The bloc’s executive European Commission is studying “technical issues” raised by moving business worth trillions of euros from London Stock Exchange’s (LSEG.L) LCH clearing platform to Deutsche Boerse’s (DB1Gn.DE) Eurex in Germany. Whilst employing a relatively small number of people, euro clearing is a central cog in European financial markets so EU policymakers argue they should have full oversight of it.
New York has already benefited from Brexit after most trading in euro derivatives in London left for the EU and SEF platforms in the United States following Britain’s full departure on Dec. 31 2020. read more Although the European Commission said in January it would issue “recommendations” by mid-2021, it is now unlikely to be made public, a source familiar with the situation said.
But the LSE unit only has permission to serve EU customers until June 2022 and industry officials say a shift in some euro clearing from London is now inevitable. The LSE has said that LCH members don’t want to split the market by moving clearing from London.
LCH accounts for over 90% of global clearing in euro interest rate swaps and says it is already supervised by the EU. Brussels is now targeting clearing, which ensures a transaction is completed even if one side of the deal goes bust, and the United States could end up grabbing business here too.
Albert Menkveld, professor of finance at Vrije Universiteit Amsterdam, has estimated that fragmenting euro rate swaps clearing would cost users of LCH at least 2 million euros a day in extra collateral from needing two clearers. “If you want to build up liquidity in the EU, we think it should be voluntary, market driven and happen over time,” said Bruce Savage, head of the Futures Industry Association in Europe.
MULTI-CURRENCY “Banks want to move just the amount needed so that LCH gets some form of permanent access to the EU from June next year, and EU banks maintain access to a global pool of clearing business,” one senior industry source said. Banks have begun discussing how such an unprecedented shift could be done smoothly and for which products, industry sources say. Some banks insist it should be up to clients to decide where they clear.
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