>>> What to look at today - 16th of November 2020

Asian stocks and U.S. futures climbed on Monday, buoyed by positive sentiment on regional trade and signs of opposition to a national American lockdown despite surging virus cases. The dollar retreated.
The Asian benchmark was on track for a record close, with Japan and South Korea outperforming. A slew of Asia-Pacific nations on Sunday signed the world’s largest regional free-trade agreement, encompassing nearly a third of the globe’s population and gross domestic product. In Australia, share trading was suspended for the day due to a market data issue.
S&P 500 futures extended last week’s advance after advisers to President-elect Joe Biden said they opposed a nationwide U.S. lockdown. Oil pushed higher and Treasuries were steady. On Friday, both the S&P 500 and the Russell 2000 Index of small caps rallied to all-time highs. The tech-heavy Nasdaq 100 underperformed amid the rotation to economically sensitive industries.

Nikkei +2.05% Hang Seng +0.59% CSI +0.66% Shanghai +0.83% Shenzen +0.62%

Eur$ 1.1835 CNH 6.5744 CNY 6.58 JPY 104.55 GBP 1.3215 CHF 0.9121 RUB 77.24 TRY 7.6535 WTI$ 40.12 -2.43%

S&P +0.79% Nasdaq +0.69% EuroStoxx +0.87% FTSE +0.66% Dax +0.79% SMI +0.43%

Macro :
- Asia Pacific Nations Sign Biggest Regional Trade Deal
- U.K. Hints Brexit Talks May Be Extended as Disagreements Remain
- Yellen Under Consideration by Biden Team for Treasury Chief
- Biden Virus Advisers Say a National Lockdown Isn’t on Agenda
- Lombard Odier Launches $400 Million Natural Capital Equity Fund
- Morgan Stanley Says Go Risk-On and ‘Trust the Recovery’ in 2021

Keep an eye on :
- ALO FP : Alstom Launches EU2b Rights Issue to Finance Bombardier Deal
- ATL IM : Atlantia May Take Legal Steps Vs Autostrade Managers: Statement
- ARAMCO AB : Saudi Aramco Hires Banks for Possible Offering of Dollar Bonds
- MT NA : Italy in Talks With ArcelorMittal Over 50% of Taranto Steel Mill
- BBVA SM : *PNC TO BUY BBVA USA BANCSHARES FOR $11.6B IN CASH
- BIM FP : Biomerieux Announces Expansion of Argene Covid-19 Test
- BMPS IM : Italy Seeks Advisers for Monte dei Paschi Sale: Reuters
- DEB LN : JD Sports May Bid to Buy Debenhams, Telegraph Reports
- DMP GY : Dermapharm 9M Adjusted Ebitda EU139.0M Vs. EU133.1M Y/y
- DOM SS : Dometic Shares Worth Buying in Dip as Prospects Good, DI Says
- CAP GY : Encavis 9M Revenue EU234.3M Vs. EU223.4M Y/y
- GSC1 GY : Gesco 9M Sales EU363.0M Vs. EU438.6M Y/y
- GYC GY : Grand City Properties 9M Adjusted Ebitda EU223M Vs. EU220.0M Y/y
- GRG LN : Greggs to Cut More Than 800 Jobs as Lockdown Hits Business: Sky
- JD/ LN : JD Sports Says Tribunal Sends Footasylum Deal Block Back to CMA
- LLOY LN : Lloyds Probe Over HBOS Fraud Facing Fresh Delays, Times Says
- DRLCO DC : Maersk Drilling Gets $7.1 Million One-Well Contract Extension
- NEXI IM : Nexi to Buy Nets in a $9 Billion Deal to Create Payment Giant
- NWG LN : Ulster Bank’s Chairman O’Flynn Resigns for ‘Personal’ Reasons
- NNB SS : Nordnet to Go Public in Stockholm With $1.1 Billion of Stock
- ORA FP : Orange chief ‘open-minded’ to creating European mobile towers champion - FT
- PST IM : PostNL, Mutares Agree to Sell Nexive to Poste Italiane
- REIN LX : Reinet Investments 1H Net Asset Value Per Share EU24.70
- RNO FP : Ghosn’s Grand Alliance Showing Cracks Two Years After His Arrest
- RDSA LN : Shell, Exxon to Apply for Subsidies in Porthos CO2 Project: FD
- SIOE BB : Sioen 3Q Organic Revenue -4.4%
- SRG IM : Trans-Adriatic Natural Gas Pipeline Starts Commercial Operations
- SOON SW : Sonova 1H Sales Match Estimates
- TIT IM : Italy Clears KKR Investment in Telecom Italia’s FiberCop
- URW NA : Unibail-Rodamco Says Léon Bressler to Replace Dyer as Chairman
- VIFN SW : Vifor Iron Therapy Reduces Hospital Admissions, Study Shows
- VOD LN : Vodafone Said to Eye Raising $5 Billion in Towers IPO Next Year
- WDI GY : German auditors fight tighter regulation after Wirecard scandal

