Barclays and HSBC are the first major British banks to move part of their euro-clearing services from London to Frankfurt, the Financial Times reports.
The move from the London Stock Exchange (LSE) to Deutsche Börse will allow the two lenders to guarantee uninterrupted service to their customers in a multi-trillion-euro industry.
Companies and financial institutions use derivatives to shield themselves against the risk of interest rate volatility, with clearing houses seating between two counterparties to a trade. The London platform LCH cleared €100 trillion in the first months of 2018; the Eurex cleared merely €7tn.
London continues to dominate most longer-dated interest rate swaps, which are used by banks, asset managers, manufacturers and energy suppliers. However, the shift is beginning to be noticeable.
The shift marks a trend that extends to lenders providing clearing services,
Major European lenders, including BNP Paribas (France), Deutsche Bank, Commerzbank, DekaBank (Germany), Unicredit (Italy), are already intensifying their use of the Frankfurt-based platform. They are followed by US behemoths Merrill Lynch and JP Morgan.
The trend reflects anxiety over Brexit but also a policy of incentives put forward by the German Stock Exchange that came close to a merger with the LSE; Deutsche Börse is offering banks a share of the profits in euro trade-clearing on its Eurex euro-clearing platform.
Both the European Commission and the European Central Bank have made clear that an industry with systemic significance for the Eurozone should be within the regulatory control of the EU. The German and French governments have made clear they want to see the relocation of the euro clearing sector