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A ruling that raises a number of disturbing questions

  • The European Court of Justice threw out a stipulation by the ECB that central counterparties clearing euro-denominated derivatives be based inside the eurozone;
  • the court argued that the existing treaty provisions only affect payment systems, and do not relate to securities clearance;
  • says that if the ECB wanted this power, it would either need to get the treaty amended, or get the Council to confer on the ECB the right to supervise CCPs - both requiring unanimity;
  • the decision constitutes a huge victory for the UK, and an incentive for the UK to stay within the EU;
  • the ECB's main legal argument was that it would not be able to provide sufficient liquidity in case of a failure of a CCP outside the eurozone;
  • the Bank of England said the problem can be addressed through swap lines between central banks;
  • the case raises a number of disturbing issues for the eurozone - specifically, for example, what happens if the swap lines fail too, or whether the ECB should now officially renounce its lender-of-last-resort capacity because of this ruling;

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