| Author (Person) | Fleming, Stewart |
|---|---|
| Series Title | European Voice |
| Series Details | Vol.12, No.6, 16.2.06 |
| Publication Date | 16/02/2006 |
| Content Type | News |
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Date: 16/02/06 The prospects of Internal Market Commissioner Charlie McCreevy pushing through reforms to securities clearing and settlement systems are brightening on the eve of a meeting with their main users, the major banks. On 6 February Euronext, the Paris-led cross-border stock exchange, announced that it was backing away from intensive merger discussions with Gemany's top exchange, the Frankfurt-based Deutsche B�rse. Euronext went further in an accompanying statement. It said that while it would be happy to merge with the German stock exchange as part of what it sees as the necessary consolidation of EU stock markets, it was fundamentally opposed to the Deutsche B�rse's 'vertical silo' model. This runs securities and derivatives trading alongside integrated clearing and settlement structures, the 'pipes' through which securities are exchanged for cash. "A [consolidation] transaction has to be supported by exchange users, acceptable to regulators and structured so as to allow the available synergies to be realised in full certainty," Euronext said. Crucially, it added that "cash and derivatives trading platforms should be consolidated independently from clearing and settlement infrastructures". Euronext seems to have decided that public authorities and users would not permit, or would put such tight conditions on, a merger which included clearing and settlement operations that it put at risk the completion of a successful and profitable merger with Deutsche B�rse. A few days later, on 9 February, the UK's Competition Commission ruled that Euronext would be permitted to bid for the London Stock Exchange provided, among other things, that it reduced its stake in the clearing service LCH Clearnet from 41.5% to 14.9%. In effect the UK's competition authorities, who had earlier indicated that they were likely to require these conditions, are also taking the position that securities trading operations should be separated from the post-trade clearing and settlement structures in order to promote competition. Euronext has long had a business model that has focused on securities trading activities, distancing itself from integrating clearing and settlement into the business. Deutsche B�rse, by contrast, makes a significant proportion of its profits from its post-trade clearing business. Its new line-up of senior executives must now be wondering just how sustainable this is in the long run. If, says a member of the Commission's now disbanded Giovannini Group of experts on clearing and settlement, Europe's competition authorities decide to follow the UK Competition Commission's lead, then Deutsche B�rse could face regulatory constraints on its clearing and settlement business. Critical here could be the outcome of the current competition policy investigation into the vertical silo structure of Borsa Italiana, the Italian stock exchange, he added. Were Europe's competition authorities to follow the UK's line, he said, then the days of the vertical silo would be numbered. Speculative investors who have driven the share price of Deutsche B�rse up in the expectation of a takeover which would reflect the high profitability of its vertical silo model, might have to think again. Profits from Deutsche B�rse at the level of a regulated utility might not be so juicy. The issues at stake in the complex manoeuvring over the future structure of securities trading, clearing and settlement in Europe are far reaching. The efficiency and stability of the EU's capital markets, the international role of the euro, the relative strengths of London, Paris and Frankfurt as financial centres, and the role of New York as a competitor, are all at stake. A recent study for the Corporation of London argued that such is the complexity of the issues, Brussels should not get involved in detailed legislation whose thrust could be altered by political pressures in the European Parliament. But, it pointed out, political influence through the Securities and Exchange Commission was needed to create a more integrated clearing and settlement system in the US. The European Commission must now decide whether it can legislate effectively, how far to use its competition policy powers and how it can best encourage governments to support its goal of reforming clearing and settlement in order to further its aim of creating a truly integrated single financial market. Article takes a look at the state of Europe's stock markets and plans for cross-border consolidation. |
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| Source Link | http://www.european-voice.com/ |
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| Subject Categories | Business and Industry, Internal Markets |
| Countries / Regions | Europe |
