ECB shelves euro clearing house policy - source

LONDON, March 27 (Reuters) - The European Central Bank has quietly shelved its policy of requiring clearing houses handling euro-denominated securities to be located inside the euro zone, after the measure was rejected by a top European court, a source at the central bank said.

Britain had challenged the policy in the European Union's second-highest court, fearing it would damage London's role as a finance centre, and the court ruled earlier this month that the Frankfurt-based central bank did not have the power to impose it.

When asked if the ECB had now abandoned it, the source said: "Yes it has."

The drive to have clearing houses in the euro zone was being led by the French central bank because France is home to one of the region's biggest clearing houses, Clearnet, whose London arm LCH.Clearnet, clears large amounts of euro-denominated securities.

A clearing house stands between two sides of a securities transaction to ensure it is completed even if one side goes bust.

The ECB's worry was that if a London-based clearing house handling euro-denominated securities ran into trouble it would not be eligible for direct support from the bank and the euros it can provide.

These concerns have now been eased after the Bank of England said on the day of the court ruling this month that it would work closely with the ECB.

Britain had argued the policy went against the EU's single market, and feared it would force clearing houses to shift from London to the euro zone. (Reporting by Marc Jones and Huw Jones; Editing by Mark Trevelyan)