As a post-Brexit UK looks to make London the financial centre of the world again, many are concerned that things might never be the same.
Now that Amsterdam and Paris have picked up the slack, the UK intends to change its laws around share trading to get back into the game. Life after Brexit has proved challenging to UK, with all types of laws, regulations and administrations having come into effect. The city of London, once the financial centre of the world, is looking to reclaim that glory by enticing EU share deals back to where it believes they belong. Once the terms of Brexit had been finalised, EU share trading left London as if the scenario was comparable to the O.K Corral and Dodge City. Subsequent to the these events, the EU stopped acknowledging the UK stock exchange in terms of it standards. The EU has claimed that the UK stock exchange does not have standards equivalent to its own and this has led to institutions being blocked from making use of London-based organisations.
The UK’s need to re-establish itself as the head honcho can in many ways be relegated to the fact that Paris and Amsterdam – more Amsterdam than Paris – has picked up the slack and become Europe’s biggest share trading centre – although London still maintains its status as through some of the world’s strongest shares listed on FTSE 100. For the longest time the city of London warned against the ramifications of leaving the EU without making provisions for trade in services – mainly finance – which made up for over 10% of UK tax receipts. In addition to this, it seems like the EU is unwilling to budge; the ESMA (European Securities and Markets Authority) has gone on to say that the move from London to the bloc is permanent with no sign of a reversal in sight.
In order to remedy the situation, the UK treasury has expressed an interest in boosting off-exchange trading venues – dark pools to be more precise. Dark pools are controversial because of their complete and utter lack of transparency. These private exchanges for trading securities are inaccessible to the investing public. Dark pools arose through a need by institutional investors who wanted to pump large sums of cash into the market while avoiding the impact that such actions would have on the market. And while such actions have likely been going on for years, if one thing is apparent from London’s actions to facilitate such practices, it’s desperation. Of course dark pools are not the only proposed solutions to the current share trading situation that London faces. Other potential solutions includes the relaxing of the minimum pricing increments, often referred to as tick sizes, on things like soft regulated private organisations run by banks and high-frequency traders – which means that day traders might be in for good times.
London has acknowledged that the reforms it plans to implement could be deemed “ambitious.” However, it has also voiced the fact that competition will be healthy and that that regulatory standards will be of the highest waters. In other words, the world’s former financial centre would like to make sure that its financial handbooks is fair. Naturally there are major concerns about the implementation veering into the political arena, and this is to be expected. The UK has after all made its bed and now it has to sleep in it; and so, with this in mind, there is a political narrative that wishes to enforce the fact that Brexit was the right idea. This means that the singular financial handbook that regulated and ran the machine might not be applicable anymore, and this is problematic.
Alterations to the far-reaching pan-European Mifid II (Markets in Financial Instruments Directive) directives would need to be exercised if the UK wishes to achieve its goals. This can potentially bring about further disagreements between UK and European authorities over financial services. However, these fissures extend beyond the authoritative financial bureaucracies to the market participants in London, some of who want more freedom to trade as they see fit, and others who are concerned that deviating rules could result in both heightened operational and technological costs that could in turn further splinter the market.