London’s FX trading will never move to Europe for far greater reasons than ECB’s politically correct official line
The European Central Bank says that Europe’s hopes of gaining London’s FX business are hampered because of the need to transfer data via fiber optic cables under the sea, but there are FAR more reasons than that as to why the entire business will never leave London
Every few months, a small amount of political chatter surfaces around the subject of mainland Europe’s futile tug of war with an almost independent Great Britain over where the mainstays of the commercial and interbank electronic trading business will reside, and from which ‘continent’ they will operate.
The European Parliament has for far too long had a golden goose insofar as Britain’s enormous and incomparable monetary contribution to a technologically and industrially defunct European mainland with which it has absolutely no alignment socially or commercially massively outstrips the entire continent.
For this reason, Britain – and for Britain read London – will soon jettison the burden of a giant, archaic, socialist juggernaut which controls its markets and simply takes and does not give.
In the FX industry, London is the absolute powerhouse for the entire region, and indeed one of the world’s focal points for the entire financial services business. It is a gigantic producer of revenues and has a highly dedicated and skilled series of professionals who continue to strive toward moving forward, and do so in a very sophisticated manner.
Underpinning the entire combined cognitive prowess of London’s senior executives is a massive and finely honed technological infrastructure that ranges from hosting (Equinix LD4 being one of the largest electronic trading data center locations in the world) to order routing systems, liquidity management and in-house developed interbank and institutional trading systems that are supported by hundreds of developers and engineers per bank.
Europe does not have this in any shape or form, and before any dissenters seek to present Deutsche Bank as Frankfurt’s equivalent to Canary Wharf’s institutions, it is worth bearing in mind that Deutsche Bank conducts no electronic financial markets business whatsoever from Frankfurt, instead doing so from London, which is at odds with the all-controlling political stance of the socialist government of its host nation, obviously because business efficiency is more important than post-war socialist-progressive nationalist aspirations.
This week, a further soundbite has been circulated by the European Central Bank, the sponsor of defunct EU member states which operate their treasury with the aplomb of a casino member with an addictive personality, that being a supposition that the European Union’s hopes of bringing London’s financial markets sector to the mainland are impinged by approximately 8,000 miles of fiber optic cables which emerge from the seas around the UK at locations such as Crooklets Beach and Sennen Cove in Cornwall, and Highbridge in Somerset.
These cables carry data not only across the UK but to its continental neighbors, and whilst the European Central Bank is correct in suggesting that
the majority of Europe’s critical infrastructure for trading FX, as well as shares and derivatives, is clustered in a 30-mile radius around the City of London, and that regardless of the UK’s future, some of the industry’s biggest data center operators, which host banks and high-frequency traders’ IT equipment, have announced capacity increases this year to cope with rising demand from investors in both Asia and the US, the real reason is not just infrastructural, it is really around why that level of infrastructure exists only in Britain and not elsewhere in Europe.
Britain’s interbank sector is responsible for 49% of all global FX order flow at Tier 1 level, and consists of British and international banks based in London, marking out London as a true free market, with no controls on which banks and non-bank entities (Thomson Reuters, Currenex, Hotspot all have centers in London) operate there, yet that is the de facto center for electronic trading and always will be.
The ECB citing that the need to transfer data along fiber optic cables under the sea to and from London is a barrier to business is quite topsy-turvy. The actual reason is the reverse of that, simply that the reason that infrastructure is London-centric is because the entire global financial markets business is London-centric.
A clear (pardon the pun!) example here is that unlike equities, bonds or derivatives, the $1.7 trillion per day cash foreign exchange markets are not risk-managed through clearing houses but instead settled via London-based CLS International Bank.
The European Central Bank acknowledges that investors and companies have been empowered since the 1980s in London’s financial markets, as Britain began laying submarine fiber optic cables in the 1980s which now carry the majority of internet traffic.
Combine this with London’s Square Mile providing 19% of all tax receipts received by the European Union from just 0.0009% of the workforce of the European Union, a £176 billion value per year in revenues to the British economy and a trade surplus of £72 billion, and freedom to do business with the major financial centers of the world in the Far West and the Far East, this is one city which will never be supplanted by any faltering relic with aspirations of dividing and conquering.