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EU court annuls ECB policy on clearing houses after UK challenge

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The new headquarters of the European Central Bank

The new headquarters of the European Central Bank

Bloomberg

The new headquarters of the European Central Bank

The European Union's second-highest court has ruled the European Central Bank (ECB) was wrong to insist that euro clearing houses should be based in the single currency area, a policy Britain had challenged.

The General Court said on Wednesday it annulled the policy published by the ECB, which required clearing houses to be located in the 19-country euro zone.

"The ECB does not have the competence necessary to impose such a requirement on central counterparties involved in the clearing of securities," the Luxembourg-based General Court said in a statement.

The ECB and the UK finance ministry had no immediate comment.

Clearing houses stand between the two sides of stock and bond trades, ensuring smooth completion of transactions even if one side of the deal goes bust.

Britain, which is a member of the EU but not the euro zone, had challenged the ECB's policy, saying it went against the EU's single market.

The ECB had said having clearing houses that handle more than €5bn of euro-denominated securities inside the euro zone would make it easier to intervene if they got into trouble.

But the court said such a policy went beyond oversight to actually regulating market infrastructure companies, a power the ECB does not have under EU treaty.

If the ECB wanted to regulate securities clearing houses then it should request the EU to give it such powers, the court said.

Lawyers had said a failure of Britain's legal challenge could force the London Stock Exchange's LCH.Clearnet clearing house to shift large chunks of its euro-denominated operations to continental Europe.

Defeat could also have seen the City of London financial centre losing influence to the euro zone.

Reuters