Power Grab: Paris Poised to Snap Up Post-Brexit Clearing Houses
AFP 2017/ JUSTIN TALLISEurope11:42 13.09.2017Get short URL
Just as France is reportedly pushing to give the EU total veto power over the way Britain supervises UK-based clearing houses following Brexit, a City University London professor David Blake told Sputnik that other European financial centers are vying for a share of London’s market.
The houses in question handle more than 650 billion pounds per day and provide huge tax revenues.
The euro clearing operations would have to move from London to the EU if joint supervision is considered insufficient by Brussels.
“There are two sides to the issue: one is technical and the other is political. There is huge trading in securities and much of it takes place in London. The efficiency of working on the London market is that margin payments on the purchase of derivatives and securities there is lower than when you have markets spread around different locations. For example, if you buy derivatives in London and sell them in Paris, you will have to place margins in both places,” Professor Blake explained.
He said there was also a political aspect that had to be taken into consideration.
“If the margin levels are set depending on the level of risk and the risks go up, so do the margin levels. During the EU sovereign debt crisis in 2012, London increased the margins on all euro derivatives and that raised the cost of borrowing in the Eurozone, making the crisis worse. Therefore, the European Union is concerned that if this huge market that sets margin levels is no longer in the EU, this could have serious implications for the euro.”
When asked how France could benefit from moving clearing houses away from London and the economic fallout this could have for the UK, David Blake said “Frankfurt and Paris are competing to take a share of London’s financial market.”
Paris has tried to abolish all euro trading in the UK and have all trading in the currency done inside the Eurozone.
Meanwhile, Sweden, Spain and Ireland are opposed to the shift of clearing houses away from London, arguing that this would be an excessive step.
“They all have their own interest in keeping these clearing houses in Britain and don’t particularly like what France wants to do,” Professor Blake noted.
Speaking about the way UK clearing houses should be regulated post Brexit, he said that in terms of euro-denominated currencies and derivatives, there should be firm collaboration between regulators in the UK to deal with this political issue.
The issue of euro clearing has become a major block between London and Brussels during Brexit talks with Brussels worried that when Britain leaves the EU, the City will no longer be supervised by EU regulators.
Currently, the London City is at the very heart of the lucrative trade in euros, which is something other European financial centers such as Frankfurt and Paris don’t like.
A clearing house is the common ground between two firms in a trade making sure it goes forward without a hitch and sets aside money to protect investors in the event of a default.