Deutsche Boerse has a cunning plan to nab euro clearing from London after Brexit: the company's clearing house, Eurex, has unveiled a programme under which its biggest customers will be rewarded with a share of its revenues.
In a statement today Eurex Clearing said its 10 most active participants will be eligible for a "significant share" of the returns from its multi-currency interest rate swap offering, as well as being offered seats on its board.
The company said Bank of America Merrill Lynch, Citigroup, Commerzbank, Deutsche Bank, JP Morgan and Morgan Stanley have all signed up to the programme, although it added it has more than 200 clients in total.
“This market-led initiative will benefit clients and the broader market place through greater choice and competition, improved price transparency as well as reduced concentration risk," said Eric Mueller, Eurex's chief executive.
City at war
The programme is the latest move by Deutsche Boerse in an escalating war between London and the European Union over euro clearing.
The City of London currently handles over 90 per cent of euro denominated derivatives clearing activities, but both the European Central Bank (ECB) and financial institutions within the EU, including Deutsche Boerse, have hinted they will make moves on the market after Brexit.
In July bosses at the London Stock Exchange (LSE) and Deutsche Boerse clashed over euro clearing relocation policy, with Eurex chief strategy officer Matthias Graulich saying ECB plans to enhance EU supervision of the market do not go far enough.
During a debate he said:
If the fire is starting, the fire fighting is not with the EU regulators or ECB, but with the Bank of England.
Daniel Maguire, chief operating officer at the LSE's own clearing house, LCH, hit back:
We are the fire fighters. The last thing you need at that point is a multitude of regulators saying what we can and can’t do.
High noon moment
Meanwhile, Jeremy Browne, the City of London's special Brexit envoy, has warned Britain must brace itself for a "high noon moment" over euro clearing.
"On this, the Germans are almost as adamant as the French," he told City A.M.
"They are both taking a very hard line on it, and my guess is they will whip the Eurozone into line. The question is whether those countries will defy the French and the Germans, or whether they keep their powder dry, but there's only so many times they can do that."
What is euro clearing?
Clearing is the process through which financial transactions are settled, between the promise of a payment and the payment itself. Euro clearing refers to the clearing of euro-based transactions.
The clearing of euro-denominated derivatives, in particular, is big business for the City of London, which dominates an estimated 90 per cent of the market.
The ECB failed in 2015 in an attempt to require big clearing houses to leave London for the Eurozone after a three-year court battle.
However, the Brexit vote immediately reignited the issue, with politicians including then-French President Francois Hollande calling for it to be moved on to the bloc.
In June the ECB said it wanted to amend central banking rules to give it regulatory powers over the market, essentially allowing it to monitor and address perceived risks associated with clearing which could affect its monetary policy, the operation of payment systems and the stability of the euro.