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Introductory remarks by André Lussi
Chairman, The Edmond Israel Foundation
and President and CEO of Clearstream International

My Lords, distinguished guests, ladies and gentlemen, what a pleasure it is to be standing here in London at the opening of our second Capital Markets without Borders conference. Last year's event in Paris was an outstanding success, attracting as it did both world-class participants and delegates. Clearly that is a tradition we wish to maintain and looking around me this morning I see we have more than succeeded in our ambition. Thank you all for joining us.

The Edmond Israel Foundation is a not-for-profit organisation set up with the objective of supporting and promoting cultural, scientific and economic activities on a European and worldwide basis. The Foundation was set up to honour Edmond Israel, the founding Chairman of Cedel International and one of the leading financial figures of his generation. I am proud that Edmond Israel could be here with us today. Edmond, it is an honour to have you with us - and fellow Foundation board members to whom we extend a warm welcome. I should also like to thank our principal sponsors -- Accenture, Capco and EDS -- for their generous support.

Of course, the purpose of today's meeting is not just to debate issues of narrow interest to the finance sector. As a Foundation, our aim is nothing less than advancing European thinking by exploring themes of freedom, social responsibility and cultural identity and their interconnection with the worlds of business, finance and politics.

For that reason, we have assembled here today an eclectic body of high calibre speakers and panellists keen and eager to debate the issues. The diversity of experience and expertise on offer is daunting and I hope our discussions today will act as a catalyst for the broadest possible change.

Naturally, our starting-point is the capital markets. We know the capital markets best and most of us, I suspect, read international events from that perspective. For that reason, we have drawn together academics, officials, regulators, journalists, practitioners, economists and business representatives from around the Markets in order to enrich our discussions and to expand the boundaries of our thinking.

All of us here today recognise that there is a tidal wave of change sweeping through our continent. None of us is immune. We see the dark clouds of economic slowdown gathering in the West and political and economic tensions rising in the Far East. If we are to survive and flourish as business people, we have to find ways of anticipating events and turning them to our advantage, of becoming masters rather than victims of change. This is what today is all about. It is about looking to the future and preparing for it as best we can.

Surely, there is no better instance of change at work than the finance sector. In this sector, we see pressures mounting continuously -- for consolidation, for new economies of scale, for new ways of working and thinking. Multiple pressures: domestic, international, global, encompassing Europe, the Americas and the rapidly evolving markets of Asia.

Let me give you an example. In the last few months, we have begun to see a marked acceleration in the pace of consolidation among European exchanges. Nasdaq's push into Europe's equity markets through its acquisition of a controlling stake in Easdaq, Deutsche Börse's successful IPO, developments at Euronext and the promise of wholesale change at the London Stock Exchange under its forceful new Chief Executive -- all suggest 2001 will be a year of unprecedented change.

Not above time, perhaps some might say. After all, Europe's exchanges have long resisted the tide of change which others - most notably the big international investment banks - have embraced with speed. Less charitably, some might even suggest that Nasdaq's entry to the European equity market has come as a belated wake-up call for a group of institutions celebrated more for their defence of member interests than the needs of customers in a global market.

So, all round, we should be happy. But amid the celebration, I fear there is also reason for continued anxiety. Ironically, the source of that anxiety lies with my own industry, clearing and settlement.

Clearing and settling a cross-border trade in Europe costs up to ten times what it does in the United States. As any seasoned observer will know, this statistic is bandied about endless conference platforms and is the subject of general concerns among industry participants. Yet, for all that, the progress that the European clearing and settlement industry has made towards reducing that cost over the past twelve months has been minimal. Consolidation has to all intents and purposes stalled and there seems to be no real will among Europe's numerous clearing and settlement houses to break the impasse. I regard this as the triumph of vested interest over common sense.

In January, I was asked by industry journalists to forecast clearing and settlement for the year ahead. Making predictions is always a dangerous business. After all, it was Mark Twain who said: "Avoid making predictions, especially about the future".

Nonetheless, I prophesied that 2001 would be a year when things finally began to change. I argued that, as the drive towards continent-wide financial markets in Europe accelerates, pressure will grow irresistibly for unified clearing and settlement. Lower costs, improved efficiency will be demanded. But I also stressed that such changes would prove virtually impossible without large-scale industry consolidation.

