Exchanges Warn on Brexit
Jeff Sprecher, chairman and chief executive of Intercontinental Exchange, said that the closure of CME Europe could be a sign of things to come, as the UK leaves the European Union.
In April CME Group announced that it intends to close its London-based derivatives exchange and clearing house, CME Europe and CME Clearing Europe, by the end of this year.
— FIA EPTA (@FIAEPTA) June 6, 2017
Sprecher spoke on a panel at the FIA IDX conference in London. He said: “CME is a canary in the coal mine as it shows the exchange does not need a physical presence in London as capital flows globally.”
Bryan Durkin, president of CME Group, said on the panel that the US firm had launched clearing and an exchange in Europe in response to client demand but there have since been many changes in the business environment and activity did not meet expectations. He said: “We have built up liquidity around the clock which can be accessed in any timezone.”
Durkin continued that CME Group employs more than 400 people in Europe, who are not part of the European exchange but help clients access US markets. Durkin added: “About 25% of group volume and 30% of revenues are international.”
ICE Futures Europe, the trading platform, and Ice Clear Europe, the clearing house, are both based in London and Sprecher said the UK government had not contacted the company about staying in the UK after it leaves the European Union.
“Other countries have identified that the jobs we bring and our role in capital markets is important,” Sprecher added.
Ed Tilly, chief executive of CBOE, also spoke on the panel. In March the US options exchange completed its acquisition of Bats Global Markets, which includes a London-based European exchange.
“Our first challenge is clearing and furtherance of access to US markets from Europe,” added Tilly. “We will grow Bats outside London and make a decision on the location in the third or fourth quarter.”
ICE has acquired ICE Clear Netherlands, a clearing house for European equity derivatives products, and ICE Endex energy exchange in Amsterdam, which will remain in the European Union. The exchange also has an exchange and clearer in Singapore.
Sprecher said: “All our acquisitions operate on a single technology platform so clients can move just by transferring files over a weekend.”
At the beginning of this month ICE announced the acquisition of Bank of America Merrill Lynch’s global research division’s index platform of 5,000 fixed income, currency and commodity indices. This will bring the assets under management benchmarked against the combined fixed income index business of the exchange to nearly $1 trillion. The indices will become part of ICE Data Services and will be powered by the exchange’s prices and reference data.
“Citadel was an early mover in using digital information to allow algos to price markets,” said Sprecher. “Exchanges now need to provide infrastructure for data, networks and connectivity and we aim to grow relevant content.”
Carsten Kengeter, chief executive of Deutsche Börse, said on the panel that cross-border among large exchanges have become more difficult. An attempted merger between Deutsche Börse and the London Stock Exchange Group was rejected by European competition authorities in March.
Kengeter said: “There will be more quiet acquisitions in areas such as fintech and data. Our aim is to strengthen derivatives, trading and clearing.”
Carney said EU firms would face capital charges as much as ten times higher than today.
Brexit-related events have had a significant impact on the FX market.
Systemically important CCPs may have to be located in the EU.
Introducing a more pan-European approach to the supervision of CCPs.
The surprise result of the UK general election affected foreign exchange volumes.