Brexit Forces Bankers to Shift Trading of European Stocks Out of London
The abrupt shift underscores the European Union’s broader plan to bolster its own financial centers
The fallout from Britain’s split from the European Union showed itself on the first trading day of the year as a big chunk of dealing volume in EU stocks moved from London to venues located in Amsterdam, Paris and the Continent’s other financial centers.
Britain’s membership of the EU had meant the region’s banks and investors could bypass the home exchanges of stocks such as Paris-listed luxury-goods giant LVMH Moët Hennessy Louis Vuitton SE and Amsterdam-listed Just Eat Takeaway.com NV, the big food-delivery company, and trade them in London over alternative venues. Those venues included Turquoise, a trading facility majority-owned by the London Stock Exchange Group PLC, and rival platforms Aquis Exchange PLC and Cboe Global Markets Inc.’s Europe-based marketplace.
But with the Brexit trade agreement taking effect Jan.1, that option ended.
The bloc pushed for greater control over the trading of EU stocks during Brexit negotiations as part of its efforts to better compete with London, historically Europe’s dominant financial center.
Trading venues had been ready for the post-Brexit shift of EU stock trading volume. The LSE’s Turquoise, for example, at the end of November set up a European hub in Amsterdam to trade European stocks. Cboe also has a hub in Amsterdam. Aquis operates a platform in Paris for the same reason. While the operations therefore look unlikely to suffer, at least in the short term, volumes leaving London send a signal that other city centers can compete effectively and support comparable services without hiccups.
The LSE declined to comment on the trading volume levels of its Turquoise platform in Amsterdam Monday. For Cboe, about 90% of its trading volumes of European stocks had moved to its platform in Amsterdam Monday. Before that, all of that volume had been handled in London. In the case of Aquis, close to 100% of its volumes of European stocks had moved to its Paris operation. That is up from a minimal amount when the U.K. was still part of the EU.
“It’s been an overnight transition business,” said Belinda Keheyan, head of marketing at Aquis.
The U.K.’s split with the EU already has triggered an outflow of £1.2 trillion, equivalent to about $1.6 trillion, of assets to Continental Europe since the 2016 Brexit vote, and forced banks, exchange operators and other financial institutions to move hundreds of employees and expand or set up new offices in Frankfurt, Paris and other European cities.
Officials at some exchanges say it is too early to determine whether Europe’s domestic stock markets will generate significant gains in trading volume on their respective exchanges as a result of the shift in activity to the Continent. That is reflected in the market share data of different operators. For example, trading volume on Deutsche Börse’s Xetra exchange currently represents about 14.4% of total volume across European markets, according to Cboe, which tracks the data. That is up from about an average daily share of 13.9% in December. However, Spain’s Bolsa de Madrid’s market share and that of Euronext NV’s European platforms including those in Amsterdam and Paris are currently down from their December averages.
The shift in trading volumes of EU stocks coincided with weakness in the pound, which was trading 1.5% lower against the euro.
Jane Foley, head of foreign-exchange strategy at Rabobank, said that while the change in trading venue might weigh on the pound, news on Covid-19’s spread and vaccinations against it are obscuring any impact.
“Perhaps during the course of this year that might become a little more obvious,” Ms. Foley said. “We need a longer period to really look through the overriding factors. It’s quite difficult to figure out which factors are pulling in any direction.”