EUROPE - In an unprecedented move, the European Commission has sharply criticised the behaviour of Clearstream, the international clearing and settlement depository (ICSD) owned by Deutsche Börse for refusing to supply cross-border services to its clients and discriminating against its direct competitor, Euroclear.
The EC’s competition directorate said: “There is evidence that Clearstream Banking AG [Clearstream’s Frankfurt-based_operation] refused Euroclear Bank SA access to the settlement platform for registered shares in Germany for more than two years.
“In the Commission’s view there is no justification for such a long period between the request for access and the actual granting of the access.”
The EC also said the discrimination against Euroclear extended to pricing. Until January 2002 Clearstream Banking AG charged a higher per transaction price to Euroclear than to national central clearing depositories outside Germany.
Clearstream now has two months to explain its behaviour either in writing or at an oral hearing.
Euroclear said in a statement: “The recent decision by the Commission is really a matter between Clearstream and the Commission. Euroclear has been a long-time supporter of open competition and uniform pricing for securities services.”
Euroclear said that the access issue since been resolved, although it is still in dispute about the pricing. However, if the EC decides that either the denial of access or the discriminatory pricing inhibited the delivery of cross border securities services, it can fine Clearstream 10% of its worldwide turnover.
The EC’s criticism raises the issue of vertically and horizontally integrated securities services. The Deutsche Börse Group has created a “vertical silo” which includes Eurex, the derivatives exchange, and Clearstream as a custody player. Euroclear, which has allied with the UK’s CrestCo, has taken the horizontal route.
Critics say that vertically integrated operations like Clearstream are more likely to be anti-competitive. Phil Bruce, head of corporate strategy at the London Stock Exchange, commented: “Vertical silos are likely to be more prone to this behaviour than others.”
The European Securities Forum which represent 22 of the largest global investment banks has suggested that Clearstream and Euroclear should merge their ICSD activities. Werner Frey, chief executive officer, said: “A merger between the ICSD parts of Clearstream and Euroclear still would make perfect sense, because consolidation and integration would be highly identical as their businesses are highly identical.”