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changes in derivatives clearing. In the case of interest
rate swaps, he says, France has found that there are
many technical and liquidity problems involved in
creating new capability and transferring existing
positions.
“It’s not as easy as that to build from scratch. Listed
derivatives are a silo as they have to be cleared on the
spot,” Giannoccaro notes.
However, the economic rationale for euro-area
institutions offering derivatives clearing in the UK
will start to change. To be able to continue to offer
listed derivative clearing services in the UK, CACEIS
is obliged to study the creation of a new funded unit
in the UK, for which there is little or no economic or
industrial rationale.
This would mean more systems and personnel would
be requried, and the risk for the industry as a whole
is that costs for the client will increase. “Access to
the UK market will become more expensive. There
is a risk that clients will decide to invest elsewhere,”
explains Giannoccaro.
Philip Forkan head of derivatives, clearing and
collateral management at WSNGC, a consultancy for
banks and brokers, agrees that Brexit uncertainty has
created concerns about bottlenecks and the time to get
things done. The one-year equivalence agreement, he
says, “gives more of a window” and will help to ensure
that the cliff edge is avoided.
“UK-domiciled funds are currently experiencing
outflows which are going into Euros and Dollars
instead. The need for portfolio rebalancing means that
the uncertainty is leading to an increase in derivatives
volumes,” Forkan says.
However, Forkan doesn’t anticipate that Brexit will
lead to market disruption. “Derivatives markets are
quite robust,” he says, but what the markets need is
“certainty and clarity – even if it’s not good news.”
He does predict a long-term process of fragmenta-
tion which could become self-reinforcing: “Clearing
will be more regionally than centrally-based. Once
fragmentation starts, it becomes easier to break down
existing positions,” Forkan adds. Many countries, such
as the US for example, may want to claw back clearing
in their own currencies. US institutions such as ICE,
he says, are “looking at this very intently.”
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inated swaps by the end of 2019.
This is no secret to UK-based com-
petitors, with the chief executive
of LCH, Daniel Maguire, telling the
UK House of Lords in mid-Febru-
ary that the uncertainty caused by
Brexit was handing the advantage
“Derivatives markets are quite
robust but what the markets need
is certainty and clarity – even if it’s
not good news.”
PHILIP FORKAN, HEAD OF DERIVATIVES, CLEARING
AND COLLATERAL MANAGEMENT, WSNGC
to overseas CCPS, in particular
German institutions.
It remains difficult to say exactly
when and if Eurex’s target will
be reached, says Matthias Grau-
lich, a member of Eurex Clearing
executive board. “There is nothing
natural about a year-end when a
new market is being built.”
However, Graulich explains the
euro-denominated swaps business
is progressing well, and Eurex now
has a market share of 11%. January
was a record month with average
daily volumes of about ¤140 billion,
compared with ¤50 billion in 2018.
Long-dated swaps also saw their
Behaviour changes
One company that hopes to benefit from Brexit is
Eurex, the derivatives exchange owned by Deutsche
Börse. Eurex has targeted a 25% share of euro-denom-
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