City of London’s Brexit Tab Rises
With Stock and Swaps Moves
By Silla Brush and Viren Vaghela
February 12, 2021, 12:00 AM GMT
The City of London has little to celebrate from the first
six weeks of freedom from the European Union.
The financial
district lost its crown to Amsterdam as Europe’s top place to buy and
sell stock. Traders have shifted interest-rate
swaps out of the U.K. capital. Relocations of bankers are set to continue
in 2021.
“Brexit is a body blow to the London financial center,”
Xavier Rolet, former head of London Stock Exchange Group Plc, said in an
interview. “I’m very deeply worried that Brexit
is going to kill the golden goose and we are already seeing the first signs
that this has started to happen.”
With constant sparring between officials on both sides of
the Channel, industry executives are pessimistic that talks will lead to an
easy solution allowing business to carry on anything like how it did before.
The EU has already made clear that it’s in
no rush to grant the U.K. access to the bloc and is on a mission to build its own capital markets.
The trouble for London is that it’s not just competing with
the EU. Asian hubs and Wall Street could
be more appealing to traders seeking the most liquidity and lowest costs
compared with Europe’s fractured markets.
Swaps Trading
London’s dominance of
global interest-rate swap trading slipped, with U.K. trading venues’ share
of the euro interest rate swap market plunging to 10% last month from nearly
40% in July, according to IHS Markit. In the same period, EU platforms’ market share increased to
a quarter from less than 10%. Wall Street venues’ share doubled to 20%,
while trades done off-venue remained relatively steady.
According to a separate analysis by Clarus Financial
Technology, a financial-market data consultancy, U.S.-based interdealer
platforms run by TP ICAP Plc and BGC Partners Inc. have benefited, while
trading volumes have surged on Wall Street venues for European credit index
trades.
Swaps Clearing
Swaps clearing, one
of London’s crown jewels, is also increasingly up for grabs. Deutsche
Boerse AG, the EU’s main clearinghouse for interest rate swaps, is gaining
business and said this week it’s on track to meet its goal of 25% market share.
While the EU opened access to London clearinghouses at the
end of the Brexit transition period, the decision is good only for 18 months,
to June 2022. And the EU is applying more pressure on banks and money
managers to move euro swaps clearing to inside the bloc.
Share Trading
Amsterdam
overtook London as Europe’s largest share trading center in January after
Brexit saw about half of the city’s
volumes move to the continent.
The data doesn’t account for the return of Swiss share trading to London, which only resumed last
week after the U.K. took advantage of its exit from the EU to end an 18-month
hiatus for Swiss equities. That may see the U.K. capital edge back ahead in
February, although its average daily volumes will still be well below historic
levels given London averaged 1.3 billion euros ($1.6 billion) in Swiss share
trades per day before the ban, about a fifth of the EU share trading that
left London overnight after Jan. 1.
Carbon Market
London’s boosters -- including Barclays Plc’s Jes Staley --
talk of a dividend from the freedom to set its own rules and pursue ambitions
like becoming a green finance hub. But early days aren’t yielding much cause
for optimism.
The Intercontinental Exchange Inc. said it will move
the 1 billion-euro ($1.2 billion) daily market in trading carbon-emissions
contracts to the Netherlands. While
ICE is setting up a U.K.-specific market, the EU’s is a major plank of the
continent’s efforts to combat climate change and volumes have more than doubled
since 2015.
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