The London Metal Exchange is prepared for whatever outcome arises from the planned departure of the UK from the European Union, including a so-called “hard” Brexit, its chief executive officer said on Tuesday March 12.
Brexit, the name given to the process by which the UK intends to leave the trading bloc, could happen as early as March 29.
“We’ve been clear that, throughout this process and whatever our political views or personal hopes for the outcome, we need to ensure that the LME is prepared for every scenario,” Chamberlain told Fastmarkets in an interview.
“Most crucially, that means being prepared for a ‘hard’ Brexit, which clearly could occur. We would be being irresponsible if we weren’t prepared for that,” he said. A hard Brexit would be if the UK left the EU with no deal in place to govern future relationships between them.
“We’re quite satisfied with where we currently stand, because we have managed to work with our European partners to deliver an outcome that means that, even in the event of a hard Brexit, we’re very comfortable about the continuity of metals trading,” Chamberlain said.
“That is important, obviously, for the LME and its commercial interests, for our London-based members, and also for our European clients. So this genuinely is a win-win,” he added.
Chamberlain’s comments came as UK Prime Minister Theresa May lost a key Brexit deal vote in the country’s parliament by 149 votes on March 12.
Earlier, May had urged politicians to support what she described as an improved deal, or risk no Brexit at all. A debate and free vote will now take place on March 13 on whether the UK should leave the EU without a deal. If that fails, there will be a vote on March 14 on whether Brexit should be delayed.
Two key things that the LME needed to achieve were trading licenses in each of the European jurisdictions where its members are based, and clearing house recognition.
So far, it has trading licenses for France and Ireland, and remains “very confident” that it will achieve them for Germany and the Netherlands by the time of Brexit.
LME members will meanwhile be permitted to clear via London even if no Brexit deal is reached, and the exchange is engaging with the European Securities & Markets Authority (ESMA) to achieve recognition as a third-country central counterparty.
The final target, one that Chamberlain described as more “nice to have” than a requirement, is trading venue equivalence. This has not yet been agreed and may not be agreed by the time of a potential hard Brexit.
“That’s more about the frictional cost of accessing our markets,” Chamberlain said.
“We understand that, if we don’t have trading venue equivalence, it may make connectivity more difficult in terms of our contracts being designated as over-the-counter in Europe. But it doesn’t cut off access, and we know that our members and clients have been working hard on that,” he said.
“In terms of the three things, the two most important are ticked and the third we continue to work on, but it doesn’t stop access to our markets,” he added.
Equally important, he noted, is that the exchange’s London-based members are able to ensure that they can continue to service their European client bases, assuming they wish to do so. In a worst-case scenario, European clients can use a European member to access the LME.
Chamberlain said that the LME has been working with its members to help ensure that European clients can continue to access the LME, and that he is “really pleased” by the way the membership has responded.
“Each has their own set of circumstances,” he said. “Some will be relying on reverse solicitation, some have set up subsidiaries in Europe, and some are even in the process of getting those subsidiaries accepted as LME members. There are a whole range of approaches that are being adopted.”