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Brussels, 28th April 2004

Securities trading: Commission sets out its strategy and priorities for clearing and settlement

The European Commission has issued its second consultative Communication on securities clearing and settlement. The Communication includes an action plan outlining the various initiatives necessary to achieve an integrated, safe and efficient clearing and settlement environment for securities trading in the EU, based on a level playing field for the different providers of services. Achieving this objective will be a complex process and will require the combined efforts of institutions providing clearing and settlement services, market participants, regulators and legislators. The Communication invites all interested parties to comment on the approach and the specific measures that it is putting forward. The deadline for responses is 30 July 2004.

Internal Market Commissioner Frits Bolkestein said "The euro is in place and the Financial Services Action Plan is on the verge of completion. But there will be no real single securities market in the EU unless we can make cross-border clearing and settlement as efficient, safe and cost-effective as at national level. Achieving that will create wealth by making financial markets work better, by making it easier and cheaper for investors to invest and by making EU markets more competitive internationally. It is a big prize, but we have a long way to go to win it. If we are to do so, stakeholders, regulators, supervisors and EU institutions will all need to do their bit, as a team. I encourage all parties concerned to respond constructively to this consultation."

The Commission's approach is based on ensuring EU clearing and settlement systems are efficient, safe and based on a level playing field, by applying to clearing and settlement tried and trusted principles which the Financial Services Action Plan has applied in other areas. Those principles include access to all EU markets for all EU operators, mutual recognition by Member States' of each other's rules and full transparency allowing users to compare the quality and costs of the various services available.

The latest Commission Communication follows extensive consultations with the markets, regulators and other interested parties based on an initial Communication published in May 2002 (see IP/02/797). It takes into account various recent reports and initiatives, including both the first and second Giovannini Reports on Cross-Border Clearing and Settlement, presented to the Commission in November 2001 (IP/01/1654) and April 2003 respectively. The first Giovannini report highlighted the complexity and fragmentation in the cross-border post-trading market and the second suggested a strategy for removing the fifteen barriers to integration identified in the first report. The Communication builds on that second report.

Framework Directive

The Communication proposes the preparation of a framework Directive on Clearing and Settlement aiming to increase competition and efficiency and, as a result, to drive down costs. Such a Directive would introduce comprehensive rights of access for clearing and settlement providers to all EU markets. It would ensure choice for investment firms, banks, central counterparties (institutions that typically act as intermediaries between the counterparties to trades), Central Securities Depositaries and markets. It would set up a common regulatory framework covering the functions performed by the various players in clearing and settlement, thus allowing the mutual recognition of clearing and settlement systems across the EU, protecting investors and further enhancing the integration of national systems. The Directive would also stipulate appropriate governance arrangements - disclosure requirements, accounting separation and unbundling of specific services - for entities who play a determining role in the clearing and settlement process. This would address some regulators' concerns over competition and over the safety of systems.

Expert groups

Alongside this, the Commission suggests setting up an advisory and monitoring group composed of high-level representatives of various private and public bodies involved in this project, including the European System of Central Banks (ESCB) and the Committee of European Securities Regulators (CESR). This group would advise on, promote and monitor the progress of market-led actions to bring down the so-called "Giovannini barriers" (see above) and to promote the overall integration of EU securities clearing and settlement systems. The Communication also proposes setting up separate expert groups on legal and tax matters relating to clearing and settlement, to consider and evaluate these complex issues and, if necessary, to suggest appropriate solutions.

Competition policy

Last but not least, the Commission advocates the careful and continuous implementation of competition policy in this sector, in close cooperation with national competition authorities, to address any current or emerging restrictive market practices and to monitor further industry consolidation. The integration of existing securities clearing and settlement systems will increase efficiency. However, this potential should not be hindered by anti-competitive practices such as unfair denial of access or excessive and/or discriminatory prices.


The full text of the Communication is available at:

Responses should arrive by 30 July 2004. They should be sent to DG MARKT G1, European Commission, B-1049 Brussels. Responses may also be sent by e-mail to


Clearing and settlement is the process that takes place after two parties have agreed to transfer securities, "over the counter", through a stock exchange, or using any other means. The objective of the process is to enable the final transfer of ownership of the securities from the seller to the buyer and the corresponding transfer of payment from the buyer to the seller. It comprises several key steps. Not all of these steps necessarily apply to every transaction. The various stages of the process for example confirmation of the terms of the trade, calculation of the amounts due, the delivery of securities, their safekeeping in custody, and registration of the change of ownership - are performed by different institutions.

Apart from the entities dealing with Eurobonds, securities clearing and settlement systems in the EU have developed nationally, as cross-border trading activity has, in the past, been very limited. These domestic systems have experienced a process of consolidation leading to the creation of domestic monopolies or quasi-monopolies operating under uniform technical, regulatory and legal frameworks.

However, each national or "quasi-national" system inevitably developed differently. In addition, the systems in the various Member States have taken different forms with different business practices. Some providers are public utilities, others are owned and governed by their users - banks, brokers and other investment firms - and others still are simply private companies, some of which also have banking status. These differences have resulted in cross-border arrangements being inefficient due to a lack of global technical standards, differing business practices and differences between the fiscal, legal and regulatory situations between Member States. The outcome has been that cross-border clearing and settlement in the EU is still much more costly and complex and, potentially, less safe than at purely domestic level. Similarly, the costs of cross-border clearing and settlement in Europe are much higher than in the United States. That is to the detriment of the EU's financial markets as a whole.

Against this background market forces are driving the demand for far greater pan-European efficiency. The introduction of the euro and improvements in information technology have contributed to the increase of the number and the relative importance of cross-border transactions. As a result, the strains on cross-border clearing and settlement arrangements and users' expectations of them have increased considerably. Clearing and settlement service providers are seeking to enhance performance, reduce costs and establish a pan-European presence, on their own or through mergers and alliances, which is beginning to lead to significant restructuring. At the same time, regulators and supervisors are taking steps to increase the clarity and homogeneity of standards applicable to securities clearing and settlement systems, to update their supervisory methods in order to meet the challenges posed by market developments, and to enhance safety.

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