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What happens now ?
Following the UK ’ s official exit from the EU single market , regulators on both sides of the Channel appear to be splitting on post-trade regulations . What are the potential consequences for this on the post-trade industry , asks Joe Parsons .
When the UK and EU announced their lastminute post-Brexit agreement and there was little to no mention of financial services , the eventual divergence on trading regulation was inevitable . Early signs of the UK ’ s split from EU regulations came last year when the Treasury announced it would not implement the Settlement Discipline Regime ( SDR ), set out under the Central Securities Depository Regulation ( CSDR ). UK Ministers are now reportedly planning to overhaul MiFID II , the EU ’ s main financial services legislation , as it looks to hold onto its place as a global financial centre . Changes could include scrapping the share trading obligation , which forced ¤ 8 billion a day of EUdenominated stocks out of London and mainly to Amsterdam . With the UK and EU to set out separate paths on financial regulation , Global Custodian takes a look at the
“ With trading volumes moving around between venues , post-trade services must now offer much more price flexibility and more variable cost , which will act as a further stimulus to mutualisation .”
implications this will have on the post-trade landscape and the potential unintended consequences that could arise for firms .
A battle for clearing The battle to win euro-denominated derivatives clearing activity , a business worth some $ 660 trillion , is one of the fiercest between UK and EU regulators . Currently , London is the home to derivatives clearing , with most of the activity going through LCH . Despite moves from Eurex , the Frankfurt-based
SAMIR PANDIRI , PRESIDENT , BROADRIDGE INTERNATIONAL
exchange group , LCH has maintained its hold of the market . A temporary 18-month equivalence for UK clearing houses was enacted in September last year , enabling LCH to continue providing euro-denominated clearing services from January 2021 to June 2022 . However , tensions are heating up between regulators , and it appears equivalence will not be extended beyond 2022 . In February , the Bank of England ’ s Andrew Bailey warned over a “ serious escalation ” in relations with the UK
40 Global Custodian Spring 2021