Securities trading,
clearing, central
counterparties and
settlement in EU 25
– an overview of
current
arrangements
Report by
London Economics
commissioned by the
Competition Directorate
General of the European
Commission
30 June 2005
Securities trading, clearing, central counterparties and
settlement in EU 25 – an overview of current
arrangements
Report by London Economics commissioned by the Competition
Directorate General of the European Commission
Disclaimer:
This Report was produced by London Economics, acting as consultant to DG Competition of the
European Commission. The views expressed in this Report are those of the consultants. These views have
not been adopted or in any way approved or endorsed by the Commission and should not be regarded as a
statement of the views of either the European Commission or of DG Competition.
Although the information and opinions contained in this report were obtained from sources believed to be
reliable and in good faith, no representation or warranty, express or implied, is made as to their accuracy
and completeness. All information and opinions are subject to change without notice.
Copyright European Communities 2005" - Reproduction is authorised except for commercial purposes provided the source is ack
30 June 2005
Contents Page
Executive summary ix
1 Introduction 1
2 Background 3
2.1 Key steps in trading, clearing and settlement process 4
2.2 Categories of organisations involved in C&S 8
3 Key trends in trading and post-trading infrastructures 12
3.1 Overview 12
3.2 Consolidation trends 12
3.3 EU Initiatives 19
4 Major trading platforms 21
4.1 Equity markets 21
4.2 Fixed-income market 26
5 Major European clearing institutions 29
5.1 LCH.Clearnet 30
5.2 Eurex Clearing 32
6 Major European settlement institutions 33
6.1 The Clearstream group 34
6.2 The Euroclear group 35
6.3 NCSD 38
7 Overview 39
8 Austria 40
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8.1 Trading 40
8.2 Clearing and settlement 40
8.3 CSD 41
8.4 Access 41
8.5 Vertical arrangements between infrastructures 42
9 Belgium 43
9.1 Trading 43
9.2 Clearing 45
9.3 Settlement 46
9.4 Vertical arrangements between infrastructures 48
10 Cyprus 49
10.1 Trading 49
10.2 Clearing and settlement 49
10.3 Vertical arrangements between infrastructures 49
11 Czech Republic 50
11.1 Trading 50
11.2 Clearing 50
11.3 Settlement 50
11.4 Ownership 51
11.5 Vertical arrangements between infrastructures 51
12 Denmark 52
12.1 Trading 52
12.2 Clearing and settlement 52
12.3 Ownership 53
12.4 Access 53
12.5 Vertical arrangements between infrastructures 54
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13 Estonia 56
13.1 Trading 56
13.2 Clearing 56
13.3 Settlement 56
13.4 Regulation 56
13.5 Access 57
13.6 Vertical arrangements between infrastructures 57
14 Finland 59
14.1 Trading 59
14.2 Clearing and settlement 60
14.3 Regulation and Supervision 61
14.4 Access 61
14.5 Vertical arrangements between infrastructures 62
15 France 63
15.1 Trading 63
15.2 Clearing 65
15.3 Settlement 66
15.4 Vertical arrangements between infrastructures 67
16 Germany 68
16.1 Trading 68
16.2 Clearing 72
16.3 Settlement 75
16.4 Vertical arrangements between infrastructures 76
17 Greece 77
17.1 Trading 77
17.2 Clearing and settlement 77
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17.3 Ownership 78
17.4 Legislation and supervision 79
17.5 Vertical arrangements between infrastructures 79
18 Hungary 81
18.1 Trading 81
18.2 Clearing and settlement 82
18.3 Regulation 82
18.4 Ownership 83
18.5 Access 83
18.6 Vertical arrangements between infrastructures 84
19 Ireland 85
19.1 Trading 85
19.2 Clearing 85
19.3 Settlement 85
19.4 Regulation 86
19.5 Vertical arrangements between infrastructures 87
20 Italy 88
20.1 Trading 88
20.2 Clearing 90
20.3 Settlement 91
20.4 Vertical arrangements between infrastructures 93
21 Latvia 94
21.1 Trading 94
21.2 Clearing 94
21.3 Settlement 95
21.4 Regulation 95
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21.5 Ownership 96
21.6 Access 96
21.7 Vertical arrangements between infrastructures 96
22 Lithuania 98
22.1 Trading 98
22.2 Clearing 98
22.3 Settlement 98
22.4 Regulation 99
22.5 Ownership 99
22.6 Access 99
22.7 Vertical arrangements between infrastructures 100
23 Luxembourg 101
23.1 Trading 101
23.2 Clearing and settlement 101
23.3 Vertical arrangements between infrastructures 101
24 Malta 102
24.1 Trading 102
24.2 Clearing and settlement 102
24.3 Regulation 102
24.4 Ownership 103
24.5 Vertical arrangements between infrastructures 103
25 Netherlands 104
25.1 Trading 104
25.2 Clearing 106
25.3 Settlement 106
25.4 Vertical arrangements between infrastructures 107
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26 Poland 108
26.1 Trading 108
26.2 Clearing and Settlement 108
26.3 Regulation 109
26.4 Ownership 109
26.5 Access 109
26.6 Vertical arrangements between infrastructures 110
27 Portugal 111
27.1 Trading 111
27.2 Clearing 112
27.3 Settlement 113
27.4 Vertical arrangements between infrastructures 114
28 Slovakia 115
28.1 Trading 115
28.2 Clearing and settlement 115
28.3 Regulation 116
28.4 Access 116
28.5 Vertical arrangements between infrastructures 116
29 Slovenia 117
29.1 Trading 117
29.2 Clearing and settlement 117
29.3 Regulation 117
29.4 Ownership 118
29.5 Access 118
29.6 Vertical arrangements between infrastructures 118
30 Spain 119
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30.1 Trading 119
30.2 Access 121
30.3 Clearing and settlement 121
30.4 Regulation 122
30.5 Vertical arrangements between infrastructures 123
31 Sweden 124
31.1 Trading 124
31.2 Central counterparties 125
31.3 Access 126
31.4 Vertical arrangements between infrastructures 128
32 UK 129
32.1 Trading 129
32.2 Clearing 131
32.3 Settlement 133
32.4 Vertical arrangements between infrastructures 134
Annex 1 Questionnaire 137
Annex 2 Invitation to comment 139
Annex 3 List of Respondents 141
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Tables & Figures Page
Table 1: Various models of choice of clearing and settlement
service provider for various cash markets in the
European Union xii
Table 2: European stock exchanges, equity, 2004 22
Table 3: CCPs on cash equity and bond markets in EU
Member States 29
Table 4: CSDs in EU Member States 33
Table 5: Overview of Euronext Brussels Markets 43
Table 6: Overview of Euronext Paris Markets 63
Table 7: Overview of arrangement in clearing and settlement 67
Table 8: Overview of German equities markets 68
Table 9: Eurex Clearing AG Clearing Activities 72
Table 10: Overview of clearing and settlement arrangements 76
Table 11: Overview arrangements in the Greek capital market 78
Table 12: Overview of arrangement in clearing and settlement 107
Table 13: Recognised Investment Exchanges(1) 129
Figure 1: Euroclear Group –1st January 2005 37
Figure 2: HELEX group structure 79
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Executive summary
Executive summary
q This report provides a description of the securities trading, clearing and
settlement infrastructures of the cash equities and bonds markets in the
25 Member States of the EU as of March 2005.
q The report uses a wide range number of information sources, including:
• Responses to a questionnaire that had been sent by DG
Competition in 2003 to the competition authorities of the Member
States;
• Publicly available information such as national legislation, stock
exchanges trading rules, clearing houses and settlement
organisations admission rules, studies by international
organisations including the BIS, the ECB and the IOSCO, national
securities regulatory authorities as well as articles by financial
industry specialists, academics and specialised newspapers;
• Meetings with some of the key players in the sector, and
• Comments received from different parties in response to the
consultation launched in August 2004 by DG Competition on a
previous version of the present report. The text of the invitation to
provide comments is provided in Annex 2 and the list of
respondents is shown at Annex 3. Comments received are
available on the DG Competition’s website.
q It aims at describing the infrastructure at national and pan-European
level as well as identifying trends, particularly at pan-European levels
such as on-going consolidation and possible impacts this may have on
the sector. Amongst others it identifies the arrangements existing for
members of equity and bond cash trading platforms to use a specific
clearing or settlement service provider.
q Such arrangements exist for many different reasons and the main
purpose of the report is to provide a factual snapshot of the current
situation without making a value judgement.
q As some cash transactions take place outside formal trading markets, the
report also takes account of the clearing and settlement processes for
such transactions.
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Executive summary
q The business models adopted by exchange operators and securities
clearing and settlement organisations vary greatly across Europe.
q Moreover, consolidation of trading and post-trading infrastructures has
proceeded at an unprecedented pace over the past few years in Europe.
Several mergers or alliances between securities markets infrastructures
have occurred or are on-going. This consolidation has been both vertical
and horizontal in nature.
q While consolidation occurred largely at the national level, a number of
significant mergers and alliances also took place at a pan-European level.
Indeed, some of the recent consolidation had the explicit objective of
reducing the fragmentation of the trading, clearing and settlement
infrastructures along national border lines within the European Union.
q As a result of this consolidation process, a number of transnational, for-
profit providers of trading, clearing and settlement services have
emerged in the European Union.
q The consolidation in process is far from complete and further structural
changes are likely. Indeed, the merger talks between Euronext and the
London Stock Exchange and Deutsche Börse and the London Stock
Exchange are symptomatic of such an on-going consolidation process.
q The nature of clearing services has also evolved as many stock markets
have implemented in recent years a central counterparty (CPP), often in
conjunction with a move to electronic order book trading.
q The precise definitions of clearing and settlement from a regulatory
perspective are still a matter of considerable debate and work on
developing generally agreed-on definitions is underway in a number of
fora.
q While the purpose of this report is not to provide precise legal definitions
of clearing and settlement activities, we nevertheless had to adopt some
broad definitions of such activities to describe the trading, clearing and
settlement infrastructures.
q For the purpose of this report, we define clearing as including both the
traditional post-trade matching and confirmation services, and the CCP
services.
q Settlement is defined as the activities undertaken to effect the transfer
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Executive summary
from the seller to the buyer of a security which is the subject of a trade.
Depending on the specifics of the transaction, such transfer may or may
not be accompanied by a money transfer in opposite direction.
q The detailed review of the current arrangements between trading,
clearing and settlement infrastructures shows that, at the present time, in
the vast majority of securities cash markets in Europe, users have no
choice with respect to the providers of clearing and settlement services
that are to be used to clear and settle a trade in a specific security on a
specific market.
q Such a lack of choice has multiple roots:
1. In some cases, there exists a legal requirement to use a certain
clearing and/or settlement infrastructure.
2. In other cases, the trading or clearing membership rules are
prescriptive in terms of which clearing or settlement service provider
is to be used and only one service provider is prescribed.
3. In some other cases, the trading or clearing membership rules are
prescriptive in terms of which clearing and settlement service
providers can be used, but offer some choice. Thus, in this case
members have theoretically the flexibility of using clearing and
settlement service providers of their choice. But, in practice they do
not because, at the present time, only one such service provider exists
in the country.
4. In a few cases, the trading and clearing membership rules are not
prescriptive, and membership is simply conditional on having proper
clearing and settlement arrangements in place. These various
situations are presented in summary form in Table 1 and are
discussed in greater detail in the country sections describing the
respective trading, clearing and settlement infrastructure, and the
vertical arrangements between these infrastructures.
q As of 30th March, 2005, the vast majority of the vertical arrangements
between trading, clearing and settlement infrastructures in the European
Union fall in groups 2 and 3.
q Finally, it is important to note, that in cases where the trading or clearing
membership rules do not specify the settlement service provider that is
to be used, the choice is often limited in practice. This is the situation
because, in all cases, there exists only one national CSD holding the
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Executive summary
register of the security that is being traded and, thus, the only choice is
between either settlement in the books of the CSD or indirect settlement
through an intermediary of the trader’s choice.
Table 1: Various models of choice of clearing and settlement service provider
for various cash markets in the European Union
Activity
Scope of choice1 Country and market Applied to Applied to
clearing settlement
services services
1) Legislation or regulations Cyprus
specify service provider
Cyprus Stock Exchange Yes Yes
Greece
Athens Exchange, Yes Yes
HDAT Yes Yes
Italy
Yes (Only
one
Borsa Italiana (equities, non-Italian
company,
bonds)
but not
specified)2
Yes (Only
one
MTS (Italy) company,
but not
specified)
Poland
Warsaw Stock Exchange Yes Yes
MTS-CeTO Yes Yes
Slovenia
Ljubljana Stock Exchange Yes Yes
1 “Yes“in the boxes for “Activity” means that the relevant documentation specifies the clearing and/or
settlement service provider to be used. Where the box is left blank this does not necessarily imply that
the user can choose the supplier.
2 The Italian legislation establishes that settlement services for non-derivative financial services, excluding
the final settlement of the cash leg, are carried out by a single company. However, the legislation does
not specify the legal entity which is to provide these services. Monte Titoli won a tender to provide
such settlement services in 2000. For further details see the Italy country report (section 20).
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Executive summary
Spain
Bolsas Y Mercados Españoles Yes Yes
MTS España. Yes Yes
2) Membership rules of Austria
trading and clearing
Vienna Stock Exchange Yes Yes
infrastructures specify
which clearing and MTS Austria Yes
settlement infrastructure is
to be used and do not give Belgium
any choice of service Euronext Brussels Yes
providers
MTS Belgium Yes Yes
Czech Republic
Prague Stock Exchange Yes Yes
RM-S Yes Yes
SKD market Yes Yes
Denmark
MTS Denmark Yes Yes
Finland
MTS Finland Yes
France
Euronext Paris Yes
MTS France Yes Yes
Germany
Frankfurt Stock Exchange (Xetra) Yes
Frankfurt Stock Exchange (other
Yes Yes
securities)
Berlin-Bremen Stock Exchange Yes Yes
Düsseldorf Stock Exchange Yes
Hamburg Hanseatic Stock Exchange Yes Yes
Lower Saxony Stock Exchange
Yes Yes
(Hannover)
Bavarian Stock Exchange (Munich) Yes Yes
Baden-Würtemberg Stock Exchange
Yes
(Stuttgart)
Eurex Bonds Yes
MTS Germany Yes
Hungary
Budapest Stock Exchange Yes Yes
Ireland
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Executive summary
Irish Stock Exchange (equities and
Yes
bonds)
Irish Stock Exchange (equities) Yes
Italy
Borsa Italiana (equities and bonds) Yes
Lithuania
Vilnius Stock Exchange Yes Yes
Malta
Malta Stock Exchange Yes Yes
Netherlands
Euronext Amsterdam Yes
MTS Amsterdam Yes
Portugal
Euronext Lisbon Yes Yes
Slovakia
Bratislava Stock Exchange Yes Yes
United Kingdom
LSE SETS and SETSmm Yes
LSE EUROSETS Dutch Trading
Yes
Service
LSE SEAQ and SEAQ International Yes
LSE International Retail Service) Yes
LSE SEATS Plus Yes
3) Membership rules of Austria
trading and clearing
MTS Austria Yes
infrastructures specify
which clearing and Belgium
settlement infrastructure is
to be used and allow some Euronext Brussels (one for settlement
choice of service providers in CSD, one for settlement through Yes
intermediary)
Finland
MTS Finland Yes
France
Euronext Paris (one for settlement in
CSD, one for settlement through Yes
intermediary)
Germany
Eurex Bonds, MTS Germany Yes
Ireland
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Executive summary
Irish Stock Exchange (bonds) Yes
Italy
MTS Italy Yes
Netherlands
Euronext Amsterdam (one for
settlement in CSD, one for settlement Yes
through intermediary)
MTS Amsterdam Yes
Portugal
MTS Portugal Yes Yes
United Kingdom
LSE SETS and SETSmm (one for
settlement in CSD, one for settlement Yes
through intermediary)
LSE EUROSETS Dutch Trading
Service (one for primary settlement Yes
and one for secondary)
LSE SEAQ Yes
virt-x Yes Yes
4) Membership rules of Denmark
trading and clearing
Copenhagen Stock Exchange Yes Yes
infrastructures specify that
proper clearing and Estonia
settlement arrangement
need to be in place but do Tallinn Stock Exchange Yes Yes
not specify which clearing Finland
and settlement
infrastructure is to be used Helsinki Stock Exchange Yes Yes
Germany
Frankfurt Stock Exchange (securities
Yes
listed on Xetra)
Düsseldorf Stock Market Yes
Baden-Würtemberg Stock Market
Yes
(Stuttgart)
Latvia
Riga Stock Exchange Yes Yes
Luxembourg
Luxembourg Stock Exchange Yes Yes
Sweden
Stockholm Stock Exchange Yes Yes
United Kingdom
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Executive summary
LSE (International Order Book and
Yes
International Bulletin)
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30 June 2005 xvi
Section 1 Introduction
1 Introduction
The purpose of this report is to provide a factual snapshot as of March 2005 of
the national and pan-European securities infrastructures. It also notes trends
in the sector, particularly concerning consolidation and some potential
impacts on this sector. Additionally it identifies the vertical arrangements
between equity and bond cash trading infrastructures and clearing and
settlement infrastructures. The source of the arrangements may be legal or
regulatory, or may lie in the user rules of the infrastructure.
In most cases, participants in equity and bond cash markets have no choice
with regards to the clearing and settlement service providers that are to be
used for clearing and settling trades on a given market for a given trade.
The reasons for such a situation are manifold and include country-specific
historical developments, recent EC and national regulatory developments
aimed at ensuring straight-through processing, and the natural monopoly
characteristics of certain activities in the trading, clearing, and settlement
process.
The report does not take a position on the merits or otherwise of the
arrangements between one level of the trading, clearing and settlement
process and another one. Its main aim is to provide an as comprehensible as
possible picture of the current situation. As not all transactions are processed
within a market infrastructure, account is also taken of these processes.
As is well known, the industry structure is evolving. Consolidation of
trading and post-trading infrastructures has proceeded at an unprecedented
pace over the past few years in Europe. While historically consolidation
occurred, to a large extent, at the national level, more recently a number of
significant mergers and alliances have also taken place at a pan-European
level. Several mergers or alliances between securities markets infrastructures
have occurred or are still on-going.3 This consolidation has been both vertical
and horizontal in nature. Further structural changes are likely. However, as
noted above, the snapshot provided in the report reflects the situation as of
March 2005 and some of the observations may be invalidated by new
developments occurring later in 2005.
This report is divided into two parts:
The first part (Sections 1-6) provides a pan-European overview of securities
trading, clearing and settlement whilst the second part (Sections 7-32)
contains the individual country overviews of national trading, clearing and
3 For example, in late 2004 and early 2005, Deutsche Börse and Euronext put forward proposals to acquire
or merge with the London Stock Exchange (LSE). While Deutsche Börse is not actively pursuing its
plans at the present time, the Euronext merger proposal is still under active consideration.
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30 June 2005 1
Section 1 Introduction
settlement infrastructures for cash equity and bond transactions in the 25
Member States.
Section 2 provides background information on the main steps in securities
clearing and settlement. Section 3 reviews key trends in trading and post-
trading infrastructures. Section 4 provides an overview of major trading
platforms. Section 5 describes the major European clearing institutions and
Section 6 describes the major European settlement institutions.
Sections 7 to 32 provide on a country-by-country basis the description of the
national trading, clearing and settlement infrastructures.
The questionnaire sent by DG Competition in 2003 to the national
Competition Authorities is appended at Annex 1.
Finally, the text of the invitation to comment on a previous version of this
report and the list of parties having provided such comments are appended
at Annexes 2 and 3, together with a link to the page of DG Competition’s web
site from which these responses can be downloaded.
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Section 2 Background
PART I – The Sector
2 Background
This chapter briefly describes the key steps that take place after a securities
trade has been effected and provides an overview of the types of
organisations involved in the clearing and settlement process in Europe.
From a regulatory perspective, the precise definitions of clearing and
settlement activities are still much debated among clearing and settlement
service providers, users of such services, regulators and policy-makers.
Work on defining precisely the various clearing and settlement activities is
currently undertaken within CESAME, the monitoring and advisory body set
up by the Commission’s Internal Market Directorate-General following
adoption by the Commission of its second communication on clearing and
settlement. In this context, a sub-group chaired by the Commission has been
established with a view to agree on a relevant set of definitions using a risk
based functional approach, by the time of completion of the impact
assessment. In consequence, some terms used in this report might be defined
differently in the context of possible future policy proposals once the results
of this sub-group’s work are available
Therefore, in the absence of generally agreed-on definitions, we rely largely
in this report on the description of clearing and settlement activities put
forward by the Giovannini group in its 2001 report on cross-border clearing
and settlement.4 The Giovannini descriptions of the various clearing and
settlement steps and activities are themselves based on the earlier work
undertaken by CPSS and IOSCO in that area.
Obviously, the purpose of the Giovannini Report and our report are quite
different. The former aimed to identify major barriers to cross-border
clearing and settlement while the purpose of the present report is to provide a
comprehensive description of the infrastructures for securities trading,
clearing and settlement infrastructures for cash equity and bond trades as
well as identify the vertical arrangements between such infrastructures.
It is important to note that we do not aim to provide precise legal definitions
of the various clearing and settlement functions and activities. Indeed, for the
purpose of our description of the trading, clearing and settlement
infrastructures and identification of vertical arrangements, we only require a
4 Giovanni Report Cross-Border Clearing and Settlement Arrangements in the European Union, Brussels,
November 2001.
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Section 2 Background
broadly accepted typology of the various economic activities involved in
clearing and settlement such as provided in the 2001 Giovannini Report.5
Moreover, while the focus of the present report is on trading, clearing and
settlement market infrastructures, we recognise that not all cash equity and
bond trades will be executed on such infrastructures and that internalisation
by major investment banks and other intermediaries, in some cases, may be
an alternative process.
2.1 Key steps in trading, clearing and settlement
process
Trading of securities occurs on many different markets and is the most visible
aspect of the trading, clearing and settlement process. Yet a trade in a given
security on a given market is only finalised when, first, it has been cleared
and, secondly, settled.
Indeed, a series of steps and actions are involved in the process of completing
the transfer of ownership of the security and the corresponding payment.
Only when both delivery and payment, if such payment is a condition of the
trade, have been finalised is settlement of the securities transaction achieved.
The detailed steps involved in clearing and settlement as described by the
Giovannini report are listed in Box 1 overleaf.
For the purpose of our report, we use the following broad functional
definitions6:
1. Clearing relates to the activities involving:
a. the provision of trade matching and confirmation of the terms
of trade agreed between the buyer and seller; and,
b. the provision of central counterparty (CCP) services. As CCPs
by now exist on many stock markets in the EU, clearing is
most frequently associated nowadays with CCP services, in
particular netting and novation.
2. Settlement relates to activities undertaken to effect the transfer of the
security which is the subject of the trade.
Different steps in the settlement process may occur at different levels.
Indeed, securities trades can be settled in the books of central
5 Indeed, many of the comments submitted to DG Competition in the consultation on the previous
version of this report recommended that we use the Giovannini description of clearing and settlement
as a basis for our analysis.
6 As already mentioned some terms used in this report might be defined differently in the future once the
CESAME sub group’s work on definitions using a risk based functional approach is completed
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Section 2 Background
securities depositories (CSDs) and/or in the books of intermediaries
such as global custodians. 7
7 A distinction between primary and secondary settlement was made by DG Competition in its recent
decision regarding the clearing and settlement services provided by Clearstream (See Rivero E.M. and
R. Bufton, The Clearstream decision: the application of Article 82 to securities clearing and settlement,
EC Competition Policy Newsletter, 2004, No. 2, Summer, pp. 49-51). The decision is available at
http://europa.eu.int/comm/competition/antitrust/cases/index/by_cy_c.html.
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Section 2 Background
Box 1
Functionalities in the process of clearing and settlement
(From 2001 Giovannini Report)(1)
The clearing and settlement processes are essential features of a smoothly functioning
securities market. As is the case for any market, the trading of securities involves the
transfer of ownership from the seller to the buyer of the relevant instruments as well as a
reciprocal transfer of funds in payment. Clearing and settlement are the services that
allow these transfers to be made on an efficient and safe basis. Clearing and settlement
can be achieved in different ways and can involve several intermediaries in addition to
the buyer and seller. The complexity of a securities transaction, i.e. the complexity of the
clearing and settlement processes, is directly related to the number of actors involved. In
this context, it is worth noting that a cross-border securities transaction normally
involves a greater number of participants than a domestic transaction.
The process of clearing and settlement begins when a securities trade has been executed.
A series of steps and actions are involved in the process of completing the transfer of
ownership of the security and the corresponding payment. For the purposes of
exposition, the clearing and settlement procedure can be described in terms of four main
activities:
o Confirmation of the terms of the trade as agreed between the buyer and seller;
o Clearance, by which the respective obligations of the buyer and seller are
established;
o Delivery, requiring the transfer of the securities from the seller to the buyer; and
o Payment, requiring the transfer of funds from the buyer to the seller.
Delivery of securities and payment of funds may occur simultaneously but only when
both delivery and payment have been finalised is settlement of the securities transaction
achieved.
Confirmation
Confirmation of the terms of a securities transaction takes place via a number of
mechanisms, usually determined by the location of the original trade. OTC transactions
are typically confirmed directly between the buyer and seller by electronic means, by
telefax, or by specialized messaging service. Some trading systems provide automatic
confirmation, while other securities exchanges or clearing agents produce confirmations
based on data submitted by counterparties. Efforts are underway to reduce the
complexity of confirmation and minimise the possibility of errors by streamlining
procedures so as to limit the number of times information on the terms of the trade must
be transmitted between the various participants.
Clearance
Once the terms of a securities transaction have been confirmed, the respective obligations
of the buyer and seller are established and agreed. This process is known as clearance
and determines exactly what the counterparties to the trade expect to receive. Clearance
is a service normally provided by a clearing house, a central securities depository (CSD)
or an international central securities depository (ICSD). The latter two also hold
securities and allow them to be processed by book entry. Clearance can be carried out on
a gross or net basis. When clearance is carried out on a gross basis, the respective
obligations of the buyer and seller are calculated individually on a trade-by-trade basis.
When clearance is carried out on a net basis, the mutual obligations of the buyer and
seller are offset yielding a single obligation between the two counterparties. Accordingly,
clearance on a net basis reduces substantially the number of securities/payment
transfers that require to be made between the buyer and seller and limits the credit-risk
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Section 2 Background
exposure of both counterparties. Clearance can also be continuous (typically when
settlement of a transaction is on a gross basis) or discrete (typically when settlement is on
a net basis). Securities markets may avail of a central counterparty (CCP), which is an
entity that interposes itself legally between the buyers and sellers of securities by a
process of "novation". In consequence, the buyers and sellers of securities interact
directly with the CCP and remain anonymous to each other(2). Some CCPs also offer a
netting facility, whereby the CCP offsets all obligations i.e. amounts owed by and to
participants in the market and reduces all outstanding residuals to a single debit/credit
between itself and each member (rather than a multiplicity of bilateral exposures
between members). This further facilitates the management of securities and payments
transfers and reduces the credit risk exposure, margin requirements and liquidity needs
of buyers and sellers.
Settlement
Settlement of a securities transaction involves the delivery of the securities and the
payment of funds between the buyer and seller. The payment of funds can be effected in
the settlement system or, more usually, via a banking/payments system. The delivery of
securities is typically carried out in a CSD or an ICSD. In the EU, the vast majority of
securities are immobilised or dematerialised and can be transferred by means of book-
entries (rather than by the physical movement of the securities between buyer and
seller). A trade cannot be declared settled until both transfers are final (i.e. cannot be
rescinded). Settlement procedures that only allow securities to be transferred to the
buyer on condition of payment being received by the seller are known as 'Delivery
versus Payment' (DVP). Often, settlement finality(3) can be assured only after the transfer
of securities ownership from the seller to the buyer has been formally registered. Many
CSDs offer registration as an additional service. The immobilised or dematerialised
securities involved in a transaction would typically be held by a CSD. The owners of a
security will not necessarily be a member of a CSD and may interact with the CSD
indirectly through an intermediary that is a member. These intermediaries or custodians
hold securities on behalf of owners and often provide services ranging from monitoring
of dividend receipts and interest payments to the management of corporate actions. One
byproduct of cross-border trading has been the emergence of global custodians,
intermediaries in which investors centralise holdings of securities that have been issued
in many different countries. These global custodians are typically members of many
national CSDs or have access to membership via local sub-custodians.
Notes:
(1) This description of clearing and settlement activities is taken from the Giovanni Report
Cross-Border Clearing and Settlement Arrangements in the European Union, Brussels,
November 2001, pp 4 to 6. The description of the various activities in the Giovanni Report
itself draws heavily on work by other institutions and bodies, notably within the BIS. For
a more complete description of the clearing and settlement process – as well as specific
cross-border features – see “Cross-Border Securities Settlements” – Report prepared by
the CPSS of the central banks of the G10 (March 1995) and “ Recommendations for
Securities Settlement Systems” – Report of the CPSS-IOSCO Joint Task Force on Securities
Settlement Systems (January 2001).
(2) It should be noted that a CCP is not always associated with anonymity. For example some
OTC trades in derivatives are cleared through a CPP (LCH.Clearnet) but both parties are
known to each other.
(3) To address issues of systematic risk associated with the participation in securities
settlement systems, and in particular the risk linked to the insolvency of a participant in
such a system, the Settlement Finality Directive was adopted in May 1998. The Directive
applies to payment and securities systems as well as every participant in such a system,
and to collateral security provided in connection to the participation in a system of
operations of the central bank of the member states in their function as central banks.
London Economics
30 June 2005 7
Section 2 Background
2.2 Categories of organisations involved in C&S
As a result of historically different starting points and their organic
development, the entities involved in the clearing and settlement process
vary from country to country but can be broadly described as follows:
2.2.1 Clearing organisations
In Europe, clearing is a service provided by either stock exchanges,
clearinghouses or CSDs (see below). Today, many clearinghouses are
commercial entities, which operate on a for-profit basis. Many
clearinghouses also act as a central counterparty fulfilling the functions of
“novation” and “netting”. While there is often only one entity providing the
clearing service nationally for all securities markets, this is not always the
case. Indeed, in some countries, different segments of the capital market may
be using different clearing service providers.
Various levels of membership in a clearinghouse are generally available.
General clearing members typically are authorised to clear their own
accounts as well as those of clients and members of a trading infrastructure
who have not chosen to be a clearing member as well.
2.2.2 Settlement organisations
Three main types of service providers may be involved in the settlement
process: central securities depositories, international central securities
depositories and intermediaries.
Below, we review in greater detail the characteristics of each of these three
categories of institutions involved in the settlement process.
Central Securities Depositaries (CSDs)
CSDs are institutions which are primarily set up to hold immobilised or
dematerialised securities so that the transfer of ownership between securities
holders can be efficiently achieved by book entries in electronic accounting
systems (“book-entry” settlement) instead of through the exchange of
physical certificates (“physical” settlement). In other words, through
settlement, CSDs provide the decisive link between the issuer and owner of
the security.
Settlement involves the transfer of securities, against payment if such
payment is a condition of the trade, between the accounts of the two trading
parties.
Such settlement can occur at different levels, either in the books of a CSD or
in the books of an intermediary such as a global custodian (see below).
Settlement of a specific trade at an intermediary may not always necessarily
London Economics
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Section 2 Background
involve a corresponding activity at the level of a CSD. In some cases this
settlement may be internalised by the intermediary. However, such
internalisation would not be possible if at some stage an intermediary did not
itself hold an account at the CSD at which the security being traded is
immobilised or dematerialised.
