01 March 2007

Watchdog to probe ECB share settling

A controversial plan by the European Central Bank to set up and operate a new system for settling share and bond trades in the European Union will come under close scrutiny by the region's top antitrust watchdog. In an unusual move that adds to the uncertainty surrounding the new regime, the European Commission told EU finance ministers last month that the central bank was not exempt from antitrust laws.

It also told them that the Commission's competition department would carefully examine the Target 2 Securities system - a process that could delay the introduction of the new platform.

Although the Commission does not have concrete concerns at this stage, a probe would most probably focus on whether the ECB system constituted a restrictive business practice or an abuse of monopoly power in violation of EU antitrust rules.

'Economic activities are subject to competition law irrespective of whether they are undertaken by private companies or by public authorities and other institutions,' said a spokesman for Neelie Kroes, the EU competition commissioner.

'We have informed the financial services committee [the body that prepares meetings of EU finance ministers] that the ECB is not exempt from competition rules.

'The ECB proposal has not been finalised, and we would not necessarily find the system incompatible with EU competition rules.It could turn out to be pro-competitive. But we would want to examine itcarefully.'

The Frankfurt-based central bank is already facing criticism for its proposal to set up and operate a system that would compete directly with private-sector settlement providers such as Euroclear and Clearstream.

The ECB's regime is intended to provide a central platform for settling trades in euro-denominated securities. The bank argues that it would be cheaper and easier to use than the patchwork of different national settlement systems.

But in a move that highlighted growing concern about the project's implications for Europe's capital market, EU finance ministers yesterday called on the bank to provide more information on the expected costs and benefits of the project.

Although the ECB does not need governments' app-roval to move ahead with Tar-get 2 Securities, it confirmed yesterday that it would conduct further work on the scheme and report back to ministers. The bank had originally hoped to reach a final decision on the system next month - a target date it has now abandoned.

Ms Kroes's intention to examine the regime's compatibility with antitrust rules may turn out to sit uncomfortably with the Commission's general support for a more integrated clearing and settlement regime in the EU.

Brussels published a report last year that identified the high cost of cross-border clearing and settlement as a crucial obstacle for the creation of more integrated European capital market.

© Financial Times