By Huw Jones
LONDON (Reuters) – The hardline stance by European Union regulators on share trading could split markets and damage prices for investors if there is a no-deal Brexit next week, a top exchanges industry official said on Wednesday.
The European Securities and Markets Authority (ESMA) on Tuesday identified 6,200 shares that EU investors can only trade inside the bloc if Britain left without a deal on March 29.
Britain’s Financial Conduct Authority (FCA) hit back, saying that ESMA’s stance risked disrupting markets, raising fears of a tit-for-tat move to force UK customers to trade EU shares only in London and thereby splitting liquidity.
Alasdair Haynes, chief executive of Aquis Exchange, said that a “horror story” could be unfolding for markets.
“Is this a land grab? To a certain extent,” he told Reuters.
Launched in November 2013, Aquis now accounts for about 4 percent of pan-European share trading, using a novel form of pricing to take on incumbents such as Cboe, which has more than a fifth of the market.
AHaynes, a 40-year veteran in the industry, said he has never seen such an overt clash between regulators.
“It was a pretty harsh response,” he said. “This is regulators fighting in public. Your chances for equivalence went out the door last night.”
Brussels has said that clearing houses in London would gain equivalence for a year if there is a no-deal Brexit, meaning that EU customers could continue using them for a limited time.
This was not extended to trading platforms in London, used by asset managers and banks from across the continent.
Christian Voigt, senior regulatory adviser at trading technology firm Fidessa, said emotions were running high after ESMA’s statement left market participants disappointed.
“While arguing what the regulator could have done, we shouldn’t forget that it is all caused by a political decision not to grant equivalence,” Voigt said.
Aquis, Cboe Europe, CME and other trading platforms in London have opened EU operations to avoid disruption to customers from Brexit.
Banks have moved a trillion pounds in assets such as stocks, bonds and derivatives owned by EU customers to hubs in the bloc to trade there.
Aquis began testing trading from Paris on Wednesday, Haynes said.
Trading in euro-denominated shares is likely to remain in London for now if Brexit is delayed, as requested by the British government, or a transition deal is agreed, he added.
The Paris operation would increase overall costs for Aquis by about 5 percent, though most of this has already been incurred, Haynes said.
Aquis revenue doubled to 4 million pounds in 2018, when it made a loss of 2.7 million pounds, having invested heavily on developing its technology and licensing arm. It floated last June with listing costs totalling a million pounds.
Haynes said analysts expect Aquis to become profitable in 2020 and that he is comfortable with those expectations.
(Reporting by Huw Jones; Editing by David Goodman)