"London's pre-eminence depends on two factors. Certainly in the past the City has benefited from other people's mistakes and in the future it will require avoiding making them again. But it also depends on ensuring competition which drives the growth of markets. Even in areas where it was thought unfashionable, deemed inappropriate or assumed to be impossible, competition now exists, and is generating new prosperity and opportunities for more people.
Today there needs to be a conscious effort to introduce competition into clearing, into regulation and into tax. The tendency to declare these areas competition-free zones must be resisted. The market optimists* must challenge the policy optimists* all the way. It is up to the international markets to lead."
On clearing:
"London must encourage an alternative to the idea that a centralised utility is the only way ahead in clearing. This will give market participants a choice.
Now that the revolution in trading is underway, the focus has dropped "down" a level to the processes which happen after a trade has been matched. It is in clearing and settlement that the next leap forward will be made.
Here, the financial services community is split on the solution. Some believe in vertical silos: a trading sausage machine where customers sign up to a single entity for a start-to-finish service from trading through clearing and finally to settlement. Others believe that there should be a single centralised utility for clearing and settlement, like the DTCC [the Depositary Trust and Clearing Corporation] in the United States. They presume, from clearing and settlement's grey anorak image, that there is little room for buccaneering competition.
This is not the case - because there is an alternative. We don't need to rely on an American model with clearing just as we didn't when we developed electronic trading where European excellence now leads the world.
After ensuring prudential measures are applied by all, we should encouraging consolidation of the clearing houses and competition between the different models of clearing. How can we achieve both?
Consolidation is naturally following from the impact of Euronext's purchase of LIFFE, with the clearing houses of both exchanges now in talks to provide an optimal service to customers. The settlement organisations have already merged, after Euroclear bought Crest earlier this year.
We are encouraging competition, by reducing the stake Euronext has in Clearnet, its clearing business. This ultimately gives the exchanges a greater say as customers about where they put their clearing business. Euronext's vision for clearing gives the consumer a choice.
I am deeply sceptical about the longevity of a mutually-owned utility and I am critical of a vertical silo where the exchange automatically directs business towards its subsidiary clearing business.
But choice between venues for clearing and settlement would ensure that the cost savings do not stop when the trade is matched but continue right through to the completion and settlement of a transaction."
On regulation:
"It is notable that regulators do not always immediately recognise market forces. And, because they are so sensitive to the constant question at the back of their minds "What if this all goes wrong?", they tend to be conservative in their approach to innovation.
This is not to say that we do not enjoy a good relationship with our regulator, nor that we do not appreciate the goodwill they show us.
But a tendency to conserve and protect can be very frustrating. To succeed, London must be able to innovate ahead of the competition. So I would like to see a more innovation-aware approach from regulators. Of course there is a need for a prudent approach in regulation and international co-operation on regulatory matters. But today, it is vital that regulators should be attentive to the competitive needs of markets to deliver new products, not in cahoots to preserve a comfortable status quo."
On taxation:
"At a national level, opportunistic taxation of financial services will in the long-run, only pass the advantage to other countries willing to forego the immediate revenue for a long term growth in business.
In Britain, in particular, stamp duty is a substantial burden on the British economy. It distorts the market, which indirectly affects the price of an option or a future on an individual equity. And if you take delivery of the equities once an option has been exercised, then you end up paying stamp duty just the same.
More generally, it directly costs investors as much as £4 billion every year. It drives business out of London, by increasing the cost of raising capital here relative to elsewhere in Europe. And, at a time when more and more investment is done by sector weighting, it drives business which would be done in London elsewhere, because British companies' shares are at a disadvantage to their continental counterparts'.
The interrelation of financial services is now is so complicated that any tax aimed at one part of financial services has a wider impact than expected."
