Clearing standoff: US able to stand on its own in defence of trading ambition

By Rebekah Tunstead | 6 November 2018

The EU's softening in relation to clearing is typical brinksmanship of the commission, following its usual run book of international negotiations, says Mark Woolfenden, managing director of Euromoney TRADEDATA.

“The clear facts of exchange trade analysis of the top five US exchanges, showed a significant amount of trade volume emanates from the EU economic area, so both sides of the pond would have been materially affected by any trade sanctions, the US from valuable trade flow, and the EU from vastly reduced choices to place risk mitigation trades,” says Woolfenden.

“The parallel story of significant trade flow between Germany and the UK still appears to be glossed over in Brexit talks, where Germany's interests would most likely be in conflict with its EU peers, but is outgunned, whereas the US is able to stand as one (it's own) voice in defence of its trading ambitions.”

Woolfenden’s statements come after the European Commission’s decision to allow EU firms temporary access to UK clearing houses, even if the country leaves the Union without a deal in place. For Woolfenden, however, the US position is of equal if not greater importance.

“The imposition of US sanctions on EU banks posed by [Chairman of the US Commodity Futures Trading Commission (CFTC)] Christopher Giancarlo at the FIA Expo in Chicago, in response to the EU's third country implication for the US post Brexit, was no idle threat and there was a palpable feeling in the room at the time,” says Woolfenden.

Giancarlo warned that: “The CFTC cannot and will not allow its regulated markets and market participants to become subject to conflicting or overly burdensome regulation from abroad.”

The European Securities and Markets Authority (Esma) published its first report on the EU derivatives market this October. The report stated that the European derivatives markets as a whole increased in size during 2017, increasing from €605trn to €660trn by Q4 2017.

The report states that “the geography of the EU derivatives markets shows that the majority of the market in terms of counterparties is domiciled in the UK.”

President and CEO of the FIA, Walt Lukken, stated the industry body’s approval of the Commission’s decision but continued that there were still many issues to be settled.

“However, other issues remain to be resolved, particularly in regard to continued access to other financial market infrastructures, such as trading venues and trade repositories, for which similar reassurance is required. We look forward to further clarification of EU contingency plans in the event of a no-deal Brexit, both at pan-European and national levels,” Lukken said.

Woolfenden says Brexit is both a blessing and an opportunity for data vendors.

“It’s an opportunity in the sense that where there exists multiple different requirements for legislation which drive different data elements, that’s something we do very well.

“The transaction volumes and volatility when that occurs, that in a sense, is good for the marketplace. Stability doesn’t give rise to too many opportunities.”

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