Another triumph for the City of London
Brexit Britain now dominates a £5.4 TRILLION per day market
Montage © Facts4EU.Org 2022
Frankfurt and Paris languish as the Brexit booming City is bouncing back
The City of London has once again come out on top of the EU in a key area of financial services, according to an analysis just published by the well-respected MarkitSERV.
Some trade in the lucrative GBP interest rate swaps market had gone to New York following Brexit but it has been returning with a vengeance. In fact, the City is trading at a higher rate than before Brexit and the EU has fallen to half its previous level.
The former head of LIFFE, Daniel Hodson, speaking exclusively to Facts4EU.Org:
“In the end successful markets are about liquidity, depth and transparent pricing. Traders are not sentimental or patriotic. No other European city can begin to compare with London, particularly with sterling denominated products.”
- Daniel Hodson, former CEO of London International Financial Futures and Options Exchange (LIFFE)
A market dealing with £5.4 trillion of trades per day – and the UK dominates the EU
A year ago the Financial Times was reporting that the UK was losing the swaps market. According to the FT, in this market deals worth more than $6.5 trillion a day (approx £5.4tn GBP) are struck. It is often used by investors to hedge against moves in interest rates and currencies.
Now the trend has reversed and the City is top again. You do not have to be a financial whizz-kid to read what follows with some pride.
Brexit Facts4EU.Org Summary
EU ‘swapshop’ doesn’t get a look in
- A third of all GBP swaps and 57 per cent of on-venue GBP swaps are now executed in UK venues
- This is the highest ever recorded share as a percentage of all GBP swaps
- In comparison, EU venues only had a 2 per cent share of all GBP swaps in March
- The EU ‘performance’ has fallen by half in just the last year
- The EU doesn't even lead in euro swaps (as opposed to Sterling swaps)
- 26% of all euro swaps and 47% of on-venue euro swaps are now executed on the US system
© Brexit Facts4EU.Org 2022 - click to enlarge
A respected City economist spoke exclusively to Facts4EU.Org about the latest good news
“Financial services remained the UK's pivotal wealth generating sector in 2021 with a gross added value of £161.4bn, some 8% of UK output.
“Remain naysayers have always misunderstood the reasons the City is so successful. They thought it was because of the UK's membership of the European Union. Indeed, so pessimistic were they that one of their principal cheerleaders, PwC, argued just before the EU referendum in 2016, that it was predicting 70-100,000 job losses in the City as a direct result of Brexit.
“That always looked way too bearish as it would have represented about one in four Square Mile jobs – but it gives a measure to the groupthink of Remain voices.
“Six years after the EU Referendum barely any jobs have migrated and the City remains the overwhelming European Centre. London remains nip-and-tuck with New York as the global leader. The closest European challenger, Paris, comes in at number 10 with Frankfurt 14th. If anything, London's dominance has grown.”
Ewen Stewart, Walbrook Economics, 11 May 2022. (City economist of 30 years’ experience.)
‘Interest Rate Swaps’ may sound like gobbledygook, so here’s a quick explainer
Some of the details above may seem overly technical to most people. However what it means is the warnings that Brexit would see the City emptied of talented staff and trades - be it in relation to swaps or currency - has simply not happened.
In a sense the technical details of ‘interest rate swaps’ are not important. What matters is that in a highly competitive market the City of London came out on top – and then some.
For readers who are interested, a swap is: ‘An agreement for a financial exchange in which one of the two parties promises to make, with an established frequency, a series of payments, in exchange for receiving another set of payments from the other party. These flows normally respond to interest payments based on the nominal amount of the swap.’
The City has unmatched heft and creativity because it is free
Oh how the UK’s Remainers cheered when Amsterdam became Europe’s top share trading location in 2021. Apart from the strange fact that they might wish ill on their own country, naturally they forgot to mention the EU had made it illegal for Euro-denominated share trading by EU investors to happen in Britain after the UK left the European Union on December 31, 2020.
London, being an open market, had no such restrictions. The EU had simply rigged the market.
The EU always thought that regulation and a mercantilist approach was the key. In reality the reverse was true; over-regulation was the key threat to the City's European dominance.
We should recognise our strengths and play to them
Comparative advantage is not about regulation, it is about economic geography, skill clusters, depth of capital pools, long-held expertise and the overall business environment. London is truly a global city in the way other European capitals are not. It’s not just about our language, it’s about our business legal code and attitude to international trade.
Now we must press that advantage as the City – and its proxies in Leeds, Edinburgh and across the UK - remains a huge global growth industry. Free from the EU, London has a unique opportunity to unwind the EU’s burdensome regulatory approach which strangles innovation and only adds to cost.
So far we have not moved anything like fast enough in this regard but the opportunity is enormous and exploiting it must be our urgent task. We must not be content merely with UK leadership in Europe, there are far bigger opportunities world-wide. Taking them must be our goal.
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[ Sources: MarkitSERV | BBVA | Reuters | Facts4EU interviews ] Politicians and journalists can contact us for details, as ever.
Brexit Facts4EU.Org, Thur 12 May 2022
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