16 April 2003

Commission presents second Giovannini report

In this second report on EU clearing and settlement arrangements, the Giovannini Group addresses the question of what actions should be undertaken to eliminate the problems identified in the first report.

The main conclusion is that a concerted removal of the 15 barriers identified in the first report is the essential ingredient to the reform of post-trading services in the EU. The barriers will be replaced by a set of technical standards, market conventions, rules, regulations and laws that are consistent with a barrier-free environment for the provision of post-trading services.

A strategy to remove the barriers is proposed, based on an appropriate sequencing of actions, a clear allocation of responsibility for those actions and aggressive but realistic deadlines. An important characteristic of this strategy involves close co-operation between private sector agents and national governments.

In summary, this document argues that the process to create an adequate clearing and settlement infrastructure in European financial markets is made up of two ingredients:

a concerted system of initiatives designed to replace the fifteen barriers with standards, regulations, and laws adequate to an efficient and barrierfree market, and

adequate regulatory/supervisory structures that ensure that the benefits of a barrier-free market will be made available to all market participants through low-cost and safe post-trading services.

The first part of the report focuses on removing the 15 barriers reflecting the groups conviction that efficiency in EU clearing and settlement arrangements cannot be optimised within an environment of multiple regulatory, fiscal and legal regimes and presenting a coherent strategy for removing the barriers. This strategy has been derived on the basis of several considerations:

some barriers are more important than others and so there is a need to establish priorities;

some barriers are inter-dependent so that there is merit in establishing a sequence for their removal that minimises the logistical effort and risk that may be involved;

it is necessary to identify the specific action that is needed to remove each barrier and to identify who – private or public agent – is responsible for that action;

the need for co-ordinated action in removing each barrier requires that a coordinator be identified in each case; and

there is a need to provide the necessary momentum and sense of urgency by establishing realistic but aggressive deadlines for removing each barrier.

The second part of this report deals with public policy considerations in the integration/consolidation of clearing and settlement providers in the EU and examines several models of integration in this context. Three such public policy considerations have been identified:

cost effectiveness, to exploit the integration of clearing and settlement arrangements so as to deliver economic benefits;

competition, which implies freedom of access for both users and providers and the absence of any restrictive practices that might limit the extent of or distort competition among providers; and

safety, i.e. the integration of clearing and settlement arrangements must be consistent with a desired level of systemic stability.

The final part of the report addresses the next steps required for integrating EU clearing and settlement arrangements and highlights the role of national governments.

Full Giovannini second report

© European Commission