Clearing and settlement in the European Union

As the cost of trading securities has decreased in the EU, the focus has turned to back office costs. One of the main costs is clearing and settlement. There is currently vivid debate on how to diminish those costs. Mattias Levin from the Centre for European Policy Studies (CEPS) reviews the various options and the debates surrounding them.

Mattias Levin, Research fellow, Centre for European Policy. Studies, mattias.levin@ceps.be

The EU’s securities markets are becoming more integrated. Securities trading has become more competitive, as national stock exchanges are competing to attract firms from the internal market. As a result, trade volumes have soared and the cost of trading has decreased.This has exposed other areas in securities markets where integration has proceeded less far: clearing and settlement. Once a security has been traded on an exchange, the trade has to be cleared and settled so that the transaction can be completed.The costs of clearing and settlement in the EU remain high, particularly for non-domestic securities.This has created a debate on how to decrease the costs of cross-border clearing and settlement.This article will discuss how this can be achieved.