By Chris Jones - 7th November 2006
EU stock exchanges have staved off the threat of immediate legislation from the European commission after reaching agreement on a new code of conduct.
The code will cover clearing and settlement – the transferring of shares and other securities from seller to buyer – and should significantly reduce the cost of cross-border trading.
EU internal market chief Charlie McCreevy had threatened to draw up binding legislation if exchanges could not agree on how to inject more transparency into clearing and settlement, a “big stick” that helped focus the minds of all the players involved.
“This is an important first step towards an integrated and efficient post-trading market in the EU,” said McCreevy.
“The only real alternative to the code of conduct was a directive, which nobody wanted because it would be too cumbersome and take too long to put into place.”
“This code will be the litmus test for better regulation. Some member states are not convinced about self-regulation, but I believe this way is faster and more efficient.”
McCreevy said that legislation could have taken up to five years to implement, far too long a time for an industry that is developing all the time.
“But the implementation of the code will be key, and we will be closely monitoring the progress through regular meetings with users,” the Irish commissioner said.
The code, which has been signed all the main stock exchanges and clearing houses in the EU, will focus primarily on share trading, with trading in bonds – contracts issued by companies or governments to raise money – and derivatives – such as futures contracts – following at a later date.
Exchanges have agreed to clearly indicate the cost of every service they offer, rather than simply charging lump sums for completing share trades.
They have also agreed to improve interoperability between exchanges, and to separate share trading businesses from clearing and settlement operations.
McCreevy has made no secret of his determination to bring greater transparency to share trading across EU borders, a task made all the more difficult because of the widely different systems between the 25 member states.
Companies such as Deutsche Börse, which are both trading platforms for shares and clearing and settlement operators, have come under particular criticism for distorting competition.
Have your say...
Please enter your comments below.