February 20, 2018 / 2:34 PM / 2 years ago

Brexit prompts Euroclear to open settlement unit in Ireland

LONDON (Reuters) - Pan-European securities settlement house Euroclear will open a new unit in Ireland in March next year to avoid Brexit disrupting its ability to process Irish stock and bond transactions.

FILE PHOTO: A demonstrator carries a Union Jack and a European Union flag as the EU's chief Brexit negotiator Michel Barnier visits Downing Street in London, Britain February 5, 2018. REUTERS/Hannah Mckay/File Photo

Brussels-based Euroclear settles share trades executed in both London and Dublin at its British arm. The United Kingdom will leave the European Union in March 2019 and it is unclear what sort of trading links it will have with the bloc in future.

“We recognise that the UK’s decision to leave the European Union, commonly referred to as Brexit, may make the current arrangements for Irish corporate securities settlement by Euroclear UK and Ireland untenable,” Euroclear said in a statement on its website.

Costs for Irish users would have to rise to recoup start-up costs and make up for a loss in economies of scale, Euroclear said, without elaborating.

It also gave no indication of how many jobs could move from London to Euroclear Ireland. Settlement refers to the final leg of a securities trade when ownership and safekeeping are exchanged for cash.

While Euroclear Ireland and Euroclear UK would become legally separate entities, the aim is for both to continue using the existing CREST technical plumbing.

Euroclear settles stock and bond trades for Euronext, the pan-European bourse with operations in Paris, Amsterdam, Brussels and Lisbon. Euronext is finalising its takeover of the Irish Stock Exchange.

Euroclear is the latest financial services firm to announce plans for new EU hubs to avoid Brexit disrupting services.

The Irish government made it clear in July last year that the creation of a new settlement unit in Ireland would best ensure a smooth continuation of services after Brexit.

A majority of securities quoted on the exchange are also listed in London, and seven Irish companies are part of Britain’s FTSE100 blue chip index.

The EU has a system known as “equivalence” according to which Brussels allows a foreign settlement house to serve customers in the bloc if it complies with rules that are as strict as the bloc’s own regulation.

It is a form of market access that financial firms in Britain may have to rely on if there is no special trade deal, but Euroclear said it was insufficient.

“Our current view is that the equivalence process does not, for a variety of reasons, offer sufficient certainty to be the preferred option for continuing to service Irish corporate securities,” it said.

Reporting by Huw Jones; Editing by Peter Graff

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