(Bloomberg Opinion) -- Nerves are fraying about what happens to the financial services industry once the dust clears from Brexit. No one really knows whether there will be some form of equivalence between the City of London and the European Union on securities trading, even if common rules on derivatives clearing have been extended until mid-2022. Those bankers who were asking the “can I trade?” question have been reassured by their employers’ comprehensive contingency planning. Wall Street’s finest have had to make sure there will be no disruptions for their clients. The implementation of new mirror trading venues on the continent has picked up pace with recent announcements by Goldman Sachs Group Inc. and the London Stock Exchange’s Turquoise Europe platform. But that is prudent planning to ensure smooth access for clients, not a guarantee that trading volumes will migrate from London.The more important medium-term question for traders and their clients, when thinking about taking their business across the Channel, will be “how much more will this cost me?” and “why should I change?” Until the post-Brexit regulatory regime is set in stone, liquidity will determine the answer.Until critical mass has built across European marketplaces, it might not be practicable — or cost-effective — to shift much business from London, beyond what has to be traded within the EU. And even Brussels might balk at forcing the finance industry’s hand with a sudden grab for full regulatory control. It would be far better to win business that sticks for continental Europe’s capitals via a better product or an old-fashioned price battle.Institutions first and foremost need to go to where the volume is to get trades completed efficiently, and the real risk for Europe is that liquidity becomes dispersed in several small national pools rather than the catch-all, deeper venues in London. Longer-term trading costs will rise if people are forced to trade within the EU, but can’t optimize their capital usage over different national venues.A Dutch fund manager will be trading in German, Italian and French assets too. Can Europe offer them the same costs as if they were trading all of this stuff in one place? Take cross-margining, where the collateral required to finance one bunch of trades can also be used to offset against other pools of trades. This is a substantial benefit that London provides courtesy of a single infrastructure that Europe can’t replicate.That’s why bankers and hedge funds will always love London. The City is a global marketplace, whereas the EU is looking to control flows of euro-denominated trading. It’s logical for the EU to want jurisdiction over these markets now the U.K. is separating. But it’s important to understand why so much of it is London-based in the first place. This is about free will not regulatory strong-arming.London has become the dominant financial hub because of lower costs, ample liquidity and a relatively proactive regulatory mindset. Unless European market venues can compete commercially, volumes will remain largely where they are. It’s one thing for EU regulators to build their desired market architecture, but another to fill the space. The City of London has decades of experience in devising clever ways to take risk outside of restricted-access markets.The only real example of a successful European attempt at seizing back control is the benchmark German Bund futures contract, which used to be traded largely on the London International Financial Futures Exchange. The Deutsche Terminboerse won the “Battle of the Bund” in 1997 by incentivizing the big German banks to trade on the domestic exchange — which they part-owned — with lower costs. It required a more attractive proposition to prevail. The DTB’s current owner, Deutsche Boerse AG, might win some of London’s derivatives trading and clearing business if it remembers this episode.Still, never count out the innate adaptability of London, especially if Brussels overdoes the regulatory regime.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Marcus Ashworth is a Bloomberg Opinion columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- If the world is going to end up with just a handful of gigantic global businesses serving its financial markets, the U.S. is clearly leading the race. The agreed combination of S&P Global Inc. and IHS Markit Ltd. stands to create a vast, international and diversified business — one that has strategic options to get even bigger through further acquisitions. It’s a transaction that has implications for the U.S. players in market infrastructure and for the capital markets more broadly.S&P, with a market value of $82 billion, has agreed to a deal valuing IHS debt-free at $44 billion. The terms see IHS shareholders receive stock worth around $97 per share, a 4.7% premium to the closing value on Friday. While S&P is the larger party, the pair are casting this as a merger, hence the modest uplift, which would be much larger in a conventional takeover of the U.S.