Goldman Sachs is activating contingency plans in case Britain crashes out of the EU without a deal. While Britain’s exit from the EU was still hanging in the balance, the US investment bank has applied in France for a stock trading hub to host its operations regulated under the MiFID II.
Pending regulatory approvals, Goldman Sachs would shift trading in shares of companies based in the bloc to its new Paris hub, called ‘SIGMA X Europe,’ if London loses its full access to the single market. UK shares would remain on its existing platform in London.
The new platform would operate as a private stock trading venue, or ‘dark pool’, which allows clients to buy or sell stocks using anonymous trading strategies. Goldman Sachs expects French regulators to greenlight its new venture prior to January 4, 2021.
“It’s critically important for us to have the capabilities in place for all our clients to respond to what we believe will be a changing of the liquidity landscape in Europe and the U.K. post-Brexit,” Elizabeth Martin, Global Co-head of futures and equities electronic trading at Goldman Sachs told Bloomberg.
Goldman Sachs has already started relocating hundreds of staff out of London before the Brexit deadline, as the bank’s European operations face a split should Britain leave the EU without a deal. Although the bank said no final decisions were made about how many staff would eventually move, it took extra office space in Frankfurt and Paris.
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Brexit May Cause Disruption in the Derivatives Market
The current transition deal allows cross-border financial services to continue uninterrupted only until the end of 2020. But, after UK leaders fail to have their divorce settlement passed, this would leave EU customers cut off from UK-based market operators if no contingency measures are set in place.
European investors were worried about being cut off from Britain’s financial markets because all the other financial centres in Europe are smaller in size. In turn, the UK’s financial services sector is struggling to find a way to preserve the existing flow of trading after the nation leaves the EU.
A previous agreement between the BOE and European Securities and Markets Authority (ESMA) also came as a relief to UK clearinghouses as they must decide whether to shift derivatives trades worth billions of euros from Britain.
Without such an arrangement, clearinghouses may not get regulatory approvals, leading to operational problems such as European banks facing much higher capital charges when they use it to process their trades.