LONDON (Reuters) – Brexit forced Britain to relinquish 2.3 trillion pounds ($3.25 trillion) in monthly derivatives trading, leaving New York the global winner in a shake-up of that market, consultants Deloitte and data company IHS Markit said in a report on Tuesday.
Britain left the European Union’s full legal orbit on Dec. 31 and the UK financial sector’s access to the bloc is now limited.
Banks and other market participants in the EU are no longer allowed to use platforms in London to trade swaps, while Brussels has given the United States permission to serve EU investors.
Initial figures in January showed that chunks of trading in interest rate swaps left London for EU and US platforms, and the report on Tuesday confirmed that trend has become embedded.
Market share for euro swaps alone in London fell from just under 40% in July 2020 to about 10% in March, while on EU platforms it rose from 10% to 26%, and in the United States from less than 10% to 19%. Across all currencies, New York fared even better.
“Overall, more trading went to U.S. venues than EU venues,” the report said. (Graphic: Markit Graphic, https://fingfx.thomsonreuters.com/gfx/mkt/jbyprykggve/Markit%20Swaps%20March%202021.PNG)
More worrying for the City of London, the report said the relocation in euro denominated swaps trading has gone beyond what is required by the regulatory curbs as market participants try to trade all their swaps in one place.
The report said over 90% of clearing in euro denominated rate swaps remained in London, however.
“A significant amount of risk to the EU financial systems is (still) in London,” EU financial services chief Mairead McGuinness told an International Swaps and Derivatives Industry Association events on Tuesday.
“This …is simply not sustainable to us in the long run.”
EU banks are allowed to keep clearing euro swaps in London until June 2022 and it will be up to McGuinness to decide if this can be prolonged in any way.
A study by French banks said that only mandating the relocation of swaps clearing would make it shift sufficiently.
Eurex exchange board member Matthias Graulich said he was “extremely happy” with progress so far in attracting euro clearing to Frankfurt. “We have always said we are in favour of a market-driven alternative.”
($1 = 0.7078 pounds)
(Reporting by Huw Jones, editing by Ed Osmond)