BCE vs London Stock Exchange: and the winner is...

March 5, 2015

Dear readers,

the side of Europe we are going to highlight today is the one most discussed ever: the financial Europe.

Let's go back to 2011, when the ECB published the policy which required clearing houses to be located in the 19 country euro zone, instead of their current location in London. 


Before going into the question, what is a clearing house? 

A clearinghouse is an intermediary between buyers and sellers of financial instruments, which takes the opposite position of each side of a trade. When two parties agree on the terms of a transaction, a clearinghouse sits in the middle, acting as both the buyer and the seller.


Made that clear, why should that work be subtracted to the Great Britain, a member state of European Union? The answer ECB gave to that question was that having clearing houses that handle more than 5 billion euros ($5.6 billion) of euro-denominated securities inside the euro zone would make it easier to intervene if they got into trouble. After few years, the European Union's second-highest court has ruled the European Central Bank was wrong to insist that euro clearing houses should be based in the single currency area, a policy Britain had challenged to defend its financial sector.

Behind that decision a big issue is hidden: why in an union which is based on single market concept is still alive the need of a location policy? Obviously, both George Osborne and the Bank of England and the Queen considered the verdict of the court as a necessary win to let London keep being the home to Europe's biggest financial sector: it showed Britain can continue to play a strong role in the EU. At the same time, it's clear that the ECB location policy was of a binding nature and that the ECB had no autonomous regulatory competence in respect of all clearing systems under the Treaty on the Functioning of the EU.


At that point what seems necessary is to remind what a single market means and the reasons that made that issue an important framework of European general policies. The single market is all about bringing down barriers and simplifying existing rules to enable everyone in the EU – individuals, consumers and businesses – to make the most of the opportunities offered to them by having direct access to 28 countries and 503 million people. 

Then, supposing that it's both BCE's and UK’s interest for the eurozone to take necessary steps to strengthen the currency union, why should that integration compromise the principle of the single market? 


The ECB and the Bank of England will continue to seek a coordinated and shared approach for achieving the common objective of financial stability and the smooth functioning of financial market infrastructures. The ECB will carefully consider the General Court’s judgment and decide on the way forward as soon as such analysis will be completed. 


What is to consider, I would finally say, is not only the right location of the clearing houses, but also the common willings of an European Union.



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