BREXIT means problems for clearing houses
AMA models make no sense
CCP resolution causes disputes in EU
COMMENTARY: Papers, please
The aftershocks of last month's Brexit vote continued this week. Politically, the UK is in chaos, with both main parties effectively leaderless; and across the financial sector, banks and regulators are trying to salvage enough from the continuing uncertainty to preserve operations, as exchange rates and property funds continue to suffer.
The spotlight this week was on passporting – it is still unclear whether the UK will remain in the EU single market. Some traders are considering moving commodity operations out of London to guard against the risk of losing their valued EU "passport" rights, and the potential upheaval is also leading banks around the world to revisit their booking models, with more planning hubs in Asia.
The initial shock of the news has also led many banks to reassess their business models – interest rate swap rates collapsed, leading to a sudden drought in the structured deposit product market. The drop in sterling led the UK Financial Conduct Authority (FCA) to check prop traders' capital levels and treasurers around the world got an idea of the effects of planned changes in rules affecting the treatment of sovereign bonds for regulatory capital.
But there were signs of hope as well – the FCA confirmed it would stay involved in an EU data aggregation project underpinning implementation of the Markets in Financial Instruments Directive, whatever the eventual outcome of the Brexit debate.
STAT OF THE WEEK
The Federal Reserve estimates $100 billion in positions would have to be unwound due to single counterparty credit limits, primarily in the form of bilateral derivatives trades between globally systemically important banks
QUOTE OF THE WEEK
"There could be a doubling of the workload for the cleared derivatives industry in Europe as a result of Brexit because of all these regulations. It is conceivable and indeed likely that over time the UK's position will diverge from Europe and diverge from the US. For companies engaged in cross-border activity, the patchwork of regulation will be more complex." Simon Puleston Jones, head of Europe at the FIA
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The week on Risk.net, August 4–10Receive this by email