European Commission

Brussels Wants More Control Over Clearing

  • Why it matters

    Why it matters

    Under a proposed new EU market structure regulation aimed to temper the potential risks clearing houses pose to financial markets, London could lose the right to clear euro-denominated derivatives.

  • Facts

    Facts

    • The new rule would prevent clearing houses with “significant systemic importance” from conducting transactions in the EU if they operate from a third country.
    • The rule will divide clearing houses in third countries into three categories, two of which would forbid operations outside the EU or limit it unless stringent requirements are met.
    • The proposal does not include a quota that would force some clearing houses to relocate to mainland Europe.
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    Audio

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London clearing houses affected by Brexit
The sun could set on Britain’s clearing house empire. Source: Toby Melville / Reuters

Large clearing houses  in London must expect they will no longer be able to process euro derivatives trading from the City after Britain leaves the European Union, according to a draft for a new market infrastructure regulation that the European Commission presented Tuesday.

Under the proposed rule, a clearing house with “significant systemic importance” for monetary policy and the European financial market can lose its approval to conduct transactions in the EU if it operates from a third country. The Paris-based European Securities and Markets Authority, or ESMA,  will decide which companies will be affected after consulting with central banks. This will essentially force clearing houses to relocate from London to the European Union, the nuclear option in the European Commission’s arsenal.

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