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By Huw Jones and Sinead Cruise

LONDON (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 signaled 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 realizes 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.

(GRAPHIC - Sterling vol subdued: https://fingfx.thomsonreuters.com/gfx/mkt/12/7116/7047/vol.png)

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 (L:HSBA) 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.


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