5 ms·

Maybe it's just me, but attempting to restrict the geographic location of where something can be cleared seems completely delusional to me. Isn't the EU basical

by runeks 10y ago

Maybe it's just me, but attempting to restrict the geographic location of where something can be cleared seems completely delusional to me. Isn't the EU basically asking the UK clearing firms to "give" their customers to the EU -- whatever that means? I would assume that moving EUR clearing to the EU would involve setting up a company in the EU that can compete with the clearing services of the UK companies, thereby winning over customers, rather than attempt to put a restriction on which kinds of contracts (Euro derivatives) other people can enter into.

vostok 10y ago
In finance, there are lots of instances where having a physical presence give you some sort of regulatory benefit.
smallnamespace 10y ago
Yeah the flip side argument though is that the clearinghouses are essential to the proper working of the European economy, and the regulators want to make sure they have the legal power to actual regulate it. That is problematic since the UK will no longer be directly under European regulatory control. Like, what if London clearinghouses massively screw up somehow, and leaves Europe on the hook? Having control over your own economy's plumbing might be a vital strategic interest -- it's the same rationale for restricting free trade in weapons, for example. Of course, the European banks have a naked self-interest in making that argument as well.
- runeks 10y ago
  I'm not saying the EU politicians don't want to control the derivatives trade, I'm saying they're essentially incapable of doing so, because anyone can write up a contract that's settled in EUR. No one can prevent that, although the EU might be able to force the UK to ban it, they know it would just move elsewhere due to its nature. Controlling EUR is one thing; the EU has complete control here with the ECB. Controlling EUR-denominated contracts is something completely different, because EU-legislation has little efffect outside the EU (unless you're a friendly neighbor like the UK). The EU doesn't want to see EUR derivatives trading move to Panama or the Cayman Islands, so they've become content with leaving it in the UK, I believe.
  - notahacker 10y ago
    Anyone, anywhere can write up and exchange a contract that's settled in EUR. But EU-based financial services companies required to comply with risk management regulations aren't necessarily allowed to treat those contracts as financial assets equivalent to derivative products written up and cleared in a properly regulated environment. (since they don't have the same enforceability through EU courts in the event of a party or counterparty defaulting, or probability of the ECB stepping in to purchase them in the event of a systemic crisis, the additional risk to holding them isn't purely hypothetical) As a consequence, EUR derivatives contracts which are settled in ways approved by EU regulators have higher value, and so the vast majority of EUR-denominated derivatives clearing business is going to take place in jurisdictions the EU regulators are satisfied is an appropriately regulated environment.
- krona 10y ago
  > Having control over your own economy's plumbing might be a vital strategic interest Also having reserve currency status is a strategic interest. You can't have it both ways.
matt4077 10y ago
How is delusional? If the EU wants it, they pass the necessary regulation and /bam/, it's the law and it's done. But maybe just the power to do so is enough to secure the EU/ECB's objectives. Doing it just for the jobs would be a bit petty.
- runeks 10y ago
  I see how the EU can control EUR derivatives within the EU, but I fail to see what kind of legislation the EU can pass that will have an effect in the U.K. What would the legislation involve? A derivative is just a contract between two parties saying EUR must be paid upon a list of conditions. How is the EU going to stop this? I'm arguing that if they did pass a law that just bans foreign derivatives trade outright, the trade would simply move to a country less friendly to the EU than the UK. And the EU knows this, so they're backing off with the legislation, since they consider themselves better off with the middle-way of at least containing it in London.
  - zigzigzag 10y ago
    The type of legislation in question is quite familiar to us when named as it normally is: as a trade sanction. Essentially the EU just passes a new regulation (note: EU Commission can make new law that overrides national law and it is not accountable) that states you cannot purchase services in categories X, Y and Z from the UK on pain of fines or imprisonment. No different to any other trade sanction. It is not legally complicated to implement.
    - gpderetta 10y ago
      EU commission can't pass new law, that's the prerogative of the EU parliament which is directly elected by European citizens and as such fully accountable.
      - zigzigzag 10y ago
        That's exactly the opposite of reality: https://en.wikipedia.org/wiki/European_Parliament https://en.wikipedia.org/wiki/European_Parliament From the first paragraph under "powers and functions" The Parliament and Council have been compared to the two chambers of a bicameral legislature.[44] However, there are some differences from national legislatures; for example, neither the Parliament nor the Council have the power of legislative initiative (except for the fact that the Council has the power in some intergovernmental matters). In Community matters, this is a power uniquely reserved for the European Commission (the executive) The thing they call a Parliament can't actually change anything about the EU. It can only ask the Commission to do so for it.
simonh 10y ago
It's not as simple as that. E.g a lot of the clearing is for trades that actually transacted in e.g Rome, Paris, Frankfurt, etc. Those contracts are covered by EU law and therefore the EU wants clearing of those contracts to be conducted under EU law. Especially since the ECB is backing those trades. Here's the tricky bit though. If London does keep this clearing business, it will almost certainly be on the basis of aligning relevant U.K. Law with EU law. But that will mean the U.K. Having to rubber stamp any changes in those laws directly into our law books, without having any say in drafting them as we won't have any representation in Brussels. There are loads of other examples of this sort of thing. So much for Brexit winning back more sovereignty to the UK Parliament! Fair disclosure, I'm going to be working for LSEG from week after next.
- sgt101 10y ago
  Of course UK law is currently aligned with EU law (due to membership). The issues of future alignment are true - but possibly not contentious or alternatively possibly irrelevant as the world changes again...

