The merger of Euroclear and CREST appears to be another step towards the ultimate goal of creating a single CSD for Europe. Both Euroclear and CREST successfully service certain segments of the market today and like any merger, the expectation of more efficient and less expensive services should result. The announcement states that participants will be able to access a single account by 2005, followed by a single platform in 2008. The question is, between now and then, many other mergers and others changes will take place in the coming years, any of which may put these plans in jeopardy.
Whenever there has been news regarding mergers or alliances of the major CSDs in Europe over the past few years, there is always something missing. For a depository to successfully provide a central settlement service, it needs to fill this role as an industry utility, having a single platform and a low cost structure. This does not even begin to consider value added custody services, which the Agent Banks in Europe perform at a much higher level of service than any CSD even dreams of.
The argument of which model, vertical or horizontal, is right for the future diverts attention from the key issue. While everyone has their own opinions of which type of ownership structure best provides that, we should not let this technicality sidetrack the debate. If there is ever to be a single European depository, it must be designed with consideration and input from all the markets that it intends to serve. The Euroclear/CREST merger could be the best design ever created, but as it stands now, it does not take into consideration the requirements of other European markets. The merger announcement invites other CSDs to join. The question that remains is, if others do join, what accommodations will have to be made to complete those deals. Euroclear’s original merger announcement with Sicovam alluded to the long term vision of a single settlement platform. Each time another entity joins the mix, implementation dates for a single platform are sure to be pushed back, and a certain amount of development toward that goal becomes wasted effort.
In theory, the Euroclear/CREST merger is a step in the right direction. I believe the merger itself will benefit the market as a whole, but not nearly as much as it could. I also believe that all of Europe would be much better served if an industry group were appointed to work with all relevant parties, CSDs, Stock Exchanges, Regulators, etc., to develop a long term vision that the market demands. Rather than react and change as each C SD joins the Euroclear group or the Clearstream alliance, the industry would be better served to make an effort to discuss and develop a long term strategy before millions of dollars are spent on development which will end up being discarded. This way would be more beneficial that the continued “piecemeal” deals which will surely drag the debate on another quarter century or so.