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EU watchdog holds fire on derivatives action in no-deal Brexit

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EU watchdog holds fire on derivatives action in no-deal Brexit
The financial district can be seen as a person runs in the sunshine on London's south bank, Britain February 23, 2019. REUTERS/Henry Nicholls   -   Copyright  HENRY NICHOLLS(Reuters)
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By Huw Jones

LONDON (Reuters) – The European Union’s markets watchdog has ruled out the need for measures to avoid disruption in cross-border derivatives trading if Britain leaves the bloc this month without a deal.

Derivatives contracts are bought by companies to insure themselves against unexpected moves in borrowing costs or currencies and many of them must be traded on an exchange to ensure adequate transparency for regulators.

Most of the trading takes place on platforms in London, which risks being cut off from EU customers if Britain leaves the bloc on March 29 with no transition deal.

The European Securities and Markets Authority (ESMA) said in a statement on Thursday that most of the trading platforms in London are opening hubs in the EU, where they plan to offer the same range of contracts like fixed-to-float interest rate swaps and credit default swap indices.

“In addition, there are already trading venues in the EU27 offering trading in derivatives subject to the trading obligation,” ESMA said.

The bloc’s executive European Commission has so far not offered “equivalence” to British trading platforms, a reference to the system Brussels uses to grant market access to foreign financial firms.

ESMA does not have, at this point in time, any evidence that market participants will not be able to continue meeting their obligations under the trading obligation for derivatives in case of a no-deal Brexit,” ESMA said.

ESMA will continue to monitor closely how trading volumes on platforms in the EU develop after Brexit.

London’s biggest derivatives platform, ICE Europe has no alternative platform in the EU27 for many of its contracts.

The EU has said it would allow EU customers to continue clearing their derivatives trades in London for a year if there is no Brexit deal.

Share trading platforms in London have asked Brussels to grant them equivalence in the event of a no-deal Brexit, though several of them are opening hubs in Amsterdam and Paris to provide an alternative.

(Reporting by Huw Jones; editing by Emelia Sithole-Matarise)

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