EU Court Rejects Antitrust Appeal By Deutsch Borse to Exonerate Clearstream

Monopolization:

BRUSSELS—The European Court of First Instance rejected Sept. 9 an appeal by the only company in Germany sanctioned to clear and settle trades after it was found guilty by the European Union antitrust regulator of abusing its monopoly.

The EU's second-highest tribunal ruled that the European Commission properly concluded that the settlement arm of German stock exchange Deutsche Bourse, called Clearstream, abused its dominant position by charging higher prices to Euroclear, which is based in Belgium and is the only other international central securities depository in the European Union.

“The Court of First Instance dismisses the action brought against the Commission's decision finding that Clearstream unlawfully refused to provide certain financial services to Euroclear,” the CFI said in a statement. “Clearstream abused its dominant position on the market in the provision of primary clearing and settlement services related to securities issued in Germany.”

The CFI added that Clearstream failed to provide a justification for the two years Euroclear had to wait before obtaining a computerized link that is part of Clearstream's everyday business and is usually granted by to its customers within the space of a few months.

As a result of the refusal to provide a computerized link, Euroclear was forced to use the services of an intermediary, which is more costly and less efficient than receiving the services directly from the primary service provider.

For years, the European Commission has struggled to drive the cost of clearing and settling cross-border trades as it estimates the high fees—often more than 50 percent what is charged in the United States—are a major deterrent to establishing a single market for equity trading. In recent years it has adopted a code of conduct and new legislation designed to liberalize rules for cross-border trading.

“This judgment is important because it confirms the special responsibilities of dominant service providers for not impairing the provision of efficient and cheaper services in a market where the costs of cross-border securities transactions continue to be higher than for national ones within the single market,” the Commission said in a statement.

The CFI judgment comes on the heels of a recent study sponsored by the European Commission that found costs for cross-border clearing and settlement costs are decreasing. Internal Market Commissioner Charlie McCreevy said results of the study, published in July, indicated that the code of conduct and the EU Markets in Financial Instruments directive (known by its acronym as MfiD) were working.

By Joe Kirwin

A copy of the recently completed European Commission study on trading and post-trading prices, costs and volumes can be found at the following link: http://ec.europa.eu/internal_market/financial-markets/docs/clearing/2009_07_ec_report_oxera_en.pdf

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