MARKET INFRASTRUCTURE

Relocating euro clearing “expensive and disruptive” says derivatives body

Industry association says enhanced supervision option should be explored by Europe.

By John Bakie john.bakie@strategic-i.com June 06, 2017 10:16 AM GMT
The Futures Industry Association (FIA) has warned European politicians that a forced relocation of euro clearing would be disruptive and expensive.

In a response to European Commission communications which have listed forced relocation or enhanced supervision of euro clearing could be options to safeguard the financial system.

Clearing euro-denominated products has been focused on London, despite the UK not being part of the single currency bloc. But with the UK set to leave the EU in 2019, some European politicians have called for euro clearing to be moved to another EU country.

Walt Lukken, president and CEO of FIA, said: “Forced relocation would fragment liquidity, increase systemic risk, and raise costs for the end-users that rely on these markets for hedging and managing their exposure to risk. Instead, appropriate safety, soundness, and confidence in clearing could be achieved through enhanced oversight or recognition with far less cost or disruption to markets.”

The FIA claims forced relocation would nearly double margin requirements from a current $83 billion to $160 billion and has called on the Commission to recognise enhanced supervision as a more appropriate way to protect financial stability in the future.

The row over euro clearing looks set to intensify when negotiations over the UK’s departure from the EU begins later this month.