Summary
The European Central Bank has proposed that it could take on the job of providing a securities settlement service for the eurozone countries. But there are a host of questions still to be answered before it makes its decision.
Analysis
The European Central Bank has proposed that it could build a securities settlement system for the eurozone. This has provoked mixed responses.
The current securities settlement system operators (the equivalent of DTC and Fedwire in the US) point out the difficulties in the ECB proposal, which would result in separating settlement (the transfer of securities against payment, to be done by the ECB) from other operations (distributing income and ownership rights, as well as stock borrowing and lending, which would remain with national systems). There is no precedent for splitting these activities. This would inevitably introduce inefficiencies. This would certainly not be a "DTC for Europe".
Some custodian banks, on the other hand, have been more favourable to the proposal. Perhaps they see profitable opportunities in the inefficiencies that would be created!
However, the ECB has still not answered the big questions. What benefits will this change bring? What are the criteria for making a decision to go ahead or not? What would the business model be? Who would get any surplus from running this service or pick up the bill for any deficit?
The markets will need to hear answers from the ECB to these questions if they are to give the proposal their support.
