outside the textbooks markets have their own manifest impediments, and regulation may
be necessary to overcome these obstacles. In so doing, the visible hand of regulation
accomplishes the very goal that classic laissez-faire market liberals seek: the free function-
ing of market forces.
The integration of securities markets is an enormously complex undertaking. In the Eur-
opean case, it is made even more complex by the fact that the markets to be integrated
reside in different nations with different legal structures, business cultures and financial
structures. Yet we can see past this complexity if we break the problem down into the
minimum fundamental components necessary for an integrated market, in which orders
and transactions flow without hindrance across these national borders.
Drawing from the lessons and conclusions of the previous chapters, it is inevitable to
conclude that elements of integration infrastructure ± consolidated price montage, tape and
order routing mechanism ± require further development and exploitation. This infrastruc-
ture will likely remain an empty road without a cross-market best execution policy which
addresses the tendency of liquidity to remain on the dominant market. Even if this policy
only applies directly to retail trading, it will help to build up the necessary critical mass to
make the integrated market system viable, as well as highlighting any residual conflicts of
interest which militate against cross-border executions.
At the same time, the FSAP should remain on course in order to address those more
visible obstacles to integration. Rationalisation of clearing and settlement, tax harmonisa-
tion and other structural reforms should remain high on the European Commission's list of
priorities. The critical point is that the FSAP reforms represent a necessary, but not suffi-
cient, condition for European market integration.
Lastly, a Pan-European regulatory authority with limited powers would be able to
provide the necessary co-ordination and standard-setting tasks needed to make the market
system a reality. Such an authority should only have those powers required to co-ordinate,
and if necessary to direct, action across the markets which are necessary to achieve the goal
of market integration. Appropriate tasks for such a regulator would be the establishment of
technological, data and other standards and the co-ordinated study of issues central to
market integration. These include questions of governance and finance, best practice and
technology. An important question for this body would be that of whether conflicts of
interest do in fact impede the movement of liquidity away from the dominant markets,
and if so how these conflicts can best be mitigated. A second key role for this authority
would be the regular review of technology and market structure necessary to keep regula-
tion apace with the progress of the markets.
138 Part II: Market Integration