Deutsche Börse: Clearing And Settlement: Let Customers Decide

In its response to the European Commission's Communication on clearing and settlement, Deutsche Börse has endorsed the Commission's view that the choice of commercial model is a market, not regulatory, decision. The Commission set out its regulatory approach to clearing and settlement in a Communication published in May this year. It refused to discuss the relative merits of different architectures for providing pan-European services, stating instead that the choice of model should be left to market participants. It confirmed that the role of regulatory authorities is to create "an environment in which market forces can deliver the most appropriate architecture for an efficient clearing and settlement infrastructure for the EU."

Deutsche Börse agrees with the Commission. Customers for clearing and settlement services are able to choose their preferred model of securities processing, with competition acting as an effective pricing mechanism. As André Roelants, Deputy CEO of Deutsche Börse Group, commented, "Customers must be the centre of our attention and competition is crucial for the industry to evolve. We support the EU's view that decisions about the most appropriate structures should be left to those who use these services, our customers."

In its response to the Commission, Deutsche Börse concludes that far more important than regulating commercial models is the need to address costs that arise from factors outside the control of the market. Compared with the United States clearing and settlement costs tend to be significantly higher in Europe, particularly for cross-border transactions. A high proportion of these costs arises from fragmented regulatory provisions - not provider inefficiencies.

The Commission is expected to publish a summary of the responses shortly. However, further progress is not expected to be made until Spring 2003. The greatest barrier to cross border clearing and settlement, with its associated costs on industry, is the fragmentation between different national markets. A White Paper on clearing and settlement by Deutsche Börse estimates that around € 1.7 billion in additional costs are created by the need for transactions to negotiate different national regulatory regimes within the EU. A further € 2.6 billion are derived from other sources, such as language barriers. Their removal should be the priority for policymakers. Greater cross border trading would be facilitated by the creation of an EU-wide regime to regulate clearing and settlement providers. This would require policymakers to agree functional defi-nitions for all post-trade activities. Such an analysis would also have to consider how dealing in different products might affect the transactions involved.

A copy of Deutsche Börse's research on clearing and settlement, Cross-Border Equity Trading, Clearing and Settlement in Europe, may be obtained at deutsche-boerse.com or by telephoning +49-69-2101-1510.