An integrated financial market at European level plays a crucial role in making European businesses more competitive and generating growth and jobs. A single, deep and liquid capital market can eliminate inefficiencies in the financial system, increase returns on savings and reduce the cost of borrowing.
Although much progress has already been achieved, the current economic and financial crisis revealed that more needs to be done to improve the safety, security and efficiency of capital markets. To this end, the Commission has set out an ambitious roadmap of measures to regulate financial services for sustainable growth and ensure more responsibility and competitiveness in the European Financial Sector .
Competition rules apply to capital markets in the same way as to any other industrial or services sector. Whilst recognising and respecting the fact that financial institutions have special responsibilities which are regulated appropriately, they still must respect competition rules.
As in other sectors, the European Commission takes a two-fold approach:
1. enforcing existing competition legislation and
2. promoting the integration of pro-competitive measures in other legislative initiatives related to the internal market.
The interdependency between the internal market policy and competition policy is particularly clear in the financial services sector, as VP Almunia set out at a conference organised by the CASS Business School in London on 16 May 2011:
"The regulatory measures taken by the European Commission will shed more light into the way financial markets operate and will prevent a dangerous accumulation of risk. But regulation alone is not enough. Whereas regulation tackles broad structural market failures, you need competition policy to tackle the harmful behaviour of individual market participants. Competition control should ensure that the actual evolution of the market does not lead to structures that harm users and legitimate market participants,"
The application of competition law ensures to the benefit of users that credit institutions and other financial service providers do not behave in a manner that hampers the efficient functioning of the internal market. The common objective of the internal market and competition policies is indeed to open up national markets with the ultimate aim of delivering efficiency gains to the benefit of consumers.
The Competition DG started to focus its attention on capital markets in May 2006 with the release of an Issues Paper on competition in securities trading and post-trading for public consultation. A number of replies were received and are listed here. Commissioner Kroes' speech at the European Parliament on 11 July 2006 summarizes some of the conclusions drawn from this public consultation. The initiative of Commissioner McCreevy to sponsor a Code of Conduct for the financial industry to foster an integrated and efficient post-trading market in the EU drew from the conclusions of the Competition DG's market monitoring.
Since then, several legislative measures have been proposed in this area:
Over-the-Counter (OTC) Derivatives and Credit Default Swaps
The lack of transparency in trading derivatives and financial instruments Over the Counter (OTC) became apparent during the financial crisis of 2008. Drawing lessons from the crisis, the G20 agreed at the 2009 Pittsburgh summit on the need to improve the transparency and oversight of less regulated markets, with specific focus on OTC derivatives. In 2010 the Commission proposed to improve the regulation of Credit Default Swaps (CDS) and other OTC derivatives in the framework of the European market infrastructure regulation (EMIR) (see IP/10/1125). In October 2011 the Commission also tabled proposals to revise the Markets in Financial Instruments Directive (MiFID) to further enhance transparency of OTC markets (see IP/11/1219).
The Commission's antitrust action is complementary to these regulatory measures, which together seek to ensure safe, sound and efficient financial markets. In April 2011, the European Commission opened two antitrust investigations concerning the CDS market (see IP/11/509). The purpose of these investigations is to ascertain whether banks infringed the EU competition rules by engaging in certain practices and behaviour which could have restrained the ability of service providers in this market to offer innovative products to customers and/or to enter into competition with established players.
Financial services data sector
Access to financial services information and the availability of high quality and timely market data in relation to prices and structures of financial instruments is crucial for the functioning of financial markets. The markets for the provision of financial information are often highly concentrated and the major global financial institutions and information services providers enjoy significant market power. Industry standardisation in such markets can lead to the development of quasi monopolistic providers of de facto market standard products, services, financial identifiers and indices. The Commission has been investigating a number of issues in this sector such as access to information or services, standard setting, IP rights and interoperability between different products or services. (See Standard and Poor's and Thomson Reuters)
Merger control can also play an important role in ensuring that financial markets remain competitive. One example is the Commission's decision of 1 February 2012 to block the proposed merger between Deutsche Börse and NYSE Euronext, two leading stock exchange operators active globally. The merger would have led to a near-monopoly on a global level in European financial derivatives traded on exchange. These products are an important hedging and investment instrument for both companies and investors, including institutional investors such as pension funds which act on behalf of consumers. The merger would have taken away the benefits of price competition and led to less innovation in the area.