The European Union will seek to open up competition on settling securities trades and impose minimum-capital rules on companies providing the services to cut costs and bolster financial stability in the region.
The plans, drawn up by the European Commission, also set maximum times for these so-called central securities depositories to settle trades, according to an e-mailed statement from the regulator. Those failing to meet the deadlines would be subject to penalties, the commission said.
“Settlement is a crucial process for the securities markets and the financing of our economy, and as such its safety and efficiency needs to be ensured,” Michel Barnier, the EU’s financial services chief, said.
Global regulators have identified CSDs as systemically important institutions for the functioning of financial markets. CSDs, including Euroclear Bank and Deutsche Boerse AG’s Clearstream arm, are responsible for completing transactions by ensuring the delivery of the securities against cash. Such systems settled transactions worth more than $1,000 trillion in 2010, according to commission data.
Regulators have warned that the number of cross-border trades that aren’t properly settled is higher than domestic ones, and that such failures may pose a risk to financial stability. There are more than 30 CSDs currently operating in the EU, according to the commission.
Under the EU plans, CSDs that meet minimum capital requirements and other “conduct of business” rules would be allowed to operate across the 27-nation region, the commission said in the statement.
Securities traded on stock exchanges and other regulated markets would have to be settled within two days for the company to avoid penalties, it said.
Settlement costs for cross-border trades in the 27-nation EU can be four times as much as those of trades where both parties are in the same country, according to the commission.