Paris will overtake London as a centre for LCH’s clearing of a core euro-denominated market after Brexit, the UK-based firm said as it seeks to head off French political demands for Britain to be frozen out. Euro clearing has become a political battleground since Britain voted in 2016 to leave the bloc next March.
LCH, part of the London Stock Exchange, dominates clearing in euro-denominated instruments such as debt repurchase agreements and interest rate swaps from its base in Britain and increasingly from its French subsidiary. France, however, believes that such a crucial role in bulk euro trades should not be handled by a clearing house outside the bloc, as LCH’s London unit will be from next March when Britain leaves the European Union.
In what Britain sees as a grab for a core part of the City of London financial district, the EU proposed that “systemic” foreign clearing houses processing euro-denominated assets for EU customers must be open to EU supervision. LCH cleared a record 175 trillion euros of repos across its London and Paris units in 2017, helped by expansion in the French capital.
“Clearing in euro-denominated repos and debt is currently split equally between London and Paris but we anticipate gradual momentum of these products into LCH SA over time,” said LCH Chief Executive Daniel Maguire speaking to Reuters.
France also wants a significant amount of the $873 trillion euro-denominated interest rate swaps (IRS) clearing done out of London last year to move to the single currency area. LCH has no plans to voluntarily split its multi-currency IRS pool by enabling IRS clearing in Paris. Rival Eurex, owned by Deutsche Boerse is stepping up attempts to attract euro IRS clearing and Maguire said he would continue to monitor such competition.