25 October 2002

FESE: Securities exchanges and European Union legislation: a regulatory or a business battle?

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Speech by Paul Arlman, Secretary General, Federation of European Securities Exchanges at the International Association of Financial Executives Institutes (IAFEI) meeting in Madrid, 25th October 2002

(Excerpt)

Are the current battles in Europe of a business character or of a regulatory character? Summing up my own views on this, let me stress that I hope that we can make it into a business battle, as that is the way how our economies as well as our Exchanges could and should function. I am afraid that for a while to come we will first have to fight and win the regulatory battles in Europe before we have a level-playing field, on which all Exchanges and associated organisations can serve their clients and of course try to beat their competitors.

The European modernisation is delivering the goods: liquidity is generally at high levels compared to before 1990 even at current depressed markets, technology is if not fail- proof, at very high standards. Investors are protected by scrupulous application of time/price priority - which is not always the case in the US markets - and benefit from lower Exchange fees, which are small anyhow compared to those of intermediaries.

A crucial aspect is competition. Today, Europe's Exchanges compete each other as well as ECNs-ATSs and banking internalisation. Will we therefore see fewer Exchanges in a few years? I dare to argue yes but not as fast as you may believe. (…) Will we one day have one single European Exchange? I hope not as competition is needed to pursue innovation and continued investor protection.

Last but not least, quite on the contrary at this stage, I get to the Investment Services Directive, rightly called the constitution for the capital markets of Europe. The current ISD, which took only 7 years to establish, created a European passport for intermediaries, although in practice less successful than hoped for and implemented in some Member States in a rather hassled fashion.

Although a separate communication but not a proposal has been published by the Commission on clearing and settlement, the ISD probably will touch that subject as well. There again, we would argue that a level-playing field is important. One should shy away from too rigid and too detailed prescriptions at the EU level in order to avoid stultifying innovation and blocking competition.

Full speech

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