Thus, CSDs play a special role in the trading, clearing and settlement process
in that they allow settlement to take place on their books or on the books on
an intermediary when there is an account at the CSD.
Some of the comments on the previous version of this report suggested that
other major distinctive features between a CSD and an intermediary were
that a) that the latter settles in commercial bank money while the former
settles in central bank money and b) the Finality Directive applies only to
CSDs and not to intermediaries. However, we do have some reservations
regarding the use of these two features to distinguish different levels of
settlement as such distinctions may not always apply.
The precise nature of the CSDs and the range of their activities and services
differ across Europe. In some countries, the CSDs are the “public notaries”
for securities, and the entries in the names of account holders on a CSD’s
electronic accounting system (“securities settlement system”) are the
definitive record of title. In some other cases, CSDs also offer a range of
ancillary activities (corporate actions, etc) but these services are not
intrinsically part of their primary function of holding the register of
immobilised or dematerialised securities. Indeed, a number of intermediaries
offer the same range of ancillary services.8
Until now settlement of domestic securities, like trading and clearing, has
historically been organised on a national basis, with a single CSD (“national”
CSD) traditionally responsible for the settlement of securities traded on the
national exchange(s).
The owners of a security will not necessarily be a member of a CSD and many
market participants interact with a CSD through intermediaries (usually a
financial institution, such as a bank or an investment firm) or another CSD
that is a member. Government Treasuries and central banks may also be
members.
CSDs often used to operate on a utility basis but many have recently been
privatised. As noted above, they are distinct from intermediaries such as
banks or investment firms and, given the systemic importance of their
function, are often supervised by national central banks or other prudential
regulators. As already noted, some CSDs may also offer intermediary services
as well.
8 At the present time, differences in the scope of activities undertaken by CSDs in the EU are not well
documented and are the subject of on-going research.
London Economics
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Section 2 Background
International Central Securities Depositaries (ICSD)
ICSDs, i.e. Euroclear Bank and Clearstream Banking Luxembourg, are
commercial enterprises which were originally established by banks in the late
1960s to serve as the CSDs for Eurobonds, “stateless” debt instruments that
are internationally traded and which do not have a “national” CSD.
ICSDs have two activities: (1) ICSDs play the role of CSDs for the settlement
side of Eurobond transactions and (2) they also perform intermediary
activities for securities for which they are not acting as depository.
Intermediaries
Intermediaries are commercial enterprises such as custodian banks holding
customers’ securities that provide value-added services related to the
securities of their clients, including the provision of access to CSDs and/or
settlement services on their own books. (I)CSDs may also provide
intermediary services.
Unlike a CSD whose key function is to provide book-entry settlement, an
intermediary settles customers’ transactions in its own books under certain
circumstances such as if both the transferor and the recipient of the securities
happen to be its customer and then only if both customers’ positions are held
in the same account at the CSD level.
Intermediaries can also provide liquidity to their customers through credit
facilities or lend securities, activities that CSDs do not always engage in.
Since membership of numerous CSDs and ICSDs implies substantial costs,
and may be restricted, to access the many CSDs and ICSDs owners of
securities may choose to use intermediaries which have direct or indirect
membership in those entities.
Broadly speaking intermediaries fall into three categories: “agent banks” a
“global” custodians and (I)CSDs.
Agent banks or local custodians have traditionally been the preferred
intermediaries providing access to the national CSDs for foreign investors
involved in cross-border trade of equities.
Global custodians are large financial institutions active in many markets.
While they compete with ICSDs in some activities such as custody services,
they also can complement each other. For example, large custodians seek
business from institutional investors and providers of private banking
services and may use ICSDs to settle transactions in various markets. Often,
global custodians do not handle significant settlement activity -- they rely
instead on central depositories and agent banks to do this work for them.
(I)CSDs are also increasingly performing an intermediary role which is very
similar to that of the agent bank role described above, whereby the (I)CSD
links up investors with national CSDs. In these instances, the (I)CSD acts as
London Economics
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Section 2 Background
an intermediary providing access to a CSD and the national CSDs perform
the settlement (delivery and payment). (I)CSDs, when playing the role of an
intermediary, may also internalise securities trades and settle on their own
books or in the CSD, provided they have a link to the CSD.
London Economics
30 June 2005 11
Section 3 Key trends in trading and post-trading infrastructures
3 Key trends in trading and post-trading
infrastructures
3.1 Overview
A number of major trends affect the trading, clearing and settlement
infrastructures.
First, from a structural aspect, consolidation of trading and post-trading
infrastructures has proceeded at an unprecedented pace over the past few
years. While there is general consensus that this consolidation process will
continue in the near term, there is much debate about the pace as well as the
ultimate structure.
Second at the policy level, a number of initiatives are underway at the EU
level to reduce the costs of cross-border clearing and settlement, and improve
the regulatory framework for clearing and settlement.
This chapter provides a brief overview of these key trends, and discusses the
key drivers of the consolidation process and the consolidation models
currently pursued. It also reviews recent and on-going regulatory initiatives.
3.2 Consolidation trends
All three levels of infrastructures have experienced considerable
consolidation in recent years. But, this is particularly the case at the level of
the trading infrastructures and below we address some of the potential issues
that this raises.
3.2.1 Factors driving consolidation process
A number of important factors are driving the integration of European capital
markets.
First, the demand for investment has grown beyond national borders,
reflecting changes in investment patterns due to a shift towards equity
investment, pension funding requirements, and a general increase in
information levels. Demand for capital began to exceed the capabilities of
national markets, both in the context of large privatisations and of a general
shift towards equity finance for businesses. Driven by their clients, investors
and issuers alike, investment banking turned international.
Second, progress in information technology made it possible to put securities
business on an international scale. One after the other, major European stock
exchanges switched to fully electronic trading systems and closed down their
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Section 3 Key trends in trading and post-trading infrastructures
trading floors. The end of the necessity to be physically present on the
trading floor marked the start of remote participation in trading via electronic
links, first from brokers outside the seat of the exchanges and soon thereafter
from abroad.9
Third, there is a drive from traders to do more trading at lower cost which
tends to increase and concentrate liquidity at a given point.
Fourth, as part of the drive towards the Single Market, the European
Commission took through the Financial Sector Action Plan a number of
measures aimed at achieving an integrated market in financial services.
Finally, the introduction of the euro is credited for reinforcing the previous
drivers and accelerating the pace of consolidation in securities market
infrastructures.
3.2.2 Models of integration
These factors have contributed to reshape the securities market
infrastructures, whether they are exchanges, clearinghouses or settlement
organisations. Over the past few years, several mergers or alliances between
securities market infrastructures have occurred or are on-going. This
consolidation has been both vertical and horizontal in nature. While
consolidation happened, to a large extent, at the national level, a number of
significant mergers and alliances also took place at a pan-European level.
Vertical consolidation is the process of consolidating different activities which
take place at various points in the securities transaction process, such as the
integration of trading, clearing, and settlement services within a single entity
or group or entities. This model of consolidation has been followed by the
Deutsche Börse Group in Germany, the Borsa Italiana in Italy and the Bolsas
y Mercados Españoles group (BME) in Spain. 10
Horizontal consolidation includes mergers or alliances between systems
providing similar services, such as the merger of two securities settlement
systems. The Euronext Group with the merger of the French, Belgian, Dutch
and Portuguese stock exchanges has adopted this model of consolidation, for
example.11 Similarly, the Euroclear group has acquired a number of national
CSDs (Belgium, France, Netherlands, and UK) and brought them under the
same holding company as its ICSD Euroclear Bank.
9 http://www.fese.be/initiatives/wilton_park/2000/report.htm.
10 While the approaches of the Deutsche Börse group (DB), the Borsa Italiana (BI) and the Bolsas y
Mercados Españoles group (BME) are identical from an industry structure perspective, they differ
markedly from a governance point of view as both the DB and BME are publicly owned while the BI is
user-owned.
11 The Euronext group also owns LIFFE, the London-based futures market.
London Economics
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Section 3 Key trends in trading and post-trading infrastructures
Somewhere in between these two models is the OMX group that owns a
number of exchanges (Stockholm, Helsinki, Copenhagen, Tallin, Riga and
Vilnius and the CSDs in Estonia and Latvia, and a minority stake in the
Lithuanian CSD). It also owned until recently the Finnish CSD but sold the
latter to the Swedish CSD and now holds a stake in the latter which in turns
owns the Finnish CSD.
While the jury is out on which approach to consolidation, if any, will prevail
over the long run, independently of consolidation, further financial market
integration will benefit market participants. Indeed, a recent study by
London Economics12 showed that EU-wide gross domestic product could be
as much as 1.1 per cent higher if European financial markets were fully
integrated.
The consolidation process is far from complete and further structural changes
are likely. A prime example of such potential further consolidation is the
current Euronext proposal to merge with the LSE and Deutsche Börse’s recent
proposal to acquire the LSE.
Despite the fact that consolidation has proceeded at a healthy pace in recent
years, the pan-European securities market remains still fragmented within
the European Union. This fact has received considerable attention and the
fragmentation of post-trading infrastructures is viewed as a major obstacle to
cross-border trading of securities. Financial market participants, investors
and policy makers have therefore identified rationalisation of clearing and
settlement structures as a key step in delivering integrated EU capital
markets.13
3.2.3 Consolidation of trading infrastructures industry
On both sides of the Atlantic, a trend towards the concentration, either
through consolidation or through interlinking, of trading on fewer trading
infrastructures is clearly underway at the present time, mainly in response to
the high fixed costs characteristics of this activity and in search of deeper
liquidity pools which increases the attractiveness of the trading platform to
traders. The recent announcements in the USA of a proposed merger of the
NYSE with Archipelago, an electronic exchange, and the proposals in Europe
by both Deutsche Börse and Euronext to acquire the London Stock Exchange
are symptomatic of this trend.
While a number of factors militate in favour of concentrating securities
market-trading on fewer markets, such a trend does raise a number of
questions. First, in Europe, the question remains as to what the structure of
12 London Economics, Quantification of the Macro-economic Impact of Integration of EU Financial
Markets, London, November 2002.
13 http://www.epfsf.org/meetings/2003/briefings/briefing_19feb2003_more.htm.
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Section 3 Key trends in trading and post-trading infrastructures
the industry will be in the post-consolidation phase. Will it be an industry
dominated by one or two major pan-European infrastructures that capture
most of trading and are surrounded by a number of smaller, regional
exchanges? Or, will the current trend lead eventually to the consolidation of
most of the trading in Europe on one large stock market? What will be the
strategic response of medium and smaller sized stock markets that are
currently essentially focused on providing trading services in domestic
equities? Will they wish to join the general consolidation trend or will they
see a viable future in remaining independent?
In this context, the OMX approach in the Nordic and Baltic countries, and the
plans by the Vienna Stock Exchange to emulate the OMX approach in Central
and Eastern Europe are a clear indication that at least some stock market
operators see significant business opportunities in regional markets outside
of the world currently dominated by the three major stock market operators.
Also to be monitored is the medium term strategic review being undertaken
by MTS and which the press suggests could lead to a capitalistic outcome.
While the on-going consolidation gives rise to many business strategy
challenges for the medium- and smaller-size stock markets in Europe, it is
also unlikely to leave users of such trading platforms indifferent. On one
hand, deeper pools of liquidity typically result in lower implicit trading
costs14, a clear benefit to traders. But, on the other hand, the reduction in the
number of major stock markets may reduce competition among stock market
for providing trading service in specific securities. Until a few years ago,
such competition in trading of securities among stock exchanges was
practically inexistent in Europe.
However, virt-x, a UK registered stock exchange offering trading in all the
equities included in the indices of the major European stock markets, and the
trading facilities for Dutch blue chip equities offered by both Deutsch Börse
and the LSE in competition to Euronext Amsterdam are prime examples of
nascent competition among stock exchanges.
Such potential competition for trading services among stock exchanges raises
also new challenges for stock markets throughout Europe. How are they to
respond potential entry in the trading services they provide? Are they to
compete on trading fees, a relatively small cost element relative to the implicit
trading costs (which depend on the size of the liquidity pool) or on the
quality of services including those required to finalise trades such as costs
and flexibility of clearing and settlement?
In parallel to this consolidation of traditional trading infrastructures,
alternative trading systems operating alongside traditional marketplaces have
also emerged, offering advantages such as cross-border trading and lower
transaction costs.
14 Implicit trading costs are the difference between bid and ask price of a given security.
London Economics
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Section 3 Key trends in trading and post-trading infrastructures
As well, a number of intermediaries have become very active in increasingly
internalising trades.
Looking ahead, the ‘Markets in Financial Instruments Directive (MiFID)’ which
aims to level the playing field between regulated cash markets and
institutions which internalise trades in securities, may result in a shift of some
trading away from exchanges as the directive will permit the internalisation
of securities trades throughout the European Union while such
internalisation is currently permitted only in a number of Member States.
It is difficult at this juncture to forecast the precise shape of the future
securities trading industry as so many different forces are currently at play
and, in the end, its future structure will depend on the strategic responses of
all players, be they major or smaller bourses, alternative trading systems15,
and/or internalisers.
The net effect of all these trends on the overall fragmentation of trading is
also unclear at this stage as the consolidation of trading infrastructures
reduces fragmentation while greater internalisation increases fragmentation.
So far, competition in trading services among cash trading infrastructures has
resulted in pressure on prices of incumbent exchanges but not resulted in
major liquidity shifts from the home markets of the various securities to
competitor platforms. However, the potential for real competition among
major stock markets in the future was viewed as significant enough by the
OFT for it to refer the potential acquisition of the LSE by either Deutsche
Börse or Euronext to the UK Competition Commission for an in-depth
examination of its likely impact. 16
3.2.4 Implications of the trends in trading for clearing and
settlement infrastructures.
At the present time, the clearing and settlement industry in the European
Union is comprised of a few transnational service providers that serve a
number of different trading markets (equities, bonds, derivatives,
commodities, etc) in different Member States and a relatively large number of
single country service providers. These transnational groups have only
recently emerged and, in the case of settlement infrastructures, combine a
15 According to the OFT “such alternative trading systems or platforms are not regulated stock exchanges but
operate an automated system that pools buying and selling interests (according to the system operator’s rules) in
a what forms, or results in a irrevocable contract. ATSs that execute trades require post-trading services”. Such
systems and platforms include crossing systems (e.g., E-Crossnet, POSIT, Liquidnet), quote-driven
market-maker systems (e.g., CAT-OS, Tradelink), order-driven systems (e.g., Instinet) and bulletin
boards (e.g., TradeCross, WETRA).
16 See Office of Fair Trading, Anticipated acquisition by Euronext N.V. of the London Stock Exchange plc, Full
text of decision published 7 April 2005 and Anticipated acquisition by Deutsche Börse AG of the London
Stock Exchange plc, full text of decision published 7 April 2005.
London Economics
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Section 3 Key trends in trading and post-trading infrastructures
number of national CSDs with an ICSD. At the same time, ICSDs, in addition
to being the CSDs for Eurobonds, have broadened the scope of their activities
and offer services similar to those of other intermediaries such as custodians.
The trends affecting the trading infrastructures also impact on the clearing
and settlement industry. For example, in the case of the consolidation of
trading platforms which are part of broader groups that also own fully, or
have an important stake in, clearing and settlement infrastructures, the
question is whether competition in the provision of clearing and settlement
services may be foreclosed as the result of a merger between such trading
infrastructures..17
So far, there has been little active competition in the provision of clearing
services in the European Union. Nevertheless, potentially there could be
much more competition in this industry.
For a variety of reasons, trading infrastructures and, perhaps even traders,
may wish to deal with only one clearing service provider. But, the trading
infrastructure may periodically put out to tender the contract for the
provision of such services. For example, in 2003, three clearing
infrastructures, LCH, Eurex Clearing AG and the US Depository Trust and
Clearing Corporation tendered for the provision of clearing services to the
LSE. While the incumbent LCH won the contract, the LSE obtained a 25 per
cent reduction in clearing fees as a result of the competitive tendering
process.
Another model of competition is provided by the central counterparty service
jointly provided by the Italian Cassa di compensazione e garanzia (“CC&G”)
and LCH.Clearnet for trades in Italian government bonds on MTS Italy and
EuroMTS since December 2002. The CCP service is available on an optional
basis. Participants in the MTS and EuroMTS markets are not obliged to use
the services of a CCP. But if they do, they can choose between the services of
CC&G and those of LCH.Clearnet. In order to make the right of choice
effective and to allow dealers to trade among themselves independently of
the CCP chosen, the two CCPs are linked: each central counterparty is a
general clearing member of the other one. Moreover, the methods for
calculating margins and capital requirements for membership are the same
for the two CCPs.
A broadly similar example of competition among clearing infrastructures is
provided by the virt-x exchange which is served by two clearing
infrastructures18 operating respectively under UK and Swiss law. One could
17 OFT, Anticipated acquisition by Deutsche Börse AG of the London Stock Exchange plc, full text of decision
published 7 April 2005, p. 23.
18 LCH.Clearnet and SIS x-clear are the two clearing service providers. See country section on the UK for
more details.
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Section 3 Key trends in trading and post-trading infrastructures
argue that, in this specific case, traders have no real choice if they wish to
clear and settle under a specific legal regime. However, in a world of
increasing concentration of pan-European trading on a limited number of
trading infrastructures such a choice may become more valuable in the
future.
As already noted, settlement can occur either at the level of an intermediary
or directly in the books of the CSD. Some cash markets reviewed in this
report provide some competition in the provision of settlement services at the
level of an intermediary and other markets could follow suit if they so
wished.
In contrast, there exists no competition at the present time in the provision of
settlement services at the level of the CSD as, in most EU Member States,
there exists only one CSD. The core CSD activities, namely the holding of the
dematerialised or immobilised securities, are often said to be characterised by
significant economies of scale which would justify bringing all the CSD
activities together in a single national CSD.19 However, in the future one
might see perhaps the emergence of truly transnational CSDs holding
securities from issuers of more than one country and competing amongst
each other for the registration of securities.20 Such a development may be the
natural outcome of the current consolidation phase which has seen a number
of national CSDs being brought together within larger groups.
An alternative form of competition in the provision of CSD services and one
worth highlighting could be the regular tendering of the contract for the
operation of a CSD, along the lines of the tender won a few years ago by
Monte Titoli in Italy for the provision of CSD services for government
securities.
In addition to being subjected to numerous strains resulting from on-going
restructuring of the securities trading infrastructures, the clearing and
settlement industry will also be affected by greater internalisation. If
substantial, the latter may reduce markedly the volume of transactions
flowing through clearing and settlement infrastructures. This is due to the
fact that only the part of the internalised trade that cannot be settled on the
books of the intermediaries will flow to settlement infrastructures. Clearing
infrastructures will be by-passed completely as there is no need for clearing
services by the infrastructure in the case of internalised trades.
At the same time as the clearing and settlement industry adjusts to these
structural changes, the governance debate about the relative merits of user-
19 Yet, in some countries, such as for example Belgium, the Czech Republic and Poland, the register for
different types of securities is held by different organisations.
20 This does not imply that all securities held by such CSDs would be in a single register but more
practically that a single CSD holds a number of different national registers. NCSD, the combination of
the Finnish and Swedish CSDs, may a precursor to such transnational CSDs.
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Section 3 Key trends in trading and post-trading infrastructures
owned versus for-profit models is still on-going and influences the industry’s
response to the challenges it faces.
3.3 EU Initiatives
A number of initiatives have been launched in recent years at the EU level to
address the challenges posed by the barriers to efficient, cost-effective cross-
border clearing and settlement and the recent, and still on-going, wave of
structural change.
3.3.1 The Giovannini reports
In 2001, the Giovannini Group21, a group set up by the European Commission
to focus on obstacles to cross-border trading in securities, identified and
discussed a number of practical problems relating to cross-border clearing
and settlement in the EU. These difficulties include national differences in
technical requirements, differences in market practice, and problems
concerning taxation and lack of legal certainty.
More recently, the Giovanni group set out a number of actions that would
need to be taken to address the cross-border clearing and settlement issues22.
3.3.2 The Communication from DG Internal Market
In response to the second Giovanni report, the European Commission issued
a Communication in April 2004, outlining “the actions it intends to undertake
in order to improve Clearing and Settlement arrangements”23 and
subsequently set up a Clearing and Settlement Advisory and Monitoring
Expert Group (the CESAME Group) a) to monitor, evaluate and report on
progress in removing the barriers for which action by the private sector has
been considered appropriate; b) to help the Commission assess the costs and
benefits of removing the barriers and of providing an integrated environment
in the EU; on request, to advise the Commission on technical matters; d) to
support the project in the market place and among different stakeholders.24
21 The Giovannini Group, Cross-Border Clearing and Settlement Arrangements in the European Union,
Brussels, November 2001.
22 The Giovanni Group, Second Report on EU cross-border clearing and settlements arrangements, April
2003.
23 Commission of the European Communities, Communication from the Commission to the Council and
the European Parliament, Brussels 28/4/2004, COM (2004) 312 final.
24 See a) Press Communique from the Commission of the European Communities, Financial Services.
Commission sets up expert group on clearing and settlement, Brussels 16th July 2004, IP/04/935 and
Cesame Group, Synthesis report of the meeting held on 16/7/2004.
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Section 3 Key trends in trading and post-trading infrastructures
More recently, two further expert groups were set by the Commission. The
mandate of the first group, the expert group on legal certainty, is to analyse
issues of legal uncertainty relating to the integration of EU securities clearing
and settlement systems while the mandate of the second group, the expert
group on fiscal compliance issues is to advise on the removal of fiscal
compliance barriers to the clearing and settlement of cross-border securities
transactions within the EU.25
3.3.3 Regulation of the clearing and settlement activities
Efforts are currently underway at the European level to develop harmonised
standards aimed at increasing the safety, soundness and efficiency of
securities clearing and settlement activities in Europe26 and discussions are
still ongoing concerning implementation.
25 See Press Communiques from the Commission of the European Communities IP/05/123 Financial
Services: Commission sets up expert group on legal certainty issues in clearing and settlement,
Brussels 1st February 2005 and IP/05/434, Clearing and settlement: first meeting of Commission expert
group on fiscal compliance issues, Brussels 15 April 2005.
26 The European System of Central Bank and the Committee of European Securities Regulators have
formed a joint committee to make recommendations on appropriate standards and, following an
extensive consultation process, set out in October 2004 their recommendations based on a functional
approach in the report Standards for Securities Clearing and Settlement in the European Union, CESR/04-
561.
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30 June 2005 20
Section 4 Major trading platforms
4 Major trading platforms
As noted earlier, the securities exchange industry has changed dramatically
in Europe in recent years. Many exchanges have merged or formed alliances,
often crossing national boundaries. The process of consolidation of trading
platforms is generally expected to continue, bringing further benefits such as
increased market liquidity and a reduction in fragmentation across different
markets. This trend has the potential to minimise costs and problems
associated with cross-border trading in Europe.27
Since 2000, some of the largest European stock exchanges have demutualised
and gone ahead with initial public offerings (for example, the London Stock
Exchange, Euronext and the Deutsche Börse) while others remain user-
owned. The listing of stock exchanges on equity trading platforms has
enhanced their access to capital, helping them to finance the upgrade of the IT
systems and move to electronic trading systems.
The following sections provide a brief overview of the main European
trading platforms for equities and fixed-income securities.
4.1 Equity markets
The table below provides information on European stock exchanges equity
turnover as well as the share of foreign equity in total equity turnover in 2004.
The top three trading platforms (London Stock Exchange, Euronext and
Deutsche Börse) accounted for about 70% of total equity turnover in 2004 in
the 25 EU Member States. Moreover, the share of foreign equity in total
equity turnover is generally small, the major exceptions being the LSE and
virt-x.
27 McAndrews, James and Chris Stefanadis, “The Consolidation of European Stock Exchanges”, Federal
Reserve Bank of New York, Current Issues in Economics and Finance, June 2002 Volume 8, Number 6.
London Economics
30 June 2005 21
Section 4 Major trading platforms
Table 2: European stock exchanges, equity, 2004
Foreign equity as % of
Total equity turnover (€
total equity (listed equity
m)
turnover)
London Stock Exchange 4,150,660.3 36.5
Euronext 1,987,297.8 1.7
Deutsche Börse 1,237,672.5 6.6
Spanish Exchanges (BME) 963,367.8 0.9
Italian Exchange 772,960.8 5.8
Virt-X 584,889.1 63.0
OMX Stockholm Stock
371,555.5 9.1
Exchange
OMX Helsinki Stock
179,633.7 1.7
Exchange
Oslo Bors 108,410.1 17.5
OMX Copenhagen Stock
79,716.2 3.0
Exchange
SWX Swiss Exchange 48,307.3 6.1
Irish Stock Exchange 36,442.6 2.8
Athens Exchange 35,183.8 0.3
Wiener Boerse 19,400.8 2.2
Prague Stock Exchange 15,073.2 13.4
Warsaw Stock Exchange 13,147.4 4.2
Budapest Stock Exchange 10,763.0 0.1
Iceland Stock Exchange 8,317.8 0.0
Ljubljana Stock Exchange 844.2 0.0
Bratislava Stock Exchange 529.0 0.0
Luxemburg Stock
324.3 2.5
Exchange
OMX Vilnius Stock
315.9 n/a
Exchange
Cyprus Stock Exchange 194.6 n/a
Malta Stock Exchange 75.0 n/a
London Economics
30 June 2005 22
Section 4 Major trading platforms
Table 2: European stock exchanges, equity, 2004
Foreign equity as % of
Total equity turnover (€
total equity (listed equity
m)
turnover)
TOTAL 10,625,082.7 19.9
Source: Federation of European Securities Exchanges, December 2004
The following sections review in greater detail four equity-trading platforms,
namely the London Stock Exchange, Euronext, Deutsche Börse and OMX
which have pursued different consolidation strategies. The LSE so far has
remained independent, Euronext has opted for pan-European horizontal
consolidation and Deutsche Börse has pursued vertical consolidation.
Finally, OMX has chosen horizontal consolidation at the regional level
(among Nordic and Baltic countries).
4.1.1 London Stock Exchange (LSE)
The LSE is, by far, Europe’s largest stock exchange. And, unlike its key
European competitors, so far the LSE has not participated in the consolidation
process. While mergers and alliances have been discussed -- with Deutsche
Börse and Euronext in particular -- they have not yet materialised as of March
2005.
This is not to say that the LSE has not gone through important changes. It
demutualised in 2000 and listed its shares on its main market in 2001.
Furthermore, in 2001, the LSE launched a central counterparty service for
trades executed on its electronic order book (SETS). The service was
developed in conjunction with the London Clearing House (LCH) and
CrestCo, the UK settlement organisation that is now part of the Euroclear
Group.
The LSE is the only large European stock exchange without any ownership
link with either a clearing or settlement organisation. In 2004, the LSE put out
to tender the provision of clearing services and LCH.Clearnet, the incumbent,
was re-appointed to provide clearing services for key securities trading
services offered by the LSE. Equity trades on the LSE cleared by
LCH.Clearnet can be settled either directly in CRESTCo, which holds the
register of these securities, or indirectly through Euroclear Bank.
4.1.2 Euronext
Euronext NV a holding company incorporated under Dutch Law that
operates through local subsidiaries was formed on 22 September 2000 when
the exchanges of Amsterdam (Amsterdam Exchanges), Brussels (Brussels
London Economics
30 June 2005 23
Section 4 Major trading platforms
Exchanges) and Paris (Paris Bourse) merged. On 5 July 2001, 24.86% of
Euronext NV’s capital was the subject of an IPO. Since then, Euronext NV
shares have been listed on the Premier Marché of the Euronext Paris
exchange and traded, but not listed, in Brussels and Amsterdam.
At the beginning of 2002, the Euronext group acquired the London
International Financial Futures and Options Exchange (LIFFE) and merged
with the Portuguese exchange Borsa de Valores de Lisboa e Porto (BVLP).
Euronext.liffe, which is not part of this study, is the international derivative
business of Euronext, comprising derivative markets in Amsterdam, Brussels,
Lisbon, London and Paris. 28
Euronext NV fully owns the exchange organisations in Amsterdam, Brussels,
Lisbon, London and Paris, which in turn hold the regulatory licenses to
operate the local cash and derivative markets. The national regulators
responsible for overseeing Euronext NV and it subsidiaries, i.e. the Autorité
des Marchés Financiers, the Commission Bancaire Financière et des
Assurances, the Autoriteit Financiële Markten, the Comissão do Mercado de
Valores Mobiliários and the Financial Services Authority (for the derivative
markets) have signed a Memorandum of Understanding in order to
coordinate the supervision and regulation of Euronext’s markets activities
and the associated regulated markets it operates.
Euronext also owns a 24.9% in LCH-Clearnet in the form of ordinary shares
and 16.6% Redeemable Convertible Preference Shares (RCPS) which are
intended to be redeemed or converted in ordinary shares and to be sold in the
coming years. While full legal and beneficial ownership of the Preference
Shares remain with Euronext for so long as it holds these shares, the voting
rights attached to these shares are vested in an independent third party.
Euronext NV’s direct shareholding in Euroclear plc is 2.43%. In addition to
that Sicovam Holding holds 13.1% of Euroclear plc. Sicovam Holding is
partly owned by Euronext Paris SA which is 100% owned by Euronext NV.
A highly noteworthy development is the fact that Euronext has implemented
a uniform IT trading platform and adopted membership rules which, from a
trader’s perspective, have unified the four markets.29 Once a person
(individual or corporate entity) has been admitted by a Euronext market
undertaking as a member, such a person is entitled to trade on all Euronext
markets provided that the member has activated a European passport (under
28 As of March 2005, Euronext also owns CIK S.A./N.V., the Belgian CSD. However, in October 2004
Euronext and Euroclear announced that the Euroclear group would acquire CIK S.A./ N.V. from the
Euronext group in the first half of 2005.
29 This platform, NSC, is licensed by Atos Euronext, and used by some 14 exchanges around the world.
NSC is an electronic platform that supports Euronext trading activity on the Paris, Brussels,
Amsterdam and Lisbon cash markets, and complies with the Euronext market model (Order-driven
market with an electronic central order book, automatic order matching, execution of different type of
orders and full anonymity for orders and trade) as it is fully automated.
London Economics
30 June 2005 24
Section 4 Major trading platforms
the ISD) and submitted evidence, to the Euronext market undertaking used to
become a member, that valid clearing agreements are in place for each of the
markets the member wishes to trade on (either by being a clearing member
itself or having in place an agreement with a clearing member).
A single connection is sufficient to access all markets but members have
access through this single connection to only the markets for which they have
valid clearing agreements in place.
While the four markets have harmonised admission and trading rules, and
effectively function as a single market, from a regulatory point of view they
remain separate markets supervised by the respective national authorities.
Moreover, in accordance with the national laws, listed companies are subject
to the local listing requirements at the local location via which they enter
Euronext.
4.1.3 Deutsche Börse
Deutsche Börse provides a securities exchange platform through the
Frankfurt Stock Exchange, bonds trading through Eurex Bonds GmbH, a repo
platform Eurex Repo GmbH and derivatives trading on the Eurex market (the
world's largest), market information with the DAX index and the STOXX
index (33%-owned). It co-owns the Eurex futures market with the Swiss
Exchange, and has developed the electronic trading platform Xetra, which it
licenses to other exchanges, including the Vienna Exchange.30
Deutsche Börse is an example of vertical integration whereby a single
organisation has an ownership stake in trading, clearing and settlement.
