Latin American Capital Markets

ENHANCING MARKET INFRASTRUCTURE IN EMERGING ECONOMIES 251Even for markets that do not expect to change to T+1 at the same time asthe United States, the new technologies and standards should provide means ofspeeding up the settlement process and improving reliability. In fact, the challenge forthis shift in the United States is considerably larger than in many other countries becauseof the scale and scope of activities and the diversity of participants in the U.S.capital markets. Some markets outside the United States already have a capability ofsettling inT+1, and consequently this shift in the United States may open new possibilitiesfor other markets willing to think and act strategically.Perhaps even more than in the United States, securities processing and marketinfrastructure in Europe are in a period of structural change, driven by technologyand likely to be shaped by regulatory policies. Although national clearing and settlement systems in Europe are efficient and well functioning, cross-border transactionscarry high costs relative to national costs. Consolidation of securities processing haalready started in Europe, with the formation of Euronext, which is bringing togethermarkets in Belgium, France, and the Netherlands. At present, the attention of the exchanges,central securities depositories, and other institutions, such as the ICSDs, arefocused on developments in Europe. Once the consolidation has occurred, the survivinginstitutions can be expected to compete globally with market infrastructure inother countries.Nonetheless, major differences of opinion on the type of consolidation or integrationremain in Europe concerning the advantages of horizontal or vertical integration.TheLondon Stock Exchange is making a case for the benefits of horizontal integration,possibly with a Europe-wide clearing and settlement platform, while theDeutsche Bourse seems to be arguing more for vertical integration similar to whatcurrently exists in Germany. 8 The issue is a complex one, not least because of competitiveforces and regulatory concerns.The European Union has already launched areview of competition in securities clearing and settlement in Europe, and this is verylikely to have an impact on the range of possible solutions on a Europe-wide basis. Atthis point, it is impossible to predict what sort of solution or integration will result, inpart due to the large number of strong competitors.These include Euroclear, Clearstream, as well as SWIFT, the exchanges themselves and the clearinghouses, large financial institutions, and central securities depositories. The only thing that is certainabout the process is that it will take considerable time, from a political, regulatory, andstrategic perspective and from an IT perspective.8 In vertical integration, the different layers of infrastructure, depository, clearing, and settlement are owned and operatedby local parties, as a type of silo. In horizontal integration, for settlement, for example, the settlement systemoperates across different markets and is owned and operated by one set of owners.Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub