Deutsche bank has begun clearing a substantial part of new euro-denominated derivatives trades in Frankfurt instead of London according to sources. This is as a key Brexit battleground in financial services intensifies.
The change by the largest bank in Germany will help efforts to appeal to a large part of the euro clearing market from London as Britain prepares to leave the EU.
Moreover, the clearing house LCH based in London, a subsidiary of the London Stock Exchange Group, processes about 95% of euro-denominated interest rate derivatives.
The long-dated derivatives which the banks issue to customers, that take up a much larger part of the market, is being maintained by Deutsche Bank in London and cleared with LCH.
Following this, clearing makes sure that a transaction is completed, even if one party involved in the transaction goes bust.
The concern for the City of London is that if chunks of clearing move somewhere else, other activities such as jobs and trading could follow, which would eat away at Britain’s biggest economic sector.