Senior managers from LCH and Eurex Clearing clashed in public for the first time to show how Brexit is driving a wedge between financial institutions that the market relies on to work together in times of crisis.
“The idea that any third party can interfere with the risk management processes of a clearinghouse fills me with fear,” said Daniel Maguire, chief operating officer of LCH. “We have to manage the risk as we see fit.”
Spanish Precedent
“Let’s say Spain is in trouble and you raise the haircuts for Spanish bonds, you probably cause a lot of trouble to the market,” Graulich said. “You should take the action that’s in the best interest of the economy and stability. It requires alignment with the central bank to avoid creating fear. It’s necessary to align the institutions.”
For more on how Brexit endangers London’s clearinghouses, click here
Maguire countered that clearinghouses need a free hand to increase margin requirements even when there is no imminent prospect of a trader defaulting. Clearinghouses work by ensuring that traders get paid in even the most turbulent markets.
“I don’t want to name a country because it’s emotional,” Maguire said. “Aligning yourself 100 percent with your members versus aligning yourself 100 percent with the regulators is probably wrong, there should be a middle way. The members are the ones who have initial margin at stake. Our clients are on the hook.”
An executive from the European clearinghouse of Intercontinental Exchange Inc. argued that the ECB behaves differently from the Bank of England, LCH’s primary regulator.
“The approach of the English regulator is different from the ones one on the continent,” said Federico Becerra, a director at ICE Clear Europe. “In continental Europe, it’s treated more as a partnership.” [...]
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