EU Derivative Traders Get U.K. Clearing Access in No-Deal Brexit

(Bloomberg) -- Banks, money managers and other derivatives traders based in the European Union won formal approval to use U.K.-based clearinghouses in the event of a no-deal Brexit -- a rare show of unity between the two sides that will avert chaos in the cross-border markets.

Key Insights

  • 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
  • The decisions would take effect on the date following Brexit day under a no-deal scenario. The U.K. is scheduled to leave on March 29
  • ESMA said it is still working to recognize U.K. systems used to settle securities. Ireland has relied on a U.K.-based firm called Crest to settle trades since the 1990s.

Dig Deeper

  • The decision is part of increasing efforts by the EU and U.K. to protect financial stability ahead of Brexit, a rare area of agreement between the sides that are otherwise still struggling to secure a withdrawal deal that can make it through British parliament
  • The financial industry is pressing for more from both sides to ensure trading in stocks and derivatives can also continue uninterrupted.

©2019 Bloomberg L.P.

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