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New York emerges winner as Brexit pushes swaps trading from London

Thu, 21st Jan 2021 14:34

By Huw Jones

LONDON, Jan 21 (Reuters) - Britain's exit from the European
Union has pushed swathes of derivatives trading from London to
the bloc and the United States in a further blow to the
capital's financial sector.

Britain left the EU's single market on Dec. 31, forcing EU
banks and asset managers to stop using London for trading
heavily used derivatives like interest rate swaps (IRS).

EU market users must now trade swaps on platforms in the
bloc, or on a swap execution facility or SEF in the United
States which has EU market access.

IHS Markit, a financial information company, said the share
of euro denominated rate swaps trading on SEFs doubled from 11%
in December to almost 23% in the first two weeks of January.

"Of course, the real cost of fractured global liquidity is
more expensive hedging and ultimately higher costs to end
users," said Kirston Winters, managing director at IHS Markit.

Britain has called on the EU to grant access to trading
platforms in London, the world's biggest centre for swaps, but
Brussels has declined so far.

The shift mirrors a move in euro denominated share trading
worth 6.5 billion euros a day that left London on Jan. 4 for
trading platforms in the EU. Trading in euro-denominated
government bonds left London for the continent after Britain
voted in 2016 to exit the bloc.

Eric Litvack, group director of public affairs at French
bank SocGen said firms were adapting to "new realities" as some
swaps trading left London for EU and U.S. platforms.

"Generally, the U.S. has been the big winner, though the EU
has won some business in euro denoninated swaps," a derivatives
industry insider added.

The Bank of England said in December that around $200
billion of daily interest rate swap trading in Britain would be
affected by curbs on trading swaps between the UK and EU.

At the last minute, Britain eased some of its restrictions
to avoid a complete rupture in trading.
(Reporting by Huw Jones; Editing by Kirsten Donovan)

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