Sharing the spoils, and sharing the loss

“Amsterdam ousts London as Europe’s top share trading hub”, claims the FT, seeing further proof that Brexit was a huge damaging mistake.

Of course Amsterdam hasn’t become “Europe’s top share trading hub”. It has only overtaken London in trading shares in EU-based companies; London’s dominance in trading shares from the rest of the world has continued. Also the data only measures trades that go through the stock market; the off-market private trading between the big market participants isn’t included.

But is this a sign that other EU centres are giving London a run for its money? Are the smaller continental bourses getting better than London and so luring trading away? Of course not. 

“The shift”, the FT notes, well away from the headline, “was prompted by a ban on EU-based financial institutions trading in London”. So it is not that Amsterdam is providing a better or more efficient service, but rather that the EU has indulged in its usual protectionism (or, possibly, a post-Brexit hissy fit), erecting artificial regulatory boundaries to protect the inefficient markets inside Fortress Europe from their competitors.

Brussels’ excuse for putting up the barriers is that they do “not recognise UK exchanges as having the same supervisory status” as their own. Yet six weeks ago EU-based investors were allowed to trade in London, under the Brexit transitional arrangements. What has changed in the meantime? Has the London Stock Exchange slashed its regulation and lowered its standards? Has the Square Mile become the Wild West overnight? Have the ‘Singapore-on-Thames’ rumours come true? Of course not; London’s regulatory system has continued as it did before, yet suddenly the EU refuses to recognise it.

This is childish behaviour by the EU; rather than co-operating, treating each other as grown-ups and mutually recognising working regulatory systems, the Commission is sulking that ‘if you won’t play our way, we are taking our ball home’.

But the EU’s petulism is damaging for its citizens. London still has the expertise, the people and, crucially, the quantity of money managed there to create more efficient, innovative and effective markets. But if trading is spread across various smaller European exchanges, lacking London’s deep resources, costs will be higher and markets more erratic. Price differences will appear between different continental stock markets, allowing wily traders to profit from arbitrage at the expense of private and institutional investors.

By shutting its people out of their preferred market of London, the EU is downgrading them to a second-best service. If pension funds and other investments face higher costs and increased volatility, the ultimate losers will not be London’s bankers but Europe’s workers.