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Brussels has adopted “toothless” plans to force derivatives traders to funnel some of their deals away from the City of London, after agreeing that only five trades a year should go through clearing houses in the bloc.
The revised rules, agreed early on Wednesday, will force EU-based banks and other financial institutions to open so-called active accounts at a clearing house in the bloc, which will handle categories of derivatives that the bloc’s regulators have deemed “systemic”.
The minimum threshold will be set at five trades a year for most categories, a European parliament spokesperson confirmed to the Financial Times. The low number that will be forced to go through EU clearing houses marks a significant climbdown from Brussels, which has made the issue of derivatives clearing a symbolic issue post-Brexit. European politicians have sought to reduce the bloc’s reliance on the UK financial services industry after Brexit and boost its own capital markets.
Clearing houses are central to staving off market instability, sitting between counterparties on deals and preventing defaults from cascading through the financial system. More than 90 per cent of the world’s euro derivatives business is managed at LCH, but EU politicians had been unhappy that much of the activity sits outside the bloc’s direct oversight. “The result is that the agreement is a missed opportunity. Unfortunately, the big winner of this agreement is the financial centre of London,” said Markus Ferber, a German MEP.
The move to shift clearing away from London had been resisted by banks, asset managers, pension funds and brokers across Europe, who argued that it would raise their costs. The business has remained in London after Brexit because banks see the cost of breaking up and transferring parts of their derivatives positions as prohibitively expensive....
more at FT