The shift in contracts from London to New York earlier this year showed how the transatlantic Intercontinental Exchange could respond rapidly to Brexit if need be, the bourse's European head said on Wednesday. ICE moved 245 derivatives contracts on North American oil and gas liquids to satisfy US customers who did not want to comply with MiFID II, a sweeping European Union reform of securities markets that came into force in January.
"We don't have any immediate plans for further contracts to move," Stuart Williams, president of ICE Futures Europe, told Reuters. "But if our customers, for whatever reason, be it MiFID, Brexit or some other future change, would like contracts to trade in other jurisdictions, then we have the ability to respond to that."
ICE, which owns the New York Stock Exchange and long seen by the financial markets as a potential buyer of rival London Stock Exchange, has not announced any structural changes in UK operations ahead of Britain's departure from the bloc in March next year. Williams said he was encouraged that a transition deal to December 2020 has been agreed by Britain and the EU, even though it is part of a divorce settlement that has yet to be finalised.
"It speaks to the intent from both sides that we need an orderly period during which people can make sensible, strategic decisions, rather than risk-based, worst-case decisions about where they want to do business," Williams said. ICE Futures Europe has submitted its Brexit contingency plan to Britain's Financial Conduct Authority, like all other market infrastructure firms.
"From our perspective, we operate infrastructure in continental Europe as well. We would like to see a competitive EU27. We think global markets are best served by the relevant jurisdictions remaining open," he added. ICE has a small trading operation and a clearing house in Amsterdam, though the Dutch trades are cleared in London.
SONIA
On Wednesday ICE annnounced it will launch a three-month futures contract based on "Sonia" in June, the Bank of England's interest rate benchmark which aims to replace Libor. Central banks across the world want to substitute Libor, the London Interbank Offered Rate that banks were fined billions of dollars for trying to rig, with "risk free" rates like Sonia or sterling overnight index average.
It puts ICE in direct competition with the LSE, which launches its own three-month Sonia futures contract on April 30. ICE launched a one-month Sonia contract in December, though has traded only 1,383 lots so far, with open interest of 520 million pounds.
But ICE believes it has an advantage over the LSE because customers would be able to offset different rates trades to save on money used to back trades. "If one has to look at where the bulk of sterling interest rates business resides, certainly in terms of futures, we have the most liquid short sterling contract, gilts open interest," Williams said.
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