Brexit equivalence rift triggers swaps swap out of London

Brexit equivalence rift triggers swaps swap out of London

Britain’s departure from the EU is creating a deepening rift in London’s interest rate derivatives market, as traders send more of their deals to New York and Amsterdam.In the first quarter of this year, trades worth a notional £2.3tn in dollar, sterling and euro swaps contracts were redirected from the UK to legally compliant trading venues in America and Europe, according to data released by IHS Markit.The swaps market — where deals worth more than $6.5tn a day are struck — is often used by investors to hedge against moves in interest rates and currencies. But it has been fractured since the end of the Brexit transition period in January created a stand-off between London and Brussels, raising costs for the banks at the heart of the market.British and EU regulators insist that the banks and brokers they oversee must trade the most active, standardised swaps contracts on marketplaces in their own jurisdiction, or in countries that have been passed as having an “equivalent” standard.

After Brexit, however, politicians on both sides have wanted to bolster their financial services industries, so neither regulator has legally recognised the trading venues in each other’s market — even though their rules are virtually identical.

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