While there have been fears the City may lose its place as the dominant European financial market, commentator Ben Wright suggests the UK remains the destination for clearing houses. A clearinghouse is an intermediary between a buyer and a seller in a financial market. The clearinghouse validates the transaction between the two and ensures that both honor their obligations.
While Brussels may wish to transfer its influence to the EU, the bloc realizes that many companies want to stay in the UK.
LCH is the clearinghouse owned by the London Stock Exchange.
It manages about 90% of all euro-denominated derivatives, suggests Wright in his column for The Telegraph, noting “a notional value of around $ 100,000 billion.”
Mr Wright notes: “If the ECB were to decree that all euro-denominated derivatives should be cleared in the euro area, it would seriously damage the reputation of the EU as an open economy and of the euro as an open economy. as world currency.
“It’s worth remembering that around 90% of dollar-denominated transactions are also cleared in London and the US is okay with that.”
Mr Wright also quoted William Wright of the New Financial think tank, who said: “Clearing is a constant reminder in Brussels that London is where many international companies choose to do a lot of their business while the EU is a place where they have to do some of their business.
“Of course, if EU regulators were to force companies to clear their euro-denominated transactions in the eurozone, that would only further underscore this point.”
Following Brexit, the EU did not grant equivalency to the UK, which means companies have to apply two sets of rules to trade.
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“The extension of equivalence should be long enough to allow us to revise the EU supervisory system for CCPs.
“This proposed way forward strikes a balance between preserving short-term financial stability – which requires making an equivalency decision to avoid a cliff face for EU market players – and preserving financial stability in the medium term – which obliges us to reduce this risk of excessive dependence on a third country.
Outside of financial services, the EU and the UK will have talks on the Northern Ireland Protocol next week.