By Huw Jones
LONDON (Reuters) – Nearly all UK-based clearing of euro-denominated repo and government bond trades moved to Paris this week, the London Stock Exchange’s clearing arm said on Thursday in a step partly aimed at easing European Union concerns ahead of Brexit.
LCH’s dominance in London of clearing euro-denominated trades has become a political battleground as Britain prepares to leave the bloc next month, taking it outside EU financial law.
Paul Elkins, head of product development at RepoClear LCH, said its Paris clearing operation handled more than 700 billion euros (608 billion pounds) of euro-denominated repo and government debt transactions on Wednesday, leaving only a “residual” amount at the London operation.
“The vast majority of repo trades are now being cleared by LCH in Paris,” Elkins told Reuters.
A repo or repurchase agreement is a type of short-term loan for dealers in government debt. From next Monday, Paris will also be clearing all euro-denominated cash government bonds at LCH, Elkins said.
Corentine Poilvet-Clediere, head of RepoClear at LCH in Paris, said customers wanted to consolidate euro repo and bond clearing in one place to obtain efficiency savings.
But some policymakers and central bankers in the euro zone want the bulk of all types of euro trades transacted by EU customers to be cleared inside the bloc.
The shift in repos and bonds may not be enough to satisfy them as LCH in London clears nearly all euro denominated interest rate swaps (IRS), a popular contract used by companies to hedge against unexpected moves in borrowing costs.
Bank of France Governor François Villeroy de Galhau said last November he wants to see interest rate derivatives clearing in Paris, but so far LCH has said it will not make the investment due to lack of customer demand.
“LCH has been very transparent from the beginning. From our conversations with customers, we thought that for repo there was a business and regulatory case for consolidation in Paris,” Poilvet-Clediere said.
After “crunching the numbers”, moving IRS clearing from London to Paris would not be the right solution for the market, a view backed by users, Poilvet-Clediere said.
Rival Deutsche Boerse is offering a profit-share to LCH customers who bring their business to its clearing arm in Frankfurt, but Poilvet-Clediere said that overall volumes at LCH have not changed.
(Reporting by Huw Jones; Editing by Frances Kerry)