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Vedder Thinking | Articles Juan Arciniegas and Sam Tyfield Author “Brexit But Not Broken: US & UK Efforts in Continuity for Global Derivatives Markets” in The Investment Lawyer


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Chicago Shareholder Juan Arciniegas and London Partner Sam Tyfield published the article, “Brexit But Not Broken: US & UK Efforts in Continuity for Global Derivatives Markets” in the May issue of The Investment Lawyer. The article discusses ongoing efforts to reach agreement on the details of recognition by the European Union (EU) of UK-based trading venues in the event of the UK’s exit from the EU, especially as it would affect global derivatives markets. In the article, Arciniegas and Tyfield convincingly assert that “If ‘fortress Europe’ becomes a reality, the EU’s financial markets will become isolated—protected from overseas competition but isolated ….”

The article opens by reporting on a February 25, 2019 joint press conference held by Commodities Futures Trading Commission (CFTC) Chairman Christopher Giancarlo, the Governor of the Bank of England, and the head of the UK’s Financial Conduct Authority. The authors state that during the press conference, Chairman Giancarlo gave a “mea culpa and apologia” for his previously expressed views that were considered by many as an over-expansive assertion of the CFTC’s jurisdiction on swaps by US traders and other jurisdictions already committed to implementing G-20 swaps reforms. The authors detail Chairman Giancarlo’s newly proposed principles for CFTC regulation of overseas swaps, and they state that this renewed position by the CFTC “was a clear plea to his counterparts in the EU for a pragmatic approach to recognition of UK clearinghouses after Brexit.”

The recent statements by Chairman Giancarlo, the authors state, raise a number of questions relating to the lack of recognition by the EU of UK-based trading venues. Arciniegas and Tyfield discuss a March 7, 2019 Public Statement by the pan-European financial services regulator, ESMA, in which EMSA indicated that it found no evidence “that market participants will not be able to continue meeting their obligations under the trading obligations for derivatives in the case of a no-deal Brexit ….” The authors go on to question EMSA’s position: “Does ESMA believe that it needs to take no action to protect market and contract continuity in relation to the trading obligation in a ‘no-deal’ Brexit?”

The article looks for guidance from the historical relationship between the EU and Switzerland of “mutual recognition of rules,” and asks how the EU would be able deny similar recognition to the UK post-Brexit. Although the authors note the growing importance of Asian markets and participants, they do not specifically discuss the effect of the Asian market on the possible “no-deal Brexit.”

In the article, the authors argue that a “myopic view” toward global markets by the EU could ultimately be bad for the EU, bad for the US and UK, and bad for derivatives markets globally. “A ‘no-deal’ Brexit will be a catastrophe in many ways for the UK and the EU and may precipitate a recession and years of economic and political uncertainty,” Arciniegas and Tyfield conclude.

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Juan M. Arciniegas