One continent - one stock market?
If Europe remains a long way from a common trading platform, then it is even further away from a common settlement system. But according to Nick Stephenson, European equity strategist at Paribas, settlement, rather than where or how equity will be traded, is the most relevant issue from a market perspective. "Most institutions don't really care which exchange a stock is quoted on," he says. "Settlement is a different matter, because it affects the number of banking relationships that an investor has to maintain in Europe." If an investor can settle all European share transactions through a single counterparty, it would make considerable cost savings.
A similar argument applies to intermediaries. "If we were to join a new exchange as a member there would be more cost savings from being a direct participant in settlement than from saving on transaction costs," says Harlan Flint, director of marketing at Instinet, the internet brokerage.
Flint points out that the alliances being mooted by various exchanges usually fall short of including settlement link-ups. "There is always talk of building a bridge between settlement systems, but exchanges are only interested in having a one-way road," he says.