Brexit: London Stock Exchange Group lobbies for US support in clearing battle

As part of the Brexit divorce, Brussels would like clearing of euro-denominated transactions to be relocated to Europe, if it can’t have some control of it in London

Huw Jones,Michelle Price
Wednesday 15 November 2017 15:17 GMT
A Brexit storm is brewing for the London Stock Exchange
A Brexit storm is brewing for the London Stock Exchange (Reuters)

The London Stock Exchange Group is lobbying to win American political support in its battle with Europe to preserve London as a global financial centre after Brexit.

LCH, the clearing arm of the LSE, is among the world’s biggest derivatives clearing houses, guaranteeing the completion of hundreds of billions of euro- and dollar-denominated trades.

As part of the Brexit divorce, Brussels would like clearing of euro-denominated transactions to be relocated to Europe, if it can’t have some control of it in London.

But US regulators say it could be risky for the global derivatives market to separate euro- and dollar-clearing and want to keep it in one place.

LSE, backed by British officials, are hoping to convince US policymakers and regulators to help rebuff European efforts to grab clearing, according to regulatory, government, and lobbyist sources.

“The Americans are proving to be very useful allies,” said one British official who has held talks with US counterparts.

Asked to confirm if Britain was supporting LSE in lobbying US officials, a spokeswoman for Britain’s finance ministry said: “We are also committed to ensuring that London remains the world’s preeminent financial centre.”

She said UK clearing houses play a crucial role in supporting economic growth in Britain and across the EU.

If they wanted to exert pressure, US officials could threaten to retaliate against European banks operating in the United States if American banks’ business is affected by any Brexit changes.

LSE has set up its first “political action committee” (PAC), a group commonly used by companies to lobby US politicians to support their business interests, according to public documents seen by Reuters.

The group is also hiring a new senior lobbyist for its public affairs team in Washington D.C., according to its website.

An LSE Group spokeswoman declined to comment on whether these changes were aimed at lobbying U.S. politicians about Brexit.

The LSE Group has become a leading player in post-trade and indexing businesses in US financial markets. It has 600 employees in the United States and eight business licenses.

“The US continues to be one of our key areas for growth as we build scale in our core business to deliver efficiency and meet the needs of our global customer base,” the spokeswoman said in a statement.

It is not unusual for companies with significant US businesses to establish PACs. LSE Group’s rivals CME Group and Intercontinental Exchange also operate PACs, according to public documents.


In May, Brussels proposed a law giving itself joint supervision over LCH in London after Britain leaves the bloc in March 2019. If this arrangement proves insufficient, euro clearing for customers in the bloc must move to mainland Europe.

The European Commission has said the clearing proposals would not affect clearing houses in the United States.

Officials in the City of London see the plans as an attack on its global dominance in finance. They worry that if clearing moves to Europe, other parts of the City would unravel.

Catherine McGuinness, head of policy at the City of London Corporation, the municipal authority for the capital’s financial district, said “any strong voice from outside” Europe could be helpful.

She was speaking to Reuters following a trip this month to New York and Washington to meet officials at the U.S. Treasury, the Commodity Futures Trading Commission (CFTC), as well as financial lobbyists and bankers, during which Brexit was discussed extensively.

“They’re not going to take sides or wade in unless US interests are affected, which is totally fair. But... there is increasing nervousness that Brexit could have implications beyond EU borders and there might be ripple effects on the US I think that nervousness is well-placed,” she said.

LCH clears roughly 90 per cent of global dollar-denominated interest rate swaps and euro-denominated swaps in London.

Christopher Giancarlo, chairman of the CFTC which regulates LCH’s US operations, said if the EU decides euro clearing must shift to the continent, the US would have to rethink the location of US dollar clearing too.

“If the European Union mishandles Britain’s exit, the consequences for US businesses and consumers could be serious,” he said this month.

The powerful regulator is widely respected by influential Congressional Republicans and Democrats, who would likely have to sign off any major changes to U.S. clearing rules. His comments have been welcomed in the City of London.

“It’s fairly clear from his public statements that he is watching very closely and is aware of the potential systemic implications of splitting clearing,” said McGuinness.


The regulatory, government and lobbyist sources also said LSE Group has opened the door to a compromise with Europe on some parts of clearing. It has conceded London may not be the “optimal” place for clearing some euro products, those sources said.

Euro sovereign debt repurchase agreements (repos) that currently clear at LCH in London could be moved to its Paris unit after Brexit because they play a direct role in the European Central Bank’s monetary policy operations.

“It makes no sense to keep it in London,” a repo industry official said.

France wants euro clearing in some form to move to Paris there after Brexit and allowing this could increase LCH’s chances of keeping its global, multi-currency interest swaps pool intact in London, the sources said.

An LCH spokeswoman declined to comment on whether it was pursuing such tactics to avoid fragmenting its London interest rate swaps business.


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