What would a united EU bourse mean for London?

In what could become a landmark speech for Financial Services, Ursula von der Leyen has thrown down the gauntlet in a bid to create a new stock exchange to rival any in the world. Her plan, to unify the bourses of Paris, Frankfurt, Amsterdam, Madrid and Milan into one, would result in an exchange which would be the largest in Europe by some distance (including London) and be able to compete directly with New York, or anywhere else.

The challenge the EU has had, post Brexit, is that it has lacked a Financial Services capital, which can act as a magnet for capital markets. Instead, the lack of a leading exchange has meant that for larger companies without an affiliation to an individual jurisdiction, there is little reason or motivation to list within the block, similarly, high-growth companies (say in technology or other sectors) which are more location agnostic, are harder to attract.

Hence whilst it may be a while away before it comes to fruition, after all, the EU is notoriously slow to make any significant change, this speech by von der Leyen should be taken seriously as something that could happen, as it is also philosophically consistent with the idea of the single market. The French will want this new bourse to be in Paris which will result in the normal horse trading, equally given it is arguably the cultural capital of the block, which makes it the most attractive to live in for high net worth individuals, there is some logic in this, from a human capital strategy.

In terms of what this would mean should this go ahead we would project the following:

  • The T5 EU cities combined to be greater than the sum of their parts (as illustrated in the chart) and to overtake London in aggregate job flow, across front and middle office vacancies in the investment banks and asset managers.
  • If the EU seeks to attract companies to list from outside the continent, it will need to de-regulate. This will create pressure on the UK to de-regulate further than already planned. Singapore-upon-Thames may end up being a reality after all.
  • AIM may be the exchange under the most pressure. Over 2000 businesses are listed there currently, with a heavy focus on mining and resource-based businesses from Africa. A super exchange in Paris, with extensive capital markets, de-regulated effectively could well prove to attract those listings too.

In the meantime, the British Government is doing its best to improve the competitiveness of London, including famously scrapping the banker bonus ratios, in an attempt to create a more deregulated financial centre. However, arguably that is not enough. The long-term performance of the FTSE is woeful when compared to NYSE over say a 30-year period, where part of the issue is the institutional investors themselves. Pension funds are notoriously conservative.

Therefore potentially what could be the answer is for London to create a new exchange, akin to say the NASDQ, which is focused on the Technology industry, where as part of that, it is given special regulatory treatment, including say a requirement for any UK listed asset manager to invest a proportion of their AUM into the exchange. That would instantly create the capital markets for the exchange and given the right regulatory treatment, could even see international tech companies look to list in the UK. It would be a bold approach as it would dilute FSTE, equally the reality is that when comparing say NYSE and LSE, NY has been outperforming London for some time now, it terms of capital growth. Now with the EU stepping up, something needs to change.

The data referenced above has been sourced from Vacancy Analytics, a cutting-edge Business Intelligence tool that tracks recruitment industry trends and identifies emerging hotspots. With 17 years of experience, we have a deep understanding of market activities in the UK and globally.

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