Stock exchanges struggling to meet code of conduct deadline

The organisations which provide Europe’s share-dealing machinery are struggling to meet a 31 October deadline to sign up to the European Commission’s code of conduct aimed at making it cheaper and simpler to trade stocks across EU borders.

In July Charlie McCreevy, the internal market commissoner, called for providers to sign up by the end of this month to a code. His aim was to speed up the achievement of an efficient EU cross-border clearing and settlement system without resort to a directive. The code would require companies to facilitate the interoperability of competing share trading systems where there is ‘a business case’ for doing so and provide pricing transparency and unbundling of different services in order to promote competition.

Representatives of the Federation of European Stock Exchanges (FESE), the European Association of Clearing Houses (EACH) and the European Central Securities Depositories Association (ECSDA) have been meeting officials from the Commission’s internal market department to hammer out the details of such a code, according to a company official. He suggested that one obstacle to an agreement was that investment banks do not have to participate in the talks. Under the Markets in Financial Instruments Directive (MiFID), they will be able to compete directly with stock exchanges from November next year. Another sticking point is that the code would require major concessions from operators of vertical silos such as Deutsche Börse. The Commission made clear earlier this year that it has serious doubts on competition policy grounds about the vertical silo business model.

A spokesman for McCreevy said he was confident that the 31 October deadline would be met, but an MEP who is closely following the situation said that the best the commissioner could hope for was a face-saving compromise which would not achieve his objective of delivering an integrated clearing and settlement system without resort to a directive.

Company officials involved in the clearing and settlement business concede that the competitive implications of the code will make it hard for some exchanges to sign up.

A complicating factor is the plethora of rival stock exchange takeover and merger proposals that are now in play. Some exchanges, including Borsa Italiana and Germany’s Deutsche Börse are so-called vertical silos which trade shares but also have clearing and settlement operations.

Last week (13 October) Deutsche Börse announced that it had filed a formal request with the Commission for a merger review of its proposed deal with the Paris-led Euronext exchange. Euronext earlier this year snubbed a merger proposal from the German exchange in order to tie up with the New York Stock Exchange. Separately, this week Deutsche Börse and Borsa Italiana said that they had signed a letter of intent aimed at creating a pan-European stock exchange which would include Euronext, a move that Euronext is describing as "hostile". The London Stock Exchange is still seen to be under attack from New York’s NASDAQ exchange, which has bought a 25% share holding.

• Stewart Fleming is a freelance journalist based in Brussels.

The organisations which provide Europe’s share-dealing machinery are struggling to meet a 31 October deadline to sign up to the European Commission’s code of conduct aimed at making it cheaper and simpler to trade stocks across EU borders.

• Primary Source