News roundup: ECB eyes changes to euro clearing supervision; banks turn their attention to Frankfurt
FINANCIAL TIMES SPECIAL REPORT ON BREXIT AND LUXEMBOURG
A new series of articles published by the Financial Times delves deeper into the potential gains that Brexit can deliver for Luxembourg, a small country of 570,000 residents where roughly 1 in every 30 individuals works in financial services. See the full series of articles here. For more information, please also see my May 2017 report on the effects of Brexit on Europe’s financial services industry, which includes special coverage on Luxembourg, Frankfurt, Paris, and other select cities.
MORE FINANCE FIRMS LOCK SIGHTS ON FRANKFURT AND OTHER EUROPEAN CITIES
US-based investment bank Morgan Stanley is nearing a decision to establish its new European hub in Frankfurt, according to Steven Arons and Gavin Finch of Bloomberg. While the bank will retain some jobs in London, it is relocating securities trading activities to Frankfurt and its asset management business to Dublin. Goldman Sachs is planning a similar shift to Frankfurt, according to Tino Andresen of Bloomberg, with plans currently in place to double its current Frankfurt-based staff of 200, with the potential to add as many as 1,000 workers in the German city as it works to ensure continued access to European clients. Neil Callanan and Jack Sidders of Bloomberg report that JP Morgan Chase is also making new investments, including a new $139 million office building in Dublin, which could host upwards of 1,000 employees, and is eyeing property in Amsterdam as well.
KEY DEVELOPMENTS IN EURO-DENOMINATED CLEARING
June 18, 2017 — Jonathan Ford of the Financial Times (UK) reported that the European Commission has proposed “some form of joint supervision,” in which clearinghouses based in the United Kingdom can continue to clear euro-denominated securities and derivatives, albeit with the caveat that “systemically important” central counterparties such as LCH Clearnet and ICE, which handle such financial instruments as interest rate and equity derivatives and credit default swaps, to agree to parallel supervision by British financial regulators and their EU counterparts.
June 22, 2017 — Hayley McDowell of The Trade (UK) wrote that French markets regulator Autorité des Marchés Financiers “has called for reforms to the governance and central role of the [European Securities and Markets Authority],” including a central role in the “directive supervision of … central counterparties.”
June 23, 2017 — Alessandro Speciale of Bloomberg (US) has reported that the European Central Bank is actively seeking an amendment to its authorizing legislation that would expand its mandate to include “clear legal competence” over extra-EU clearinghouses handling euro-denominated transactions. According to the Bank of International Settlements, “about 75 percent of trading in euro-denominated interest-rate swaps takes place in Britain.”
Mobile money services are becoming increasingly popular around the world, ranging from East Africa’s M-PESA to popular smartphone apps like Venmo in the United States. This infographic takes a deeper look at the percentage of young adults aged 15 to 34 in European countries that reported making payments via mobile phone in 2014.
Interactive infographic coming soon; in the meantime, please view at this link.
The attached document, originally submitted in May 2017 as my Master’s thesis upon the conclusion of my Master of Arts in International Relations (concentrations in European regional studies and international economics), provides an in-depth assessment of the regulatory framework that has allowed financial services firms in London to access the European Union’s single market, as well as the changes that could come with Brexit and the possible results for competing European financial centers.
Since the euro’s introduction in 1999, over 75 percent of foreign debts have been denominated in euros and US dollars, echoing the dual-currency system of the first half of the twentieth century, when the dollar and the British pound sterling were the key currencies in international finance.
With the euro seen as a stabilizing factor for regional economies, many nations have pegged their national currencies to the euro, maintaining a fixed exchange rate. Bulgaria, Denmark, Croatia, and more than a dozen mostly-francophone West and Central African countries have pegged their currencies to the euro. Such was the case for Switzerland until January 2015, when the Swiss National Bank suddenly scrapped the Swiss franc’s peg to the euro in an effort to preempt the European Central Bank’s planned €60 billion-per-month quantitative easing program.
In two bold firsts, Switzerland is issuing ten-year bonds with a negative 0.05 yield, while Mexico has introduced a new 100-year bond denominated in euros with a 4.2 percent yield. With a yield far higher than any comparable eurozone-issued bonds, Mexico’s bond, initially launched at EUR1.5 billion, could see purchasers collectively earn EUR63 million on their investments in 2115.