Brexit will accelerate the evolution of a Capital Markets Union.
According to a survey conducted by SIX Securities Services, over half of financial organizations (53%) questioned believe plans for a Capital Markets Union (“CMU”) will speed up in the wake of Brexit.
The question as to whether Euro-clearing will remain in London after Brexit has been at the center of Brexit negotiations since the vote to leave Europe was cast in 2016. Aside from the question mark hovering over this issue, research from SIX Securities Services reveals that financial organizations appear to have broader concerns.
Over half of financial organizations across Europe (53%) believe that a CMU will evolve faster due to Brexit, and four in ten organizations think that it will provide a solution to collateral availability within two years. Buy-side organizations are more optimistic than the sell-side: – 53% of buy-side respondents believe this development will solve the problem of limited available high-quality collateral "fairly soon", while 70% of sell-side respondents think that such a solution will not present itself in the short term. One reason as to why the CMU is being viewed as a possible solution to this problem is that it will enable the European Commission to distribute corporate debt into the markets, much like the US model, thereby alleviating collateral demand pressure.
Respondents were also questioned as to whether they are preparing to shift a portion of their trading, clearing and collateral back into their respective currency zones post-Brexit. 45% of organizations said they are and they envisage moving over half of their activities (53%). Larger organizations, with assets of over USD 100 billion under management, are most likely to move activity (61%), whereas only 38% of organizations with assets of under USD 50 billion are planning to move some trading activity.
About the research
The study surveyed 60 professionals in the UK, Germany, France, the Nordics and Switzerland. 30 respondents were IT decision-makers and 30 collateral management experts from buy-side and sell-side financial services institutions. The number of respondents from buy-side and sell-side organizations was evenly split with 30 respondents from each. The average value of respondents’ organizations’ assets under management was USD 323 billion.