Brexit Runs Risk of Increasing Clearing Costs, Fragmentation for Industry

The clearing status quo looks to be shaken up in Europe, as Brexit could trigger increased costs.
Photo: Bloomberg

London’s role as the paramount leader of clearing euro derivatives could be in jeopardy as the country grapples with Brexit negotiations – the country’s schism with the EU could also likely see a changing of the guard, with venues such as Euronext poised to win over new business.

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Euronext is one of many exchanges eagerly watching Brexit negotiations. As a key exchange and player in Europe, the group hawkishly sees an opportunity as Brexit finally materializes, namely as London may have its dominance as the unquestioned financial hub in Europe undermined, according to a Bloomberg report.

This tone was echoed by Euronext NV’s CEO Stephane Boujnah, who portended additional costs and fragmentation of the financial industry as a result of the UK’s divide with the EU. The sentiment is one of the first vocal examples from another European exchange – up until now, European lenders have been primarily in the spotlight, forced to field questions on cuts, allocation of labor, and operations.

Euronext currently operates markets across the EU, in such cities as Amsterdam, Brussels, Lisbon and Paris. Any dimming of London’s star in terms of its dominance in Europe could create a selection of new opportunities for the company and others to possibly win new business.

Double-Edged Sword

Not all companies and observers are as eager for such an end however, as UK officials also see the risks of a shift in clearing out of London, suggesting that the process could be potentially damaging and destabilizing. Additionally, Yves Mersch, the European Central Bank Executive Board member, warned that a transition to a new clearing landscape could raise operational challenges, also increasing clearing costs.

Stéphane Boujnah

According to Mr. Boujnah in a statement on the shakeup: “There will be consequences associated in financial markets to Brexit, and those consequences will probably be much stronger and go much deeper than anticipated or than many people would like it to be.”

“Clearly, there is no way leaders in charge of financial stability within the euro zone are going to accept a situation where decisions taken outside the euro zone can have impact within the euro zone on issues that are as fundamental as clearing,” he added.

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