Buy-side plans for hard Brexit

According to a recent survey conducted by Liquidnet,  83% of asset managers and hedge funds have a theoretical plan to respond to Brexit, but only 49% of firms have put their plan into action.

By Jon Watkins

According to a recent survey conducted by Liquidnet,  83% of asset managers and hedge funds have a theoretical plan to respond to Brexit, but only 49% of firms have put their plan into action. While 31% have plans under review, 17% are still unsure what do to and are awaiting greater political clarity.

Fifty-five investment management firms were contacted between April and August 2018

to understand the impact of Brexit on their organisation and their operational structures. Topics included both the distribution and marketing of their products as well as the impact on execution and future liquidity formation.

The 29 firms that agreed to participate represent $14.1 trillion in assets under management globally. Participants included both asset managers and hedge funds, with 45% head-quartered in the UK, 34% in Europe and 21% in the US.

Given the rapidly approaching Brexit deadline of March 29th, 2019, 59% of respondents are working towards a hard Brexit rather than waiting for potential political solutions that may or may not emerge. Of these, 55% believe Brexit will be softer than currently anticipated, but given the current political uncertainties firms are still working towards the former option.

Some 87% of respondents are planning to keep trading desks where they are though half anticipate that subsequent change may be required. A third are keeping a watchful eye on the potential fragmentation of liquidity, though only 19% are ready to move today should the need arise.

Almost two thirds of respondents are reviewing their clearing and settlement arrangements in the event of a hard Brexit because of jurisdictional complications for CPPs. One question is how current clearing and settlement arrangements will work in relation to the transfer of data. Many firms rely on data centres located in the UK and depend on the ability to transfer data under GDPR. Once the UK becomes a third country this data supply chain could be affected, as the UK’s data protection framework will need to be deemed as providing ‘equivalent’ protection.

 

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