On 23 June 2016, the British citizens voted that the country should leave the European Union. On 29 March 2017, the United Kingdom notified in a letter to the European Council its intention to leave the European Union. With this notification, Article 50 of the EU treaty was applied for the first time. Since the announcement, negotiations have been underway on the terms of the separation of the EU and the UK, as well as on the future relationship between the two parties. The final date for the withdrawal from the EU has not yet been set.

Consequences

The European Union and UK financial markets are strongly interlinked. The UK financial market currently acts as a wholesale hub for other EU financial centres and accounts for almost 80 percent of the EU activity in financial market segments.¹⁾

Although EU law will continue to apply to the UK during the ongoing negotiation phase, it is currently uncertain which regulatory conditions will apply to participants in the financial markets after Brexit. The uncertainty among market participants will remain until the conditions under which the UK will leave the EU become certain. UK-based financial firms will likely lose their existing EU passporting rights to conduct business with EU 27-based clients, if no transitional provisions are agreed between the UK and the EU that would maintain these rights after Brexit.

Third-country rules, incorporated in EU financial regulations (e.g. MiFID II/MiFIR, EMIR, CSDR), are designed to provide access for non-EU firms to EU financial markets. However, third-country rules are not an equivalent substitute to the EU passport.

Following Brexit and during a possible transition phase, it is important that the EU remains competitive internationally while upholding financial stability. Therefore, deregulation (“race to the bottom”) and regulatory arbitrage (“cherry picking”) must be avoided.

We stand by our customers as a strong partner during the Brexit transition process

At the same time, we provide support to customers who plan to relocate their business to the EU. We have set up a Brexit Transition Team to meet these needs and to ensure Brexit member readiness. In preparation, we also launched the Brexit Readiness project, which ensures Deutsche Börse Group’s access to the UK market. To this end, we are in close contact with the responsible authorities in order to obtain the required authorisations for our various business areas.

With the Partnership Program of the central counterparty (CCP) Eurex Clearing, Deutsche Börse Group has developed a market-led alternative to the clearing of interest rate swaps within the EU. The programme was designed in close cooperation with market participants (such as trading firms, end customers and trading platforms). It has already expanded to cover the repo segment and will cover other products in the future.

Eurex Clearing and its customers share both the programme’s economic success and the governance of the CCP. They thereby bear joint responsibility for building a liquid market.

^{1) According to the FESE European Equity Market Report 2016 around 54 per cent of the European equity trading was executed in UK. The UK handles 77 per cent of euro-denominated derivatives transactions, according to the Bank for International Settlements data on over-the-counter trades. Around 78 per cent of European FX trading, 74 per cent of European interest rate derivatives trading and 50 per cent of European fund management activities (by assets) take place in the UK.}

Video: Being constructive in times of uncertainty. The Deutsche Börse and the Brexit challenges.

Brexit: the highlighted parts of the value chain are affected