ANNUAL REPORT 2008 - Polymer Bank Notes of the World

The market for short-term paper in Europeis of a largely domestic nature. The STEPinitiative, pursued by market participantsunder the auspices of the European BankingFederation and ACI – The Financial MarketsAssociation, and steered by the STEP MarketCommittee, has addressed this gap in financialintegration through the development of a coreset of commonly agreed market standardsand practices, with which market participantscomply on a voluntary basis.The Eurosystem has supported the STEPinitiative since its inception in 2001by facilitating interaction among marketparticipants, contributing to the developmentof the STEP Market Convention and raisingpublic awareness regarding the initiative.Following the successful launch of the STEPmarket in June 2006, the Eurosystem hascontinued to contribute to the initiative in twoways. First, the ECB provides statistics on theSTEP market. Second, the Eurosystem assiststhe STEP Secretariat in the labelling of STEPpaper. This second measure is a temporaryarrangement which will expire in June 2010.The STEP Market Committee has launcheda review of the STEP Market Convention,with the aim of making its applicationeasier for a larger number of markets from atechnical point of view, while maintaining oreven enhancing the standards of the MarketConvention. The ECB welcomes such areview. First, as markets evolve, the MarketConvention must be adjusted accordingly.Second, it is a good opportunity to take stockof the processes and procedures applied sincethe start of the STEP market in June 2006 andto make any necessary improvements to theMarket Convention.The ECB produces daily statistics on yieldson new issues of euro-denominated STEPsecurities, as well as monthly volumes of STEPdebt securities. Despite the distressed marketconditions, the total outstanding amount ofSTEP debt securities increased by 24% (year onyear) in the fourth quarter of 2008.ADVICE ON THE LEGISLATIVE AND REGULATORYFRAMEWORK FOR THE FINANCIAL SYSTEM ANDDIRECT RULE-MAKINGThe Eurosystem regularly contributes to thedevelopment of the EU legislative and regulatoryframework by providing advice on the mainpolicy initiatives under way.Activity with regard to financial supervision inthe EU focused in 2008 on the follow-up of thereview of the Lamfalussy framework, to whichthe Eurosystem contributed (see Section 2of this chapter). Furthermore, as part of itsadvisory role in accordance with Article 105(4)of the Treaty, the ECB regularly provides adviceon the legislative proposals of the EuropeanCommission (see also Section 2).The ECB provided advisory input on issuesrelated to the integration of securitiessettlement systems and of payment systems.In particular, the ECB was closely involvedin the work relating to the “Code of Conductfor Clearing and Settlement”. The code aimsto foster competition on the basis of pricetransparency, access and interoperability, andservice unbundling and accounting separation.Given that the code is a self-regulatory tool, astrict monitoring mechanism has been set up toensure that all the measures are implementedproperly and on time. The mechanism relieson external auditors and an ad hoc MonitoringGroup composed of the European Commission,CESR and the ECB. The Monitoring Group metfour times in the course of 2008. The ECB andthe European Central Securities DepositoriesAssociation conducted an analysis on pricetransparency and provided suggestions on howto improve price comparability.As the code of conduct ultimately aims toestablish freedom of choice, it needs to becomplemented by the full removal of the“Giovannini barriers” to efficient clearing andsettlement (named after the group that identifiedthem in 2001), which result from differences intechnical standards and business practices, legaluncertainty, and differences in tax procedures.The ECB continued to participate in the Clearing160 ECBAnnual Report2008