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To follow on from this, and at author's request, a stab at what we see from next week on European share markets. A thread 1/n https://twitter.com/HideNotSlide/status/1344357616600965123
First the background. For a few hours tomorrow investors get to enjoy the UK in the Single Market.
Shares are traded across borders and usually involve coming through London.
Shares are traded across borders and usually involve coming through London.
That doesn't necessarily mean trading on the LSE but could be via another venue like LSE's Turquoise, CBOE Europe or Aquis Exchange (all MTFs, equivalent to a US ATS).
Or they're traded on systematic internalisers, a legal term for a marketplace run by banks and HFTs.
Plus EU exchanges don't trade each other's shares like the NYSE, Nasdaq and CBOE do in the US. The country you list in is probably where most of the liquidity is.*
Virtually all trading in FTSE 100 shares take place in London for example.
Virtually all trading in FTSE 100 shares take place in London for example.
*Caveat. That country=liquidity dominance is mostly seen at the opening and closing auctions. Intraday, EU shares are often traded in London.
That makes UK's departure A Problem for both sides.
That makes UK's departure A Problem for both sides.
EU regulators want that business back, partly for oversight, partly for competition/less reliance on London. On Monday they will get more of it. Why?
Because they've set the rules that EU investors can only trade EU shares on EU venues.
There are also some clarifications on dual listings and EU shares traded in UK in euros/sterling but for another time...
There are also some clarifications on dual listings and EU shares traded in UK in euros/sterling but for another time...
Anyhow post-Brexit EU regulators will let EU investors trade UK shares in London.
UK investors will still be able to use EU exchanges too.
UK investors will still be able to use EU exchanges too.
But it's unlikely the LSE will face much loss of market share.
The likes of Euronext and Deutsche Borse aren't likely to see their shares go down much either.
The likes of Euronext and Deutsche Borse aren't likely to see their shares go down much either.
But Brexit does create a problem for those others based in London - banks, CBOE Europe/Turquoise (controlled by LSE) /Aquis, who all traded EU shares during the day.
They've set up EU venues to counter loss of market share. So far they've not really been used.
They've set up EU venues to counter loss of market share. So far they've not really been used.
On Monday how much business will go to these hedge venues and how much to Deutsche Borse/Euronext etc?
Difficult to say but two points worth noting.
Difficult to say but two points worth noting.
1. Share markets have remained stubbornly resistant to efforts to push business onto exchanges and MTFs. That was the point of Mifid II in Jan 2018 and it hasn't worked. Maybe it will this time but customers don't like paying exchange fees!
2. Customers can and will move quickly. Back to Mifid II. It was supposed to set up volume caps on dark pools. People traded away from dark pools but the moment the regulator said they weren't ready, volumes had gone back to what they were a few days previously.
There's nothing on these venues today but there will be on Monday; and what you see on Monday may not be the new normal. Behaviour may change again.
One other wild card to throw into the mix. The UK will treat EU shares traded in the UK as illiquid. That may seem esoteric and may be nothing...
..But for a Rest of World investor trading EU shares in London may be more attractive than trading it in the EU as transparency requirements aren't the same.
So some business will leave London; how much and where it lands is the $64k question. End of thread.
PS when I said EU shares here, I meant shares that are admitted to trading in the EU. https://twitter.com/staffordphilip/status/1344381630924910592
