After the recent announcement that Amsterdam had overtaken London as the largest European Trading Hub for Equities, one could be forgiven for wondering where this fracturing of liquidity would leave European Capital Markets, and more generally, London’s position at the centre. However, behind the headlines lurks a nuance that was perhaps missed. Although regulatory, and in some cases, connectivity requirements moved, many of the key exchanges still kept their infrastructure in London data centres – for example, LD4. Whether that remains the case in the medium to long term is another question. Still, it did highlight the need for specialist expertise and the know-how to navigate the new connectivity regime that resulted from the changes. It also raised key questions about if this fracturing would persist regardless of whether regulatory equivalence between the EU and UK is to be granted in the future or not. Finally, there is also the question of what will happen to other segments of the industry? For example, in derivatives trading or clearing services.
Clearing is currently one of the only areas where the EU has continued to grant equivalence with the UK, albeit for an initial 18 months. Given the time limiting factors involved, firms should start planning how they will intend to maintain connectivity to these fundamental services as soon as possible, should they also be forced to move to the continent. We saw that being prepared early on was vital with the move of European Equity Trading, and those exchanges and MTFs that acted swiftly and communicated this effectively to their clients saw an immediate return on their efforts during the start of the new year.
At Colt, we looked to use our wholly-owned and extensive European metro fibre footprint to give our clients an advantage over their peers. Not only could we act quickly because of this, but it also gave us the ability to give assurances on various SLAs, for example, on latency and turn-on times to the new venues. We could also use our boots on the ground, local language and regulatory experience within these key European hubs to help customers connect any new offices or infrastructure they needed as a result of the changes.
We also saw that although Amsterdam seems to have come out as the top choice for equities, it was by no means the sole alternative that venues chose. Paris, Dublin and Frankfurt were others that were also chosen, again further highlighting the importance of having a global partner to peer with. It will also be interesting to see if the same locations are picked as a base for clearing should that have to move out of London as well.
However, writing off London as a hub would also be a mistake. The equity liquidity lost, which will sting, is by no means the crown jewels. The city dominance in derivatives and FX will be less affected. There is also the chance for London to court other markets further afield that were perhaps off-limits whilst in the EU. We have already seen Swiss Equities re-listed in London, for example. Finally, opening up new markets in Asia may also be a move we see play out as 2021 progresses, with the pandemic playing a pivotal role in altering the perception of where the new up and coming growth areas are located.
So what does all this mean for a Capital Markets firm with a finger in all these pies? Put simply - It has never before been more important to ensure your technology and connectivity provider is truly global.
Michael James is a Business Development Account Manager for Capital Markets at Colt Technology Services