>>> Europe : Brokers Upgrades & Downgrades - 16th of November 20

>>> Up
* Ageas Raised to Outperform at KBW; PT 42 euros
* Ascential Raised to Buy at Goldman; PT 447 pence
* Continental AG Raised to Equal-Weight at Barclays; PT 115 euros
* Dometic Raised to Hold at Handelsbanken; PT 105 kronor
* Finnair Raised to Buy at SEB Equities; PT 65 euro cents
* Generali Raised to Outperform at Intermonte; PT 16 euros
* Mediaset Espana Raised to Buy at Goldman; PT 4.10 euros
* Merck KGaA Raised to Add at AlphaValue
* Nordex PT Raised to 22 euros from 16 euros at Bankhaus Metzler
* OHB SE Raised to Buy at HSBC; PT 46 euros
* Plus500 Raised to Buy at Jefferies; PT 1,760 pence
* Poste Italiane Raised to Buy at BofA
* Standard Chartered Raised to Add at AlphaValue
* Wizz Air Raised to Buy at HSBC; PT 5,000 pence

>>> Down
* Banca Generali Cut to Hold at HSBC; PT 31 euros
* Informa Cut to Hold at Berenberg; PT 610 pence
* ITV Cut to Underperform at Bernstein; PT 71 pence
* Neste Cut to Sector Perform at RBC; PT 55 euros
* PKP Cargo Cut to Hold at Erste Group; PT 12.20 zloty
* Scout24 Cut to Neutral at Goldman; PT 74.20 euros
* Wolters Kluwer Cut to Sell at Goldman; PT 68.40 euros

>>> Initiation
* Abcam ADRs Rated New Equal-Weight at Morgan Stanley; PT $21
* OMV Reinstated Equal-Weight at Barclays; PT 35 euros
* River & Mercantile Rated New Buy at Jefferies; PT 180 pence
* Stratec Reinstated Buy at Commerzbank; PT 146 euros

>>> Call
* Plus500 Has Material Upside to FY20 Guidance, Jefferies Says
* River & Mercantile Can Support Peer-Leading Dividend: Jefferies

FT : Orange chief ‘open-minded’ to creating European mobile towers champion

Orange chief ‘open-minded’ to creating European mobile towers champion
Carriers can be ‘smarter’ than just cashing in on their valuable masts, says Stéphane Richard

French telecoms group Orange has raised the possibility of teaming up with rivals to forge a pan-European mobile towers champion, the latest sign of the dealmaking fervour sweeping a historically unfashionable part of the industry.

Chief executive Stéphane Richard said he was “open-minded” about the future of the carrier’s towers business, which analysts value at about €10bn and is already being split off into a separate company in an attempt to unlock the value of the masts.

Carving out the towers business will help Orange “see what game we want to play”, Mr Richard told the Financial Times. Pairing Orange’s 59,000 towers with those of Vodafone or Deutsche Telekom would be an “interesting opportunity” in the future, although the possibility is not currently under discussion, he added.

