Financial Times: Deutsche Börse makes ground in UK derivatives push

05 February 2018

Incentive scheme introduced by German clearing house wins business from London.

Volumes at Eurex, the clearing house owned by Deutsche Börse, have jumped sharply after the introduction of an incentive scheme that encourages banks to switch their clearing interest rate swaps — used by investors and companies to hedge risk — from London’s LCH. The German exchange operator has touted the profit-sharing incentive as an alternative to the derivatives business staying in London, where the EU wants to extend its supervision once the UK leaves the trading bloc. Most of the clearing of euro-denominated derivatives happens in London.

While the banks that dominate the business of clearing euro derivatives would prefer to keep it in London to maintain economies of scale, they fear forced relocation by European regulators keen to keep euro-related activities closer to the EU. It is against this backdrop that Eurex is trying to convince banks worried about the uncertainty over Brexit to start switching their business from LCH, which is majority owned by the London Stock Exchange.

The LSE has warned that fragmenting the market for clearing would increase costs for market users and, ultimately, their customers that include companies.

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