Harmonisation – the key to integrated post-trade services in Europe
There have been recent calls on the need for harmonisation and consolidation in the European post-trade space by experts such as Christine Lagarde in her speech A Kantian shift for the capital markets union, Christian Noyer in his report on Developing European capital markets to finance the future, Enrico Letta’s report on Empowering the Single Market to deliver a sustainable future and prosperity for all EU Citizens and Mario Draghi’s report at the request of the EU Commission on EU competitiveness: Looking ahead.
Clearstream’s Head of Custody and Investor Solutions, Dirk Loscher, and Rosen Ivanov, Vice President in Custody and Investor Solutions, discuss the importance of harmonisation for the Capital Market Union and deepening of the integration for post-trade services.
How important is post-trade harmonisation for furthering the integration of the European capital markets?
Dirk Loscher: We consider further progress with harmonisation as one of the most essential elements to achieve an integrated market for post-trade services in Europe. This is one the key proposals in the policy paper of Deutsche Börse Group “Towards an EU Savings and Investments Union”, issued in December 2024on how to make the Capital Market Union a success story.And we are not alone – industry experts have similarly identified lack of sufficient harmonisation (such as lack of harmonised laws, differences in market practices, lack of single rulebook, lack of common standards and poor quality of reference data) as the biggest obstacles to integrated European capital markets infrastructure. We are convinced that further harmonisation in the post-trade space will boost cross-border competition among post-trade service providers and deepen market-led consolidation, which noted experts are calling for in recent reports.
Rosen Ivanov: The concern of harmonising European post-trade services is not new. Already in 2001, the Giovannini report defined barriers to cross-border clearing and settlement but, despite ambitious planning, little progress was achieved in the following years. In order to overcome this, the Eurosystem in 2008 took the unusual decision to develop its TARGET2-Securities (T2S) platform with the main objective to make cross-border settlement in Europe as efficient and cheap as domestic. Even if its launch in 2015 resolved some of the Giovannini barriers for participating CSDs, the volume of cross-CSD settlements on T2S still remains far less than expected.
How does Clearstream support the harmonisation efforts of post-trade services in Europe?
Dirk Loscher: Clearstream has fully embraced the original vision of T2S and via its Pan-European CSD model, the clients of Clearstream Banking AG in Frankfurt and LuxCSD can use a single securities account for settlement of practically all of their European securities business. Coupled with the harmonised service offering of Clearstream, they increasingly experience integrated post-trade services at European level. Even other CSDs in T2S appreciate the advantages of what we have built – Nasdaq CSD has decided in 2024 to leverage our Pan-European CSD model in order to provide their clients with access to all T2S markets. This shows that even smaller CSDs can reap the benefits of T2S at reasonable cost. Things are moving in the right direction and as more CSDs embrace the full capabilities of the common platform, the more integrated the landscape for post-trade services will become.
Rosen Ivanov: Clearstream’s experts participate actively in all post-trade global and European harmonisation fora. Their significant contribution in developing best practices for our industry is widely acknowledged and valued as it is based on the rich practical experience of operating one of the most diverse global network of links with other CSDs. The three CSDs within the Deutsche Börse Group profit from this as well as processes are increasingly being harmonised internally based on best global practices, bringing further benefits for our clients.
What else could be done to reduce fragmentation in the European post-trade space?
Dirk Loscher: Despite some progress, the European post-trade services still remain largely fragmented along national lines due to its non-harmonised legal, regulatory and fiscal national frameworks. Diverse national securities laws, reporting obligations and requirements of fiscal authorities, do not make it easy for entities to operate cross-border. Recent efforts to overcome some of the above such as FASTER in the fiscal area and CSDR Refit, which eases passporting of CSD services in the EU, are good but we believe a workplan is needed for authorities to resolve these long-standing national differences. We also consider that streamlining of diverse practices – such as KYC, AML, securities terms and conditions, issuance practices and corporate action processing - would serve to further reduce fragmentation.
In addition, further harmonisation of cross-CSD settlement both between CSDs on T2S and CSDs outside of T2S, supported by removing some outstanding technical barriers on the platform, could make decisive difference in deepening post-trade integration. Finally, we believe that the recent trend in increased settlement internalisation in Europe needs to be carefully analysed as it runs counter to the efforts to build an integrated market for post-trade services and is the opposite of what was expected to happen with the introduction of T2S.
Rosen Ivanov: We are aware that the EU authorities are actively looking how to progress with harmonisation in most of the areas, described above. And we remain hopeful that this is possible and will continue to actively contribute to this effort. Most recently, the Advisory Group of the Eurosystem on Securities and Collateral (AMI-SeCo), via a survey with the industry, has taken stock of all the remaining barriers to an integrated market for post-trade services in Europe. In 2025 the AMI-SeCo is planning to report on these and make concrete proposals for measures to remove them, which should streamline the efforts of both authorities as well as the industry.
Dirk Loscher: We believe that future and existing market-led solutions, via fair cross-border competition and sound economic principles, bring the most efficient results for all market participants, and the clearest and fastest path to the optimal outcome. Clearstream and its experts will continue to support the integration of the post-trade services in Europe.
