Reshaping derivatives trading in Europe

With G20 agreement in 2009, standardised derivatives transactions are
required to move to central clearing counterparties (CCPs) that stand between
trading parties. What is more, not cleared trades will be subject to higher capital
requirements.

In line with the G-20 reforms, central clearing services have been
offered not only in Europe but also on other regions such as in Asia. Indeed, five
of the G-20 countries are located in Asia, and in addition Hong Kong and
Singapore have voluntarily signed up to the G20 commitments.

Of the currently operating CCPs for interest rate and foreign exchange (FX) derivatives six and
two are located in Europe respectively. Meanwhile seven of the CCPs for
interest rate derivatives and four of the CCPs for FX derivatives are located in
Asian financial hubs. Moreover, a large number of CCPs located in Asia are
authorised by the US and EU authorities to clear trades for US and EU
counterparties. This implies that US and European banks will be able to tap
CCPs located in Asia to clear their positions for Asian trades.

These have important implications for European derivatives markets such that Europe might
gain some market share from Brexit, but still lose to Asia.