Trade hit to London tipped to cost €77bn
The loss of London's euro clearing industry as a result of Britain's Brexit vote could translate to €77bn in added margin contributions from banks, said London Stock Exchange chief executive officer Xavier Rolet.
As much as 90pc of US dollar domestic interest-rate swaps are cleared in London, making the City's clearinghouses the "envy" of other cities, Mr Rolet said at a House of Commons event in London yesterday. Removing clearing would have a "prohibitive cost on European banks", he said.
Clearing houses help keep global money market moving by standing between traders to prevent a default by either from spiralling out of control, including by holding collateral.
The sector made headlines here when clearing houses demanded extra security for handling deals involving Irish and other government bonds seen as risky during the worst period of the euro crisis.
Mr Rolet has estimated about 100,000 clearing-related jobs in the UK could be lost post-Brexit, if the work is moved elsewhere.
"If we allow continuation of the non-economic, non-commercial nature to split up clearing, first off, it will never come back to London," Mr Rolet said.
"It is very unlikely, as some obviously have an inclination to see it move to Europe, whether it's Paris or Frankfurt. What is most likely is that it will be New York."
The ECB has previously tried unsuccessfully to force clearing of euro trades to be done inside the euro area. But compelling lenders to clear those trades elsewhere would impose a "prohibitive cost on European banks," Mr Rolet said. (Bloomberg)