By Huw Jones
LONDON (Reuters) - English courts should continue to rule on disputes over cross-border derivatives contracts after Brexit to avoid clogging up a $483 trillion global market, a trade body said on Monday.
The International Swaps and Derivatives Association (ISDA), which helps to run the market by setting out basic contract terms, said the vast majority of cross-border trades in Europe are currently governed by English law.
This means that adjudication between two sides of a trade takes place in an English court as European Union rules allow market participants such as banks and companies to choose which national court they want to rule on disputes.
But Britain leaves the EU in March 2019, raising legal uncertainty over existing and future contracts which can span years, ISDA said in a statement on Monday.
"It is currently uncertain whether the choice of English law and jurisdiction made prior to Brexit will be recognized once the UK leaves," ISDA said.
"This makes it difficult to establish commercial relationships, as these arrangements are commonly made at the outset."
Swaps are used by companies to "insure" themselves against unexpected moves in interest rates and currencies, and the price of raw materials to limit the risks faced by those running a business.
"ISDA urges both the UK and EU to agree on post-Brexit transitional provisions for contracts under English law to reduce complexity and costs for all market participants," ISDA said.
The bulk of swaps are written by banks in London, where they are also largely cleared or passed through a third party to ensure a contract's completion, even if one side goes bust.
Some EU policymakers want the clearing of swaps denominated in euros shifted from London to the euro zone, a step ISDA said on Monday has never been tried before on such a huge scale.
The bloc's executive European Commission has proposed that the EU would help supervise clearing houses like LCH (L:LSE) in London after Brexit, with forced relocation of clearing to a euro zone rival such as Eurex (DE:DB1Gn) only a last resort.
ISDA said joint oversight and regulatory cooperation would avoid splitting up the clearing market, a step that would bump up costs for euro zone users in particular.
Having to connect to a new clearing house would also be a "time consuming and labor intensive process" which could create a bottleneck, ISDA said.