Wednesday, 8 February 2017

Brexit and the Issue of Market Liquidity

Today the FSNForum publishes its third research piece, looking at the mutual self-interest in a post-Brexit financial sector accommodation between the UK and the EU.

The paper, written by renown economist Des Supple of Event Horizon Research, concludes that Europe’s need to generate faster rates of economic growth and to ensure stable funding sources means that it is in the self-interest of the EU to ensure a mutually acceptable post-Brexit. Furthermore, the ultimate beneficiary of a disruptive Brexit for financial services would likely be New York, which could imply a new loss of risk weighted assets, AUM, employment and regulatory influence from the European time-zone.

Mutual self-interest can be a driving force behind establishing a post-Brexit accommodation between the financial sectors of the UK and the EU. The benefit to the UK of its financial services maintaining access to the EU market is obvious given the importance of this sector to the broader economy. However, there are compelling reasons why the EU also needs to ensure that it retains access to UK financial services, expertise and markets.
One critical reason is to help the EU address the dominant structural risk in global financial markets – the diminishing levels of market liquidity. A failure for the Brexit negotiations to deliver a close relationship between the financial markets of the UK and EU would weaken both economies and be to the benefit of financial centers outside of Europe, most notably New York.

The Financial Services Negotiation Forum (FSNForum) launched in October 2016 and brings together former supporters from both the leave and remain sides of the referendum debate. In the course of producing this paper the FSNForum invited submissions from practitioners and policymakers before hosting a practitioner roundtable.  The resulting draft was circulated to members for comment and liaison with key market stakeholders, such as the clearing houses and counterparties, has been maintain throughout the process.

Click here to download the full report.

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