The houses in question handle more than 650 billion pounds per day and provide huge tax revenues.
“There are two sides to the issue: one is technical and the other is political. There is huge trading in securities and much of it takes place in London. The efficiency of working on the London market is that margin payments on the purchase of derivatives and securities there is lower than when you have markets spread around different locations. For example, if you buy derivatives in London and sell them in Paris, you will have to place margins in both places,” Professor Blake explained.He said there was also a political aspect that had to be taken into consideration. “If the margin levels are set depending on the level of risk and the risks go up, so do the margin levels. During the EU sovereign debt crisis in 2012, London increased the margins on all euro derivatives and that raised the cost of borrowing in the Eurozone, making the crisis worse. Therefore, the European Union is concerned that if this huge market that sets margin levels is no longer in the EU, this could have serious implications for the euro.”
When asked how France could benefit from moving clearing houses away from London and the economic fallout this could have for the UK, David Blake said “Frankfurt and Paris are competing to take a of London’s financial market.”
Paris has tried to abolish all euro trading in the UK and have all trading in the currency done inside the Eurozone.
Speaking about the way UK clearing houses should be regulated post Brexit, he said that in terms of euro-denominated currencies and derivatives, there should be firm collaboration between regulators in the UK to deal with this political issue.The issue of euro clearing has become a major block between London and Brussels during Brexit talks with Brussels worried that when Britain leaves the EU, the City will no longer be supervised by EU regulators.