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A triennial survey by the Bank for International Settlements found that trading in currencies and interest rate swaps had grown rapidly in the past three years.
Average foreign exchange trading volumes swelled to a record high of $6.6tn a day, up nearly 30 per cent from the 2016 survey, which was compiled shortly before the UK voted to leave the EU. London increased its market share by 6 percentage points to 43 per cent, towering over the US, whose market share dropped from 20 per cent to 17 per cent.
The UK also reclaimed its position as the world’s main hub for trading in over-the-counter derivatives such as interest rate swaps. Average daily volumes in those markets soared from $2.7tn a day to $6.5tn — a jump that the BIS attributed to “increased hedging and positioning amid shifting prospects for growth and monetary policy”. London now commands a 50 per cent share of this business, up from 38 per cent three years ago.
“London is the capital of capital and this report shows that despite challenging times, the fundamentals of the City remain strong,” said Catherine McGuinness, policy chair at the City of London Corporation, the municipal governing body.
The survey from the BIS, known as the “central bankers’ bank”, is closely watched as an indicator of market activity and underscores the centrality of London in global markets. Many banks, brokers and asset managers have opened EU offices and begun shifting some assets to the bloc in preparation for Brexit, but have largely kept their daily activities in the UK.
“There’s no reason to believe that Brexit should restrict access to financial markets. The UK’s financial markets are — as the IMF has described them — a global public good, and we want to keep it that way,” Andrew Bailey, chief executive of UK’s Financial Conduct Authority, said.
The UK also reclaimed its position as the world’s main hub for trading interest rate derivatives, reverting to a long-term trend established since the survey was established 21 years ago. The 2016 report gave the top slot to New York, but that blip appears to have reflected the short-term impact of regulatory shifts.
London also increased its share of trading euro-denominated interest rate swaps, accounting for 86 per cent of all deals, up from 75 per cent in 2016, the BIS said. The issue has become a flashpoint after the Brexit vote, with the EU demanding more direct oversight of the business. EU regulators have granted their investors and banks temporary access to the UK’s markets if there is a no-deal Brexit, but the permit is due to lapse in March next year.
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