Let’s aim for “a union of conquest” in the CMU vision

VIDEO | It’s been almost 10 years after the launch of the capital markets union (CMU) initiative in 2015, almost 25 years after the release of the Giovannini report on cross-border post-trade harmonisation in 2001, and 17 years after the launch of the TARGET2-Securities (T2S) project in 2007. Yet, the statuses of these ventures remain “in progress”. At the PostTrade 360° Nordic 2024 conference, the heat turned up on stage for the session titled “Unifying the EU’s market for financial market infrastructures – the when, who, and how”. Speakers debated the obstacles to unifying EU’s markets – politics included.

“I was very disappointed to see here that Euronext still has seven different licences,” declared Karel Lannoo, CEO for the Centre for European Policy Studies (CEPS). His comment was directed at Euronext’s head of central securities depositories Pierre Davoust – who had opened the session by drawing out the existing efforts his organisation has made to consolidate trade.

In response, Davoust admitted that Euronext needs to do even more. “We need to accelerate big time the integration of the market, not for the sake of the market, but to support all the investments that Europe needs to do in the next years to stay competitive.”

Do you want to watch the conference videos? Make sure you are logged in and signed up for the free session video access pass for PostTrade 360° Nordic 2024. Go to My content, click on Our offers and sign up!

T+1 a blessing in disguise

It’s easier said than done, of course. Additionally, CCPs face particular issues. “The challenge with CCPs is that it’s not just economies of scale. It’s network efficiencies,” pointed out Richard Metcalfe, head of regulatory affairs at World Federation of Exchanges. Nevertheless, he sees reason to be optimistic. “We are seeing Europe make a move – which I think will be successful – to T+1. If we can get everybody around the table on something that big, despite our differences, I think it’s emblematic.”

John Siena, associate general counsel at Brown Brothers Harriman, agreed. “I think T+1 is helping to force that discussion in a very healthy way… I personally don’t recall seeing such collaboration across all industry segments as I have with T+1… I’m hoping it’s a model for CMU, and a model going forward generally, because it’s a very positive direction of travel.”

Although also in agreement, Corentine Poilvet-Clédière, CEO of LCH SA would have liked if the cooperation had come earlier. “What is regrettable I think, is that we come together when we are pressured by the US to do so… It would be much better if we were scared about market share on our own, before external pressure to see this kind of coming together.”

Too many cooks

It’s not just trading that requires consolidation. The speakers concurred that the supervisory structure could do with an overhaul as well. “We have many more supervisors than supervised entities,” Lannoo pointed out, illustrating the fact with a table showing the supervisory structure of Eurex Clearing and LCH. “For me, there’s hardly any better example of market failure than this. There are so many supervisors looking at one entity when it should be the opposite – we need to have one supervisor for about 20 entities.”

Poilvet-Clédière shared that among the clients she has spoken to, “a hundred per cent” named the application of EMIR 3.0 as their top concern. “Do we want to have a whole financial industry whose top concern is compliance?” she asked. “I would want to them to talk about innovation, about penetrating the APAC market – those are healthy top concerns… for most of these clients, 70 per cent of their CapEx (capital expenditures) budget is dedicated to mandatory stuff. How much does that leave for research and development?”

Ilse Peeters, head of government relationships and public affairs at Euroclear SA/NV pointed out that industry ambition may be limited by reality. “The reality is that our business is mostly about safety and asset protection. Asset protection comes with local specificities and local domestic law. That determines what it means to protect assets… There hasn’t been, over the last 20 years, political will to tackle that. Nobody really wants to harmonise these laws.”

All is not lost

The picture might not be as grim as it seems, however. Peeters reminded the panel that despite the EU market seemingly fragmented with 27 CSDs across the bloc, “the top five domestic CSDs account for more than 80 per cent of the assets under custody”. The same top five is responsible for over 90 per cent of settlement activity. Both numbers indicate “heavy concentration”. Additionally, Euroclear bank is, based on settlement volume, the “biggest ICSD (international central securities depository)” in the world.

“It depends on which angle you are looking at, but it’s (the picture) is much rosier than just counting the number of CSDs,” she says.

Poilvet-Clédière suggested that perhaps, a little more assertion is what’s needed to build a functioning CMU. She proposed nurturing “champions in every asset class” that can “grab market share and compete outside the union”.

“I sometimes sense that when we talk about harmonisation, it’s a view of the world where we would only be operating within the EU or operating as a recipient of investment from outside. But what about the other way around?” she asked. The type of union she wants to see is “a union that is not just defensive, but a union of conquest”.

Panellists:
Pierre Davoust, Head of Central Securities Depositories and Member of the Executive Committee, Euronext
Corentine Poilvet-Clédière, CEO, LCH SA, LSEG Post Trade
Ilse Peeters, Head of Government Relationships and Public Affairs, Euroclear SA/NV
Richard Metcalfe, Head, Regulatory Affairs, World Federation of Exchanges
Karel Lannoo, Chief Executive Officer, Centre for European Policy Studies (CEPS)

Moderator: 
John Siena, Associate General Counsel, Brown Brothers Harriman

• The consolidated PostTrade 360° Nordic conference, in Stockholm on 4–5 September 2024, came to host 1,200+ delegates and featured 70 sessions.
• Our coverage relating to the event is indexed here.
• By the way … are we connected on LinkedIn already? Follow us here.