The head of the London Stock Exchange has warned European leaders not to use Brexit to undermine London’s position as a global financial centre, saying it will only hurt European businesses and make New York far too dominant.
The LSE’s chief executive officer Xavier Rolet has also offered a strong defence of the LSE’s proposed $28-billion (U.S.) merger with Germany’s Deutsche Boerse, hailing it as a chance for Europe to create a modern financial industry that will address deep-seated economic problems.
Britain’s decision to leave the European Union has prompted fears within London’s financial district that the EU will try to move key services, such as clearing euro-denominated transactions, to Paris or Frankfurt.
And many EU politicians have balked at the LSE-Deutsche Boerse merger, arguing it doesn’t make sense to have Europe’s largest stock exchange partly based outside the EU.
On Monday, Mr. Rolet shot back at both concerns during a panel discussion about Brexit at the Conservative Party’s annual convention.
He said that since 2008, the financial world has coalesced around London and New York for transactions such as foreign exchange trading and derivatives. That has led to increased efficiencies and lower fees for financial institutions and investors. Last year, London cleared $555-trillion worth of interest rate swaps alone in 17 different currencies. Any attempt to take that away will only hurt the EU, he added.
“This business, perhaps, could leave the U.K. – it’s not impossible – but if it moves, it’s not going to Paris or Frankfurt or Milan, it’s going to New York. And that would be a very, very significant infrastructural change in the way financial services are carried out,” he said. “It is in the interest, fundamentally, of the European Union, the 27 states left, and the U.K., to ensure that a positive, constructive framework remains here in London. Because if it doesn’t, if you think of what the move of the clearing industry to New York would do to a market that already has 55 per cent of the world’s financial assets, as well as the largest technology market in the world and the second most liquid equity market in the world, the impact on European corporations would also be very significant.”
As for the merger, Mr. Rolet said Europe relies too much on bank lending to finance business growth. The merged exchange would provide new pools of capital for businesses to grow and create jobs. “How are we going to modernize the funding of European industry unless we have at least one globally relevant competitive exchange?” he asked. “I do believe in the end it is in Europe’s interest to clear this transaction and I do believe it will be successful.”
Mr. Rolet has been through a failed merger before. In 2011, the LSE’s $3.7-billion (Canadian) hostile bid for the TMX Group Inc., owners of the Toronto Stock Exchange, met fierce opposition in Canada and led to a rival bid from a consortium of Canadian financial institutions. On Monday, Mr. Rolet said that deal fell apart because of protectionism, something that is not happening with the Deutsche Boerse bid.
Britain’s financial industry is particularly sensitive to concerns about Brexit. The sector employs around 2.2 million people and accounts for around $100-billion in annual tax revenue to the government.
On Sunday, Prime Minister Theresa May said the country will begin the process of leaving the EU within six months. She also indicated that Britain will likely pursue a “hard Brexit,” completely cutting ties and then negotiating a trade deal. That could be hard on the financial sector, which enjoys so-called “passport provisions” that allow firms to be based in London and operate freely across the EU. The EU has insisted that Britain cannot expect to have unfettered access to the European market without accepting the free movement of EU citizens, something Brexit backers oppose.
Chris Philip, a London-area member of Parliament, told the conference that he didn’t support a “hard Brexit.” “I don’t think we’re going to have a hard Brexit. Because it doesn’t serve the economic interests of this country and it doesn’t serve the economic interests of [Europe],” he said.
He expected the government to negotiate a deal that will include some kind of provisional period where Britain remains within the EU while the new measures take effect. “No matter how much the European Commission [the EU’s executive body] wants to punish us, I think the economic reality of jobs and prosperity in France and Germany and Italy and Spain, hopefully, will prevail,” he said.Report Typo/Error