In the event of a no-deal Brexit, EU watchdogs produced a list of 6,200 “most liquid” securities that EU banks and investors must trade in the bloc, and included 14 of the UK’s biggest stocks, such as BP, Royal Dutch Shell and AstraZeneca. EU investors could not use the London Stock Exchange, for example. Senior City executives describe it as a “nakedly political” grab for London’s business. UK regulators are likely to have to follow suit with their own list, which will contain more European names because of London’s dominance. If so, CBOE Europe, the region’s largest cross-border exchange, will relist EU shares in London later this year.
Portfolios worth billions of euros are benchmarked to the final prices set in auction on national exchanges. It accounts for nearly a fifth of daily business. Without cross-border access, asset managers would be shut out and the UK more affected. None of the solutions to preventing a huge drop off in liquidity are clean or clear. Fund managers could set up a subsidiary in the right jurisdiction but it is legally complex and time-consuming. They could turn to banks and high-frequency traders to take on the risk for settling their trades against closing prices. Indeed, some are exploring the option, but the rules may not permit it. Brussels is trying to clamp down on off-market activity, not ramp it up. A deal between the UK and EU this week would likely keep European share trading in London, so regulators will need to find a longer-term solution that will satisfy them.
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