London regains ground after Amsterdam’s Brexit victory


In Amsterdam, confidence has always been high that the city would win from Brexit. From the summer of 2017, a stream of stock and bond trading platforms that had instinctively chosen London as their European base began to turn to the Netherlands. The Dutch market regulator has even improved its surveillance systems in anticipation of an influx of business.

And, in January of this year, when the Brexit transition period expired, that change became a reality overnight. Due to regulatory restrictions, EU stocks worth billions of euros per day that were normally bought and sold in the City of London had to be traded on venues such as Cboe Europe and Turquoise, markets placed in place to guard against Brexit disruptions. Amsterdam immediately took the crown of London as the largest stock exchange center in Europe.

“Although it was easy to predict, it still caused a stir,” Douglas Rediker, founding partner of International Capital Strategies and former investment banker, said at an event hosted by the Peterson Institute for International Economics. in April. “In itself, that hasn’t had a huge impact on employment. But it left a hole in the story that London could never be replaced.

There were other important but less expected changes. Euro-denominated sovereign debt and swap contracts – all executed and booked in London before Britain left the EU – have also moved to Amsterdam to secure a home that meets the law.

As the dust settles, the UK government appears keen to reaffirm London’s status as a global trade hub, present itself as open to international investors and move away from what it sees as restrictive EU rules .

At the Peterson event, Katharine Braddick, head of financial services at the UK Treasury, said Britain had the same interests as before Brexit but was “very aware” that it needed to restore meaning clear values ​​for financial services. “The Brexit experience was seen as disruptive. . . in industry, because it threatens business decision-making. “

Amsterdam can, however, build on its early gains. The divide between London and Brussels on euro swap trading has widened since the start of the year. Traders who trade in the OTC derivatives market have been forced to book their transactions in New York and Amsterdam to meet regulatory requirements. Now, Cboe Europe is preparing to launch a derivatives exchange in Amsterdam in September, to shake up the European options market.

At the same time, the Dutch Securities and Markets Authority (AFM), the national regulator, intends to use Amsterdam’s new position as one of the largest financial centers in the EU to influence the policy of the bloc. He advocates a pro-market approach – a position that was pushed by Britain when in the EU.

AFM last year urged EU regulators to set rules on transparency in bond and derivatives markets. Then, in May, he backed an industry effort to build a consolidated tape – a single, near-real-time record of transaction prices – for the bond market.

But the weight of London is still felt throughout Europe. Amsterdam’s Brexit gains have been largely limited to companies primarily engaged in facilitating trade, such as CME Group, London Stock Exchange Group, Tradeweb, MarketAxess and Bloomberg. Brokers who trade deals can book trades in Amsterdam or New York, but they sit in noisy trading rooms in London.

Amsterdam’s position as a new leading center for equity trading in Europe may also prove short-lived. The return of Swiss equity trading to London – a change made possible by the departure of the UK – has narrowed the gap. Amsterdam traded € 10.7 billion in shares in March against € 10.6 billion in London.

A UK commitment to explore further rule changes, now that it is free to meet EU demands, may bring more commerce to the city. Britain has already confirmed that it will end restrictions that cap the amount of equity trading in private markets, known as dark pools.

In addition, the UK will drop EU rules that determine where investors can trade stocks, known as the stock trading obligation. This could harm European fund managers. With UK asset managers potentially allowed to trade wherever they want, a report from Liquidnet, a dark pool, concluded: “European asset managers will potentially be at a disadvantage, excluded from liquidity pools.”

Liquidnet noted that three quarters of negotiations on its platform were between UK and non-EU institutional investors.

Other rule changes are planned by the United Kingdom, notably making it a stronger place for the listing of special purpose acquisition companies known as “blank checks”, and more flexibility for the structures of shares to double class which give the founders additional voting rights after a listing.

Both policies have competition from Amsterdam in mind. As AFM President Laura van Geest said in March: “The UK is changing its rules to be more in line with ours, I would say.

But the move to the Netherlands is unlikely to act as a magnet for other types of financial services business after Brexit. Dublin was the biggest winner, overall, in terms of attracting UK businesses, according to research by New Financial, a London-based think tank. Paris, Luxembourg and Frankfurt also rank comfortably ahead of Amsterdam

The Netherlands’ first dizzying gains may moderate.

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