The future of mobile towers, the metal structures on which radio antennas sit, has become a hot subject for European carriers, which face pressure to finance investment in 5G networks or cut large debt piles. At the same time, infrastructure funds and specialist tower groups, led by Spain’s Cellnex, have raced to buy up towers in recent years.

Since it was founded in 2015, Barcelona-based Cellnex has been on an aggressive acquisition spree, buying masts from companies including the UK’s Arqiva, Portugal’s NOS, Switzerland’s Sunrise and France’s Iliad to build a business with a market capitalisation of €26.4bn.

Addressing the future of Orange’s towers, which are in Europe, Africa and the Middle East, Mr Richard said that “there is something smarter to do than just selling your towers to Cellnex”. However, he acknowledged there was “an amazing gap in valuations” between towers companies like Cellnex and telecoms operators, forcing the latter to adapt.

Orange has been slow to act, Mr Richard admitted, but said the group will define its strategy for the towers business when it reports full-year results in February. The lacklustre performance of European telecom stocks this year has only added to the pressure to carve out and sell tower assets.

As operators including France’s Altice, Ireland’s eir and Sunrise have sold thousands of towers, it is Cellnex that has written the biggest cheques. In July, the group issued new shares to raise €4bn for acquisitions, and last week agreed a €10bn deal for the towers owned by CK Hutchison’s Three networks in Europe. BT, which jointly owns a mast company with CK Hutchison in the UK, is also reviewing its options about whether to sell that business.

Not all operators have been willing to cash in, considering ownership of the towers as too important. Deutsche Telekom has created a separate tower company within its business called Deutsche Funkturm, while Vodafone has gone a step further with a plan to float a minority stake in its masts business in Frankfurt early next year.

Vodafone declined to comment. Deutsche Telekom did not respond to a request for comment.

Beyond its towers business, Orange is also weighing up options for further consolidation in Europe. This month, it acquired Deutsche Telekom’s majority stake in a fixed line business in Romania for €497m to combine it with its mobile business in the country.

Mr Richard named Belgium and Spain as countries where future deals may happen, adding that he believes there will be further consolidation in Spain, where smaller player MásMóvil was in June acquired by a trio of private equity firms in a €5bn takeover.

After a bruising year for telecom shares, Mr Richard sounded a note of optimism, echoing recent — and more confident — outlooks from Deutsche Telekom and BT. After cutting the dividend in the spring as the coronavirus pandemic gathered pace, Mr Richard said that the payout could be restored to pre-pandemic levels, possibly by the end of this year. The group’s share price is up nearly 20 per cent since the start of October.

Last week, the group announced it had received a favourable ruling in a long running tax dispute with the French government that will allow it to recover around €2.2bn.

WSJ : Japan’s Economy Expands as It Recovers From Coronavirus Pandemic

Japan’s Economy Expands as It Recovers From Coronavirus Pandemic
Economists say further gains are likely to be slow

TOKYO—The Japanese economy expanded at its fastest pace in at least 40 years in the July-September period as private consumption and exports improved along with the reopening of the global economy.


The world’s third-largest economy after the U.S. and China expanded 5% in the third quarter of 2020 from the previous quarter, the first growth in four quarters and the biggest expansion since 1980, the period for which comparable data are available. The result came after a record drop in the second quarter and was better than economists’ forecast.

On an annualized basis, which reflects what would happen if the third-quarter pace continued for a full year, Japan’s economy expanded 21.4%, compared with a consensus forecast of 18.9%. In the third quarter, the nation’s gross domestic product totaled an annualized 508 trillion yen, equivalent to $4.85 trillion, recovering a little more than half of what it lost in the coronavirus pandemic.

Private spending rose 4.7% from the previous quarter as consumers went out more for shopping and dining. Meanwhile, external demand added 2.9% to growth.

Economists say any further recovery is likely to be slow in coming quarters. The services sector remains weak owing to fears of infection, and the virus is spreading again in some countries.

