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EU may tighten grip on euro clearing after Brexit

Tuesday, June 13, 2017 - 01:46

Brussels is expected to announce whether it will force London's £747 billion-a-day euro clearing business to relocate to the eurozone after Brexit in what could be a major blow to the Square Mile. As David Pollard reports, one source says the EU will give itself powers to move the business and adopt a model closer to that operated in the U.S.

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This is the Brexit story where the back-room boys move front and centre. London's largely unseen clearing operations provide a third-party risk management service to ensure smooth trades in financial assets. A bit like, they say, a solicitor ensuring both buyer and seller do everything by the book in a property exchange. If the price of the property in this case is around 750 billion pounds a day - just for euro-denominated contracts. Business for the City of London which could now be under threat. (SOUNDBITE) (English) WILSON KING INVESTMENT MANAGEMENT, HEAD OF RESEARCH, RICHARD HUNTER, SAYING: "What is likely is that the EU will again try to wrestle control of that clearing business ... Even if that isn't the case there is the possibility that the clearing that is done in London would then have to be reportable to some of the European powers, something which London hasn't had to do hitherto." A decision from the EU could at the very least impose so-called 'enhanced supervision' of clearing in London after Brexit. But with the backup power to force euro-clearing business it deems as core to its financial stability to relocate to centres like Paris and Frankfurt or even outside the euro zone. (SOUNDBITE) (English) WILSON KING INVESTMENT MANAGEMENT, HEAD OF RESEARCH, RICHARD HUNTER, SAYING: "Some U.S. companies already have the authority to be able to clear in the EU. So potentially, rather than going to the EU, the clearing could actually move to the States. And that could be more concerning." About three quarters of London's euro-denominated clearing is done by one company: LCH, a subsidiary of the London Stock Exchange. Its boss is quoted as warning against a change that could result in 'complete chaos'. While others say it would split markets, bump up trading costs - and threaten thousands of London jobs.