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Baffled Credit Traders Call Their Lawyers as Brexit Clouds Swaps 

July 15, 2016

Kate Linsell, BloombergMarkets

The U.K.’s decision to leave the European Union is unnerving participants in the $12 trillion credit derivatives market.

Investors are concerned that British banks may become unable to trade credit-default swaps with EU counterparties, that U.K. clearinghouses may have to stop processing euro-denominated contracts and that collateral linked to the nation may be ineligible, according to law firms and banks. 

While the International Swaps & Derivatives Association has said it will work with dealers and investors to ensure the market functions safely, advisers are struggling to predict the impact of Britain’s exit from the 28-nation bloc before a deal is reached. The issue is one of a host of challenges that face U.K. Prime Minister Theresa May as she seeks to negotiate a new trading relationship with Europe.

“A lot will depend on the precise terms of the exit agreement that’s reached,” said Jonathan Haines, a partner at law firm Ashurst LLP in London. “We’ve had questions from banks seeking to understand the impact on them trading derivatives.” Read more

 

 
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