Following Brexit voting, there is talk about clearing firms leaving London and if that happens, London Stock Exchange Group Plc Chief Executive Officer Xavier Rolet anticipates that one-hundred thousand jobs would be at risk.
“We estimate, conservatively, that at a very minimum 100,000 jobs, in risk management, compliance, middle office, back-office support functions — by the way not just in London, up and down the country — are implicated in supporting this business and clearly could be at risk,” Rolet said in an interview with Bloomberg.
“But the point is that there are very, very few financial centers around the world that could accommodate such a global business,” he added.
A tussle over the clearing of $570 billion of euro derivatives a day prevails in the industry and executives at global investment banks in London said they expect France and Germany will have the upper hand in attracting members of that industry. Rolet’s comments come amidst such speculations in the London financial districts and the larger industry. They are making plans to deal with the fallout, people familiar were quoted as saying the media.
Prevention of a default from spiraling out of control is the primary aim and work of clearinghouses. This is achieved by the holding of collateral and monitoring risks. The role of clearinghouses in global finance has become far more entrenched in recent years as regulators see them as one of the best ways to prevent another financial crisis. Clearing as a business that won’t be allowed to remain in a post-Brexit U.K. have been singled out by European politicians including French President Francois Hollande.
However, the most likely beneficiary of business leaving London would be New York, rather than one of the European financial centers, said the LSE CEO.
“Is it possible that the whole thing could move? Of course it is. The London Stock Exchange Group via the London Clearing House operates a very successful clearing business and is currently licensed to operate in for example, in what I believe could be frankly the only logical alternative to London, if that came to pass, and that is the New York market,” Rolet said.
The world’s largest clearinghouse for derivatives linked to interest rates is LCH and LSE is the majority owner of LCH. Including more than 500 at LCH, about 700 people are directly employed in London’s clearinghouses.
However the assets in a clearinghouse have been moved before. Intercontinental Exchange Inc. had moved the clearing to an entity it built after it had bought two derivatives exchanges in London and later moved them. The derivatives had previously been cleared at LCH.
“The physical possibility of moving, as well as the economic consequences, are rather complex. The notion of separating, for example, the clearing of euro-denominated interest-rate swaps from U.S. dollar-denominated interest-rate swaps, just doesn’t make any economic sense and probably cannot be achieved, even from a regulatory or legal standpoint,” Rolet said.
(Adapted from Bloomberg)