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certain level of cross currency netting to go on and that would break down as well .” To obtain the remaining threequarters of total euro-denominated derivatives activity , Bailey said the EU could potentially “ force or cajole banks and dealers to say there will be some other penalty unless you move this clearing activity into the EU .” This , he warned , would create “ a very serious escalation of the issue ” and was something that the UK should “ resist very firmly .”
Activity has not yet shifted from the UK , as banks await clarity on what is to come . “ The situation is unclear on what will develop after June 2022 , and we have clear messages from the Commission to move euro-denominated contracts / products to EU-located CCPs . The industry has pressure from EC to work closely on operational solutions to migrate euro business , using EU27 CCPs ,” says Haroun Boucheta , head of regulatory affairs , BNP Paribas Securities Services .
Similar to the EU clearing rules , securities settlement activity must take place through an EU central securities depository ( CSD ). Most EU securities are settled with either local depositories or through the international CSD model by Euroclear Bank and Clearstream Banking .
The Irish settlement question However , the one area of major contention has been with Irish-issued securities and exchange traded funds ( ETFs ). Ireland does not have its
“ We think liquidity at settlement level will split for UK instruments and for EU instruments , which was something not foreseen when T2S was launched when there was an idea for an integration of CSDs to settle different kind of instruments .”
HAROUN BOUCHETA , HEAD OF REGULATORY AFFAIRS , BNP PARIBAS SECURITIES SERVICES
42 Global Custodian Spring 2021