Key London Clearinghouses Win Right to Access EU Post-Brexit
London’s major clearinghouses for derivatives, energy and metal trades will be able to do business with banks in the European Union next year in a move that averts Brexit market disruption.
The Paris-based European Securities and Markets Authority said the clearinghouses, used by the world’s biggest banks and money managers, will be able to sell services into the EU after Dec. 31. The three clearinghouses granted access are run by London Stock Exchange Group Plc, Intercontinental Exchange Inc. and the London Metal Exchange.
The regulator’s move followed the recent decision by the European Commission, the EU’s executive arm, to declare U.K. regulations for clearing equivalent to its own for 18 months after the transition period ends. That decision was a rare sign of agreement between the two sides in talks that have struggled to make progress all year and are now entering a key week.
Clearinghouses like the London exchange’s LCH are a key part of the financial system, accepting collateral from buyers and sellers to ensure a default on one side doesn’t spread panic through financial markets.
While the decision grants access for now, ESMA said it would begin a “comprehensive review of the systemic importance” of the London clearinghouses before deciding if the firms should continue to have the ability in the future.
The LSE’s clearinghouse is the world’s primary place for settling swaps in dollars, pounds and euros. The clearinghouse regularly handles more than $3 trillion a day and has cleared about 175 trillion euros ($204 trillion) of trades this year, according to the company’s website.
European politicians and regulators have pressed for years for more clearing in euro trades to be done inside the bloc. Valdis Dombrovskis, the official in charge of financial services, said just last week that the Commission’s temporary decision gives traders time to “reduce their excessive exposures” to U.K.-based clearinghouses.
©2020 Bloomberg L.P.