State may need ‘bespoke legislation’ to keep shares trading after Brexit

The Government may have to push through “bespoke legislation” to ensure Irish shares can continue to be traded and settled seamlessly following Brexit, according to a new paper.

For the past two decades the settlement of trades has been carried out by a UK-based central securities depositary (CSD) called Crest, operated by Euroclear UK & Ireland in London. However, Crest stands to lose its automatic right to passport services into the Republic as the UK leaves the EU.

While the European Commission and European Securities and Markets Authority has agreed in the past five months that Crest can continue to settle securities traded in Dublin until March 30th, 2021, authorities are working on plans to ensure settlement after that date.

Euronext Dublin, formerly the Irish Stock Exchange, said last December that its preferred long-term solution is for the movement of Irish securities settlement from the UK to Euroclear's Euroclear Bank in Belgium.

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“The change of CSD for the Irish market as outlined in this White Paper is a complex operation that entails a potentially high level of risk for all market stakeholders,” the Euroclear paper said. “The timeframe within which to achieve the change is demanding and non-extendible and requires immediate focus and engagement from market participants.”

‘Least risky option’

Euroclear said that it and market participants “are strongly and unanimously of the opinion” that migration to the new system by way of legislative act is the “least risky option”.

Euroclear said Irish authorities are “actively considering” the legal proposals that it has made. However, it warned that a legislative mechanism for migration may not be achievable within the timeframe available.

The current proposal follows on from Euroclear deciding in April last year to abandon a plan to set up an Irish CSD, following discussions with the Central Bank and Bank of England on that blueprint. Ireland is the only European Union member that does not have its own CSD.

“Since that time, Euroclear has reiterated its commitment to finding an alternative long-term settlement solution for Irish corporate securities within the Euroclear group that would be acceptable to the Irish market,” it said in the paper.

“Legal work will continue over the coming weeks, including continued engagement with the Irish legal community and Irish authorities, in order to agree and give effect to all necessary legal changes that are on the critical path to successful migration to the Euroclear Bank model.”