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Hard Brexit could prompt Amsterdam speed traders to set up shop in London

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WHILE the financial world has focused on bankers leaving London for the Continent due to Brexit, Britain's impending divorce from the Euro-pean Union will send some jobs the other way as well. That's the case in speed trading, where many of the biggest firms are Dutch.

"I would anticipate us to open a branch in London," Dennis Dijkstra, Flow Traders NV's co-chief executive officer, said. "It depends on the severity of Brexit. It's a big part of our flow that comes out of London. All the issuers are in London, including their capital-markets teams."

Flow Traders, Europe's largest market maker in exchange-traded funds, shows how Brexit is forcing firms on both sides of the North Sea to duplicate infrastructure and regulatory approvals, with some making a move six months or less before Brexit is scheduled. IMC BV and Optiver BV, Amsterdam's other big traders, say they are waiting for more clarity, but are preparing to follow suit if needed.

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In a no-deal Brexit, UK-based firms would lose the ability to serve EU-based clients and vice versa. Faced with this prospect, the UK's Financial Conduct Authority is reviewing applications from traders and trading venues based elsewhere in the EU that want official approval to trade with UK firms after Brexit. Flow Traders said it is in close contact with regulators.

Once Britain leaves the EU next March, the Dutch capital will become the EU's most important financial centre for such trading firms and the venues they use. The city owes its success as a hub for algo traders to the Amsterdam Stock Exchange, which ran a large options market with an ecosystem of local trading firms. Today's speed traders are the descendants of the floor traders that dominated options trading in the 1980s.

"We will do what is needed to protect our interest in the UK and continue to facilitate our direct counterparties," Jan Willem Kohne, IMC's head for Europe, said. "If needed, we are going to set up a local operation." IMC is one of the largest traders of options globally, as is Optiver. Both have substantial ETF-trading businesses in Europe.

"We are monitoring the developments around Brexit, of course, very closely, and we are evaluating different potential response scenarios," said Willem Sprenkeler, Optiver's corporate affairs manager.

While some continental regulators say it is too late for finance firms seeking approval to operate in their respective countries, the FCA is being much more accommodating. It will grant firms temporary approval to operate in the UK if they ask its permission next January. BLOOMBERG