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Tom Kokkola Adviser

DG Payments and Market Infrastructure European Central Bank

World Bank Global Payments Week, Amsterdam, 21 October 2010

Integration of the euro area & European market infrastructure

- An overview -

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European integration: >50 years

Building blocks

•  Community legislation - Primary legislation: Treaties - Secondary legislation: regulations, directives, etc.

•  Community institutions - ECB, Eurosystem, ESCB - European Parliament, European Commission, ECJ

- Financial Services Comm., Economic & Financial Comm., ECOFIN, Council

Background

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Two dimensions:

•  Internal market

- EU 27

- European Economic Area (EU27 + 3)

•  Monetary Union

- Euro area 16 (17 as of 2011)

Background

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Market infrastructure for the euro markets

Payments Securities / Derivatives

2 Large Value Payment Systems

+CLS (for euro leg of FX transact.)

62

51

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Traditional exchanges (Regulated Markets)

Multilateral Trading Facilities

Systematic Internalisers

9 Central Counterparties

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27

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Retail payment systems

National card schemes

International card schemes

25 Securities Settlement Systems

CSD links -  54 bilateral links -  7 relayed links

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Market State of integration Related infrastructures

Money markets Unsecured money market

“Near perfect” Uncollateralised money market: fully integrated

Collateralised money market

Advanced Collateralised money market: cash leg fully integrated; collateral leg hampered by fragmentation (see bond markets)

Bond markets Fragmented

Government bond markets Very well advanced

Corporate bond markets Fair

Equity markets Low Highly fragmented

Banking markets

Wholesale activities Well advanced Fully integrated

Capital-market related activities

Advanced Fragmented

Retail banking Very low Highly fragmented

State of financial integration in the euro area: overview of the main financial segments

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Wholesale financial markets and their infrastructure

There are 3 main payment systems handling € large-value payments

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From a decentralised to a fully centralised system

TARGET2 – The RTGS of the Eurosystem

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TARGET 2,419 Euroclear Bank 616 CLS 564 Euroclear France 476 EURO1 228 Iberclear 205 Monte Titoli 199 Clearstream Banking Frankfurt 125 Clearstream Banking Luxembourg 112 PNS 64

Major funds transfer systems in euro (2007; EUR billions per working day)

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All data, end of 2008 Source, ECB SDW

Wholesale financial markets and their infrastructure

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Consolidation process has taken various forms: links, mergers and acquisitions, other forms of cooperation

Horizontal consolidation vs vertical consolidation

trading trading trading

CCP CCP CCP

CSD CSD CSD

trading

CCP

CSD

Wholesale financial markets and their infrastructure

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Retail payments

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Retail payments infrastructure

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Actual interoperability in the euro area

Active links for SCT based on EACHA framework: --------------------------------

STEP2 links ------------------------------

STEP2

STEP.AT

SICOI

SIA-SSB BI-COMP ICBPI

BI-COMP RPS SNCE

Equens

POPS

CEC SEPA IKP ACH

Finland

CORE

JCC transfer

DIAS

Retail Clearing

PMJ

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Integrated market infrastructure important for the smooth and efficient functioning of the markets they serve

In the euro area, integration is more advanced - the closer a market segment is to monetary policy and - the more integrated is the underlying market infrastructure

Conclusions

Eurosystem involved as operator, catalyst for change and overseer