When the UK’s Brexit transition agreement with the EU expired this week, some €6 billion ($7 billion) of daily trading in EU stocks left London overnight for markets across the Channel. The question is whether this was a one-time hit or a sign that even bigger chunks of the financial sector will disappear.
Because financial services were largely left out of the Brexit agreement between London and Brussels, exchange operators in the UK can no longer provide trading in EU-listed stocks to European customers from Britain. Companies in the UK capital like London Stock Exchange Group, Cboe, and Aquis Exchange activated their venues for EU-shares on the Continent, where nearly all trading in EU stocks now takes place.
It’s easy to overstate what has happened so far, which is mainly a change in legal designation. UK-based exchange operators have units in places like Paris and Amsterdam for this type of business, but the electronic buying and selling technically still happens in a data center in the UK. (As does the trading for Pan-European exchange Euronext.) Brits lost a dab of tax revenue and some pride, but at this point the country’s financial district is well intact.
“Banks and brokers did a lot of work to make sure they can continue trading as normal,” said Anish Puaar, an analyst at Rosenblatt Securities in London. “Instead of Cboe London it’s Cboe Amsterdam. That’s about it.”
Finance executives, however, are concerned it could be just the beginning.
“Losing your equities business for European trading, while it’s annoying, and embarrassing, it isn’t actually a huge part of the $60 billion trade surplus that exists today in the UK for financial services,” said Alasdair Haynes, founder and CEO of European stock exchange Aquis Exchange. “The worry is what happens with the next bits? And what are the next bits of the industry that start to move across?”
Britain has two choices with big implications: officials can try to retain access to the EU market by keeping the UK’s rules and regulations closely in line with those of the European bloc. The hope would be that EU authorities would grant the UK “equivalence” and allow its companies to sell financial services to the single market.
The other choice is to be bold: the UK can forget equivalence, give up easy access to the EU’s single market, and go its own way, making full use of its capacity to make its own rules and regulations. But if the UK decides to diverge from the EU’s rules, that could spur officials in Paris and Frankfurt to rev up their efforts to strip as much financial-services business from Britain as possible.
Xavier Rolet, the former chief executive of the London Stock Exchange Group, doubts UK politicians will go the more ambitious route. For Rolet, a Frenchman who was also an executive at investment bank Lehman Brothers, the bottom line is that services account for about three-quarters of Britain’s economy, and Westminster doesn’t have a deal…
Read More: qz.com
