IDS is spot on. We have a huge stick “London” and we need to use it! Clearing (one area) won’t be moved for 3 reasons;

1. London clears around €900bn everyday. You can’t just “move” that. Or, €1tn rounded up!

2. They would have to make a rule...

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...which forces Euro clearing to be done in a Euro using nation. That would be against the G20 financial securities agreements, and it would cut off the non Euro EU states.

3. France, Germany, Italy couldn’t agree who would take on that role. (They’d never let the market...

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...decide, they would try and “share” proportionally or something daft.)

To add context, the security involved in this is monstrous as, no EU nation would be seen as safe as London is!

With the fact the London clearing house (LCH) clears 90% of Global interest rate swaps.

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What is clearing though?

“In banking and finance, clearing denotes all activities from the time a commitment is made for a transaction until it is settled. This process turns the promise of payment into the actual movement of money from one account to another.

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Clearing houses were formed to facilitate such transactions among banks.

Summarised, it’s the middleman of financial contracts, and they take on the risk if one side doesn’t come through. Meaning...

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...there is a lot of risk. It’s buying and selling through a middleman (the clearing house) and that being linked to something like an index, bond, interest rate etc... this is mitigated by having companies put either money (a percentage of the amount of the transaction...

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...in holding with the clearing house, or some other collateral. The reason that clearing houses are used and the buyer/seller don’t just talk, is that the buyer doesn’t have the capital (at that time) to pay for the fiscal product they want. As relationships build...

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...so does trust and therefore the buyer puts up less capital reaching the minimum requirements eventually. Which allows them to conduct business better as they don’t have most of their cash sat waiting in the clearing house.

If it was moved, then outside of London.,,

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...collateral is a lot higher and they’d have no relationship/trust this costs companies more. It would be very negative on businesses across the EU and they couldn’t provide the security of what is needed to be hold in reserves.

35% of all Euro clearing is done via London!

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That’s how dominant London is in this area. And of course why it has huge reserves of money which allow it to take on as much as nearly €1trn a day in contracts. The Eurozone want this, but know they can’t really achieve it. (They tried before we voted leave)

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So that is clearing, basically a middle man that stops one side trying to screw the other, and London is very, very good at it.

That’s not all though! What else does London do that the EU need?

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Hedge funds. Around 85% of Hedge funds in the EU are managed by London based companies. 85%. Again, what is a Hedge fund?

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“A hedge fund is an investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction and risk management techniques to improve performance, such as short selling, leverage, and derivatives.”

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So, 85% of Hedge funds for the entire EU are managed and maintained by London based companies, now remember, these aren’t just rich individuals trying to maximise the return on their capital, these are pension funds that are being invested for people’s retirement as one example.

London is incredibly dominant in most areas of finance (if not all). New York has taken the crown a few times (like now), but London always bounces back. In comparison, the EU don’t have a top 10 financial centre! Frankfurt / 13th and Paris 15th.

So, to summarise. @MPIainDS is spot on, and allowing what appears a simple request will soon turn into things like “we have implemented a transaction tax, why haven’t you” damaging London’s competitiveness, as the EU are great at stopping competition in Markets!

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We shouldn’t be afraid of a “no trade deal exit” (as I’ve said in the thread attached to the next tweet), we could actually work it to our advantage. The EU are worried we will do what I say in that thread, if the gov. wants talks to move on from the 2 red lines...

...outline a plan to do what they fear the most! It would be a win for the nation and huge help in recovery from the COVID-19 crash!

We have a trade deficit, tariffs make us money, and we could even then compensate companies with what is raised, so no impact!

Thoughts? (Civil) https://twitter.com/peter___ward/status/1302589106300612608