Aug 26 2008 Peter Elstob
The European Commission's Legal Certainty Group has proposed to give issuers of securities a free choice between European central securities depositories. This decision, in the LCG's "second advice" to the commission, was in relation to an important "Giovannini barrier" to cross-border clearing and settlement. Tackling barrier nine, which restricts the CSDs that securities can be held in, will help new entrants such as EuroCCP, which provides clearing and settlement for users of the Turquoise and SmartPool multilateral trading facilities.
The commission said that the LCG's solution, and its solutions to barrier 13 (absence of an EU-wide legal framework for book-entry securities), and barrier three (differing national rules on processing corporate actions) should lead to an improved and harmonised legal framework for holding and settlement of securities through intermediaries and for the processing of corporate actions.
In two ground-breaking reports, in 2001 and 2003, a group of financial market experts chaired by Alberto Giovannini, chief executive of an Italian asset manager, identified three types of barriers hindering the integration Europe's post-trade infrastructure: national differences in technical requirements and market practice; national differences in tax procedures; and issues relating to legal certainty. The commission's response was to foster the setting up of the LCD to look at legal barriers, along with the Clearing and Settlement Advisory and Monitoring Expert Group, "CESAME", on industry related matters and the Clearing and Settlement Fiscal Compliance Experts' Group, "FISCO", on tax procedures.
The legal certainty barriers make holding securities cross-border more complex, leading to higher transaction and credit costs, and cause uncertainty among investors when exercising their rights in corporate actions outside their own member states.
Internal market commissioner Charlie McCreevy said that he particularly welcomed the fact that the LCG had addressed issues that could prove instrumental in making the EU's post-trading market more competitive.
"Also, its contribution to preparing the way for an industry-led consolidation of the European post-trading environment will provide additional support for the Code of Conduct on Clearing and Settlement," McCreevy said.
