11:12 GMT +317 October 2019
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    European Central Bank

    European Central Bank Mulls Taking Euro Clearing Powers From London Post-Brexit

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    The European Central Bank (ECB) offered to amend the rules of the European System of Central Banks in connection with Brexit, to transfer the authority regulating the deals, in particular the euro-denominated ones, to European Union, the regulator said in its recommendation.

    MOSCOW (Sputnik) — The London Clearing House (LCH), which is owned by the London Stock Exchange (LSE), is currently clearing most of the euro-denominated interest rate swaps — the common derivative contract used by companies in the European Union. The average daily turnover of euro-denominated derivatives cleared by the LCH is about $850 billion, accounting for about 75 percent of such deals in the EU.

    "The amendment would provide the ECB with a clear legal competence in the area of central clearing, which would pave the way for the Eurosystem to exercise the powers that… include a significantly enhanced role for central banks of issue in the supervisory system of central counterparties (CCPs), in particular with regard to… euro-denominated transactions," the regulator said.

    In accordance with ECB recommendation, the regulator and national central banks of the eurozone will control the risks that may affect monetary policy, the operation of payment systems and the stability of the euro. The recommendation was sent to the European Parliament and the Council for the adoption, the central bank said.

    After UK citizens voted for country's departure from the European Union at the referendum in June 2016, then-French President Francois Hollande proposed to deprive London's City of the right to clear euro-denominated transactions. In May, European Commission's Vice-President for the Euro and Social Dialogue Valdis Dombrovskis said that the EC was considering moving most of the clearing from London to the EU after Brexit.

    The UK authorities, in turn, stated that forced relocation of the clearing could adversely affect international trade. London market lobbies warned that the cost of transactions could increase significantly, once the clearing regulation is moved outside London.

    Clearing refers to all the processes during the preparation of a transaction for settlement (closing) in forex, securities, commodities and derivatives markets. Central counterparty clearing (CCP) is the entity responsible not just for facilitating transactions, but also for guaranteeing them, taking the risk of settlement failure.


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