In conflictive divorces, playing hard on the small details can be a way of showing strength. The EU has refused to grant the UK “equivalent” country status to trade derivatives. Some operations have left London: it is a skirmish that anticipates greater battles.
The Amsterdam Stock Exchanges traded shares worth 9.2 billion a day in January, topping the 8.6 billion in London, according to CBOE. Meanwhile, London’s share of euro-denominated interest rate swap trading fell below 10%, from 40% in July, according to IHS Markit. The activity not only moved to the EU, but also to the US, which Brussels does consider equivalent.
They are striking figures, but they represent a tiny proportion of the trading of currencies, bonds and other instruments that flows through the City. And although the transactions are no longer executed there, the people – or algorithms – who decide have mostly stayed.
But the showdown is proof of the EU’s broader desire to attract financial activity. Economic interest plays an important role, but the authorities are not amused either that the bloc’s capital flows through a large financial center no longer subject to European regulations.
More battles are coming. One of the sticking points is the clearing houses for derivatives operations. The EU has granted a temporary equivalency, but expects mainland investors and companies to reduce their exposure to the UK over time. Meanwhile, some European regulators are still bent on tightening delegation rules, which allow pension funds to outsource decisions.
The EU’s conflicting approach has irritated the Bank of England, which claims that the bloc demands a higher level of equivalency from the UK than other countries it considers acceptable. The EU says it waits to see the direction of post-Brexit regulation. London insists it has nothing to gain by undermining European norms, but has so far little to show for its principled stance.
The authors are columnists for Reuters Breakingviews. Opinions are yours. The translation, of Carlos Gomez Down, it is the responsibility of Five days