European central counterparties (CCPs) must work together to make securities clearing and settlement cheaper and more efficient, or risk a European Commission (EC) mandate, according to the latest report from consultancy Aite Group.
The report, ‘EU trading, clearing and settlement: You say you want a revolution’, considers national differences between systems and management to be the key barriers to a harmonised pan-European clearing and settlement market. The report adds that regulatory variations between countries within the EU, such as tax codes, legal structures, currencies (outside the Euro currency zone) and settlement standards also prohibit interoperability between markets, clearing houses and central security depositories.
Three years after the introduction of its Code of Conduct on clearing and settlement, “many feel that the EC may be ready to issue a more forceful directive soon if participants in the market do not get the ball moving more quickly,” asserted the report.
Aite notes that the need for investors to manage a higher risk trading environment has seen exchanges and multilateral trading facilities start to open up their clearing and settlement infrastructures.
In December last year the London Stock Exchange added SIX X-Clear alongside incumbent clearing house LCH.Clearnet after years of resistance, while NYSE Arca Europe and Equiduct, two MTFs expected to launch soon, will each offer three post-trade services providers.
While Aite’s report considers the Code of Conduct to have had a positive impact on price transparency and the unbundling of financial services, it also notes that none of the 82 requests for interoperability from infrastructure companies have received approval from the incumbent operators in the market.
"Aite Group expects to see increased competition in the future for the European market, with pan-European CCPs emerging and CCPs merging," said Phillip Silitschanu, senior analyst with Aite Group and author of this report. "During this transition, there is little doubt that European regulators will want to remain in control of the process - both the European Commission and the European Central Bank will seek to maintain their influence and control over post-trade processing infrastructures.”