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largest ever average daily volumes in January . “ There is also a significant 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 competitive 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 independent of the specific final outcome of Brexit .
“ It ’ s clearly good from an overall systemic risk perspective ,” says Graulich .
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 financial behaviour already changing , with LCH moving business back to Paris .
For derivatives clearing , he expects “ more fragmentation 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 significant 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 accompanying markets , he notes . But much bigger movement 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