[ M A R K E T
R E V I E W
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E U R O P E A N
largest ever average daily volumes
in January. “There is also a signifi-
cant pipeline of new pension fund,
asset management and hedge fund
clients who are coming on board”,
Graulich says.
The Eurex programme, under
which derivatives clearing profits
“There is also a significant pipeline
of new pension fund, asset
management and hedge fund
clients who are coming on board.”
MATTHIAS GRAULICH,MEMBER OF EUREX
CLEARING EXECUTIVE BOARD
are shared with the users, has
definitely helped in achieving this
target. The profit-sharing program
has helped to make bid-offer
spreads on Eurex fully competi-
tive with those on LCH, Graulich
argues. Brexit also helped, which
he adds has “stimulated a thought
process about what to do in case of
a hard Brexit.”
The Brexit process brought to the
fore underlying issues which had
been lurking in the background,
such as risk diversification and the
need for greater competitiveness,
he says: “Brexit required people
to take action.” This process
has now become indepen-
dent of the specific final
outcome of Brexit.
“It’s clearly good
C L E A R I N G ]
from an overall systemic risk perspective,” says Grau-
lich.
Political brinkmanship over derivatives clearing is
likely to continue, and even if politicians tacitly agree
that the worst scenarios will be avoided, markets are
unlikely to be willing to tolerate indefinite uncertainty.
Karel Lannoo, chief executive of the Centre for
European Policy Studies in Europe, sees signs of finan-
cial behaviour already changing, with LCH moving
business back to Paris.
For derivatives clearing, he expects “more frag-
mentation overall, and hence more cost. For 20 years
the UK has played the game of economy of scale, and
they risk losing it.” While Lannoo has no doubt that
London will remain the most important European
financial centre, he expects that there will be a process
of attrition through the prolonged uncertainty, and
that in three years, derivatives clearing in London will
be “scaled down from today.”
“There is a business logic to pooling products in the
same currency,” argues Graulich. Eurex has sought to
position itself as the incumbent for euro-denominated
products, and, in the long term, Graulich expects this
logic to triumph regardless of Brexit’s final form.
“People will see that these efficiencies are superior,”
says Graulich, and expects Eurex will take a signifi-
cant portion of post-Brexit derivatives clearing as a
result. By the same logic, he says, dollar-denominated
swaps may, in the future, be increasingly cleared in
the US.
The EU knows that derivatives clearing is not going to
move overnight, Lannoo says. Complex combinations
of infrastructure and expertise that are hard to find in
“Access to the UK market will
become more expensive. There is a
risk that clients will decide to invest
elsewhere.”
MARC GIANNOCCARO, HEAD OF DEVELOPMENT,
EXECUTION AND CLEARING, CACEIS INVESTOR SERVICES
the euro area would need to be assembled. Derivatives
markets can only thrive in the presence of a range of ac-
companying markets, he notes. But much bigger move-
ment of derivatives business is possible over a longer
timeframe of 10 years, and the EU and US both could
stand to become the beneficiaries of this.
46 // TheTrade // Spring 2019