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EU watchdog calls for 'workable balance' in derivatives Brexit battle

FILE PHOTO: EU flags fly outside the European Commission headquarters in Brussels

By Huw Jones

LONDON (Reuters) - Relocating clearing of euro derivatives from London must find a "workable balance" that avoids business going to the United States or elsewhere rather than the European Union, the bloc's securities watchdog said on Tuesday.

Brussels has said that EU access for the London Stock Exchange's LCH arm and ICE Clear will end in June 2025, but the shift in trillions of euros in derivatives positions across the Channel has been slow.

Klaus Loeber, chair of the clearing supervisory committee at the European Securities and Markets Authority, said it was too "simplistic" to give a figure on how much volume needed to shift to the EU.


"We need to find a workable balance here," he told a derivatives conference in Frankfurt.

"We also need to make sure if there were to be a momentum created, it is indeed pointing to the EU, and not to other third countries," Loeber said.

Matthias Graulich, a board member at Eurex Clearing in Frankfurt, said he did not favour "forced relocation" of euro clearing, but that a market-led solution probably needed some push from regulators.

Eurex has a market share of about 20% in euro swaps clearing, but over 200 customers were not using their accounts at Eurex to bring more liquidity from LCH because they are waiting for guidance from the EU, Graulich said.

Brussels is due to propose measures to encourage a shift in euro clearing, but mandatory relocation would fragment markets and put some European banks at a competitive disadvantage to global rivals, said Karl Ulrich, head of clearing at derivatives industry body ISDA.

Gaspard Bonin, deputy global head of derivatives execution and clearing at BNP Paribas bank, said market participants were not relocating clearing for now because they don't believe London will actually be cut off in 2025.

"It would be too far reaching... In a way there is nothing really credible on the table," Bonin said.

(Reporting by Huw Jones; Editing by Alexandra Hudson)