LONDON (Reuters) - The European Union’s move to allow EU firms temporary access to UK clearing houses after Brexit should give the London Metal Exchange time to secure approval for its operations, LME Chief Executive Matt Chamberlain said.
The European Securities and Markets Authority (ESMA) said earlier this year the exchange may not be able to submit an application to become a recognized third country clearing house until after Britain leaves the European Union.
This would mean six members in European Economic Area (EEA) countries would not be able to access LME Clear.
Earlier this week the EU Commission said it will allow companies in the EU bloc to temporarily use clearing services in the UK, even after a no-deal Brexit.
Chamberlain said he was grateful for the Commission’s decision to take a practical approach to the situation.
“This temporary transition period bridges us between being a EU clearing house and being able to get third country recognition,” Chamberlain told the Reuters Commodities Summit.
“Logically, the period would be long enough, but we need to see the detail,” he added.
However, he said that until there was a legally binding document on the table, it was still important that the LME, owned by Hong Kong Exchanges and Clearing Ltd. (0388.HK), and its members had contingency plans.
Such plans could include affected members either moving their business to a UK subsidiary or becoming a client of a UK member of LME Clear.
London-based members with a large chunk of their business in Europe could deal with clients via an EU subsidiary but pass contracts to the London office, something which is allowed under EU regulation for contracts within a company.
Trading recognition in countries such as Germany, France, Netherlands and Ireland is also important for the LME, which has been speaking to regulators in those countries.
“We don’t have any members in Ireland at the moment, but it’s a popular destination for people to set up,” Chamberlain said. “We’ve submitted the necessary documentation, we are confident we will get the necessary trading permissions.”
The exchange also needs the ESMA to classify LME contracts as exchange traded derivatives so they can be used EU members.
“At the very worst they would be recognized as over-the-counter (OTC) derivatives by European counterparties,” Chamberlain said. “That would have some effect in terms of the amount of capital you have to hold and reporting obligations.”
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Reporting by Pratima Desai and Veronica Brown; Editing by Kirsten Donovan