WSJ : Simon Property, Taubman Agree to Revise Merger Deal

Simon Property, Taubman Agree to Revise Merger Deal
Mall developer Taubman to take price cut to $43 a share, as firms seek to avoid legal fight

High-end mall developer Taubman Centers Inc. has agreed to accept a price cut in its takeover by Simon Property SPG 8.04% Group Inc., in a move that will allow the companies to avoid a drawn-out legal battle that was set to start Monday.

The companies have agreed that Simon will pay $43 a share for Taubman under the new deal, they said Sunday. That is down from the original price of $52.50.

The Wall Street Journal reported earlier Sunday that the companies had recut the deal.

The companies had first reached a deal in February, before the coronavirus pandemic and social distancing altered the outlook for bricks-and-mortar retailers.

The deal structure, which involves the Taubman family selling about one-third of its interest in Taubman and remaining a 20% owner in the operating subsidiary of its namesake firm, is unchanged.

The new deal amounts to a nearly 20% discount and savings of close to $800 million for Simon. In addition to the $9.50 a share discount, Taubman has also agreed not to declare or pay a common stock dividend before March 2021.

The two companies, which were set to face off in a Michigan court over the deal beginning this week, also agreed to settle the pending litigation.

They said they expect the deal to close in late 2020 or early 2021.

The tie-up is one of a handful of deals to sour as a result of the pandemic, including some in the retail sector, though the size of the price cut is larger than what is typically seen. Tiffany & Co. last month agreed to a roughly 2.6% price cut from LVMH Moët Hennessy Louis Vuitton SE in what was originally a $16.2 billion deal.

Private-equity firm Sycamore Partners sued Victoria’s Secret parent L Brands Inc. in April, saying that the retailer had violated the terms of their merger agreement by closing stores, furloughing workers and skipping rent payments. L Brands countersued, and the two sides eventually agreed to scrap the deal.

Though retail and real estate have been among the sectors hardest hit by the pandemic, with fewer people spending time in stores or traveling, they could recover ground once a vaccine is widely available. In a sign that many investors are optimistic, shares of companies including Simon jumped early last week on news of successful vaccine test results.

WSJ : PNC Financial Services to Buy U.S. Arm of Spain’s BBVA for $11.6 Billion

PNC Financial Services to Buy U.S. Arm of Spain’s BBVA for $11.6 Billion
Deal is one of the largest bank tie-ups since the financial crisis

PNC Financial Services Group Inc. PNC 1.47% agreed to buy the U.S. arm of Spain’s BBVA BBVA 4.76% for $11.6 billion, the companies said Monday, in one of the largest bank tie-ups since the financial crisis.

A deal would create the fifth-largest U.S. retail bank with more than $550 billion in assets, a giant in an industry that has been slow to consolidate.

The Wall Street Journal first reported Sunday that the two companies were nearing a deal.

Acquiring BBVA’s U.S. operations—BBVA USA Bancshares Inc. and its subsidiary, BBVA USA—would bolster Pittsburgh-based PNC’s presence in fast-growing markets in the southeast and west. BBVA, which in 2007 bought Alabama-based Compass Bancshares, has about $100 billion of assets in the U.S. with branches across the Sunbelt, including a major presence in Texas. PNC is strongest in the mid-Atlantic, Midwest and Southeast.

PNC Chief Executive Bill Demchak said in September that extending the bank’s national presence would be the “first, second and third objective” of any deal.

Big without being deemed too big to grow and with a strong record on takeovers, PNC has long been seen as a likely consolidator of the fragmented U.S. regional banking sector. It stoked that chatter earlier this year when it sold its stake in BlackRock Inc. BLK 1.51% for $15 billion, bringing in cash that could be redeployed into an acquisition.

PNC said it expects the deal to be 21% accretive to earnings in 2022 and to replace net income from the passive BlackRock investment.

