A shift in chunks of euro derivatives clearing from London to European Union countries is now inevitable and banks should get ready, industry officials were told today, but others warned the EU intervention would backfire.
The EU approved a new law in February that will require banks and asset managers in the bloc to have an “active account” with a clearing house in the 27-member grouping for key contracts being cleared in London by ICE Clear and London Stock Exchange Group.
The EU wants to directly supervise clearing worth trillions in euro rate swaps and Euribor futures, and rely less on a post-Brexit London.
EU permission for UK clearers to continue serving EU clients is due to expire in June next year.
“The direction of travel is very clear – everyone needs to be prepared, set up, be capable of doing business in the EU,” Matthias Graulich, a executive board member at Eurex Clearing, the Deutsche Boerse unit in Frankfurt that will benefit from the new law.
“I think effectively we are starting with this requirement in the second quarter of next year probably, so it gives us a good year to prepare,” Graulich told the annual IDX derivatives conference, adding that “huge numbers” of customers have hooked up to Eurex Clearing.
“A third of those 650 clearing members and clients are regularly active. Everyone else is observing the situation,” Graulich added.
Nasdaq and the Madrid exchange also hope to pick up some of London’s business.
But Hester Serafini, president of ICE Clear Europe, part of ICE that owns the New York Stock Exchange, said she was seeing a “lot of negativity” among customers regarding the EU policy.
“Instead of motivating people to a value proposition – this policy is just forcing things, and we are not getting a great reception, we are not seeing changes in flows,” Serafini told the conference.
Customers will ultimately stick with the biggest pools of liquidity to get the best prices, she said.
“We don’t think this policy will ultimately achieve what it’s trying to achieve,” Serafini added.
EU securities watchdog ESMA is due to spell out in the coming months what an “active” account looks like, and Brussels will also decide whether cross-Channel clearing can continue.