LONDON (Reuters) - The London Metal Exchange’s clearing house may not be immediately allowed to provide services for members in European Economic Area (EEA) countries after Britain leaves the European Union, the exchange said on its website.
European Securities and Markets Authority recently advised that the exchange may not be able to submit an application to become a recognized third country clearing house until after Brexit, the LME said.
“Therefore LME Clear may be prohibited from having EEA-incorporated clearing members from 11 pm on 29 March 2019 until such time as it becomes a recognized central counterparty clearing house,” it said.
The LME anticipates receiving the licenses or exemptions needed to provide access to EEA-incorporated entities so they may continue trading on the exchange.
“This means that EEA entities could choose to become a Category 4 member of the LME and continue trading activities whilst clearing through another LME member,” it said.
“Alternatively, the LME would welcome an application for LME membership from a non-EEA group entity. This entity could continue to provide clearing services without any interruption.”
Category 4 members can trade with clients in the telephone market and on the exchange’s electronic trading system and are permitted to issue client contracts.
The LME’s contracts are currently seen as exchange traded derivatives (ETD) for the purpose of EU regulations. Once Britain leaves the EU, the LME will need to be classified as an equivalent trading venue for its contracts to remain classified as an ETD under EU regulations.
“The equivalence process is conducted between regulatory authorities and we are therefore engaging with our regulator in order to remain updated on progress,” it said.
Reporting by Pratima Desai; editing by David Evans