The Code of Conduct Experiences so far and future outlook

1. The Code of ConductExperiences so far and future outlook Mattias Levin Integrating Europe’s Back Office Centre for European Policy Studies (CEPS) Brussels, 30 January 2008

2. Markets develop…

3. …but could prosper further…

4. …were it not for barriers • Inadequate post-trading landscape: • Domestic: efficient and safe • Cross-border: fragmentation  costly and, potentially, more risky • Reasons = barriers to cross-border provision • National differences in technical requirements/market practice • National differences in tax procedures • Issues of legal certainty that may arise between national jurisdictions

5. What can the Commission do? • Commission roles • Honest broker  facilitate private action • Enforcer • Legislator • Wide spectrum of available instruments No policy action Guidelines / standards Community legislation Structural intervention

6. Code of Conduct • Guidelines / standards • Self-regulation / soft law • Commitments in four areas: • Price transparency (31 December) • Interoperability and access (30 June) • Unbundling of services and accounting separation (1 January 2008) • Monitoring • Precise scope • Initially applicable to cashequities; extended to other types of financial instruments later • The Code applies to all its signatories, i.e. infrastructure providers. • Complemented by competition policy • If unsuccessful, alternative instruments available

7. Monitoring • MOG (Monitoring Group) • MARKT (Chair), COMP, ECFIN, CESR & ECB • External auditors • Draft Terms of reference drafted by Commission in consultation with infrastructures, users and auditors • Infrastructures prepare self-assessment on basis of “comply or explain”, • Auditors provide opinion on infrastructures’ compliance with unbundling/acc. separation along lines of limited assurance engagement • National regulators • Explicit role: • Will receive results of external audit procedure (e.g. non-consolidated accounts and costs and revenues for unbundled services from Organisations) • Implicit role: • Stake in evolution of market structure • Market participants • Scrutinise audited public assertion by infrastructure management of compliance with service unbundling and accounting separation

8. Scope and expected benefits

9. Price transparency • Commitments in five areas: • Publication of fees • Publication of discount schemes • Publication of rebate schemes • Billing reconcilability • Price comparability • Users’ assessment  bilateral dialogues • Complementary analysis (include comparability and reconcilability) • Focusing on clearing and settlement, not trading • Nearly all CSDs and CCPs have made “good progress” • Call for systematic implementation of ECSDA Conversion Table • Next steps • MOG welcomes constructive dialogue users  infrastructures • MOG welcomes thorough user assessment • MOG will continue to work with infrastructures to address areas where further efforts needed. • Price comparability  Conversion Table has potential to mitigate, but needs consistent application and interpretation

10. Access and Interoperability • “Access and Interoperability Guideline” • Detailed guidelines for creating links • Strengthened process • Transparent process for handling requests • Mediation mechanism

11. Access and Interoperability • First experiences • Constructive discussions, but complexity • Issues related to public policy (e.g. differences in regulatory arrangements…) • Issues related to private action (e.g. differences in interpretation of Guideline…) • Moving forward • Commission track negotiations  inventory of issues • Private action issues  stress that industry respect and apply Code & Guideline • Public policy issues  Commission assist in close cooperation with concerned parties

12. Examples of link requests Provision of CCP services for LSE trades Provision of CCP services for Frankfurt Stock Exchange trades Provision of CCP services for Euronext trades

13. Service unbundling & accounting separation • Service unbundling • Services of trading venues, CCPs and CSDs unbundled from each other • 5 services of CSDs unbundled (e.g. account providing & establishing securities in book-entry form and asset servicing…) • Accounting separation • Trading venues, CCPs and CSDs: • group structures: non-consolidated accounts • single corporate structures: separation of costs and revenues • CSDs: • separation of costs and revenues of each unbundled service • fixed costs: IFRS or equivalent local standard on segment reporting

14. Service unbundling & accounting separation • MOG • Takes note of evidence on process followed to ensure timely implementation • Next steps • Invites further evidence on practical steps taken for unbundling • Looks forward to hear first experiences of applying accounting separation • Looks forward to common principles on allocation of costs and revenues by MOG April meeting.

15. Post-trade actions in non-equity markets? • Current Code  free choice • Some organisations apply Code to a wider set of assets • Service unbundling and accounting separation per service but not necessarily by assets (equity, bonds…) • Process • First, ensure that Code works for cash equity • Then, analyse (i) capacity of industry to find solutions and (ii) available instruments • Acknowledge differences between e.g. type of issuer, type of underlying security and market structure • First views of users and infrastructures received. • Commission invites further comments, analysis continues

16. Conclusion • The Code is an important result, but only a first step • Work on parallel initiatives needs to continue: • Removal of Giovannini barriers • ESCB-CESR standards • TARGET2-Securities • Both public and private sector need to play their part • The Code is a confidence-building exercise: • Test for the better regulation agenda • Test of industry’s capability to self regulate

17. Mattias Levin European Commission Internal Market and Services DG Tel: +32 2 295 1811 Email: mattias.levin@ec.europa.eu