Brexit Said to Be Pushing Irish Stock Settlement Toward Brussels

(Bloomberg) -- Euronext NV, the owner of Ireland’s stock exchange, favors moving the settlement of Irish shares to Brussels after Brexit, according to briefings to industry.

Ireland -- the only European Union member without its own central securities depository -- has relied on a U.K.-based firm called Crest to settle trades since the 1990s and the dawn of electronic financial markets.

Once the U.K. leaves Europe’s single market, and after the accompanying loss of financial passporting rights, Crest probably won’t be able to continue providing that service, Euroclear, the giant CSD that runs Crest, has said.

While Irish securities and exchange-traded funds are settled in Crest, Irish government bonds are settled at Euroclear Bank in Brussels. Euroclear Bank plans to base the future stock-settlement arrangements on that existing operation, according to briefings to industry representatives in Dublin and the U.K. last month. Euronext has already indicated that the Belgian model has shown it can work in an Irish context.

The plan would be ready by the time the Brexit transition period finishes at the end of 2020, according to the briefings. In the meantime, Euroclear wants the current system to remain after March 2019 -- when the U.K. is due to leave the bloc -- via so-called grandfathering. That generally means exempting existing products or contracts from new laws.

Euronext needs its Irish regulator, the Central Bank of Ireland, and the European Securities and Markets Authority to approve any plan for how Irish stocks will be settled.

Extra Costs

The new arrangements wouldn’t involve any new jobs or an office in Ireland, according to the briefings. Market players could, however, face extra costs as establishing the new system would require co-investment from industry.

Euroclear could face competition in settling Irish stocks. Deutsche Boerse AG’s securities settlement arm, Clearstream, is also exploring setting up a CSD in Ireland, the Irish Times has reported.

“I would hope there would be some solution found -- the industry has been vocal in highlighting it with regulators as a major issue,” said Regina Breheny, chief executive officer of the Irish Association of Investment Managers. The dilemma facing Crest “is one of many unintended consequences to come out of Brexit, and as an industry we need to have a solution put in place.”

Even if Prime Minister Theresa May gets an exit deal on financial services, it may not be enough to allow U.K. firms to operate in the EU in the same way as they do now. While the European Commission has the power to allow British companies to operate under so-called equivalence rules, relaying on this to happen won’t provide enough certainty, Euroclear has said.

The Central Bank of Ireland declined to comment, as did spokesmen for ESMA and Euroclear.

Euronext “is engaging with the Irish authorities, market participants and other relevant stakeholders to ensure a viable long-term CSD solution for securities,” a spokeswoman for the company said.

--With assistance from Peter Flanagan.

To contact the reporters on this story: Dara Doyle in Dublin at ddoyle1@bloomberg.net;Will Hadfield in London at whadfield@bloomberg.net

To contact the editors responsible for this story: Vidya Root at vroot@bloomberg.net, Paul Armstrong, Josh Friedman

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