07 July 2005

EP adopted Report on Clearing and Settlement

The European Parliament adopted the own initiative report of Ms Kauppi on Clearing and Settlement with some minor amendments to the original report. While not asking for a framework directive and rejecting moves that would impose a single utility-type structure across the EU for post-trade security transactions, the report supports a market-led approach to integration consistent with the wishes of market participants, regulators and politicians.

According to Ms Kauppi, some of the amendments that have been tabled seek to pre-judge the need for regulation. 'I think it would be a serious mistake to apply this ex-ante philosophy in the case of clearing and settlement', Ms Kauppi warned before the Plenary vote took place. 'First of all, we have agreed to wait for the results of the regulatory impact assessment and of the different working groups set up by the Commission, in order to determine whether there is any market failure and whether a directive is the right solution', she underlined. 'A call for new competition legislation is a misguided call for a short-term directive', Ms Kauppi said.

The report highlights that inefficiencies in cross border transactions arise due to national differences of legal nature, technical requirements, market practices and tax procedures, and in some cases due to restrictive market practices. It says efforts to encourage integration should focus on bringing down costs of cross-border clearing and settlement, ensuring that systemic or other risks are properly managed and regulated, encouraging integration by removing competitive distortions and ensuring proper transparency and governance arrangements.

The report does not come out for or against a new directive, but it says that if the Commission does decide to propose legislation, it should focus on:

re-confirming and strengthening access rights in order to ensure fair and non-discriminatory access to central clearing and settlement service providers;

strengthening passporting rights for providers of clearing and settlement services supported, when needed, by regulatory convergence;

allowing for transparency and enabling market forces to work effectively;

achieving consistency of regulation, supervision and transparency to enable providers of clearing and settlement services to manage systemic risk and anti-competitive behaviour;

establishing a functional approach to the regulation of different players, which takes into account the different risk profiles and competitive situations of different entities;

introducing definitions that are coherent and consistent with existing market practices and with the terms used globally and within the EU.

MEPs argue that the removal of the 15 barriers identified by the Giovannini reports is essential. They say fiscal barriers are one reason for higher cross-border costs, and support efforts to reduce these. Among other Parliament criticises the adoption by CESR-ECSB standards and reaffirm that such standards should not pre-determine EU legislation and call for an effective means of providing parliamentary scrutiny for the work of CESR in clearing and settlement. The report also urges the Commission to make pro-active use of its general competition powers to prevent abuse of dominant positions by any of the big players in the clearing and settlement market.

Press release Ms Kauppi (6.7.)
Provisional final report

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