London’s financial sector began to feel the full effects of Brexit on the first trading day of 2021, when nearly € 6 billion in EU equity trading shifted from the city to facilities in European capitals.
Trading stocks such as Santander, Deutsche Bank and Total moved to EU markets or back to primary exchanges such as the Madrid, Frankfurt and Paris stock exchanges, according to Refinitiv data – an abrupt change for London investors who have become accustomed to trading shares in Europe across borders without restrictions.
Business at London Euro equity trading hubs, including Cboe Europe, Turquoise and Aquis Exchange, shifted to their new EU locations set up late last year to accommodate the end of the Brexit transition. The volume on Monday amounted to one sixth of all turnover on stock exchanges in Europe.
“It’s been a special 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 equity business,” said Alasdair Haynes, CEO of Aquis Exchange.
While not the city’s most lucrative business, the departure of stock trading means less tax revenue for the UK government. Mr Haynes also noted that it could encourage companies to list in the EU to take advantage of smoother, more active trading conditions.
Cboe Europe said 90 percent of its EU flows, more than € 3.3 billion in deals, now took place in Amsterdam, compared to very few last year. Aquis said that “virtually all” euro-denominated stock trading had shifted overnight to Paris. Turquoise, controlled by London Stock Exchange Group, also saw most of its EU operations move to Amsterdam. Before the transition period ended, very little business had been traded at the sites.
“All of our systems are operating normally and, as expected, the majority of EEA symbols business now takes place in our Dutch location, with operations in all our market segments,” said David Howson, president of Cboe Europe, referring to European Equities in the Economic Area.
For decades, London-based trading systems and major investment banks have been at the heart of cross-border equity trading, with up to 30 percent of all EU equities traded on the continent going through the city.
But the UK’s trade deal with the EU largely omitted financial services. British Prime Minister Boris Johnson admitted that the agreement had failed to deliver on his ambitions in the sector. The EU had refused to recognize most of the UK’s regulatory systems as “equivalent” to theirs, forcing all euro-denominated companies back to the bloc.
With financial services outside the UK-EU trade talks, London stock trading executives expected little from EU regulators and had been prepared for years to act as if the UK had left the EU with “no deal”. Mr Haynes said he doubted whether the EU would soon or ever grant equivalence in equity trading.
Brussels has sought greater scrutiny of all euro-denominated assets and wants to reduce its reliance on the City of London for funding, an economic activity it sees as strategically important to the bloc.
Financial services lobby groups on both sides have urged the EU and the UK to rapidly build on the trade deal and agree common supervisory standards. The two sides are trying to draft a memorandum of understanding on future cooperation in financial services by the end of March, although this would not have the same legal force as an international treaty.
Emphasizing that the EU and the UK are different jurisdictions, EU regulators on Monday also revoked the registration of six UK-based credit rating agencies and four trade repositories – data warehouses that provide authorities with information on derivatives and securities financing transactions. EU companies and investors will now have to use EU-based entities.