Wednesday 14 June 2017 10:09 am

What is euro clearing? Why is it so important to the City of London? All your clearing questions cleared up

Euro clearing has hit the headlines in recent days, but what is it and why is it so important to the City of London? We've answered all your questions…

Read more: London's euro clearing market at risk as Brussels sets out rules shake-up

What is euro clearing?

Clearing is the process through which financial transactions are settled, between the pledge of a payment and the payment itself. Euro clearing refers to the clearing of euro-based transactions.

Why is it important to London?

The clearing of euro-denominated derivatives, in particular, is big business for the City of London, which dominates an estimated 70 per cent of the market.

EY research for the London Stock Exchange has estimated up to 83,000 City jobs could be at risk if it is dragged out of London.

Why is London’s euro clearing crown at risk?

The European Central Bank (ECB) failed in 2015 in an attempt to require big clearing houses to leave London for the Eurozone. The EU General Court ruled against the ECB after a three-year battle.

However, the UK’s Brexit vote last summer immediately reignited the issue, with politicians including then-French President Francois Hollande calling for it to be moved on to the bloc.

The European Commission announced a consultation on the topic last month before laying out its proposals yesterday.

Who stands to benefit from the euro clearing market being shifted from London?

Other European cities and their own clearing houses. Namely: Paris and Euronext, and Frankfurt and Deutsche Boerse.

Who stands to lose out?

The London Stock Exchange has strongly warned against any relocation policy. But the group yesterday insisted it is “well positioned to continue to provide a seamless service to all its customers”.

The LSE and others have warned that relocation will be costly to banks, as clearing house customers, which will see their collateral costs increased.

Read more: LSE boss blasts EU euro clearing review: "It's going to be complete chaos"