The European Post-Trade environment has changed significantly in the last decade. Competition, innovation and consolidation have been the main drivers for this development, together with the harmonisation project undertaken by the European Central Bank as part of its T2S platform. But challenges remain in removing outstanding barriers to safe and efficient post-trade in Europe.
Before the 2007-2008 financial crisis, European post-trade reform focused on efficiency gains through voluntary harmonisation and standardisation, aiming to remove the Giovannini Barriers (the barriers identified as preventing efficient EU cross-border clearing and settlement) which date back to 2001. The deluge of regulation, including EMIR and CSDR, has helped but also presented some unintended consequences.
While much progress has been made, the post-trade landscape in Europe is still characterised by diversities and fragmentation that cause inefficiency and risk. Some of the issues originate from existing Giovannini Barriers or new barriers that have emerged due to new products and technologies.
The European Commission’s Capital Markets Union (CMU) programme therefore provides a good opportunity to dismantle these remaining barriers. Safe, integrated, harmonised and efficient post trading systems are an enabling element in the context of the CMU Action Plan, i.e. creating more opportunities for investors, connecting financing to the real economy, fostering a stronger and more resilient financial system, deepening financial integration and increasing competition.
But the challenges must also be recognised in legislation so that policymakers’ support can be translated into meaningful, co-ordinated action on the ground. This includes the need to harmonise operational processes, changes at market infrastructure level and regulatory requirements. Much of the low-hanging fruit has been picked and we are now left with the potentially thorny areas which require public sector intervention.
As such, AFME supports the following barriers to be prioritised:
- Tax: the effective implementation of simplified withholding tax relief procedures.
- Asset Servicing: the comprehensive implementation of the market standards for corporate actions processing and for general meetings in all markets.
- Legal: securities law reform that reduces and eliminates operationally relevant legal uncertainties, including an insolvency framework that comprises financial markets intermediaries, enforceable close-out netting and internationally harmonised conflict of law rules. We welcome the latest consultation by the European Commission on this topic.
- Reporting: alignment and harmonisation of regulatory reporting requirements at European and national levels.
- Access rights: removal of legal and regulatory obstacles that prevent end investors from being able to access the services they need, and prevent intermediaries from providing those services.
- Asset segregation: consistent and coherent regulation that is characterised by a balance between safety and efficiency.
The safety and efficiency of European post-trade markets could be further improved by a joint effort undertaken by governments, regulators and market participants in a staged approach. Helpfully, the European Post Trade Forum (EPTF), set up by the European Commission in early 2016 to support it in the CMU project, provides the basis for a successful and targeted cooperation between public authorities and the private sector. The EPTF’s objective is to review the developments in post-trading in order to promote more efficient and resilient markets in the EU.
As the industry seeks to further integrate Europe’s capital markets and move toward a more stable financial market in 2017, it will be important to encourage the adoption of more common European Union standards. Later this year, as a result of the EPTF work, we expect to see further proposals from the Commission.
To achieve a low-risk and low-cost post trading environment in Europe, infrastructure service providers must compete in a harmonised operational, legal and regulatory environment offering safe, innovative and low cost services to all users on a non-discriminatory basis. What Europe needs is a clear vision for its post-trading landscape and a coherent strategy for delivering this goal.
On 18 May 2017, AFME will be hosting the tenth edition of its annual Post-Trade Conference in London, click here for more information and to register.
This article was originally published by Global Investor Group on 27 April 2017