Euro clearing businesses have already begun moving accounts to Frankfurt after Brussels set the scene for an uprooting of the London-dominated market last week, according to a German lobby group.
Hubertus Vath, managing director of Frankfurt Main Finance, also said it would be “naive” for the UK to think it could continue to dominate the market for the clearing of euro-denominated derivatives.
Last week, the European Commission opened the door for euro clearing relocation with proposed changes to European Market Infrastructure Regulation (Emir). The rule changes would tighten up oversight of the market and enable regulators to tell non-EU clearing houses to relocate their operations.
A source close to the plans told City A.M. that Brussels had not opted for the “nuclear option”, which would have required all euro clearing to take place within the EU. But the plans were enough to spook the City.
Meanwhile, the changes appear to be benefiting Frankfurt already. Vath told Press Association that there has been a “significant rise in the account openings of Eurex Clearing”, Deutsche Boerse’s Frankfurt clearing house, since the commission proposals came out.
Vath was also critical of relocation warnings that have come from London Stock Exchange boss Xavier Rolet, who has cited ClarusFT figures estimating that fragmentation could cost banks $77bn in additional collateral. Vath described comments from London as “not particularly helpful” ahead of Brexit talks.
He added: “I’ve been telling my British friends that look, even though we want to have an amicable divorce, don't expect euro clearing to stay as it is.
“It would be naive.”
Meanwhile, Christian Noyer, France’s Brexit envoy for finance and the former head of the Banque de France, told the Mail on Sunday EU regulators should force euro clearing on to the bloc.
He said: “If a market is cleared 10 per cent in London, five per cent in New York, five per cent in Asia, and 80 per cent in the EU 27, I think that’s okay. That’s where equivalence of regulation, access to data, and supervisors all can play the role of ensuring that there is no big accident.
“But if you have 90 per cent of the market that is outside then you have a risk.”