Derivatives Market Faces Challenges on Brexit, EU Regulator Says

(Bloomberg) — The European Union’s top markets regulator delivered a fresh warning that big European banks will face difficulties trading derivatives when they are locked out of London’s dominant trading platforms at the end of the Brexit transition this month.

Steven Maijoor, chair of the Paris-based European Securities and Markets Authority, said in an interview Thursday that the London offices of EU firms are headed into a “conflict of law” between the U.K. and Europe, affecting swaps on benchmark interest rates and credit defaults.

Steven Maijoor wearing a suit and tie: European Securities and Markets Authority Chairman Steven Maijoor Interview

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European Securities and Markets Authority Chairman Steven Maijoor Interview

Steven Maijoor


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Photographer: Marlene Awaad/Bloomberg

“There are challenges for the U.K. branches of EU investment firms,” Maijoor said. “There are clearly costs as a result of Brexit. There will be frictions as a result of the end of the withdrawal period.”

He said the conflicts are for the European Commission, the EU’s executive arm in Brussels, to address if it wishes. The clash threatens to reshape the EU market for derivatives, which moved nearly 48 trillion euros ($58 trillion) worth of over-the-counter swaps through trading venues in the fourth quarter of 2019, according to ESMA data.

Read more on how equivalence is key to post-Brexit banking

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The stand-off between the U.K. and EU means firms will be forced to carry out trades in their own region, or a recognized “equivalent” jurisdiction such as New York.

Maijoor’s comments came a day after the head of the French markets regulator, Autorite des Marches Financiers, said that as much as 70% of trading volume in EU banks’ London offices could be either lost or moved to U.S.-based trading platforms.

The ESMA chair suggested business would shift into the bloc following Britain’s departure.

“I think it’s very difficult to assess the size and the scale, but you would expect that as a result of both the share trading obligation and the derivatives trading obligation that there will be some trading moving from the U.K. to the EU,” said Maijoor.

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