ECB's Brexit Push for Derivatives-Clearing Power Gains Momentum

(Bloomberg) -- The European Central Bank’s drive for greater power over the lucrative business of clearing financial contracts is gaining traction in Brussels.

A “strong majority” in the relevant European Parliament committees supports handing the ECB the clearing power it wants, Danuta Huebner, the assembly’s lead lawmaker on the issue, said on Tuesday. That will heat up the Brexit debate on clearing, with the U.K. keen to ensure that London continues to dominate the business.

The ECB made a play last summer for more control of central clearing of euro-denominated derivatives and other contracts. Its proposal was part of a broader plan for the European Union to have a greater influence on clearinghouses outside the bloc. After Brexit, that will include U.K. firms such as London Stock Exchange Group Plc, majority owner of the world’s largest clearinghouse, LCH.

The European Commission backed the ECB in October. European Union lawmakers are now working on legislation to make it happen.

Clearinghouses stand between the two sides of a derivatives wager and hold collateral, known as margin, from both in case a member defaults. The U.K.’s decision to leave the EU turned clearing into a political football. In addition to derivatives, France’s market regulator has said that repurchase agreements denominated in euros should also be cleared in the euro area.

The industry has warned of a spike in costs and potential disruption that could result if the EU were to force clearinghouses to relocate. While this is a possibility under the EU plan, policy makers have said it would only be used as a last resort.

Huebner said lawmakers are still debating the “right level” of control the ECB needs so it can “act effectively on specific issues. The parliament plans to reach an agreement on the bill in June.

©2018 Bloomberg L.P.

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