European Commissioner for Internal Market and
Clearing and Settlement Code of Conduct
Brussels, 7 November 2006
I am very happy to receive today from the clearing and settlement industry their new Code of Conduct, and their firm commitment to transparency, interoperability and competition in the sector. In July I had set an ambitious target for the industry asking them to come forward with a code of conduct for post trading clearing and settlement services that would deliver meaningful improvement in the competitive environment. And greater price transparency.
This is an important step towards the creation of an efficient EU financial market. Lower post trade costs should deliver meaningful macro-economic improvements through more trading volume, with positive consequences for market liquidity and hence the cost of capital. The industry is to be congratulated for its efforts towards achieving this goal. They have set aside their different approaches and they have drawn up a basis for a coherent way to bring about the necessary changes. From my part, I have invited and encouraged them to follow this path as an efficient way to achieve quick, lasting and substantive results.
This is a first step. A lot of effort will still be needed to achieve the results the market is entitled to expect. The momentum is there however and there are good grounds for optimism about the end result. This is an important test for our better regulation efforts. I confidently expect that as a consequence of this code we will now achieve faster and more certain results than if we had taken the much lengthier and more risky approach of launching a proposed directive at a time when the market is rapidly evolving.
The code will initially cover cash equities. This is an important first step, but in the longer term we must be more ambitious. I want the industry to consider extending the code in due course to other asset classes, specifically bonds and then derivatives. They industry accepts that once this Code has been made fully operational, they will then address the issues involved in extension of the code . I intend to exert my influence to achieve this as soon as practicable. Organisations covered by it may extend the Code's recommendations to other asset classes immediately, if they so wish. And I understand that a number of them are considering applying the code to other asset classes from the start. I encourage them to do so, in the interests of setting best standards for the industry.
We will also work together with the industry while they develop the more detailed rules for access and interoperability. And we will closely monitor how the code is to be implemented in practice. The self-regulation path is not without risks; implementation will be key. The Commission will play its part. We will involve other players including users in the process also. We need to ensure that the aims and the objectives of Code and its everyday implementation fits in with the efforts deployed by the Commission and the Member States to develop a true and competitive internal market for these services.
Which brings me to another important point. The need to continue work on all other outstanding issues in this sector. In fact, the proper and timely implementation of the Code is necessary, but not sufficient for achieving an integrated market in post-trading services. This goal can only be achieved through concerted action on a broad front – from the Commission, the Member States, The European Central Bank, the EU securities regulators, the infrastructure providers and users.
Competition between the various actors in this market is an important factor for efficiency. We will therefore continue to play our role of guardian of competition: thus the strict enforcement of existing competition law will accompany the process of elimination of the remaining Giovannini barriers. The Commission has been working with the industry during the last two years to dismantle a number of such barriers. Although some progress has been achieved, we had hoped for more. Work must now be accelerated so that all such barriers are effectively removed quite soon.
More progress also needs to be made on the removal of barriers created by Member States. I particularly refer to unnecessary discrepancies of national legal and fiscal compliance measures. I will continue to encourage Member States to eliminate them and will provide all the support available to me in this regard. The two expert groups that the Commission has set up in this respect, namely the FISCO group and the Legal Certainty Group, have delivered initial advice on the problems and on how to tackle them. We will continue our work on these and, upon receiving the final reports of these groups, we will discuss with the Member States on the best way to proceed.
Finally, national supervisory and regulatory authorities will also have to play their role. It will be necessary for them to devise jointly a set of coherent measures that will provide the necessary regulatory and supervisory framework for the integration of the post-trading market and insure proper mitigation of risks. The formal adoption of the draft ESCB-CESR standards could provide such a framework. The Target 2 work by the ECB is also encouraging.
All in all, continuous efforts are required by all of us if we are to obtain a safe and efficient post-trading market in the EU in the near future. Undoubtedly, through their Code and willingness to cooperate, the industry today set a very important milestone on this process.