When the UK’s Brexit transition agreement with the EU expired this week, some €6 billion ($7 billion) of daily trading in EU stocks left London overnight for markets across the Channel. The question is whether this was a one-time hit or a sign that even bigger chunks of the financial sector will disappear.
Because financial services were largely left out of the Brexit agreement between London and Brussels, exchange operators in the UK can no longer provide trading in EU-listed stocks to European customers from Britain. Companies in the UK capital like London Stock Exchange Group, Cboe, and Aquis Exchange activated their venues for EU-shares on the Continent, where nearly all trading in EU stocks now takes place.
It’s easy to overstate what has happened so far, which is mainly a change in legal designation. UK-based exchange operators have units in places like Paris and Amsterdam for this type of business, but the electronic buying and selling technically still happens in a data center in the UK. (As does the trading for Pan-European exchange Euronext.) Brits lost a dab of tax revenue and some pride, but at this point the country’s financial district is well intact.
“Banks and brokers did a lot of work to make sure they can continue trading as normal,” said Anish Puaar, an analyst at Rosenblatt Securities in London. “Instead of Cboe London it’s Cboe Amsterdam. That’s about it.”
Finance executives, however, are concerned it could be just the beginning.