Thursday, February 05, 2009

Neither clear nor settled

At a much scaled down Finexpo (which is perhaps a sign of the times) in London today, those regulators and market participants that have watched on in frustration at the slow pace of consolidation and interoperability among European securities settlement and clearing providers, were told they "should be careful what they wished for".

Those were the words of Simon Wheatley, director of regulatory liaison, LCH. Clearnet, which signed a "non-binding" agreement to merge with the US-based Depository Trust & Clearing Corporation (DTCC) in October last year, only to attract another suitor, interdealer broker Icap and a consortium of investment banks who are believed to also be in discussions with LCH.Clearnet.

Referring to the European Code of Conduct for Clearing and Settlement which looks to promote certain standards in terms of price transparency, access, interoperability and service unbundling, Wheatley said that "competition" [between clearers at least] did not come free.

Asked whether a single clearer in the form of the US-style DTCC model would increase risk or reduce risk, Wheatley said that while it may take away some issues, it would introduce others, and that one size did not necessarily fit all.

Marco Strimer, CEO, SIX x-clear said that ultimately the Code of Conduct was about consolidation and that not everyone would make it to the finishing line. However, he added that consolidation of central counterparties (CCP) also meant that all market participants would need to change their systems. In other words consolidation, while seemingly desirable does have its costs, particularly for those that have to adapt to accommodate it.

On the settlement side, things seem to be moving more quickly with ICSD Euroclear consolidating settlement platforms and harmonizing market practices in three markets
as part of its Single Platform initiative, which will eventually encompass seven CSDs.

The European Central Bank is also looking to standardize settlement of euro denominated securities on its yet-to-be completed TARGET2-Securities (T2S) platform, but while the ECB received indications of intent from most of Europe's CSDs that they would use T2S once it went live, it has yet to secure legally binding commitments from them, which could take much longer than anticipated.

Ilse Peeters, director of public affairs at ICSD Euroclear said that she did not expect the ECB would receive legally binding commitments by March as there were still outstanding questions regarding the governance, pricing structure and legal aspects of T2S. John Tanner, head of equity post-trade service development at the London Stock Exchange said that questions also remained regarding the Bank of England and sterling's participation in T2S.

So it seems all is not clear nor settled by any means in Europe's fragmented clearing and settlement landscape.

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