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The European Commission's Clearing and Settlement Advisory and Monitoring Expert Group (CESAME) has issued a comprehensive report about its four years' of work on removing industry-related barriers to the cross-border clearing and settlement of securities transactions. This report gives an overview of all the work done by the industry to dismantle the six industry-related "Giovannini Barriers" to post-trading, and of the state of play on the nine such barriers attributed to the public sector. It also provides an overview of other pertinent topics related to post-trading that were discussed by the group.
The creation of an integrated securities market in the EU remains an important EU policy. If capital and services can flow freely in the EU, the cost of capital will be lower, product choice will be widened and competition will lead to innovation and long-term growth. Post-trading arrangements constitute the point of convergence of all aspects of securities, including where securities movements meet cash movements and the crossroad between the law and operational arrangements. Hence the importance and complexities, but also the necessity to have smooth, safe and sound post-trading arrangements in the EU.
Without being able to provide this, a true single European securities market will have a tough time trying to exist and the entire process of financial market integration will be suboptimal. Diverging, even conflicting, national approaches on these issues create a very difficult problem to solve. As cross-border trading has increased, rationalizing cross-border clearing and settlement problems within the European Union has become more essential and the calls to tackle the barriers all the more insistent.
EU clearing and settlement arrangements have been discussed for a long time. The Lamfalussy1 report of 1990 concluded that any integration process should be largely in the hands of the private sector. However, it also recognized the public interest in the developments and the need for specific public-sector action as well. These findings, coupled with specific policy suggestions, have been further developed by the two Giovannini reports, which the Commission took into account when developing its own policy approach.
The Commission was always of the opinion that both sectors, private and public, must at the same time and in a coordinated way go about reforms that affect the very architecture of financial services. The public sector therefore had to play a major role - both in coordinating private-sector actions and steering regulation of clearing and settlement on a pan-European basis.
As acknowledged in the Commission's communication of April 2004, it has been essential to ensure that all required actions are taken forward with a clear political and strategic direction backed by member states. At a practical level, the Commission needed to establish a powerful monitoring and coordination mechanism, which would be able to provide an efficient interface between private-sector and public-sector initiatives, to monitor progress and the consistency of the overall project, reporting critical issues and ensuring transparency of the overall progress to the industry, the public sector and the general public.
Mandate of the CESAME Group
The integration of European securities post-trading systems is intended to make cross-border clearing and settlement of transactions as efficient, safe and cost-effective as at national level; it requires coordinated action by private and public-sector bodies. Against this background, the CESAME Group advised from 2004 to 2008 on the coordination of action between the public and private sectors and on practical aspects of removing the Giovannini Barriers for which the private sector has sole or joint responsibility. It also assisted the Commission in making all market participants and service providers aware of ongoing developments and in transmitting the overall objectives and direction of the project to the market at large.
This work contributed to building awareness of the importance of the project for the success of the EU's financial markets and for attaining the overall economic objectives incorporated in the Lisbon agenda. The group also monitored the results of the process to help the Commission ensure that its own efforts would keep pace with private-sector reforms and developments.
The CESAME Group was an advisory group of high-level industry experts from the post-trading industry and observers from the public sector set up in July 2004 following the Commission communication of April 2004 on clearing and settlement. It was chaired by the Commission together with Alberto Giovannini acting as principal policy advisor; its mandate expired in June 2008. Its sister groups are the Legal Certainty Group (on legal matters) and FISCO (on fiscal compliance procedures).
Conclusions of the report
The CESAME Report encompasses a range of the its work. It seeks to provide a picture of the multiple aspects influencing the post-trading sector, the standard-setting achieved so far, the implementation of these standards and the implications of the public sector on industry work. It also highlights outstanding issues that still have to be tackled by the various entities involved.
Overall, the report claims there is a noticeable progress on dismantling industry barriers. The report states that industry barriers regarding securities number-issuance have been successfully dismantled. Progress has been achieved on industry barriers regarding settlement finality and settlement deadlines, although the report admits that further issues in this area have been identified.
The report claims that standard-setting for removing industry barriers regarding IT interfaces and corporate actions has advanced substantially, but implementation will have to be monitored closely. This leaves mainly barriers regarding standard settlement periods, which were initially deemed less important, for the industry to tackle.
Ari Syrquin is the head of the international department at GSCB Law Firm