Europe to recognise LCH, ICE & LME as CCPs in ‘no-deal’ Brexit

ESMA has been making plans to prepare for a ‘no-deal’ scenario ahead of Brexit, with disruption to clearing being one of the biggest concerns. 

UK clearinghouses LCH, ICE Clear Europe and LME Clear have been granted approval to continue providing clearing services in Europe in the case of a ‘no-deal’ Brexit, Europe’s financial regulator has confirmed.

The European Securities and Markets Authority (ESMA) said in a statement this week that all three firms will be recognised as central counterparties (CCPs) in the region, should the UK leave the European Union without a deal in place on 29 March.

LCH, LME & ICE submitted applications for equivalence with ESMA late last year in preparation for a ‘no-deal’ Brexit, shortly after the European Commission granted an equivalence period to non-EU clearinghouses as a ‘no-deal’ scenario grows in likelihood. 

The European Commission said that it will adopt a temporary and conditional equivalence decision, stressing that the contingency measures will be temporary in nature and should, in principle, not go beyond the end of 2019. The move means that there would be no disruption to trillions of Euros of cross-border derivatives trades.

“We are pleased to receive this recognition, which means that ICE Clear Europe can continue to service all its clearing members and customers, including those based in the EU, in the event of the UK leaving the European Union without a withdrawal agreement,” said Finbarr Hutcheson, president of ICE Clear Europe. “We thank the European Commission, Bank of England, and ESMA for its work securing this recognition and, in doing so, removing any uncertainty around the ability of EU-based market participants to access ICE Clear Europe.”

ESMA added that having assessed the applications submitted by the three CCPs, LCH, ICE & LME met the conditions for third-party recognition under EMIR, which would take effect on the day after Brexit if there is no-deal. 

The European financial watchdog has been carefully preparing for a ‘no-deal’ scenario over the past months, most recently confirming that vital MiFID II calculations would be suspended in the event.

Quarterly calculations for the systematic internaliser (SI) regime for equity instruments and bonds, quarterly data on the liquidity status of bonds, and the monthly double volume caps (DVCs) will be suspended for a period of two months after Brexit in the case of a no-deal, ESMA said.