Amsterdam has overtaken London as Europe’s largest share trading centre, as experts warned that the symbolic blow could be followed by the City losing even more business owing to Brexit.
The Dutch capital, which was previously the sixth largest exchange centre in Europe, saw average daily trading surge from €2.6bn (£2.3bn) to €9.2bn in January, as exchanges shifted order books abroad after Brexit.
It pushed London into second place, with average daily trading halving – from €17.5bn to just €8.6bn last month – according to data released by the CBOE exchange.
Under European rules that pre-date Brexit, EU shares traded in euros must be traded on EU exchanges, or in countries with special “equivalence” status.
After Britain failed to gain equivalence with the EU or strike a comprehensive trade deal covering financial services, exchange operators such as the CBOE and Turquoise had to move their order books abroad by January 2021.
While the figures are large, the overall impact on the City is small. Only a handful of jobs at the exchanges have had to move and the overall tax benefits to Amsterdam from a low-margin business like trading will be minimal, according to Nick Bayley, a managing director at consultancy Duff & Phelps.
“In terms of jobs, tax revenues, other revenues, the profit and loss accounts and so on being generated in Holland rather than in the UK, it’s marginal. But it is symbolic, of course,” Bayley said.
The change can be compared to moving a computer that processes online store orders from one city to another. While the computer has moved, all of its customers and suppliers are still in the same place.
Likewise, while share trading has shifted, most of the traders, brokers and asset managers are still in London.
“It’s a technological switch or regulatory switch, but it’s not some sort of seismic shift, where suddenly people think ‘London isn’t as attractive of a place to do business or London is doomed as a financial centre,’” said William Wright, the founder of the New Financial thinktank.
Roughly 20% of Britain’s financial services industry is related to EU clients and euro operations, Wright said, while more than half is focused on domestic UK customers. “It’s not going anywhere,” he added.
Even if half of the City’s EU-related business eventually moved, that would account for only 10% of the financial centre’s business, which could shave 1% off the £76bn contributed by the industry to the Treasury last year.
“The fact that the government has just spent nearly £300bn on its response to Covid, a £7bn loss suddenly doesn’t seem like such a big number. I don’t want to minimise the impact, but I think we need to keep it in perspective,” Wright said.
However, UK authorities should still be “alive to the risk” that the City loses more than share trading, he added.
Experts at the accountancy firm Deloitte said the UK should be concerned about whether the EU would continue to recognise London clearing houses – which facilitate trading of financial assets – after an 18-month grace period, and whether it would allow fund managers to handle EU assets from within the UK.
“These are things that are not going to be solved in the next six months but are definitely things we have to watch out for over the next few years, which are, I think, more likely to shift jobs than the share trading,” said Alex Szmigin, a partner in the risk advisory arm of Deloitte.
Euro-denominated share trading is not expected to return to London, according to the chair of the European Securities and Markets Authority, Steven Maijoor.
“I would suspect that this is going to be a permanent change in terms of movement of trading from the UK to the EU,” he said on Thursday.
Even if the government clinches an equivalence deal for financial services – where the UK and EU recognise each other’s regulatory standards – it does not provide long-term certainty for firms, since it can be revoked with just 30 days’ notice.
Meanwhile, the EU’s finance chief said on Thursday that Brussels would strive for close cooperation with Britain on financial services but London could not expect “equivalence-based” access to the EU financial market if it diverged widely on rules.
“While the issue of equivalence is an area which we will discuss with the United Kingdom progressively, taking into account the UK’s regulatory intentions on a case-by-case basis, there cannot be equivalence and wide divergence,” EU financial services commissioner Mairead McGuinness told an online event.