UK backs open share trading as EU stance threatens London

By Huw Jones

LONDON (Reuters) - Banks and asset managers in Britain can continue using exchanges in the European Union to trade shares from January, Britain's financial regulator said, contrasting with a more restrictive EU approach that poses a risk to London's market dominance.

Britain left the EU in January and full access to the bloc under transition arrangements ends on Dec. 31, leaving both sides to decide - in the continued absence of accords on two-way financial market access - where investors in their jurisdictions can trade, known as the share trading obligation or STO.

The EU's securities watchdog ESMA has already said that from January investors from the bloc can only trade EU company shares in London if the shares have a sterling listing.

This would split markets by forcing chunks of trading in euros to move to the EU from London, Europe's centre for multi-currency cross-border stock trading on platforms such as the London Stock Exchange's Turquoise, Cboe, and Aquis Exchange.

The three London-based platforms accounted for nearly 30% of pan-European share trading on Tuesday, worth about 10 billion euros ($11.7 billion).

Britain's Financial Conduct Authority (FCA) said on Wednesday it would allow firms it regulates to continue trading all EU shares on trading venues headquartered in the bloc, where they choose to do so, refusing to mirror ESMA's currency restrictions.

The FCA said its stance would keep international markets open and preserve the ability of UK-based firms to execute their share trades where they can get the best deal for customers.

"While we note ESMA’s recent clarifications to reduce the potential overlap of an EU and UK STO, we chose this simple and comprehensive approach rather than to replicate restrictions based on the jurisdiction of the share issuer, or the currency in which a share is issued," said Nausicaa Delfas, the FCA's head of international.

The best solution would be for the EU to grant full share trading access for Britain under its "equivalence" regime, she said, but Brussels has yet to say if it will grant such access.

John Liver, a financial services partner at consultants EY, said the FCA statement would prove a boost for competition and choice in share trading that would be welcomed by the industry.

Banking and markets body AFME said the FCA statement would help minimise disruption, and that it supported open markets and global competition between trading venues.

Turquoise, Cboe and Aquis have set up EU hubs in anticipation of a clash in share trading requirements.

Cboe said it was operationally ready for both UK and EU STOs. Turquoise, which will launch its Amsterdam hub on Nov. 30 if the EU has not granted access to Britain by then, declined to comment. Aquis had no immediate comment.

(Reporting by Huw Jones; Editing by Gareth Jones and Mark Potter)