Boost for Ireland’s ability to avoid market disruption from Brexit

Ireland's efforts to build infrastructure that will prevent its securities markets being upended by a hard Brexit were boosted after Euroclear announced plans to create a settlement system that does not rely on London.

Euroclear, a Brussels-based company owned by some of the world’s largest banks, said that by next March it will create a securities depository (CSD) for Irish equities that will ensure the trades can still be settled after the UK leaves the EU.

Until now Dublin has depended on Euroclear's London-based operations to settle trading in shares and exchange traded funds on the Irish Stock Exchange. It is one part of the close relationship between the two equity markets – 88 per cent of all securities quoted on the Irish exchange also have a listing in London.

However, authorities in Ireland have long been concerned about the risk of the UK abruptly leaving the EU without a transition agreement. Last year Euroclear acknowledged that Ireland’s current system for settling share trading would be “untenable” under a hard Brexit as Ireland would no longer be able to use passporting rights to settle trades in London.

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The €182 billion of assets in the Irish capital markets have historically been funnelled via a London-based unit of Euroclear so trades could settle using deposits held on account at the Bank of England or European Central Bank, or via dollars held in commercial banks.

Only a third of transactions in Irish securities are settled in euro, with the majority settled in sterling and US dollars. Settling Irish trades in London has also proved cheaper for investors.

Ireland is alone among EU countries in not having a central securities depository to settle clearing in shares on the Dublin exchange.

In a statement Euroclear said: “We have been engaging with Irish stakeholders and the authorities, and are actively working towards the intended establishment of this new CSD in Ireland for corporate securities.” – Copyright The Financial Times Limited 2018