| LONDON, April 22
LONDON, April 22 Trading of derivatives and
other products denominated in euros in the financial markets
should be backed up by support systems - such as clearing houses
- based in euro zone countries, a senior French policymaker said
Bank of France Governor Christian Noyer's comments turn up
the heat on Britain, which is fighting a European Central Bank
plan to require clearing houses that handle a substantial amount
of euro-denominated derivatives trades, such as London-based
LCH.Clearnet, to be located in the euro zone.
Noyer, who also sits on the ECB's governing council, said in
a Bank of France overview of global derivatives market reforms
that the processing of foreign currency-denominated instruments
with a "systemic dimension" for the issuers must be located in
the relevant currency area.
Noyer has made similar comments in the past and these latest
could be a signal that the ECB is not willing to back down.
Britain has already gone to the European Union's highest
court to challenge the ECB policy plan, which could pose a
threat to the City of London financial centre.
The focus on providing back-up for derivatives trades is
part of efforts to make these products safer after the financial
crisis, when the near-collapse of U.S. insurer AIG exposed the
risks of the opaque derivatives markets.
The reforms, in which clearing plays a central role, has
prompted new entrants into the clearing business such as ICE
, CME and others which want to clear European
trades from London, the bloc's biggest trading centre.
Large volumes of euro-denominated transactions are executed
and cleared in London but Britain is not part of the single
Clearing is where a third party, backed by a default fund,
ensures a transaction is completed even if one side of the trade
Noyer said the central bank in the currency area should also
have "oversight authority over the (clearing
houses)infrastructure, with direct and permanent powers so that
it can compel it to take the necessary measures to guarantee its
security and its efficiency."
From next year, the ECB will become the main supervisor for
the region's biggest banks but currently clearing houses are
mainly regulated in the country where they are based.
The Group of 20 economies (G20) agreed in 2009 to introduce
mandatory clearing and reporting of derivatives transactions to
help regulators spot risks more easily.
The G20 set a deadline of end 2012 to complete the reforms
but the European Union and United States are still rolling out
or finalising some rules.