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The first day of dealings for the City outside the EU’s single market triggered a large-scale shift in euro-denominated shares from London, where they are typically traded, to new venues in Amsterdam and Paris. It marked an overnight change for investors and banks who had used the UK’s membership of the EU to trade freely across borders.
Gianluca Minieri, deputy global head of trading at fund manager Amundi, said it was “a stunning own goal for the UK. And this is only the beginning.” More volume would move to where investors could get better prices and liquidity, he added. About €6bn of shares that typically change hands in the City were traded in the EU on Monday, and a similar value on Tuesday, as investors became accustomed to the new regime.
The figures equate to almost half of the amount of business that London banks and brokers would normally handle. The abrupt shift had been necessary because the EU refused to recognise most of the UK’s regulatory systems as “equivalent” to its own, which forced trading in virtually all euro-denominated shares business back to the bloc. Following Brexit, Brussels is keen to assert its own sovereignty in financial services and not leave regulation of euro assets to overseas regulators.
“I don’t see this changing quickly. It’s happened, it’s done,” said Nick Bayley, managing director at consultancy Duff & Phelps and a former official at the Financial Conduct Authority. “I can’t see the EU giving equivalence in this space any time soon. “As the market adapts, the need for equivalence wanes. Its value is diminishing with every month that goes by,” Mr Bayley added. Brussels would not be keen to send business back, and getting trading rights from the equivalence process “will be a painful process” for the UK, said Mr Minieri....