Discord between the eurozone's three largest countries is stalling the European Central Bank's efforts to come up with a way to force euro clearing out of London and put it under its watch, three sources told Reuters.

Currently UK clearing houses, particularly the London Stock Exchange's LCH.Clearnet, guarantee the vast majority of the trillions of euros worth of trades conducted every year and their location will likely be a point of contention in divorce talks between Britain and the European Union.

The ECB and the central banks of the eurozone's three largest countries – Germany, France and Italy – agree euro clearing needs to move to the euro zone after Brexit but they diverge on who should supervise it, the sources close to the matter said.

The ECB has effectively proposed taking over supervision of the largest clearing houses but national authorities want to have prerogative, as they do currently, the sources added.

"The question is who would supervise, the ECB or the national central banks," one of the sources said. "There is a risk now that we won't be able to agree on a proposal and the (European) Commission will decide for us."

The disagreement risks delaying the European Union's timetable for making a legislative proposal in June on euro clearing after Brexit. Alternatively, it could force the European Commission to make a proposal without ECB input.

The ECB, as the guardian of the euro, currently sits on 'supervisory colleges' overseeing London-based clearing houses through EU regulation and agreements with the Bank of England.

But it is afraid of losing its power over these firms, which clear more than 90 per cent of all euro derivatives.

This includes ensuring they are managed safely and being able to supply them with euros if they run out of cash.

Asked by the European Commission, the ECB's executive board has drafted a proposal for putting euro clearing under the direct supervision of the Eurosystem, which is comprised of the ECB and the eurozone's 19 other central banks, the sources said. The proposal, however, contained no preference for any particular location.

The issue will be discussed again at the ECB's next non-monetary policy meeting on June 21, one source added, warning this may mean missing the Commission's June deadline and risking that Brussels makes an alternative proposal. (Reuters)