The EU Code of Conduct and the concept of Interoperability

Transcription

1 The EU Code of Conduct and the concept of Interoperability Judith Hardt Secretary General Federation of European Securities Exchanges (FESE) Joint Banque de France / ECB conference 10 June 2008

2 In summary: The current European Clearing and Settlement landscape The Code of Conduct and Interoperability using self-regulation to improve choice and competition How has the industry defined interoperability? What are the cost & benefits? Competitive clearing without minimum standardisation? How global integration challenges regulators, supervisors and the industry

3 European equity landscape (Major Regulated Markets) Trading LSE BIT NYSE Euronext SWX DB BME Nasdaq OMX Clearing CC&G LCH SIS x-clear Eurex Link Up Markets* Settlement M. Tit. Euroclear SIS Sega Clearstream Iberclear NCSD VP SS ISD EE CSD LT CSD LV CSD *Link Up Markets is a joint-venture of Clearstream, Hellenic Exchanges, Iberclear, OeKB, SIS Sega, VP SS and VPS. It is expected to go live during the first half of 2009.

4 Objectives of the Code The code was adopted in November 2006 The aim of the Code is to offer market participants the freedom to choose their preferred provider of services separately at every layer of the transaction chain. It facilitates the application of art. 34 and 46 of MiFID which determine: The right of a market participant to access remotely a foreign CCP and/or CSD; The right of market participants to choose the settlement location for their trades provided links are in place between the regulated market and the Organisation in question; The right of regulated markets to choose a particular CCP and/or CSD to clear and settle their transactions. However the full benefit of MiFID and the Code and efficient integration of securities markets will only be possible legal, fiscal and regulatory barriers are dismantled.

5 Implementing the Code: the timeline 2009 Access and Interoperability Guideline Defines the Principles and Conditions for Access and Interoperability in line with the Code. More than 80 access and interoperability requests to date.

6 The state of A&IO requests (09/04/08) Requesting Berliner/ CC&G EMCF Eurex LCH.Clearnet LCH.Clearnet SIS x- Euroclear CBF CBL SIS Sega Receiving Equiduct Clearing AG Ltd S.A. clear Bank InterSettle Borsa Italiana TFA TFA TFA FWB TFA TFA TFA TFA TFA LSE TFA TFA TFA TFA TFA TFA TFA NYSE Euronext TFA TFA TFA TFA TFA SWX Europe TFA SWX Swiss Exchange TFA CC&G I I TFA Chi-x TFA TFA EMCF I I Eurex Clearing AG TFA I I I TFA TFA LCH. Clearnet Ltd I I I (no formal request) I TFA TFA LCH. Clearnet S.A. I I I I (no formal request) I TFA TFA SIS x-clear I TFA TFA TFA Clearstream Banking Frankfurt SA SA or CA SA or CA SA or CA SA or CA Clearstream Banking Luxembourg SA or CA Euroclear BL SA CA (DVP) SA or CA Euroclear France SA TFA CA (DVP) SA or CA Euroclear NL SA TFA CA (DVP) SA or CA Euroclear UK & Ir TFA SA SA SA or CA SA or CA Interbolsa SA SA SA or CA SA or CA Monte Titoli SA or CA SA CA SIS Sega InterSettle TFA SA or CA SA or CA * Table based on information on link requests list as provided by EU Commission CA = Customised access SA = Standard access TFA = Transaction feed access I = Interoperability CA (DVP) = DVP link (customised access)

7 The Interoperability proposal Interoperability means advanced forms of relationships where an organisation is not generally connecting to existing standard service offerings of the other organisations but where they agree to establish mutual solutions. Interoperability is subject to agreement based on the business case of the entities. However, there are obstacles that would prevent competition from taking place on an equal footing

8 General Principles of Interoperability links Operational efficiency: the operator of the market must ensure operational efficiency; a link must not weaken a market. Reciprocity: if the Requesting Organisation impedes access to its own system, the Receiving Organisation can refuse access. Receiving: Requesting Organisation must comply with local rules. Non-extension: there is no obligation for the Receiving Organisation to extend its product range; no changes can be forced on local participants. Non-discrimination: any link relationship should be established and maintained on a non-discriminatory basis.

9 Definition of Business Case The business case is based on the assessment of the user demand, financial, commercial and marketing issues relating to the implementation of a new service. It must contain service description Loss of market share cannot be used to deny a request One-off investment costs are charged on a cost-plus basis (unless otherwise agreed) and paid by the requesting party. Provided the request is reasonable (in terms of e.g. scope, resources, timing) the Receiving Organisation has to respond to the request in good faith.

10 The Code creates a contractual passport which doesn t allow you to cross every border Public sector barriers No internationally-agreed standards for CCP Non-banking status of most CCPs Some services require a local agent. Private sector barriers Moving from one to several CCPs necessary changes: - Technical infrastructure & IT changes - Routing changes - Operational changes Different interpretation of A&IO Guidelines - Cherry picking clause (Art. 57) - Diverging approaches towards prioritisation of requests Hybrid of public and private sector Variety of national, legal and regulatory requirements (Exchange rules may require a local CSD-status) Inter-CCP risk management principles to be agreed

11 The cost / benefit of the interoperability model at the clearing level From a user perspective in terms of competition in terms of innovation in terms of economic benefits in terms of risk management From a supervisory perspective in terms of financial stability in terms of governance in terms of political feasibility in terms of liquidity

12 Europe preferred model today is competition BUT Do we have a level playing field? Are European players strong enough to face competition? Do we have the necessary tools to stimulate competition? Do we want competitive clearing without minimum harmonisation of safety standards? Competition will only work under the following conditions: A level playing field Reciprocal and equal market access

13 Looking forward Can the European Code of Conduct become a blueprint for global market access rights in C&S market? What are the lessons to be learned from a global perspective?

