by Theresa Pagliocca
The Centre for the Study of Financial Innovation (CSFI) released its findings on October 2 following the completion of a year-long study on Europe’s post-trade infrastructure in its report, “Combining Safety, Efficiency and Competition in Europe’s Post-Trade Market.”
CSFI is a non-profit, London-based think-tank focused on the international financial industry. Its 67-page report deals primarily with clearing and settlement, and the role of central counterparty (CCP) clearing houses as first lines of defense for managing risk in global financial markets.
Established under the sponsorship of DTCC, the one-year DTCC-CSFI Post-Trade Fellowship was a program to spur dialogue and debate on post-trade infrastructure issues and how these critical market resources could be impacted by new legislative and regulatory reform efforts, as well as consolidation and fragmentation in the marketplace.
“The CSFI study provides a unique perspective on the regulatory development plan for financial infrastructure in Europe. It reviews the broad European regulatory landscape and examines the pressure points that are developing as the plan moves forward,” said Andrew Douglas, DTCC Head of Government Relations in Europe. “The recommendations are based on a year of research including the views of many European infrastructures, industry participants and regulators. We believe this will make the report a valuable resource as the European Union moves forward with financial market reforms.”
“DTCC’s support of the CSFI Fellowship program demonstrates our ongoing commitment to be a catalyst for change in Europe,” said Diana Chan, CEO of EuroCCP. “We believe the independent findings and recommendations in the 2012 report will bring new insight to discussions about reforms for the post-trade infrastructure.”
Research and writing
Peter Norman, a former longtime Financial Times journalist, directed the fellowship and drafted the report.
Over the past year, CSFI sponsored 11 roundtable discussions and high-level dinners in London, Frankfurt, Paris, Zurich and Brussels to solicit opinions and feedback from top legislative, regulatory and financial industry officials. These events, operating under the Chatham House Rule to ensure a free flow of conversation, played a critical role in shaping the fellowship and informed Norman’s writings on the future of the post-trade infrastructure and the CSFI report.
The report outlines a series of recommendations geared towards Europe’s regulatory and legislative communities under two agendas: the Agenda for Action and the Awareness Agenda.
The Agenda for Action comprises nine guidelines to enhance the safety and efficiency of Europe’s post-trade sector. Key recommendations call on European officials to:
- Require early establishment of an effective resolution regime for CCPs;
- Investigate the pros and cons of more access to CCPs, specifically in the listed derivatives market;
- Provide more financial resources and support from members states for the European Securities and Markets Authority (ESMA);
- Bring greater transparency into central bank post-trade policies;
- Reconsider the Giovannini program, which advocates removing barriers to a single market for clearing and settling equities.
‘The CSFI study provides a unique perspective on the regulatory development plan for financial infrastructure in Europe. It reviews the broad European regulatory landscape and examines the pressure points that are developing as the plan moves forward.’
The report’s Awareness Agenda cites issues that may require future action, including collateral management, portfolio and cross-margining by CCPs, and OTC buyside clearing. This section also highlights challenges clearing members face in the new regulatory and commercial environment and the implications of the Target2-Securities (T2S) start-up, scheduled for 2015. (T2S is the European Central Bank’s program for a single platform to settle cross-border securities transactions.)
Andrew Douglas. DTCC Head of Government Relations in Europe.
“The CSFI report makes a series of well-researched recommendations, such as calling for the development of CCP resolution legislation and deeper review of CCP competition, that have the potential to significantly strengthen Europe’s post-trade architecture,” said Douglas. “It sheds new light on critical issues at a time of sweeping change in the region’s financial markets.”@