Huw Jones

LONDON (Reuters), The London Metal Exchange advised European customers to prepare contingency plans for the event that the European Union blocks their ability to clear houses in Britain.

After cutting ties last December with the EU, Britain has been granted so-called temporary equivalence’ access. The LME and clearinghouses run by the London Stock Exchange or ICE (NYSE) will continue to serve customers on the continent through June 30, 2022.

“Given we have been warned of the situation, we must take prompt steps to minimize the possible implications and make sure that alternatives can be implemented in good timing,” said the LME in a memo published on its website.

LME, which trades in and clears metals, stated that it would collaborate closely with members to facilitate the clearing of or closing of positions.

There are options, according to the LME: You can resign from the LME or trade and clear contracts through another exchange member.

Derivatives traders are increasingly concerned about disruptions that a lack of EU access could cause for metals, credit default swaps and interest rates contracts valued at trillions of euro. They want to get clarity from Brussels quickly.

EU pressure on banks not to transfer clearing operations from London to Frankfurt is having little impact. However, the regulators in the bloc have assessed whether this move should be required.

LME isn’t part of this assessment but it will be. The end of Equivalence means that the LME would too be cut off the bloc. This would leave no other products available for those who want to hedge metal purchases.

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According to industry officials, the EU is expected to extend Britain’s temporary visa, although there are no high-volume interest rates or credit default swaps for euros. This means that clearing will have to take place in the EU over a transitional period.

According to a top EU banking official, who has knowledge of the industry negotiations with the bloc, “That is exactly what I expect”

The official stated that doing nothing in spite of the small shift in clearing would be detrimental to EU credibility.

According to a spokesperson for the European Commission, the main goal is to reduce “excessive dependence” on the market infrastructure of the bloc in order create an open, robust and resilient EU financial sector.

The spokesperson stated that the objective was not to take or move business out of London, but to create our infrastructures.