Realist, not conformist analysis of the latest financial, business and political news

The Chicken Coop


We love eggs but wouldn’t bother to keep chickens in order to get any. We prefer to buy them in the supermarket. But absent a market we’d have to keep those little cluckers in our back garden. Feed ‘em and keep the fox out. A bit of a nuisance really. What we want to do is get the eggs without having to keep the chickens—a bit like a derivative in a way. Get the outcome without the bother of having all the other stuff. Of course, eggs and derivatives aren’t quite the same thing. Drop an egg and it’s a mess. But drop a derivative and bang goes the pension pot, the little pile in dollars or whatever. Maybe it’s oil or coffee. Whatever. So we love the way derivatives move risk around. All those lovely derivatives and trades that allow the modern world to provide us with some of the little ol’ luxuries that we used to get back on the farm. Those lovely eggs. But without the clucking and muck, you understand.

Now there’s those out there who are absolutely convinced. Yes, absolutely, persuaded that come March 29 in the absence of any agreement at all, the UK will drown. In a huge flood of regret. It will be the end. Après la faute, le déluge, to paraphrase Madame De Pompadour a bit. But we think she was complaining about cake, not eggs. Nor was it to do with clockwork assassins. *

So why are we so chuffed today. No, it wasn’t go to work on an egg day. ** Well, it goes back to a little conversation about two years ago. Over an omelette of all things. A little chat about the future of ye olde City of London. And by this we mean that 21st Century financial powerhouse. You know that place that is the world’s largest financial centre for a good many things. Yeah, we know many think that’s appalling but as Tim would tell you—and all that—the UK has something of a comparative advantage in financial services. Yeah, those derivatives.

But back to that flood that we’re talking about—it was this. Our invitee was convinced that come Brexit the City would be toast. Suitable to have with an omelette; mais pas d’oeuf, as Jeanne Antoinette would say. We’re allowed to call Madame this, by the way.

It would be totally fin du monde and our Waterloo, though we did seem to think we won that—but we can get our history a bit wrong sometimes—as our whole City, those lovely domes of St Paul would do a Mortal Engines grand finale against Festung Europa. *** Those canny French and duplicitous Dutch and so on would steal, yes steal, all those financial transactions and derivatives that are lodged in the London clearinghouses. Calamite ! would scream Madame de Pompadour when one of her beautiful tresses was out of place. What she might think of derivatives makes one shudder. But then in her time, they weren’t derivative at all.

But this is what we hear today, courtesy of Bloomberg:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]EU Derivative Traders Get U.K. Clearing Access in No-Deal Brexit[/perfectpullquote]

And it has been announced to no little fanfare one must say. Note the direction of travel here folks. It isn’t about us allowing those Europeans access to the UK clearing systems. Not us allowing access, its allowing those folk in Festung Europa who were out to steal our derivatives access. Reading this is a bit like being at one of Jeanne’s morning levées. A real spectacle. And not an egg in sight. This is what they’re planning according to the Bloomberg report:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] The European Securities and Markets Authority said it will recognize clearinghouses run by the London Stock Exchange Group Plc, London Metal Exchange and Intercontinental Exchange Inc. if the U.K. leaves the EU without a withdrawal deal in place EU and U.K. regulators have previously taken steps toward the formal decision on Monday, including an agreement on sharing market data Clearinghouses are a key part of the financial system, accepting collateral from buyers and sellers to ensure a default on one side doesn’t spread panic through financial markets [/perfectpullquote]

So, it seems our derivative chickens will still be able to lay their derivative eggs and we can continue to sup with our friend and talk about the weather. But on no account are we allowed to point out that far from it teeming down, the sun’s out.

Now excuse me while we enjoy our omelettes.



* You’ve got to be a Doctor Who fan to understand this weird reference. See The Girl in the Fireplace episode

** An old advertisement by the UK Egg Marketing Board when it seems us Brits didn’t consume enough of them.

*** See the recent movie of same title for a future London on the go.

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