Sibos 2017 Toronto

Brexit will accelerate evolution of Capital Markets Union (CMU)

09 October 2017

According to the latest survey conducted by SIX Securities Services, over half of organisations (53%) questioned believe plans for a Capital Markets Union (“CMU”) will speed up in the wake of Brexit.

The question as to whether euro-clearing will remain in London after Brexit has been at the centre of Brexit negotiations since the vote to leave Europe was cast in 2016. Aside from the question mark hovering over this issue, new research from SIX Securities Services reveals that financial organisations appear to have broader concerns.

Over half of financial organisations across Europe (53%) believe that CMU will evolve faster due to Brexit, and 4 in 10 organisations think that it will provide a solution to collateral availability within two years. Buy-side organisations are more optimistic than the sell-side – 53% of buy-side respondents believe this development will solve the problem of limited available high-quality collateral ‘fairly soon’, while 70% of sell-side respondents think that such a solution will not present itself in the short term. One reason as to why the CMU is being viewed as a possible solution to this problem is that it will enable the European Commission to distribute corporate debt into the markets, much like the US model, thereby alleviating collateral demand pressure.

Respondents were also questioned as to whether they are preparing to shift a portion of their trading, clearing and collateral back into their respective currency zones post Brexit. Of the 45% of organisations that said they are, they envisage moving over half of their activities (53%). Larger organisations, with assets of over $100 billion under management, are most likely to move activity (61%), whereas only 38% of organisations with assets of under $50 billion are planning to move some trading activity.

According to Thomas Zeeb, Division CEO, SIX Securities Services, “I believe the principles and intent behind CMU make good economic and commercial sense longer term for the EU. As to whether Brexit will actually accelerate CMU, on this point I’m less convinced. Capital will move to a location where the market can best make use of it quickly and efficiently.  In this regard, I don’t see the EU as the only option.

“Global firms will also evaluate other locations based on their specific business models, including potentially New York, Singapore or even Switzerland. There appear to be increasing strains on EU unity, and I think that both the UK and EU should be deeply concerned about this. The movement of specific functions such as trading out of the UK is to my mind potentially misleading.  Financial services is now such a global business that I think the location of the delivery of services will be based on where the best and most qualified people can be found.  This know-how and these resources cannot be replicated that easily elsewhere.”

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