Euro clearing in London under increased pressure from EU rivals, LCH chief says

Despite London maintaining its central role in clearing euro-denominated financial transactions ahead Brexit, the City is facing mounting pressure from EU rivals looking to take business to Brussels, Paris and Frankfurt, the CEO of the London Stock Exchange’s clearing unit LCH said on Wednesday.

Since the UK voted to leave the bloc back in 2016 the topic of euro-denominated clearing has been a hot topic for politicians and exchange operators, with LCH controlling the lion share transaction volumes.

Euro-denominated clearing will stay in London even with a no-deal

There are valid concerns from officials in Brussels about a non-EU member state handling euro-denominated clearing, particularly for European government bonds, with many EU rivals eager to take volumes away from London.

But even with Britain set to leave the EU on March 29, the bloc has said that it will allow EU customers to continue using LCH for up to a year, even if the UK leaves without a deal in place.

‘We have seen no discernible change in behaviour of customers, banks, asset managers,” LCH CEO Daniel Maguire told MPs in a parliamentary committee on Wednesday. ‘If you look at market share, volume and facts, there hasn’t been a material shift in volumes.’

‘What we have seen is discernible change in marketing. Competitors are definitely leveraging Brexit uncertainty to fuel their competitive aspirations,’ he added.

EU rivals hope to entice customers away from London

Eurex, the clearing division of Germany exchange operator Deutsche Borse, has launched a campaign aimed at attracting clearing in interest rate swaps away from the city of London, where LCH controls around 90% of market share.

The Governor of the Banque de France Francois Villeroy de Galhau is also keened to reduce London’s dominance, announcing in November last year how wishes to see interest rate swaps cleared in Paris rather than the British capital after Brexit.

But despite EU rivals eagerness to move transaction volumes away from London, Maguire warned against forced relocation of clearing, as it could lead to a fragmentation of financial markets and drive up the cost of clearing for customers.