NO 231 – MAY 2012
Shaping the future of Europe's financial markets

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WFE Focus January 2012
Shaping the future of Europe's financial markets
Peter Clifford
Deputy Secretary General, WFE

while there are lengthy discussions on the future of the European Union and the Euro, another set of issues is making steady progress in reorganizing the financial markets in Europe.

No matter where you go these days, wherever people with an interest in markets gather, there is sure to be lengthy discussions on the future of the European Union and the Euro.

While these issues merit much discussion, another set of issues is making steady progress in reorganizing the financial markets in Europe.

This month, in Focus there are two articles on regulatory developments in Europe. First, Karel Lannoo from the Centre for European Policy Studies (CEPS) looks at recent regulation concerning the post trade landscape in Europe. CEPS is a leading think-thank on European policy, and Karel has written widely on market structure policy.

In his article for this month’s Focus, he concludes ‘With a delay of more than 10 years, the EU will finally have a regulatory framework in place for the back-office. This will on the clearing side spur huge change, as a new market has to be structured for the central clearing of hitherto bilaterally traded derivative contracts. Huge investments are to be expected in clearing technology, which will bring sea change in the coming years. On the settlement side, free competition between CSDs will lead to further concentration in the sector, as this is a scale business by excellence, but also to contests with specialized banks for the expansion of territory. With a growing concentration in the clearing and settlement sector, the task for macro and prudential supervisors will not become easier.’

the implementation of a new financial infrastructure is the roadmap for a migration from over the counter derivative trading to less risky, better managed ways of clearing and trading derivative products.

One of the key institutions to oversee the new rules governing European markets is European Securities and markets Authority (ESMA). Verena Ross, the Executive Director of ESMA recently explained in a speech given at Centre Forum in London, reprinted here, the multiple work streams that are currently underway or planned. She says “The introduction of new and the overhaul of existing legislation will be a key challenge for ESMA this year. ESMA will work on establishing harmonised binding implementing measures in different areas such as: OTC derivatives (EMIR), investment funds (UCITS), alternative fund managers (AIFMD) and issuers (Prospectus directive). EMIR in particular will dominate our agenda for the next 6 months, with a consultation paper in June and final standards due to be delivered by end September.”

Regarding ESMA’s international role, she points out “Global leaders have established common objectives at G20 levels and regulators have set up a number of international groups aiming at international consistency of the different regimes. At the end of the process we will need to rely on equivalence and co-operation among authorities. We will never be effective if a single regulator seeks to regulate global financial markets from one single location. ESMA is already and will continue to play its full role in the global dialogue, whether that is in relation to the OTC derivative agenda, the regulation of CRAs or alternative investment fund managers.

The outcome of the implementation of a new financial infrastructure would have ramifications well beyond the region. It will point to whether fragmented markets are destined to replace centralized markets to the same extent as screen trading once replaced by open outcry. It will determine how well transparent trading venues can co-exist with dark pools. It is the roadmap for a migration from over the counter derivative trading to less risky, better managed ways of clearing and trading derivative products.

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