Press releases 2002

02 September 2002

Exchange publishes its response to the European Commission's
clearing and settlement consultation

The London Stock Exchange today published its response to the European Commission's clearing and settlement consultation. The consultation was launched to discuss how existing market distortions, and barriers to efficient clearing and settlement arrangements within the EU, can be removed.

The Exchange welcomed the Commission's intervention based on an open public consultation. The key points of the Exchange's response, supported by detailed economic analysis, are:

• The best solution for European clearing and settlement is a single system - user-owned, user-governed and exchange-neutral - that can clear, net and settle all transactions in all securities across Europe. The DTCC in the USA is an example of how it is possible to establish a single system, which is cost-effective, innovative and able to manage systemic risk.
• This is a necessary step towards allowing effective, pan-European competition between exchanges and other providers of capital market services.
• The benefits would be lower transaction costs and potentially better diversification of risk for investors. Companies would also have lower costs of capital and easier access to a wider spread of investors. The Exchange's analysis suggests that a single solution could provide users with savings of €1.6 billion per year in direct costs alone.
• Alternative solutions based on the interconnection of multiple clearing and settlement providers - 'interoperability' - would not deliver the most efficient solution for Europe. Only a single system can do that.
• However, the market is currently too distorted by cross-ownership of exchanges and clearing and settlement providers - 'vertical silos' - for the Exchange to be confident that market forces alone will deliver the best solution.

The Exchange therefore recommends that the Commission adopts the following policies, which would help lead to the best solution:

• Open and equal access to clearing and settlement for exchanges and other providers of capital market services.
• Require that clearing and settlement providers' prices and commercial terms are transparent, fair and non-discriminatory.
• Separation of clearing and settlement provision from exchanges or other trading platforms.
• Freedom for European companies to deposit their shares in the European depositary of their choice. The overriding objective would be to allow a single European depositary to emerge, which is capable of holding all European equities and which would be a fundamental part of the single solution.

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Download the Exchange's full submission as a Word document.

Notes to editors: