On 15 February 2019, the London Stock Exchange (“LSE”) proposed a mechanism to allow bonds listed on the LSE to qualify as ECB eligible collateral in the event of a “no deal” Brexit. The LSE has agreed a process with MTS S.p.A. to ensure that all bonds currently included in the ECB’s list of marketable assets and listed on the LSE can be automatically processed for admission to trading on MTS BondVision Europe MTF before March 29. Bonds listed on the LSE after March 29 will be automatically admitted to BondVision at the same time as they are listed on the LSE.

What are the implications of a “no deal” Brexit for LSE admitted securities?

To be eligible as collateral for the ECB’s open market operations, securities need to be admitted to an EU Regulated Market or another market designated as “acceptable” by the ECB. Following a “no deal” Brexit in which the UK leaves the EU on 29 March without a withdrawal agreement, the Main Market of the LSE will no longer be an EU Regulated Market. Consequently, LSE admitted securities will no longer meet this ECB eligibility criterion unless the ECB amends its criteria or designates the LSE as an “acceptable” market. To date, the ECB has not done so.

How is the LSE proposing to solve the problem?

The LSE announced that, in the event of a “no deal” Brexit, BondVision will admit LSE listed securities to trading, without requiring any action on behalf of the issuer where those securities satisfy BondVision’s admission criteria. Given that BondVision has been recognised as an acceptable market by the ECB, any LSE listed securities which are otherwise ECB eligible, will retain their eligibility once admitted to trading on BondVision. Going forward, it is envisaged that BondVision will continue to admit LSE listed securities to trading, allowing them to remain ECB eligible in the future without any additional obligations and costs for issuers.

What if there is a “deal”?

If the UK Parliament approves the Withdrawal Agreement, there will be a “transition period” until December 2020, during which time securities admitted to trading on the LSE will, absent any other change, be subject to the same eligibility criteria as they were pre-Brexit. The Main Market of the LSE will remain an EU Regulated Market and issuers of eligible securities listed on the LSE will have time, during this transition period, to consider what, if any steps they should take to ensure that the eligibility of their securities is retained. The effect of any different “deal” between the EU and the UK will depend on its terms.

The press release from the LSE is available here