The head of the London Stock Exchange Group, Xavier Rolet, said this week that there is no immediate threat that euro-denominated clearing could leave London after the UK’s decision to leave the EU as the rules that could pull the business away from London would require an EU treaty change.
Although the Brexit vote has raised questions about the role of the City and some of the institutions based there, Rolet played down ideas that euro-clearing, which takes place through its clearing house arm, would lose out, despite opposition from German and French politicians and regulators who have said that euro-denominated trades should not be cleared outside the bloc.
Rolet, who recently agreed a £21 billion merger between the LSE and Deutsche Börse which is reportedly still “on track”, pointed out that since an EU treaty change is not an easy process, “there is no immediate threat from that standpoint.”
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Mr Rolet also called for a “transitional arrangement” in exit negotiations with the EU to provide stability to banks and investors. “Negotiations will be incredibly complex. I don’t expect a swift resolution, it will take time. European industry also depends on the ‘money pump’ that the City represents. Sides have an overriding interest in stability in the short to medium term, and a settlement that works for both sides.”
Rolet continued that it was in the EU’s interest to give Britain access to the single market. “The cost would be very high not just for the UK but also for the rest of the EU. We’d be going to fragmentation, small liquidity pools, added cost.”
He argued that European industry would massively lose out if it did not have access to London’s “first-class financial services” when it needed to raise money.
Clearing of swaps is one of the linchpins of the City, with euro-denominated swaps trading representing a third of the global interest rate derivatives market.