Through its various organisations, Deutche Börse covers the entire process
from order input to custody of shares. For instance31:
Ÿ Trading -- The cash market of Deutsche Börse encompasses the Xetra®
platform and floor trading at FWB® Frankfurter Wertpapierbörse
(Frankfurt Stock Exchange). Shares, warrants and bonds are traded on
the cash market.
Ÿ Clearing -- CCP services for securities traded on the Deutsche Börse are
provided by Eurex Clearing AG32.
Ÿ Settlement --The Deustche Börse group owns Clearstream Banking AG,
the only currently recognised Wertpapiersammelbank (CSD) in Germany,
30 http://deutsche-boerse.com
31 http://deutsche-boerse.com
32 See section 16.2 for details of ownership structure.
London Economics
30 June 2005 25
Section 4 Major trading platforms
LuxClear, the Luxembourg CSD, and Clearstream Banking Luxembourg.,
one of the two ICSDs for Eurobonds.
The kind of structure adopted by Deutsche Börse group is said by the group
to make it easier to offer “straight-through processing” -- i.e. the mechanism
whereby once a transaction has entered the process it goes through the rest of
the process without requiring further interventions.
4.1.4 OMX group
In Northern Europe, the OMX group (OMX AG (publ).) owns, through its
division OMX Exchanges, securities exchanges in Stockholm, Helsinki,
Copenhagen, Tallinn, Riga and Vilnius, a stake in the Swedish CSD (which in
turn fully owns the Finnish CSD), the CSDs in Estonia and Latvia, a minority
stake in the Lithuanian CSD and a CCP for derivatives in Stockholm.33
As in the case of Euronext a single IT platform has been adopted. In fact, all
the OMX stock exchanges are part of the NOREX Exchange Cooperation
which also includes the Oslo Börs and the Iceland Stock Exchange. All
NOREX exchanges have adopted the same membership rules and trading
takes place on the same technical platform, SAXESS under identical rules.
However, the various securities exchanges remain separate markets at the
present time and a person (individual or corporate entity) wishing to trade on
a number of NOREX markets needs to become a member of each. That being
said, simplified admission procedures are in place for those who are already a
member of one of the NOREX markets. Once admission to trade on several
markets has been obtained, it is possible to trade on all these markets
seamlessly in a single trading session.
According to OMX, the integration approach described above reduces the
costs of infrastructure for members, and increases the legal and practical
certainty in respect of trading for all members.
4.2 Fixed-income market
4.2.1 Government bonds
There are two ways in which bonds are negotiated in the secondary market.
The traditional way is through an organized exchange where trading has
been fairly low. The second way is through the OTC market in which the
main players are banks, most of them also participating in the primary
auctions.
33 The second division of the OMX group, OMX Technology, offers several trading systems for
marketplace operators and offers outsourcing services.
London Economics
30 June 2005 26
Section 4 Major trading platforms
MTS
Of particular interest for the government bond market is the MTS (Mercato
dei Titoli di Stato) system, which gained considerable market share since its
creation in 1988 by the Bank of Italy and the Italian Treasury to enhance
trading in the secondary market for Italian government bonds.
MTS was modified in 1994 to improve market depth and activity, creating the
basis of the current MTS trading system which was privatised in 1998. In
1999, the EuroMTS system was launched to trade European government
benchmark bonds as well as high quality non-government bonds covered by
either mortgages or public state loans.
In 2001, EuroMTS and MTS merged and became the largest inter-dealer
market for Euro-denominated government bonds. MTS is a regulated market
in Italy.
Since the end of the 1990s, the MTS system has expanded to other Euro-
denominated markets and is now operational as MTS Finland, MTS Ireland,
MTS Belgium, MTS Amsterdam, MTS Deutschland, MTS France, MTS
Portugal, MTS Espana, MTS Poland, MTS Denmark, MTS Austrian,
EuroCredit MTS, New EuroMTS, EuroBenchmark Treasury Bills Market,
EuroMTS Linkers Market, MTS Cedulas Market, MTS Quasi-Government
Market, MTS Greek Market and BondVision, the multi-dealer-to-client
electronic bond trading market.
Only Government bonds and bills are traded on the national MTS platforms.
The participants in the MTS trading platform are mainly investment banks --
not only large institutions but smaller firms as well, particularly in Italy
where there is a large number of small regional banks.
Clearing and Settlement in MTS markets
Although the MTS group jointly controls the various MTS markets across
Europe, clearing and settlement arrangements in these markets vary across
countries.
LCH.Clearnet provides clearing services to EuroMTS,MTS France, MTS
Belgium, MTS Amsterdam, MTS Associated Markets and MTS Deutschland.
Cassa di Compensazione e Garanzia and LCH.Clearnet jointly provide for the
central counterparty service for Italian bonds on the MTS Italy and EuroMTS.
Trades in Austrian, Dutch, German, Finnish, Irish and Portuguese
government bonds and in quasi-government bonds are settled either by
Clearstream Banking Luxembourg or Euroclear Bank while settlement
services for trades in Belgian, Danish, French, Greek, Italian, Spanish
government bonds are provided respectively by National Bank of Belgium,
VP, Euroclear France, Bank of Greece, Monte Titoli S.p.A, Iberclear.
London Economics
30 June 2005 27
Section 4 Major trading platforms
4.2.2 Corporate bonds
Major financial institutions dominate trading in corporate bonds and their
participation has been growing. Almost all secondary bond trading in
Europe takes place over the counter and particularly in recent years, over
various electronic platforms. While some active bonds are quoted on
exchanges these are very much the exception rather than the rule.
The non-electronic secondary market for corporate bonds resembles the way
equities were traded several decades ago. The recent development of MTS
has tended to create a central market place for a limited number of blue-chip
corporate bonds.
Overall, however, the volume of secondary market trading of corporate
bonds is small compared to trading volumes in equity and government bonds
as most investors tend to hold corporate bonds to maturity after an initial
flurry of trading activity around issue time.
While Eurobond trades are typically settled in the books of one of the two
ICSDs, trades in domestic corporate bonds will be settled either in the books
of the CSD holding the register of these bonds or indirectly in the books of an
intermediary.
London Economics
30 June 2005 28
Section 5 Major European clearing institutions
5 Major European clearing institutions
There are two major pan-European providers of clearing and central
counterparty services in Europe: LCH.Clearnet and Eurex Clearing which is
part of the vertically integrated trading structure operated by the Deutsche
Börse Group. In addition to these large providers, there are a number of
smaller, largely national, ones such as MEFFClear in Spain and Cassa di
Compensazione e Garanzia S.p.A. (“CC&G”) in Italy.
Below we list the providers of central counterparty services on the cash
equity and bond markets in the European Union.
Table 3: CCPs on cash equity and bond markets in EU Member States
Country Name
Central Counterparty Autria GmbH for cash trades on
Austria
Vienna Stock Exchange
Belgium LCH.Clearnet S.A. for cash trades on Euronext
Cyprus No CCP
Czech Republic No CCP
Denmark No CCP
Estonia No CCP
Finland No CCP
France LCH.Clearnet S.A. for cash trades on Euronext
Eurex Clearing for cash trades on Frankfurt Stock Exchange
Germany
(XETRA)
Greece No CCP
Hungary No CCP
Ireland No CCP
Cassa di Compensazione e Garanzia S.p.A. for cash trades on
Italy Borsa Italiana
Cassa di Compensazione e Granzia S.p.A. or LCH.Clearnet
London Economics
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Section 5 Major European clearing institutions
Table 3: CCPs on cash equity and bond markets in EU Member States
Country Name
for cash trades on MTS Italy or EuroMTS
Latvia No CCP
Lithuania No CCP
Luxembourg No CCP
Malta No CCP
Netherlands LCH.Clearnet S.A. for cash trades on Euronext
Poland No CCP
Portugal LCH.Clearnet S.A. for cash trades on Euronext
Slovakia No CCP
Slovenia No CCP
Spain MEFFClear for repo trades on SENAF
Sweden No CCP
LCH.Clearnet Ltd. for cash trades on LSE SETS, SETSmm,
SEAQ and SEAQ International
United Kingdom
LCH.Clearnet Ltd. or SIS x-clear for cash trades on virt-x
5.1 LCH.Clearnet
Following the merger of the French, Belgian and Dutch clearing houses,
Clearnet SA became, in February 2001, the sole clearing house and central
counterparty for markets operated by Euronext34. Subsequently, in December
2003, Clearnet SA merged with London Clearing House (LCH), UK’s largest,
member-owned clearing house to become LCH.Clearnet.
34 In November 2003, Clearnet SA also became the sole clearer for the Lisbon cash market which joined
Euronext in 2002.
London Economics
25 May 2005 30
Section 5 Major European clearing institutions
5.1.1 Corporate structure and regulatory supervision
Following the merger, LCH.Clearnet Limited (formerly London Clearing
House) and LCH.Clearnet SA (formerly Clearnet SA) became subsidiaries of
LCH.Clearnet Group Limited, a financial holding company established in the
United Kingdom.
As a financial holding company, LCH.Clearnet Group Limited is supervised
on a consolidated basis by the French Commission Bancaire. As a Recognised
Clearing House in the UK, LCH.Clearnet Limited is supervised by the UK
Financial Services Authority while LCH.Clearnet SA is regulated as a credit
institution under French law. LCH.Clearnet SA has also branches in
Amsterdam and in Brussels.
At the time of the merger, the two parties indicated their intention to
maintain independence through the ownership structure and the
implementation of voting caps. For instance, the merger agreement provides
that 45.1% of LCH.Clearnet SA is owned by exchanges and 45.1% by
members, with the 9.8% balance held by Euroclear. Euronext remains the
largest shareholder with a 41.5% stake, although its voting rights are limited
to 24.9%.
While historically LCH operated on a co-operative model and paid its
surpluses as rebates to its users rather than as dividends to shareholders, it
more recently operated as a commercial entity. Clearnet SA was controlled
by Euronext and operated on a for-profit basis. LCH.Clearnet is also
operating on a for-profit basis. In addition to providing ownership and
governance rights for users and trading platforms, LCH.Clearnet also
operates under the principle of non-discrimination across its customer base.
Although the two operating companies -- LCH.Clearnet Limited and
LCH.Clearnet SA -- remain separate for legal and regulatory purposes, they
are generally managed as a single entity.
5.1.2 Products and markets
LCH.Clearnet provides clearing and CCP services to the following cash
markets
Equities
• Euronext: LCH.Clearnet SA is the sole provider of clearing and CCP
services to the markets operated by Euronext (Amsterdam. Brussels,
Lisbon and Paris exchanges).
• London Stock Exchange: LCH.Clearnet Limited provides a clearing
and CCP service to the electronic SETS order book operated by the
London Stock Exchange.
London Economics
25 May 2005 31
Section 5 Major European clearing institutions
• virt-x: LCH.Clearnet provides clearing and CCP services on this pan-
European exchange owned by SWX.35
Fixed Income
• LCH.Clearnet provides clearing services to EuroMTs, MTS France,
MTS Italy, MTS Belgium, MTS Amsterdam, MTS Associated Markets
and MTS Deutschland.
LCH-Clearnet is also active in other markets such as derivatives
(Euronext.liffe) and a number of other areas (LME, IPE, EDX, OTC energy
contracts traded via voice brokers…).
5.2 Eurex Clearing
5.2.1 Corporate structure
Eurex Clearing AG is a wholly owned subsidiary of Eurex Frankfurt AG,
founded in June 1998 under German law and registered in Frankfurt/Main.
Eurex Frankfurt AG is a wholly owned subsidiary of Eurex Zürich AG, half
of which is owned by Deutsche Börse AG and half by the Swiss Stock
Exchange.
5.2.2 Products and markets
Eurex Clearing AG is the central counterparty for bonds traded on Eurex
Bonds GmbH (since October 2000) and for on-exchange trades executed on
either Xetra or the floor of the Frankfurt Stock Exchange in equities that are
subject to collective safe custody, denominated in euro and listed on Xetra
(since March 2003). A precise list of the various instruments that are cleared
by Eurex Clearing A.G. is provided in the country section on Germany.
For business reasons, the other German stock markets have not yet migrated
to a central counterparty arrangement. They are of the view that the expense
of involving a CCP in the settlement structure of their trading system would
currently outweigh any benefit to their customers.
35 SIS-x-clear AG provides similar CCP services to virt-x.
London Economics
25 May 2005 32
Section 6 Major European settlement institutions
6 Major European settlement institutions
In this section, we provide a brief overview of two main groups involved in
settlement, namely the Clearstream group and the Euroclear group. Both
groups own CSDS and an ICSD. We also briefly review NCSD, the Nordic
group operating the Finnish and Swedish CSDs.
But, first, we provide for information the list of all CSDs in the European
Union. These CSDs are presented in greater detail in the country sections in
the second part of the report.
Table 4: CSDs in EU Member States
Country Name
Austria Oesterreichische Kontrollbank Aktiengesellschaft (OeKB)
Belgium CIK S.A./N.V.
Cyprus CSE
Czech Republic CSP and Unyvic
Denmark VP A/S
Estonia ECSD
Finland APK, part of NCSD
France Euroclear France
Germany Clearstream Banking Frankfurt
Greece Central Securities Depositary S.A. (CSD)
Hungary Keler
Ireland CRESTCo Limited
Italy Monte Titoli spa
Latvia LCD
Lithuania LCVPD
London Economics
30 June 2005
33
Section 6 Major European settlement institutions
Table 4: CSDs in EU Member States
Country Name
Luxembourg LuxClear
Malta MSE
Netherlands Euroclear Nederland
Poland KDPW
Interbolsa-Sociedade Gestora de Sistemas de Liquidação e de
Portugal
Sistemas Centralizados de Valores Mobiliários, S.A.
Slovakia CDCP SR
Slovenia KDD
Spain IBERCLEAR
Sweden VPC part of NCSD
United Kingdom CRESTCo Limited
6.1 The Clearstream group
The Clearstream group, part of the Deutsche Börse Group, owns the national
CSDs of Germany and Luxembourg, and the ICSD Clearstream Banking
Luxembourg.
6.1.1 Corporate structure and services
Clearstream International is the group’s holding company which is
incorporated in Luxembourg.
It was formed in January 2000 through the merger of Cedel International (the
Luxembourg-based ICSD) and Clearstream Banking Frankfurt (the German
CSD). Deutsche Börse initially held a 50% stake in Clearstream International,
but acquired Cedel’s 50% stake on 11 July 2002.
Clearstream International, owns three main subsidiaries, namely:
London Economics
30 June 2005
34
Section 6 Major European settlement institutions
Ÿ An ICSD, Clearstream Banking Luxembourg (CBL) which is one of the
two ICSDs for Eurobonds and provides settlement services for these
bonds.
As noted earlier in the report, ICSDs are also increasingly providing
intermediary services, and, in that role, CBL also offers access to national
CSDs, custody services, banking and securities financing (which includes
providing liquidity and financing counter parties for their settlement
needs; arranging securities financing services; and providing collateral
management services).
Ÿ The German CSD, Clearstream Banking Frankfurt (CBF) which has taken
over the business of the former Deutsche Börse Clearing and continues to
operate under German law as a bank. At the present time, it is the only
CSD in Germany. It safekeeps the German securities and provides
settlement services for German securities trades executed on the German
stock exchanges;
Ÿ The Luxembourg CSD, LuxClear which holds the register of Luxembourg
securities and provides settlement services for Luxembourg securities
trades executed on the Luxembourg stock exchange.
The most important source of revenue for Clearstream is custody services.
Indeed, according to Deutsche Börse 2002 Annual Report, custody services
accounted for 46 per cent of Clearstream revenue, followed by clearing and
settlement services (30 per cent) and banking and securities financing (24 per
cent).
6.1.2 Prudential supervision and oversight
CBL is a duly licensed credit institution incorporated under Luxembourg law
and both CBL and LuxClear are supervised by the Luxembourg “Commission
de Supervision du Secteur Financier” (CSSF).
CBF is supervised by the relevant German authorities.
6.2 The Euroclear group
As of March 2005, the Euroclear group is comprised of the national CSDs in
France, Netherlands and the United Kingdom, and the ICSD Euroclear
Bank.36
36 As noted earlier, the Euroclear group also plans to acquire the Belgian CSD, CIK S.A./N.V., from
Euronext in the first half of 2005.
London Economics
30 June 2005
35
Section 6 Major European settlement institutions
6.2.1 Corporate structure
Since January 2005, Euroclear S.A./N.V. is the holding company owning the
national CSDs and the ICSD.
Euroclear S.A./N.V. itself is owned by Euroclear plc, a company organised
under the laws of England and Wales. The shareholders of Euroclear plc are
former shareholders of some of the merged companies, including Euronext,
and users of Euroclear services.
The 2005 restructuring of the group implemented a separation between
Euroclear Bank S.A./N.V. and the national CSDs owned by the Euroclear
group whereas previously Euroclear Bank S.A./N.V. owned the national
CSDs. They are now sister companies, all held at the same level (see Figure
2).
According to the Euroclear group, the new structure is intended to provide a
more formalised transparency on the cost allocations relating to the Single
Settlement Engine and other shared services across the various CSDs and the
ICSD of the Euroclear group. The group also committed itself to commission
an annual independent auditor report on Euroclear’s compliance with OECD
transfer-pricing principles relating to cost allocations and attesting that the
Euroclear group entities are applying these principles in all material aspects.
London Economics
30 June 2005
36
Section 6 Major European settlement institutions
Figure 1: Euroclear Group –1st January 2005
Source: www.euroclear.com
6.2.2 Services
The following services are provided by various parts of the Euroclear group:
Ÿ Euroclear Bank, one of the two ICSDs for Eurobonds, provides settlement
services for these bonds.
As noted earlier in the report, the two ICSDs are also increasingly
providing intermediary services, and, in that role, Euroclear Bank offers
custodian services such as securities settlement services in its own books
and custody services, and acts as an intermediary providing access to
national CSDs (whether owned or not by Euroclear S.A/N.V.). As a
limited purpose bank, Euroclear Bank also provides system participants
with banking services in relation to settlement activity, including credit,
securities lending and borrowing as well as collateral management
services.
London Economics
30 June 2005
37
Section 6 Major European settlement institutions
Ÿ Euroclear France is the French CSD holding the register of French
securities and provides settlement services for trades in French securities.
Ÿ Eurclear Nederland is the Dutch CSD holding the register of Dutch
securities and provides settlement services for trades in Dutch equities.
Ÿ CrestCo is the UK CSD holding the register of UK and Irish securities, and
provides settlement services in such securities.
Since December 2000, Euroclear has also assumed responsibility for the
settlement of Irish government bonds (Gilts) following the decision of the
Irish government and the Central Bank of Ireland to delegate this activity to
Euroclear.
6.2.3 Oversight and prudential supervision
Euroclear plc (see below) is authorised as a service company by the Financial
Services Authority in the United Kingdom while Euroclear S.A./N.V. and
Euroclear Bank are subject to the supervision of the Belgian Banking and
Finance and Insurance Commission (BFIC).37
The national CSDs owned by the Euroclear group are supervised by their
respective financial regulators. However, in order to take account of the
ongoing consolidation process, a cooperative oversight framework based on
Memoranda of Understanding (MoU) between interested authorities was
created. The international cooperation, which is based on the lead oversight
and lead supervision principle, currently involves relevant authorities from
France, the Netherlands, Belgium, UK and Ireland. The cooperation
agreements aim at allowing each authority to implement its own
competencies, promote the efficiency of the controls through a homogeneous
approach and streamline the requirements to Euroclear avoiding
redundancies.
6.3 NCSD
The Swedish CSD (VPC AB) which owns the Finnish CSD (APK) operates the
the two CSDs under the NCSD brand. It came into existence when on 30th
November 2004, VPC AB became the sole owner of the previously OMX-
owned Finnish. At the present time, the OMX group owns about 20% of VPC
AB but intends to reduce this stake over time. According to NCSD, the new
group represents approximately 64% of equity-related transactions in the
Nordic market.
37 As noted earlier, the European System of Central Banks (ECSB) and Committee of European Securities
Regulators (CESR) are currently working on the development of clearing and settlement standards.
These would apply to Euroclear as well as other significant providers of settlement services in Europe.
London Economics
30 June 2005
38
Section 7 Overview
PART II – National Infrastructures
7 Overview
In each of the country reports we provide an overview of the national trading,
clearing and settlement infrastructures, review access conditions to these
infrastructures and determine whether users of national trading
infrastructures are required to use specific clearing and settlement
infrastructures.
The nature and depth of the information varies across countries, depending
on the availability of information on trading, clearing and settlement
arrangements.
London Economics
30 June 2005 39
Section 8 Austria
8 Austria
8.1 Trading
The Vienna Stock Exchange/ Wiener Börse is the only securities exchange
and listing authority in Austria and offers, in addition to the traditional cash
market (equity market, bond market), a derivatives market (otob market) and
warrants market.
All trading on Wiener Börse is conducted through the fully electronically
trading systems, Xetra® (cash market) and OMex® (derivatives, warrants).
Trades at the Vienna Stock Exchange are cleared and settled pursuant to
separate rules and regulations of the Vienna Stock Exchange
(“Arrangementordnung”).
In 2004 the Vienna Stock Exchange, together with the Oesterreichische
Kontrollbank Aktiengesellschaft, Raiffeisen Zentralbank Österreich, Erste
Bank der oesterreichischen Sparkassen and HVB Bank Hungary acquired
joint control of both the Budapest Stock Exchange (BSE) and the Budapest
Commodity Exchange (BCE) as well as KELER, in which the Hungarian
National Bank has a majority holding and which is the Hungarian clearing
house and depository for the BSE
8.2 Clearing and settlement
All securities traded on the cash market are cleared and settled under the
clearing and settlement system of the Wiener Börse AG. Oesterreichische
Kontrollbank (OeKB)38 is responsible for the settlement of all trades and
provides clearing services for the equity market segment. It acts as a clearing
agency for the so-called “Arrangement”, the clearing system performing
functions like netting, organising default management and collateral
management but OeKB does not take over any risks in the sense of a CCP.
Since 1st January 2005, a CCP, the Central Counterparty Austria GmbH, has
been operational on the Vienna Stock Exchange. The CCP is jointly owned by
the Vienna Stock Exchange (50%) and the Oesterreichische Kontrollbank
(50%).
On the derivatives market, the Wiener Börse is a neutral clearing agent and
enters into every contract as a counter party. The Wiener Börse guarantees
38 The Oesterreichische Kontrollbank (OeKB) is a specialised financial institution owned by the Austrian
commercial banks.
London Economics
30 June 2005 40
Section 8 Austria
the fulfilment of the contracts under a system requiring the deposit of
security (margins) by the participating institutions.
8.3 CSD
Oesterreichische Kontrollbank AG (OeKB) acts as an Austrian Central
Securities Depository (CSD). It operates the Wertpapiersammelbank (WSB),
which is the only domestic system providing a trade matching service for
securities settled in the WSB. The rules and procedures governing the rights
and obligations of participants and the duties of the WSB are laid down in the
business terms of the WSB.
However, trades at the Vienna Stock Exchange are settled pursuant to
separate rules and regulations of the Vienna Stock Exchange
(“Arrangementordnung”).
8.4 Access
The access and exit criteria for participating in the WSB are part of the WSB’s
terms of business and the clearing rules and regulations of the Vienna Stock
Exchange (“Arrangementordnung”). All participants are subject to the same
rules and procedures.
Credit and other financial institutions as defined by the EU Investment
Services Directive, brokers at the Vienna Stock Exchange, foreign CSDs and
clearing institutions can become participants in the WSB. Applicants have to
provide a written application stating their business intentions and expected
volumes, and a copy of their latest annual report. They are also required to
be subject to the financial supervision within their home country.
All institutions, which fulfil the preconditions listed in Art 5 of the Austrian
Banking Act, are entitled to such a license issued by the FMA (i.e. license to
undertake banking transactions). Thus all institutions, which are in
possession of such a license, can undertake the business of administration
and the keeping of securities. When doing so, the Austrian Securities Deposit
Act has to be also complied with.
The Austrian Securities Deposit Act provides for a custodian to either be in
possession of the above-mentioned license or a special empowerment by the
Austrian legislator (Art 1 para 2). Further Art 1 para 3 empowers the
Minister of Finance to issue a special regulation on the set up of an institution,
which on the one hand acts as Austrian Central Securities Depositary for all
Austrian banks and on the other hand also provides all kinds of clearing and
settlement services (like all other Austrian custodians). This function is
currently exercised by the OeKB.
The Austrian Financial Market Authority is empowered to supervise the
custodian’s compliance with the Austrian Banking Act and Austrian
Securities Deposit Act.
London Economics
30 June 2005 41
Section 8 Austria
8.5 Vertical arrangements between infrastructures
By decree of the Ministry of Justice (April 9, 1965) OeKB is authorised to act
as the sole Austrian CSD.
London Economics
30 June 2005 42
Section 9 Belgium
9 Belgium
9.1 Trading
Euronext Brussels
The various market segments of Euronext Brussels are listed and described
below.
Table 5: Overview of Euronext Brussels Markets
Exchanges Types of securities Operated by
Primary market1 Shares, bonds, loans, Euronext Brussels
rightsmarket1
Secondary market Real estate certificates Euronext Brussels
Euro.NM Belgium Growth companies Euronext Brussels
Trading Facility Financial instruments Euronext Brussels
already negotiated on
another market
BXS Derivatives2 Derivatives market Euronext Brussels
NOTE: (1) Most securities are traded on that market. (2) Formerly Belfox (Belgium Futures and Options
Exchange)
In addition to the five regulated markets listed in the table above (four cash
markets – First Market, Second Market, New Market and Trading Facility -
and one derivatives market), Euronext Brussels operates a non-regulated
market -- The Public Auction market -- where members trade securities that
are not listed on any other Euronext Brussels market and the Free Market.
Euronext Brussels S.A./N.V. is a wholly owned subsidiary of Euronext N.V.,
a holding company governed by Dutch law. Euronext Brussels is a sister
corporation of Euronext Paris, Euronext Amsterdam, Euronext Lisbon and
LIFFE.
Off-exchange market
There is also a regulated off-exchange market for linear bonds, strips and
Treasury certificates (established by the Royal Decree of 22 December 1995).
The majority of the secondary market transactions are OTC transactions.
London Economics
30 June 2005 43
Section 9 Belgium
Euro MTS and MTS Belgium
Since 1999, some Belgian long-term dematerialised public debt instruments
have been traded on Euro-MTS.
MTS Belgium, established in May 2000, serves the domestic government bond
market.
9.1.1 Access
Euronext Brussels
To become a member of Euronext Brussels, access to regulated and electronic
markets is subject to three main types of requirements: intermediary’s
authorisation status, general conditions for access to the Euronext markets
and technical conditions set by individual exchanges or systems.
The Euronext Rule Book39 governing the contractual relationship between
Euronext exchanges and trading members specifies under “Requirements for
Euronext Securities Membership” that:
“2501 Any Euronext Securities Member wishing to trade on the Euronext
Securities Markets must be a party to a Clearing Agreement in respect of those
Securities which he is authorised to trade but which he is not authorised to
clear.
2502 The Clearing Agreement entered into pursuant to Rule 2501 shall
comply with any requirements imposed by or pursuant to the Clearing Rule
Book.
4601 Transactions executed on a Euronext Securities Market shall be cleared
in accordance with the rules and procedures set forth in the Clearing Rule
Book, and settlement shall be arranged through the settlement organisations
designated by Euronext”40
A Clearing Member is defined as:
“Any Person authorised by the Clearing House to clear Transactions in
accordance with the relevant provisions of the Clearing Rule Book“41.
A Clearing House is defined as:
“LCH.Clearnet Limited or LCH.Clearnet S.A. as the case may be “42.
39 The Euronext Brussels Rule Book has been formally established by the Euronext Brussels Managing
Board and has been approved by the Belgian Minister of Finance, on the advice of the Banking,
Financial and Insurance Commission. It comprises both harmonised rules such as membership,
trading and enforcement rules as well local rules. The Banking,Financial and Insurance Commission is
the regulator for Euronext Brussels.
40 Euronext Rules – Book I issued 26 November 2004 pp. 24, 44 and 45.
41 Euronext Rules – Book I issued 26 November 2004 p.6
London Economics
30 June 2005 44
Section 9 Belgium
So, it appears that there is a contractual obligation imposed on Euronext
Brussels trading members to clear transactions with a clearing house, which
for the time being is LCH.Clearnet SA in the case of securities transactions
executed on Euronext Brussels43.
Off-exchange market
Members of the regulated off-exchange market are investment undertakings
and credit institutions governed by Belgian law, subsidiaries established in
Belgium of undertakings and credit institutions governed by the law of
another country, primary dealers in securities of the Belgian Treasury and
such investment undertakings and credit institutions governed by the law of
another country that have applied to be members.
9.2 Clearing
LCH.Clearnet SA operates as the CCP for trades concluded on Euronext
Brussels but has the status of a French credit institution. It is not considered
as a Belgian institution or system.
LCH.Clearnet also clears trades concluded on MTS Belgium.
LCH.Clearnet is the only provider of clearing services for Euronext Brussels.
However, provided certain prudential requirements are met, any
organisation can be recognised as a clearing institution under the Law of 2nd
August 2002 concerning the supervision of the financial sector and financial
services.
NBB SSS, the other clearing organisation, is fully owned and operated by the
National Bank of Belgium.
NBB SSS clears transactions on book-entry transfers of bearer securities. It
does not act as CPP and is primarily used for Belgian Government securities:
linear bonds, Treasury certificates, Belgian treasury bills, bearer bonds issued
by the Belgian State and strips of linear bonds. It also settles transactions on
treasury bills and certificates of deposits issued by private firms and credit
institutions44.
42 Euronext Rules – Book I issued 26 November 2004 p.6
43 The same contractual obligation to clear transactions with LCH.Clearnet SA is imposed on trading
members of Euronext Paris, Euronext Amsterdam and Euronext Lisbon.
44 National Bank of Belgium, Securities Clearing System of the National Bank of Belgium: Disclosure
Framework Report on the basis of the questionnaire published by the CPSS(BIS) and IOSCO. May
2000.
London Economics
30 June 2005 45
Section 9 Belgium
9.2.1 Access
LCH.Clearnet S.A.
As regards conditions for access, LCH.Clearnet SA selects its clearing
members on the basis of regulatory and financial criteria. Applicants must
meet capital requirements, which vary according to the activity segment
concerned.
The LCH.Clearnet SA Clearing Rule Book -- Title III Local Provisions for
Belgian Clearing Members45 states in Article 3.4.1.1. that:
“Each Clearing member clearing Securities and warrants shall open directly or
indirectly, pursuant to Articles 3.4.1.2 and following through a Payment
Agent or a Settlement Agent, a cash account with a central bank or a Securities
Settlement system accepted by LCH.Clearnet SA, as the case may be and a
Securities account with a Securities settlement system or with a central
Securities depository accepted by LCH.Clearnet SA, in order to ensure proper
settlement of his obligations vis-à-vis LCH.Clearnet SA. has to open an
account with the Belgian National Bank (Banque Nationale de
Belgique/National Bank van Belgïe) and a Securities Account with CIK, or
pursuant to articles 3.4.1.2 and following, to open these accounts through a
Payment Agent or a Settlement Agent in order to ensure proper settlement of
his obligations vis à vis Clearnet (LCH.Clearnet)”..
At the present time, Euronext Brussels transactions can be settled only in the
CIK settlement system, i.e. at the national CSD or indirectly through
Euroclear Bank, and this at the choice of the clearing member to the extent
that securities are eligible in the system concerned.
9.3 Settlement
There are currently 3 legally recognised settlement institutions in Belgium:
CIK S.A./N.V., Euroclear Bank and the National Bank of Belgium Securities
Settlement System (NBB SSS). Provided certain prudential requirements are
met, any organisation can be recognised as settlement institution under the
Law of 2nd August 2002 concerning the supervision of the financial sector and
financial services.
