After being a successful monetary union, EU is moving towards being a financial union. As a step in that direction, authorities in the European Union are keen to remove all the hurdles in creating a seamless securities trading environment across the continent. Cross-border share transactions in Europe remain complex and fragmented resulting in inefficiencies and huge costs. According to experts, costs involved in cross-border clearing and settlement are six times higher compared to domestic clearing and settlement, placing cross-border investments at a disadvantage to domestic investments. Also, Europes financial exchanges follow a multitude of models for clearing and settlement, making cross-border securities trading even more cumbersome. Given the public focus on trading system consolidation, it was also recognized that settlement system consolidation would result in vastly greater savings in trading costs and, therefore, cost of equity capital to European firms.
At
present, there are around 40 public bodies in Europe that deal with market regulations.
Companies that wish to raise cross-border capital are not only subject to a number
of regulatory barriers but are also expending heavy cost and time. Further, the
market is largely fragmented with the existence of a number of clearing and settlement
systems. Such roadblocks severely limit the development and proliferation of European
capital market. Experts say that the need of the hour is to reduce regulatory
arbitrage and have a much leaner Europe-wide regulation system coupled with strict
enforcement. Further, with increased attention towards bourse consolidation, a
pan-European regulation will help the industry by providing compatibility. Such
regulations will facilitate uniformity, consistency, and transparency for all
the players. For example, one such benefit is that listed companies can report
their financial statements on a comparable basis, leading to effective exchange
of reliable information.
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