Row Over Brexit Harms Derivative Trading, French Watchdog Argues
Row Over Brexit Harms Derivative Trading, French Watchdog Argues
(Bloomberg) -- France’s top markets regulator said Brexit threatens to push derivatives away from Europe toward London and the U.S., calling for major changes to European rules to prevent an exodus.
With just six weeks until Britain leaves the European Union with or without a deal, Robert Ophele, chairman of France’s Autorite des Marches Financiers, used a speech in London to argue that the EU risks self-harm unless it gives firms more leeway to trade derivatives in the U.K. He joins British regulators in calling for a solution that keeps markets moving.
Under current Brexit plans, Europeans will be forced to trade derivatives on platforms based inside the region or an equivalent market -- even for assets such as sterling interest rate swaps, which are mostly traded in the U.K. If the EU continues to insist on this, and does not recognize the U.K. as equivalent, customers will simply relocate to more liquid markets, Ophele said.
“A too broad scope of trading obligation could penalize EU financial institutions and most of their clients,” Ophele said at an International Swaps and Derivatives Association conference. He suggested applying the rules only to euro-denominated instruments.
This issue is one of several outstanding questions facing the financial industry, with the solutions dependent on whether a Brexit deal can be struck before the Oct. 31 deadline. While the EU and U.K. have coordinated to ensure European banks can use London-based clearinghouses to settle trillions of dollars worth of derivatives under all forms of Brexit, they haven’t yet taken action to ensure the same type of access to trading platforms.
EU investment banks could also be forced to divert business out of their British branches, which would lose their ability to trading derivatives in the U.K. after Brexit, Ophele said. Without some allowances, these firms “will probably have no other option than to trade in the U.S.,” he said.
The European Commission, the EU’s executive arm, has said that financial stability is not at risk from these issues. The U.K. Financial Conduct Authority’s CEO Andrew Bailey said on Monday that the derivatives market is risking damage unless the U.K. and EU find a way to resolve the problem.
“Without action, EU firms may lose access to U.K. liquidity pools and liquidity would be fragmented, harming both markets,” Bailey said in a speech at Bloomberg’s London office.
To contact the reporter on this story: Silla Brush in London at sbrush@bloomberg.net
To contact the editors responsible for this story: Ambereen Choudhury at achoudhury@bloomberg.net, Marion Dakers
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