Twin pressures on the clearing of euro-denominated repurchase agreements in London are likely to push the business to the eurozone, and it may happen even before the UK leaves the European Union, the market’s participants predict.
They point the finger at the prospect of LCH’s London entity – which is the sole clearer of repos in the UK – being barred from clearing for EU firms after Brexit. Those fears are accelerating an existing shift in liquidity driven by a new pan-EU settlement platform, which allows trades to be netted irrespective of where in the bloc they are settled.
LCH has been clearing growing volumes of cash eurozone government bonds and related repos at its RepoClear unit in Paris since its creation in 2003. Meanwhile, activity at RepoClear in London – which comprises a wider range of bonds and repos in eurozone markets, as well as in gilts – has declined every year bar one since 2012. Within that, euro-denominated repos are seen as the biggest flight risk.