By Huw Jones and Marc Jones
FRANKFURT, April 21 (Reuters) - The European Central Bank is holding talks with the Bank of England on extending its new stock and bond settlement system beyond the euro zone under a plan to slash trading costs, an ECB policymaker told Reuters.
ECB Executive Board member Gertrude Tumpel-Gugerell urged the BoE to allow sterling to be among the currencies used on the the new Target 2 Securities platform.
"We are looking forward to their final assessments," she said in an interview. "Of course we would like them to be on board. It is one large financial market in Europe and we would very much welcome if the Bank of England joined forces here."
The ECB is launching T2S in 2013, aiming to give investors in the 16 nation euro zone a much cheaper deal when it comes to settling stock and bond trades. It would also allow Europe's capital market to compete better with the United States.
However, the ECB wants to widen the scope of the project to include currencies elsewhere in the European Union, creating greater economies of scale and lower fees for users.
Three non-euro zone countries, Sweden, Lithuania and Denmark, have joined so far, and Tumpel-Gugerell said Switzerland would also be involved.
"Today, to the extent that Switzerland is using the euro, this part of the business will also be part of T2S," she said in the interview, which was conducted on Monday.
Clearing and settlement of trades is when they are squared and cash exchanged for legal ownership. It forms the basic plumbing of financial markets but Europe's patchwork of national systems makes it costly for processing cross-border trades.
The ECB lost patience with industry efforts to cut fees and presented its own plans for a European settlement system, T2S.
National settlement houses are under pressure to commit by June to use it once launched, but some say they don't have enough details such as on prices and will want a get-out clause.
ATTRACTIVE PRICES
"The focus in on the fee per transaction and we have reassured the market we can offer very attractive prices," Tumpel-Gugerell said.
She declined to give any specific price examples.
Governance is another issue vexing some settlement houses who fear they will end up with little sway over T2S beyond having a seat on an advisory committee.
The ECB has insisted the project remains under its wing but Tumpel-Gugerell kept the door open to change down the line.
"Of course we also have to study long term options of how the business could be run and there the creation of an agency is one the options studied," she said.
"For the time being the T2S programme board will be part of the ECB -- reporting to the ECB Governing Council -- with staff allocated to the project which will oversee development of the project," she said.
"The industry seems to be satisfied with what we have now," Tumpel-Gugerell said. The ECB will announce the composition of the new programme board for T2S shortly.
Other EU-based efforts to boost competition in the short term have had little success.
The European Commission introduced an industry code but it has largely failed to make it easy for banks to hook up to the clearer or settlement house they want.
Banks are effectively locked into using a service provider traditionally aligned or owned by the exchange.
"More needs to be done. We take care of part of the necessary steps with our T2S project, but more needs to be done in particular from the industry side," Tumpel-Gugerell said. Progress on harmonising standards to increase competition could be faster, she said.
(Reporting by Huw Jones, editing by David Stamp)