Brexit: EU planning new rules to take UK’s £440bn derivatives business, says London Stock Exchange boss

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EU officials have discussed new laws to undermine the UK’s multi-billion pound clearing business after Brexit, London Stock Exchange chief executive, Xavier Rolet told a House of Lords Committee.

Financial transactions can currently be cleared anywhere in the world and London has a dominant position in the market, processing £440 billion of trades every day and supporting 100,000 jobs.

But the EU is now considering limiting the amount of euro transactions that can be processed outside the EU, so that it can force the industry to move within its borders after Brexit, according to Rolet

Millions of euro-denominated transactions are currently cleared in New York, but a cap on US trades is now being considered, so that similar restrictions can be placed on London when it is outside the EU, a move that could fatally undermine the industry.

“I understand that some discussions have already originated in the EU for limiting the ability of US- based clearinghouses to clear euro-denominated securities by capping or somehow restricting their ability to engage meaningfully in their business,“ Rolet said.

The loss of euro clearing would cost 100,000 UK jobs, fragment markets and force banks to tie up an extra £70 billion in “margin” or cash to back up trades. That money that could otherwise aid economic growth, Rolet said.

If customers decided they cannot wait for the outcome of Britain's trade negotiations with the EU, then the “whole engine” of clearing across all major currencies in London would be at risk, he added.

Clearing is a process whereby both parties to a transaction deposit collateral in a central institution, ensuring that transactions take place even when one party goes bust.

It is seen as vital plumbing for the financial system and prevents a wave of defaults potentially causing a dangerous domino effect as happened during the financial crisis. It has become mandatory for most trades in the multi-trillion pound derivatives market.

Francois Hollande has said euro clearing must move to the EU and the European Central Bank is expected to adopt the same position.