by runeks 10y ago

vostok 10y ago

In finance, there are lots of instances where having a physical presence give you some sort of regulatory benefit.

smallnamespace 10y ago

Yeah the flip side argument though is that the clearinghouses are essential to the proper working of the European economy, and the regulators want to make sure they have the legal power to actual regulate it. That is problematic since the UK will no longer be directly under European regulatory control. Like, what if London clearinghouses massively screw up somehow, and leaves Europe on the hook? Having control over your own economy's plumbing might be a vital strategic interest -- it's the same rationale for restricting free trade in weapons, for example. Of course, the European banks have a naked self-interest in making that argument as well.

runeks 10y ago
I'm not saying the EU politicians don't want to control the derivatives trade, I'm saying they're essentially incapable of doing so, because anyone can write up a contract that's settled in EUR. No one can prevent that, although the EU might be able to force the UK to ban it, they know it would just move elsewhere due to its nature. Controlling EUR is one thing; the EU has complete control here with the ECB. Controlling EUR-denominated contracts is something completely different, because EU-legislation has little efffect outside the EU (unless you're a friendly neighbor like the UK). The EU doesn't want to see EUR derivatives trading move to Panama or the Cayman Islands, so they've become content with leaving it in the UK, I believe.
- notahacker 10y ago
  Anyone, anywhere can write up and exchange a contract that's settled in EUR. But EU-based financial services companies required to comply with risk management regulations aren't necessarily allowed to treat those contracts as financial assets equivalent to derivative products written up and cleared in a properly regulated environment. (since they don't have the same enforceability through EU courts in the event of a party or counterparty defaulting, or probability of the ECB stepping in to purchase them in the event of a systemic crisis, the additional risk to holding them isn't purely hypothetical) As a consequence, EUR derivatives contracts which are settled in ways approved by EU regulators have higher value, and so the vast majority of EUR-denominated derivatives clearing business is going to take place in jurisdictions the EU regulators are satisfied is an appropriately regulated environment.
krona 10y ago
> Having control over your own economy's plumbing might be a vital strategic interest Also having reserve currency status is a strategic interest. You can't have it both ways.

matt4077 10y ago

How is delusional? If the EU wants it, they pass the necessary regulation and /bam/, it's the law and it's done. But maybe just the power to do so is enough to secure the EU/ECB's objectives. Doing it just for the jobs would be a bit petty.

runeks 10y ago
I see how the EU can control EUR derivatives within the EU, but I fail to see what kind of legislation the EU can pass that will have an effect in the U.K. What would the legislation involve? A derivative is just a contract between two parties saying EUR must be paid upon a list of conditions. How is the EU going to stop this? I'm arguing that if they did pass a law that just bans foreign derivatives trade outright, the trade would simply move to a country less friendly to the EU than the UK. And the EU knows this, so they're backing off with the legislation, since they consider themselves better off with the middle-way of at least containing it in London.
- zigzigzag 10y ago
  The type of legislation in question is quite familiar to us when named as it normally is: as a trade sanction. Essentially the EU just passes a new regulation (note: EU Commission can make new law that overrides national law and it is not accountable) that states you cannot purchase services in categories X, Y and Z from the UK on pain of fines or imprisonment. No different to any other trade sanction. It is not legally complicated to implement.
  - gpderetta 10y ago
    EU commission can't pass new law, that's the prerogative of the EU parliament which is directly elected by European citizens and as such fully accountable.
    - zigzigzag 10y ago
      That's exactly the opposite of reality: https://en.wikipedia.org/wiki/European_Parliament https://en.wikipedia.org/wiki/European_Parliament From the first paragraph under "powers and functions" The Parliament and Council have been compared to the two chambers of a bicameral legislature.[44] However, there are some differences from national legislatures; for example, neither the Parliament nor the Council have the power of legislative initiative (except for the fact that the Council has the power in some intergovernmental matters). In Community matters, this is a power uniquely reserved for the European Commission (the executive) The thing they call a Parliament can't actually change anything about the EU. It can only ask the Commission to do so for it.

simonh 10y ago

It's not as simple as that. E.g a lot of the clearing is for trades that actually transacted in e.g Rome, Paris, Frankfurt, etc. Those contracts are covered by EU law and therefore the EU wants clearing of those contracts to be conducted under EU law. Especially since the ECB is backing those trades. Here's the tricky bit though. If London does keep this clearing business, it will almost certainly be on the basis of aligning relevant U.K. Law with EU law. But that will mean the U.K. Having to rubber stamp any changes in those laws directly into our law books, without having any say in drafting them as we won't have any representation in Brussels. There are loads of other examples of this sort of thing. So much for Brexit winning back more sovereignty to the UK Parliament! Fair disclosure, I'm going to be working for LSEG from week after next.

sgt101 10y ago
Of course UK law is currently aligned with EU law (due to membership). The issues of future alignment are true - but possibly not contentious or alternatively possibly irrelevant as the world changes again...