HOW CENTRAL BANKS, BREXIT, TRADE AND REGULATION ARE CONVERGING TO DRIVE CHANGE

Despite much reduced levels of volatility to start 2017, including a decade-low VIX reading, global markets are poised for change. Whether it’s dynamic central bank policies or regulatory changes, we’re seeing policies around the world on the brink of a shift. At ICE, we’re continually building solutions to enable regulatory compliance and effective hedging around market evolution. Here are a few of the dynamics we’re keeping a close eye on now to make sure we can best support you:

Brexit implementation

Article 50 of the Treaty on European Union was triggered on March 29, 2017, initiating the two-year countdown clock for the UK’s withdrawal process; shortly after, on April 18, UK Prime Minister Theresa May called for a special election to be held on June 8 in an attempt to unite UK leaders as they work toward Brexit’s implementation. For European companies and companies with European investments, the next two years will be important as we evaluate the impact Brexit will have on trade tariffs and agreements, EU-denominated clearing, UK banking regulation and other core areas of policy. At ICE, we have exchanges and clearing operations in both the UK and continental Europe, ensuring that we’re able to best support your business in either location.

Global trade agreements

In addition to the renegotiation of trade agreements associated with Brexit, 2017 may be a dynamic year for the U.S. Throughout the 2016 U.S. presidential election, Republican candidate Donald Trump, now President, was outspoken in his belief that U.S. trade agreements need to be reevaluated and has continued this lexicon during his first 100 days in office. There remains a good deal of uncertainty around the potential change in future trade deals as U.S.-based and international companies watch closely to determine how trade negotiations will impact their cross-border strategies.

Central bank policies

Across the U.S., Europe and Asia, central bank policies continued to diverge in Q1 2017 when the Federal Reserve raised the U.S. interest rate for only the third time since the financial crisis while the UK’s Bank of England and the European Central Bank both voted to maintain rates. As stewards of the deeply liquid interest rate futures contracts, including Short Sterling, Gilts and Euribor, this is an area we monitor closely. You can find more information about global interest rate policies here or explore hedging with our interest rate derivatives here.

Potential changes to financial regulation

Despite the stated intent, outlined in 2009 at the Pittsburgh G20 meeting, to create global regulatory harmonization, diverging regulatory regimes have started to balkanize markets. In the post-financial crisis world, regulators want increased oversight of their local markets and financial institutions, and the unintentional side effect of that has been diverging regulatory requirements leading to the fragmentation of liquidity pools. Perhaps now more than ever, we’re seeing the intended vision for global oversight derail as the EU works toward increasing regulations while the U.S. considers relaxing them. When global policy makers met recently in Washington, the topic of regulatory asymmetries, as well as excessive regulations, were on the agenda.

Our global footprint gives you tremendous flexibility in where you can do business, while also giving us a unique vantage point from which to evaluate the apparent disconnect across global financial regulations. With infrastructure in the key jurisdictions where market participants do business, we have derivatives trading, clearing and market data operations in the U.S., U.K., Europe, Singapore and Canada.

When we started building and acquiring exchanges and clearing houses around the world, we made a strategic decision not to combine and collocate them from a single geography; we’re more convinced now than ever that was the right approach. Brexit is the latest example: with the future of EU-denominated clearing on the table, our decision to maintain clearing operations in the UK and on the continent is decidedly positive in that it offers choice and flexibility when it comes to how and where you want to do business.


As global regulation and policy evolves, we’ll continue building on our solutions to serve your trading, clearing and data needs to effectively manage risk, spot opportunity and drive your business forward.