London to maintain grip on EU financial market

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    LONDON- London will remain a big part of Europe’s financial market plumbing well beyond Brexit as the coronavirus pandemic has thwarted Frankfurt’s ambitions to grab billions of euros worth of derivatives clearing business from Britain.

    Clearing ensures financial market trades are completed even if one side of the transaction goes bust. It is a high-volume, low-margin business but a critical part of market infrastructure. London’s leading role in the clearing business has helped to cement its status as Europe’s top financial centre.

    Other European centres, such as Frankfurt, keen to claw back a chunk of this business, saw Brexit as a chance to reduce London’s grip on clearing euro-denominated trades.

    But Deutsche Boerse’s Eurex Clearing, considered the strongest candidate to take business from the London Stock Exchange’s clearing division LCH, said its euro clearing had grown more slowly than expected due to delays in regulation changes, the COVID-19 pandemic and a broader reticence by banks to shift from London.

    “There is a slower growth path than we initially had expected for the second half of this year primarily due to COVID-19 and its implications, but everything is going in the right direction to achieve our goals,” Eurex Clearing board member Matthias Graulich told Reuters.

    Eurex said it accounts for 19 trillion euros ($22.67 trillion) of the total market of 100 trillion euros in notional outstanding value in euro interest rate derivatives and forward contracts, with LCH taking the rest.

    In swaps alone, Eurex has 7.3 trillion euros, or 14 percent of the market, compared with 45.8 trillion euros at LCH. Eurex has a goal of reaching an overall euro clearing target of 25 trillion euros by the end of 2020.

    “It is extremely difficult to say where we are on the journey to achieve our goals by 31 Dec, a year-end is not a magic date if you are building a business, it is more relevant that the trajectory is up and we make month-by-month progress,” Graulich said. — Reuters