London Stock Exchange rolls out no-deal Brexit plans

The London Stock Exchange has started implementing contingency plans in case the UK crashes out of the EU without a transition deal.

The LSE said plans include creating new entities within the European Union, but also warned that the complexity of Brexit could make its actions less effective.

“The group is executing contingency plans to maintain continuity of market function and customer service in the event of a hard Brexit. These contingency plans include incorporation of new entities in the EU27 and applications for authorisation within the EU27 for certain group businesses,” the LSE told the City on Thursday.

“However, the complexity and the lack of clarity of the application of a hard Brexit may decrease the effectiveness, or applicability of some of these contingency plans.”

The LSE said last month that it had applied for several trading licences in Amsterdam for its Turquoise, TRADEcho and UnaVista platforms so they can continue to offer their services to EU customers after 29 March 2019.

Like “cliff edge”, except worse. No deal implies slamming the door on the article 50 divorce talks, which would make the prospect of a future FTA extremely remote. The chaos that would ensue is difficult to exaggerate. See our full Brexit phrasebook.

The group said on Thursday that Brexit negotiations between the UK and the EU continue “but the UK’s final exit terms are still unclear”. It noted that the government’s white paper released on 12 July, agreed at Chequers, focused on an enhanced equivalence model for financial services rather than passporting or mutual recognition, the preferred option for many City firms.

It added: “Although this provided further clarity around the UK’s negotiating position, there remain several issues to be resolved with the EU or risk a ‘no deal’ scenario.”

The EU has “equivalence” regimes which provide limited access for some non-EU countries to some areas of EU financial services markets. At present, banks and other financial firms based in London rely on an “EU passport” to operate freely across the EU’s financial markets.

David Warren, the LSE’s chief financial officer, said the debate was “very much in flux”.

He added: “Our focus is going to be on the continuity of services and what the customer wants. We need to ensure orderly markets … Fragmentation increases costs and systemic risk. Customers don’t want that. They want the existing benefits to be preserved.”

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This week it emerged that Deutsche Bank, Germany’s largest bank, has moved the clearing of a large chunk of euro-denominated derivatives trades from London to Frankfurt, in a boost to the LSE’s rival Deutsche Börse.

Warren declined to comment directly but insisted that the LSE’s LCH clearing house remained a global leader. “We have seen no discernible change in customer behaviour.”

The LSE reported a 30% rise in pretax profit to £480m for the first six months of the year, with double-digit revenue growth in LCH and its capital markets and information services divisions.

Former Goldman Sachs banker David Schwimmer became the group’s chief executive on Wednesday, replacing Xavier Rolet.


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