The UK has strengthened its hold on global trading activity, increasing its lead in currency market and reclaiming top position in interest-rate derivatives. The statistics will help assuage fears that Brexit is already taking its toll in the financial district (known as the ‘City’) of the capital as a global financial centre.
The Bank for International Settlements’ latest survey of currency and derivatives trading underlined the importance of the UK’s role in global finance at a time when the City is braced for a possible no-deal Brexit at the end of this month.
Trading in global foreign exchange markets jumped to $6.6tn a day in April 2019, from $5.1tn a day the same month three years earlier, according to the central bank for the central banks of the G10 countries. The figures showed the dominance of the US dollar as a global reserve currency; it was on one side of 88 per cent of all trades.
In a growing market, London’s share of foreign exchange trading increased to 43 per cent from 37 per cent over the three years. The US’s share fell to 17 per cent from 20 per cent. Hong Kong, Singapore and Tokyo collectively lost share, falling to 20 per cent from 21 per cent. The chief executive of foreign exchange trading venue ParFX, Dan Marcus, said that this was “testament to London’s long-standing global trading relationships, concentration of counterparties and continued investment in technologies.”
He added: “From a foreign exchange perspective, there is no doubt that London remains a global centre of excellence.” Three years also made a big difference to the market for interest-rate derivatives, which are used by banks and other companies to protect themselves against shifts in borrowing costs. The UK has seized the top rank in such trading back from the US, which had claimed first spot in the 2016 edition of the BIS survey.
The UK accounted for 50 per cent of an over-the-counter interest-rate derivatives market put at $6.5tn a day in April 2019, up from 39 per cent in 2016. Thirty-two per cent of global turnover went to the US this year, down from 41 per cent in 2016, when New York took the lead from London.
Even though the UK is not in the euro zone, its share of trading in euro-dominated contracts rose to 86 per cent from 75 per cent. The City also took a greater share of US-dollar contracts, up to 33 per cent from 14 per cent. Catherine McGuinness, policy chair at the City of London Corporation, said the figures show that London is “the capital of capitals” and traded more dollars than New York, more euros than the EU, and more Chinese Yuan than any country outside China.
She added: “Despite the challenging times, the fundamentals of the City remain strong. It is vital that we avoid a no-deal Brexit so we can give ourselves the best opportunity to build on these strong foundations.” Overall, global average daily turnover of interest-rate derivatives rose to $6.5tn in April, up by about 140 per cent from $2.7tn three years earlier. BIS said this growth was driven by “increased hedging and positioning amid shifting prospects for growth and monetary policy.”
However, it is also said that other factors played a role. For instance, the survey found that much of the turnover in April 2019 was in shorter-term contracts, which BIS noted are “rolled over more often”. The 2019 survey was more comprehensive than prior editions. After adjusting for improved reporting of so-called related party trades — in particular “back-to-back trades” — BIS estimated that turnover would have been closer to $5.8tn in April this year, representing a sizeable but smaller increase of 120 per cent.
On jobs, for all the complaints from major banks about the potential disruption from Brexit, fewer than 1,000 positions have been moved out of the UK to Europe, according to a survey.
The report, from accounting firm EY, said that more jobs could yet go. The figure represents just 15 per cent of the investment banking staff currently marked for relocation to Europe, it said.
EY, which based its report on the public statements of 222 companies, said the value of assets that could move out of the UK as a result of Brexit was around £1tn.
UK financial services leader at EY, Omar Ali, said: “Financial services firms have the building blocks in place, but have so far transferred fewer staff and assets to the continent than expected.” (The author is our foreign correspondent based in the UK. He can be reached at email@example.com)