Brexit Equivalence Deal Is Not Good Enough for London’s LCH

(Bloomberg) -- Even if Theresa May gets a Brexit deal on financial services, it won’t be enough for the London firm that sits at the center of the world’s biggest derivatives market.

LCH Ltd., the clearinghouse majority owned by London Stock Exchange Group Plc, sees weaknesses in the deal that Britain’s prime minister is seeking to strike with the other 27 member states of the European Union. LCH’s head of service development for rates -- by far its biggest business -- told a conference in Amsterdam that they want direct approval.

“Equivalence as a concept is something which has its vulnerabilities,” LCH’s Philip Whitehurst said during a panel at the Fixed Income Leaders Summit. “We prefer direct recognition.”

The European Commission has the power to say that the U.K.’s financial-services set up is equivalent to the rulebook in the EU, but the European Securities and Markets Authority would have to act for LCH to get direct recognition. LCH is seeking direct recognition because that would guarantee it would be treated the same as a clearinghouse operating within the EU, such as its German arch rival Eurex Clearing.

Banks and fund managers have deposited more than $201 billion of cash and bonds at LCH in London. LCH holds the money, called initial margin, to ensure that a defaulting trader does not inflict losses on the rest of the derivatives market.

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