Brexit Causes Biggest Trading Shift In Decades For Europe

January 12, 2021

Trading in Europe underwent its biggest shift in decades at the start of January when the UK fully exited the EU and Europe’s financial services shift focus away from London.

The EU is aiming to reduce reliance on London as a financial trading centre, instead concentrating on euro-based trading in cities like Frankfurt, Paris, and Amsterdam.

New Year Changes

Whilst the recently agreed trade deal between the UK and the EU covered rules for a number of industries, the British financial sector was not one of them. Automatic access to EU financial markets ended for the UK when it left the EU on 31st December. The first trading day of the New year was 4th January.

Huge Trading Shifts

The changes mean that stocks, bonds, and derivatives in the EU will now be split into two separate trading pools. Concerns have been voiced that this might give less competitive prices to investors.

From 4th January, banks in the EU must trade euro denomination shares within the EU. This means that vast amounts of trades will shift away from London-based exchanges to the EU trading hubs.

This is significant – until now almost all EU cross-border trades, worth billions of euros per day in total, were carried out on London-based platforms.

Disruption To Derivatives

Until now, London has also boasted a trade in derivatives worth trillions of euros. This will also be affected by Brexit, with the Bank of England already warning that $200 billion of interest rate swaps could be interrupted by the transition.

This is because banks trading in the UK or EU must trade within either their own jurisdictions or approved platforms based in New York, making trade between UK and EU institutions more complex. If disruption becomes too severe, it may force the UK to ease its own restrictions to keep trade going.

Long Term?

This is brand new territory. It remains to be seen how trading in both the UK and the EU will be affected in the long term. Traders and financial experts from both sides of the Channel will be watching out for how volumes change in both locations.