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13 November 2016

Financial Times: Losing euro-denominated clearing would cost London 83,000 jobs


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A private report by EY has been circulated among UK lawmakers and government estimating 83,000 related job losses over the next seven years if euro-denominated clearing is forced out of London into continental Europe.


The report, seen by the Financial Times, assesses which areas of a prized part of City business would be most affected by the EU adopting a hardline approach to Brexit. The overall figure is not far from the 100,000 job losses previously estimated by the London Stock Exchange Group.

About 31,000 “core intermediaries" of banks, sales and trading desks and interdealer broker jobs, could be lost by 2024, the report says. Another 18,000 could go in related professional legal and accounting services, 15,000 in wealth and asset management and 12,000 at technology providers.

EY said the job losses could also have “a significant domino effect on jobs and revenue”, hitting up to 232,000 throughout the UK.

The LSE, which commissioned the report, declined to comment. EY, which is also the LSE’s auditor, said it was unable to comment on client engagements. 

The study is based on a worst-case scenario that the UK loses its access to the EU single market for the contentious business of euro-denominated clearing. London’s dominance in clearing derivatives in particular — even though it is not in the eurozone — has long been a source of contention between the UK and Europe. [...]

The report’s forecast assumed the UK would not secure “equivalence” for its clearing regulations, which would also provide single market access to countries the EU considers also operate under equally strong standards. 

The threat strikes most particularly at LCH, the world’s largest interest rate swaps clearer and controlled by the LSE. Of the notional $577tn processed by LCH this year, some 150tn of that is in euro-denominated business.

However it has also alarmed the derivatives market globally because banks prefer to concentrate clearing in just a handful of locations. They argue it is a more efficient way to reduce the running costs of customers’ derivatives portfolios.

Clarus Financial Technology, a UK data provider, has estimated cash-strapped banks may need to supply another $77bn in margin for trades if the market fragments. [...]

Full article on Financial Times (subscription required)



© Financial Times


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