Nearly all London Stock Exchange Group shareholders approved the proposed merger with Germany’s Deutsche Börse despite the UK voting to leave the European Union.

Yesterday 99.92% of LSE shareholders voted in favour of the deal ahead of a ballot of Deutsche Börse shareholders which expires on July 12.

Even if the deal is approved by shareholders the merger still needs to be authorised by regulators. This may have become more difficult after the UK referendum on June 23 voted to leave the European Union as the merged group plans to locate its headquarters in London.

Kyle Voigt, an analyst at financial services specialist Keefe, Bruyette & Woods, said in a note after the referendum: “We believe that moving the planned headquarters from London to inside the EU (Frankfurt) is likely being considered by LSE and DB1, and agree that this step could increase the chances of gaining political approval in Germany.”

Voigt added that moving the combined headquarters would not have a significant impact on financial results, although the combined tax rate would be higher if the headquarters are  in Frankfurt.

“The decision by the UK to leave the EU adds another layer of complexity to the merger and adds more work and obstacles to overcome for deal completion (with more risk of it not closing) – but we don’t view the deal as “dead” by any means,” said Voigt.

When the merger was announced the boards of Deutsche Börse and LSEG set up a Referendum Committee led by  Joachim Faber, chairman of the German exchange, to help the combined group meet regulatory requirements to close the deal.

The committee said in a statement yesterday: “Whether the UK is just European or a member of the EU, the merger will create a globally competitive, industry defining market infrastructure group at the service of European industry. In a fast changing landscape where it is anticipated that the UK will remain a member of the EU for at least two years, the work of the Referendum Committee may take many months to complete.”

Faber said in a statement : “I strongly endorse the statement of London Stock Exchange Group following their General Meeting today and continue to recommend the transaction to the shareholders of Deutsche Börse.”

However Felix Hufeld, head of German financial regulator BaFin, told Reuters last week: “It is hard to imagine that the most important exchange venue in the eurozone would be steered from a headquarters outside the EU. There certainly has to be an adjustment here.”

Emmanuel Macron, the French Economy Minister, also told Bloomberg in an interview on Sunday that many financial institutions will have a question mark over London due to Brexit.

Macron added: “Our role is not to play on uncertainties but there could be a big benefit for Paris as a financial centre. We have a lot of financial players here and would welcome those firms who want to join the EU.”

Professor John Colley at Warwick Business School said in a statement that Deutsche Börse is already under pressure from German regulatory authorities to move the head office of the merged firm to Frankfurt.

“This would probably not be acceptable to the UK,” Colley added. “The deal may well flounder on this issue as neither London or Frankfurt wish to see their influence as financial centres diminish. Similarly the loss of highly paid jobs will be keenly felt.”

Colley said Paris would benefit if the merger fails but would suffer if the merger closes as Frankfurt will be better positioned to rapidly accommodate transfer and dominate European financial markets. Colley continued that if the merger fails, then the LSE is ‘in play’ as a takeover target.

“Chicago’s Intercontinental Exchange may well have the support of investment banks to make an approach,” he added. “Perhaps this will serve as a an early case of the UK looking west for ties rather than east.”

The KBW analysts added that heightened volatility around Brexit could bode well for volumes across nearly all asset classes in the near term as investors look to reposition and hedge, particularly in equities, rates, and foreign exchange. The report said that in the week ending June 29, US cash equities volume grew 36% week-on-week, US options volumes were up 23% over the same time period and futures volumes also rose at CME, ICE, Deutsche Börse and CBOE.

On June 24, the day after the referendum, and the day that FTSE Russell reconstituted its indices, KBW said total US cash equities volume was $15.3bn, the highest volume day since August 9 2011. Total pan-European cash equities on June 24 was €127.7bn, the highest volume day since at least 2008, and possibly an all-time record. CME Futures also traded 29.4 million contracts traded at CME on June 24, the third highest volume day ever at CME added KBW.

“In the medium term, we reiterate that we are concerned about the Brexit’s impact on cash equity value-traded in Europe (due to generally lower UK and EU equity markets),” said KBW.

OTAS Technologies, a provider of market analytics, said in a blog yesterday that UK large stock implied volatility, a measure of risk or uncertainty, is at the top of its normal two-year range.

“The post Brexit peak was lower than previous highs, including when Brexit first headed the polls and well below the February level, when global economic slowdown was the issue,” added OTAS. “While it is tempting to conclude that Brexit is no big economic deal, it is just as likely that investors expect evermore intervention by central banks. Thus the correct investment strategy remains to buy-the-dips, as it has been throughout the post-crisis years.”

The blog added that UK large caps are barely more risky than Europe’s largest stocks and current relative risk is only a couple of percentage points above the average level.

More on Brexit: 

• Brexit to Reveal Regulatory Rocks

• OPINION: Is it the Worst of Times for the City of London?

• Dark Pools Survive Brexit, Mostly