The London Stock Exchange published its response to the first Report from the Giovannini Group on Clearing and Settlement in Europe. It will not make happy reading for the chairman.
While we welcome the contribution of the Group, which provides valuable insights into the underlying causes of the clearing and settlement problem in Europe, we believe that the challenge to provide appropriate infrastructure for a single European capital market is even more serious than the Group concludes and that there are additional causes of the problem that merit separate attention. In our previous analysis of the extra costs incurred in Europe, we concluded that Europe’s users would have saved Euro 1.6 billion in 2000 if the markets were served by a European clearing and settlement system operating at the same efficiency as is achieved by the DTCC in the US. Our new analysis supports that conclusion. We calculate that users in Europe pay on average around six times per transaction more for clearing and settlement services than in the US. These differences arise from two sources – higher operating costs per transaction (around two-thirds of the total additional cost) and higher margins (in Europe currently an average of 29% compared with 0% by the DTCC).