The impact of a no-deal Brexit on derivatives contracts

The impact of a no-deal Brexit on derivatives contracts

Habib Motani, partner and global head of the derivatives group at Clifford Chance LLP, and Carolyn Jackson, partner at Katten Muchin Rosenman UK LLP, and both P.R.I.M.E. Finance experts, discuss the impact of no-deal Brexit for derivative contracts and derivative market participants, both in the UK and the EU.

What are the main challenges of a no-deal Brexit for derivatives contracts?

Habib Motani (HM): I am tempted to respond ‘resources’ but I suppose resource is not a challenge for contracts but a challenge for those entering into contracts. Those who have a business of entering into derivatives contracts are undoubtedly seeing their resources stretched very thin as they identify the businesses potentially affected, evaluate the potential effects, develop their strategy for addressing the potential effects and implement it, while at the same time reading, evaluating and understanding the truckloads of new legislative and regulatory publications coming out of not just the UK but also EU27 authorities too. Keeping on top of what legal and regulatory changes are proposed and addressing their impact is a massive, massive challenge, and of course this is still subject to exactly what deal is done, if any, between the UK and the EU.

For a sell side institution, you can break the analysis down into two broad buckets:

  • what will be the impact on new contracts I enter into with my counterparties post Brexit?, and
  • what will be the impact on existing contracts and how will I deal with it?

Let's start with existing contracts, that is contracts that are outstanding on the date of the UK's exit from the EU. You might think why should Brexit affect contracts that have already been entered into? Surely all that needs to happen is for the contracts to be performed by both parties and for them to gracefully mature? It's not so simple I'm afraid.

The question is whether, post Brexit, doing the things that you will need to do in order to perform the contract (the so-called

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About the author:

Emma is head of the Banking and Finance team and the Finance Group at LexisNexis®UK.

Emma has wide-ranging experience in derivatives and capital markets with a particular emphasis on credit derivatives and structured products. Emma qualified as a solicitor with Allen & Overy LLP, working in the derivatives and structured finance teams in both their London and Paris offices before gaining experience with Deutsche Bank AG (advising the foreign exchange prime brokerage desk) and Crédit Agricole CIB (advising the fixed income and derivatives desk) before joining LexisNexis®.