Don Cruickshank, chairman of the London Stock Exchange, argues that the campaign to tackle inefficiencies in clearing and settlement across Europe is developing a "strong head of steam", with support growing in many quarters, including at the European Commission.
Speaking at a conference on the “European harmonisation of cross-border settlement” in Central London, Cruickshank set out the Exchange’s reasons and conclusion for overhauling European clearing and settlement:
· The costs are high: European firms bear the costs of inefficiency in a increase of some 10 basis points on their cost of capital.
· Fragmentation is the problem: the excess costs flow from fragmentation of the clearing and settlement systems in Europe.
· A single system is the best solution: the economic characteristics of clearing and settlement mean that CSD services are more efficiently provided by a single system than multiple systems.
· Ineffectiveness of competition: it is not possible to introduce effective competition into the clearing and settlement layer of activities.
· Conclusion: Europe is best served by a well-governed single clearing and settlement system and rigorous enforcement of competition policy for trading services and value added services.
He adds: “We need reform of the clearing and settlement layer to allow us to compete to provide exchange services and cheaper access to those products.”
While some parts of the clearing and settlement ‘plumbing’ can be made competitive, others will require the intervention of the European Commission, he says, to counter the strong vested commercial interests in keeping these inefficiencies.
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