Gertrude Tumpel-Gugerell: Priorities for EU infrastructures and
prospects of transatlantic infrastructures
Speech by Ms Gertrude Tumpel-Gugerell, Member of the Executive Board of the European
Central Bank, at the EUROFI Conference, Nice, 12 September 2008.
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Question 1: What are the priorities to develop the competitiveness of EU securities
infrastructures?
Answer 1: Firstly, from a central bank perspective a clear priority for EU securities
infrastructures is to overcome the current fragmentation which leads to unnecessarily high
costs, especially for cross-border transactions.
I see T2S as a good example of this. T2S, as a neutral and borderless shared settlement
infrastructure, will yield positive scale effects, and it will promote competition in asset
servicing, as CSDs strengthen their offerings in services other than settlement.
Secondly, harmonisation, harmonisation will lead to further cost savings, transparency and
foster competition in the value chain. We will see significant initiatives in harmonisation
efforts throughout the securities life cycle, assisted by the catalytic effect of T2S.
The Eurosystem, itself, will initiate work of the T2S advisory Group together with market
participants to develop action plans for harmonising both settlement-related processes and
processes related to corporate actions.
Thirdly, in order for securing the competitive market place of the single market and thereby
maintain and attract issuers and investors to Europe, we need to re-think the risks to the
robustness and resilience of the entire financial system, which includes securities
infrastructures.
First of all we need a single set of standards consistently implemented in the European
Union. In this respect, I welcome the request of ECOFIN to ESCB and CESR to finalise their
recommendations. (this will also facilitate harmonisation and avoid regulatory arbitrages that
can lead to the "race to the bottom").
Second, the current financial crisis is showing how fast problems in one market can spread
over to other markets. In consequence, the operational processes, risk management policies
and procedures of each system are more related to those of other systems.
Therefore priorities should be made to obtain a holistic and systemic European (and maybe
global) approach to widening our risk assessment concepts and our coordination with other
market participants within the value chain, so that risk and crisis management procedures
can be optimised.
After the publication of the CPSS report on interdependencies, central banks are currently
investigating if and if so how there is a need to revise the regulatory framework consistently
with the new challenges stemming from the growing interdependencies. Enhanced
cooperation between the relevant authorities is surely one of the answers.
Question 2: What are the main expected impacts of transatlantic infrastructures on the
competitiveness of European markets and on EU stakeholders? Could global
infrastructures emerge one day?
Answer 2: At the trading level, significant changes in market structures are underway and
several European and transatlantic cooperation and mergers have already taken place or are
foreseen. Stock Exchanges and the new MTFs (multilateral trading facilities) are extending
the range of instruments offered on their trading platforms to create genuine competition.
This offers the potential for lower costs for intermediaries and all classes of investors.
It also improves the prospects for retail investors to diversify their securities portfolios across
Europe, increasing the potential returns on investments and diversifying their exposure to
financial risks. Issuers should also benefit from greater market depth for their fund raising.
I think we should carefully reflect on three issues:
1. How to draw a balance between regional and global needs? Or in other terms, is a
transatlantic infrastructure the best (soundest and more efficient) answer to a
"regional" market? Or will a network of interoperable regional infrastructure better
fit?
2. A global market does not necessarily require only one global infrastructure. On the
contrary competition among a few can be beneficial for the users.
3. So far transatlantic infrastructure has been a US-based infrastructure also serving
European markets. The higher integration of US markets provided undoubtedly a
competitive advantage to them in doing so.
But nothing prevents a transatlantic infrastructure offering services in Europe and then
expanding to other regions.
The first two questions are for all market participants and regulators. The last one is more for
EU (potential) provider. [T2-S has the potential for being one of this - in the future -
transatlantic infrastructure.]
The impact of the transatlantic infrastructures also requires changes in the way national
authorities operate, being it regulators, supervisory authorities or overseers, since systemic
risks extend beyond national borders.
In this aspect, we need to establish effective co-operation arrangements among national and
transatlantic supervisory authorities to develop common practices of supervisory structures in
financial services, including common reporting and risk management standards without
loosing sight of legitimate regional supervisory priorities.
We could make a parallel to the success of the CLS system, which indicates the possible
benefits in reduced risk and increased efficiency in global financial services. CLS also
suggests that we should not lose sight of the global dimension; in particular, Asia is a large
and rapidly growing part of the financial markets.
I can understand that the market participants with global businesses would like to see
progress towards a global infrastructure; but they have also been very clear in telling us that
the major cross-border costs in securities markets arise from lack of harmonisation. It is for
that reason the Eurosystem has pledged to engage with market users to start harmonisation
efforts firstly within the field of settlement and corporate action processes. Market users were
right to say that consolidation should not be attempted without harmonisation. Global - and
transatlantic - harmonisation have to be achieved before single securities infrastructures can
be introduced.
Question 3: What evolutions are required in post-trading arrangements to support the
development of transatlantic trading infrastructures ie NYSE-Euronext, Nasdaq-OMX?
Answer 3: The first area is harmonisation to ensuring transatlantic and global infrastructures
are properly overseen and regulated while accommodating legitimate regional supervisory
priorities. I see two challenges here: first, regulators and overseers generally tend to lag
behind financial innovation and integration; and second, Europe currently still lacks a
common regulatory and supervisory structure and framework, which would be an important
pre-requisite in achieving a regulatory level playing field. In cases of transatlantic mergers
like the NYSE Euronext merger, the risk of a potential "regulatory spill-over" of existing or
future US legislation and regulations would be smaller with the existence of a European SEC
than without it. So I think the truism that we have to get the European house in order to be
prepared for the global challenges is also true when it comes to securities infrastructures.
Furthermore, there will doubtless be work to enhance or develop relatively efficient
settlement links or bridges between the two US settlement engines and various CSDs in
Europe, to provide a degree of integration of post trading functionality.
The global challenges may be more profound in asset servicing than in settlement -
however, I believe that T2S will be of value in simplifying and helping to produce safer and
more efficient solutions as the core and central functionality of the financial system.