By Anna McLauchlin - 27th April 2004
Buying shares across EU borders could be made cheaper as Brussels prepares new laws to break down the costly bureaucracy often involved in finalising trades.
On Wednesday the European Commission launched a consultation asking everyone from banks to traders and brokers whether they would welcome moves to simplify the 'clearing and settlement' process, potentially reducing the number of intermediaries required for trading.
Clearing and settlement is the final step after someone has bought or sold shares. It can involve anything from confirming the price, to calculating the amounts owed, safekeeping the shares before handing them over to the buyer, and actually transfering the money to the seller.
This has historically been organised along national lines through a central office (Central Securities Depository), making cross border trades, which are now common practice, very difficult and costly.
For example, a German investment firm wanting to buy shares in Nokia and Cable and Wireless must pay agent banks in both Finland and the UK which have links with the Finnish and UK clearing systems in order to get their shares moved.
Some stock exchanges, such as the London Stock Exchange, are establishing links with clearing systems from other member states but generally there are many local players with different rules and the commission estimates buying shares cross-border can cost up to seven times as much as buying domestic equity.
"The hope is that costs will come down," says Didier Hermans, an advisor at the European Banking Federation.
"It's a basic economic law: the less intermediaries you have the cheaper it gets."
More specifically, future proposals would include access to all EU markets for all clearing and settlement providers be they banks or international clearing systems groups such as Euroclear (operating in France, Belgium, the Netherlands, the UK and Ireland) or Clearstream (operating in Germany and now owned by Deutsche Börse).
And all these providers would have to play the same rules to allow users to compare prices and quality of services.
There are also plans to set up an advisory and monitoring group to help harmonise settlement systems and expert groups to look at how to scrap the legal and fiscal barriers to cross border trading.
And the commission will reinforce its competition policy in clearing and settlement to ensure authorities do not unfairly restrict access to their markets.
Conor Leeson at Euroclear welcomed the communication.
"We think it sets out practical and realistic policies for addressing the issues affecting our industry", he told this website.
"But this is only the consultation phase. We have argued that the rules should be the same for everybody and what we would not want to see is a specific directive governing how clearing and settlement is governed or should operate.
"We are glad the commission is supporting us on that principle."
Industry-lead regulation is more appropriate than EU law, Leeson argues.
But the European Banking Federation warns the banking sector could oppose harmonised rules.
"Some banks don't want settlement systems like Euroclear to be regulated in the same way as banks are," Hermans said. "They aren't working in the same way."
Interested parties have until the end of July to say what they think of the new plans, after which the commission will set the wheels in motion to produce binding legislation on the issue.
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