The fight over clearing euro derivatives

The fight over City business has reached dramatic proportions in a very arcane domain, derivatives clearing. The European Commission has proposed to bring all third-country business conducted in euro under the direct supervision of the European Securities and Markets Authority (ESMA), which has infuriated the UK and the US. With Brexit looming, a huge problem is the possible non-recognition of the UK’s clearing infrastructures, and the related derivatives contracts, which would require costly duplication of effort and a massive migration to EU-27 entities.

The Commission’s proposal does not create a sufficiently integrated structure within the EU. On the contrary, it looks rather like a half-way house that is trying to keep too many entities under its roof – the ECB, ESMA and the national authorities. Given the dominant role played by the City in this business and the legitimate needs of financial services users on the continent, certainty needs to be given soon to the markets about business continuity after Brexit.

Karel Lannno is General Manager of ECMI and CEO of CEPS.