London loses €210 billion a day finance market as Brexit looms

CME Group is moving its European market for short-term financing, the largest in the region, to Amsterdam

London's financial district. CME is moving its BrokerTec operation out of the UK ahead of the UK's EU divorce. Reuters

The City of London is being dealt another Brexit blow.

CME Group is moving its European market for short-term financing, the largest in the region, out of London because the exchange operator wants to guarantee continental firms can continue to use it if there is a no-deal Brexit.

The decision, which was taken before CME took over the business from NEX Group last week, is the first example of a major financial market leaving the UK. While every sizeable trading venue has set up a regulated entity in the European Union because of Brexit, BrokerTec - as the business is known - is the first to move an existing market from London to a continental European city: Amsterdam.

“All of our euro-denominated bonds and repo will move to Amsterdam,” said John Edwards, managing director of BrokerTec Europe. “We saw no benefit in splitting liquidity pools. Our UK business will not be able to provide services to the European clients.”

BrokerTec is not alone in planning for the worst. Stifel Financial is ensuring it can continue offering financial services in Europe by buying the brokerage operations of Germany’s MainFirst. And BNP Paribas plans to move between 85 and 90 employees from its global markets unit in London to other European financial centres in case of a hard Brexit.

BrokerTec Europe currently employs as many as 90 people in London, according to a source. A third of those are front office, with the remainder working in technology or support roles.

About €210 billion (Dh884.83bn) per day of European short-term financing instruments were traded on BrokerTec in October, Mr Edwards said. That market will be shifted to CME’s Dutch subsidiary, NEX Amsterdam. BrokerTec’s UK entity traded an additional €59 billion of UK gilt repo deals, which will all remain in London post-Brexit.

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BrokerTec’s European government bond cash market will also move to the Dutch city, while its gilt market will stay in the UK. The company doesn’t disclose trading volumes for its cash bond markets outside the US.

CME completed its takeover of BrokerTec’s owner, NEX, last week. BrokerTec has been signing up customers to trade with NEX Amsterdam, which still needs regulatory approval, since the summer. It plans to open the new market in February, well before the UK leaves the EU on March 29.

BrokerTec wanted to eliminate the risk that its EU-based clients could lose access to the European repo market. Some of Europe’s biggest trading venues and trading firms have warned of the danger of “split liquidity pools”, where trading becomes more difficult and costly because investors on different sides of the North Sea can no longer trade with each other.

“Nobody knows what the European landscape is going to look like in five months’ time, let alone three years’ time,” Mr Edwards added.

He declined to say whether NEX Amsterdam would employ more than the 12 people that it said would work for the Dutch entity when it announced its choice of the Netherlands a year ago.

BrokerTec has applied to be a regulated market in the Netherlands, even though it operates as a multilateral trading facility in the UK. Multi-lateral trading facilities have to apply the Dutch bonus cap - Europe’s toughest - on employees, but regulated markets are exempted from the limits on pay.

A report released in July by EY showed investment from abroad in British financial-services firms fell 26 percent in 2017. During the same period, Germany experienced a 64 per cent increase, while the figure for France more than doubled. London still attracted more inward investment in financial services than any other EU city, but the gap with Paris, Frankfurt and Dublin was narrowing.