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ECB and BoE Reach CCP Liquidity Agreement After UK Court Victory

The European Central Bank (ECB) and the Bank of England (BoE) have agreed a joint arrangement to end the UK’s legal action against the ECB regarding euro-denominated business handled by UK-based CCPs.

It follows the judgement on 4 March by the General Court of the EU which ruled against the ECB after the UK argued that the requirement to clear euro-denominated payments in the Eurozone broke single market rules.

As a result, the UK government has agreed to drop the outstanding two cases also raised against the ECB over the issue.

“The ECB and the BoE have agreed enhanced arrangements for information exchange and cooperation regarding UK CCPs with significant euro-denominated business,” the central banks say in a joint statement.

They add that this involves extending the scope of their standing swap line in order, “should it be necessary and without pre-committing to the provision of liquidity”, to facilitate the provision of multi-currency liquidity support by both central banks to CCPs established in the UK and euro area respectively.

But CCP liquidity risk management remains first and foremost the responsibility of the CCPs themselves, the central banks state.

The ECB had argued that London-based clearing houses would not be eligible for ECB support if they ran into trouble.

Yet in its judgement, the EU General Court “[annulled] the Eurosystem Oversight Policy Framework published by the ECB in so far as it sets a requirement for CCPs involved in the clearing of securities to be located within the eurozone”.

nicola@profit-loss.com Twitter: @ntavendale

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