A $240-Billion-a-Day Market Is Leaving London Over Brexit

Europe’s biggest repo trading venue is moving to Amsterdam

BrokerTec is the first company to relocate an entire market

Brexit Forces $240-Billion-a-Month Market Out of London

John Roe of LGIM discusses BrokerTec moving its operation out of London due to Brexit.

The City of London is being dealt another Brexit blow.

CME Group Inc. is moving its European market for short-term financing, the largest in the region, out of London because the exchange operator wants to guarantee continental firms can continue to use it if there is a no-deal Brexit.

The decision, which was taken before CME took over the business from NEX Group Plc last week, is the first example of a major financial market leaving the U.K. While every sizable trading venue has set up a regulated entity in the EU because of Brexit, BrokerTec — as the business is known — is the first to move an existing market from London to a continental European city: Amsterdam.

“All of our euro-denominated bonds and repo will move to Amsterdam,” John Edwards, managing director of BrokerTec Europe, said in an interview. “We saw no benefit in splitting liquidity pools. Our U.K. business will not be able to provide services to the European clients.”

Contingency Plans

BrokerTec isn’t alone in planning for the worst. Stifel Financial Corp. is ensuring it can continue offering financial services in Europe by buying the brokerage operations of Germany’s MainFirst Holding AG. And BNP Paribas SA plans to move between 85 and 90 employees from its global markets unit in London to other European financial centers in case of a hard Brexit.

BrokerTec Europe currently employs as many as 90 people in London, according to a person familiar with the matter. A third of those are front office, with the remainder working in technology or support roles.

About 210 billion euros ($240 billion) per day of European short-term financing instruments were traded on BrokerTec in October, Edwards said. That market will be shifted to CME’s Dutch subsidiary, NEX Amsterdam BV. BrokerTec’s U.K. entity traded an additional 59 billion euros of U.K. gilt repo deals, which will all remain in London post-Brexit.

BrokerTec’s European government bond cash market will also move to the Dutch city, while its gilt market will stay in the U.K. The company doesn’t disclose trading volumes for its cash bond markets outside the U.S.

New Customers

CME completed its takeover of BrokerTec’s owner, NEX, last week. BrokerTec has been signing up customers to trade with NEX Amsterdam BV, which still needs regulatory approval, since the summer. It plans to open the new market in February, well before the U.K. leaves the EU on March 29.

BrokerTec wanted to eliminate the risk that its EU-based clients could lose access to the European repo market. Some of Europe’s biggest trading venues and trading firms have warned of the danger of “split liquidity pools,” where trading becomes more difficult and costly because investors on different sides of the North Sea can no longer trade with each other.

“Nobody knows what the European landscape is going to look like in five months’ time, let alone three years’ time,” Edwards added.

Edwards declined to say whether NEX Amsterdam would employ more than the 12 people that it said would work for the Dutch entity when it announced its choice of the Netherlands a year ago.

Read more: Dutch regulators brace for more work after Brexit

BrokerTec has applied to be a regulated market in the Netherlands, even though it operates as a multilateral trading facility in the U.K. Multi-lateral trading facilities have to apply the Dutch bonus cap — Europe’s toughest — on employees, but regulated markets are exempted from the limits on pay.

(An earlier version of this story was corrected to show the $240 billion figure was per day during October, not for the month.)


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