Tony's Ten: London's increasing importance

20 September, 2013

Whatever happened to London being replaced by Frankfurt and Paris? I’ve heard it so many times, some scare story about how Europe will turn its back on the centre of global banking. Let’s look at some raw facts. On Tuesday I looked at the trading volumes for equity trades in three European centres. In Paris the CAC 40 traded 79.84m shares. The Xetra Dax in Germany saw a volume of 81.36m shares. The London FTSE100 traded 1.2 billion shares. Now of course these three indices are not like-for-like, but equally while the CAC 40 has fewer listed companies vs. the number of companies on the FTSE 100 (it’s in the name!) that would only explain a 2.5x difference, not the existing 15x difference in volumes (though still not a fair comparison).

More interesting is a real indicator of international banking – foreign exchange volumes. This is where London trounces all; it is by far the leading foreign exchange trading centre in the world. In the latest Bank of International Settlements triennial survey of foreign exchange markets, the UK has risen in importance, not declined as so many have predicted, which is demonstrated in the table on page 16 at http://www.bis.org/publ/rpfx13fx.pdf

Along with the UK dominating FX trading (I suppose as I am British I should really say ‘forex trading’ and not kowtow to American terminology), ‘Cable’, the USD/GBP currency pair, is the third largest trade in the market at 8.8% of total volumes, though way behind the USD/EUR trade which represents 24.1% of the market (down more than 3% in the last three years, representing the decline in economic activity in Europe). Of course, much, if not most of the USD/EUR trading will be done out of London.