CFTC Prepares For Hard Brexit With Contingency Plan

March 27, 2019 by Petar Markoski

A hard Brexit is still on the horizon for the UK and will affect many facets of life. The financial industry is going to be significantly impacted and trading activities are expected to take a major hit.

This is why the American regulatory body, the Commodity Futures Trading Commission (CFTC) has released a statement on how it plans to deal with uncleared swaps when Brexit hits.

Uncleared swaps when transferred keep their legacy status based on the Prudential Margin Rule or CFTC Margin Rule. If they leave the European Union, they technically need to pay out a margin price to the CFTC.

However, the CFTC is going to provide them an exception.

Bloomberg Markets and Finance

 

The CFTC has announced that uncleared swaps will not have to face any margin requirements from them as these swaps will continue to have the same status as before. This is possible because of an interim final rule which was approved earlier this week, allowing for uncleared swaps to retain its legacy status. However, this condition is only supposed to be in play if the UK leaves without a negotiated agreement. If a Brexit does happen and it is a soft one, then it will not come into play.

In a statement, J. Christopher Giancarlo, chairman of the CFTC, said

Consistent with actions already taken by U.S. prudential regulators, we are providing regulatory certainty regarding the transfer of uncleared legacy swaps to facilitate global swaps market participants’ needs in the event that the UK withdraws from the EU without a negotiated withdrawal agreement.

Less Uncertainty Over Brexit

This move should help reassure those who have been thinking of doing swaps during this time of uncertainty. Even if they transfer now, they do not have to worry about being hit by the CFTC’s margin regulation if a hard Brexit happens. There is still a risk that a soft Brexit can cause trouble but that is a lot less of a worry since it might be part of the negotiations.

This announcement shows how seriously US authorities are taking the issue of the UK withdrawing from the EU. They do not want to cause any uncertainties that will freeze trading or cause problems in the long run. The aim is to ensure financial stability and this move helps with that goal. It will also give confidence to traders, reassuring them that the regulators are on top of things.

This announcement follows another CFTC announcement that US traders and firms will be able to continue servicing the UK region no matter what the result of Brexit is.

Petar Markoski

Petar is the finance guru, if you need a good investment this is the guy you go to! Working majority of his days in the finance sector as trader, he has gathered plenty of insight on binary options and the forex markets

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