Selloff or Market Correction? Either Way, Here's What to Do NextSee Overvalued Stocks

EU deal on euro clearing 'light' on banks but a first step, EU official says

Published 28/02/2024, 10:22
© Reuters. FILE PHOTO: European Commissioner for Financial Stability, Financial Services and the Capital Markets Union, Mairead McGuinness speaks during the press conference on the day she signs cooperation pact on financial services with British Chancellor of the E

By Huw Jones

LONDON (Reuters) -The European Union's deal this month on rules to end the bloc's "over-reliance" on London for clearing derivatives is "light" on big banks, but just a first step if they do not shift enough business, EU financial services chief Mairead McGuinness said on Wednesday.

The bulk of clearing in euro-denominated interest rate swaps (IRS), widely used by companies to hedge against unexpected moves in borrowing costs, is done by the London Stock Exchange Group (LON:LSEG). U.S. exchange operator ICE (NYSE:ICE) in London clears large amounts of Euribor futures.

Brussels wants EU regulators to have direct oversight of euro clearing by banks and asset managers based in the bloc, particularly since Britain's departure from the EU in 2020 and requirement to comply with EU rules.

"The final agreement is not as ambitious as I would have hoped. It's complex, it has as a lot of exemptions, and it's relatively light for the largest market participants," McGuinness told a conference held by Deutsche Boerse (ETR:DB1Gn) Group in Frankfurt.

"This is not the end, but rather the first steps of addressing our concerns, so I ask the industry to continue to pay attention to this issue and to actively reduce exposures to CCPs (clearing houses) outside the EU," she said.

Big EU banks lobbied heavily to water down the rules, warning they would be at competitive disadvantage to global peers if cut off from London's deep pools of clearing liquidity and forced to shift business to Deutsche Boerse, Madrid or Stockholm.

The EU's "over-dependence" on London for clearing derivatives presented risks to the bloc's financial stability, and the deal agreed between EU states and the European Parliament gave "no guarantee of a significant decrease of risks very soon," McGuinness said.

EU securities watchdog ESMA will review the rules within about 18 months and could recommend specific clearing volume targets for EU market participants, she said.

"I repeat, if we are serious about the capital markets union and open strategic autonomy, we will need to build on this agreement," she said.

© Reuters. FILE PHOTO: European Commissioner for Financial Stability, Financial Services and the Capital Markets Union, Mairead McGuinness speaks during the press conference on the day she signs cooperation pact on financial services with British Chancellor of the Exchequer Jeremy Hunt, in Brussels, Belgium June 27, 2023. REUTERS/Yves Herman/File Photo

McGuinness' term ends when a new commission takes office in the autumn, but her successor will have to decide whether to extend permission for UK clearers to continue serving EU customers after June 2025.

A London-based industry official said the deal was "very pragmatic", and given improving political relations between Britain and the EU, the sector was not concerned about a "cliff edge" or abrupt cut-off mid-2025.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.