The European Central Bank says it is essential to establish effective risk management standards and guarantees of open access to deal with emerging systems for central counterparty clearing in Europe.
In a policy note, the ECB recognises industry calls for consolidation of European settlement and clearing systems, but warns that access to trading, clearing and settlement mechanisms should not be unfairly impeded by potential monopoly suppliers.
The central banks says the process of consolidation of central counterparty clearing infrastructure should be driven by the private sector, unless there are clear signs of market failures.
While remaining neutral on the best routes to consolidation, the ECB says that public authorities should help by removing unfair and unjustified barriers to integration and competition, such as legal impediments and a lack of standardisation.
In the case of common ownership of trading platforms, the central counterparty clearing house and settlement systems - as in the German market model - access to post-trading facilities should not be made conditional upon the execution of trades on the affiliated trading platform, states the ECB.
"The Eurosystem is aware that full interconnectivity of trading, clearing and settlement systems may not be easy to achieve because it may present operational difficulties and have the potential for systemic risks," the policy note states. "It should be noted that no central counterparty clearing house or
settlement system can be compelled to establish links if this is not commercially viable or compromises the sound prudential operation of the system. However, the reasons for failing to make links available should not be so open-ended as to allow abuse."
Given the "systemic importance" of securities clearing and settlement systems, it is imperative that central counterparty clearing mechanisms for euro-denominated instruments should be located within the euro area, the Bank states.
While supporting co-operation between providers of central counterparty clearing services at a global level, the ECB further says that the eurosystem regulatory framework should be involved in monitoring global multi-currency systems handling euro.