Brexit threatens some swaptions trades
Force majeure clauses could be triggered on physically settled contracts
A limited number of swaptions may stop working if the UK leaves the European Union next year without a deal on cross-border financial services, potentially forcing them to be terminated and leaving one or both sides unhedged.
The issue arises for physically settled trades because they require a new interest rate swap to be issued at the point the swaption is exercised. If UK entities lose their right to enter into new financial transactions with EU clients after the March 2019 withdrawal
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