EU Consultation ‘Dismantling Post-Trade Barriers in a Capital Market Union’

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As part of improving the Capital Market Union, the European Commission launched a consultation on the Post-trade barriers in August 2017. These barriers inhibit the free movement of capital and raise the cost of funding. The barriers as such are not new since they were already identified by the Giovannini group in 2001 and 2003.

Written by: 
Erik Veerman, Market Infrastructure expert, ABN AMRO Bank

Scope of the investigation

Figure 1: Financial industry value chain
Source: EPTF Report page # 15.

 

European Post Trade Forum (EPTF) & their work

To renew the attention to dismantling the post-trade Barriers, the Commission asked the European Post Trade Forum (EPTF) to reassess these barriers and determine which barriers still exist and require attention. The EPTF published their report on 15 May 2017. 

In the Netherlands the  DACSI (Dutch Advisory Committee Securities Industry) collected the input from their members and has responded on behalf of its members.  The barriers imply more complexity for clearing & settlement of trades in terms of tax handling, processing Corporate Actions and Regulatory Reporting. 

The high impact EPTF barriers

Figure 2 : List of ‘EPTF barriers’
Source: EPTF Report page # 24, 25.

Key elements of the DACSI response:

  • With respect to trends in the EU post-trading area for the coming years, the DACSI mentioned the use of DLT and the increased automation of the Custody chain as most relevant factors. The further adaption of the ISO 20022 standard is an important precondition.
  • Regarding the impact of the post-trade barriers the DACSI limited her response mainly to EPTF barriers 1, 2, 3, 5, 6, 7 and 12 (see the attached table). Most significant barriers are the lack of harmonised messaging standards (EPTF1), the lack of harmonisation of registration and investor identification (EPTF 5 ), complexity of post-trade reporting structure (EPTF6), unresolved issues regarding reference data and identifiers (EPTF 7) and inefficient tax collection procedures (EPTF 12).
  • The barriers still exist due differences of national legislation between Member States especially in relation to CA’s and Shareholder meetings (EPTF 1), Cross-border processing of ETF trades (EPTF 3) and inefficient tax withholding procedures (EPTF 12).

Conclusions and next steps

  • Firstly, the main message of the DACSI replies is that the market participants as such did their job in reducing the post-trade barriers with the implementation of Target2Securities (T2S) as the most important example. As a next step, the national Member States and the Commission should take the lead in removing legal differences in the areas such as withholding tax, issuance of new securities and cross-border ETF processing.
  • Secondly, the barriers are often the result of underlying differences that are not easy to be solved. For instance, the lack of convergence in Information standards (EPTF 2) is closely related the use of different standards and versions such as ISO 15022 or proprietary standards. Apart from T2S, the further adoption of ISO 20022 is progressing slow and probably needs the “helping hand” from the Commission and Member States.
  • Thirdly and finally, the main point of the EU consultation is that is renewed the focus to start a process of reducing and in the end, eliminating the post-trade barriers in the coming years. 
We hope to hear soon from the Commission and national authorities how to proceed with the next steps.

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