Britain’s FX & clearing industry saved from mandatory relocation to eurozone as ECB loses court case


A long, drawn out court case has been won against the European Central Bank (ECB) which marks a major milestone in protecting London’s financial center from the European Commission’s attempts to instigate rulings that would have required British companies managing financial trades in euros to relocate to the eurozone.

The judgement, which was delivered on Wednesday this week by the General Court, located in Luxembourg, is instrumental in putting an end to a three year dispute between the British authorities and the European Central Bank over whether the European Central Bank has the authority to require British companies handling large trades in euros to be based in the 19-country currency bloc.

Should the ECB have won this litigious battle, Britain’s financial center would have experienced a forced exodus of institutional trading participants and clearing houses from the largest financial center in the world and the location which holds the status as the most prestigious center of institutional liquidity providers and financial technology firms led by some of the finest and most experienced industry figures worldwide, into a veritable abyss which has no history of international financial markets prominence nor any place on the world stage of electronic trading.

On the contrary. As the world’s major participants in global FX look increasingly from their well established base in London toward the Far East, with many of the large interbank firms having established large operations in Singapore and Hong Kong, a dynamic echoed by large FX liquidity providers and clearing firms, the Eurozone plays virtually no part in the entire ecosystem.

Indeed, Germany’s Deutsche Bank, one of the largest handlers of interbank FX order flow, conducts its electronic trading business from London.

Firms outside the interbank sector from across the globe such as LCH.Clearnet, IntercontinentalExchange’s ICE Clear Europe and the London Stock Exchange Group are just three of the vast multinationals that consider London to be the pinnacle of global markets activity.

These matters are further compounded by the Eurozone’s financially weak future, as the ECB itself is exposed to potentially unserviceable debts resulting from its transactions involving Greek bonds, as well as being reliant on IMF bailouts and vast quantitative easing measures, rather than leading the economy forward as is the case with London.

Thus, a mandatory move to the Eurozone would have been at best uncomfortable for the industry.

The ECB stated in a 2011 policy paper that if clearing houses were managing trades in euros, they should be based within the euro area. however before the policy took effect, the U.K. took the matter to Europe’s second highest court during the same year, arguing the ECB’s “location policy” breached European law and single market principles. Home to Europe’s biggest financial services hub, the U.K. fretted this policy would shift business to other European centers.

Following the decision in favor of retaining the businesses in London, the Wall Street Journal reported that in its judgment, the General Court said it annulled the ECB’s policy framework because it “lacks the competence necessary to regulate the activity of securities clearing systems.”

U.K. Chancellor George Osborne called the decision “a major win for Britain and a major win for all those who want to see a European economy that is both open and successful.” He said the proposed policy was “utterly discriminatory,” adding there needed to be a “level playing field” for all countries in Europe’s single market.

Raoul Ruparel of Open Europe, a London-based think tank, said the decision had averted “a damaging split in the single market.”

As with any high court case, the European Central Bank can take the decision to appeal at the European Court of Justice, as long as it does so within two months, and this would be subject to a decision making process which can take approximately one year.

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Britain's FX & clearing industry saved from mandatory relocation to eurozone as ECB loses court case

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