9.3.1 Corporate structure
CIK S.A./N.V.
CIK S.A./N.V, a company governed by Belgian law and currently a wholly
owned subsidiary of Euronext Brussels, provides settlement and delivery as
45 Dated 21st March 2003.
London Economics
30 June 2005 46
Section 9 Belgium
well as back-office/custody services for transactions on financial instruments
traded on regulated markets (i.e. Euronext Brussels) and OTC markets.
In October 2004 the Euroclear and Euronext groups announced that the
Euroclear group would acquire CIK S.A./N.V. from the Euronext group in
the first half of 2005, but, as of 31st March 2005, CIK S.A./N.V. was still
owned by Euronext.
CIK S.A./N.V. operates as national central depository for issuances governed
by Belgian law (as based on the provisions of the Royal Decree 62 of 10
November 1967) and has the status of settlement institution within the
meaning of Article 23 of the above-mentioned Law of 2 August 2002.
Euroclear Bank
Euroclear Bank, a bank governed by Belgian law and authorized by the
Belgian Banking, Finance and Insurance Commission (BFIC), has been
operating the Euroclear settlement and delivery system since 1 January 2001.
Euroclear Bank has the status of settlement institution within the meaning of
both the above Royal Decree 62 of 10 November 1967 concerning promotion
of the circulation of securities and Article 23 of the Law of 2 August 2002.
However, Euroclear Bank does not hold the register of Belgian securities.
NBB SSS
NBB SSS is fully owned and operated by the National Bank of Belgium. It is a
securities settlement institution within the meaning of Royal Decree 62 of 10
November 1967. Its clearing system clears transactions on book-entry
transfers of bearer securities. The securities settlement system settles
primary-market transactions (i.e. new issues) and secondary-market
transactions (i.e. transactions on previously issued financial instruments).
As noted earlier, NBB SSS is primarily used to clear and settle trades in
Belgian Government securities. It also settles transactions on treasury bills
and certificates of deposits issued by private firms and credit institutions46.
According to the Bank of International Settlement47, the bulk of OTC
transactions and EuroMTS and MTS Belgian transactions are settled through
the NBB SSS.
46 National Bank of Belgium, Securities Clearing System of the National Bank of Belgium: Disclosure
Framework Report on the basis of the questionnaire published by the CPSS(BIS) and IOSCO. May
2000.
47 CPSS(BIS) Red Book 2003, Payments Systems in Belgium.
London Economics
30 June 2005 47
Section 9 Belgium
9.3.2 Access
CIK S.A./N.V.
CIK S.A./N.V. membership is open to natural or legal persons that are legally
empowered to receive, either in Belgium or abroad, sell and buy orders on
listed or unlisted securities, to companies or institutions that carry out in
Belgium the activities authorized for private savings banks, to organizations
carrying out, abroad, activities that are similar to CIK S.A./N.V., and to
certain other organisations.
Euroclear Bank
The selection of applicants by Euroclear Bank’s Admission Committee is
based on the following four main criteria: financial resources; technical
capability; need for Euroclear's services; and reputation in the market.
NBB SSS
The NBB SSS has a single category of members, the direct participants
which include the following types of organisations: credit institutions or
stock broking firms established in a Member State of the European Union,
the Treasury administration, the NBB, Clearstream, Euroclear and other
SSS.
9.4 Vertical arrangements between infrastructures
As indicated earlier, the Belgian legislation allows the establishment and
recognition of new clearing and settlement organisations, provided that
certain conditions are met. These conditions are prudential in nature and can
be found in the Law of 2nd August 2002 concerning the supervision of the
financial sector and financial services. There is no legal prohibition
preventing a competing infrastructure service provider from entering the
market.
However, the review of the Euronext Rule Book and LCH.Clearnet SA
Clearing Rule Book showed that, at the present time, there exist a number of
requirements for both clearing and settlement arising from the contractual
obligations set out in these documents:
Ø Euronext Brussels trading members must clear transactions with Clearnet
SA in the case of securities transactions executed on Euronext Brussels;
Ø LCH.Clearnet SA clearing members must settle transactions with
Euronext CIK. SA/N.V. or through Euroclear Bank.
London Economics
30 June 2005 48
Section 10 Cyprus
10 Cyprus
10.1 Trading
There exists only one securities market in Cyprus, the Cyprus Stock Exchange
(CSE), established by the Cyprus Securities and Stock Exchange Law of 1993.
The CSE is a semi-governmental organization incorporated by law. The law
provides for the appointment of a Board of Directors to head it, and this
Board is appointed by the Council of Ministers. It is regulated by the Cyprus
Securities and Exchange Commission, established under Article 8 of the Law.
10.2 Clearing and settlement
There is no independent clearing house for securities in Cyprus. Clearing
and settlement procedures are performed by the CSE.
The clearing and settlement of all transactions is carried out by the CSE under
the Clearing and Settlement Rules issued under Article 22(2) of the Cyprus
Securities and Stock Exchange Law.
The CSE also has the responsibility to handle the Central Securities
Depository (CSD) and Central Registry established under The Cyprus
Securities and Stock Exchange (Central Depository Registry) Law of 1996.
10.3 Vertical arrangements between infrastructures
The Cyprus Stock Exchange (CSE) was established by the Cyprus Securities
and Stock Exchange Law of 1993. It is forbidden by law, (Article 3 (3) of the
Cyprus Securities and Stock Exchange Law of 1993) for any other physical or
legal body to carry out operations that may constitute trading of securities.
Under the same legislation, the clearing and settlement activities of securities
are carried out exclusively by the CSE, by virtue of The Clearing and Trading
Rules issued according to article 22 (2) of the Law. The responsibility to
handle the central depository and central registry of securities, was granted
exclusively to the CSE, by virtue of the Cyprus Securities and Stock Exchange
Law (Central Depository and Central Registry Law) of 1996 (Article 3).
According to the Cyprus authorities, there are fundamental reasons for
maintaining such exclusive rights and these are mainly the fact that the CSE is
a relatively new institution in Cyprus and the government wishes to ensure
its smooth operation and to protect the relatively inexperienced Cypriot
investors and its very small size.
London Economics
30 June 2005 49
Section 11 Czech Republic
11 Czech Republic
11.1 Trading
Prague Stock Exchange
The Prague Stock Exchange (PSE) is the country's only stock exchange. The
Exchange is based on membership principles which means that only licensed
securities traders which are Exchange members have access into the
Exchange trading system. Through its members the Exchange organises the
supply and demand for listed securities, investment instruments, or other
capital market instruments of the capital market within the extent of the
permission issues by the Securities Commission.
The Exchange offers to its clients two basic trading systems – SPAD for big
and medium investors and the automated trading system where auction and
continual trading are combined. The latter is used rather by small investors.
The system SPAD is based on quotes provided by market makers. A market
maker (MM) is an Exchange member which has concluded an official contract
with the Exchange on acting as a MM for certain issues. Neither the
maximum number of MMs per issue (at least 3) nor the number of issues per
MM is limited.
RM-S System
The RM-S System is an alternative secondary market. It was set up primarily
for domestic retail investors and has access centres throughout the country.
Trading is order-driven, continuous and on-line. It is the preferred
marketplace for shares of companies, which do not meet the listing
requirements of the Prague Stock Exchange.
11.2 Clearing
There is no independent clearing house in the Czech Republic. Post-trade and
pre-settlement clearing services are performed in connection with the
settlement procedures. The central bank operates the cash-clearing centre for
all trades executed at the Prague Stock Exchange and in the over-the-counter
market.
11.3 Settlement
All securities in the Czech Republic are settled through three independent
SSSs.
London Economics
30 June 2005 50
Section 11 Czech Republic
• The SKD settles short-term fixed income securities with a maturity of
up to one year;
• Univyc settles securities listed on the PSE selected according to the
rules of this institution;
• The RM-System settles all trades with securities listed on RM-
System’s market.
Settlement of exchange trades is a major part of Univyc’s activities. In early
July 2000, Univyc obtained a licence confirmation from the Securities
Commission for settlement of exchange trades and over-the-counter
transactions of the stock exchange and Univyc members. In addition to
providing settlement services, Univyc offers to securities traders:
• Services related to securities safe custody;
• Mediation of services provided by the Securities Center (SCP), the
Czech CSD;
• Securities lending and borrowing;
• Settlement of primary issues of securities;
• Administration and management of deposits for Stock Exchange
Guaranty fund participants;
The majority of publicly traded securities are by prevailingly book-entered
and by law deposited in the Securities Centre (SCP), the Czech CSD. The
latter provides no settlement services but is simply the depository of the
securities.
In addition there exist certificated securities which are traded and transferred
between Univyc members and are deposited in bulk custody in Univyc.
Thus, Univyc acts as the CSD for these certificated securities.
Finally, the central bank operates a similar register to SCP and acts as the
central depository for short-term government debt issues which exist in book-
entry form only (SKD System operates on the delivery versus payment
principle). It also operates the cash-clearing centre for all trades executed at
the PSE and in the over-the-counter market.
11.4 Ownership
The present 100% owner of Univyc is the Prague Stock Exchange.
11.5 Vertical arrangements between infrastructures
At the present time, members of the Prague Stock Exchange have no
alternative clearing and settlement provider than Univyc.
London Economics
30 June 2005 51
Section 12 Denmark
12 Denmark
12.1 Trading
Exchanges
Under Danish law it is possible to establish two types of regulated markets, a
stock exchange and an authorised market.
Københavns Fondsbørs A/S (Copenhagen Stock Exchange A/S)
The Copenhagen Stock Exchange A/S runs two different markets, a stock
exchange as well as an authorised market, the XtraMarked. The stock
exchange processes stocks, bonds, units of investment associations and
derivatives (futures and options), the XtraMarked trades units of investment
associations that are not listed on the stock exchange.
To be allowed to trade on the Copenhagen Stock Exchange it is necessary to
participate in the clearing system operated by VP Securities Services48 (see
below).
Dansk Autoriseret Markedsplads A/S (Danish Authorized Market
Place A/S).
This company runs an authorized market for stocks.
12.2 Clearing and settlement
There are currently no central counterparties on the cash equity and bond
markets operating under Danish law
FUTOP Clearingcentralen A/S (The FUTOP Clearing Centre A/S).
This company conducts clearing and settlement activities in connection with
the trade in derivatives on the Copenhagen Stock Exchange. It also provides
central counterparty services for such trades.
48 VP Securities Services, Market Practice in Denmark, A general description of the Danish Securities
market, May 2003.
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30 June 2005 52
Section 12 Denmark
Værdipapircentralen A/S (VP Securities Services A/S).
This company conducts clearing and settlement as well as registration
activities in connection with trades in securities. Transactions in listed stocks,
bonds and investment fund units are cleared and settled through VP.
12.3 Ownership
All the institutions in charge of running the above markets are organized as
public limited companies.
Københavns Fondsbørs A/S
The limited company Københavns Fondsbørs A/S was formed in 1996.
Before 1996 the stock exchange was organized as a private, independent
organization. In February 2005 the Copenhagen Stock Exchange was
acquired by OMX.
Dansk Autoriseret Markedsplads A/S
Dansk Autoriseret Markedsplads A/S is a wholly owned subsidiary of O.T.C.
Holding A/S. The latter is owned by two companies; Retega A/S (65 %) and
Spar Nord A/S (35 %).
FUTOP Clearingcentralen A/S
FUTOP Clearingcentralen A/S is a wholly owned subsidiary of Københavns
Fondsbørs A/S.
Værdipapircentralen A/S
Værdipapircentralen was established in 1980 as a private, independent non-
profit organization.
In 2000 Værdipapircentralen was converted into a limited company,
Værdipapircentralen A/S. The company's shareholders are made up of
players on the securities market; bank and investment companies (currently
approximately 32%), bond issuing companies (currently 28%), Denmark’s
central bank (currently approximately 24%), share issuers (currently
approximately 8 %) and institutional investors (currently approximately 8%).
12.4 Access
Access to securities trading
Only access for traders is described. The basic conditions for access are set
down in the Securities Trading Act whereas the systems/institutions
London Economics
30 June 2005 53
Section 12 Denmark
themselves have formulated more detailed conditions for access. The
following comments only apply to the statutory conditions for access.
Non-national institutions/companies have access to stock exchanges on the
same conditions as nationals provided they have been granted an
authorization in another country in the European Union or in countries with
which the Community has concluded a cooperation agreement.
Access to clearing and settlement institutions
Pursuant to Section 54(2) of the Securities Trading Act only securities dealers
(credit institutions, investment companies and mortgage credit institutes),
clearing centres, the Danish Financial Administration Agency and Denmark’s
Nationalbank shall be entitled to clear and settle transactions on behalf of
third parties.
There are no statutory limits on who shall be entitled to clear and settle
transactions on their own behalf.
Pursuant to Section 54(4) the clearing centre itself shall lay down rules
governing the affiliation as a clearing participant, including the conditions to
be satisfied by the clearing participants in order to participate in clearing and
settlement of own, a third party's or own and a third party's transactions.
There are no further statutory rules governing access to a clearing centre but
pursuant to Section 52(1) of the Securities Trading Act the Board of Directors
of a clearing centre are responsible for the business activities of the centre
being conducted in an adequate and proper manner.
12.5 Vertical arrangements between infrastructures
There are no provisions under Danish legislation granting exclusive rights to
a specific company in relation to activities in trading, clearing or settlement
nor are there any statutory provisions obliging parties to conduct their
trading, clearing or settlement activities through a specific market or
infrastructure.
In fact the NOREX rules, which apply to the Copenhagen Stock Exchange49,
specify only that “The Member may participate in trading on the Markets and Sub-
Markets covered by the membership as soon as the following requirements are met:
(i). The Member is a party to clearing- and settlement systems recognised by the
Norex Exchange(s) and required for participation in trading on the specific
Markets/Sub-Markets; (ii). The Member has at least two authorised Exchange
Traders; (iii). The Member has received approval from the Norex Exchange(s) of
its Technical Equipment and such Technical Equipment has been connected to the
production system of the relevant Trading System”. Thus, no specific clearing or
settlement organisations are specified in the stock exchange membership
49 As well as to the Stockholm, Helsinki, Oslo and Rekjavik stock markets.
London Economics
30 June 2005 54
Section 12 Denmark
rules. However, as there exists only one CSD in Denmark, members of the
Copenhagen Stock Market face only a choice of settling directly in the books
of the CSD or indirectly through an intermediary.
Trades in Danish government bonds on MTS have to be settled through VP
Securities Services A/S.
London Economics
30 June 2005 55
Section 13 Estonia
13 Estonia
13.1 Trading
The Tallinn Stock Exchange (TSE) is the only regulated secondary securities
market in Estonia and is owned by the OMX group.
The TSE has adopted the trading system of SAXESS, creating a common
trading environment for securities traded in Estonia, Latvia, Finland, Sweden,
Norway and Iceland. The TSE is a member of NOREX (an alliance between
the Nordic and Baltic exchanges) since 7 April 2004.
13.2 Clearing
There exists no separate clearing house in Estonia. The Estonian CSD, ECSD,
is responsible for activities necessary for the execution of securities
transactions.
13.3 Settlement
In Estonia there is only one securities settlement system (SSS), which settles
stock exchange and OTC trades. The ECSD is the responsible body for
securities settlement in Estonia. Eesti Pank plays the role of a settlement bank
of the netted cash position of the participants in the SSSs.
The ECSD is part of the OMX group and administers the electronic Estonian
central securities register and pension fund register. The ECSD administered
central securities register contains information on the shares of all public
limited companies operating in Estonia (by 1 July 2003), numerous private
limited companies, funds and companies’ debt obligations. The register
includes all Estonian private and legal persons’ securities accounts.
13.4 Regulation
The Securities Market Act (adopted by Parliament on 17 October 2001) and
the Estonian Central Register of Securities Act (14 June 2000) govern the
Estonian securities market. The details of certain activities governed by these
acts are regulated by decrees of the Minister of Finance. The Securities
Market Act regulates the activities of professional participants, issuers and
investors in securities markets which operate with publicly circulated
securities in the primary and secondary markets. The Securities Market Act
also governs the general principles of SSSs. The Estonian Central Register of
Securities Act regulates the provision of registry services. The Procedure for
the Maintenance of the Estonian Central Register of Securities (29 December
2000) is regulated by a decree of the Minister of Finance.
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Section 13 Estonia
Eesti Pank has no statutory responsibilities with regard to SSSs and is not
legally empowered to issue any binding regulations in this field.
Nevertheless, Eesti Pank is a shareholder in the TSE and is represented on its
Board and, as such, participates in the establishment of common rules for
securities trading and is the overseer of SSS.
The TSE is a self-regulated organisation, issuing and enforcing its own rules
and regulations consistent with standard exchange operating procedures. The
TSE is licensed and supervised by the Financial Supervisory Authority. OTC
market trades are registered at the ECSD. The securities traded in TSE are
predominantly shares and bonds, although other types of securities can also
be traded.
13.5 Access
There are no differences between the conditions of access of national and non-
national institutions. §132 of the Securities Market Act provided for equal
treatment of all persons in a regulated market. In order to apply for
membership of TSE (i.e. for the right to trade directly via the stock exchange’s
trading system), a company must hold a valid activity license issued by the
Estonian Financial Supervision Authority or Eesti Pank, which entitles the
holder to provide investment services in Estonia.
Membership of the TSE can be granted to a legal entity meeting the following
requirements:
• Has the status of a legal entity registered in Estonia, providing investment
activities;
• Holds a valid activity licence as a professional securities market
participant;
• Has the minimum share or stock capital in line with requirements of the
Securities Market Act. The minimum share capital is either €125,000 or
€730,000, depending on the range of investment services offered by the
member;
• Contributes to the Guarantee Fund of the TSE as determined by the TSE
management.
Effective from January 2000, the TSE established remote membership status,
which allows foreign securities intermediaries to trade on the TSE.
13.6 Vertical arrangements between infrastructures
There are no legislative provisions providing for vertical arrangements for the
operations of any type of regulated market. The Securities Market Act
provides a detailed scheme how a regulated market must be set up, there are
no limitations to the number of markets. However, the TSE is the only
regulated market in Estonia, due to the small size of the country.
London Economics
30 June 2005 57
Section 13 Estonia
According to §54 of the Central Securities Register act, the central securities
register is operated exclusively by the Estonian CSD. According to the
Estonian authorities §54 is a transitional provision and the current agreement
with the ECSD on maintenance of Estonian Central Register for Securities
expires on 31st December 2014.
London Economics
30 June 2005 58
Section 14 Finland
14 Finland
14.1 Trading
Helsinki Stock Exchange
In Finland, there is one stock exchange, Helsingin Pörssi or Helsinki Stock
Exchange, which is owned by OMX AB via OMX Exchanges.50
The Helsinki Stock Exchange carries out stock exchange operations and
option trade settlement operations on the basis of an authorisation granted by
the Finnish Ministry of Finance.
Since 20th December 2004, trading and clearing of Finnish derivatives
previously traded on the Helsinki Stock Exchange have been effected in the
Stockholm Stock Exchange and derivative trading on the Helsinki Stock
Exchange has ceased. Some Finnish stock derivatives, and two indexes are
also traded on Eurex.
The Helsinki Stock Exchange also organises other types of public trading of
securities (I-list, NM-list, Pre-list) in accordance with the regulations
approved by the Finnish Ministry of Finance. As regards the share trading,
the SAXESS trading system and the NOREX Member Rules have been in use
at Helsinki Stock Exchange since September 2004.
MTS Finland
MTS Finland, which began trading in April 2002 was established as an
electronic platform for trading by primary dealers in Euro-denominated
bonds issued by the Finnish government. In parallel interbank trade in
government benchmark bonds is conducted through the EuroMTS system in
London.
MTS Finland operates in association with MTS Associated Markets S.A. in
Belgium. MTS Finland’s activities are regulated by the Market Committee,
50 OMX Exchanges comprise the Stockholm, Helsinki, Tallinn, Riga, and Vilnius stock exchanges and the
CSDs of the Estonia and Latvia and a minority interest in the Lithuanian CSD. The company was
originally formed out of the merger of Swedish OM AB and Finnish HEX Plc on 4 September 2003. The
Bank of Finland was a shareholder of HEX Plc until this time. HEX Plc had expanded through
acquisitions in the Baltic States before it merged with OM. In February 2005 the Copenhagen Stock
Exchange was acquired by OMX.
London Economics
30 June 2005 59
Section 14 Finland
composed of members representing the State Treasury, the primary dealers
and the technology supplier MTS.
14.2 Clearing and settlement
The Finnish CSD, Finnish Central Securities Depository Ltd (Suomen
Arvopaperikeskus Oy, APK), carries out the operations of a clearing house
and securities depository. By market choice, there is no CCP on the Helsinki
Stock Exchange.
Since November 2004 APK is fully owned by the Swedish Central Securities
Depository (VPC), and together the two CSDs form an entity branded as the
NCSD group.
Finnish law establishes direct holding of Finnish securities for Finnish
nationals. For this purpose, each Finnish national who owns Finnish
securities holds an individualised securities account at the level of the CSD.
This account is operated via a custodian bank.
APK consists of three business areas: Settlement Services, Account Operator
Services and Issuer Services.
Settlement Services takes care of settlement services for equities and all
issuing, depository and settlement services for money market instruments
and wholesale market bonds.
Account Operator Services operates central book-entry register and offers
book-entry account services to account operators and individual investors.
Issuer Services offers CSD services to security issuers. The main services are
shareholder lists, insider register, general meeting services, corporate actions
and yield payments.
The book-entry register has been established and is operated on the basis of
the Act on Book-entry system and the Act on Book-entry accounts.
The entering of securities in the book-entry securities system is further
governed by Finnish Central Securities Depository's rules and regulations.
The following instruments may be issued in the book-entry securities system:
shares, depository receipts, options and bonds with warrants, convertible
bonds, retail bonds and warrants. It is compulsory to issue shares in book-
entry form, if shares are publicly traded in the stock exchange.
All securities traded on the stock exchange are book-entries. Depository and
settlement services for money market transactions are processed in the
Ramses system of the Finnish Central Securities Depository. Settlement in the
system is possible only for book-entry form debt instruments (bonds,
certificates of deposit, commercial papers, treasury bills and municipality
papers).
The APK introduced a real-time clearing and settlement system (HEXClear)
at the end of 2003. The Finnish wholesale bond and money market securities
London Economics
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Section 14 Finland
have been issued in the central register and settlement has taken place on
Ramses system since 1992. Despite this, the custodian banks have organised
themselves in such a manner that it allows settlement of debt securities trades
executed on MTS Finland to take place exclusively in either Clearstream
Banking Luxembourg or Euroclear Bank by way of market convention.
14.3 Regulation and Supervision
Clearing and settlement systems are regulated in an amendment to the
Securities Markets Act (chapter 4 a, No 321/1998). Under the provisions of
the amendment, clearing and settlement are subject to a separate
authorisation by the Ministry of Finance and supervision by the Financial
Supervisory Authority of Finland.
In accordance with the Act on the Bank of Finland, the Finnish central bank
has a general duty to attend for its part to the reliability and efficiency of the
payment system and financial system. The Bank of Finland has thus also a
role in the general oversight of APK.
In addition to the powers of granting the requisite licenses, the Ministry of
Finance approves and ratifies the rules of a clearing organization and central
securities depository. Furthermore, the Ministry of Finance has the power to
withdraw the licence of APK (or transfer the license to another entity) in
accordance with the Act on the Book-Entry System.
Finally, the functions of the book-entry system are based on special legislation
enacted to allow the removal (dematerialisation) of the physical certificates.
In fact, the Act on Book-Entry Accounts (No 827/1991 as amended) contains
provisions on: the operation of book-entry accounts, the entries in these
accounts and the legal effects of these entries; the provisions on strict liability
for errors in the book-entry system; the secured position of a bona fides buyer
against the seller’s creditors and other third parties.
APK is under law a self-regulatory organisation that also regulates and
supervises the book-entry system. Furthermore APK is responsible for
developing the book-entry system as a whole. APK, account operators and
the agents of the account operators are subject to supervision by the Financial
Supervision Authority of Finland.
14.4 Access
Helsinki Stock Exchange
Both domestic and foreign banks and investment service companies can
operate as stock brokerage firms on Helsinki Stock Exchange. In terms of
clearing and settlement, the NOREX Trading member rules stipulate the
following:
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Section 14 Finland
”The Member may participate in trading on the Markets and Sub-Markets covered by
the membership as soon as the following requirements are met: (i). The Member is a
party to clearing- and settlement systems recognised by the Norex Exchange(s) and
required for participation in trading on the specific Markets/Sub-Markets; (ii).The
Member has at least two authorised Exchange Traders;(iii). The Member has received
approval from the Norex Exchange(s) of its Technical Equipment and such Technical
Equipment has been connected to the production system of the relevant Trading
System.
The Member is responsible at all times for delivery, clearing, and settlement of
Instruments in accordance with the conditions governing the Trade. This
responsibility constitutes the contractual relationship between the Members and
applies irrespective of whether the Trade takes place on the Member's own account or
on behalf of a third party.”
APK
At the present time the APK settlement system is the only stock settlement
system in Finland recognised by the Exchange.
Granting of the member rights has been regulated in the statutory provisions
applicable to APK (Securities Markets Act, Act on the Book-Entry System).
They provide that APK shall grant the rights of access to the Systems to
clearing parties, account operators, and agents if they meet the objective and
public criteria set forth in law and in APK’s Rules. Special provisions apply to
the Bank of Finland, the State of Finland and certain other entities.
14.5 Vertical arrangements between infrastructures
HEX and APK have implemented an automatic mechanism that transmits the
feed regarding trades made on the markets maintained and operated by the
Helsinki Stock Exchange from its trading system to APK’s HEXClear
settlement system for settlement. The vast majority of trades are settled in
this manner.
However, there is no exclusivity by law or regulation, and according to
Finnish authorities, trades in some instruments such as in Estonian
Handspun shares and certificates of participation of a cooperative, are not fed
to APK.
Furthermore, trades made in bonds are not transferred to APK’s system
automatically.
According to the Helsinki Stock Exchange and APK, when agreeing on the
automatic transfer, APK and Helsinki Stock Exchange have emphasized that
the agreement as such shall not constitute any exclusivity for APK, or for
Helsinki Stock Exchange. The Helsinki Stock Exchange thus retains the right
to accept other means than APK for clearing and settlement of trades.
London Economics
30 June 2005 62
Section 15 France
15 France
15.1 Trading
Euronext Paris
The main market segments of Euronext Paris are listed and described below.
Table 6: Overview of Euronext Paris Markets
Exchanges Types of securities Operated by
Eurolist(1) Equities, debt obligations, Euronext Paris
warrants, trackers
MONEP (Marché des Equity derivatives Euronext Paris
Options Négociables de Paris
MATIF (Marché à Terme Interest rate derivatives and Euronext Paris
International de France) commodity derivatives
NOTE: (1) Eurolist is the result of the merger of all the regulated markets operated by Euronext: Paris
Bourse (Premier Marché, Second Marché) and Nouveau Marché.
Source: Response to questionnaire provided by French authorities
In addition to the three regulated markets listed above (one cash markets and
two derivatives markets), Euronext Paris SA manages two organised cash
markets: the recently launched “Alternext”, dedicated to small and medium-
sized French or foreign companies and the “Marché Libre OTC”, dedicated to
the trading of non-officially listed securities.
Euronext Paris SA is a French wholly owned subsidiary of Euronext NV, a
holding company governed by Dutch law.
MTS France
MTS France is an electronic quotation platform in France trading debt
securities (public and non-public).
MTS France, which began trading in April 2000, was established for the
purpose of trading Euro-denominated securities issued by the French
government. The system is owned by 21 French government bond primary
dealers, MTS S.p.A. and Euronext Paris SA. Currently, 23 institutions
participate in the MTS France system.
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30 June 2005 63
Section 15 France
15.1.1 Access
To become a member of Euronext Paris SA, intermediaries must fulfil two
conditions: first, being duly authorised by the French regulatory authorities
to offer investment services and, second, complying with Euronext admission
rules. All the rules designed by Euronext Paris are subject to the approval by
the regulatory authority, the Autorité des marchés financiers.
The types of institutions that can be admitted to trading on the French
Euronext markets are:
• European investment firms and credit institutions
• Third country firms, subject to similar regulation provided a MOU
has been agreed between the French and the third country
supervisory authorities.
The Euronext Rule Book governing the contractual relationship between
Euronext exchanges and trading members specifies “Under Requirements for
Euronext Securities Membership”, that:
“2501 Any Euronext Securities Member wishing to trade on the Euronext
Securities Markets must be a party to a Clearing Agreement in respect of those
Securities which he is authorised to trade but which he is not authorised to
clear.
2502 The Clearing Agreement entered into pursuant to Rule 2501 shall
comply with any requirements imposed by or pursuant to the Clearing Rule
Book.
4601 Transactions executed on a Euronext Securities Market shall be cleared
in accordance with the rules and procedures set forth in the Clearing Rule
Book, and settlement shall be arranged through the settlement organisations
designated by Euronext”51
A Clearing Member is defined as:
“Any Person authorised by the Clearing House to clear Transactions in
accordance with the relevant provisions of the Clearing Rule Book“ 52.
A Clearing House is defined as:
“LCH.Clearnet Limited or LCH.Clearnet S.A. as the case may be “53.
So, it appears that there is a contractual obligation imposed on Euronext Paris
trading members to clear transactions with a clearing house which for the
51 Euronext Rules – Book I issued 26 November 2004 pp. 24, 44 and 45.
52 Euronext Rules – Book I issued 26 November 2004 p.6
53 Euronext Rules – Book I issued 26 November 2004 p.6
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30 June 2005 64
Section 15 France
time being is LCH.Clearnet SA in the case of securities transactions executed
on Euronext Paris54.
Participants to MTS France must subscribe to both LCH.Clearnet SA (for
clearing) and Euroclear France (for settlement).
15.2 Clearing
Prior to their merger in 1999, there were three clearing houses in France: SBF
for equity trades and options, MATIF SA for exchange-traded derivatives and
BCC for repo and outright trades on government debt securities. Following
the merger between the French, Belgian and Dutch clearing houses, Clearnet
SA became, in February 2001, the sole clearing house and central
counterparty for markets operated by Euronext55. In December 2003, London
Clearing House (LCH), and Clearnet SA merged to become LCH.Clearnet
Group Ltd (see section .. )
In addition to providing CCP and clearing services for Euronext markets,
LCH.Clearnet SA clears trades for other trading infrastructures such as MTS
France.
Access to LCH.Clearnet
The following entities are eligible to become a Clearing Member:
• Credit institutions established in France;
• Investment firms established in France;
• Legal persons whose members or shareholders have unlimited joint
and several liability for their debts and obligations, provided that
such members or shareholders are institutions or firms mentioned
under 1 or 2;
• Legal persons established in France and whose principal or sole
object is the clearing of financial instruments;
• Credit institutions, investment firms and legal persons whose
principal or sole object is the clearing of financial instruments, that
are established outside France, under prior approval of the Autorité
des marchés financiers. An agreement between the Autorité des
marchés financiers and another Competent Authority may provide
an exemption from prior authorisation for a category of entities.
54 The same contractual obligation to clear transactions with Clearnet SA is imposed on trading members
of Euronext Amsterdam, Euronext Brussels and Euronext Lisbon.
55 In November 2003, Clearnet SA also became the sole clearer for the Lisbon cash market which joined
Euronext in 2002.
