London's financial sector started to feel the full effects of Brexit on Monday, the first trading day of 2021, as nearly €6 billion of EU share dealing shifted away from the City to facilities in European capitals.
Trading in equities such as Santander, Deutsche Bank and Total moved to EU marketplaces or back to primary exchanges such as the Madrid, Frankfurt and Paris bourses, according to data from Refinitiv - an abrupt change for investors in London who have grown accustomed to trading shares in Europe across borders without restrictions.
Business on London hubs for euro-denominated share trading, including Cboe Europe, Turquoise and Aquis Exchange, shifted to their new EU venues set up late last year to cater for the end of the Brexit transition. The volume amounted to a sixth of all business on exchanges in Europe on Monday.
Liquidity
“It’s been an extraordinary day. Shifting liquidity is one of the hardest things to do. It’s not ‘Big Bang’ - it’s ‘Bang and It’s Gone’. The City has lost its European share business,” said Alasdair Haynes, chief executive of Aquis Exchange.
Although not the City’s most lucrative business, the departure of the share trading will mean less in tax receipts for the UK government. Mr Haynes also noted that it could encourage companies to list in the EU to benefit from smoother, more active trading conditions.
Cboe Europe said 90 per cent of its EU flows, more than €3.3 billion worth of deals, were now in Amsterdam, compared with very little last year. Aquis said “virtually all” euro-denominated share trading had shifted to Paris overnight. Turquoise, controlled by London Stock Exchange Group, also had most of its EU business transition to Amsterdam. Very little business traded on the venues before the transition period ended.
“All our systems are operating normally and, as expected, the majority of activity in EEA-symbols is now taking place on our Dutch venue, with activity across all our market segments,” said David Howson, president of Cboe Europe, referring to European Economic Area-based stocks.
For decades, London-based trading systems and big investment banks have been at the heart of cross-border share trading, with up to 30 per cent of all EU shares traded across the continent passing through the City.
But the UK's trade deal with the EU largely omitted financial services. UK prime minister Boris Johnson admitted the agreement had failed to meet his ambitions on the sector. The EU had refused to recognise most of the UK's regulatory systems as "equivalent" to their own, forcing all euro-denominated business to move back to the bloc.
With financial services outside the UK-EU trade talks, share trading executives in London expected little from EU regulators and had been prepared for several years to trade as if the UK had left the EU with “no deal”. Mr Haynes said he doubted the EU would grant equivalence in share trading soon, if ever.
Brussels has sought greater oversight of all euro-denominated assets and is keen to reduce its reliance on the City of London for finance, an economic activity it views as strategically important for the bloc.
Standards
Financial services lobby groups on both sides have urged the EU and UK to quickly build on the trade deal and agree common supervisory standards. The two sides are trying to draft a memorandum of understanding on future co-operation on financial services by the end of March, although it would not have the same legal force as an international treaty.
Emphasising that the EU and UK were distinct jurisdictions, EU regulators on Monday also withdrew registration of six UK-based credit rating agencies and four trade repositories - data warehouses that provide authorities with information on derivatives and securities financing trades. EU companies and investors will now have to use EU-based entities. – Copyright The Financial Times Limited 2021
