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EU demands share from London market.

The EU will demand that derivatives traders use accounts at clearing houses in the bloc for some of their transactions as part of plans to take a share of the €115tn market processed through the City of London.

Banks dealing with large quantities of contracts deemed «systemic» by regulators would have to clear a minimum amount of business via active accounts in EU-based clearing houses, officials briefed on the proposals said.

The plans are part of a package aimed at boosting Europe’s capital markets while reducing its reliance on the UK’s financial services sector after Brexit. The European Commission is planning to outline the measures next month.

Politicians in the EU are unhappy that euro-denominated derivatives are handled in a market outside their regulators’ direct oversight.

The draft rules aim to address what the EU sees as a «strategic vulnerability», a senior commission official said. «It’s not about shifting all your business from London to the EU and never doing business with the City of London again. It’s about diversifying».

The requirements under consideration would apply to derivatives and could include credit swaps and futures.

The officials said that the detailed thresholds under the new clearing regime would be set at a later stage, but one option is for the EU to demand progressive increases in the volumes required to go through EU-based clearing houses.

Britain’s market control has assumed a fresh urgency because from next summer, EU pension funds, which hold investments for thousands of European citizens, will also be required to clear their derivatives trades.

The commission this year agreed to extend its temporary permit allowing European banks to use UK clearing houses until June 2025, warding off a threat to market stability when the arrangement was set to lapse in July.

Mairead McGuinness, the European commissioner for financial services, said the move would avoid any «short-term cliff-edge effects».

But the commission has also vowed to stop issuing temporary extensions to its «equivalence» arrangement with the UK.

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  1. Amanda24 November 2022 at 13:11

    Yes, both Europe and the UK should think of diversifying everything and not rely as much on each other now, after Brexit. Brexit was and is a mistake but since it's made now, we need to see how to get the best out of it.

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