London Economics
30 June 2005 65
Section 15 France
The Application for Admission as a Clearing Member of LCH.Clearnet SA56
stipulates in section 5 dealing with delivery/settlement that all securities in
one market will be delivered through a single settlement system.
At the present time, LCH.Clearnet offer a settlement feed to only Euroclear
France, the domestic CSD, and Euroclear Bank.
15.3 Settlement
As noted above, Euroclear France SA is the CSD of France and the operator of
so-called Relit+ and RGV settlement systems. In contrast, Euroclear Bank
SA/NV is based in Brussels and performs an intermediary role.
The institutions listed below can become members of the Central Securities
Depositary (CSD) and participants of the RGV2 clearing and settlement
system operated by Euroclear France. 57
• Credit institutions in the sense of article L 511-9 of the 'Code
monétaire et financier', which provide the investment services
mentioned in articles L 321-1 and L 321-2 of said code.
• Investment companies in the sense of article L 531-4 of the 'Code
monétaire et financier'.
• Legal entities, mentioned in article L 442-2 of the 'Code monétaire et
financier'.
• Legal entities and nationals of the European Economic Area who are
authorised to provide investment services and related services in
mainland France and the overseas departments pursuant to the terms
of article L 532-18 of the 'Code monétaire et financier'.
• Companies or legal entities, mentioned in paragraph 2 of article L 6-
2-2 of the general regulations of Euroclear France's supervisory
authority, the Autorité des marchés financiers.
• Institutions mentioned in article L 518-1 of the 'Code monétaire et
financier'.
• Legal entities that issue the financial instruments concerned by article
L 211-4 of the 'Code monétaire et financier' and that have admission
to Euroclear France operations.
• French financial instrument central depositories approved by the
Autorité des marchés financiers.
• Foreign central depositories all other French or foreign institutions,
irrespective of whether they are members of the European Economic
56 Clearnet – Application for Admission as a Clearing Member, Updated 29th July 2003.
www.lch.clearnetsa.com.
57 From http://www.euroclear.com
London Economics
30 June 2005 66
Section 15 France
Area, the activities of which include those of the above-mentioned
institutions.”
15.4 Vertical arrangements between infrastructures
According to French authorities’ response, the French legislation does not
impose any exclusive vertical arrangement in the area of clearing and
settlement.
However, the review of the Euronext Rule Book and LCH.Clearnet SA
Clearing Rule Book showed that, at the present time, there exist a number of
requirements for both clearing and settlement arising from the contractual
obligations set out in these documents:
Ø Euronext Paris trading members must clear transactions with Clearnet SA
in the case of securities transactions executed on Euronext Paris;
Ø LCH.Clearnet SA clearing members must settle transactions with
Euroclear France or through Euroclear Bank.
Table 7: Overview of arrangement in clearing and settlement
Trading Eurolist Marché Libre OTC MTS France
Clearing LCH.Clearnet SA LCH.Clearnet SA LCH.Clearnet SA(1)
CCP Yes Yes Yes
Settlement Euroclear France or Euroclear France or Euroclear France
Euroclear Bank Euroclear Bank
NOTE: (1) When securities are deposited with Euroclear France
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30 June 2005 67
Section 16 Germany
16 Germany
16.1 Trading
Frankfurt Stock exchange and other stock exchanges
The table below lists the various German stock exchanges and their operators.
Table 8: Overview of German equities markets
Exchanges Types of securities Operated by
The Frankfurt Stock All types of securities Deutsche Börse AG
Exchange
The Berlin/Bremen Stock All types of securities Berliner Börse AG and
Exchange Bremer Wertpapierbörse AG
The Düsseldorf Stock All types of securities Börse Düsseldorf
Exchange
The Hamburg Hanseatic All types of securities BÖAG Börsen AG
Stock Exchange
The Lower Saxony Stock All types of securities BÖAG Börsen AG
Exchange at Hannover
The Bavarian Stock Exchange All types of securities Bayerische Börse AG
The Baden-Wurttemberg All types of securities boerse-stuttgart AG
Stock Exchange
Source: Federal Cartel Office response to questionnaire.
Eurex Bonds
Launched in October 2000, Eurex Bonds GmbH is an Electronic Trading
Platform that provides participants with an electronic platform for off-
exchange, “wholesale” trading in fixed income bonds. Eurex Bonds GmbH is
a private law joint venture between Eurex Frankfurt AG and a number of
leading financial institutions.
Eurex Clearing AG acts as a central counterparty for all bond trades on Eurex
Bonds. The current product range includes over 120 different instruments
available for trading: e.g. German government bonds, basis instruments
related to debt securities such as Euro-Schatz, Euro-Bobl, and Euro-Bund-
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Section 16 Germany
Futures, Sub-Sovereigns and Jumbo Pfandbrief issues (mortgage-backed
securities). There are currently 31 participants active on Eurex Bonds.58
Euro MTS
The MTS German Market is a division of EuroMTS. It manages the electronic
trading platform for German government bonds and high quality quasi-
government bonds issued by German issuers. All major international
financial institutions participate in the MTS German Market.
16.1.1 Access
There are two key German laws relevant for access to trading in German
stock exchanges: the German Exchange Act and the Safe Custody Act.
The German stock market legislation (Börsengesetz) provides that admission
to trading on stock markets may be granted if the proper conduct of business
on the stock exchange is guaranteed.
All seven German stock exchanges that trade equities have incorporated this
provision into their stock market rules and spelled out how this condition is
met in their own market59. Amongst others, ensuring orderly settlement of
transactions at the exchange is to be fulfilled.
The Safe Custody Act (Depotgesetz) requires that securities subject to
collective safe custody must be held in a Wertpapiersammelbank (central
depository for securities). The approval of a central depository for securities
is the responsibility of the Länder as, according to §1 par. 3 of the Safe
Custody Act, the depositories for securities are credit institutes which are
recognised as such by the authorities of the State in whose territory the credit
institute has its registered office. A Wertpapiersammelbank must have a
banking licence, the granting of which is a federal responsibility according to
§32 par. 1 of the German Banking Act.
Clearstream Banking AG is currently the only institution licensed as a central
depository for securities in Germany but other credit institutions could apply
to become a central depository for securities.
Access to the Frankfurt Stock Exchange
According to Section 16 of Exchange Rules for the Frankfurt Stock Exchange
(FWB01e, March 15, 2005):
(1) 2 The admission of an enterprise to participate in Exchange trading
pursuant to Section 15 is to be granted if… the orderly settlement of
transactions at the Exchange is assured.
58 Eurex Bonds, Eurex Bonds Trading Participants, 1st February 2005.
59 Stock market rules are subject to approval by the respective State stock market supervisory authority.
London Economics
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Section 16 Germany
(2) The condition contained in paragraph (1) No. 2 is satisfied if the
applicant conducts the settlement of its Exchange transactions through a
bank for central depository of securities acknowledged pursuant to § 1 section
3 German Securities Deposit Act60 and a branch of Central Bank of Germany
(Deutsche Bundesbank). In the case of securities held on a fiduciary basis,
settlement of transactions will be conducted through a bank for central
depository of securities pursuant to sentence 1 alone to the extent that the
latter61 ensures the settlement of cash clearing and securities clearing. It is
necessary in addition thereto, for the orderly settlement of transactions that
have as their object securities quoted in foreign currencies or units of
account, that the participant itself participates in clearing in foreign
currencies or units of account or maintains an account relationship with an
appropriate clearing bank; participants and clearing banks identified above
must participate in the clearing process of a bank for central depository of
securities pursuant to sentence 1 for securities to be settled in foreign
currencies or units of account. If enterprises admitted to participation in
exchange trading assign more than one bank for central depository of
securities with the execution of their Exchange transactions, paragraph 1
section 2 is satisfied irrespective of the provision of sentence 1, if these banks
for central depository of securities dispose of the respective contractual
agreements with regard to the opening of mutual accounts.
According to Section 16(a) of the Exchange Rules for the Frankfurt Stock
Exchange:
(1) Notwithstanding the provisions of Section 16 paragraph (1) No. 2 and
16 paragraph (2), the applicant shall for the purpose of satisfying its
liabilities arising out of transactions in German shares held in collective
deposit which are tradable in the electronic trading system of the
Frankfurt Stock Exchange, ensure the settlement thereof via Eurex
Clearing AG. The applicant shall be required to provide evidence of the
acceptance of Clearing Conditions for Eurex Clearing AG.
As described above, at the present time, Eurex Clearing AG and, by default in
the absence of the existence of any other Wertpapiersammelbank,
Clearstream Banking AG are the clearing and settlement organisations that
have to be used for securities62 trades executed on the Frankfurt Stock
Exchange.
60 “Securities Deposit Act” is another name for the Safe Custody Act.
61 The English version of the rules refers to Clearstream Banking AG in this particular part of the rules but
the German version refers only to a Wertpapiersammelbank and not specifically to Clearstream
Banking AG. To better reflect the German version of the rules we have replaced Clearstream Banking
AG with the more general concept of Wertpapiersammelbank in the rule above.
62 Shares held in collective safe custody that are traded on the floor or via Xetra at the Frankfurt Stock
Exchange.
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Section 16 Germany
Access to other German stock exchanges
Among the German stock exchanges other than Frankfurt, both the
Düsseldorfer Börse and the Baden-Württembergische Wertpapierbörse have
admission rules that are not prescriptive in terms of which specific legal
entity is to be used to settle trades on their exchanges. The admission rules of
these two stock exchanges simply specify that the settlement of exchange
transactions has to occur through a Wertpapiersammelbank recognised as
such according to §1 par. 3 of the Safe Custody Act.63
Similarly, the trading admission rules of the Berlin-Bremen stock exchange
are not prescriptive but state that ordely settlement is achieved if Clearstream
Bank AG is used to settle trades.
In contrast, the stock exchange admission rules of the Hamburg, Hannover
and Munich stock exchanges prescribe that Clearstream Banking AG has to
be used to settle trades executed these exchanges.64
That being said, considering that, at the present time, Clearstream Banking
AG is the only recognised central depository for securities, this potential
flexibility in the choice of the settlement organisation provided by the
Frankfurt, Düsseldorf, the Baden-Württembergische and Berlin-Bremen stock
exchanges change may have little practical implications in the current
circumstances.
Access to Eurex Bonds
According to Eurex Bonds, Terms and Conditions for Participation and
Trading on Eurex Bonds (updated 1st April 2005) the enterprise must:
• Have: i) a Eurex Bonds Clearing License of Eurex Clearing AG (as a
General Clearing Member or a Direct Clearing Member) or ii) an
agreement as a non-clearing member with an institution which has a
clearing license of Eurex Clearing AG.
• Be a credit institution or an investment firm within the meaning of Article
1 of Council Directive 93/22/EEC.
• Demonstrate liable equity capital of 100 million euros for the respective
group or of active trading in German government bonds of at least 50
billion euros within the previous 12 months or be a member of the
“Federal Republic Bond Issues Auction Group” (Bietergruppe
Bundesemissionen) or of a comparable national group of primary dealers.
63 Börse Düsseldorf, Börsenordnung, Stand 1. April 2004, § 16 par. 2 and Baden-Württembergischen
Wertpapierbörse, Stand 1. Januar 2005, §11 par. 2.
64 Hanseatischen Wertpapierbörse Hamburg, Börsenordnung,, Stand 15. Februar 2005, § 15 par. 2,
Niedersächsische Börse zu Hannover, Börsenordnung vom 20. Juni 2003, § 15 par. 2 and Börse
München, Börsenordnung, Stand 18.4.2005, § 16 par. 2.
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Section 16 Germany
• Have access to the technical infrastructure of the electronic trading system
of Eurex bonds.
16.2 Clearing
Two organisations, Eurex Clearing AG and Clearstream Banking AG, are
currently providing clearing services for bonds and equities in Germany.
Eurex Clearing AG
Corporate structure
Eurex Clearing AG is a wholly-owned subsidiary of Eurex Frankfurt AG,
founded in 1998 under German law and registered in Frankfurt/Main. Eurex
Frankfurt AG is a wholly owned subsidiary of Eurex Zürich, half of which is
owned by Deutsche Börse and half by the Swiss Stock Exchange.
Products and markets
Eurex Clearing AG has had the responsibility for the clearing of derivatives
and all spot transactions executed on the Eurex Bonds since October 2000 and
the responsibility for the clearing of equities listed on the Frankfurt Stock
Exchange and traded on the XONTRO-System and/or on the electronic
system (Xetra) since March 2003. The following table provides information
on the types of clearing licenses and cleared and settled products.
Table 9: Eurex Clearing AG Clearing Activities
Clearing Licenses Cleared and settled products
Equity Clearing License Shares held in collective safe custody that
are traded on the floor or via Xetra of
Frankfurt Stock Exchange, as specified in a
list of CCP instruments
Bonds Clearing License Fixed-rates bonds of the Federal Republic of
Germany or the Treuhandanstalt Jumbo
Pfandbriefe of German issuers. Issues of the
Kreditanstalt fur Wiederaufbau
(Reconstruction Loan Corporation), the
European Investment Bank and the German
Länder Securities leg of basis trades(1)
Derivatives Clearing License Futures and options products traded at
Eurex Exchanges Futures leg of basis
trades(1)
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Section 16 Germany
Table 9: Eurex Clearing AG Clearing Activities
Clearing Licenses Cleared and settled products
Repo Clearing License General Collateral and Special Repo with:
Fixed-rate bonds of the Federal Republic of
Germany or the Treuhandanstalt Jumbo
Pfandbriefe of German issuers Bonds issued
by Kreditanstalt fur Wiederaufbau
(Reconstruction Loan Corporation) and
German States Bonds
NOTE: (1) The basis trade is a combination of a security and futures contract, which has a price of its own.
The purchase of a basis trade implies the purchase of a certain amount of securities and the simultaneous
sale of the corresponding amount of futures contracts.
Source: www.eurexchange.com/clearing/overview/introduction.html
Role as central counterparty
Eurex Clearing AG is the central counterparty for bonds traded on Eurex
Bonds GmbH (since October 2000) and for trades executed on either Xetra or
the floor of the Frankfurt Stock Exchange in equities that are specified by
Eurex Clearing AG as CCP instruments. These are at present German
equities subject to collective safe custody, denominated in euro and listed on
Xetra (since March 2003).
The other German stock exchanges do not have a central counterparty.
Access
Admission to direct participation in the clearing process can take place in the
form of:
• General Clearing Membership (GCM)
• Direct Clearing Membership (DCM)
The difference between these memberships is that General Clearing Members
can clear their own transactions, their clients’ transactions and the ones of
Exchange Participants who do not have a clearing licence (Non-Clearing
Members) while Direct Clearing Members can clear their own transactions,
their clients’ transactions and only the ones of affiliated Non-Clearing
Members. Moreover, while both groups of members have to fulfil risk-based
margin requirements and provide a contribution to the clearing fund, this
contribution is substantially higher for General Clearing Members.65
Companies may become exchange participants without having a clearing
status (i.e. Non Clearing Members – NCMs). Non Clearing Members must
65 As of 15th April 2005, the level of the contribution stood at €5 million for General Clearing Members and
€1 million for Direct Clearing Members.
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Section 16 Germany
conclude a clearing agreement with either a General Clearing Member or a
group-affiliated Direct Clearing Member.
Participation as a GCM or a DCM requires issuance of the appropriate
license, for which the following requirements in particular must be fulfilled:
• Any institution domiciled in a country of the European Union or
Switzerland with the license to conduct safe custody business,
lending operations and the receipt of collateral in the form of cash or
securities.
• Sufficient liable equity capital in the given local currency as per the
provision of applicable laws.
• Contribution in the clearing funds either by a third-party bank
guarantee, cash or securities. The amount of the contribution
provided depends on the risk such a clearing member holds in open
positions at the clearing house.
• Maintenance of current accounts with the central bank or other fund
clearing institutions stipulated by Eurex Clearing AG, as well as
securities accounts at those central custodian organisations
designated by Eurex Clearing AG.
• Necessary technical installations and personnel required for back-
office clearing operations.
Non Clearing Members may enter into agreements with different Clearing
Members on a per-trading-platform basis (e.g. Eurex Bonds GmbH, Eurex
Exchanges). However, the trades executed on a specific trading platform may
only be cleared and settled by a single Clearing Member. That does not
diminish the fact, though, that trades can be given up to other participants via
the “give-up/take-up” functionality. Because Non Clearing Members have
no contractual relationship with Eurex Clearing AG, transactions are
essentially concluded between Eurex Clearing AG and a given Clearing
Member, and in turn between that Clearing Member and the specific NCM.
Also, fee payments and margin deposits are made to the clearing house via
the contractually stipulated Clearing Member.
As of March 2005, there were 410 Eurex members based in 18 countries.
Indirect access can take the form of traditional brokerage services as well as
automated order routing.
16.2.1 Clearstream Banking AG
Corporate structure
Clearstream International S.A. (Luxembourg) fully owns Clearstream
Banking S.A. (Luxembourg) and Clearstream Banking AG (Frankfurt), itself
the result of the amalgamation of eight regional clearing houses associations.
Clearstream International was formed in January 2000 through the merger of
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Section 16 Germany
Cedel International S.A. and Deutsche Börse Clearing AG. The full
integration of Clearstream was completed in July 2002 when Clearstream
International S.A. became a wholly owned subsidiary of Deutsche Börse AG.
16.3 Settlement
16.3.1 Clearstream Banking AG
Clearstream Banking AG is, at the present time, the only provider of central
securities depository services to the German domestic market because, as it is
the only credit institute that is currently recognised as a
Wertpapiersammelbank.
Products and Services
On 17 November 2003, a new settlement model for the German domestic
market (collective safe custody only) was implemented by Clearstream
Banking AG. It contains a guarantee concept which is intended to simplify
cross-border settlement: participants make liquidity available for the German
market by means of deposits in cash or securities at their national central
bank, which submits a cross-border guarantee to the German Bundesbank.
Links, based on the guarantee concept, already exist with the central banks in
Austria and the Netherlands.
Clearstream Banking AG also provides settlement services for transactions
executed on other trading platforms. For example, in mid-October 2004,
Clearstream Banking AG announced the launching of new settlement routes
with BrokerTec and MTS Germany, as well as an enhancement of the link to
SIS for SWX-Pfandbriefe (Swiss Exchange).
Access
Clearing members of Eurex Clearing AG can stipulate a separate settlement
institution for the settlement of transactions. Prerequisites for settlement are
an account at the Bundesbank and/or Swiss National Bank or correspondent
banks approved by Eurex Clearing AG and a securities account at one central
depository or custodian bank recognised by Eurex Clearing AG.
Holders of equity clearing license (i.e. exchange participants with a clearing
status -- whether they are executing their own transactions or those of non-
clearing members with whom they have a clearing agreement) must settle
with Clearstream Banking in its function as Wertpapiersammelbank, the central
securities depository. As noted earlier, at present, Clearstream Banking AG is
the only authorised Wertpapiersammelbank in Germany, allowing it to hold
securities in collective safe custody and to keep them physically in its own
vaults. But, other credit institutions could apply to become a
Wertpapiersammelbank as well, in accordance with the provisions of the
German Safe Custody Act (Depotgesetz).
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Section 16 Germany
The situation is somewhat different with respect to the settlement of bond
transactions. According to Eurex Clearing AG, holders of bonds clearing
license have the choice of settling their transactions with Clearstream Banking
AG and/or Euroclear.
The settlement of trades in MTS German Market is conducted either via
Euroclear Bank or Clearstream Banking AG.
16.4 Vertical arrangements between infrastructures
Table 10 below summarises securities clearing and settlement arrangements
in Germany since March 2003 and the introduction of the central
counterparty services. It shows that current vertical arrangements regarding
most clearing and settlement activities relating to equity and bond trading in
Germany impose certain requirements. These requirements take their origin
in obligations to clear and settle with certain organisations in order to be
allowed to trade a given security in a given market. As discussed earlier,
these obligations are imposed through various vehicles: legislation,
regulation and/or contractual arrangement for equities and contractual
arrangement between infrastructure providers and market participants for
bonds.
Table 10: Overview of clearing and settlement arrangements
Equities Bonds
Trading Frankfurt Stock Exchange Other
German
Shares held Others Eurex Bonds MTS
stock
in collective GmbH Germany
exchanges
safe custody (for equities)
that are
traded on the
floor or via
Xetra(1)
Clearing Eurex Clearstream Clearstream Eurex Clearstream
Clearing AG Banking AG Banking AG Clearing AG Banking AG
CCP Yes No No Yes Yes66
Settlement Clearstream Banking AG Clearstream Clearstream Banking AG;
Banking AG Clearstream Banking
Luxembourg; Sis (only Eurex
bonds) or Euroclear Bank.
(1) And at the same time subject to §16a of the Exchange rules of the Frankfurt Stock Exchange
66 Possibility to use LCH-Clearnet
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Section 17 Greece
17 Greece
17.1 Trading
The regulated securities markets operating in Greece are the following:
• The Athens Exchange67 (ATHEX) is the market operator of the Greek
Regulated markets including the cash markets such as equities
markets, private bonds market, Hellenic Depository Receipts, EKKA
Units Grek Spo as well the Derivatives market 68
• The Electronic Secondary Securities Market (HDAT) which is the Bank
of Greece trading platform for government debt securities market.
Euro MTS as well as BrokerTec are electronic trading platforms on which
Greek government debt securities are traded and that clear their trades
through the Bank of Greece.
17.2 Clearing and settlement
There are three organisations involved in clearing and settlement in Greece.
The Central Securities Depository (CSD) is responsible for (i) the clearing and
settlement of all ATHEX cash transactions as well as for the settlement of
ATHEX derivatives transactions subject to physical deliveries, (ii) the
registration of dematerialized securities monitored by CSD’s system, (iii) the
corporate actions processing and (iv) the assignment of ISIN and CFI codes to
the said securities.
Equities, corporate bonds and Hellenic Depository Receipts, listed and traded
in ATHEX are deposited in book-entry (dematerialized) form to the CSD's
dematerialized Securities System (DSS) platform. Transactions executed in
ATHEX, as well as OTC transactions in those instruments are settled in the
DSS platform.
Additionally, the CSD accepts deposits of government bonds in book entry
form, for which the Bank of Greece SSS acts as depository. For this reason,
CSD and the Bank of Greece SSS have established a link for the accurate
recording and monitoring of transfers on government securities
The Athens Derivative Exchange Clearing House (ADECH) is responsible for
the clearing and settlement of derivatives transactions executed on the
ATHEX Derivative Market and acts as central counterparty for the
67 In August 2002, the Athens Stock Exchange SA and the Athens Derivatives Exchange SA have merged to
form Athens Exchanges SA.
68 Sometimes referred to as ADEX, the acronym of the Athens Derivatives Exchanges SA which merged
with the Athens Stock Exchange SA in 2002.
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Section 17 Greece
derivatives market. ADECH and CSD have established a link for the transfer
of underlying securities, where physical delivery is required and for the
recording of pledges on securities in favor of ADECH.
The Bank of Greece Securities Settlement System (BOGS) serves as depository
and provides settlement services to its participants for the following
dematerialised securities: treasury bills and bonds in euro issued by the
Hellenic Republic; other securities issued by the Hellenic Republic (CPI-
indexed bonds, etc). Greek government debt securities traded on Euro-MTS
are also cleared and settled by BOGS.
Table 11: Overview arrangements in the Greek capital market
Equities, corporate Government Debt (bonds, Derivatives
bonds, HDRs (book- treasury bills) (book-entry
entry form) form)
Regulation HCMC Bank of Greece HCMC
Trading ATHEX HDAT ATHEX
Clearing CSD BOGs ADECH
CCP - BOGs ADECH
Settlement CSD BOGs ADECH/CSD
Depository CSD BOGs -
17.3 Ownership
The Hellenic Exchanges S.A. (HELEX) is a holding company owning the
Athens exchange, the CSD, the Athens Derivative Exchange clearing House,
the Thessaloniki Stock Exchange Centre69 and an infrastructure and systems
company (ASYK) which provides its operational services to the other
companies in the group whose objective is, according to its statute, the
participation in companies developing activities related to the operation and
support of organised capital markets. Today, the Hellenic Exchanges group
structure is as follows:
69 The Thessaloniki Stock Exchange Centre (TSEC) facilitates stock market trading in Northern Greece by
acting as gateway to ATHEX, but no trading takes place at the TSEC. It also serves to promote the
products and services of ATHEX in South East Europe.
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Section 17 Greece
Figure 2: HELEX group structure
HELEX S.A. Holding
98,19% 61,82% 53,58% 66,02% 100,00%
ATHEX S.A. CSD S.A. ADECH S.A. TSEC S.A. ASYK S.A.
38,18% 44,24% 33,80%
1,81% 1,13%
HELEX Participation ATHEX Participation CSD Participation
The shareholder structure of HELEX is as follows: banks (36%); institutional
investors (21%); brokerage firms (4%); retail investors (13%); and other (26%).
17.4 Legislation and supervision
The statutory and legal framework authorises the Bank of Greece to operate
and manage clearing and settlement systems, while its other responsibilities
include the oversight of payment systems and the supervision of credit
institutions and other financial organisations.
The Athens Exchange (ATHEX) operates under the supervision of the
Hellenic Capital Market Commission (HCMC). The HCMC, which is an
independent public entity operating under the supervision of the Ministry of
National Economy, is the body primarily responsible for ensuring the
protection of investors and the compliance of market participants with stock
exchange legislation. It is responsible for the regulation and supervision of
trading, clearing and settlement of all transactions in listed securities
executed on ATHEX and in the OTC market. It also regulates and supervises
ATHEX, TSEC, CSD AND ADECH.
17.5 Vertical arrangements between infrastructures
There are several forms of requirements deriving from either national
legislation or contractual agreements.
Equities market: Law 3152/2003 includes provisions about the conditions
needed for the creation of exchanges in Greece. Currently there is only one
(Athex), but the possibility exists to create further exchanges. However, there
is no provision about the possibility of creating other CSDs. The
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Section 17 Greece
aforementioned law specifies in article 5, that CSD (the unique CSD)
publishes the Rules for Clearing and specifies all the clearing procedures.
Moreover, article 39 of law 2396/96 specifies that all dematerialized securities
are recorded in the books of CSD S.A. Several articles of the same law specify
that the books of CSD S.A are the books of recording equities transfers.
As far as the Derivatives markets is concerned, law 2533/1997 clearly states
that the Athens derivatives Clearing House (ADECH) is the entity which
provides clearing and settlement activities.
In the case of Government debt the situation is also clear. Law 2198/94 article
5 clearly defines that the accounting entries of Government debt takes place
in the books of Bank of Greece and laws 2198/04 and 2515/97 specify that
cash settlement is carried out through an exclusive contractual arrangement
with Alpha Bank; and the trading, clearing and settlement of government
securities is effected through systems established, and operated by law, on an
exclusive basis.
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Section 18 Hungary
18 Hungary
18.1 Trading
Budapest Stock Exchange
The Budapest Stock Exchange (BSE) has an order driven electronic system for
equities, bonds, foreign currency and interest rate derivatives. Its members
are banks and brokerage firms.
The BSE was re-established in 1989 as a private sector institution by
enterprises providing investment services at that time. According to the Act
CXX of 2001 on Capital Markets, the BSE has been granted the right to
transfer into a joint stock company, which took place on April 30, 2002.
The purchase and sale of listed securities on behalf of the general public is
only permitted if performed through the stock exchange.
The BSE is subject to HFSA market surveillance and prudential supervision.
Ownership
In 2004 the Vienna Stock Exchange, together with the Oesterreichische
Kontrollbank Aktiengesellschaft, Raiffeisen Zentralbank Österreich ,HVB
Bank Hungary and Erste Bank der oesterreichischen Sparkassen AG, acquired
joint control of the Budapest Stock Exchange and the Budapest Commodity
Exchange70 (BCE) as well as KELER the Hungarian clearing house and
depository for the BSE.
OTC market
Treasury bills and bonds are traded on the OTC market. Also, foreign
currency and interest rate derivatives are traded mostly on the OTC market.
Although government securities are also traded on the BSE, the OTC market
has a much higher share in terms of turnover. OTC derivatives play a key role
in banks’ risk management.
Two main types of transaction on the OTC securities markets are public
issues of government or private securities and secondary market transactions.
70 The Budapest Commodities Exchange (BCE) has a partly open-outcry and partly electronic order driven
market. Financial derivatives (interest rate and foreign currency derivatives), grain, and livestock are
traded on this market.
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Section 18 Hungary
18.2 Clearing and settlement
There is no separate clearing house in Hungary.
KELER plays the role of clearing house, central counterparty and settlement
agent for securities as well as for derivatives traded on the BSE and the
Budapest Commodity Exchange (BCE).
KELER can also settle OTC securities contracts for its customers upon
request.
18.3 Regulation
The activity of the market players is regulated by the Capital Markets Act and
supervised by the HFSA. The banks make the dominant proportion of the
deals, although some investment firms are very active as well.
Regulation of the securities clearing and settlement systems is a function of
the Ministry of Finance, while responsibility for the supervision of clearing
houses is borne primarily by the HFSA. The HFSA approves the general
terms of contracts and the rules of the clearing houses. The HFSA can
intervene in the day-to-day business of a clearing house by restricting the
access of customers to any account in certain circumstances. Both the HFSA
and the National Bank of Hungary can impose reporting obligations on the
clearing houses. Given the National Bank of Hungary’s interest in the
efficiency and stability of the capital and money markets, it can influence the
development of the securities settlement system through its 53.33%
shareholding in KELER.
Act CXX of 2001 on the capital markets regulates the clearing and settlement
of securities and derivatives in Hungary. The Act specifies the following
clearing and settlement services: clearing, cash settlement, securities
(commodity) settlement, the provision of settlement guarantees and the
operation of a securities lending system. A clearing house operating as a
specialised credit institution may grant all of these services, while a clearing
house with another legal form (e.g. a limited company) or an exchange itself
may only perform the functions of clearing, securities (commodity) settlement
and securities lending.
As a result of this provision in the new Act, from January 1, 2004 KELER
operates as a specialised credit institution. Any clearing house may be a CSD,
or the HFSA may designate any clearing house to provide this service.
Currently, KELER, the Hungarian CSD, is the sole provider of clearing house
services in Hungary. It has all the functions specified in the Act.
There are a number of different systems operated by KELER. Membership
criteria for each system differ, as do the methods used for risk management.
KELER opens and keeps securities accounts for those entities listed in the
Capital Markets Act as being eligible to hold such an account with it. These
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Section 18 Hungary
entities are investment service providers, investment fund managers, stock
exchanges, foreign depositories, custodians, BCE members (for the purpose of
providing collateral), issuers (with respect to their own securities), the
National Bank of Hungary, the State Treasury, and the Hungarian
Government Debt Management Agency (ÁKK).
18.4 Ownership
KELER, established in 1993, is a limited company and jointly owned by the
National Bank of Hungary (53.33%), the BSE (26.67%) and the BCE (20%).
18.5 Access
KELER offers its exchange related central counterparty (CCP) clearing and
settlement services under a clearing membership structure that recognizes
three different types of clearing members:
A General Clearing Member (GCM) is a direct participant of KELER entitled
to receive the clearing and settlement services provided by KELER, and to
benefit from KELER’s CCP guarantee and the resources of its guarantee
system. A GCM may clear the trades of its own or based upon contractual
agreements those of its ordering clients and those of NCMs.
An Individual Clearing Member (ICM) is also a direct participant of KELER
entitled to receive the clearing and settlement services provided by KELER,
and to benefit from KELER’s CCP guarantee and the resources of its
guarantee system. However, an ICM may clear the trades of its own and
those of its ordering clients but may not clear the trades of NCMs.
