Industry bodies urge EU to ditch euro clearing relocation plan

2023-09-07 17:18

By Huw Jones LONDON Leading users of derivatives markets in the European Union called on the bloc on

By Huw Jones

LONDON Leading users of derivatives markets in the European Union called on the bloc on Thursday to scrap a plan that would force them to shift euro derivatives clearing from London to the EU.

The EU has long been irked by the dominance of the London Stock Exchange Group (LSEG) in the clearing of euro-denominated interest rate swaps, a contract widely used by companies to hedge against moves in borrowing costs.

Its executive European Commission has proposed a draft law that would require banks and asset managers in the EU to have an active account with a clearer based in the bloc - in practice Deutsche Boerse's Eurex Clearing in Frankfurt - to shift business from LSEG to Eurex.

In a joint statement, funds and derivatives industry bodies said reforms to derivatives markets implemented since the global financial crisis had made them safer, and that it was important not to disrupt and fragment the global clearing market.

"The proposed active account requirement (AAR) would negatively impact EU capital markets by introducing fragmentation and loss of netting benefits, and make the EU less resilient to market stresses, with no benefit to EU financial stability," they said.

The statement was signed by funds industry groups EFAMA, ICI Global and AIMA, derivatives sector bodies FIA and ISDA, along with the Federation of the Dutch Pension Funds, the Finance Denmark association and the Nordic Securities Association.

AAR would put EU firms at a competitive disadvantage compared to third-country firms, which would still be able to transact in global markets without restriction, the industry bodies said.

"We therefore strongly recommend the deletion of the proposed Active Account Requirement," they said.

The draft clearing law is now being scrutinised by the European Parliament and EU states, with splits already emerging as some lawmakers call for the active account plan to be deleted. Others want a tougher approach to setting "thresholds" for moving clearing from London to the EU.

(Reporting by Huw Jones; Editing by Helen Popper)