Britain tops sterling swaps trading after Brexit

By Samuel Indyk

LONDON (Reuters) – Britain’s trading platforms have regained their position as the largest location for on-venue execution of sterling interest rate swaps, new analysis has found, in a boost for the country’s financial services industry post-Brexit.

New York had taken the top spot for sterling swaps trading in early 2021 as swaps trading left London for the European Union and United States after Britain fully left the bloc on Dec. 31, 2020.

However, latest data from MarkitSERV showed that a third of all sterling swaps and 57% of on-venue sterling swaps are now executed on UK platforms, the highest ever recorded share as a percentage of all sterling swaps.

The findings also show that U.S.-based derivative trading venues, or Swaps and Execution Facilities (SEFs), have overtaken those in the EU to become the primary trading location for euro swaps, with 26% of all euro swaps and 47% of on-venue euro swaps now executed on SEFs.

Although British venues have increased market share post-Brexit, some EU and UK banks as well as investment managers have reduced market access for transactions that “are subject to an EU/UK derivative trading obligation” MarkitSERV managing director Kirston Winters said.

“The era of truly global swap markets appears to be a dim and distant memory,” he said.

Britain said on Tuesday it will require its regulators to help the City of London remain a globally competitive financial centre after being largely cut off from the EU due to Brexit.

Since December 2020, investment managers in Britain are unable to trade swaps on EU venues, while clients in the EU are unable to trade on UK platforms for derivatives trading obligation products, MarkitSERV said.

“All this means that clients must either stay in their home market or utilise a SEF to gain broader liquidity, while unable to access the other European market available,” Winters added. 

(Reporting by Samuel Indyk; editing by Emelia Sithole-Matarise)