London
04 May 2017
Reporter: Mark Dugdale

Brexit could see London lose euro clearing


EU leaders have a “strong argument” for bringing euro clearing into one of the remaining member states once the UK leaves the union, according to Roger Storm of SIX Securities Services.

Financial services have proven to be an early point of contention ahead of Brexit negotiations. A German politician recently revived the prospect of legislating to require euro currency clearing, the majority of which takes place in the City of London, to be carried out in the eurozone.

Amid reports that the European Commission is planning to propose legislation in June that would centralise regulation, and possibly even require firms undertaking euro clearing to relocate, Roger Storm, head of clearing risk and development SIX Securities Services, said: “The precise impact of Brexit will boil down to whether the parties discussing the separation conclude a ‘benevolent transition’ or not. That said, if Brussels is intent on taking back euro clearing, issues such as competition, portability, licensing and access rights will all be secondary.”

“In some senses, there is a strong argument for them to do so. Central counterparty (CCP) clearinghouses secure liquidity and reduce risk, but they also bring a concentration of risk. Many will argue that it’s unreasonable to expect the European Central Bank to relinquish influence and control if a CCP in another market defaults—they need to have the control of the gas pedal and brakes of their car.”

Storm pointed to Euronext’s recent decision to place its clearing business with ICE Clear Netherlands, following the collapse of its deal to buy LCH.

Under the terms of their new partnership, clearing operations will be run from Amsterdam, while a new asset financing solution for inventory management and physical delivery for commodities will be built by Euronext and operated from Paris.

Euronext will contribute a €10 million upfront investment in ICE Clear Netherlands, and both parties have promised to cut headline clearing fees by 15 percent. The agreement will begin in Q2 and run for 10 years.

Storm said: “I would expect that all major banks have run a thorough assessment of Brexit, with a few scenarios up their sleeve. In the event of a hard Brexit, one of these options may involve breaking up and shifting a portion of their trading, clearing and collateral back to their respective currency zones.

“The outcome of conversations over the next few weeks is sure to make waves in the clearing and settlement sector, bringing an entirely new set of questions around collateral quality, access to clearing, and market consolidation.”

The prospect of losing euro clearing won’t fill the City of London with joy, as the loss of its ability to clear euro-denominated transactions would put hundreds of thousands of jobs at risk, according to a report from EY.

More clearing and settlement news
The latest news from Asset Servicing Times
Join Our Newsletter

Sign up today and never
miss the latest news or an issue again

Subscribe now
BNP Paribas becomes first French OTC Clearing member
20 September 2017 | Hong Kong | Reporter: Barney Dixon
BNP Paribas has joined OTC Clearing Hong Kong, as the clearinghouse’s 17th member, and the first from France
Ten-year T2S saga comes to an end
19 September 2017 | Brussels | Reporter: Stephanie Palmer
The Target2-Securities pan-European harmonised settlement platform is finally fully operational, as the Spanish and Baltic markets completed their migration yesterday
SEC praises “smooth” T+2 transition
12 September 2017 | Washington DC | Reporter: Stephanie Palmer
SEC chair Jay Clayton said the move on 5 September “represents a significant accomplishment” for the industry
Citi and Deutsche Bank execute first SwapAgent trades
07 September 2017 | London | Reporter: Jenna Lomax
LCH’s new SwapAgent service has completed its first trades, facilitating an interest-rate swap and an inflation swap between Citi and Deutsche Bank
North America slims down to T+2
05 September 2017 | New York | Reporter: Drew Nicol
The shorter settlement timeframe also aligns these markets with the EU, which moved to a T+2 settlement cycle in 2014
GlobalCollateral and CloudMargin to combine forces on settlement
22 August 2017 | London | Reporter: Stephanie Palmer
CloudMargin has entered into an agreement with DTCC-Euroclear GlobalCollateral to connect with its Margin Transit Utility
LCH launches new SwapClear client account
15 August 2017 | London | Reporter: Drew Nicol
Global clearinghouse LCH has introduced a new type of client account within its SwapClear service that allows buy-side clients to deliver collateral directly and retain beneficial title
More clearing and settlement news