Under pressure. Or not, as the case may be

Parallels can be drawn betwen the airline industry of yesterday to the clearing and settlement space of today. 

As with the emergence of Airbus, which united a disjointed European air-manufacturing market and challenged the crown of Boeing whose dominance was the result of single US airline infrastructure, the Code of Conduct on Clearing and Settlement was initiated to draw together the fragmented European post-trade landscape to emulate the cost efficiencies of the DTCC, the US’ clearing and settlement giant. 

During this week’s EC/ECB conference on the post trade space, both exchanges and clearing houses were warned that the European Commission would not accept ‘foot-dragging’ around the Code of Conduct whose core strategy in steam-lining the European market lies in linking these two groups together. 

While ‘foot-dragging’ was cited for the lack of momentum around the Code, as I sat listening to the various speakers, I couldn’t help but feel that any inertia being felt by the Commission towards the Code was predictable. 

What the Code tries to solve, rather ambitiously, is a number of separate issues relating to both market efficiency and stability – issues for which the remedies are not the same. There is also a lack of consensus around what should be the catalyst for a newly streamlined Europe, with the Commission championing competition and the majority of market users choosing consolidation. Add to this pot the complications of differing political structures and varying vested interests across the Eurozone and the result is quite a potent mix. 

With what seems to be normal practice for European initiatives, public-sector officials are faced with a confusing array of divergent opinion because the industry lacks a pan-European trade association which can act as project manager.  

The Code has encountered problems because, unlike the T+1 initiative in the US, early in this decade, Europe does not have the equivalent of SIFMA in the US, which managed the T+1 project, engaged the market and drove the initiative forward. With the frequency at which new financial initiatives are hitting European shores one can only hope that in time we will learn that appropriate levels of guidance, support and pressure are needed from a higher power to make those dreams a reality.