Ethereal Carrots and Vague Sticks

The real impact of the European Commission Code of Conduct for Clearing and Settlement has been somewhat patchy. Despite 60 organisations – representatives of Europe’s stock exchanges, clearing houses and securities depositories – declaring their allegiance to the Code in a letter sent to Charlie McCreevy at the end of last year there appear to be intact barriers to open-access and interoperability.  

Recent news that LCH Clearnet, who originally championed the Code, would not open themselves to the UK because of obstacles to implementation of the initiative and a lack of reciprocity among rival clearers and exchanges only proves to illustrate the divide that the Code is causing throughout Europe. 

The following question then must be asked: if the code of conduct doesn't produce the desired results what sanctions are really in place to take the strain? At present there are ethereal carrots and vague sticks, and a back-up plan, if any, for the Code being unsuccessful is all a bit vague. 

While calls for regulation could be brought into effect by the Commission if the code of conduct fails to achieve the necessary changes across Europe, this approach will be prone to a number of problems – none more so than the elections in June 2009 for a new European Commission to be appointed and the probability that new Commission members will have different ideas, desires and opinions to those currently in office. 

While the comparable industry bodies in Europe do not command the same might as their US counterparts – not surprising, given the breadth of disparate market practices and infrastructures that any pan-European organization needs to span – there is an argument for an industry body stepping up and taking the reins on implementing the Code ahead of changes to the Commission next year. If anything, at least this would give market participants the faith that unlike so many pan-European initiatives before, there is a structure and plan in place for progression and they won’t be left just guessing.