New York emerges as the big beneficiary in the derivatives market after Brexit

By Huw Jones

LONDON, Jan 21 (Reuters) – Britain’s withdrawal from the European Union has caused huge volumes of operations to flow out of London for the EU bloc and the United States, in a major blow to the financial capital of the sector.

The UK left the EU single market on December 31, forcing banks in the region to stop using London as the hub for derivatives trading such as interest rate swaps (IRS).

Users of the EU market must now trade swaps on block platforms or at a swap foreclosure facility called SEF in the United States, which is accessible to block institutions.

IHS Markit, a financial information company, said the share of euro-denominated interest rate swaps that passed through the SEF system doubled from 11% in December to almost 23% in the first two weeks of January.

“Of course, the real cost of fractured global liquidity is higher hedge spending and ultimately higher costs for users,” said Kirston Winters, managing director of IHS Markit.

The UK has asked the EU to grant it access to its financial trading platforms for London, the world’s largest swap business center, but so far Brussels is refusing.

The change reflects the movement in the proportion of operations denominated in euros, valued at 6.5 billion euros per day, which were no longer traded in London on January 4 to be listed on EU platforms.

Euro-denominated government bond trading left London for listing on the bloc after the UK voted in 2016 to leave the EU.

“In general, the United States has been the big winner (after Brexit), although the EU has also won some business in the field of swaps denominated in euros,” said Eric Litvack, director of the public research group of the French bank SocGen.

(Report by Huw Jones. Edited in Spanish by Marion Giraldo)

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