European Post-Trade Infrastructure: Consolidation is Not Enough

Introduction

Traditionally, capital market participants have focused on the trading aspect of securities processing from investment strategy to execution quality, latency, etc. Our industry has often, and wrongly, overlooked the post-trade aspect of operations for being boring and undifferentiated.

However, in recent years, the European Commission and the ECB have conducted numerous regulatory efforts and infrastructure implementation with the promise that it would change the European post-trade infrastructure, bringing greater efficiency to the market and fostering the emergence of a single integrated pan-European capital market.

This ambitious objective—to create the necessary framework through Target 2 Securities and CSDR to allow market participants to rely on the infrastructure of a single provider to conduct all their post-trade activity across Europe—has shed light on the importance of market infrastructure. Especially since the new regulatory regime of the European fund industry with AIFMD and UCITS V while facilitating the distribution of funds on a pan-European basis, has also imposed strict legal liability on depository banks regarding investor’s asset protection and infrastructure use.

The combined effect of this flurry of regulations has pushed numerous market participants to expect, in line with the stated EC objective, a wave of consolidation in the European post-trade infrastructure.

Our view is quite different: we believe that in a region where 80% of the settlement volume is already concentrated around the two main CSDs, Euroclear and Clearstream, there are few opportunities for a reduction in market infrastructure providers. Nevertheless, changes are coming to the European post-trade infrastructure that present new opportunities for market players.

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