As we know, there has been no shortage of proposals on how we can achieve this: proposals for the regulation of the European securities market from Alexandre Lamfalussy's Committee of Wise Men, proposals from the European Securities Forum, and a few weeks ago, a proposal from the Group of 30 for another new inquiry to produce further proposals -- this time under the distinguished chairmanship of Sir Andrew Large. It would plainly be wrong for me to be to doubt such important initiatives but I do fear such proposals are a very poor substitute for action.

And it is action we need, not proposals.

You may have seen an article in yesterday's Financial Times highlighting the views of the Chairman of the London Stock Exchange, Don Cruickshank, on the future development of the European clearing and settlement market place.

I would like to take this opportunity to comment on a number of points raised in the article.

Two years ago, when we announced the merger of Cedel International and Deutsch Borse clearing to create Clearstream, we also put to the market our single pan-European Clearing model, the European Clearing House ("ECH")as an evolutionary solution to reducing costs and increasing efficiencies. Sadly, vested national interests have temporarily curtailed its adoption.

A single pan-European clearing and settlement system such as the DTCC model in the United States can only be introduced once the necessary infrastructure is in place - with a unified legal, regulatory, taxation and single currency environment operating efficiently.

The process, as we identified at the time of our merger, is evolutionary - it cannot happen over night. Indeed, over the past two years we have all learned from experience - not least here in London - how difficult it is to overcome national prejudices and other vested interests. These must be overcome for the sake of the market. At Clearstream we have a vision of some day helping to introduce a single global clearing and settlement system. We have the management expertise, technological capabilities and market experience to do so. We are the only successful merger in this market place to date and intend to be at the forefront of the consolidation process already underway in the market place.

Of course, it is far too easy to seem gloomy. Is there light at the end of the tunnel? Yes, I believe there is. After all, it was the Washington-based Group of 30 that first launched the current debate about clearing and settlement back in 1989 and effectively set the last decade's agenda for change. What they say counts.

So why the new initiative? Well, according to the G30's own official statements, a lot has happened since 1989 when they set up a review and created a revised set of recommendations and standards. But there must remain the suspicion that the re-convening of this G30 committee is a sign of growing frustration at the highest level with the painful lack of progress in clearing and settlement, especially in Europe.

Consequently, the advent of the new G30 committee is to be applauded if only because it raises the stakes. In the wake of Nasdaq and the other developments I mentioned, I hope we can expect some movement at last in the post-trade infrastructure. As pressure builds, the options for the European clearing and settlement industry to continue to stall the process of consolidation must surely stop. Sir Andrew Large and the G30 may just be able to tip the scale.

On balance, I am confident progress will be made. However if, for some reason, no progress is made, then what are our prospects? Frankly, they are not good. In my view, Europe will be guilty of nothing less than surrendering the servicing of its capital markets to those from outside our continent who are prepared to be efficient, cost-effective and global. Such an outcome would plainly be unacceptable.

Under such circumstances, it is perhaps even conceivable that the work of Sir Andrew Large's G30 committee may come too late. His committee may end up sounding the death knell for a globally competitive European clearing and settlement industry rather than laying the groundwork for its future. We must sincerely hope this is not the case - and do everything within our power to ensure Europe raises its sights to the looming global challenge.

So, there is a chill wind blowing towards Europe, mainly from across the Atlantic but also increasingly from Asia. At Clearstream International, we have long recognised this - which is why we've focussed our energies on building a global office network, developing and promoting a global settlement engine, arguing for a European central counterparty and a robust "for profit" business model.

You've heard enough from me. There are others here today whose views will differ, those perhaps with greater wisdom or experience or expertise, speakers who will offer radically different perspectives. It is time we listened to them and engaged in wider debate.

Introduction of Professor Issing

How does one begin to describe the achievements of our first speaker, Professor Otmar Issing? His role as an Executive Board Member of the European Central Bank is merely one of the many achievements of this extraordinary, accomplished individual. Trained in the great German tradition of classical philology, Professor Issing is an economist and a doctor of law and political sciences. A member of numerous illustrious academic academies, he is a prolific writer and thinker. Before joining the Board of the ECB, he sat on the board of the Bundesbank for a period of eight years. Professor Issing will speak to us this morning on the subject of the European capital markets. I know that what he has to tell us will be profound and provocative.

Professor Issing, it is an enormous privilege for me to invite you to give the opening address at our conference. Professor Issing.

 
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