Efforts to Minimize Confusion for Businesses and Regulators
One Month Before Transition Period Ends... UK-EU Negotiations Still Underway
[Asia Economy Reporter Jeong Hyunjin] As Brexit negotiations between the United Kingdom and the European Union (EU) continue to flounder in uncertainty, companies and regulatory authorities are busy devising measures to minimize confusion. With just over a month left until the end of the transition period, they are even considering the extreme possibility of a financial services disruption due to a No Deal Brexit. Goldman Sachs has decided to conduct some of its financial transactions, previously carried out in London, in Paris, France starting January next year.
According to Bloomberg and other sources on the 24th (local time), Goldman Sachs announced that it submitted application documents to French regulatory authorities to establish a dark pool trading hub called "SigmaX Europe" in Paris. A dark pool is a trading method that allows large volumes of stocks to be traded anonymously over-the-counter. This move is based on the expectation that a significant portion of EU stock trading will disappear from London. If all goes according to plan, Goldman Sachs aims to open this hub on January 4th next year after receiving regulatory approval. Elizabeth Martin, Goldman Sachs’ Global Head of Futures and Equity Electronic Trading, stated, "We want our clients to continue accessing their assets without significant issues after Brexit."
Besides Goldman Sachs, other companies and regulatory authorities are also preparing for the end of the transition period. Segro, a UK real estate company listed on the FTSE 100 index, dual-listed all its equity capital on Euronext Paris, the Paris Stock Exchange, on the same day in preparation for the transition period’s end. European regulatory authorities also devised measures the day before to prevent confusion regarding derivative contracts worth 15 trillion pounds (approximately 22,190 trillion won) between both sides. The European Banking Authority (EBA), the European Securities and Markets Authority (ESMA), and the European Insurance and Occupational Pensions Authority (EIOPA) announced that banks and asset managers would be allowed to transfer existing derivatives held in London without being subject to new regulations.
The reason economic actors on both sides are preparing for the end of the transition period is that the UK and the EU have yet to finalize negotiations. Although talks are ongoing via video conference this week, significant differences remain on key issues including financial transactions, making it unlikely that meaningful results will emerge soon. In particular, the UK hopes the EU will treat its financial sector equally, but the EU has not provided a clear response. If this continues, UK banks will inevitably face additional procedures and costs in transactions with the EU.
Meanwhile, amid growing concerns over a No Deal Brexit, the UK government is reported to have obtained a confidential document forecasting that the country could face an "overall economic crisis" due to COVID-19, influenza, floods, and other factors, according to the daily newspaper The Guardian on the same day. The Guardian reported that a government report created last September warned of a significant risk of a "perfect storm" disaster occurring simultaneously within months.
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