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EU watchdog proposes derivatives repair in case of no-deal Brexit

LONDON (Reuters) – The European Union’s markets watchdog has proposed a short lived repair to keep away from uncleared derivatives contracts value trillions of euros being disrupted if there’s a no-deal Brexit subsequent March.

FILE PHOTO:Protesters collaborating in an anti-Brexit demonstration march sit on the base of Nelson’s Column, in Trafalgar Square, in central London, Britain October 20, 2018. REUTERS/Henry Nicholls

The European Securities and Markets Authority (ESMA) stated the modifications it was proposing would give banks one yr to “repaper” or shift their uncleared, over-the-counter derivatives positions from London to the EU.

Such strikes wouldn’t set off the requirement to clear these contracts. Counterparties can start taking steps to shift contracts – which requires permission from the end-customer – however make any motion conditional on a no-deal departure, ESMA stated.

The repair falls in need of the “grandfathering” that business has referred to as for, whereby EU regulators would enable contracts spanning years to run to maturity even when Britain left the bloc and not using a deal.

ESMA stated a common grandfathering was not applicable and, given the urgency of the matter, it might not be holding a public session on its proposals.

It stated EU regulators have been contemplating an identical method for moving derivatives contracts with out triggering a requirement to submit collateral.

The Bank of England final month referred to as on the EU to urgently take care of potential disruption to cross-border uncleared contracts value a notional 30 trillion kilos, with 18 trillion maturing after Brexit.

Britain and the EU are aiming to safe a divorce settlement that features a business-as-usual transition interval from subsequent March to the top of 2020.

“The proposed regulatory change supports counterparties’ Brexit preparations and maintains a level playing field between EU counterparties, while addressing potential risks to orderly markets and financial stability,” Steven Maijoor, ESMA chair, stated in an announcement on Thursday.

ISDA, a global derivatives business physique, stated the “helpful” step from ESMA would cut back one important problem, however there have been different huge hurdles to transferring so many contracts.

“We remain concerned both about the ability to expedite transfers and the inability of EU27 clients to effect lifecycle events on derivatives contracts with a UK counterparty, as of Brexit day,” stated Roger Cogan, head of European public coverage at ISDA.

The modifications outlined on Thursday would require the sign-off of the EU’s government, the European Commission.

Reporting by Huw Jones; Editing by Kevin Liffey and John Stonestreet

Our Standards:The Thomson Reuters Trust Principles.

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