Improving the regulatory process for EU capital markets – insights from equity settlement discipline

Modern securities market structure is intricate, typically involving holding chains, central clearing, and ultimate settlement at a central securities depository. This complexity naturally leads to complex policy questions and to a sophisticated policy debate which is largely conducted between experts from regulators and large intermediaries. However, the rights of a wider set of stakeholders, including beneficial investors and issuers are affected. Moreover, policy makers must balance the conflicting claims of these groups of stakeholders as well as the goals of market efficiency and promoting investor confidence. This paper analyses and evaluates European policy making in the area of equities settlement discipline as a case study in financial rule-making. It reveals how a failure to specify precise policy goals, overly-narrow consultation, disproportionate rule-making and inattention to European specificities led to a controversial and sub-optimal policy outcome, offering insights for the process of further development of EU settlement discipline policy specifically and EU capital markets regulation more generally.