A Non-Clearing Member (NCM) possesses trading rights on the exchange but
may only be a direct participant in KELER outside the clearing system. The
trades concluded by a NCM are cleared and settled through a GCM. A NCM
has no contractual relationship with KELER rather it must enter into
agreement with a GCM.
Direct clearing membership is established by concluding a contract with
KELER, before which the following conditions should be met:
− a license from the relevant supervisory authority should be obtained;
− the capital and reporting requirements as laid down in the General Terms
of Business of KELER should be met;
− the required accounts should be opened.
Since 1 May 2004, foreign institutions are allowed to become remote members
of the BSE. As only local entities can become clearing members of KELER,
foreign remote members of the exchange need to use a local clearing member
(GCM) to settle their BSE transactions
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Section 18 Hungary
18.6 Vertical arrangements between infrastructures
According to BSE membership and trading rules, trades on the BSE have to
clear and settle through KELER.
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Section 19 Ireland
19 Ireland
19.1 Trading
Irish Stock Exchange
The Irish Stock Exchange operates four distinct markets on which securities
are traded. These are as follows:
• the official list, where domestic issues of government bonds and shares in
mature companies are traded;
• the exploration securities market, which is the market for the stock of
exploration companies71;
• the developing companies market (DCM), where the stock of small, new
Irish companies is traded; and
• the technology market (ITEQ), the market for growth-oriented companies
in dynamic industries.
EuroMTS
The market for Irish government bonds is managed by MTS Ireland.
19.2 Clearing
There is no clearing house currently operating in Ireland.
19.3 Settlement
The National Treasury Management Agency Act 1990 provided for the
establishment of the National Treasury Management Agency (NTMA) "to
borrow moneys for the Exchequer and to manage the National Debt on behalf
of and subject to the control and general superintendence of the Minister for
Finance and to perform certain related functions and to provide for connected
matters". It is a public sector, not for profit, organisation. NTMA is the
issuer, registrar and settler of Exchequer Notes and offers securities
depository for such instruments only.
The Central Bank and Financial Services Authority of Ireland (CBFSAI) acts
as registrar for Irish government bonds, which are issued by the NTMA, and
certain other securities. It used to also offer securities settlement services.
However, since 4 December 2000 the settlement of Irish government bonds
71 An exploration company is a company that does exploration for natural resources, like e.g. natural gas.
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Section 19 Ireland
has been outsourced to Euroclear Bank. The CBFSAI, in its role as registrar,
effects dividend and redemption payments to account-holders, including
Euroclear (on behalf of relevant participants in the Euroclear system). The
total of all holdings of Euroclear participants in each bond is recorded in an
omnibus account on the CBFSAI’s register in the name of Euroclear
Nominees Limited. Transactions between Euroclear participants are effected
within the Euroclear system without affecting the register, while transactions
between registered holders and Euroclear participants necessitate updating of
the register.
Transactions in Irish government bonds are settled in Euroclear Bank, while
trades in Irish equities are settled in CREST (part of the Euroclear group).
Transfers of Exchequer Notes are recorded on a register maintained by the
issuer, the NTMA.
19.4 Regulation
The key regulatory responsibilities of various institutions are described
below.
Irish Stock Exchange
• monitoring compliance by members with the rules of the Exchange;
• stock exchange listing; and
• prevention of insider dealing.
Central Bank and Financial Services Authority of Ireland
• supervision of banks, building societies, stock exchanges, investment
intermediaries, futures and options exchanges, money brokers, collective
investment schemes and certain other financial institutions;
• regulation and oversight of payment and securities settlement systems;
• provision of settlement account facilities, including management and
operation of the RTGS system;
• registrar for Irish government bonds and certain other securities; and
• currency issue.
National Treasury Management Agency
• issue and management of Irish government debt.
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Section 19 Ireland
19.5 Vertical arrangements between infrastructures
As a condition of being admitted to trading, traders on the Irish Stock
Exchange, according to the stock market’s regulations, must have
arrangements in place that they can settle through a) CREST for equities and
warrants that are dealt on the electronic trading system of the Irish Stock
Exchanges and certain corporate bonds and b) Euroclear for Irish government
bonds and some other bonds.
London Economics
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Section 20 Italy
20 Italy
20.1 Trading
Borsa Italiana S.p.A.
Borsa Italiana S.p.A. is the company responsible for the organisation and
management of the Italian stock exchange system and was created in 1997 by
the privatisation of these markets. Its capital is held mainly by Italian
intermediaries. Borsa Italiana controls both CC&G (86.37%) and Monte Titoli
(98.77%).
Borsa Italiana operates under the rules provided by the Consolidated Law on
Finance (Legislative Decree No. 58 of 24 February 1998) and by Consob
Regulation No. 11768 of 23 December 1998 implementing the provisions on
markets of such Decree.
With regard to the markets it operates, it is responsible for establishing:
• conditions and procedures for the admission of financial instruments and
intermediaries to trading and their exclusion and suspension;
• the obligations of intermediaries and issuers;
• the procedures for the acquisition, publication and dissemination of prices
and information.
Supervision of its operations is carried out by Consob, which also approves
its Rules.
Borsa Italiana operates the following regulated markets (as of the end of April
2005):
• Electronic share market (MTA): shares, convertible bonds, warrants,
pre-emptive rights or unit/chares of collective investment
undertakings;
• Nuovo Mercato (NM): shares, convertible bonds, warrants for issuers
having a high growth potential;
• Expandi Market: shares, convertible bonds, warrants and pre-emptive
rights for small cap companies that present a track record of positive
economic-financial results;
• Electronic securitised derivatives market (SeDeX): covered warrants
and certificates;
• After-Hours Market (TAH and TAHnm): shares of the MIB30,
S&P/MIB and Midex indices, shares of the Nuovo Mercato, covered
warrants and certificates for trading after the close of daily market;
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Section 20 Italy
• Electronic funds market (MTF): Exchange Traded Funds (ETF), closed-
end funds investing in real estate, closed-end funds investing in
securities, open-end funds, Sicav;
• Electronic bond and government securities market (MOT):
government securities and bonds other than convertible bonds;
• Electronic market for Eurobonds, foreign bonds, and asset-backed
securities (EuroMOT);
• Derivatives Market (IDEM): futures and options contracts whose
underlying assets are financial instruments, interest rates;
As regards the participation in the markets operated by Borsa Italiana,
domestic, EU and non EU investment firms and banks can be admitted
directly to trading on their own or on their customers’ account, provided that
they are authorised intermediaries pursuant to the Consolidated Law on
Finance. ‘Locals’, foreign intermediaries dealing only for their own account
and ‘Agenti di cambio’, Italian intermediaries dealing only for customers’
account, can also apply for membership.
Non Italian resident Institutions may access the market directly or through an
Italian based branch.
All participants have to fulfil organisational and technical requirements and
demonstrate their ability to settle and clear their contracts, directly or through
a settlement/clearing agent. All requirements apply both for the initial
admission to trading of intermediaries and for their continued eligibility.
Applicants may decide to apply for all the markets operated by Borsa Italiana
at the same time, submitting one single application, or to apply separately for
each single market.
Referring to the organisational and professional requirements requested for
the admission to trade on the markets, intermediaries should comply with the
provisions set up in the “Criteria for admission of intermediaries to the
markets”, approved by Borsa Italiana’s Board of Directors.
MTS S.p.A.
In 1988 Bank of Italy and Ministry of Treasury created the MTS market entity.
In 1997 the privatisation process, embedded in the law, led to the creation of
the joint-stock company MTS S.p.A. MTS S.p.A. is the company responsible
for the operation of MTS Italy. MTS S.p.A. holds 100%of EuroMTS, 66.66% of
MTSNext and a minority stake in MTS domestic markets. MTS Italy and
BondVision are regulated market, under the supervision of the Treasury, the
Bank of Italy and Consob.
MTS S.p.A.’s shareholders are the main banking and financial groups (of
which 55.3% foreign and 44.7% Italian). The provision of a maximum
participation threshold in MTS S.p.A. equity (5%) supports balance in
corporate governance.
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Section 20 Italy
The markets operated by MTS S.p.A. and the securities traded in these
markets are:
• MTS Italy (floating-rate treasury certificates, fixed-rate bonds, zero-
coupon treasury bills);
• MTS/Quasi Government Bonds (Republic of Italy, EIB, Asset Backed
Securities);
• BondVision (European government securities).
MTS is a quote-driven market where market-makers are committed to quote
instruments assigned by MTS S.p.A. for a minimum quoting time along the
trading day (5 hours), complying with ask-bid spreads limits depending on
maturity/liquidity of each issue.
MTS S.p.A. has entered into an agreement with LCH.Clearnet SA and Cassa
di Compensazione e Garanzia to allow, on an optional basis, for transactions
on Italian government bonds executed on MTS Italy and EuroMTS, to be
guaranteed by the above mentioned Central Counterparties. For further
details see section 20.2.
TLX S.p.A.
TLX has been until recently operating as an Alternative Trading System
(“ATS”) under art. 78 of the Consolidated Financial Law (“CFL”, “Sistemi di
Scambi Organizzati”). In August 2003 it has been authorised by Consob as a
regulated market. TLX S.p.A. now operates a regulated market (“TLX”) and
an ATS (“EuroTLX”). Through TLX, it is possible to trade bonds and
government bonds. Banks and the investment firms (national, EU and non-
EU, authorised to provide investment services) can access the TLX market.
Through EuroTLX it is possible to trade covered warrant, quotas or shares of
collective savings investment bodies and Asset Backed Securities.
Contracts are settled through Monte Titoli, Euroclear or Clearstream.
20.2 Clearing
Cassa di Compensazione e Garanzia (CC&G)
CC&G manages the Central Counterparty Guarantee System in Italy.
Contracts concluded in the MTA, TAH, Nuovo Mercato, TAHnm and IDEM
markets are guaranteed by a Central Counterparty (CCP) System, carried out
by the Cassa di Compensazione e Garanzia.
CC&G is a company controlled by the Borsa Italiana Group since 2000. Since
2004 the Borsa Italiana stake in CC&G is 86.37%, with the remaining 13.63%
owned by two Italian Banks.
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Section 20 Italy
The activity of CC&G is supervised by Bank of Italy and Consob, which also
approve its regulations.
CC&G carries out the Central Counterparty function by taking on the
counterparty risk from the moment of execution of the contracts, acting as the
buyer to every seller and as the seller to every buyer, and becoming the
guarantor of the final settlement of the contracts. It performs this activity
with respect to the following markets operated by:
• Borsa Italiana: IDEM; MTA, Nuovo Mercato and related Trading After
Hours;
• MTS S.p.A., with exclusive reference to Italian Government Bonds, in
partnership with LCH.Clearnet S.A..
It is possible to become Member of CC&G for both resident and non resident
institutions, and different levels of clearing member are offered.
CC&G Clearing Members must meet financial and operational requirements.
The financial requirements are proportionate to the markets cleared; as far as
general clearing member are concerned, capital requirements depend also on
the number of non-clearing members represented.
As of April 2005, 35% of the CC&G Members are non resident.
Agreement CC&G and LCH.Clearnet SA
MTS S.p.A., Cassa di Compensazione e Garanzia S.p.A. (CC&G) and
LCH.Clearnet SA have signed an agreement (December, 2002), paving the
way for the establishment of a central counterparty service to allow
transactions on Italian government bonds executed on MTS Italy and
EuroMTS to be guaranteed by a central counterparty.
According to this agreement, use of a CCP by market members is optional;
the option is not to be used transaction by transaction, but rather on a one-off
basis. Participants on the MTS and EuroMTS market are not obliged to use
the services of a CCP, but if they decide to do so, they have the choice
between the services of CC&G and those of LCH.Clearnet. In order to make
such a right of choice effective and allow dealers to trade among themselves
independently of the CCP of choice, the two CCPs are linked: each central
counterparty is a general clearing member of the other. Moreover, the
methods for calculating margins and capital requirements for membership
are the same for the two CCPs.
20.3 Settlement
Monte Titoli
Monte Titoli has operated as a Central Securities Depository since 1978. It
takes care of the administration and centralised deposit service for almost all
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Section 20 Italy
Italian securities and, following a public tender, also for all Italian
government securities since August 2000. Monte Titoli is the only CSD
authorized under the Italian CFL.
Since December 2002, Monte Titoli has been part of the Borsa ItalianaGroup ,
following the purchase offer made by Borsa Italiana, which brought its quota
of Monte Titoli's share capital up to almost 99%.
In October 2000 the Bank of Italy, in agreement with Consob, authorised
Monte Titoli to manage settlement services for non-derivative financial
instruments, excluding the final phase of settlement of cash, which is
operated by the Bank of Italy in its cash payments system (BI-REL). In the
same year, following authorisation, Monte Titoli started operating a Real
Time Gross Settlement ("RTGS") System for over-the-counter ("OTC") and
monetary policy operations.
Since January 2004, when Express II was totally implemented, Monte Titoli
has been the provider of settlement services. Express II integrates gross with
multilateral netting functionalities - pre-settlement, overnight and daylight
settlement cycles - in a single environment. It substituted the Liquidazione
dei Titoli settlement system (LdT) operated by the Central Bank.
Monte Titoli also operates the RRG services which, as already mentioned,
manage the matching and the routing of matched transactions to the
settlement services. The RRG services also create the bilateral balances
between CC&G and its counterparts and send them to the settlement services.
Contracts concluded in the MTA, TAH, Nuovo Mercato, TAHnm, SEDEX,
MOT and Expandi Market are settled through the Italian settlement system
operated by Monte Titoli – Express II - that integrates net with gross
settlement functionalities, for transactions in non-derivative financial
instruments.
As regard the MTA, TAH, Nuovo Mercato, TAHnm, SeDeX, MOT and
Expandi markets access to the RRG services is needed. These services,
operated by Monte Titoli, manage the matching of transactions and the
routing of matched transactions to the settlement services.
It is possible to become Member of Monte Titoli for both resident and non
resident institutions, in particular:
• national and non-EU banks and investment Firms authorised to
provide Investment Services in Italy;
• banks and investment Firms authorised to provide for Investment
Services in Italy subject to mutual recognition.
Clearstream Banking Luxembourg and Euroclear
Eurobonds traded on Borsa Italiana, TLX and MTS markets can be settled in
Clearstream Banking and Euroclear.
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Section 20 Italy
Contracts concluded in the EuroMOT market are settled at Clearstream
Banking Luxembourg and Euroclear. Members of this market shall therefore
demonstrate their participation in at least one of such systems, directly or via
another company.
20.4 Vertical arrangements between infrastructures
For the organisation of regulated markets or ATSs there are no exclusive
provisions, even though in Italy this activity is mainly carried out by Borsa
Italiana S.p.A. and MTS S.p.A. (for wholesale trading of government bonds).
With reference to clearing, there are no exclusive provisions specified in
legislation or regulation.
Only recently have Italian market operators decided to introduce the central
counterparty service on cash markets. Membership rules of Borsa Italiana
require that intermediaries shall be member of a specified CCP, which is
Cassa Compensazione e Garanzia, controlled by Borsa Italiana. Membership
rules of MTS establish that the use of a CCP is not mandatory and give
participants the possibility to choose between the services of Cassa
Compensazione e Garanzia and LCH.Clearnet S.A, according to the
interoperability agreement signed with MTS (see section 20.2).
With respect to settlement, article 69 of the CFL establishes that the settlement
services for non-derivative financial instruments, excluding final settlement
of the cash leg, are carried out by a single company, authorised by the Bank of
Italy in agreement with Consob. Secondary legislation enacted by the Bank of
Italy and Consob provides that the authorisation to perform such function
may be granted exclusively to entities regulated as CSDs or to entities
controlled by CSDs. The CFL (art. 80) allows more than one entity to be
authorized as CSD. Currently, Monte Titoli is the sole Italian CSD authorized
in Italy according to art. 80 of the CFL.
Art. 69 of the CFL does not specify which company can provide settlement
services. Monte Titoli S.p.A. won the tender for providing these services.
Neither the law nor the enacting secondary legislation provide an expiration
date for the authorisation; however, in the secondary legislation it is specified
that the authorisation can be withdrawn where the company no longer
satisfies the requirements established or fails to fulfil the obligations stated in
the regulatory framework.
Membership rules of Italian regulated markets (Borsa Italiana, MTS and TLX)
specify that intermediaries must use, directly or indirectly, the system
referred to in art. 69 of the CFL – that is Monte Titoli, which is controlled by
Borsa Italiana. As regards Eurobond transaction, intermediaries can choose
between Clearstream Banking Luxemburg and Euroclear Bank.
Against this background, an exclusive right for settlement arises in favour of
the company authorised according to art. 69 of the CFL, that is, currently,
Monte Titoli.
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Section 21 Latvia
21 Latvia
21.1 Trading
Riga Stock Exchange
Securities trading takes place for the most part at the Riga Stock Exchange
(RSE). The RSE operates a fully automated electronic continuous trading
system based on a public order book.
The basic categories of financial instruments traded in the Latvian securities
market are:
q Government debt securities traded on the RSE and the OTC market.
q Corporate debt securities traded on the RSE and the OTC market. This
category includes corporate money market instruments - commercial
papers, certificates of deposit and capital market securities - corporate
bonds, mortgage bonds, etc. deposited with the Latvian Central
Depository (LCD);
q Equity shares traded on the RSE or the OTC market;
q Mutual fund units.
At present there is no central market for derivatives, although some banks
issue and trade such instruments with their customers and other banks.
Alongside the customary trades in the RSE, OTC trading has also been
developed in Latvia, supported by two SSSs. OTC trading in securities
registered in the LCD is supported by DENOS. OTC trading in government
debt securities registered at the Bank of Latvia is supported by VNS.
21.2 Clearing
There are no central counterparties or separate clearing houses currently
operating in Latvia.
The LCD, which also acts as a settlement institution, is the only central
depository and cash clearing institution for publicly tradable financial
instruments in Latvia.
All public issues of financial instruments must be registered in the accounts
of the LCD. In practice however only shares, bonds, mortgage bonds and
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Section 21 Latvia
units of collective investment funds are registered in the accounts of the LCD,
because derivatives are not traded publicly.
The LCD operates a two-tier system: the LCD keeps the balance between the
issued securities and the securities held by the custodians (banks and
investment brokerage companies); custodians keep accounts of individual
clients. The LCD does not act as a central counterparty.
21.3 Settlement
There are two SSSs in the Republic of Latvia, DENOS, operated by the LCD,
and the VNS operated by the Bank of Latvia.
Trades in private sector securities (equities, corporate debt securities and
mutual fund units) are settled by DENOS.
VNS provides settlement services only for banks. Since trades in government
securities are not common for non-banks, VNS is the main settlement
organisation for transactions in Latvian government debt securities. Trades
in government securities undertaken by non-banks are settled by DENOS.
The LCD is a private institution, which operates in accordance with the Law
on the Financial Instruments Market (2004) as well as in compliance with the
rules and regulations approved by the Financial and Capital Market
Commission (FCMC). The LCD provides safe custody services for deposited
securities, clears and settles stock exchange and OTC trades, manages
corporate actions and provides information to securities market participants.
There is no central counterparty in DENOS. The services of the LCD are
available only to authorised participants, who are not required to become
LCD shareholders.
The VNS, launched in December 1993, is an SSS operated by the Bank of
Latvia and used mainly for its monetary operations. The Regulation on the
securities settlement system organised by the Bank of Latvia, which the latter
approved, determines the legal basis for the VNS, securities holdings and
transfers made through the VNS. The VNS does not act as a central
counterparty.
21.4 Regulation
The RSE is supervised and regulated by the FCMC. The operational
procedures of the exchange, such as the admission of new members, the
listing requirements, the trading and quotation rules, clearing and settlement
rules and other issues are established in the Rules and Regulations of the RSE
which are approved by the FCMC.
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Section 21 Latvia
21.5 Ownership
The LCD is 100% owned by the RSE.
The RSE is incorporated as a joint stock company. 92.98% of the capital of the
RSE is owned by the OMX Group (the operator of the Nordic-Baltic securities
markets), 3.51% by a local bank (a/s Rietumu Banka) and 3.51% by a local
investment brokerage company (a/s RB Securities).
21.6 Access
Membership may be obtained by an investment brokerage company or a
credit institution which is eligible to provide investment services in Latvia or
in a EU/EEA Member State and is eligible to become a member of the
Exchange pursuant to the provisions of the Law on the Financial Instruments
Market, and the operation of which is supervised by a relevant State
supervisory authority and which complies with the requirements of the RSE
Rules.
LCD
The participants in the LCD are banks, investment brokerage companies that
have a licence to provide investment services and securities issuers. Special
participation status is granted to the Republic of Latvia, EEA Member States,
municipalities of the Republic of Latvia and EEA Member States, the RSE, the
Bank of Latvia, the Estonian Central Depository for Securities, the Lithuanian
CSD and market organisers. LCD participants with issuer status are issuers
of financial instruments. Banks and investment brokerage companies
licensed by the FCMC to operate in the securities market are direct
participants and may be custodians of securities accounts. Investment
brokerage companies, however, are not allowed to open cash accounts and
conduct cash settlements. Thus, their cash settlements are executed on the
basis of an agreement with a bank that is a LCD participant.
For the safe custody and settlement of securities, individual investors open
securities accounts with a bank or investment brokerage company that is a
LCD participant. There are also special terms and conditions enabling non-
resident participants to open a securities account with the LCD.
21.7 Vertical arrangements between infrastructures
The LCD has a monopoly status according to the Law on the Financial
Instruments Market.
The FCMC believes that there is no fundamental theoretical motivation why
the monopoly status of the LCD should be retained. From a practical point of
view, however, the FCMC is of the view that there are several reasons why its
retention is in the public interest:
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Section 21 Latvia
1) The size of the publicly traded financial instruments market in Latvia is so
small that there is no need for more than one central depository.
2) The Law on Financial Instruments Market specifies that at least two users
of the LCD services (banks or investment brokerage companies) must be
represented at the Supervisory Board of the LCD. At present, two out of
five Supervisory Board members represent market participants.
3) A cancellation of the monopoly status of the LCD would go against the
principle of the legal certainty as to the rights of the owners of the LCD
and would contradict the Law on Foreign Investment Protection.
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Section 22 Lithuania
22 Lithuania
22.1 Trading
National Stock Exchange
The regulated securities markets of the Republic of Lithuania are the Official
list and Current list of the National Stock Exchange (Vilniaus vertybini•
popieri• birža, VVPB). These markets are used for trading in stocks and debt
securities (bonds).
Monetary settlement and the transfer of securities in question complete each
transaction effected at the VVPB. The VVPB arranges the settlement process.
The transfer of securities is ensured by the Central Securities Depository of
Lithuania, (Lietuvos centrinis vertybiniu• popieriu• depozitoriumas, LCVPD)
and the cash settlement is arranged by the Payment Systems Department of
the Bank of Lithuania.
The organised trading of securities (shares, rights, Treasury bills, corporate
and government bonds) on the secondary market takes place at the VVPB.
22.2 Clearing
Lithuania currently has no separate clearing house. The post-trade and pre-
settlement clearing services are combined with the settlement activities.
22.3 Settlement
The LCVPD provides a full set of clearing and settlement services in
Lithuania. LCVPD is the operator of the securities settlement system and a
participant of the payment system LITAS operated by the Bank of Lithuania.
LCVPD conducts general accounting of securities and their circulation, opens
and operates securities accounts, prepares and implements accounting
systems for account managers, provides securities custody, settlement and
other services for market participants. The LCVPD operates pursuant to the
Law on public trading in securities (superseded by the Law on the securities
market on 1 April 2002) and is supervised by the Lithuanian Securities
Commission (Lietuvos Respublikos vertybiniu• popieriu• komisija; VPK).
The Bank of Lithuania provides cash settlement facilities for the settlement of
securities transactions performed by the LCVPD.
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Section 22 Lithuania
22.4 Regulation
The VVPB operates pursuant to the Law on public trading in securities
(superseded on 1 April 2002 by the Law on the securities market of 17
December 2001, No. IX-655) and is supervised by the VPK.
22.5 Ownership
LCVPD is a public company. The shareholders of the LCVPD are the Bank of
Lithuania (60%), the Helsinki Securities and Derivatives Exchange Clearing
House Ltd (OMX group) (32%) and the Vilnius Stock Exchange (owned by
the OMX group) (8%).
The VVPB was registered with the VPK on 11 May 1993 as a non-profit
organisation. In 1998 the VVPB was reorganised into a public company. The
major shareholder of the VVPB is the Helsinki Stock Exchange (93.09%).
Other shareholders are market intermediaries (finance brokerage firms and
commercial banks licensed to render investment services in Lithuania), and
private natural and legal persons.
22.6 Access
Intermediaries authorised to render investment services, having reached an
agreement with the VVPB may become members of the VVPB authorised to
participate in securities trading, subject to prudential and technical
requirements. Intermediaries must become members of the Guarantee Fund,
which covers the transactions on the central market in cases where
intermediaries fail to effect settlements of transactions effected at the Central
market.
On 19 January 2004 the payment system LITAS of the Bank of Lithuania and
the new Securities Settlement System of the LCVPD started its operation. At
the end of 2004 LITAS participants were the Bank of Lithuania, 9 commercial
banks, 2 foreign banks branches, 10 financial brokerage firms, the LCVPD and
the Central Credit Union of Lithuania (CCU). The Bank of Lithuania is the
owner and the operator of the system.
The participation in the Securities Settlement System is open to the
institutions specified in the Law on Settlement Finality in Payment and
Securities Settlement Systems, i.e., financial brokerage firms, credit
institutions holding a licence that does not restrict securities operations, and
the Bank of Lithuania. Stock exchanges may also participate in the system.
The participants of the Securities Settlement System are also participants of
the payment system LITAS and have a settlement account with the Bank of
Lithuania. Stock exchanges may be participants of the Securities Settlement
System without participating in the payment system LITAS. Persons or
companies seeking to obtain the status of participant must sign an
appropriate agreement with the LCVPD. LCVPD is the operator of the
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Section 22 Lithuania
system. The Securities Settlement System is registered at the Bank of
Lithuania.
With the aim of merging the securities markets of the three Baltic States into a
single investment area the VVPB has launched a co-operation project with the
Tallinn and Riga Stock Exchanges. This co-operation is based on the
Memorandum of Understanding signed on 24 April 1999.
As a result of this, on 3 January 2000 the Estonian, Latvian and Lithuanian
stock exchanges launched the common list of Baltic blue-chip securities (the
so-called “Baltic list”). As of March 2005, this list consisted of 19 of the largest
firms listed on the official lists of the three exchanges.
22.7 Vertical arrangements between infrastructures
The activities of the VVPB, the systems of payment for and settlement of
securities are governed by the Law on public trading in securities which was
superseded in 2002 by the Law on the securities market, and the Law on
completion of settlement and settlement of securities in the systems of the
Republic of Lithuania. The laws do not provide for any exclusive rights in
respect of any systems or companies. There are no prohibitions to establish
new stock exchanges, payment or securities settlement systems. However, in
practice, no alternative stock exchanges or securities settlement systems have
been established.
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Section 23 Luxembourg
23 Luxembourg
23.1 Trading
The only stock exchange operating in Luxembourg is the Luxembourg Stock
Exchange.
23.2 Clearing and settlement
LuxClear is licensed under Luxembourg law as a credit institution and is the
only Luxembourg provider of clearing and settlement services. It does not
fulfil the function of a central counterparty. LuxClear is operated by the
Deutsche Börse Group (through Clearstream International Luxembourg, a
fully owned subsidiary of Deutsche Börse).
The Luxembourg Stock Exchange, in its rules and regulations sets out the
conditions for clearing and settlement of transactions carried out through its
systems. These rules state that:
“For all the securities traded on the stock exchange, the clearing shall be
carried out through a clearing system recognized by the Luxembourg Stock
Exchange, or according to clearing methods defined by the stock exchange
committee, unless otherwise agreed upon by the counterparties to deliver the
securities by other ways and means at their convenience."
Moreover, according to the rules and regulations of the Luxembourg Stock
Exchange, where a buyer and a seller are members of the same clearing
system and settle a transaction between themselves through such system, the
regulatory provisions of such system shall apply to such settlement. Where a
buyer and a seller are members of two separate clearing systems and settle a
transaction between themselves through an intersystem link organized by
such clearing systems, the regulatory provisions governing such intersystem
link apply to such settlement.
23.3 Vertical arrangements between infrastructures
Traders are given the option to use a clearing and settlement
institution/mechanism of their choice for transactions carried out on the
Luxembourg Stock Exchange.
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Section 24 Malta
24 Malta
24.1 Trading
Malta Stock Exchange
The Malta Stock Exchange is the only securities trading platform. The
Exchange also provides clearing and settlement, depository and related
services for securities.
Relevant regulations and other infrastructural and technical arrangements are
well-advanced which provide for the dematerialisation of Treasury Bills and
their admission to listing and trading on the Malta Stock Exchange.
24.2 Clearing and settlement
The MSE also provides for clearing of listed securities. It also operates the
central securities depository. All listed securities in Malta, except treasury
bills and open-ended collective investment schemes (CIS), are dematerialised.
The MSE is responsible for the clearing and settlement of transactions effected
on the market. The MSE, through the central securities depository, maintains
the registers of holders of all listed securities. The central securities
depository also provides a range of other services including corporate actions
and primary issue processing.
As the Central Securities Depository currently forms an integral part of the
Exchange which is responsible for clearing and settlement of market
transactions and registrar functions for listed securities, it is difficult to
separate the functions of the Depository from those of the Exchange itself.
Consequently, there is no direct supervision of the Depository other than the
regulation of the Exchange itself as a recognised investment exchange.
24.3 Regulation
The Malta Stock Exchange was established in 1991 under the provisions of the
Malta Stock Exchange Act of 1990.
The Banking Act of 1994 and the Financial Institutions Act of 1994 made the
Central Bank of Malta responsible for licensing credit and financial
institutions. Since 1 January 2002 this function has been performed by the
Malta Financial Services Centre (MFSC). In this role, the MFSC is also
responsible for issuing banking directives and ensuring that credit and
financial institutions comply with the provisions of the law and the
conditions of their licenses.
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Section 24 Malta
24.4 Ownership
The Maltese State owns the Malta Stock Exchange.
24.5 Vertical arrangements between infrastructures
The clearing and settlement of trades undertaken on the Malta Stock
Exchange are provided by the stock exchange itself.
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Section 25 Netherlands
25 Netherlands
25.1 Trading
Transactions in Dutch equities do not only take place on Euronext
Amsterdam but also on the Deutsche Börse, Virt-X and the London Stock
Exchange, while Dutch derivatives are also quoted on the Eurex exchange.
Euronext Amsterdam
In the Netherlands, Euronext Amsterdam NV and Euronext NV received joint
authorization to operate exchanges in the Netherlands.
Euronext Amsterdam NV operates the Dutch cash and derivative markets. It
is a wholly-owned subsidiary of Euronext NV, the holding company of the
Euronext group. The holding company is governed by Dutch law. A wide
range of securities are traded on Euronext Amsterdam NV: shares,
investment funds, warrants, trackers, bonds, options and futures. Contrary to
the Euronext exchanges of Belgium, France and Portugal Euronext
Amsterdam NV quotes securities in currencies other than EUR, for instance
GBP, SFR, USD, AUD, CAD, NKR.
MTS Amsterdam
MTS Amsterdam is the company managing the electronic trading platform
for Dutch government securities. MTS Amsterdam is jointly owned by the
State of the Netherlands, Primary Dealers and MTS S.p.A. The State of the
Netherlands and thirteen primary dealers own together 70% (via 5% shares
stakes) of the company, while the other 30% of the company is owned by
MTS S.p.A. The company is governed by a Board of Directors elected by its
shareholders. MTS Amsterdam is incorporated under Dutch Law and subject
to the supervision of the Authority Financial Markets (AFM).
