This guest article was written by Nikolai Kuznetsov from NikolaiKnows.com.
The Brexit is still top news even if more than a week has passed since the UK referendum on the EU membership. The turmoil in the financial markets caused by the shocking result still continues.
The US and European investment banks, which campaigned in support of the UK maintaining in the EU, had an instant response to the vote’s results. They are putting pressure on the UK authorities and have many questions in relation to the future regulatory measures and political environment. Some of the big banks have started to think about shifting operations from London to some safer European centers, such as Frankfurt, Dublin, or Paris, according to the Financial Times.
The banks are curious about the political leadership of the UK in the future and if it will approve the banks’ plans and interests.
A senior executive of a big US bank said: “We want to know who is going to be in which position, what their policy towards the negotiations is going to be… where we sit in the pecking order between fisheries, automotives and banks”.
London risks losing its world market hub status as many big banks are transferring important operations out of the UK. The US banks, such as JPMorgan Chase, Goldman Sachs, Bank of America, Citigroup and Morgan Stanley, are deeply involved in the European and UK markets, having tens of thousands of people in the UK alone. Now they are making plans to shift to some other European financial centers. In the past, these banks set up their businesses in London, and with the UK regulatory acts, they could be active in all of the EU member countries.
A senior executive at another large US bank said: “We’ll get on with it. We’ve started to think about how we put people in our existing offices and entities in Europe. We are already rebalancing our footprint. Some stuff will move quickly — we’ll travel at the pace of the slowest link”.
“Regulatory approvals and permissions can take time — we will look ahead at all the circumstances and ask what do we need to continue to serve our clients,” he added.
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The employees of financial companies are expected to be transferred to the European offices of banks, but this will be possible only in a few months’ time.
Brexit and minor players
However, the big banks were not the only ones affected by the Brexit results that hit the markets. The retail forex brokers, hedge funds, financial institutions and private investors have also endured big changes. For some of them it was about big profits, for others – the 52% pro-Brexit figure sounded like a nightmare.
The retail forex brokers knew even before the Brexit referendum that huge consequences would hit the markets, so they tried to get ready by raising margin requirements, reducing leverage to make sure about the liquidity and to keep the trading environment safe.
ETX Capital, a Forex broker, along with other brokers, noted an increased activity on their trading platforms, since many investors tried to sell GBP or buy safe haven assets, like JPY. Spot FX volumes on Thomson Reuters moved higher to $258 billion on June 24, the day after the Brexit results were announced, compared to the daily average of $94 billion.
During this period, thousands of new traders wish to try their trading knowledge and open accounts on different brokers’ platforms. The trading volume is above normal today, and many brokers are putting limits, particularly in relation to GBP and EUR.
In regard to hedge funds, some of them reported big profits, but many of them recorded losses, according to their held positions.
The shock of the Brexit is starting to calm, but the major movements and changes in the financial markets are just beginning.