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According to euro zone central bank officials, the ECB is determined to tackle an anomaly dating from 1999 when Britain opted out of the euro's launch: a dominant share of trading in the currency it issues goes on outside its jurisdiction in London.
Euro zone officials are reluctant to discuss publicly such a sensitive issue - and the risk that London could lose out to rivals Frankfurt and Paris - before the June 23 referendum on a British exit from the European Union. [...]
OUTLIER STATUS
Supporters of a British exit from the EU say predictions of London's demise as a financial center when it failed to adopt the common currency proved wrong, and the same would be true in the event of a "Brexit".
So far, campaigning has focused on issues ranging from immigration to the Brussels bureaucracy, with Brexit supporters arguing that the EU has moved far from the bloc's original aim of merely boosting trade within Europe.
However, the City of London remains a major employer and accounts for 12 percent of the British economy, generating roughly 66 billion pounds in tax revenue a year for a cash-strapped exchequer.
So far, Britain's EU membership has helped London to maintain its position as Europe's financial capital, with the result that the ECB is set apart in one crucial respect from the Bank of England, the Bank of Japan and U.S. Federal Reserve.
"In big currency areas - including sterling, yen, dollar - the central bank has a significant hold on trading in the domestic currency," said Nicholas Veron, EU financial services expert at the Bruegel think tank in Brussels.
"The euro zone is an outlier and that is supported by the EU framework but if that is no longer there, this outlier status might not be sustainable," Veron added.
The ECB has already tried to assert its authority, insisting that clearing houses that process euro derivative trades should be based in the 19-nation currency bloc. Britain mounted a legal challenge to defend its financial sector and won at the EU's second-highest court last year.
But banks and other market players expect the tables would turn after a Brexit, eroding London's preeminence in a derivatives market that has thrived in spite of the financial crash.
A recent legal study by the Association of Financial Markets in Europe, whose members include HSBC, Deutsche Bank and broker ICAP, identified this risk.
If Britain finds itself outside the European single market, UK-based institutions could lose the right to use "passporting" rules which currently allow them to provide cross-border services to clients elsewhere in the EU. [...]
Graham Bishop, a regulatory consultant, believes the ECB would use its full powers. "It would be extraordinary for the ECB to allow trading and use of its money to go on outside its control," he said.
'NUCLEAR PLANT'
According to the Bank for International Settlements, interest rate swaps accounted for $435 trillion of the world's $550 trillion derivatives market in 2015.
London-based LCH.Clearnet, in which the London Stock Exchange owns a majority stake, clears more than half of all interest rate swaps traded globally. [...]
However, the ECB wants better oversight of the clearing houses that one bank lobbyist called the 'nuclear power plants' of financial markets, to avert any Lehman-style collapse.
"In the end, the ECB is responsible," said Bishop. "The ECB is the only one which can create new euros in a liquidity crisis."