Britain wins ECB case

Britain scored a rare victory in its bid to challenge European Union powers over the City of London as EU judges sided with the UK in a clash with the European Central Bank on clearinghouses.

The EU General Court in Luxembourg ruled yesterday that the ECB lacks legal powers to dictate the location of the clearing of euro-denominated trades. It said the central bank would require a change in EU law to win those rights.

“This is a major win for Britain and a major win for all those who want to see a European economy that is both open and successful,” said George Osborne, the UK’s chancellor of the exchequer.

The ruling is a timely boost for Mr Osborne and Prime Minister David Cameron ahead of May’s general election.

It ends a losing streak in EU court cases over who governs the nation’s financial hub, including a fight over bonus rules for bankers and shortselling.

“The ECB lacks the competence necessary to regulate the activity of securities clearing systems as its competence is limited to payment systems alone,” the court said.

The decision concerns the ECB’s policy requiring clearinghouses handling euro-denominated trades to be located in the 19-nation currency bloc, which the UK argued could see a fragmentation of clearing along currency lines. The ruling can be appealed to the European Court of Justice.

The ECB said in a statement it will carefully study the judgment before deciding “on the way forward”.

The ECB and the Bank of England “will continue to seek a co-ordinated and shared approach for achieving the common objective of financial stability and the smooth functioning of financial-market infrastructures,” it said.

The ECB told the EU court in a hearing in July that its oversight requires “day-to-day monitoring,” which it can’t guarantee outside the euro area.

Clearinghouses such as LCH.Clearnet, majority owned by the London Stock Exchangec, and Deutsche Boerse’s Eurex Clearing operate as central counterparties for trades. Traders post collateral, reducing the risk that a defaulting trader would trigger a succession of further defaults.

“On the face of it, it looks like a positive verdict,” said Daniel Maguire, global head of SwapClear, LCH.Clearnet’s clearinghouse for interest-rate swaps. He added the LSE’s lawyers are still analysing the ruling.