Beyond Brexit: How the London Stock Exchange is Adapting to New Realities in a Post-EU Landscape

Great Britain and London were among the leaders of the global financial Olympus for decades. This article will explain the transformations in the UK financial market in a post-EU reality. So, how did Brexit change the London Stock Exchange?

The London Stock Exchange after Brexit: the beginning of a new era

The British financial market has always been a model of an international financial center and the envy of Frankfurt, Paris, and Brussels. Even the fact that Britain refused to switch to the euro and kept its national currency did not reduce London’s influence on the continental part of the EU. Traditionally, London was the capital of the capital market and risk management (insurance) and was a source of bank liquidity.

The withdrawal of the United Kingdom from the European Union after a long period of negotiating the terms of the British exit (Brexit) and apparent contradictions within the country deepens uncertainty and risks of a global nature. Financial institutions are preparing for the implementation of any scenario, transferring part of their staff and business to mainland Europe. The Bank of England is forced to implement a tighter monetary policy and take preventive measures in banking supervision. The Brexit decision provoked changes in the financial system’s architecture in Great Britain, the EU, and globally. The UK referendum on June 23, 2016, was fateful for the future of the global financial industry.

Assessment of losses

The Brexit transition ended on December 31 last year, and the UK legally finally left the EU. In January, the average stock trading turnover on the Amsterdam stock exchanges amounted to 9.2 billion euros per day, 4 times higher than in December. Paris and Dublin also saw some increases in equity trading volume. At the same time, in London, the average daily stock trading turnover fell to 8.6 billion euros. The reason was that a ban on trading in London came into force for European financial institutions due to a change in the status of British sites. It has resulted in about 6.5 billion euros of transactions moving out of the British capital daily, about half the average for London. It’s symbolic because London has lost its status as a trading center for EU stocks but has a chance to carve out its trading niche.

In addition, the multiplier’s effect should also be taken into account because the reduction of incomes, tax revenues to the state budget, and the drop in employment in the financial sector can negatively affect other sectors of the economy of Great Britain.

Today the London Stock Exchange after Brexit includes the following groups of companies and organizations:

  • broker-dealer firms – they carry out orders of investors to purchase and sell securities, although the transactions are carried out at their own expense. Some of these firms act in one capacity – either a broker or a dealer;
  • market-making firms are exchange members obliged to quote particular securities during the working day. They occupy a central place in all operations carried out on the stock exchange;
  • broker-dealers – they act as intermediaries for “gilts”;
  • money brokers of the stock exchange are members who have the right to lend money to other members of the exchange.
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