We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people.

Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]

A change of tune

“Brussels moves to preserve access to London clearing houses”, reports the Financial Times.

Brussels is to adopt emergency measures to preserve Europe’s access to crucial UK financial market infrastructure after the country’s post-Brexit transition period expires, the bloc’s regulation chief said on Thursday.

Valdis Dombrovskis, the European Commission’s executive vice-president in charge of financial policy, said Brussels would adopt “time-limited” access rights to make sure that European companies could still access UK-based clearing houses after the end of this year.

“This decision is being taken to address the possible risks to financial stability related to the specific area of derivatives clearing,” Mr Dombrovskis said. “However, we would encourage all market participants to prepare for all possible eventualities, as we have consistently called on them to do throughout this process.”

Mr Dombrovskis did not specify when the access rights would expire, but the move will provide short-term certainty for traders in the specific area of clearing while Brussels continues to discuss future relations with the UK.

To be frank I have only the vaguest idea what a clearing house does. It sounds worryingly like tidying. But whatever it is, for the EU to adopt “emergency measures to preserve Europe’s access to crucial UK financial market infrastructure” seems a distinct change from its previous policy, also mentioned in the article:

Brussels has repeatedly urged the financial sector and companies to adapt to the fact that Britain is leaving the single market; the EU also adopted legislation last year to make it easier to force clearing houses to relocate to the continent. But progress has been slower than the EU had hoped and investors have kept their business in the UK.

I am not surprised at the investors’ decision. I do not need to be an expert in decluttered differentials to be able to work out that if the EU felt the need to pass laws to make it easier to force investors to move their business out of the UK that means they would be better off staying put.

17 comments to A change of tune

  • Astonishing how the impossible becomes possible and the disaster gets postponed just as soon as it becomes clear that the threat can no longer prevent our departure.

    To be frank I have only the vaguest idea what a clearing house does.

    By chance, we were talking a bit about this in this and other comments of a recent post.

    If you’ve seen the end of the film ‘Trading Places’ (Eddie Murphy, Dan Aykroyd – pretty silly film, but I’ve seen it once and I’m guessing some readers have) then you’ve seen a clearing house operating. The final scene turns on Dan’s and Eddie’s characters tricking their enemies into buying expensive futures contracts for frozen concentrated orange juice. Then the price crashes so, when the day’s trading closes, those enemies are legally required to deposit the margin – the difference between the price they have promised to pay when the contract falls due and the close-of-trading price on that day – with the clearing house.

    (The basic idea is that each day the clearing house holds the margin – if any – that would be required to increase what the contract could be sold for that day to what it promises the seller when it falls due. Thus the seller feels confident the contract will be honoured.)

    In this and various other ways, a clearing house acts as a third party to ensure buyers and sellers honour contracts.

  • Nullius in Verba

    “To be frank I have only the vaguest idea what a clearing house does.”

    There are a bunch of costs associated with exchanging money or ownership. Do you have the details of the other party correct? Is the person you’re trading with a real person or business? Do they have any money? Do they pay their bills? Is the trade legal (not stolen, laundered, immoral, etc.)? When they don’t pay, how much does it cost to track them down and take them to court? And if anybody can trade with anybody else, every transaction has to jump through a set of legal/accountancy hoops before it can go ahead, and that costs money. With n people in the market, there are n(n-1)/2 pairs of people, so costs go up with the square of the number of people.

    However, if everyone trades via a middleman, that middleman can check the bona fides of each potential trader just once. Just as all the traders only have to check the identity of the middleman once. Costs are proportional to n, not n squared, which is a huge improvement. Furthermore, the middleman can add up the transactions carried out by each trader over the course of the day, and then at the end of the day jump through all the remaining legal hoops just once to transfer the net total of all the day’s transactions, instead of having to process each transaction individually. Instead of tens of thousands of ‘real money’ transactions every day, there is just one.

    The transaction costs are shared and so the overheads are lower.

  • Natalie Solent (Essex)

    Thanks for the explanation – I have been busy recently and fell behind on my reading of Samizdata comment threads.

    This FT article was an example of how the quality press tends to report “Despite Brexit” stories: as boringly as possible. The facts were all there, but what I would have thought was the story – the reversal of policy – had to be spotted by the reader. While I am all for treating one’s readers as intelligent, they do not demand such alertness if a news story seems to point out a moral that they support.

  • Gary

    Pray tell, is this why the UK is creating 50,000 poorly trained and thus inept bureaucrats?

    The EU27 only need 25,000 customs officers for 27 nations, yet the UK needs 50,000 customs officers with next to no training.

    A colossal bureaucratic expansion of which the Vogons would be proud.

