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'Brexit' uncertainty poses 'substantial' market impact -U.S. regulator

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By Reuters
'Brexit' uncertainty poses 'substantial' market impact -U.S. regulator
FILE PHOTO: Commodity Futures Trading Commission (CFTC) Chairman Christopher Giancarlo discusses financial regulation in Washington, U.S., October 3, 2017. REUTERS/Joshua Roberts/File Photo   -   Copyright  JOSHUA ROBERTS(Reuters)

By Michelle Price

WASHINGTON (Reuters) – The U.S. derivatives regulator warned Thursday that uncertainty over Britain’s exit from the European Union is having a “substantial” impact on some U.S. entities and markets.

The Commodity Futures Trading Commission said the ongoing uncertainty about a Brexit outcome could create instability in the global derivatives market. In a statement, CFTC Chairman Christopher Giancarlo urged the EU and Britain to settle terms “in a manner that provides sufficient legal and regulatory certainty” to markets.

Britain has agreed on a deal to leave the EU, but political analysts say there is a strong chance it could be rejected by the British Parliament when put to a vote next week. Concerns over a no-deal Brexit have already hammered the pound and could cause dislocation in global markets, regulators and business leaders have warned.

The CFTC is the primary regulator of the U.S. derivatives market, which is the world’s largest and is deeply interconnected with markets in Europe, Asia and other regions. The regulator is worried that changes to the terms of cross border EU-UK derivatives rules resulting from Britain leaving the EU could have ripple effects in the global market, since UK clearing houses also operate in the United States and Asia.

In particular, the EU has said it will still allow EU trades to be pushed through UK clearing houses after Brexit, even if Britain is not able to reach a final deal that would establish cross-border financial rules. But on Thursday, Giancarlo said the EU needed to provide greater clarity on the details of that arrangement, including which products would be included and how long the arrangement would last.

“This additional clarity and certainty are necessary to limit substantial operational and market risks that will result from the sudden transfer of potentially trillions of euros in swap exposures in the remaining weeks before a possible no-deal Brexit,” he added.

(Reporting by Michelle Price; Editing by Chizu Nomiyama and Dan Grebler)