Deutsche Börse has made a fresh attempt to pull euro interest rate swaps businesses from the UK by announcing it will scrap booking fees until the end of the year for customers that want to switch their portfolios to Frankfurt.
Investors and companies use interest rate swaps to hedge risk and most euro-denominated business is handled in London, at the London Stock Exchange’s LCH business. The EU wants to extend its supervision of the market once Britain leaves the trading bloc although it has stopped short of demanding euro swaps are cleared in the EU.
Amid political uncertainty in London, in recent weeks EU authorities have reiterated that companies should prepare for a “no deal” Brexit. Brussels has put in place contingency plans that will allow EU-based companies to use UK clearing houses and other infrastructure for their derivatives trades if Britain leaves the EU without a deal. That permit is due to lapse at the end of March next year.
Eurex Clearing has been pushing a profit-sharing incentive scheme for banks, to serve as an EU-based alternative to LCH. Although it has processed around €13tn, most of the business has been in lower-margin deals and not steadier and more lucrative swaps. By contrast LCH has processed more than €195tn in euro-denominated swaps this year. [...]
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