Britain and US reach deal over derivatives market

The US and UK have struck a deal to ensure the continuity of derivatives trading after Brexit, providing relief for the multitrillion-dollar industry.

The Banks of England said the agreement, struck with the US Commodity Futures Trading Commission (CFTC), ensures regulatory certainty in the two countries, whatever the outcome of Brexit.

It comes after the EU regulator – the European Securities and Markets Authority – said earlier this month that it would allow UK clearing houses LCH, ICE Clear Europe and LME Clear to continue to provide services to firms based in the bloc in the event that Britain crashes out without a deal.

Bank Governor Mark Carney said: “Derivatives can seem far removed from the everyday concerns of households and businesses, but they are essential for everyone to save and invest with confidence.

“As hosts of the world’s largest and most sophisticated derivative markets, the US and UK have special responsibilities to keep their markets resilient, efficient and open.

“The measures we are announcing today will do that. Market participants can be confident that the clearing and trading of derivatives between the UK and US will maintain the high standards of today when the UK leaves the EU.”

Mr Carney said the US and the UK host the largest derivatives markets in the world as 80% of the world’s over-the-counter interest rate derivatives are written in the UK or in the US, each representing around 1.2 trillion of notional value every day.

Parliament remains in deadlock over Brexit having rejected Prime Minister Theresa May’s Withdrawal Agreement, with just over a month to go until Britain’s scheduled departure from the EU on March 29.

Christopher Giancarlo, chairman of the CFTC, said London is, and will remain, a global centre for derivatives trading and clearing.

He said the measures announced provide a “bridge over Brexit through a durable regulatory framework upon which the thriving derivatives market between the United Kingdom and the United States may continue and endure”.

“What happens in global derivatives markets has a material impact for the man and the woman on the Clapham omnibus, the Santa Monica freeway or the Tokyo subway, by influencing the price and availability of heating in homes, the interest rate that borrowers pay on home mortgages and the returns that workers earn on their retirement savings.

“That’s why this announcement is so important, not just to regulators and traders here in the City but for the high streets of Britain and the main streets of America,” Mr Giancarlo said.

He added that other US regulatory authorities, including the US Treasury and the Federal Reserve, are also preparing for Brexit and are working with their British counterparts.