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HOW SHOULD MARKET INFRASTRUCTURE BE GOVERNED?
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We need survey
Markets should be efficient, fair and prevent risks. But how to frame a whole market? ECMI and CEPS launched a new report titled ´The Governance of Market Infrastructure Institutions´. The launch was part of the event ´How Should Market Infrastructure be Governed?´ on 22 Januari 2010. Oxford Financial Group (wealth management on business, economy and legal and regulatory aspects of financial markets), Euroclear and former Fortis Bank Netherlands (European Multilateral Clearing Facility) gave their views and insights. Financial markets matter.

Their efficient, safe and sound operation depends on 3 key types of infrastructure:

  • exchanges

  • central counter parties (CCP's)

  • central securities depositories (CSD's)


How these institutions are governed critically affects their performance. Yet the diversity of how they are governed across the world has not been well understood and more importantly, nobody knows how they should be governed. These issues are crucial for the success of financial markets in Europe in many ways. Three critically important issues are:

- what legislative and regulatory requirements should be imposed on market infrastructure, particularly in light of the trend to promote centralisation of trading of OTC products?_ - Is the current governance model for Target2 Securities appropriate?
- Are the governance frameworks of the major market infrastructures well designed to deliver efficiency, safety and reduce systemic risk?

A paradox is more infrastructure and less liberalisation. Questions are what is governance (there is lot trading and clearing space), what is infrastructure, how are the institutions governed, how they should be governed. However, the item is that nobody knows the answer. We need survey of experiences on broad areas to give answers on what the most efficient system for market infrastructure is, what regulatory governments there should be and what interventions are necessary and feasible. Answers are complex and there is not a single right answer. Therefore we have in any case to understand the analyses and to make judgements after having looked at the content.

Crisis was caused by multiple factors. A nasty issue was that during the financial crisis it looked if matter worked well. In order to prevent or stop crises in future, there have to come specific proposals, acting on re-engineering processes, tightly risk managing and competition for and in the market.

T2S is most inventionous. It will deliver core goals we want and it is very transparant. Only costs and decision making process are to be questioned. The report ´The Governance of Market Infrastructure Institutions´ is complex; abstract conceptional analyses, combined with practical issues.

On clearing aspects, EMCF looks after general clearing around the world and increased possibilites. Clearing was not an issue in governance. Now central counterparties (CCP´s) can let process the clearing after pledging collateral in order to cover margin requirements, negative impact of OTC´s can be reduced and CCP stability can be enhanced by:

From Ice-Bound Banking Sector to Valid Financial Service Providers
  • placing under financial supervision
  • control over riskmanagement
  • harmonised CCP legislation
  • minimum risk standards
  • single public model for CCP interoperatibiltiy
  • reducing risk from a clearing members default.