Big bank mergers have been rare since the 2008 crisis, with few major players willing to test the political waters and wary of new regulations now applied to larger banks. What is more, the old logic of adding adjacent branch networks is less powerful as digitally savvy consumers are less tethered to their corner branch.

But regional lenders are under pressure from national giants like JPMorgan Chase JPM 0.63% & Co. and Bank of America Corp. BAC 1.16% , which are raking in deposits with digital apps, big marketing budgets and coast-to-coast branch networks. Low interest rates have hit especially hard at regional banks, which rely more on bread-and-butter loans than rivals with Wall Street arms.


Deals are an obvious solution. By closing branches in overlapping areas and trimming redundant technology budgets, regional banks hope to merge their way to higher profits.

In October, First Citizens BancShares Inc. agreed to buy CIT Group Inc. for $2.2 billion, creating a regional bank with more than $100 billion in assets. BB&T Corp. and SunTrust Banks Inc. merged last year into Truist Financial Corp., which is the sixth-largest U.S. retail lender, but would be kicked down a notch by a combined PNC-BBVA.

The sheer number of midsize banks in the U.S. has long bred expectations of consolidation in the industry. There are at least 30 lenders with between $50 billion and $250 billion of assets.

The deal wouldn’t be PNC’s first acquisition of a foreign bank’s stateside operations. It bought the U.S. retail banking operations of Royal Bank of Canada in 2012 for $3.45 billion. It also scooped up a handful of struggling institutions during the financial crisis, including National City Corp., which was pushed by regulators to accept a deal.

It would signal a retreat from the U.S. for BBVA, formally called Banco Bilbao Vizcaya Argentaria, Spain’s second-largest lender with a major presence in Latin America too. It paid about $10 billion in 2007 to acquire Compass, which gave it a long-desired foothold in the U.S., but BBVA has at least twice written down the value of the business and earlier this year warned of another charge as the coronavirus pandemic tore through the U.S. economy.

European lenders that planted flags in the U.S. starting in the late 1980s have failed to gain much ground. Royal Bank of Scotland Group PLC sold out of Citizens Financial Group Inc. in 2015. HSBC Holdings PLC said in February it would close one-third of its U.S. branches.

FT : UK targets big business in latest move on tax avoidance

UK targets big business in latest move on tax avoidance
HM Revenue & Customs issues warning on moving profits abroad

The British government has launched a crackdown on multinationals suspected of wrongly reducing their UK tax bills by shifting profits to other countries, warning them of investigations and potentially large penalties.

HM Revenue & Customs has written to thousands of companies since September demanding they review their so-called transfer-pricing arrangements — under which businesses allocate profits between different countries in an effort to minimise their tax liabilities.

The move by the UK tax authority comes against the backdrop of the large fiscal hole created by the coronavirus crisis, with chancellor Rishi Sunak ultimately likely to require individuals and companies to pay more tax to repair the public finances.

HMRC this month estimated the 2,000 largest businesses with operations in the UK may owe an additional £34.8bn in tax relating to the 2019-20 financial year — up from £29.9bn 2018-19.

The UK tax authority’s letter sent to multinationals, seen by the Financial Times, asked companies how confident they were that their transfer pricing was “appropriate”.

HMRC told companies to submit information about their transfer pricing to its disclosure tool, called the profit diversion compliance facility, within 90 days or face investigation.

“In investigations we have carried out to date we are often finding that the UK profits do not reflect the value created in the UK,” said HMRC in the letter.

“We are also finding indications of careless or deliberate behaviour requiring penalties to be considered.

“It will be too late to make an unprompted disclosure once we open an investigation and penalties will be higher.”

Jon Claypole, partner at accounting firm BDO, said companies should not ignore the HMRC letter because failing to act would lead to a “difficult to manage and intrusive” probe by the tax authority.

The Chartered Institute of Taxation, a professional body, said tackling profit diversion by companies was a “priority” for HMRC, and it expected this to continue for the foreseeable future.

It added that HMRC was “following up immediately with investigations” for the majority of businesses that did not register with its disclosure tool.

