On 1st April 1602, the Dutch East India Company issued shares in a street-level room just off Dam Square in Amsterdam, creating the first stock market in the world in Amsterdam and marking an important milestone in the history of capitalism. Over 400 years later, on the 11th February 2021, Amsterdam regained a role as the hub of equity trading in Europe, overtaking the historic leader, London. Data from the Chicago Board Option Exchange (CBOE) stated that average daily trading volume in Amsterdam in January 2021 was 9.2 billion EUR, compared to 8.6 billion EUR in London, as shown in Figure 1. This means that Amsterdam is officially the leading equity trading city in Europe, with London still in second place. The longer-term impacts of this are yet to be realised, however analysts in the United Kingdom are confident that, since key elements of the financial ecosystem remain in London, the shift in trading does not signify Amsterdam to be a more attractive financial hub.
Figure 1: Graph showing the average daily trading volumes of European cities. Bloomberg, CBOE
As indicated in Figure 1, average daily trading volume in Amsterdam increased over 250% from December 2020 whilst London’s fell by approximately half. The drastic change in volumes was a direct repercussion of the UK and the EU failing to negotiate an ‘equivalence agreement’ before Brexit came into law on December 31st. This agreement recognises the UK’s financial rules and regulations as on a par with the EU’s. British-based companies are still permitted to trade shares from European companies on the UK stock exchanges; however, European companies must trade these shares on venues based within the EU. This affects 21 companies with London listings and caused 6.5 billion EUR of trades to switch from the UK’s to the EU’s stock markets at the start of January. Despite the data the CBOE published not accounting for the trading of Swiss stocks returning to London, which resumed in early February, average daily trading volumes are still significantly below historical averages.
However, the shift is potentially less impactful than some headlines suggest. According to the founder of the New Financial think-tank, William Wright, “it is a technological switch or a regulatory switch, but it is not some sort of seismic shift where suddenly people think London isn’t as attractive of a place to do business.” The traders and fund managers, those with the ideas behind the trades, remain in the UK. Nick Bayley, a managing director at consultancy firm Duff & Phelps noted, “in terms of jobs, tax revenues, other revenues, the profit and loss accounts and so on being generated in Holland rather than in the UK, it’s marginal. But it is symbolic.” Such symbolism refers to the potential threat that Amsterdam and other EU rivals may represent to London’s historic financial prowess.
The trading volumes are unlikely to return to the UK until the EU grants ‘equivalence’. The Governor of the Bank of England, Andrew Bailey, urged the EU to expedite this process as “the UK is one of the world’s largest global financial centres, and its financial stability, as the IMF has reminded us, is a global public good.” The EU has said publicly in the past that it aims to grow its own financial capabilities, which has led members of the UK government to suggest that Brussels has withheld this ruling as a political means of pushing business out of London into the EU. In fact, the Dutch Ministry of Economic Affairs actively lobbied to entice financial trading firms to relocate to Amsterdam. The chair of the EU Securities and Markets Authority, Steven Maijoor, believes that the switch to Amsterdam is going to be a permanent change – the EU is not expected to reconsider equivalence until the 2nd quarter of 2021 at the earliest.
Overall, the title of ‘European leader of equity trading’ bears little practical significance to the state of the City of London’s financial dominance. However, these events do show that the European Union looks to gain from the UK’s financial services industry and may, in the future, act to prioritise its own hubs such as Paris, Frankfurt or Amsterdam in decision making. Whilst trading volumes are likely to remain elevated in Amsterdam unless equivalence is granted, it remains to be seen whether the city can fully capitalise on this opportunity – the Dutch government’s lobbying suggests they may be averse to letting it slip away.
By Andrew Hopkins
Sector Head: James Float