Droves of new rules twinned with seemingly unending political uncertainty are deterring both debt and equity issuers from listing in Europe, instead gravitating towards Asia or New York. High yield, medium term note programmes and IPOs are especially affected as first-time issuers opt for the path of least resistance
Buyside firms must now consider currency, interest and general market exposures under the new capital requirements regime, as well as setting aside funds for various Brexit scenarios. Many smaller firms are only now performing gap analysis on the new regime, which applies to a large number of companies that will soon no longer be part of the EU
Issuers and bankers voice their concerns about how to apply overnight indices to a forward-looking trade in the same way as Libor. One short-term solution has been to include fallback language in documentation similar to that used in politically risky deals, but there's still significant work to be done. Time is running out
The recently agreed Brexit transitional agreement has caused everyone to relax on CCP relocation despite nothing being set in stone. If pressure isn't consistently applied and euro clearing is forced to move, trades will be more expensive in terms of risk-weighted assets, plus the capital required to support the business would be around 50 times higher.
The debate on clearing plans post-Brexit is heating up on both sides of the Atlantic, but relocating CCPs to New York as implied by the House of Lords will come with additional due diligence checks and various other legal implications. Either way, here UK banks and investment firms explain that the EU is ignoring the real shape of the market, with around 55% made up of US dollars
In-house sources explain how they're looking to avoid managing two separate liquidity pools post-Brexit as a lack of third-country equivalence under CRR and CDR IV looks likely. According to Afme, they'd need to rebook roughly €1.28 billion of assets from the UK to a EU member state if no deal is agreed.
