LONDON (Reuters) - The cost of using financial derivatives is likely to increase if euro-denominated clearing is relocated from London to the European Union after Brexit, trade association ICMA said on Wednesday.
The EU plans to give itself powers to move the multi-trillion euro clearing business away from Europe’s biggest financial centre, where the bulk of euro clearing is currently carried out.
“Mandatory relocation would involve costs and risks for users of capital markets,” said Paul Richards of the International Capital Market Association in its quarterly report.
“This is likely to increase costs for end-users of the derivatives market, given current economies of scale in London from pooling liquidity in several currencies, which allow multilateral netting of transactions and a reduction in the collateral needed.”
Bank of England Governor Mark Carney sent out a similar message last month, saying splitting the market could bump up costs and lead to fragmentation that is “in no one’s economic interest”.
Both ICMA and the Bank of England argue that cooperation between regulators should help avoid the need for forced relocation.
Reporting by John Geddie; Editing by Dhara Ranasinghe