Italian job: the real UK stock trading heist

Recent headlines have lauded how Amsterdam and Paris have been able to draw stock trading in European names away from London as part of the fallout from the UK finally leaving the European Union.

Legally speaking that is true, as European firms now trade stocks on platforms owned by legal entities on the continent rather than in the UK. Technically speaking, however, equities trading is still occurring in the UK: venues have so far kept their vital technology infrastructure in and around London.

Data centres house the cogs of exchanges, with matching engines and trade data all stored in these locations. Market-makers also place their trading systems within these sites so they can physically connect to the exchanges and reduce the time it takes for them to send and receive information and orders from the exchange.

But now, Italy could be on the verge of pulling off its own stock trading heist that will take the physical trading process out of the UK. Perhaps ironically, Brexit is not the root cause.

There is understood to be no legal or technological reason arising out of Brexit that means European exchanges can’t keep their data centres in the UK. And yet, Euronext is considering moving its infrastructure for pan-European stock and listed derivatives trading from Basildon in the UK to Bergamo in Italy.

Rather than Brexit, the potential move is connected to Euronext’s yet-to-be-confirmed acquisition of Borsa Italiana. The exact reasons why that takeover should lead to the relocation of a data centre are unclear. Three sources believe the Italian government has had a hand in the move as part of negotiations for Euronext’s purchase of the Italian exchange operator. Others say Euronext has wanted to move out of Basildon for some time due to sky-high rental charges from their landlord, Ice Data Services.

The potential move also spells bad news for Ice, because it’s not just Euronext renting server space in Basildon

The benefits of the move for Italy are clear.

A new data centre in Bergamo would create jobs to maintain the site and infrastructure. Local network providers will also get a boost from Euronext, market-makers and vendors needing to connect to them.

Amsterdam, Dublin, Frankfurt and Paris have so far been declared the winners from Brexit in financial services due to the relocation of staff to those cities. By contrast, there have been thin pickings for Italy, and so Euronext’s move would mean Milan (plus industrial parks in nearby towns such as Bergamo) would be added to the list of financial centres drawing business out of the UK.

Good news for Italy. But maybe not so great for everyone else. Creating a replica of the entire Euronext ecosystem in Bergamo will be a mammoth task.

For some, it will be (relatively) cheap. For others – particularly those firms that strive to be the quickest to transfer information from trading servers in one location to another through microwave technology – it will be expensive.

The potential move also spells bad news for Ice, because it’s not just Euronext renting server space in Basildon. The site has also been collecting rent from all the companies – market-makers and vendors – wanting to connect to Euronext. The revenue from this is unlikely to be trivial.

A trading technology expert who used to work at a proprietary trading firm that makes markets on Euronext says liquidity providers could be renting from two to two dozen cabinets at co-location sites.

The monthly rent for just one market-maker renting a dozen of the cheapest and least powerful cabinets would be £35,700, according to Ice Data Services’ price list.

Euronext’s tenancy expires in 2024. The exchange operator has until then to decide whether to leave the UK behind and give Italy a boost, keep the status quo, or look at other alternatives.