HMRC’s £34.8bn figure is an estimate of so-called tax under consideration: a calculation of the maximum that companies may have to pay on a combined basis following investigations, although generally the amount actually collected is about 40 per cent of this total.

Of the £34.8bn, transfer pricing arrangements and “thin capitalisation” accounted for £10.4bn in 2019-20 — up from £6bn the previous year.

Thin capitalisation refers to a process where interest payments on borrowings from one part of a group of companies to another can be used to reduce profits in the UK.

Jason Collins, head of tax at law firm Pinsent Masons, said there had been a “dramatic” rise in HMRC’s estimate of tax potentially owed by companies.

“During the lockdown HMRC have been as helpful as they can with companies over tax bills and outstanding debts but that doesn’t extend to tax avoidance and tax evasion,” he said.

“As sure as night follows day, a slump in tax revenues is going to be followed by a more active agenda of tax investigations.”

Multinationals are increasingly being targeted by HMRC, which has been strengthened in its ability to challenge companies by the introduction of the diverted profits tax in 2015.

This is designed to stop profits being diverted away from the UK and is levied at 25 per cent — a higher rate than corporation tax, which is set at 19 per cent — to provide an incentive for good behaviour.

A spokesperson for HMRC said: “HMRC’s role is to collect the right amount of tax due under UK law and we carefully scrutinise businesses, including to make sure they aren’t artificially diverting profits away from the UK.

“We are writing to some specific businesses that we believe could be diverting money away from the UK and encouraging them to use our new facility.”

FT : EU regulators seek solution to post-Brexit derivatives rule clash

Orange chief ‘open-minded’ to creating European mobile towers champion
Carriers can be ‘smarter’ than just cashing in on their valuable masts, says Stéphane Richard

French telecoms group Orange has raised the possibility of teaming up with rivals to forge a pan-European mobile towers champion, the latest sign of the dealmaking fervour sweeping a historically unfashionable part of the industry.

Chief executive Stéphane Richard said he was “open-minded” about the future of the carrier’s towers business, which analysts value at about €10bn and is already being split off into a separate company in an attempt to unlock the value of the masts.

Carving out the towers business will help Orange “see what game we want to play”, Mr Richard told the Financial Times. Pairing Orange’s 59,000 towers with those of Vodafone or Deutsche Telekom would be an “interesting opportunity” in the future, although the possibility is not currently under discussion, he added.

The future of mobile towers, the metal structures on which radio antennas sit, has become a hot subject for European carriers, which face pressure to finance investment in 5G networks or cut large debt piles. At the same time, infrastructure funds and specialist tower groups, led by Spain’s Cellnex, have raced to buy up towers in recent years.

Since it was founded in 2015, Barcelona-based Cellnex has been on an aggressive acquisition spree, buying masts from companies including the UK’s Arqiva, Portugal’s NOS, Switzerland’s Sunrise and France’s Iliad to build a business with a market capitalisation of €26.4bn.

Addressing the future of Orange’s towers, which are in Europe, Africa and the Middle East, Mr Richard said that “there is something smarter to do than just selling your towers to Cellnex”. However, he acknowledged there was “an amazing gap in valuations” between towers companies like Cellnex and telecoms operators, forcing the latter to adapt.

Orange has been slow to act, Mr Richard admitted, but said the group will define its strategy for the towers business when it reports full-year results in February. The lacklustre performance of European telecom stocks this year has only added to the pressure to carve out and sell tower assets.

As operators including France’s Altice, Ireland’s eir and Sunrise have sold thousands of towers, it is Cellnex that has written the biggest cheques. In July, the group issued new shares to raise €4bn for acquisitions, and last week agreed a €10bn deal for the towers owned by CK Hutchison’s Three networks in Europe. BT, which jointly owns a mast company with CK Hutchison in the UK, is also reviewing its options about whether to sell that business.

