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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

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.

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.