Europe’s 42 settlement bodies have written to the European Central Bank urging it not to proceed with plans to build its own cut-price securities settlement system until it can say how the new utility will be owned, governed and operated.
The European Central Securities Depositories Association (ECSDA) – a trade association of 42 settlement bodies – has written to the ECB ahead of a council meeting at the end of this month when it will decide whether to proceed with the system.
The group believes that a year or more of further study is needed before a decision can be made to proceed.
“The potential impacts for the market and for Europe of this proposal are significant and we believe that it would be inappropriate at this early stage for the ECB to make a firm commitment to implement (the proposal),” the organisation wrote in a letter sent earlier this week.
The ECB has said it believes it can slash the cost of securities settlement by up to 90 per cent by building what it has named Target2-Securities, a platform that will allow securities transactions to be settled centrally. It aims to eliminate the costs of shuttling transactions between settlement banks in several countries.
However, the move has already alarmed some settlement providers and the European Council of Finance Ministers (EcoFin), who say the platform risks becoming a large, unaccountable public monopoly.
In its letter, the ECSDA, raised questions about the feasibility of the suggested cost savings, saying it could not independently verify savings on the scale outlined by the ECB
It is also queried how the new entity would be governed and to whom it would be accountable.
The group also questioned whether the use of T2S would be mandatory or voluntary, noting that it was not clear that the ECB had the power to make it mandatory.
Although the ECB has sought to minimise opposition to the proposal by insisting that it is interested in providing only settlement services – a commoditised service with very little profit in it for commercial providers – the ECSDA suggests that removing settlement from the menu of services that settlement houses provide could raise the cost of other services.