(Finance) – The European Commission presented today measures that aim to further develop the Capital Markets Union of the EU and, as regards clearing services, to reduce its dependence on London, which continues to be central to Europe’s financial infrastructure even after Brexit.
The measures, which will now be submitted to the European Parliament and the Council for adoption, aim to: increase the attractiveness and resilience of EU clearing services by supporting open strategic autonomy and preserving the financial stability of the EU; harmonize certain insolvency rules of businesses across the EU, making them more efficient and helping to promote cross-border investment; lighten, through a new rules on quotationsthe administrative burden weighing on companies of all sizes, especially SMEs, in order to facilitate their access to financing on public markets through listing on the stock exchange.
Compensation news
As regards compensation, the Commission believes that the EU needs safe, sound and attractive compensation for the well-functioning Capital Markets Union. Investors have been so far reluctant to move trading away from LCH – operated by London Stock Exchange Group – to much smaller EU clearing houses.
The measures proposed today will make the EU clearing landscape more attractive by enabling central counterparties (CCPs), which provide clearing services, to expand the range of their products faster and easier and further incentivize EU market participants to clear and build liquidity with EU CCPs. The central counterparty is the person who, in a transaction, it intervenes between two contracting parties avoiding that they are exposed to the risk of default of its contractual counterpart and guaranteeing the successful completion of the transaction.
The European Commission’s proposals are designed to encourage more businesses to relocate in clearinghouses in continental Europe from the City of London by June 2025when a temporary waiver that allows its banks and money managers to clear UK operations expires.
Comparison with the UK
Operators had so far rejected voluntary calls to transfer the compensation from London to the Bloc, leaving the EU with little choice but to enforce the transfer. “I think we’ve talked enough with stakeholders that they understand what we’re doing and why we’re doing it and I think there is less resistance than in the early stages“, commented Mairead McGuinness, Commissioner for Financial Stability, Financial Services and Capital Markets Union. “Let’s not underestimate how big this change is,” she added.
McGuinness stressed that the move it should not be seen as an “attempt to undermine” London’s positionbut instead aims to ensure the financial stability of the bloc.
In addition, according to the Commissioner, the proposal “will also address the issues raised regarding the clearing of derivatives by firms in the energy sector given the current challenges they face”. For example, thanks to the increased transparency of margin calls, market participants (including companies in the energy sector) will be in a better position to predict them, according to the EU Commission.