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EU, UK officials back securities clearing choice
LONDON May 16 (Reuters) - Investors should not be forced to clear trades on a particular platform, European Union and British officials said on Monday.
EU Competition Commissioner Joaquin Almunia said regulation and competition must go hand in hand to make sure market structures did not harm users.
"In particular, we should prevent that any one entity or group controls essential infrastructure -- be it a trading platform, a clearing platform or a pre-trading service -- to the benefit of a restricted few," Almunia told a seminar on wholesale market competition at the Cass Business School.
Almunia is set to rule on a planned merger of Deutsche Boerse (DB1Gn.DE) and NYSE Euronext (NYX.N) which would have a combined market share of over 90 percent of listed derivatives and a large chunk of share trading and clearing in Europe.
The deal looked more certain on Monday after a counterbid for NYSE Euronext was pulled. [ID:nN16265562]
Banks fear being forced to clear trades within the combined Boerse/NYSE group and want the EU to impose conditions to avoid this, such as by allowing links between clearers, known as interoperability.
Deutsche Boerse's Eurex clearing arm has already declined to take an initial interoperability step with four other clearing houses in European shares later this quarter.
Almunia gave users some hope.
"I am aware of the debate on interoperability and the question of whether increased competition and the proliferation of market actors can undermine stability, but I cannot see a problem here," Almunia said.
"I believe that competition and stability are not at odds. If market participants comply with strict prudential requirements, I see no risk in having many of them supplying services to investors," Almunia said.
He has already expressed his concern about the "vertical silo" business model, as used by Deutsche Boerse.
Britain's financial services minister, Mark Hoban, said a draft EU law on clearing should be extended to all derivatives and not just those traded off exchanges.
Competition in clearing can drive down costs for users in the same way as liberalisation of EU share trading rules has done, Hoban said. "What we are looking for is open access to information so that counterparties are not locked into any particular clearing choice."
Hoban said it was odd that popular instruments protected by patents were not traded across markets, in a reference to the Stoxx index company which does not allow fungibility in Europe by granting others a trading licence.
Stoxx is controlled by Deutsche Boerse which trades and clears the index, while rivals like the London Stock Exchange (LSE.L) have been unable to obtain a licence.
LSE chief executive Xavier Rolet said the exchange has no restrictions on the use of the FTSE index it jointly owns.
He appealed to Almunia to use his ruling on the Deutsche Boerse-NYSE merger to "set the conditions for future competition in derivatives".
Major market users also urged strong competition.
"We need to make sure we do not see a walling off of the European market to be sounder," said Richard Gnodde, co-chief executive of Goldman Sachs International (GS.N).
The EU could end up with conflicting policy.
EU states and the European Parliament have the final say on the draft derivatives law. Britain's push for all derivatives to be covered to ensure clearing choice is losing steam after a fightback from Germany where Deutsche Boerse is based.
Parallel to this, Almunia will have to decide whether to impose conditions on the Boerse/NYSE merger such as clearing choice, which could potentially conflict with the new law.
Much could hinge on what is concluded first.
"If the legislation is in force, I will need to take into account what are the new rules," Almunia told reporters. (Reporting by Huw Jones; Editing by Dan Lalor)
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