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City 1 – ECB 0

In a keenly-awaited judgement, the European Court of Justice has ruled that the ECB does not have authority under EU law to oversee CCPs that clear euro-denominated trades. The General Court held that:

“The ECB lacks the competence necessary to regulate the activity of securities clearing systems as its competence is limited to payment systems alone by Article 127(2) of the FEU Treaty.”

The ECB’s argument that its oversight of payment systems necessarily extended to securities clearing infrastructure was soundly rejected. Such oversight will now require the EC to amend Article 22 with explicit reference to CCPs. Given possible negative implications for the EU “passporting” system and the difficulty in extending such oversight to US CCPs, it is unlikely that the EC will move to amend.

The case was brought by the UK in a challenge to an ECB policy that EUR CCPs must be based within the single currency area. A ruling in favour of the ECB would have required  large London-based clearers such as LCH, ICE and CME to relocate. OTC statistics from CCPView highlight that effectively all euro-denominated clearing currently takes place outside the single currency zone.

The full text of the judgement may be found here.

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