Out-Law News 1 min. read
16 Sep 2011, 12:00 pm
The change requires clearing houses that handle more than 5% of the market in a euro-denominated financial product to do so only in a Eurozone country.
London-based central counterparties (CCPs) that clear above this amount would be forced to relocate to a Eurozone country if they wished to continue trading, the Government said.
The Government said this was the first time an EU member state had begun legal proceedings against the ECB at the European Court of Justice.
A clearing house sits in the middle of a trade between two parties. It assumes the counterparty risk, ensuring financial performance of the trade if one of the parties to it fails.
The ECB detailed its plans to ban clearing houses outside the Eurozone from dealing in euro-denominated financial products in a policy paper (13-page / 271KB PDF) published in July. The ban applies where the daily credit exposure of a non-Eurozone clearing house is above €5bn, or 5% of the market.
The policy paper claimed that requiring major clearing houses to be based within the Eurozone was necessary to provide traders with "safety and efficiency".
The ECB's powers to regulate CCPs are restricted to member states in the Eurozone, it said.
The City of London is currently hosts 40% of global over-the-counter derivative trading, according to Government figures.
A Treasury spokesperson said that the decision contravened European law and fundamental single market principles, including the free movement of services and capital.
"The Government wants to see this resolved swiftly and without involving the courts, but if necessary will not shy away from continuing legal action to make sure there is a level playing field across the EU for British businesses," the spokesperson said.
Restricting the clearing of Euro-denominated products to only firms based in Eurozone countries undermines the Euro's standing as a global currency, it said.
