The European Central Securities Depositories Association (ECSDA) recently released a call for action reaffirming its support for the Capital Markets Union (CMU) following the establishment of the EU’s new political cycle. The document presents ECSDA’s views on the role of CSDs in supporting market integration, the root causes of post-trade fragmentation in the region, and the way forward to achieve greater integration.
“CSDs are natural supporters of the European capital markets and their growth”, the report writes. Although CSD competition is “often hindered by national preferences and local rules”, progress has been made in certain areas that “contribute to the creation of a more unified and efficient pan-European CSD environment”.
These areas are, namely, regulatory or market practice harmonisation and standardisation such as the Central Securities Depository Regulation (CSDR) and TARGET2-Securities (T2S); CSD group synergies such as the corporate consolidation of Euroclear Group and SIX; and enhanced CSD competition for issuers and investors aided partly by the CSDR Refit.
Together apart
The EU is a fragmented market. Differences in member state legislation are often seen in the holding models, segregation, and registration practices; the definitions of shareholders; and ownership rights on book entries securities, rules around ownership transfer, and enforceability of ownership rights.
The report cautions that “without addressing the root causes of fragmentation, the integration of the European post-trade will not be achieved”. Although European CSDs “work consistently” to remove these barriers to post-trade integration, “the nature of some of these barriers requires further public action”.
Looking ahead
To move the industry forward, the report suggests three areas of focus: tackling the causes of fragmentation to achieve the CMU, fostering market-driven competition, and defending the innovation and global competitiveness of European markets’ infrastructures.
For the first, ECSDA calls on policymakers to “re-evaluate the EU legislative and regulatory agenda to promote greater harmonisation in the development and interpretation of rules”. It also recommends that authorities take a look at the standards pertaining to remaining barriers, such as diverging securities laws, shareholder definitions and tax laws, as well as unharmonised asset protection.
To foster market-driven competition, ECSDA states that European CSDs should be “supported by the European authorities in their endeavours of safe and timely development”. This might cover “effective mutual market access including passporting in other EU member states”, “mutual access for CSDs from highly regulated jurisdictions to the respective central banks”, and “facilitation in the opening of new links and access to other financial market infrastructures (FMIs)”.
Finally, the report states that “CSDs have been the major contributors to European markets’ technological innovation”. To protect this, “Europe needs to value European actors and defend their global competitiveness”. The authorities should therefore evaluate if all measures are supportive of this. Should certain measures be necessary from a risk perspective, they should be agreed upon “at the global level”.
