London Confronts Exodus of Euro Swaps Trading After Brexit

(Bloomberg) -- London took a major hit to its dominance of euro swap trading after Brexit, with business fleeing the U.K. capital to both the European Union and Wall Street.

That’s according to a new analysis by IHS Markit, which found London trading venues’ share of the euro interest rate swap market slipped to 10% last month from nearly 40% in July. In the same period, EU platforms’ market share increased to a quarter from less than 10%. Wall Street venues’ share doubled to 20%, while trades done off-venue remained relatively steady.

The findings are the latest sign of the repercussions from the Brexit trade deal, which cut off access to most London trading from the bloc. U.K.-based executives are hopeful they can repatriate some of that business with a deal recognizing British and EU regulations as equivalent, arguing that existing U.S. equivalence arrangements will just push trading to Wall Street instead of Europe.

IHS Markit’s analysis also found that London venues’ market share of pound trading slipped to just over 20%, while Wall Street’s rose rose to 23%.

Deutsche Boerse

Germany will benefit as international banks and investors move portfolios of interest rate swaps from London after Brexit, according to Deutsche Boerse AG.

“Some portfolios have been switched already, though they’re on the smaller side,” Gregor Pottmeyer, the German stock exchange’s chief financial officer, said Thursday in Frankfurt. “We’re confident that clients want to do this with us in 2021. We have specific signs and talks on this.”

European regulators are prodding global banks and investors to clear euro-denominated derivatives within the EU, arguing that the move will help keep the financial system stable.

Deutsche Boerse increased its share of notional outstanding interest rate derivatives to 20%, or 20.4 trillion euros ($24.8 trillion), at the end of January, Pottmeyer said. The company is “on track” to meet its goal of 25%, he said.

“The good thing is that we significantly increased our market share with end clients, the asset managers,” he said.

Deutsche Boerse will continue to target “really solid growth” in the business, said Chief Executive Officer Theodor Weimer. He declined to set a new goal, citing uncertainty over the EU’s future relationship with the U.K. financial industry.

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