Apr 28 2008 Peter Elstob
The European Commission has announced proposed amendments to two directives at the heart of regulating Europe's post-trade infrastructure. The Settlement Finality Directive provides protection to both payment and securities settlement systems in case of default, in order to minimise systemic risk. The Financial Collateral Directive regulates and facilitates the cross-border use of collateral.
The commission said that it would not seek substantial changes to the two directives, which it believed worked well and which member states, market participants and other stakeholders strongly supported. Its proposals would merely:
• Remove some potential ambiguity in the SFD's present wording to make its protection of night-time settlement and linked systems explicit, as the Markets in Financial Instruments Directive and the voluntary code of conduct on clearing and settlement cause post-trade systems to become increasingly linked.
• Broaden of the scope of the protection provided by both directives by including credit claims eligible for the collateralisation of central bank credit operations in order to facilitate their use throughout the European Union.
• Introduce a number of other simplifications and clarifications to facilitate the application of both directives.
Charlie McCreevy, the internal market commissioner, pointed to the increasing number of requests for cross-border links between post-trade systems in the wake of MiFID and the code of conduct. He said: "This is a positive development, which I want the Settlement Finality Directive to cover fully. We are also witnessing an increased use of new types of collateral in the marketplace, in particular credit claims. However, the use of credit claims as collateral in cross-border transactions is almost non-existent, as they currently do not enjoy the protection of the Financial Collateral Directive. I would like to remedy this as well."
Peter Norman, author of a recent book on European securities settlement, pointed out that, thanks to technical improvements and industry-led reforms introduced with the encouragement of regulators following the 1987 stock market crash, clearing and settlement infrastructures were among the few sectors not experiencing credit crunch problems.
"However, these measures are a sign that the authorities in Europe are not resting on their laurels. Indeed, they are beginning to consider how to improve the safety of Europe's post-trade infrastructure still further," Norman told Complinet.