25.1.1 Access
To become a member of Euronext Amsterdam, an applicant must meet the
following requirements:
1. Euronext harmonised requirements for securities exchanges
membership;
2. Euronext Amsterdam local requirement for securities membership;
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Section 25 Netherlands
The Euronext Rule Book governing the contractual relationship between
Euronext exchanges and trading members specifies under “Requirements for
Euronext Securities Membership”, that:
“2501 Any Euronext Securities Member wishing to trade on the Euronext
Securities Markets must be a party to a Clearing Agreement in respect of those
Securities which he is authorised to trade but which he is not authorised to
clear.
2502 The Clearing Agreement entered into pursuant to Rule 2501 shall
comply with any requirements imposed by or pursuant to the Clearing Rule
Book.
4601 Transactions executed on a Euronext Securities Market shall be cleared
in accordance with the rules and procedures set forth in the Clearing Rule
Book, and settlement shall be arranged through the settlement organisations
designated by Euronext”72
A Clearing Member is defined as:
“Any Person authorised by the Clearing House to clear Transactions in
accordance with the relevant provisions of the Clearing Rule Book“ 73.
A Clearing House is defined as:
“LCH.Clearnet Limited or LCH.Clearnet S.A. as the case may be “74.
So it appears that a contractual obligation is imposed on Euronext
Amsterdam trading members to clear transactions with a clearing house
which for the time being is LCH.Clearnet SA in the case of securities
transactions executed on Euronext Amsterdam75.
72 Euronext Rules – Book I issued 26 November 2004 pp. 24, 44 and 45.
73 Euronext Rules – Book I issued 26 November 2004 p.6
74 Euronext Rules – Book I issued 26 November 2004 p.6
75 The same contractual obligation to clear transactions with LCH.Clearnet SA is imposed on trading
members of Euronext Paris, Euronext Brussels and Euronext Lisbon.
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Section 25 Netherlands
25.2 Clearing
LCH.Clearnet SA provides clearing and CCP services for Euronext
Amsterdam NV as well as for OTC bond and repo transactions, although the
volume of transaction for the latter two is low.
In July 2004 MTS Amsterdam appointed LCH.Clearnet SA to provide clearing
services for trading government bonds.
In Section 5 of the Application for Admission as a Clearing Member of
LCH.Clearnet SA76, dealing with delivery/settlement, it is stipulated that all
securities in one market will be delivered through a single settlement system
and, under the current arrangements, a prospective Clearing Member of
Euronext Amsterdam has to settle at Euroclear Nederland.
25.3 Settlement
There are 2 settlement services providers in the Netherlands: Euroclear
Nederland and Euroclear NIEC, both of which belong to the Euroclear group.
Settlement can also be perfoemd via Euroclear Bank SA/NV which performs
an intermediary role.
Euroclear Nederland
Euroclear Nederland is the only legal entity that maintains a Central Giro
Depositary, and offers giro-based securities settlement on behalf of its
participants as defined under the Securities Giro Administration and Transfer
Act of 197777, as well as other activities within the framework of the Securities
Giro Act that are deemed to fall within its ambit. Euroclear Nederland also
offers custody and administration of securities. It operates both on a
domestic and a cross-border basis.
The role of the CSD is limited to crediting/debiting the joint accounts of
investors and safekeeping of the securities. The CSD is not allowed to enter
into any kind of credit arrangements.
Euroclear NIEC
Euroclear NIEC is a securities settlement system for securities which are not
suitable or deemed to be suitable for admission to the securities book-entry
transfer system as defined in the Securities Giro Administration and Transfer
Act. As such, Euroclear NIEC is complementary to Euroclear Nederland.
76 LCH.Clearnet -- Application for Admission as a Clearing Member, Updated 29th July 2003.
www.lch.clearnetsa.com.
77 Wet giraal effectenverkeer
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Section 25 Netherlands
Like Euroclear Nederland, Euroclear NIEC offers both domestic and cross-
border services.
Clearstream Banking Luxembourg and Euroclear Bank
These two institutions settle trades in Dutch bonds on the MTS Amsterdam.
25.3.1 Access
Euroclear Nederland
Euroclear Nederland admits different types of domestic and foreign clients
who are active in capital markets:
Ÿ Professional institutions active on behalf of their own clients/investors
(i.e. credit institutions with a banking license under the European Banking
Directive);
Ÿ Inter-professional institutions serving professional institutions (e.g.
clearing houses and other CSDs).
25.4 Vertical arrangements between infrastructures
The review of the Euronext Rule Book and LCH.Clearnet SA Clearing Rule
Book showed that, at the present time, there exist a number of requirements
for both clearing and settlement arising from the contractual obligations set
out in these documents:
Ø Euronext Amsterdam trading members must clear transactions with
LCH.Clearnet SA in the case of securities transactions executed on
Euronext Amsterdam;
Ø LCH.Clearnet SA clearing members must settle transactions through
Euroclear Nederland.
Similarly, trades in government bonds executed on the MTS platform are
required to be cleared through LCH.Clearnet.
Table 12: Overview of arrangement in clearing and settlement
Trading Book-entry securities1 Other securities
Clearing LCH.Clearnet SA LCH.Clearnet SA
CCP Yes Yes
Settlement Euroclear Nederland or Euroclear NIEC
Euroclear Bank
NOTE: (1) Securities admitted to the book-entry transfer system as defined in the Securities Giro
Administration and Transfer Act.
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Section 26 Poland
26 Poland
26.1 Trading
Under Polish law organised trading can be conducted both on regulated and
unregulated markets. There are currently two operating regulated markets
(the Warsaw Stock Exchange and the CeTO market) as well as one organised
yet not regulated platform (MTS Poland).
Warsaw Stock Exchange (GPW)
The Warsaw Stock Exchange organises the primary and secondary trade in
securities. It is the main trading platform for the majority of common stock
and derivatives.
MTS-CeTO S.A.
MTS-CeTO is an operator of two different securities markets.
The first is the market of Polish Treasury Securities (Electronic Treasury
Securities Market), which constitutes a part of Primary Dealers System
organized by the Ministry of Finance. The platform is the result of a strategic
alliance with the MTS Group and operates under the name “MTS Poland”.
The second is the CeTO market on which a range of securities, such as the
equities of small and medium sized corporations, bonds and other debt-
securities, are traded.
26.2 Clearing and Settlement
There is currently no separate entity acting as a clearing house. Clearing
services are performed in the securities settlement system.
At this moment the sole provider of this kind of services is the National
Depository for Securities (KDPW). The KDPW handles the clearing and
settlement of both cash and derivatives transactions executed on the GPW
and the MTS-CeTO S.A., with the exception of Treasury bills.
The National Bank of Poland also plays an important role in the field of
clearing and settlement. It acts as a cash settlement agent for transactions
settled via the KDPW, as an issuing agent for Treasury securities and as a
depository and settlement institution for Treasury bills.
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Section 26 Poland
26.3 Regulation
The Law on public trading in securities (1997) assigns the overall supervision
of the GPW, the MTS-CeTO S.A. and the KDPW to the Securities and
Exchange Commission (KPWiG).
26.4 Ownership
The GPW was founded by Government decree and commenced operation as
a joint stock company in April 1991, with the State Treasury as a major
shareholder (98.8%). The other GPW shareholders are banks, brokerage
houses and listed company. GPW capital amounts to PLN 41,979,000 (USD
11m) split into 59,970 registered shares of PLN 700 each.
MTS-CeTO S. A. is a joint stock company established in January 1996 upon
the initiative of over 20 of the largest Polish banks and brokerage houses.
Since May 2004 it is owned by MTS S.p.A. (25%), GPW (31.15%), banks,
brokerage offices, and others. The State Treasury, represented by the
Ministry of Finance, is also a shareholder.
The Company’s initial capital amounts to 10,500,000 PLN (USD 2.75m) and is
divided into 10,500,000 shares with par value of 1 PLN each.
The KDPW is a joint stock company owned equally by the GPW, the State
Treasury and the National Bank of Poland. The stock capital of the Company
amounts to PLN 21,000,000 (USD 5.5m) and is divided into 21,000 registered
shares of nominal value PLN 1,000 each.
26.5 Access
According to the Law on public trading in securities, access criteria to all
regulated markets in Poland are unified and only members are allowed to
place orders to the systems.
Any entity that meets the following requirements shall be eligible to become a
regulated market member:
1. A brokerage house or bank engaged in brokerage business;
2. A foreign investment company, either by establishing a branch or by
remote access. In the later case such a firm can either clear
transactions as a KDPW direct member or via a designated KDPW
clearing member;
3. Any other entity that is a member of the KDPW but operates on its
own behalf;
4. A bank that is not a member of KDPW but operates on its own behalf.
Furthermore, in addition to the above conditions, each regulated market may
impose additional requirements upon its prospective members. All
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Section 26 Poland
participants in market, however, have to be subject to the same rules and
procedures.
The following types of entity may participate in the KDPW: issuers of
securities, financial institutions, including brokerage companies, banks, the
National Bank of Poland and other financial institutions whose scope of
activities encompasses, pursuant to relevant regulations, the maintenance of
deposit or securities accounts (e.g. trust funds).
With the consent of and on terms specified by the KPWiG, non-resident
entities acting as CSDs or settlement agents for securities transactions may
also participate.
26.6 Vertical arrangements between infrastructures
The KDPW was established in 1991 as a part of the GPW. In 1994, it became a
joint stock company on the basis of the Law of November 29, 1994 r.
amending the Law on Public Trading in Securities and Trust Funds and other
acts. By this law the KDPW has a legal monopoly for the clearing and
settlement of securities other than Treasury bills.
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Section 27 Portugal
27 Portugal
27.1 Trading
Euronext Lisbon
In February 2002, BVLP – Sociedade Gestora de Mercados Regulamentados,
SA, a limited share company formed by the conversion of the Lisbon Stock
Exchange Association and the Oporto Derivatives Exchange Association,
changed its business name to Euronext Lisbon - Sociedade Gestora de
Mercados Regulamentados, SA.
Through the merger, BVLP shareholders became shareholders of Euronext
NV and Euronext Lisbon became a wholly owned subsidiary of Euronext NV.
MTS Portugal
MTS Portugal was established in 2000 to manage the electronic trading
system of the Special Government Debt Securities Market (Mercado Especial
de Dívida Pública; MEDIP). MEDIP is the Portuguese regulated market for
wholesale electronic trading of public debt securities by primary dealers,
which went live in July 2000.
Access
According to article 203 of Portuguese securities code, trading in a securities
market is made through its members. Only those financial intermediaries
that:
Are authorised to carry out securities operations and
Participate in the settlement system for operations carried out in that market or
which, for that purpose, have entered into an agreement with a participant in
that system, can be admitted as members.
Portuguese law does not require foreign financial institutions (from EU
countries) that intend to be admitted as a remote member to be authorised by
CMVM for providing investment services in Portugal. However, it is
necessary to fulfil the following:
Be authorised to receive, transmit and execute orders on a third party’s behalf;
and have notified the home country’s regulator for the purpose of using the EU
passport;
The Euronext Rule Book governing the contractual relationship between
Euronext exchanges and trading members stipulates under Requirements for
Euronext Securities Membership, that:
“2501 Any Euronext Securities Member wishing to trade on the Euronext
Securities Markets must be a party to a Clearing Agreement in respect of those
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Section 27 Portugal
Securities which he is authorised to trade but which he is not authorised to
clear.
2502 The Clearing Agreement entered into pursuant to Rule 2501 shall
comply with any requirements imposed by or pursuant to the Clearing Rule
Book.
4601 Transactions executed on a Euronext Securities Market shall be cleared
in accordance with the rules and procedures set forth in the Clearing Rule
Book, and settlement shall be arranged through the settlement organisations
designated by Euronext”78
A Clearing Member is defined as:
“Any Person authorised by the Clearing House to clear Transactions in
accordance with the relevant provisions of the Clearing Rule Book“ 79.
A Clearing House is defined as:
“LCH.Clearnet Limited or LCH.Clearnet S.A. as the case may be “80.
Thus a contractual obligation is imposed on Euronext Lisbon trading
members to clear transactions with LCH.Clearnet SA in the case of securities
transactions executed on Euronext Lisbon81.
27.2 Clearing
All cash trades on Euronext Lisbon are cleared by LCH.Clearnet SA which
acts as a central counterparty.
All applicants wishing to be admitted as a Clearing Member by LCH.Clearnet
must fulfil the following conditions in addition to the conditions set out in
Chapter 4, Title I :
a) open a cash account directly with Banco de Portugal or indirectly with
a Payment Agent in order to ensure the proper settlement of its
payment obligations vis à vis Clearnet;
b) be connected, directly or indirectly, through a Settlement Agent, with
the Securities settlement system and centralized Securities system
managed by Interbolsa;
c) be admitted as Trading Member of Euronext Lisbon;
d) constitute the appropriate permanent guarantee;
78 Euronext Rules – Book I issued 26 November 2004 pp. 24, 44 and 45.
79 Euronext Rules – Book I issued 26 November 2004 p.6
80 Euronext Rules – Book I issued 26 November 2004 p.6
81 The same contractual obligation to clear transactions with Clearnet SA is imposed on trading members of
Euronext Paris, Euronext Brussels and Euronext Amsterdam.
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Section 27 Portugal
e) make the appropriate contribution to the additional clearing
guarantee fund;
f) have the proper technical, operational and organizational conditions
to clear and settle.
27.3 Settlement
Interbolsa is the settlement institution for securities traded on Euronext
Lisbon and is the Portuguese private central securities depository. Apart
from Interbolsa, in Portugal there is another CSD, SITEME, owned by Banco
de Portugal. Currently, Treasury Bills are the only type of securities
deposited/registered there.
Interbolsa is a limited liability company organised under Portuguese law,
and, at the present time, is a wholly owned subsidiary of Euronext Lisbon.
As noted above, Interbolsa is responsible for the custody of securities and for
the settlement of securities regarding financial settlement with the Banco de
Portugal. It also provides a full range of services related to securities, such as
the exercise of bonus shares or their equivalent, the payment of dividends or
other similar forms of income, the redemption of securities, capital reduction
operations and mergers.
Interbolsa is used by the market to settle operations involving stocks, bonds
and other types of securities. It is also used by the Banco de Portugal to settle
Treasury bonds and private paper used to collateralize Eurosystem credit
operations. When collateralized by Portuguese Treasury Bills, the “physical”
leg of these operations is settled in SITEME.
Transactions on MTS are settled by Euroclear or Clearstream.
Access
According to Article 267 of the Portuguese securities code, participants in a
settlement system must be:
Credit institutions, investment companies and institutions with corresponding
functions that are authorised to operate in Portugal; and
Public entities and the companies that benefit from State guaranties
The supervisory authorities may extend the above mentioned standards to
non-EU entities that meet the same requirements as the EU entities.
Participation in Interbolsa is defined in its regulations. According to Article 4
of the Interbolsa admission regulations82, to become participants, financial
intermediaries are required to:
82 Interbolsa, Regulation NO. 5/2000 - Affiliates
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Section 27 Portugal
a) To posses the technical and operational conditions determined by
INTERBOLSA;
b) To close an contract with INTERBOLSA (according to the form annexed to
the Regulation);
c) To be registered at the CMVM - Comissão do Mercado de Valores
Mobiliários (the securities market commission, abbreviated as CMVM);
d) To hold an account at the Bank of Portugal;
e) To pay the affiliation fee.
Credit institutions and investment firms from other EU Member States can by
law become affiliates of Interbolsa while similar institutions from outside the
EU can be become affiliates so long as they are duly authorised to do business
in Portugal.
Participants in Interbolsa are banks, brokers, foreign institutions and the
Banco de Portugal and the Portuguese Government Debt Agency (IGCP).
27.4 Vertical arrangements between infrastructures
There is no regulatory or legal provision preventing other entities from
setting up an alternative settlement organisation and CSD, subject to
authorisation from the CMVM.
However, the review of the Euronext Rule Book and LCH.Clearnet SA
Clearing Rule Book showed that, at the present time, there exist a number of
requirements for both clearing and settlement arising from the contractual
obligations set out in these documents:
Ø Euronext Lisbon trading members must clear transactions with LCH.
Clearnet SA in the case of securities transactions executed on Euronext
Lisbon;
Ø LCH.Clearnet SA clearing members must settle transactions through
Interbolsa.
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Section 28 Slovakia
28 Slovakia
28.1 Trading
Bratislava Stock Exchange
The Bratislava Stock Exchange (BSSE) was established in 1991 and is the only
stock exchange in Slovakia. Government securities, equities, bonds are
traded on the BSSE’s fully electronic order driven system.
The following securities are traded on the BSSE: equities (ordinary and
preferred), bonds (corporate, municipal, government and mortgage-backed)
as well as shares in mutual funds. The BSSE is not licensed to trade
derivatives.
BSSE members are licensed financial institutions. There are 37 permanent
members of the BSSE, including the National Bank of Slovakia, and two
temporary members. Private banks hold a majority of the shares of the BSSE.
There is also an OTC market in Slovakia.
28.2 Clearing and settlement
Until 1992, securities were issued in paper form and all services associated
with their custody and ownership transfers were provided by authorised
banks. As a result of the first wave of privatisation, a large number of
corporate share issues were launched in book-entry form in 1992. These
shares were centrally registered at the Securities Centre of the Slovak
Republic (SC) in accordance with Act 600/1992 on Securities, approved in the
same year.
From 19 March 2004 all transactions executed on the BSSE and on the OTC
market are cleared and settled by The Central securities depository of the
Slovak Republic (CDCP SR) using its own clearing and settlement system
from 1 October 2004.
There is no central counterparty service in Slovakia.
The CDCP SR is responsible for post-trade activity. Cash is settled in central
bank money from a CDCP cash account held in the payment system of the
National bank of Slovakia. The securities settlement system is governed by
the Operational Rules and Regulations of the CDCP that are approved by the
Financial Market Authority (FMA), the depository’s regulatory body.
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Section 28 Slovakia
28.3 Regulation
The new Act No. 566/2001 Coll. on Securities and investment services as
amended came into force on 1 January 2002. It creates a framework for
operations of the CSD, including the provision of securities clearing and
settlement by a depository, as well as the provision of related services such as
redemption and payment of yield and securities lending and borrowing.
According to the new Act, the operation of the CSD is a licensed activity. In
this regard the former Securities Centre applied for a CSD licence with the
Financial Market Authority. The licence was granted to the Securities Centre
in September 2003 and became a basis for transformation of the Centre into
the CDCP, the Slovakian CSD. The transformation was completed when
CDCP launched its operations in compliance with its licence on 19 March
2004.
Currently, the CSD is fully owned by the Ministry of Finance.
28.4 Access
Participation in the CDCP is open to every eligible entity. Participants in the
CDCP are called members and they include securities dealers (including
banks licensed as securities dealers), foreign securities dealers, other CSDs
(including foreign CSDs), the National Bank of Slovakia and the state Debt
and Liquidity Management Agency. New admissions are subject to approval
by the FMA. Modified membership conditions are set for the NBS and Debt
and Liquidity Management Agency due to the nature of their organizational
set up.
28.5 Vertical arrangements between infrastructures
The BSSE is the only operator of securities trading in Slovakia, but this is not
imposed by legislation.
The new Act on Securities and Investment services No.566/2001 Coll. as
amended creates legislative conditions for competition in the area of clearing
and settlement services provision. At the present time, the CDCP is the sole
operator of securities clearing and settlement system in Slovakia.
According to Slovak authorities, given the size and liquidity of the Slovak
capital market, it is unlikely that alternative providers of either securities
trading or clearing and settlement services will emerge in the near future.
London Economics
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Section 29 Slovenia
29 Slovenia
29.1 Trading
Ljubljana Stock Exchange
The Ljubljana Stock Exchange (LJSE) is the main Slovenian marketplace for
shares and bonds. Securities can be traded on or off the organised market.
LJSE is the only stock exchange currently in operation in Slovenia. Trades
which by-pass the organised market are considered to be off-market or OTC
trades (one example of which is trading in Treasury bills).
The LJSE currently organises trading in the following financial instruments:
shares (ordinary and preferred); bonds (government, municipal and
corporate); closed-end investment fund shares; certain short-term financial
instruments.
29.2 Clearing and settlement
The securities traded on the LJSE are cleared and settled through the Central
Securities Clearing and Depository Institution (KDD).
The KDD is in charge of the securities clearing and settlement system and acts
as the CSD. The KDD has been settling securities transactions executed on
the LJSE since December 1995, along with so-called OTC transactions
performed directly between investors.
29.3 Regulation
The LJSE was established in 1989. It is a self-regulatory organisation, licensed
to operate by the Slovenian Securities Market Agency (SMA). It provides an
organised marketplace for securities (shares, bonds and government
securities).
The KDD was established in January 1995 by the SMA to provide facilities for
the clearing of securities transactions. The KDD is licensed to operate by the
SMA, which approves its statutes and operating rules as well as its by-laws
and fees. The KDD is a self-regulatory organisation established as an
incorporated company.
The SMA is the authority empowered by the Securities Market Act to issue
licences to investment firms (brokerage companies and banks performing
investment services in the securities field), investment funds and
management companies, the LJSE and the KDD. It also authorises securities
issuers for public offers of securities and, under the Takeovers Act, authorises
participants other than securities issuers to buy the securities offered. The
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Section 29 Slovenia
SMA supervises securities market operations and market participants. It
regulates the LJSE and the KDD in securities clearing and settlement.
29.4 Ownership
The LJSE is owned by members.
The KDD is mostly owned by the same shareholders as the LJSE (e.g.
brokerage firms and banks) but additionally by other companies, such as
fund management companies, insurance companies, pension fund
management companies and custodians.
By law, only members of the LSE and the KDD are entitled to own shares of
these companies.
29.5 Access
KDD members, regardless of the type of membership they apply for, have to
be authorised securities market participants licensed by the SMA, i.e. banks,
brokerage firms, investment companies and management companies, the
government of the Republic of Slovenia, the Bank and other clearing or
depository organisations, institutional investors, custodian banks, etc. In
principle, all of these must be domiciled in Slovenia. There is no other
restriction on KDD membership as long as the applicant meets all of the legal
criteria set out in the Securities Market Act.
All members of the LJSE are members of the KDD system together with
certain other institutions. As of March 2005, KDD had 63 members, of which
47 were also direct settlement members.
29.6 Vertical arrangements between infrastructures
According to the Securities Market Act KDD is the only undertaking whose
functions are to clear and settle securities trades concluded on the organised
securities market. Moreover, the Dematerialised Securities Act explicitly
states that the central register is to be kept by KDD.
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Section 30 Spain
30 Spain
30.1 Trading
Bolsas y Mercados Españoles (BME Group) is a company that integrates the
companies that direct and manage the securities markets and financial
systems in Spain. It brings together the Spanish equity, fixed-income and
derivatives markets and their clearing and settlement systems. The BME
Group is formed by Barcelona, Bilbao, Madrid and Valencia Stock Exchanges,
MF Mercados Financieros (which includes the fixed income and Public Debt
markets –AIAF and SENAF–, the derivatives markets, MEFF and the central
counterparty, MEFFCLEAR), IBERCLEAR (the securities registration,
depository, clearing and settlement institution) and BME Consulting.
It should be noted that the Spanish regulation differentiates between official
regulated markets and non-official markets. Barcelona, Bilbao, Madrid and
Valencia Stock Exchanges, MEFF and AIAF are official markets whereas
Latibex, SENAF and MTS are non-official markets.
Stock exchanges
1. The Barcelona Stock Exchange is a public limited company which
operates the Barcelona Securities Market. Equities and fixed income
securities are traded on this exchange. In addition, it provides the
exclusive trading and settlement platform for Catalonia public debt.
2. The Bilbao Stock Exchange is a public limited company, which operates
the Bilbao Securities Market. In addition to equity and fixed income
securities trading, it provides the exclusive trading and settlement
platform for the Basque Country public debt.
3. The Stock Exchange of Madrid is a public limited company which
operates the Madrid Securities Market. Equities, fixed income securities,
public debt, warrants and certificates are traded on the exchange.
4. The Valencia Stock Exchange is a public limited company which operates
the Valencia Securities Market. In addition to equity and fixed income
securities trading, it provides the trading platform for the promissory
notes of the Generalitat Valenciana as well as bonds and debentures of
Bancaja, which are settled by the stock exchange itself.
There is one single trading platform under the name Sistema de
Interconexión Búrsatil (SIBE) for those stocks traded in more than one of the
four Spanish stock exchanges. These include equities, fixed income
instruments, warrants and other securities previously agreed by the Comisión
Nacional del Mercado de Valores (Spanish Securities Regulator). The stock
markets channel their orders through computer terminals to the same central
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Section 30 Spain
computer. The system is managed by Sociedad de Bolsas S.A. which is a part
of the Bolsas y Mercados Españoles group, and is owned by the four stock
exchanges.
Latibex
Latibex, founded in 1999, is the international market for Latin American
securities traded in euro. Like SENAF and MTS, Latibex is an electronic
trading platform under the Spanish Securities Market Law which regulates
the conditions to set up such an electronic trading platform in Spain. It is not
a regulated market but an organised trading system (Sistemas Organizados
de Negociacioñ).
The Latibex trading platform is technically very similar or equivalent to SIBE,
but legally it is uncertain that Latibex securities are traded on SIBE. Trades in
Latibex securities are settled through IBERCLEAR like other Spanish
securities. In addition to Spanish brokers and dealers some Latin American
brokers are remote market members. Their connection to the Latin American
markets is carried out through the links IBERCLEAR has with some Latin
American CSDs or the so-called entidad de enlace (link entity). The four
Spanish stock exchanges described above manage the organised trading
system Latibex.
MEFF AIAF SENAF Holding de Mercados Financieros
MEFF AIAF SENAF Holding de Mercados Financieros is a holding
company which owns the following Spanish companies operating derivatives
and fixed income exchanges:
1. MEFF Renta Fija (MEFF) is the Spanish official exchange for fixed income
financial derivatives. It also acts as central counterparty for those
contracts. It is fully regulated, controlled and supervised by the Spanish
Authorities.
2. MEFF Renta Variable: This company manages the equity derivatives
market. In addition to the administration of the exchange, the operator
also acts as central counterparty for the following main products: Ibex 35
futures, Ibex 35 options, Ibex 35 mini futures, share futures and share
options.
3. AIAF Mercado de Renta Fija S.A.: this company operates a regulated
secondary trading system for corporate debt instruments (notes,
mortgage bonds, etc.), represented either in a dematerialised form or by
certificates. Book-entry registry as well as clearing and settlement of
trades by IBERCLEAR.
4. SENAF (Sistema Electrónico de Negociación de Activos Financieros,
Agencia de Valores, S.A.) is a public limited company -- owned by AIAF
Mercado de Renta Fija (60%) and MEFF AIAF SENAF Holding de
Mercados Financieros (40%) -- which operates an electronic trading
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Section 30 Spain
platform (Sistemas Organizados de Negociacioñ). for fixed-income
securities. Its most important activity is trading of Spanish public debt
(spot, repo and basis trading). SENAF operates neutrally with respect to
the debt market since its legal status prevents it from taking positions.
SENAF is supervised by the national securities regulator (CNMV) and
the Bank of Spain. SENAF has chosen MEFFCLEAR to provide central
counterparty services for repo transactions in Spanish public debt
effected on SENAF.
MTS ESPANA
MTS España began operations in May 2002. It operates a supervised
electronic trading system (Sistemas Organizados de Negociacioñ) for
secondary market trading in fixed-income securities. At the moment, there is
only trading in Spanish public debt, in direct competition with SENAF. MTS
España has a fully automated settlement system via IBERCLEAR.
30.2 Access
In all cases, it is necessary to become a member in order to operate on Spanish
markets. Generally speaking, there is no discrimination in terms of residency
when it comes to obtaining membership, in keeping with the Treaty on
European Union, which provides for freedom of movement of capital, not
only between Member States but also between them and non-EU countries.
Therefore, provided that the formal and technical requirements laid down for
each market are fulfilled, any resident or non-resident may become a member
of a Spanish market.
Having said this, the requirements to become a member vary from one
market to another as they lay down their own risk management conditions,
such as having a current account or securities, or meeting conditions that
guarantee the member’s solvency (e.g. credit rating, minimum level of assets
or surety).
30.3 Clearing and settlement
There are two organisations involved in clearing and settlement in Spain:
IBERCLEAR and MEFFCLEAR. MEFFCLEAR acts as a central counterparty
while IBERCLEAR undertakes clearing and settlement activities. In addition,
each regional stock exchange (Barcelona, Bilbao and Valencia) uses its own
settlement system for those securities that are only traded on each stock
exchange respectively.
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Section 30 Spain
IBERCLEAR
IBERCLEAR was established in 2002 and is the result of the merger between
SCLV (Servicio de Compensacion y Liquidacion de Valores SA) and CADE
(Central de Anotaciones del Mercado de Deuda Publica).83 IBERCLEAR is a
fully owned subsidiary of Bolsas y Mercados Españoles BME.
IBERCLEAR is the Spanish Central Securities Depository and is, as a result,
the central security register in book-entry form or electronic form as well as
the operator of the Spanish clearing and settlement system for the:
Ÿ Four Spanish stock exchanges (and SIBE);
Ÿ Latibex.
Ÿ AIAF fixed income market;
Ÿ SENAF;
Ÿ MTS ESPANA;
Ÿ EuroMTS; and
Ÿ BrokerTec
IBERCLEAR is in charge of two clearing and settlement platforms:
1. SCLV for the Spanish stock exchanges
2. CADE for the fixed income (private and public debt markets).
MEFFCLEAR
MEFFCLEAR84 was established in 2003. It provides central counterparty
services for repo trades in Spanish public debt securities on SENAF.
MEFFCLEAR is owned by MEFF AIAF SENAF Holding de Mercados
Financieros and it is operated by MEFF Renta Fija.
30.4 Regulation
All primary and secondary private securities markets in Spain – equity
markets, derivative markets and corporate bond markets – are supervised by
the CNMV which also supervises all primary markets linked to those types of
securities. Thus, the four Spanish stock exchanges, namely Barcelona, Bilbao,
Madrid and Valencia, the central electronic platform SIBE, the regulated
derivative markets, MEFF renta fija and MEFF renta variable, the corporate
debt market AIAF, as well as the three electronic trading systems, Latibex,
SENAF and MTS Spain, located in Spain which are not regulated markets are
83 SCLV had been in charge of the registering, clearing and settlement of private securities in Spain and
CADE, a business unit of the Bank of Spain, had been responsible for the registering, clearing and
settlement of Spanish public debt.
84 http://www.meffclear.com/ing/indexi.html
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Section 30 Spain
all supervised by CNMV. Furthermore, the CNMV is also the supervisor of
the holding company Bolsas y Mercados Españoles BME as well as the
supervisor of MEFFCLEAR and IBERCLEAR.
30.5 Vertical arrangements between infrastructures
The most important legal reform was the approval of Law 44/2002 of 22
November on measures to reform the financial system, amending Law
24/1988 of 28 July on the Securities Market.
The new wording of the Law distinguishes the following activities:
Keeping the accounts register -- This is granted to the Systems Company
(IBERCLEAR)85 for securities traded on the Stock Exchange and Public Debt
Market. Other securities that have been admitted for trading in an official
market, if the governing companies request this can also be registered.
