Trichet heads for showdown with MEPs on clearing and settlement

By Stewart Fleming and Anna McLauchlin

Date: 31/03/05

A dispute is looming between the European Central Bank (ECB) and the European Parliament over how best to build an integrated EU-wide clearing and settlement system, the "plumbing" of the financial markets through which billions of euros of stocks and bonds are exchanged every day.

In a speech earlier this month at a conference in Luxembourg, Jean-Claude Trichet, president of the ECB, insisted that new EU-level legislation was vital for the construction of an integrated EU-wide clearing and settlement system. Such a system would bring together the various largely nationally based structures now in place which, because they are not mutually compatible, are adding billions of dollars a year to the costs of investing in securities across EU borders.

Trichet said that there were two reasons why the ECB supported "in principle" the adoption of a framework directive on clearing and settlement. First, a directive would complement the market-led removal of barriers to integration that had been identified in two reports prepared by a group headed by Alberto Giovannini, an expert on EU securities markets structures. Second, harmonisation measures to implement an integrated system "may require changes to the national legal framework that cannot be made by the national supervisory authorities".

But a draft report by UK Conservative MEP Theresa Villiers, which was debated by the Parliament's economic and monetary affairs committee yesterday (30 March), warns that a narrowly based legislative proposal on clearing and settlement could result in over-burdensome regulation.

The report concludes that the Parliament is not convinced that "the case has been made to justify a directive on clearing and settlement". It adds: "No new legislation should be proposed unless it has been clearly shown that problems exist in the market for clearing and settlement which cannot be resolved using effective enforcement of existing legislation."

Earlier this month, the Commission said that of 82 responses to its consultation launched in April 2004, the majority (47) supported the adoption of a directive, but with varying views on the form it should take. Six were wholly opposed to any policy action.

The future shape of EU clearing and settlement is under intense scrutiny at the moment in part because of a discussion document from the European Commission last year but chiefly because of the controversy over the ambitions of Deutsche Börse (DBAG), the German stock exchange operator, to take over the London Stock Exchange (LSE).

Deutsche Börse operates its own in-house clearing and settlement system as well as its securities and derivatives trading platforms.

There are fears amongst its competitors that if it were to re-launch its efforts to take over the LSE (it suspended its discussion on an LSE bid earlier this month) it would be in a position to dominate the business of clearing and settlement in the EU.

On Tuesday (29 March), the UK Office of Fair Trading (OFT) referred the two bids for the LSE on the table - from Deutsche Börse and Euronext - to the UK's Competition Commission (CC).

In its announcement the OFT specifically mentioned its "additional concerns" about the Deutsche Börse bid. Chairman Sir John Vickers said that

the CC "will also want to consider the effects of the mergers on competition in clearing services, particularly with the DBAG bid". The CC is set to report on both bids by 12 September 2005.

• Stewart Fleming is a Brussels-based freelance journalist.

Article reports on an imminent dispute between the European Central Bank (ECB) and the European Parliament over how best to build an integrated EU-wide clearing and settlement system, the 'plumbing' of the financial markets through which billions of euros of stocks and bonds are exchanged every day.

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