07 March 2006

FT: Brussels threat on cross-border share trade costs

Europe's stock exchanges and clearing houses will today be given a final warning by Brussels to cut the cost of cross-border share trading by opening up their systems to competitors or face possible legislation.

Neelie Kroes, EU competition commissioner, and Charlie McCreevy, EU internal market commissioner, will threaten the industry with action before the summer unless it helps to create a pan-European capital market.

The order is aimed at European bourses that operate 'vertical silos' - electronic trading platforms and the post-trading services of clearing and settlement - which make the cost of cross-border share trading up to six times that of trading in domestic markets.

Leading banks have called on the Commission to press for a unified pan-European clearing system that will help cut the cost of capital for companies whose shares are traded on national bourses.

The two European commissioners say fragmented national markets and anti-competitive structures mean that cross-border trading in Europe is expensive, and that the current situation is untenable. They are expected to urge the industry today to create a true European clearing and settlement system to serve as the 'plumbing' of a properly functioning EU financial market.

Unless the industry comes up with viable proposals before the summer, Ms Kroes and Mr McCreevy say they will take action.

The two commissioners will announce before the summer break how they intend to proceed, using powers under the EU's competition and single market rules. The main option under consideration is an EU law, or directive, although the commissioners will await the outcome of an impact assessment before deciding whether to take the legislative route.

The UK's Competition Commission, in considering a possible offer for the London Stock Exchange by Deutsche Börse and Paris-based Euronext, found that the clearing services wholly and partially owned by each company had the capacity to limit competition in share trading. Fully or partly divesting of the clearing operation was a condition of permitting a bid to go through.

Privately, bankers have said they would prefer a voluntary unbundling of exchange services rather than one imposed through an EU directive that could take years to draft.

By George Parker and Christine Mai in Brussels and Norma Cohen in London

© Financial Times