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* First trading day after EU summit seen as new Brexit D-Day
* Banks ready to run 24-hour operations
* Markets see less than 50% chance 'no deal' EU departure
By Huw Jones and Sinead Cruise
LONDON, Oct 9 (Reuters) - Financial markets could go into a
Brexit tailspin about 10 days earlier than expected if a
potentially chaotic no-deal departure at the end of the month
looks inevitable, bankers say.
Five banking sources said contingency plans were in place to
deal with a possible rout in stocks, bonds and sterling on Oct.
21, rather than immediately after Britain's scheduled departure
date of Oct. 31.
Traders are preparing to eat, sleep and work round the clock
in their offices.
Senior management of at least two large banks are expected
to convene in Brexit "control rooms" to oversee operations and
keep regulators abreast of market activity.
Under legislation known as the Benn Act passed by parliament
last month, if Britain fails to secure a departure deal at an EU
summit on Oct. 17, Prime Minister Boris Johnson must ask for an
extension by Oct. 19.
There will be a special sitting of parliament that day - a
Saturday, when the House of Commons does not usually meet - to
debate ways forward.
Brussels has signalled that a compromise settlement proposed
by Johnson last week won't fly, and the prime minister has said
he will not extend Brexit beyond Oct. 31.
If Johnson refuses to request an extension, a no-deal
scenario becomes the most likely outcome, the sources said.
Monday, Oct. 21 would then be the first day of trading for
markets and investors to react to Britain's pending rupture from
the bloc.
"Everyone realises that Monday morning when markets open is
an important point in the process," a senior banker at an
international lender told Reuters.
The EU is Britain's biggest financial services export
market, worth 26 billion pounds in 2017, and a no-deal Brexit
would disrupt some cross-border business.
Many banks, insurers, fund managers and share trading
platforms based in Britain have already opened hubs in the EU to
ensure continuity of their business within the bloc.
Even if no deal is agreed or extension requested, markets
would face either the government resigning, or clashing with
parliament and the courts over the Benn Act, both of which would
also unnerve investors, the banker said.
MARKETS UNFAZED SO FAR
While sterling took heat again on Tuesday, it remains
largely within recent trading ranges. Markets still think there
is far less than a 50% chance of a "no deal" Brexit this month
and most expect an election to precede Brexit.
Options markets are also showing no sign of panic so far,
with implied volatility, a gauge of expected price swings,
relatively subdued.
A source at a second global bank said detailed plans were
afoot to manage "bumpy" market conditions from Oct. 21 through
Brexit day.
Oct. 21 is also the beginning of autumn holidays for many
schools in Britain, and banks have asked staff to be "sensible"
regarding travel and leave plans.
"We continue to plan for a hard Brexit scenario - that may
mean extra staff on the trading floors," the source said.
In July, the Association for Financial Markets in Europe
(AFME) warned that banks may not have enough to time to make the
technology changes necessary to avoid market mayhem in the event
of a no-deal Brexit.
Brexit is due on a Thursday, with markets in many European
countries open on the following day.
Global banks may have to report trades to a different
regulator, depending on where they are based. Such a switch
would normally require a full weekend to ensure proper testing.
Additional challenges may arise from Nov. 1 being a public
holiday in many EU countries, meaning not all regulators may be
in place on that day, AFME has said.
"In Global Markets, we are making sure that we have the
resources in place to provide a 24-hour service to our clients
across all the key markets to which we usually provide access,"
a spokesman for HSBC said.
The Bank of England said on Wednesday that lenders,
insurers, brokers and the broader financial system are prepared
for a worst-case disorderly Brexit.
That would see UK assets fall sharply, along with the pound,
but banks hold over a trillion pounds in liquid assets to meet
obligations without fresh funding for many months, the BoE said.
(Additional reporting by Sujata Rao-Coverley; Editing by Giles
Elgood)
