The Giovannini group of financial experts has laid out a three-year plan for the removal of 15 barriers hindering the creation of an integrated clearing and settlement system for European securities trades.
The group suggests a sequence of actions to remove the barriers, allocating responsibility for each action between the private sector and national governments.
It calls for urgent action to remove barriers that restrict the location of settlement activities. This is viewed as a shot across the bows of Deutsche-Bourse subsidiary Clearstream, which was recently charged by the European Commission with abusing its monopoly powers to restrict access to German securities settlement by rival depository Euroclear.
If barriers to location are removed, investors can choose where to locate their post-trading activities and "set in train a market-led integration of clearing and settlement arrangements across the EU", states the document.
Giovaninini refrains from identifying a clear choice of architecture for delivering pan-EU clearing and settlement services, describing this as "a matter primarily for the private actors involved".
Deutsche Bourse, which had feared EU disapproval of its silo-based approach to clearing and settlement, has expressed its support for the overall assessment and measures proposed in the Giovannini report.
In a statement, the Bourse says: "The company shares the experts' view that in order to raise the level of efficiency in clearing and settlement in the EU, regulatory barriers have to be dismantled and uniform standards developed."
As far as the private sector is concerned, says Giovannini, barriers relating to information technology and operating hours should be removed first. The document calls on interbank messaging outfit Swift and the Securities Market Practice Group to continue to work on the definition of an EU-wide protocol that would eliminate national differences in interfacing standards.
"The removal of these two barriers would facilitate the removal of four other technical barriers relating to differences in settlement periods, in rules on corporate actions, in issuance practices and intra-day settlement finality," states the report.
Barriers related to taxation and legal certainty should be lifted by national governments at the same time as these remaining technical barriers – ultimately paving the way for the safe removal of the restriction barriers.
Commenting on the report, EU Commissioner Frits Bolkestein says: "Removing the barriers to cross-border clearing and settlement is an important condition for ensuring properly functioning financial markets. We will build upon the valuable work of the Giovannini group in a forthcoming communication outlining how the Commission intends to ensure efficient and cost-effective cross-border clearing and settlement in the EU."
To download the full report, go to: Giovannini clearing and settlement report