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The chlorine dipped chicken of capital markets

I read Phil Stafford’s great article in the FT yesterday about the continued spat between the UK, Europe and the US over the fate of the vast Euro denominated swaps market in a post-Brexit world. The core issue here is all about where this stuff should be cleared but, yet again, common sense plays second fiddle to short-term economic self-interest and politics. Common sense should mean that clearing takes place wherever there is greatest efficiency for participants (aka offsets) and lowest systemic risk (aka centralisation of process, risk management and legal structure). But, since its failed merger with the LSE, Deutsche Boerse is beating the European drum in a bid to “repatriate” these contracts to help teach those pesky Brexiteers yet another lesson. The simple fact is, however, that there wasn’t really anything wrong with the status quo anyway and, with the introduction of CurveGlobal, further potential exists for greater efficiency and risk reduction. The US is weighing in too by making the valid point that it trades one or two of these contracts itself and doesn’t like the idea of open interest being split and damaging the fragile consensus emerging over mutual recognition between clearing houses.

Now, I know a lot less about chlorine dipped chicken, but at one level the situation seems exactly the same. At stake is a dispute over the best way to deliver low risk chicken at the most efficient price point to the dining room table. An acceptance of the status quo, however, has now been replaced with politicians slugging it out over which method is best as Brexit uncertainty allows all sorts of vested interests to stake their claims. The real worry in all this is that every industry’s issues just become part of an enormous, multi-dimensional Rubik’s cube. Worse still, negotiations will be conducted by politicians who have zero knowledge of the detail but rely instead on soundbites and appeals to emotional self-interest.

Maybe I’ll have fish for supper tonight. Oh but wait, what about the fishing quotas…

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