Call to force open market for clearing stock transactions

Date: 08/02/01

By Tim Jones

EUROPE'S largest stock exchange is urging EU competition authorities to open the market for clearing and settling securities trades as a key prong of their campaign to create a single capital market by 2005.

London Stock Exchange chairman Don Cruickshank's call for anti-trust chief Mario Monti to use aggressive market-opening tools on this sector come a week before a committee of 'wise men' unveils its reform timetable to meet the 2005 aim.

"If there's anything that we find to be a competition issue, we'd have no trouble at all in asking Monti to act," said Norbert Walter, Deutsche Bank's chief economist and a member of the committee chaired by retired central banker Alexandre Lamfalussy.

At stake is the fragmented industry of as many as 30 clearing and settlements agencies, which perform the essential electronic 'back-office' task of reconciling sales and purchases, providing default guarantees to operators and clearing paperwork.

In the US, the average price of these transactions is less than 1 euro-cent, while in Europe fees are as much as ten times higher - a fact that the Lamfalussy group's interim report published in November saw as a major obstacle to developing a pan-EU capital market. "If the European Union wants to develop an efficient market, it's going to have to find some way of exerting market disciplines on these players," Cruickshank told European Voice. "Clearing and settlement is a network and some might argue is a natural monopoly, and the economies of scale are such that you could envisage all European volume going over one infrastructure."

The business is dominated by Brussels-based Euroclear, which recently took over French clearing house Sicovam, and Clearstream, which was formed from the merger of Cedel International and Deutsche Börse Clearing. Added to these, however, are tens of other national clearing and settlement organisations usually linked to the local exchange.

"At the moment, almost all of these organisations are owned by the trading platform - the exchange - so you have vertical integration and common ownership that begin to raise issues about access to the network not unlike telecoms and only slightly different from electricity," said Cruickshank.

Although the clearing-house 'clubs' allow open membership, they do not provide direct 'wholesale' access to foreign stock exchanges or settlements agencies wishing to use their national networks. The London Stock Exchange believes this should be provided at transparent and non-discriminatory cost.

Cruickshank wants Monti to use either his powers under Article 82 of the EU treaty to investigate abuse of a dominant position to impose unfair prices, limit markets or apply "dissimilar conditions to equivalent transactions". To mirror its action in the telecoms market, the Commission could also invoke Article 86 to write laws forcing open network access without approval by the Council of Ministers.

Europe's largest stock exchange is urging EU competition authorities to open the market for clearing and settling securities trades as a key prong of their campaign to create a single capital market by 2005.