Chickens coming home to roost?

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Well, well, well. Scaremongering and doomists have been predicting the end of Britain once we Brits leave the European Union—and a double dose of hell if it happens without a deal. We’re doomed, as Jamie Frazier would say.*

Then we read the following in the Financial Times:

Brussels rejects plea for dual-listed London shares trading

EU asset managers warn they could move to UK because of commission’s stance Brussels has rebuffed calls from EU asset managers who want to continue trading dual-listed shares in London after a no-deal Brexit, in an indication of the European Commission’s tough stance on financial services.

Not having access to the UK’s world class financial markets and ancillary services after a no-deal Brexit might make some EU-based financial institutions come to the UK. As you say, you could’ve knocked me over with a feather on reading this. This isn’t in the script.

A bit of background on what is going on—this is about the 500 or so exchange-listed companies that have a listing in London and another one on the stock exchange of an EU country. Shell, for instance, is listed both in London and in the Netherlands. The reason for this dual arrangement is to ensure that their stocks are traded in a liquid market—which London provides.

Now in the event of a no-deal divorce, the nice people who make up rules in Brussels and have been given the authority to arrange matters on the European side have decided that—in the event of no agreement—EU-based fund managers will have no access to the London market and those 500 companies. Sure, they can trade the stocks in the much smaller local market.

But won’t trading switch to Europe as a result? Not necessarily. Shifting a market from one place to another is hard—it doesn’t happen often. War, destruction of the place, might do it—Bruges was the London of the Renaissance before Amsterdam and London took over when it got caught up in all those religious and dynastic wars. Liquidity begets liquidity in markets and it has a habit of staying put. Why is London home to so much trading that has little to do with what Empirical Britain did? Yep. Easier to do it where it’s already happening than try to compete.

So for some EU investment management firms–and we’re talking large funds here with significant holdings in those 500 or so companies—doing a big trade in a small market will move the price in a very significant fashion as there’s no guarantee there’s the supply or demand there. That’s back in London. So any trades in these smaller markets will have to be backed-out in London as that’s where the deep pool of buyers and sellers operates.

Consequently, the funds are threatening to move their operations to the UK—you know, where the market and the liquidity is.

Tough stance! Getting people to move out of your jurisdiction isn’t tough—it’s stupid or vindictive. OK, we know the motive. Festung Europa. Defend the EU from… (add whatever you want here—latest we spotted was Chinese trains, or was that solar panels or windmills? Our head’s spinning to keep up.)

Why shouldn’t individuals and organisations be allowed to engage in economic activities as consenting adults without the EU interfering? It’s what Tim is on about: free trade. Being able to trade in London makes everyone better off—that’s what markets do. But Project Europe and all that! Reduce people’s utility and wealth.

Is it a surprise people are unhappy with The Project?

 

 

*For those of you not in the know: Jamie’s a character from the UK TV series “Dad’s Army”. Or, if you prefer, Glum in the animated Gulliver’s Travels—take your pick.