The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.
Opinion

Online extra: The case for compulsion

Does the EC need to force clarity on clearing?

The voluntary code of conduct for central counterparties and central securities depositories, which calls on national clearing and settlement houses in the European Union to work towards interoperability and to open up to competition, will prove a weak force for transforming the EU’s post trade infrastructure in the way the European Commission would like, so the EC would do well to consider enforcing compulsory measures.

Competition as encouraged by the voluntary code is likely to be less than vigorous because the technical costs of switching are high and market-specific differences, including some tax rules, form barriers to competition by making it often necessary for any would-be competitor to develop separate systems for every market. This limits the extent to which they can benefit from economies of scale in an industry where economic viability is entirely driven by economies of scale and so limits the incentives for competing.

Another reason why the code of conduct will prove weak is because it is voluntary and many incumbent monopolies are unsurprisingly reluctant to voluntarily weaken their position by opening up to competitors.

The "vertical silo" model, in which CCPs, CSDs and exchanges join together and control the length of the trade cycle, is very attractive because it provides great cost and revenue synergies and effectively fends off competition.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree