The U.K. and U.S. sought to allay fears of disruption in the multi-trillion-dollar derivatives market, vowing to put in place emergency policies to ensure trading continues uninterrupted in the event of a no-deal Brexit.

The heads of the Bank of England (BOE), Financial Conduct Authority (FCA), and U.S. Commodity Futures Trading Commission (CFTC) promised a seamless transition after the U.K. leaves the European Union (EU), whatever form the separation takes. The agencies' moves would help traders use many key exchanges and clearinghouses, including those run by the London Stock Exchange Group Plc., CME Group Inc., and Intercontinental Exchange Inc.

The authorities said they would carry over existing agreements struck between the EU and the U.S. because those will no longer cover the U.K.'s relationship with America post-Brexit. Without an arrangement in place, trillions of dollars in swaps, futures, and other derivatives could be thrown into question at the world's biggest banks and money managers.

“As host of some of the world's largest and most sophisticated derivative markets, the U.S. and U.K. have special responsibilities to keep their markets resilient, efficient, and open,” Mark Carney, governor of the BOE, said in a statement on Monday.

CFTC Chairman Christopher Giancarlo told reporters that “London is, and London will remain, a key global center for derivatives trading and clearing for a long time to come.” What the U.K. capital does for trading and clearing “cannot be readily replicated in any other financial center.”

With about a month before the U.K. leaves, the risks of a no-deal Brexit are looming large as U.K. Prime Minister Theresa May struggles to win concessions from the EU that will help her get the withdrawal deal through Parliament. The prospect of the U.K. crashing out is forcing authorities in the 27 remaining EU member states to hurry up and enact last-minute legislation to prevent ruptures in trade, immigration and investment.

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EU-wide authorities and the U.K., meanwhile, have taken steps to guard against a rupture in the derivatives-clearing industry in Europe. The financial industry is asking Brussels for additional help to allow EU money managers to trade blue-chip stocks on London-based exchanges.

Subsidiaries of Bloomberg LP, the parent of Bloomberg News, operate a swap-execution facility and a multilateral trading facility.

The regulators said they are taking the following steps to support the derivatives market:

  • The BOE, FCA, and CFTC are updating supervisory co-operation agreements
  • CFTC intends that existing regulatory relief granted by the U.S. to EU firms will be extended to U.K. firms at the point of the U.K.'s withdrawal
  • U.K. authorities have confirmed that U.S. trading venues, firms, and clearinghouses will continue to be able to provide services in the U.K.

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