|
We have contributed to a joint report with Deloitte (available
here) entitled "European
capital markets: The regulatory considerations for banks as they
move beyond Brexit" which contains highlights of the below
analysis. However, for completeness we are providing the full
analysis below. First, to recap why there was so much interest, the transitional
period ended on 31 December with no relief for European Union (EU)
firms on the derivatives trading obligation (DTO) from the European
Commission (EC) and only limited adjustments from the United
Kingdom (UK). Despite largely identical rules, no equivalence was
granted between jurisdictions. This left many firms with
conflicting and incompatible DTOs in the EU and the UK and no
apparent option other than to trade the relevant derivatives on a
US Swap Execution Facility (SEF), or in Singapore. US firms
remained subject to the CFTC's Made Available to Trade (MAT)
requirements. Current position: This means that EU, UK and US firms can access global on-venue
liquidity but, UK firms cannot access EU venues (except in some
special cases where temporary relief is available) and EU firms
cannot access UK venues. This has created some specific
challenges: Since our last analysis, the EU-UK Memorandum of Understanding
(MoU) establishes a framework for voluntary regulatory cooperation
in financial services. The MoU will launch a Joint UK-EU Financial
Regulatory Forum, which will serve as a platform to facilitate
dialogue on financial services issues. However, the impact of the
MoU should not be overstated. Although an important step in
ensuring an effective EU-UK relationship around financial services,
it is simply an administrative agreement to have regular exchanges
of information. However, in itself, it does not bring forward any
changes in regulatory arrangements such as equivalence for the DTO.
The CFTC also granted No action relief through letter number 21-09
dated April 7, 2021 which provide relief for U.S. swap dealers
(SDs) from certain transaction-level requirements for certain swaps
between their foreign branches and non-U.S. persons (by adding the
UK to the existing relief, six become seven). IHS Markit has assessed the Q1 2021 data processed by IHS
Markit's MarkitWire platform to assess the impact of Brexit on
single currency interest rate swaps (IRS)[i] trading for the three currencies
subject to the DTO in the EU and the UK and the MAT requirements in
the US, analysing market share in EUR, GBP, and USD swaps: all, on
venue, dealer-to-dealer, dealer-client, a proxy for DTO/MAT and
non-DTO/MAT, cleared as well as total volumes and notional traded.
EUR: All SwapsHow did Q1 2021 compare to the prior 6
months?
EUR swaps