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UK must speak up to preserve global markets role after Brexit: ICE CEO
June 6, 2017 / 8:30 AM / 3 months ago

UK must speak up to preserve global markets role after Brexit: ICE CEO

FILE PHOTO: Photo illustration of Euro banknotes at a bank in Seoul, South Korea, June 18, 2012. REUTERS/Lee Jae-Won/Illustration/File Photo

LONDON (Reuters) - Britain must show its support for markets with measures such as keeping taxes low if it wants to remain a top global financial center after Brexit, Intercontinental Exchange (ICE.N) Chairman and Chief Executive Jeff Sprecher said on Tuesday.

He said he did not expect exchanges to be at the top of the UK government’s priority list in Brexit negotiations, but these businesses had been identified by other countries as being important for capital markets and job creation.

It is unclear whether disruption to cross-border customer links can be avoided after Brexit, leaving banks, insurers, asset managers and exchanges based in London to consider new EU bases.

“To a certain extent, the UK has taken our presence here for granted,” he told an IDX derivatives conference, and urged Britain’s government to show its support, such as by maintaining low tax and stable legal regimes.

Markets were based in London because of stable regulation, taxes and predictable law, but it was not clear if this would continue in future, Sprecher said.

Sprecher, whose company operates a derivatives exchange in London, said he was asked by France, Germany and the Netherlands if he wanted to build up a base on the continent after Britain leaves the European Union in 2019.

Rival U.S. exchange CME (CME.O) is closing its UK-based trading platform and clearing house due to poor customer demand, though it continues to offer U.S.-based products in Europe.

Sprecher said the CME’s decision was a “canary in the coalmine” that showed no exchange needed to be physically based in Britain.

CME Group President Bryan Durkin said no UK government official had called him after the decision was announced. Government policy can impact not just where markets are based, but their “vibrancy and efficiency” as well, Durkin said.

EURO CLEARING

The EU’s executive European Commission is due this month to set out how and where euro denominated derivatives should be cleared after Brexit.

The bulk of clearing is currently done in London by a London Stock Exchange (LSE.L) unit.

The Futures Industry Association (FIA) said forcing a change in location would fragment markets and bump up costs. The amount of margin, or cash banks post in case a derivatives trade defaults, could nearly double from $83 billion to $160 billion, FIA Chief Executive Walt Lukken told the IDX conference.

“It’s important that we allow market forces to determine the appropriate location for euro clearing,” Lukken said.

Nevertheless, exchanges are quietly preparing for any shift in clearing, with ICE already getting its existing Dutch clearer ready.

“Brexit is going to fragment markets and will change the competitive landscape. We may see the hand of God move clients to different jurisdictions,” Sprecher said.

“It feels pretty good right now in the face of Brexit to have continental European presence that is ready to accept business.”

Rival Eurex Clearing (DB1Gn.DE) in Frankfurt has also said it was ready to accept volumes from London.

Finbarr Hutcheson, president of ICE’s benchmark unit, said if the EU forced a shift in euro clearing, the United States could retaliate by requiring dollar denominated clearing to be based in America.

The Chicago Board Options Exchange (CBOE) has bought Bats, Europe’s biggest cross-border stock exchange, based in London.

CBOE Chief Executive Ed Tilly said Brexit was an opportunity and he would decide in the second half of the year whether to open a second European base inside the EU27.

Reporting by Huw Jones, editing by Louise Heavens and Susan Thomas

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