-listed, London-based group.The strategic rationale and timing are easy to grasp. S&P is a well-known brand in indices. It gains enhanced data and analytics capabilities and broader distribution. IHS’s business may be able to grow faster with the benefit of S&P’s clout. Scale brings efficiencies: The duo is targeting $480 million of annual cost savings, with revenue synergies on top.IHS bought Markit in 2016 and may now be at the limits of realizing the full benefits of that deal. S&P and IHS’s market enterprise valuations are both 21 times profit expected next year on the Ebitda measure. That probably made negotiations easier.There are some worries for shareholders. One is whether regulators might stymie the tie-up. The other is the possibility a deal that makes sense on paper founders on the execution. An agile and robust IT system is critical to making a transaction like this deliver. The continuing involvement of IHS Chairman and Chief Executive Officer Lance Uggla appears critical. He’s staying on for a year as an advisor. Hopefully that will be long enough. For S&P, there’s the risk IHS gets a counterbid.The deal comes as London Stock Exchange Group Plc’s $27 billion takeover of data provider Refinitiv continues to work its way through the antitrust process. That marked a pivot to North America after the collapse of LSE’s planned merger with Deutsche Boerse AG. Continental Europe appears to have missed its chance to create a truly global, diversified market infrastructure powerhouse. Bloomberg LP, the parent of Bloomberg News, competes with IHS Markit, S&P Global and Refinitiv in providing financial analytics and information.This will not be the last word in consolidation. Assuming a smooth integration, the logical next step would be further diversification through M&A. Exchange provider CME Group Inc. already has a business partnership in indices with S&P. It looks a potential good fit. That in turn raises questions about how Intercontinental Exchange Inc. will respond to all this. Might it now also seek more scale, say by targeting a deal with a group such as MSCI Inc., notwithstanding that the index and analytics provider is valued more richly than ICE?Either way, the market data business is getting bigger and the U.S.’s global role is matching the size and depths of its markets.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Bitcoin and many of its major peers slumped on Friday in the wake of some of the biggest declines since the onset of the pandemic, a selloff that has stirred fresh doubt about this year’s craze for cryptocurrencies.The most-traded digital coin slid 3.1% to $16,522.61 at 11:05 a.m. in New York. The Bloomberg Galaxy Crypto Index extended a two-day plunge to about 19% -- its biggest since mid-March. The rout was kicked off by worries over the prospect of tighter crypto rules in the U.S. and profit-taking after a big rally, investors said. Even with the slump, Bitcoin has more than doubled this year -- an advance that has split opinion.Crypto believers tout a broadening investor base and the search for a hedge against dollar weakness as reasons for a durable boom. Critics point to a history of big swings, including a spectacular boom and bust three years ago.“We will see some choppy water in the short term as the market finds new levels before attempting another assault on the all-time high” said crypto analyst Jason Dean at Quantum Economics. “The pullback so far would not concern experienced Bitcoin traders or holders to any significant degree.”Read more: Bitcoin Fights Back With Power, Speed and Millions of UsersProponents of digital assets say the current focus on cryptocurrencies compared with 2017 is different because of growing institutional interest, for instance from the likes of Fidelity Investments and JPMorgan Chase & Co. Just this week, Van Eck Associates Corp. launched a Bitcoin exchange-traded note on the Deutsche Boerse Xetra exchange. In October, PayPal Holdings Inc. said it would allow customers access to cryptocurrencies.FOMO“After big rallies in shares and various other assets, they are all vulnerable to a bit of a pause,” said Shane Oliver, head of investment strategy at AMP Capital Investors Ltd. in Sydney. “Bitcoin more than most, as it surged higher far more and had become far more frothy with speculative interest.”Others see signs of retail investors piling in to chase momentum for fast gains, storing up an inevitable reckoning. The rout in Bitcoin began just hours after it rose to within $7 of its record high of $19,511 set in December 2017.Profit-taking was inevitable and there are still factors in favor of Bitcoin as an asset class, according to Byron Goldberg in Sydney, who runs the Australian operations for Luno, the cryptocurrency exchange and trading platform.“It continues to attract both institutional and retail attention as a 21st-century substitute to the gold play,” he said.Crypto ‘Whales’A few large holders often referred to as whales own most Bitcoin. About 2% of the anonymous ownership accounts that can be tracked on the cryptocurrency’s blockchain control 95% of the digital asset, according to researcher Flipside Crypto. That structure points to the risk of big price swings if major investors offload some of their stakes.“Bitcoin may be a victim of its own success,” said Michael McCarthy, chief market strategist at CMC Markets Plc in Sydney. “Traders suggested several large holders moved to lock in gains as the cryptocurrency reached for all-time highs.”AMP Capital’s Oliver said the depth of the recent plunge shows Bitcoin is “hardly a secure store of value,” adding it may be vulnerable if Covid-19 vaccines lead to a sharp global recovery next year.“Money printing and the debasement of paper currencies that Bitcoin enthusiasts are seeking to protect against may start to fade as an issue,” Oliver said.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.