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Brexit deal stalls exchange plans for euro share trading move

By Huw Jones
A financial trader works at their desk at CMC Markets in the City of London

By Huw Jones

LONDON (Reuters) - New European Union cross-border share trading platforms set up by the London Stock Exchange and rival Aquis ahead of Brexit have been mothballed due to limited demand.

The LSE said there are no plans for the new Amsterdam offshoot of its Turquoise pan-European platform to start up next month, while Aquis, which set up a hub in Paris, said trading in euro shares would continue in London for now.

"To do anything else at this point would unnecessarily fragment liquidity and, not surprisingly, there has been no member push for this," an Aquis official said.

The LSE, Aquis and Cboe Europe, the region's biggest cross-border share trading platform, created EU hubs in case their London operations get cut off from customers in the bloc after Brexit, which is now due to take place on January 31.

Brexit raised the spectre of London being sidelined in trading euro-denominated shares after transactions in euro-denominated fixed income moved to the bloc in March 2019.

But Britain will now leave the EU with a settlement that includes a transition period to December, meaning continued unfettered access for London-based financial firms.

Cboe Europe has already started up its new Amsterdam hub and although volumes remain negligible, its president David Howson said it will remain open despite the transition period.

Volume in euro shares could start moving from its London unit to the Netherlands if uncertainty over Britain's direct access to EU investors after transition grows.

"As things evolve throughout the year, we will get clarity on equivalence (EU market access)... Depending on what that time horizon looks like, we will look to differentiate and induce volumes to potentially go there," Howson said.

Amsterdam will be a base for building up the U.S. exchange operator's plans to expand into areas like derivatives trading and clearing in Europe, Howson said. Cboe is buying a pan-European stocks clearing house headquartered in the Netherlands.


POLITICAL HURDLES

Britain and the EU aim to complete assessments on so-called equivalence-based market access for firms like trading platforms and clearing houses by June.

Steven Maijoor, chair of the European Securities and Markets Authority (ESMA), said last week that assessments can be done by the summer, but a decision on access would hinge on wider trade negotiations between Brussels and London.

ESMA had said that in the event of a no-deal Brexit, EU investors would have to use EU-based platforms for trading euro denominated shares and derivatives.

There are also other potential hurdles to UK access.

Prime Minister Boris Johnson has said he does not want Britain to align itself to EU rules after Brexit, which could make access for financial firms hard to maintain.

The EU is also keen to build up its own capital market to cut reliance on London and could insist that EU investors trade euro-denominated shares on platforms inside the bloc.

Faced with pressure from EU policymakers, CME and the LSE moved trading in euro-denominated fixed income from London, while UK-based derivatives platforms are also waiting to see how much access they will get to the EU after transition.

"We would like to see a great deal more clarity in the area of... derivatives trading obligation," said Roger Cogan, head of European public policy at global derivatives industry body ISDA.

If trading moves, clearing could follow over time, industry officials say, further harming London. So far this has not been the case in swaps, where the LSE dominates clearing for now, although it has shifted clearing in euro repurchase agreements from London to its Paris arm.


(Reporting by Huw Jones; Editing by Alexander Smith)