A visitor passes a sign in the lobby of the European Securities and Markets Authority’s (ESMA) headquarters in Paris, France. (Photographer: Balint Porneczi/Bloomberg )

Brexit Derivatives Maelstrom Averted With EU Access to London

(Bloomberg) -- One major Brexit headache has now been solved officially: European Union derivatives traders will still be able to settle trillions of dollars of trades in London, even if the U.K. quits the bloc without a withdrawal deal in place.

The Paris-based European Securities and Markets Authority on Monday confirmed that firms in the 27 remaining EU member states can continue to use London’s clearinghouses in a no-deal Brexit scenario. The move is a rare moment of agreement as talks remain deadlocked with less than six weeks to go before the U.K. is set to leave on March 29.

ESMA’s decision will ensure EU firms’ access to clearinghouses operated by London Stock Exchange Group Plc, Intercontinental Exchange Inc. and the London Metal Exchange. The three are among the world’s dominant firms settling trades for interest-rate swaps and derivatives tied to commodities. U.K. and EU regulators said the move is needed to guard against a rupture in markets that could threaten financial stability.

“This is a very positive and welcome step, removing the remaining element of uncertainty relating to EU27 clearing member access to U.K. clearing houses,” said Michael Voisin, global head of capital markets at Linklaters, the law firm.

The access extensions would apply for a year. In the event of a no-deal Brexit, recognition of the clearinghouses would apply the day after the U.K. leaves the EU. ESMA said it’s considering issuing a similar decision with regards to U.K. firms used to settle securities, such as Crest, which Ireland has relied on since the 1990s.

EU and U.K. regulators are still putting plans in place to deal with fallout on financial markets, with authorities across the bloc weighing legislation to further cushion the blow. Meanwhile, the financial industry is calling for European regulators to grant similar access to U.K. equity- and derivatives- trading venues, and for further steps to ensure that data can flow uninterrupted between the U.K. and EU.

“This is increasingly urgent as our political uncertainty continues and the prospect of a no-deal exit grows,” Catherine McGuinness, policy chair at the City of London Corporation, said in a statement.

©2019 Bloomberg L.P.