Not all operators have been willing to cash in, considering ownership of the towers as too important. Deutsche Telekom has created a separate tower company within its business called Deutsche Funkturm, while Vodafone has gone a step further with a plan to float a minority stake in its masts business in Frankfurt early next year.

Vodafone declined to comment. Deutsche Telekom did not respond to a request for comment.

Beyond its towers business, Orange is also weighing up options for further consolidation in Europe. This month, it acquired Deutsche Telekom’s majority stake in a fixed line business in Romania for €497m to combine it with its mobile business in the country.

Mr Richard named Belgium and Spain as countries where future deals may happen, adding that he believes there will be further consolidation in Spain, where smaller player MásMóvil was in June acquired by a trio of private equity firms in a €5bn takeover.

After a bruising year for telecom shares, Mr Richard sounded a note of optimism, echoing recent — and more confident — outlooks from Deutsche Telekom and BT. After cutting the dividend in the spring as the coronavirus pandemic gathered pace, Mr Richard said that the payout could be restored to pre-pandemic levels, possibly by the end of this year. The group’s share price is up nearly 20 per cent since the start of October.

Last week, the group announced it had received a favourable ruling in a long running tax dispute with the French government that will allow it to recover around €2.2bn.

FT : EU regulators seek solution to post-Brexit derivatives rule clash

EU regulators seek solution to post-Brexit derivatives rule clash
Overlapping requirements risk leaving banks having to trade on other continents

European regulators are racing to avoid London branches of EU banks having to route derivatives trades through New York, if Brussels fails to deem the City’s regulatory standards robust enough after Brexit.

Officials are working on emergency tweaks to rules in the event the UK and the EU do not grant sufficient access rights to each other’s financial services markets, in a set of so-called equivalence decisions, before Britain leaves the bloc on December 31.

As the UK’s exit date nears, tensions between London and Brussels have risen over how far each side is prepared to go to maintain access. EU diplomats said that France has raised concerns in Brussels that the volume of derivatives business conducted by the London branches of EU banks risked being caught between overlapping EU and UK rules if an agreement remains elusive.

The trading of derivatives, spanning interest rates and credit is one of the biggest businesses in the City, and the current rules capture deals in the EU market with a notional value of around €50tn. Trading in swaps has emerged as a particular concern because of an EU rule, known as the “derivatives trading obligation”, that requires the most actively traded contracts to be traded on an EU trading venue, or one Brussels recognises as of an equivalent standard.

London-based branches of EU banks may be caught in the crossfire, because it is unclear whether they would be bound by EU restrictions on trading in the City. That opens them up to the risk of falling foul of overlapping and contradictory instructions from two sets of regulators.

France, which has raised the issue at meetings of EU financial services officials, has warned that without agreement on the issue, bank branches in London could be left with little choice but to execute derivative trades in the US. The EU considers venues in the US as equivalent to those in the bloc.

With such a potential outcome recognised as unintentional and undesirable, EU and UK regulators are looking for possible solutions. The European Securities and Markets Authority, a Paris-based EU agency, said that “a solution is being worked on”, declining to comment further. 

Last week, the UK Financial Conduct Authority said it remained open to discussing with Esma how to minimise any disruption created by overlapping requirements.

Financial services have remained largely beyond the scope of the broader effort by the UK and the EU to hammer out a new trade deal to govern their relationship once Britain has left the bloc. Instead, future access in financial services will depend on unilateral equivalence decisions taken by both sides.

To British frustration, Brussels has so far remained silent about whether it will grant the UK this and other market access rights. The EU commission has argued that it needs further clarity on British regulatory plans before taking any such decision.

Officials in Brussels note that it is unlikely the bloc will announce any decisions on equivalence while talks over a broader trade deal continue, given the political sensitivities. 

On the specific question of derivatives, French officials have pointed to the precedent of EU data privacy rules, which show some leniency to overseas branches, as evidence that a workaround can be found.

“Our position is unchanged and the subject is still under discussion between the competent authorities,” said AMF, the French markets regulator. The French finance ministry declined to comment.