UK Plc Sues the European Central Bank


Following on from last month's European attack on the City of London a new front has opened up in the war currently being waged to regulate away risk in the world's financial markets. However this time around Britain is fighting back in the courts! Bloomberg reports that:

Britain will sue the European Central Bank over plans to prevent some euro-denominated securities from being cleared outside the 17 countries that share the currency, in the first such move by a government.

In this instance the supposed problem isn't high frequency trading. Rather it's the ECB's desire not to find itself in the position of having to bail out clearing houses for euro denominated derivatives that are not located in the euro zone. According to Bloomberg once more:

Clearing houses such as LCH.Clearnet and Deutsche Boerse AG’s Eurex Clearing operate as central counterparties for every buy and sell order executed by their members, who post collateral, reducing the threat from a trader’s default.

European Union governments have discussed giving clearing houses access to central-bank liquidity as a way to prevent them from collapsing and causing a financial crisis. The European Commission said last year that access to central bank liquidity could be useful in preventing clearing houses becoming a source of risk to the financial system in themselves. It included the idea in proposals it made in September 2010 to push trading of over-the- counter derivatives through central clearing.

The ECB has said clearing activities should take place in the euro region if it is expected to provide such financial support.

The British Government doesn't see it this way however. They maintain that:

The ECB’s policy contravenes European law and fundamental single market principles. The government wants to see this resolved swiftly and without involving the courts but if necessary will not shy away from continuing legal action.

Having said all that, perhaps there is more to this war than merely reducing financial instability?

The development comes as London Stock Exchange Group Plc holds talks with LCH.Clearnet Group Ltd. to buy all or part of the world’s biggest clearing house for swaps, as increased global regulation makes the business more profitable.

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