T2S will be as effective as the ECB hopes.
"We entirely support the principle behind T2S, which is attempting to
deliver an integrated settlement infrastructure for the European capital
market. But we have an awful lot of open questions about how the system will
operate and whether it will actually reduce costs in Europe,"
says Symons. "There is a big debate at the moment within Europe
about whether T2S, which is an interesting idea and an interesting vision, will
actually deliver on the benefits." The jury is still out on T2S, he adds.
Euroclear
has gone part of the way towards solving the fragmentation problem in Europe through acquisition. It has bought and
consolidated the settlement systems of Ireland,
the UK, France, Belgium
and the Netherlands.
It plans to deliver a single settlement platform for those countries by late
2009. "Euroclear has taken major steps towards harmonisation," says
Van Stappen. "T2S is looking at something even bigger, but it is not going
to be there for the next four to five years," he adds.
The problem
with the T2S proposal is that, as with McCreevy’s code of conduct, it will not
be in place when MiFID comes into force on 1 November. Following the completion
of the consultation period, the governing council of the ECB is expected to
make a decision early next year on whether to proceed with the development of
T2S.
Problems
posed by the time lag between MiFID implementation and the introduction of the
code of conduct and T2S are played down in some quarters. The mismatch will
allow the market to get a good idea of how MiFID affects clearing and
settlement before developing solutions. "The time lag between the roll-out
of MiFID and T2S will bring the need for practical solutions, including
standards and market practices, to the fore," acknowledges Kirby at MiFID
JWG.
Positive signs
and clearing landscape. Competition and consolidation go hand-in-hand. While the
initial impact of the Directive will be to increase the number of liquidity
venues with dedicated clearing and settlement arms, it is also likely to lead
to increased pressure on prices, forcing many in the industry to come into line
with McCreevy’s code of conduct as it relates to price transparency and
unbundling.
Turquoise’s
decision to choose EuroCCP and Citi as its clearing and settlement partners is
welcomed by Symons at Euroclear. "It is good for Europe,"
he says. "A new entrant into the clearing and settlement space creates
competition. It is both a challenge and an opportunity. We all have to compete
with that new venue and to do so ensure we have fair and open access to any
trade feeds that EuroCCP provides Citi." Competition between settlement systems
will, over time, induce further consolidation, predicts Symons, as business
volumes move towards the most efficient settlement system.
McCreevy code of
conduct – timelines
■ By the end of 2006 a series of measures to improve
price transparency was to be in place.
2007 agreement on a roadmap and conditions for ensuring effective rights of
access on a fair, transparent, nondiscriminatory basis, so that the conditions
are set for implementing interoperability between exchanges/CCPs/CSDs etc as
soon as possible thereafter.
■ By 30 December 2007, there will be separate accounting
of the main clearing and settlement activities.
■ By the same date there will be price unbundling of the
main services and activities.
Source: European Commission