The comments from Mark Hemsley, chief executive of London-based Bats Europe, came as his counterpart at Euronext warned the UK’s exit from the EU would put London’s position in euro-denominated trading at risk.
Hemsley said: “Unless we get an early and clear view on the UK’s negotiations with the EU, which I don’t think is likely, we are highly likely to set up a eurozone legal entity [in addition to the London HQ] just because it provides us with some certainty.”
Bats accounts for around a quarter of all European equities trading. In May, the exchange handled a daily average of €9.4 billion worth of trades.
Hemsley said the move might not necessarily mean relocating a lot of staff – the majority could probably remain in London – but he added that the amount of business put into the entity “could be increased or decreased depending on what our customers are doing in terms of their own Brexit planning”.
The exchange employs 76 people in London.
Hemsley added the referendum result had the potential to put restrictions on EU customers wanting to trade in London, but could also restrict the exchange’s ability to gain access to clearing facilities in Europe.
Meanwhile, Stéphane Boujnah, the CEO of European exchange operator Euronext, reiterated his belief that the 30% to 45% of trading in euro-denominated assets done in London would only be acceptable while the UK was part of the single market.
Boujnah said: “The single currency is in Europe but 30% to 45% of euro-denominated trading is done in London. What was normal when you share a common destiny, a common single market, a consistent regulation becomes an anomaly once London leaves the EU.”
His remarks were similar to those of Francois Hollande, the French president, who warned on June 28 that after a UK exit, transactions in euros would not be able to be cleared in London. Such a move would hit the London Stock Exchange-controlled LCH.Clearnet and Intercontinental Exchange’s ICE Clear Europe, which handle sizable amounts of euro-denominated business in London.
Boujnah said: “The President expressed an opinion on how financial markets should be organised in an environment where the UK is outside the EU and outside the single market. The world is different from last week. In is in, out is out.”
However, many lawyers and market practitioners believe there no legal grounds on which the trading or clearing of euro-denominated transactions can be forced away from London. Lawyers say such a move would be highly complex, would move many away from preferable English law, and would have ramifications for both the clearing of sterling products in the eurozone, and euro products cleared in the US and elsewhere.
ICE has no plans to relocate any of its euro-denominated clearing business in London or the US into the eurozone at this stage, according to a person familiar with the situation. LCH declined to comment.
Hemsley said there was nothing that could stop two people from agreeing to a trade in the over-the-counter market in any instrument, and the same principle would apply to trading on exchange.
However, the comments reflect a fear that London’s financial services industry could suffer once the UK leaves the EU, with several banks, including HSBC, JP Morgan and Morgan Stanley, already warning they would consider shifting some jobs to the continent.
William Wright, a managing director at the capital markets think tank New Financial, said: “London financial firms cannot afford to wait. They have to assume the worst case scenario of complete separation with no access to the single market and start the process of relocating legal entities, operations and staff. Many are concerned they will not be able to secure the regulatory licenses necessary if they wait until the two-year negotiation period starts.”
There is an expectation that some UK-based proprietary trading firms, which are among Bats’s largest customers, could move into the eurozone to provide certainty over access to markets such as the Euronext exchanges, Deutsche Börse and the large German futures market, Eurex.
The head of one large UK-based proprietary trading firm said it was “seriously considering” the implications of setting up a regulated entity in Amsterdam. Such a move is relatively easy for the firms given they have no customers, typically young workforces and little infrastructure on the ground.