Alternative Models for Clearance and Settlement: The Case of the Single European Capital Market
J. OF MONEY, CREDIT, AND BANKING, November 1996
Posted: 20 Aug 1996
Abstract
A prerequisite for the development of a viable international capital market - one that allows investors to achieve optimum asset-allocation and corporations to tap pools of capital most efficiently - is a supportive transactions infrastructure comprising the clearance, settlement, payment and custody of cross-border securities transactions. This infrastructure is the "plumbing" of the market, a structure that is composed of many different parts that must operate as a seamless and integrated manner in order to achieve maximum efficiency for the end-users of the market (the ultimate buyers and sellers of securities) and thus promote the basic objective, optimum capital allocation. Blockages and discontinuities in the utilities that comprise the transactions infrastructure make themselves felt in the form of increased transaction costs and possibly erosion of market liquidity and transparency. At present Europe, notably the EU, falls far short of having a functional transactions infrastructure for equity securities, and this will remain an important shortcoming as other dimensions of financial integration proceed and as other markets, notably in the United States, compete for European transaction flows. This paper enumerates these barriers and costs and evaluates prospects for alternative models for a high-performance European approach to this issue.
JEL Classification: G15
Suggested Citation: Suggested Citation