    Is this also why the government secretly bought land in Kent, Soviet Style, not informing the locals until yesterday?

    Why were people of Kent not informed they are being turned into a lorrypark?

    Was their competitive bidding for the construction contracts? If not, why not?

    This wasteful Kent facility only having capacity for a pathetic 4000 trucks, when capacity for 10,000 is needed. Is the government incapable of basic math?

    They are still 6000 short.

  • Nullius in Verba

    “Pray tell, is this why the UK is creating 50,000 poorly trained and thus inept bureaucrats?”

    To fill in the forms.

    80% of our trade is currently with the EU. As members of the EU, we don’t need to fill in customs forms for it (gross simplification). As non-members of the EU, we do. And if we move that 80% of trade to other countries, we still do because most other countries insist on it. (No borderless free-trade treaties in place yet!) That’s one of the main reasons 80% of our trade is currently with the EU.

    A report discussing the issue has been linked/discussed previously on here. It’s not exactly unexpected. We’ve known about it for quite a while.

  • Aetius

    Nullius in Verba, where did you get that statistic that 80% of UK foreign trade is with the EU?
    A quick search on Google gives figures of 43% of UK exports are to the EU and 51% of UK imports are from the EU.
    Of course, these figures don’t take in to account the Rotterdam effect, whereby trade between the UK and non-EU third countries passes through Rotterdam and hence is treated as EU trade.
    Also, these figures are only approximate, but they are in a completely different ballpark to your claims.

  • Nullius in Verba

    “Nullius in Verba, where did you get that statistic that 80% of UK foreign trade is with the EU?”

    Sorry. I think it’s 80% of transactions and hence customs declarations, not 80% of financial value. Apologies for the confusion.

    The Road Haulage Association has warned that the number of declaration forms for tariffs alone will rocket from the current 50m a year to 200-250m a year.

  • Mr Ecks

    Gary–don’t worry about lorry parks son–worry about the 150 million humans murdered by the scummy socialist creed you love and are trying–pathetically–to help. Worry about the millions more who will die if inhuman offal like you and your fellow believers get your way.

  • Sam P

    These time-limited access rights, doesn’t this require an agreement with the London clearinghouses to create such access rights, and can’t be done unilaterally?

  • John B

    Continentals use City of London because it is THE global financial centre, not because it was in the EU. In fact London was the financial centre of choice before UK joined the EEC.

    What the FT and Brussels are admitting, albeit, not openly is that excluding City of London will hurt Continental interests more than the other way round. There’s no other one-stop-shop.

  • APL

    “These time-limited access rights, ”

    The time limits will be limited to the duration necessary to lure all or any financial houses to Frankfurt, Luxembourg or Niece. Thereafter, pooof! They’re gone.

  • Arkus

    Surely if the EU wants access to UK clearing house markets, they’ll have to pay… perhaps £45 Billion would be appropriate.
    That’s how it works isn’t it?

  • Tim the Coder

    If the local grocer loses a customer, that’s a drop in business for the grocer, but no real problem.
    If the customer loses the only grocer within practical travelling distance, that’s a disaster for the customer.
    The City is the grocer, and the EU is the customer.

    The EU have just announced a €700bn bailout package, mostly funded by borrowing in the financial markets. In the same breath, they have realised they have blockaded their only grocer. Oops.
    No surprise there’s a climbdown.

    Question is: do we want their business? Is their credit good?
    What do we take as security? Aquitaine?

  • CaptDMO

    Brussels wants “access” to economic choke point of GB economics?
    Now you knowwhat to protect from the EU.

  • Paul Marks

    The financial system is a Credit Bubble joke – and “The City” has become a farce. As has every other major financial centre in the world – including even the Swiss.

    Money should be a commodity that is valued BEFORE and APART FROM its use as a medium of exchange.

    And money lending should be about REAL SAVINGS – not creating vast Fairy Castles of Credit in the air, held up by Moon Beams and Magic Pixie Dust.

    The young and strong among you will, hopefully, survive the terrible times that are coming and again see a sane financial and monetary order.

    Alas I am neither young or strong – but I give you all my best wishes as I depart the scene.

    Buy gold – physical gold. And let no one know you have it.

  • bobby b

    “Buy gold – physical gold.”

    Ammunition is better.

  • APL

    Paul Marks: “Buy gold – physical gold. And let no one know you have it.”

    If we go full ‘mad max’ every asset class will collapse because currently all asset classes are in a ‘bubble’. It has occurred to me to massively expand my borrowing about now. Why not? My creditors may well go out of business before they get to send the bailiffs around.

    bobby b: “Ammunition is better.”

    Have both.

Leave a Reply

You can use these HTML tags

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>