14 Thank you!

15 Back-up slides

16 Objectives of the Code The code was adopted in November 2006 The aim of the Code is to offer market participants the freedom to choose their preferred provider of services separately at every layer of the transaction chain. It facilitates the application of art. 34 and 46 of MiFID which determine: The right of a market participant to access remotely a foreign CCP and/or CSD; The right of market participants to choose the settlement location for their trades provided links are in place between the regulated market and the Organisation in question; The right of regulated markets to choose a particular CCP and/or CSD to clear and settle their transactions. However the full benefit of MiFID and the Code and efficient integration of securities markets will only be possible legal, fiscal and regulatory barriers are dismantled.

17 Interoperability & the global perspective Can the European Code of Conduct become a blueprint for global market access rights in C&S market? What are the lessons to be learned from a global perspective?

18 Three phases Price Transparency 31/12/2006 Access and Interoperability 30/06/07 Unbundling Services and Accounting Separation 01/01/08 (2009)

19 Achievements The Associations committed to facilitate the comparability of prices through the publication of: Prices and price examples Discounts and rebates schemes Improved reconciliability of billing Links to the individual price information on the associations website. The Commission welcomed the implementation on price transparency. Further work ongoing with CSDs and CCPs in cooperation with users.

20 Three phases Price Transparency 31/12/2006 Access and Interoperability 30/06/07 Unbundling Services and Accounting Separation 01/01/08 (2009)

21 Possible Links scenarios between Organisations Receiving Requesting Trading Platform CCP CSD Trading Platform CCP [3.3] TF [3.1] TF [3.5] SA / CA / IO [3.2] TF [3.6] SA / CA / TF Legend SA Standard Access CA Customised Access TF Transaction Feed IO InterOperability [x.x] Scenario chapter reference Vertical link Horizontal link CSD [3.4] TF [3.7] TF [3.8] SA / CA / IO

22 Access types Standard Organisation A (CCP/CSD) Requests access as standard member Opening of account Organisation B (CCP/CSD) Customised Providing: Development of special functions (reasonable in time, scope, resources). Compensation cost + basis No fundamental change To be made available to others Organisation A (CCP/CSD) Requests access as standard member Opening of account Organisation B (CCP/CSD) Transaction feed Organisation A (CCP/CSD) Requests access No opening of account Organisation B (Trading Platform /CSD)

23 Interoperability Interoperability means advanced forms of relationships where an Organisation is not generally connecting to existing standard service offerings of the other Organisations but where they agree to establish mutual solutions. Interoperability is subject to agreement based on the business case of the entities.

24 How Access and Interoperability requests are applied Terms and conditions in English. Requesting Organisation should send written application request and Service Description. Receiving Organisation must confirm receipt (2 weeks) and respond (6 weeks) after discussing requirements. Receiving Organisation(s) and any other party if involved will specify in detail the costs of the customisation considering the final and agreed Functional Specifications. Where the request is denied, the answer should include the legal, technical, operational reasons and, if possible, what would need to be done by the requesting organisation in order to establish is request.

25 Mediation Mecanism Organisations shall try to solve the dispute expeditiously. The mediaton process does not constitute an arbitration procedure. Written request demanding mediation. Receiving Party shall respond within 2 weeks. The parties shall submit the dispute to a Mediation mechanism in the jurisdiction of the Receiving Organisation. Each Organisation shall bear its own costs. The EU Commission shall be informed of the mediation results.

26 Legal, Fiscal and Regulatory arrangements Giovannini and other barriers could prevent competition from taking place on an equal footing. Examples of barriers are: Non-banking status of most CSDs. No internationally-agreed standards for CCP. Some countries don t allow Omnibus accounts: additional costs. Some services require a local agent. The Organisations call on the European and national authorities to continue to work toward elimination of barriers

27 Agenda Price Transparency 31/12/2006 Access and Interoperability 30/06/07 Unbundling Services and Accounting Separation 01/01/08 (2009)

28 Unbundling and accounting separation Unbundling the following services from each other: Services Trading Clearing/CCP Services Settlement/ CSD Services Clearing & Settlement Account Prov. Asset Services Borrowing & Lending Credit Provision Collateral Mgmt Unbundling Accounting Customer can purchase an unbundled service without having to purchase another Special price offers for several unbundled services possible; special price has to meet price transparency requirements of CoC Disclose non-consolidated accounts for unbundled services to National Regulator Apply IFRS or local standard, if IFRS not mandatory

29 Going forwards The Code was negotiated amongst infrastructures with the strong support of the Commission. The Access and Interoperability Guidelines were negotiated amongst the signatories and in dialogue with our users. There will be an ongoing dialogue also with the European Parliament also in the context of the EP s own initiative report, CESR: who will play an active role in controlling the account separation and the ECB who is a member of the Monitoring Committee The Commission will closely monitor the implementation of the Access and Interoperability Guidelines through the Monitoring Committee