US-UK reach deal to safeguard derivatives market

US and UK agree to protect lucrative derivatives markets in the event of no-deal Brexit, this adds to UK deal with EU on derivates agreed in the previous week.

Commodity price board
Financial regulation authorities in London and Washington have agreed "a bridge over Brexit" to enable derivatives trading and clearing between Britain and America to continue as normal after the UK leaves the European Union.

Derivative trading and clearing between US and UK to continue as normal after Brexit

The deal - described by the Bank of England as a major boost for the City of London - will hold good whatever happens after Brexit, currently scheduled for March 29.Announcement of the deal came just a week after EU regulators gave derivatives traders in the bloc the crucial go-ahead to continue routing trades to the City's biggest clearing houses in a no-deal Brexit scenario.The US-UK deal to protect the multi-trillion dollar market was struck after negotiations between the US Commodity Futures Trading Commission (CFTC), the Bank of England and UK's Financial Conduct Authority (FCA) to ensure financial stability after Brexit."The deal includes UK equivalence for the US, which will allow US trading venues, firms and CCPs (central counter-party clearing houses)  to continue providing services in the UK and for UK firms to access those services," reported City AM."Existing regulatory relief granted to EU firms by the CFTC will be granted UK firms as soon as Britain leaves the EU, regardless of the outcome of the Brexit negotiations."J. Christopher Giancarlo, chairman of the CFTC, said, “London is and will remain, a global centre for derivatives trading and clearing.

Measures will keep important markets resilient through Brexit

“These important measures provide a bridge over Brexit through a durable regulatory framework upon which the thriving derivatives market between the United States and the United Kingdom may continue and endure.”Mark Carney, governor of the Bank of England, added, “As host of some of the world’s largest and most sophisticated derivative markets, the US and UK have special responsibilities to keep their markets resilient, efficient and open.“Market participants can be confident that the clearing and trading of derivatives between the UK and US will maintain the high standards of today when the UK leaves the EU."The deal means that City banks and clearing houses will be free to provide services to US clients as they do today, under existing EU rules. This continuity could protect a massively important part of London’s financial sector, as it braces for Brexit disruption.

In the event of no deal regulators guarantee to measures that will protect international derivatives trading with UK

Andrew Bailey, chief executive of the FCA, said, “We have worked closely with the CFTC and other UK authorities on these measures to ensure continuity and stability for consumers, investors and other market participants, regardless of the outcome of the UK’s withdrawal from the EU.“Cooperation with our international partners has always been an important part of our work, and it will remain so after Brexit. This partnership will support our day-to-day supervisory activities and rule-making, as well as encouraging open markets and the development of rigorous global standards, by ensuring that wherever firms operate, they are regulated on a consistent basis.”The UK-US have also put in place information-sharing and cooperation arrangements to support effective cross-border oversight of the derivatives markets and participants.Last week, to the relief of banks and clearing houses throughout Europe, the European Securities and Markets Authority (ESMA) said that, in the event of a no-deal Brexit, it would give immediate, formal recognition to clearing houses controlled by the London Stock Exchange, Intercontinental Exchange, and Hong Kong Exchanges and Clearing’s London Metal Exchange. The ESMA said it would sit between trillions of dollars of trades to guarantee their completion in the event that one side defaults.The Paris-based regulator said the move would “limit the risk of disruption in central clearing and to avoid any negative impact on the financial stability of the EU” and followed an announcement by the European Commission in December 2018 that it would grant clearing houses conditional equivalence for 12 months to prevent disruption in the event of a no-deal Brexit.Esma is still working through the process required to provide the UK's central securities depository — Euroclear UK and Ireland — with recognition.
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