Amsterdam stock trading notches first Brexit win over London

London stock trading is the first casualty of a post-Brexit battle over financial services, with market data showing Amsterdam gained an edge in the business of handling share transactions.

London daily share volumes fell €600 million below Amsterdam’s on average in January — €8.62 billion versus €9.22 billion, according to data from the market operator Cboe, first reported by the Financial Times. London trading averaged €14.56 billion a day in December.

The almost €6 billion in daily volume that left Britain has mostly gone to the Dutch financial center, where market operators including the London Stock Exchange and U.S.-based Cboe opened new venues last year to maintain service to EU clients after January 1.

Trading in carbon emissions permits and some derivatives is also relocating as the EU takes a regulatory stance to steer business away from London, which remains the region’s preeminent center in other financial business.

The shift results from rules requiring EU investment firms to trade on recognized platforms — a status that London markets have failed to regain from the European Commission after Brexit.

EU law provides for the recognition of trading venues in other countries, if they apply equivalent rules. The Commission has withheld that status, despite the two sides’ identical starting point, on the grounds that the U.K. could relax its standards.

British authorities reject that idea. “This is a standard that the EU holds no other country to and would, I suspect, not agree to be held to itself,” Bank of England Governor Andrew Bailey said Wednesday.

The EU and U.K. are engaged in talks for a regulatory cooperation agreement that could unlock the recognition. But market experts don’t expect that to reverse the migration of business, considering companies’ investment in setting up their Continental infrastructure.

‘Permanent change’

“It’s unlikely that London will regain its status as the home for trading EU shares,” said Anish Puaar, market structure analyst at Rosenblatt Securities in London.

“Even if the U.K. and EU agree regulatory equivalence for stock trading, there’d probably be little appetite among banks and brokers to manage another large-scale liquidity shift back to London,” he said in an emailed comment.

“I would also expect that this is going to be a permanent change in terms of movement of trading from the U.K. to the EU,” top European market regulator Steven Maijoor said Thursday, echoing comments since the trend appeared last month.

“It has been a positive transition,” with no glitches or negative impacts on market participants, according to Maijoor, chairman of the European Securities and Markets Authority. Speaking at a conference, he noted that some of the relocation has gone to Dutch platforms owned by U.K. operators.

In order to recoup some of the lost business, on February 3 the U.K. declared the equivalence of Switzerland’s market rules, a status that the Commission withdrew in 2019 as part of a wider disagreement with Bern. Swiss authorities have made the same move for Britain. That’s not yet enough to restore London’s symbolic pole position, however.

“The data so far in February shows that Amsterdam is still above London, even with Swiss activity back in London,” a Cboe spokesman said. “We are committed to growing both our U.K. and Dutch venues to continue to bring competition and choice to Europe’s equity markets.”

A spokesman for British Prime Minister Boris Johnson criticized the EU’s stance on equivalence that led to London’s losses.

“Despite the fact that we’ve supplied all of the necessary paperwork and are one of the world’s most preeminent financial centres, with a strong regulatory system, the EU still haven’t granted us full equivalence,” the spokesman said. “Fragmentation of share trading across financial centers is in no one’s interest.”

Derivatives market

It’s not only shares that London is losing out on.

EU carbon trading worth €1 billion per day will be moved to Amsterdam, again as a result of a lack of EU equivalence. Amsterdam also is emerging as the winner in the shifting of euro-denominated derivatives trading, according to an analysis from the data provider IHS Markit on Wednesday.

January data shows the U.K. losing market share across nearly all classes of traded derivatives, with American and EU venues gaining. The EU has declared the U.S. equivalent for derivatives trading.

On euro-denominated swaps, for example, Britain’s market share fell to 10 percent in January from 40 percent, while the EU’s jumped to 25 percent from under 10 percent.

London remains the largest European financial center overall, with 43 percent of a $6.6 trillion global foreign exchange market being traded in the city as of 2019. The U.K. continues to be a leader in banking, asset management and bond trading as well.

Seeking to counterbalance the lost EU access, the U.K. also is holding talks for increased financial sector participation in foreign markets such as China, India, Singapore, Brazil and Japan, the Treasury’s top official in charge of financial services said on February 10.

“The Chancellor has set out ambitious plans to renew the UK’s position as the world’s pre-eminent financial centre — making it more open, technologically advanced and a global leader in green finance,” a spokesman for Chancellor Rishi Sunak said.

Hannah Brenton and Cristina Gallardo contributed reporting.

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