Clearing and settlement -- Article 44bis states that the Systems Company shall
be responsible for settlement and, where appropriate, clearing of transactions
conducted on Stock Exchanges and on the Government Debt Securities
Market and, where appropriate, on other secondary markets. Paragraph 11 of
this Article states that the Government may authorise other financial entities
to carry out one or all of the functions entrusted to the Systems Company.
This provision could be used to allow competition in the future in the
provision of clearing and settlement services should the Spanish Authorities
wish to do so.
Central counterparty -- Article 44 states that the Minister of Economic Affairs
may authorise one or more central counterparty entities. This provision could
be used to allow competition in this area should the Spanish Authorities wish
to do so. To conclude, at the moment, trading members on Spanish markets
have no choice but to use the clearing and settlement organisation designated
by Spanish authorities under legislative authority. While the legislation
provides flexibility by stating that other financial entities can be authorised to
perform clearing and settlement activities subject to specific requirements, at
present only IBERCLEAR and MEFFCLEAR are in that position in their own
segments of the securities clearing and settlement market and no other
clearing and settlement organisation has expressed a wish to do so.
85 In the original text “Se constituirá una sociedad anónima que, con la denominación de "Sociedad de
Gestión de los Sistemas de Registro, Compensación y Liquidación de Valores" (en adelante, la
Sociedad de Sistemas).” From IBERCLEAR website: Sociedad de Gestión de los Sistemas de Registro,
Compensación y Liquidación de Valores, SA (IBERCLEAR). The implication is therefore that
“Sociedad de Sistemas” is short for IBERCLEAR.
London Economics
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Section 31 Sweden
31 Sweden
31.1 Trading
In Sweden, there are two stock exchanges (Stockholmsbörsen AB and Nordic
Growth Market NGM AB) as well as an authorised market place, Aktietorget
AB.
Stockholmsbörsen AB
Stockholmsbörsen (the Stockholm Stock Exchange) is an authorised exchange
owned by OMX AB (publ.) and part of OMX Exchanges, which also owns
securities exchanges in Helsinki, Riga, Vilnius and Talinn, a CCP for
derivatives in Stockholm and the CSDs in Estonia and Latvia.
Through OMX Exchanges, Stockholm Stock Exchange is also member of
NOREX, the Nordic-Baltic Stock Exchange Alliance. In addition to share
trading, Stockholmsbörsen offers trading in interest-bearing instruments and
derivative instruments. Trading of shares, warrants, bonds and other cash
instruments listed at Stockholm Stock Exchange takes place in the electronic
trading system SAXESS, developed by OMX Technology AB (the other
subdivision of OMX AB). SAXESS is also used by the exchanges in the other
Nordic countries and by Tallinn Stock Exchange and Riga Stock Exchange.
Trading of Swedish, Finnish, Danish and Norwegian equity-related
derivatives and Swedish fixed-income-related derivatives takes place in the
electronic trading system CLICK™, also developed by OMX Technology AB.
Nordic Growth Market NGM AB
Nordic Growth Market AB is an authorised stock exchange owned by Nordic
Growth Market NGM Holding. It offers trading in shares on the NGM
Official and NGM Equity lists and derivatives trading on the Nordic
Derivatives Exchange (NDX) list.
AktieTorget AB
AktieTorget AB is an authorised market place owned by AktieTorget Holding
AB, itself owned by Stiftelsen Lokal Aktiehandel and a number of natural
persons. Shares are traded on Aktietorget. A separated part of SAXESS is
used for trading the instruments listed on this exchange.
Pursuant to Chapter 2, Section 7 LBC86, authorisation for a foreign
undertaking to operate as a stock exchange in Sweden from a branch office
with independent management (branch) may only be granted if
86 The Stock Exchange and Clearing Operations Act.
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Section 31 Sweden
1. The undertaking carries on such activities in its home country and is
subject to the supervision of an authority or other competent body in
that country, and
2. The planned activities in Sweden can be expected to fulfil the
requirements stipulated in Section 1.
31.2 Central counterparties
At the present time, there exist no central counterparty for cash trades on
Stockholmsbörsen but the latter acts as a central counterparty for derivatives
trading on the stock exchange.
Stockholmsbörsen is the only organisation authorised as a central
counterparty pursuant to Chapter 1, Section 4, point 4 b) LBC.
31.2.1 Clearing and settlement institutions
Two companies currently have authorisation as clearing organisations: VPC
AB and Stockholmsbörsen.
VPC AB
VPC-AB has authorisation pursuant to Chapter 1, Section 4, point 4 a) and c)
LBC. This means that VPC has authorisation to settle accounts on behalf of
clearing members concerning their commitments to deliver financial
instruments or to make payments in Swedish or foreign currency and in any
other significant way to ensure that commitments are settled through the
transfer of payments or financial instruments. VPC is owned by Swedish
banks and securities companies and its principal owners are the four large
banks FöreningsSparbanken, SEB, Svenska Handelsbanken and Nordea Bank
Sverige.
VPC is the only authorised central securities depository in Sweden. Because
Stockholmsbörsen only carries out clearing of derivatives transactions, VPC
clears the largest part of cash trading on the Stockholmsbörsen.
Since 2004, VPC also owns the Finnish CSD, and together they form the
NCSD.
Stockholmsbörsen
Stockholmsbörsen has authorisation pursuant to Chapter 1, Section 4, point 4
a) to c) LBC, which means that Stockholmsbörsen, in addition to the two
authorisations described above, also has authorisation to take over liability
for the fulfilment of obligations by intervening as a party or as a guarantor
(see the sub-section on central counterparties above).
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Section 31 Sweden
The two undertakings above also have authorisation to operate as settlement
institutions pursuant to Section 3 of the Act (1999:1309) on systems for the
settlement of obligations in financial markets.
The Swedish central bank, Sveriges Riksbank, which does not require specific
authorisation (see below), also operates systems for clearing and settlement.
In addition, there exists an exchange co-operation agreement with EDX
London Limited, Oslo Stock Exchange and Copenhagen Stock Exchange and
clearing co-operation agreements with LCH.Clearnet, NOS ASA and FUTOP
Clearing Centre A/S, according to which Swedish equity-related derivatives
can be traded and cleared not only at Stockholmsbörsen but also at any of
these other exchanges and clearing organizations. Trading of the derivatives
in question takes place in integrated orderbooks for all of the above-
mentioned exchanges. Similarly, Stockholm Stock Exchange can offer to its
members trading and clearing in Norwegian and Danish equity-related
derivatives in integrated orderbooks with members of EDX London, Oslo
Stock Exchange and Copenhagen Stock Exchange.
31.3 Access
Clearing institutions
Pursuant to Chapter 8, Section 2 LBC, authorisation for a Swedish limited
company or a Swedish cooperative society to carry on clearing activities may
only be granted if
1. Its articles of association do not conflict with the LBC or any other
legislation,
2. The planned activities can be expected to fulfil the requirements
stipulated in Section 1 (soundness requirement),
3. It can be expected that anyone who is going to have a qualifying
holding in the undertaking will not obstruct the sound development
of the activities of the undertaking and is otherwise suitable to
exercise a significant influence over the management of a clearing
organisation,
4. Anyone who is intended to be a member of the undertaking’s board
or to be its managing director or his/her deputy has sufficient insight
and experience to participate in the management of a clearing
organisation and is otherwise suitable for such a task, and
5. The undertaking fulfils the conditions otherwise stipulated in the
LBC.
Authorisation to carry on clearing activities shall not be granted if it can be
expected that anyone who has to a significant degree neglected his/her
obligations in business or in other financial matters or who is guilty of a
serious crime is going to have a qualifying holding in the undertaking.
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Section 31 Sweden
Pursuant to Chapter 8, Section 3 LBC, a foreign undertaking may carry on
clearing activities through a branch office with independent management
(branch) subject to authorisation from the Swedish Financial Supervisory
Authority. Authorisation to establish a branch shall be granted if
1. The undertaking carries on similar clearing activities in its home
country and is subject to the supervision of an authority or other
competent body in that country, and
2. The planned activities in Sweden can be expected to fulfil the
requirements stipulated in Section 1 (soundness requirement).
Where relevant, the provisions of the LBC shall apply to foreign
undertakings. Otherwise the Act (1992:160) on foreign branches shall apply.
Settlement institution
In order to operate as a settlement institution, authorisation is required from
the Swedish Financial Supervisory Authority pursuant to Section 3 of the Act
(1999:1309) on systems for the settlement of obligations in financial markets.
Pursuant to Section 3 of the same Act, Sveriges Riksbank does not require
authorisation from the Swedish Financial Supervisory Authority.
Who may participate in a settlement system is stipulated in Section 8 of the
same Act. The latter states that participants may only be, among other things,
clearing organisations, central securities depositories, undertakings with
authorisation pursuant to Chapter 1, Section 2 of the Banking Business Act
(1987:617), undertakings with authorisation pursuant to Chapter 1, Section 3,
first paragraph of the Securities Business Act (1991:981) and foreign
undertakings which in their home country carry on such activities as are
referred to above.
Clearing member
Pursuant to Chapter 8, Section 6 LBC, a clearing organisation may have as its
members the Sveriges Riksbank, the Swedish National Debt Office and legal
persons which have adequate financial soundness, appropriate organisation
of their activities, the necessary risk management procedures, secure technical
systems and are otherwise suitable to participate in the clearing activities of
the organisation. In addition to meeting these legislative requirements,
members will have to satisfy the requirements laid down by the clearing
organisation.
While the law distinguishes between membership for the member’s own
account and membership for the account of third parties87, the general
87 A clearing organisation may grant the right to participate in clearing activities for the account of third
parties to Swedish and foreign clearing organisations or central securities depositories, the Sveriges
Riksbank and such institutions and undertakings which either have authorisation to carry on
commission trading or intermediary activities pursuant to Chapter 1, Section 3 of the Securities
Business Act or have the right in their home country to carry on such activities professionally and are
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Section 31 Sweden
requirements set out in the previous paragraph apply to both. More detailed
requirements can be added by each clearing organisation in its rules of
business, subject to approval by the Swedish Financial Supervisory
Authority.
Pursuant to Chapter 8, Section 7 LBC a clearing organisation must conduct its
business operations in such a manner that the business operations can be
deemed to be sound. In connection therewith, a clearing organisation shall
apply the following principles in the conduct of its operations:
freedom of access: which means that any undertaking which fulfils the
requirements set forth in the (LBC) and adopted by the clearing organisation
may participate in clearing by such organisation;
neutrality: which means that requirements imposed by the clearing
organisation are applied in a uniform manner in respect of all clearing
members.
31.4 Vertical arrangements between infrastructures
There is no legal monopoly in clearing and settlement. According to the
Financial Instruments Accounts Act (SFS 1998:1479), authorisation as a CSD
may be granted to Swedish limited liability companies, Swedish economic
associations, and foreign undertakings fulfilling the requirements in the Act.
However, VPC, at the present time, is the only authorised CSD. Despite this
fact, neither Stockholm Stock Exchange’s trading rules, i.e. the NOREX
Member Rules, nor any laws or regulations prevent a member from clearing
and settling through an intermediary, should the member prefer that, as long
as the member observes the general three-day settlement schedule.
According to section 4.2.8 in the NOREX Member Rules, it is the member who
is at all times responsible for delivery, clearing and settlement of instruments
in accordance with the conditions governing the trade.
also subject to adequate supervision. For an undertaking within the EEA, which has authorisation in
its home country in accordance with the provisions of the ISD, it is accepted that it is subject to
adequate supervision. However, for other foreign undertakings an assessment is to be made as to
whether the supervision in their home country can be regarded as adequate. Undertakings, which
exclusively provide investment services to undertakings within the same group, are not covered by the
ISD’s provisions on authorisation requirements. Nor do such internal banks require authorisation
pursuant to the Securities Business Act. Such undertakings are regarded as participating for their own
account even in respect of trades that are carried out on behalf of other undertakings within the same
group.
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Section 32 UK
32 UK
32.1 Trading
The UK recognised investment exchanges are listed below in the table, only
two of which are cash markets.
Table 13: Recognised Investment Exchanges(1)
Exchanges Types of securities Operated by
London Stock Exchange(LSE) All types of securities Demutualised 03/2000.
Listed on own market
07/2001
virt-x Echange European blue-chips Wholly owned by virt-x
Limited, itself owned by the
SWX Swiss Exchange
London International Extensive range of financial Demutualised and now
Financial Futures Exchange derivative products owned by Euronext
(LIFFE)
International Petroleum Energy futures and options Demutualised and now
Exchange (IPE) owned by the
Intercontinental Exchange
(US based)
London Metal Exchange Non-ferrous metals Demutualised
(LME) derivatives
OM London Exchange Own and operate UK Power Part of the OM Group which
Exchange (electricity and gas is listed on the Swedish Stock
derivatives) Exchange
EDX London(2) Equity derivatives Jointly owned by the LSE and
OM
NOTE: (1) By the Financial Services Authority
NOTE: (2) EDX London has acquired the Scandinavian equity derivatives exchange business of OM
London Exchange (OMLE). On 30 June 2003, EDX started trading the options that formerly were listed
and traded on the OMLE.
Source: CPSS – Red Book – 2003, http://www.londonstockexchange.com/, www.virt-x.com.
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Section 32 UK
London Stock Exchange
The LSE offers a number of trading services, some order-driven; others quote-
driven and one hybrid88. Access criteria to these trading services as well as
post-trade arrangements tend to vary from one another.
Order-driven Trading Services
SETS – The top 200 or so most liquid stocks, including the FTSE 100
and the more liquid FTSE 250 securities, including a number of UK
listed Irish securities. This electronic order book has been operative
since 1997.89
SETSmm90 – All FTSE 250 securities not already traded on SETS, the
top UK listed Irish securities by market cap (in euros) and other
securities.
International Order Book -- Includes 1) depository receipts and issued
by a depository bank, and 2) ordinary equities identical to those
traded on the home market.
International Bulletin Board – Offers bulletin board functionality for
international securities secondary listed on the LSE. This service can
be accessed by SETS and International Order Book participants.
Covered Warrant Order Book -- an electronic derivative trading
service.
EUROSETS™ Dutch Trading Service: this service enables trade in the
most liquid Dutch securities that form the AEX and AMX indices via
the SETS order book.
Quote-driven Trading Services
SEAQ -- Includes all domestic equities not included in SETS and
SETSmm mentioned above (quote-driven service for mid-cap
securities).
International Retail Service – Provides UK retail investors access to
trading in international stocks (European and US blue chips).
88 SEATS Plus is an electronic service that combines an order-driven service with competing quotes.
89 SETS and SETSmm Participants have the flexibility not to use the electronic order book in certain
circumstances. We understand that this is common practice for very large trades, where brokers wish
to avoid the multiple bills that can occur from the use of SETS.
90 New trading service for mid-cap securities launched on 3 November 2003. It includes securities that
were formerly traded on SEAQ. It combines the features of existing SETS and SEAQ trading services.
SEAQ Crosses was decommissioned with the introduction of SETSmm.
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Section 32 UK
virt-x
virt-x is the home market for the Swiss market Index (“SMI”) stocks and
provides trading in the constituents of the major European Securities indexes
(e.g. the FTSE100 and Stoxx50).
Access to London Stock Exchange
In order to trade on the LSE, a firm must be an authorised member firm or a
SETS/SETSmm participant. An applicant for membership must be:
• Authorised under the Financial Services and Markets Act (FSMA);
• An exempted person under the FSMA;
• A person whose activities constitute “excluded activities” under the
FSMA, whether such activities are carried out in the UK or elsewhere in
the European Union;
• An “overseas person” as defined by the FSMA; or
• A “European institution” as defined by the Banking Co-ordination
(Second Council Directive) Regulations and the Investment Services
Regulations.
To become a SETS/SETSmm participant, the applicant must meet certain
requirements set out in the Rules of the London Stock Exchange, and have
direct or indirect clearing facilities at LCH.Clearnet Ltd. 91.
Access to virt-x
virt-x can be accessed by regulated financial institutions from the EEA,
Switzerland, Hong Kong and the United States. It currently has over 100
approved members, most of which are active traders.
32.2 Clearing
There are two Recognised Clearing Houses (RCH) under the Financial
Services and Markets Act (FSMA): LCH.Clearnet and CRESTCo.
LCH.Clearnet Limited is the United Kingdom’s only central counterparty,
reflecting the volume of business flowing from its arrangements to service the
LSE’s electronic market.
In the UK, it is possible to set up a new clearing organisation, provided
certain criteria are met. The requirements to become a RCH as set out in the
91 All trades in SETS and SETSmm executed electronically on the order book are included in the Central
Counterparty (CCP) Service offered by the LSE in cooperation with LCH and CRESTCo. Member
firms trading electronically on SETS and SETSmm need to have a clearing relationship with LCH either
directly with LCH or indirectly via a General Clearing Member. Off order book trades will settle
directly in CRESTCo outside of CCP service.
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Section 32 UK
FSMA92. Also of interest are the obligations imposed upon existing RCH. The
Recognition Requirements Regulations require RCH to have “… access criteria
designed to protect the orderly functioning of the market and the interests of
investors”. In this respect, the Financial Services Authority (FSA) will inter
alia consider whether the RCH limits access to entities with appropriate legal,
technical, business and financial competencies. The FSA will also examine
the objectivity of such criteria. Within these parameters, each entity sets its
own membership requirements as appropriate.
In 2004, the LSE put out to tender the contract provision of clearing services
and LCH.Clearnet was re-appointed as clearing service provider. The current
contract between the LSE and LCH.Clearnet is subject to a 12-months notice
period.
LCH.Clearnet Limited clears the cash equity business undertaken on the
LSE’s SETS/SETSmm platform, EUROSETS™ Dutch Trading Service, the
exchange-traded futures and options business as well the trades in equity
derivatives on EDX London, trades in fixed-income securities executed on
MTS (EuroMTS, MTS Amsterdam, MTS Belgium, MTS Deutschland and MTS
Associated Markets), Brokertec and via voice brokers, US energy contracts
traded on the Intercontinental Exchange, repos and swaps.
LCH.Clearnet Limited and CRESTCo are not restricted in terms of what
products they can clear or how those products are traded (whether on-
exchange, on automated trading systems that are not recognised as exchange,
or traded bilaterally between members “over the counter”).
Role as central counterparty
In February 2001, a central counterparty (CCP) service was introduced for
electronically executed trades on SETS and SEAQ Crosses which, since July
2002, allows optional settlement netting for trades executed through SETS,
cleared through the LCH EquityClear® service and settled in CREST.
Central counterparty service is now available on SETS and SETSmm, the new
mid-cap service. SETS and SETSmm participants have the flexibility to not
use the electronic order book in certain circumstances. When this happens,
they do not avail themselves of the CCP service and the transaction is
forwarded directly to CRESTCo for post-trade settlement.
In May 2003, virt-x Exchange, LCH and SIS x-clear (the Swiss central
counterparty) launched a pan-European CCP structure. The structure
supports two-interlinked CCPs provided by LCH.Clearnet Limited and SIS x-
clear AG which in 2004 has become a recognised overseas clearing house. In
practice, virt-x participants can choose between the UK and the Swiss clearing
houses as a special bridge links the two CCPs.
92 FSA, Sourcebook for Recognised Bodies, part of the FSA Handbook.
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Section 32 UK
Access to LCH.Clearnet Limited
To be eligible for membership of LCH.Clearnet Limited, firms must meet
LCH.Clearnet’s own requirements, exchange requirement if applicable, and
also have the regulatory authorisation for their overall activities.
LCH.Clearnet Limited does not require members to have a presence in
London and a number of members are both legally and geographically
remote from the UK. All members must, however, have cash settlement
arrangements with London-based banks.
There are two types of membership:
a) individual clearing member who can only clear their own business;
b) general clearing member who can clear both their own business
and/or business of third parties.
It is a requirement of LCH.Clearnet’s EquityClear® service that members
enter into agreements with the LSE and CREST or Euroclear Bank (for LSE
business) and with virt-x Exchange and any or all of CREST, SIS or Euroclear
Bank93 (for virt-x business).
32.3 Settlement
Currently trades in equities on the LSE can be settled in CRESTCo or
indirectly through Euroclear Bank. However, only CrestCo holds the
securities register and the vast majority of trades in UK equities and
corporate bonds settle through it. In addition to being a RCH under the
FSMA, CRESTCo is the only approved operator of a “relevant system” under
the Uncertificated Securities Regulation (USRs) 200194. Under the regulations,
CRESTCo, as approved operator, determines the record of title to UK
dematerialised securities. While CRESTCo is currently the only approved
operator, there is no restriction on the number of approved operators under
the USRs. Indeed, there is a legislative requirement that the regulations
ensure that competition is not restricted, distorted or prevented.
In certain circumstances, settlement takes place through another organisation.
LSE’s international business tends to be settled with foreign clearing
organisations. For example, transactions on the International Order Book can
be settled through either CRESTCo, Clearstream International, Euroclear
Bank or The Depository Trust and Clearing Corporation (US). Dutch equities
traded on the LSE Dutch Trading Service can be settled in either Euroclear
Nederland, the Dutch CSD which holds the securities register, or indirectly
through Euroclear Bank.
93 LCH EquityClear®, A step-by-step guide for new members. www.lch.co.uk
94 The authority to create the Uncertificated Securities Regulations comes from section 207 of the 1989
Companies Act. The USRs provide the legal basis for dematerialised transfers of securities within the
UK and is the relevant law of CREST.
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Section 32 UK
Similarly, equity trades on virt-x can be settled through CRESTCo and SIS
(SegaInterSettle) 95 or indirectly through Euroclear Bank.
32.3.1 Corporate structure
The CREST system has been operating since 1996 and was originally owned
and operated by a private sector company, CRESTCo, which itself was owned
by a number of CREST users. In September 2002 CRESTCo merged with
Euroclear and, since the January 2005 restructuring of the Euroclear group, is
owned by Euroclear S.A./N.V., the group parent company.
32.3.2 Products and markets
CRESTCo offers settlement in UK and Irish equities, UK government bonds,
UK money market instruments, UK covered warrants, UK and Irish unit
trusts and OEICs and exchange-traded funds, and a wide range of
international securities including equities, eurobonds, domestic bonds and
depository receipts. It is currently the only UK’s provider of the settlement
function for dematerialised UK equities. Additionally, CREST arranges
extensive collateral services (including collateral for securities loans) and also
handles corporation actions. As part of its service, CREST calculates and
collects stamp duty from members on behalf of the UK Inland Revenue and
the Irish Revenue Commissioners.
32.4 Vertical arrangements between infrastructures
The table below provides an overview of the various clearing/settlement
arrangements in place at the LSE and virt-x.
Trading services Clearing CCP Settlement
LSE Electronic
Services:
SETS LCH.Clearnet(1) Yes CRESTCo or Euroclear Bank
SETSmm LCH.Clearnet(1) Yes CRESTCo or Euroclear Bank
International Order Not applicable No In a default location, normally
Book Euroclear (GDRs) or Depository Trust
and Clearing Corporation (ADRs) as
95 According to virt-x, this infrastructure allows both collaboration and competition between CSDs,
resulting in inter-CSD settlement at largely domestic rates.
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Section 32 UK
Trading services Clearing CCP Settlement
specified by the LSE for each
depository receipt, unless otherwise
agreed with the party.
International Bulletin Not applicable No Settlement is at the trading
Board participants’ choice, normally in the
national system in the home market of
the security traded.
EUROSETS™ Dutch LCH.Clearnet(1) Yes Euroclear Nederland or Euroclear
Trading Service Bank
LSE Quote-driven
services
SEAQ Not applicable No Normally in CRESTCo but also
possible in Euroclear Bank
International Retail Not applicable No CRESTCo
Service
SEATS Plus Not applicable No CRESTCo
virt-x Exchange LCH.Clearnet or Yes CRESTCo, Euroclear Bank, SIS or any
SIS x-clear(2) combination of the above.
NOTE: (1) Transactions executed outside the order book do no benefit of the clearing/CCP service and are
forwarded directly to the settlement organisation.
(2) Both order book and off-order book transactions in securities offered for trading on virt-x’s order books
benefit from clearing under virt-x’s CCP service. Exclusions from clearing are available for order book
matches between trading entities within the same corporate group and also for off-order book transactions
subject to bilateral agreement between the parties.
According to UK authorities,
“as currently drafted the Uncertificated Securities Regulations may
create exclusive right arrangement for CRESTCo in so far as they
require 1) that anyone operating an electronic system for the
settlement of shares in UK companies must be approved and subject
to ongoing surveillance as to their continued compliance with the
USRs; and 2) that an approved operator holds its definitive record of
the holders of dematerialised UK securities in the UK”.
However, the UK authorities also noted that the authority to create the
Uncertificated Securities Regulations comes from Section 207 of the 1989
Companies Act. This required that any regulations made under this section
ensure that competition is not restricted, distorted or prevented. There is no
restriction on the number of approved operators under the Uncertificated
Securities Regulations
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Section 32 UK
That being said, according to the various rule books and membership
requirements, there is a requirement on LSE traders to clear their trades
through LCH.Clearnet for domestic market securities that are traded
electronically and to settle in CRESTtCo, the national CSD holding the
securities register, or indirectly through Euroclear Bank.
While a significant part of the settlement business of other securities also goes
to CRESTCo, there is flexibility for participants to use other settlement service
providers in certain circumstances. The choice will tend to depend on factors
such as the type of securities traded and whether there is an existing
relationship with a different provider of settlement service.
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30 June 2005 136
Annex 1
Questionnaire
Annex 1 Questionnaire
Questions to the National Competition Authorities of the Member States
regarding exclusive arrangements relating to the trading, clearing, settlement
and depository of securities
1. Please list all regulated and electronic securities markets, central
counterparties, and clearing and settlement institutions operating under
national law and indicate the types of securities (stocks, bonds,
derivatives etc) that are processed on each of these markets.
Please describe the ownership structure of each of these markets.
Please describe the conditions for access for each of these
systems/institutions. In particular, indicate access for non-national
EU institutions.
2. Does national and/or competition law and/or other provisions provide
for any trading, central counterparty, clearing or settlement activities of
securities in your Member State being attributed to a system or company
through an exclusive right arrangement (egg legislation, self-regulation,
industry agreements giving an obligation to trade only on issuing market,
obligation to clear and settle in a specific infrastructure, use of tied central
counterparty)? If yes, please describe the provisions and how they are
applied in your Member State (including but not limited to whether there
is an open tender or public procurement procedure applied in the
attribution of the exclusive right). Do you consider there are fundamental
reasons for maintaining such exclusive rights? If yes, please explain what
these are and what the conditions would be for raising these obstacles.
3. Are there any trading, central counterparty, clearing or settlement
activities for securities in your Member State which are not conducted
through an exclusive arrangement or are there any plans for this to
become effective? If yes, please describe the legal provisions and how
they are applied in your Member State.
4. Are there any other competition law provisions applicable in your
Member State to rules and practices in the trading, clearing or settlement
activities of securities? If yes, could you please state the main aim of
each provision and the body which enforces it (competition authority,
courts etc.). Would you have any further comments on the approach
taken to enforcing competition law in your Member State?
5. Please briefly summarise the anti trust cases in the securities trading,
central counterparty, clearing and settlement area which the competition
London Economics
30 June 2005 137
Annex 1
Questionnaire
enforcement bodies in your Member State have dealt with or are currently
dealing with. Are you aware of any complaints of financial institutions or
other companies regarding access to trading, information and settlement
systems and other exchange-related service facilities and their usage?
Please add any further comments, as appropriate.
6. Please briefly summarise any merger cases in the securities trading,
central counterparty, clearing and settlement area which the competition
enforcement bodies in your Member State have dealt with or are currently
dealing with. Please add any further comments, as appropriate.
7. Have your authorities undertaken or commissioned any studies of
trading, clearing or settlement of securities markets to assess whether
restrictions of competition were present? If yes, we would be grateful
for copies, or references to where such studies can be found.
8. Does the involvement of the State in the regulation of the trading clearing
and settlement sector for securities affect your competition authorities’
ability fully to apply competition rules in this sector? If yes, we would be
grateful for any further comments.
9. Do your competition authorities give opinions or recommendations to the
public bodies responsible for the regulation of the trading, clearing and
settlement of securities, or are your authorities formally consulted by
these bodies? If yes, we would be grateful for details.
10. Are there any other points you would like to raise concerning the
regulation of, and competition in, the trading, central counterparty,
clearing and settlement of securities?
DG Competition would be grateful for replies, by 10 September 200, to:
Rosalind BUFTON, DG Competition, Room 2/210, Rue Joseph II 70, B-
1049 Brussels, Fax +32 2 2969807, or by email to
rosalind.bufton@cec.eu.int.
Any questions relating to this questionnaire should be referred to Ms
Bufton (tel: +32 2 296.41.16).
London Economics
30 June 2005 138
Annex 2
Invitation to comment
Annex 2 Invitation to comment
Overview of EU25 securities trading, clearing, central counterparties and
securities settlement – an overview of current arrangements.
Invitation to comment
The EU securities trading and post trading sector is of keen interest for the
Commission. The infrastructures and arrangements for cross-border
transactions are complex. To enable it to gain a correct understanding of these
arrangements, the Commission conducted a study in collaboration with
Member States, to identify the arrangements for trading, clearing and
settlement of securities in each EU Member State as well as those structures
emerging at cross-border level. The study was compiled by a consultant.
It takes the form of a general introduction to the sector (for transactions in
equities, bonds and government bonds as well as, to a lesser extent,
derivatives), describing the main functions (trading, clearing and central
counterparties, settlement, custody) and infrastructures (exchanges, clearing
institutions and central counterparties, central securities depositories and
international central securities depositories at primary level and international
central securities depositories and banks at secondary level) its main
evolutions and in particular the key players at EU level. The second part of
the report gives a presentation of the situation in each Member State (EU25)
including comments on issues of potential competition scrutiny such as
exclusive arrangements and access. Consequently it is a photograph of the
complex EU 25 landscape in securities trading, clearing and settlement as of
February 2004. The report does not attempt to enter into a competition
assessment of individual mechanisms.
For this study to remain a valid basis for understanding the sector, it must be
factually correct and reflect any changes. Furthermore DG Competition will
continue to monitor the sector and potential competition concerns in order to
intervene where appropriate. Therefore, as part of a sustained dialogue with
the industry, comments from interested parties on either of these aspects are
welcomed and should be sent by e-mail to the mailbox COMP-EU-
SECURITIES@cec.eu.int before 30 October 2004.
Overview of EU25 securities trading, clearing, central counterparties and
securities settlement – an overview of current arrangements.
Extension of consultation period
To allow the wide variety of industry participants who wish to comment to
be able to do so, the consultation period for this study is extended from 30
October until 15 December 2004. Comments from interested parties are
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Annex 2
Invitation to comment
welcomed and should be sent by e-mail to the mailbox COMP-EU-
SECURITIES@cec.eu.int before 15 December 2004.
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30 June 2005 140
Annex 3
List of Respondents
Annex 3 List of Respondents
ABN AMRO
APK
Association of Global Custodians
Banco de España
Bank of Estonia
Bank of Finland
Bank of Italy
BNB
BNP Paribas
Bolsas y Mercados Españoles
CDCP Slovakia
CitiGroup
Deutsche Bank
Deutsche Börse
Deutsche Sparkassen und Giroverband
Euroclear
European Banking Federation (FBE)
Euronext
Fair&Clear
Federation of European Securities Exchanges (FESE)
Finnish Competition Authority
Hellenic Exchanges
Keler
LCH.Clearnet
London Stock Exchange
National Bank of Poland
NCSD
OMX
Zentraler Kreditausschuss
virt-x
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Annex 3
List of Respondents
The responses are available on DG Competition’s web site:
http://europa.eu.int/comm/competition/general_info/securities/comments/.
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