The Brexit Vote:

The Financial Industrys View on Its Impact

The Brexit vote was a watershed event for Great Britain. Not only will the vote impact the future
economic prospects of the entire European region but the Brexit vote also will have substantial impacts
on the global capital markets as firms are forced to re-evaluate their European strategies. It may be too
early to determine the ultimate outcomes but one result is sure; Uncertainty will rule the day until the
British government shapes its exit from the European Economic Union (EEU).
TABB Group surveyed its global capital markets community to collect feedback on the potential impact of
the vote, with 322 market participants responding to the survey. Digging into the data provides
interesting perspectives on industry views. European and British respondents are the most negative,
while the US and Asia are more optimistic, an indication that the rest of the world is expecting to benefit
at the expense of the UK and Europe.
The respondents vocation also impacts his or her perspective. Respondents working at trading firms
were generally more optimistic, as they largely expect volatility to increase and trading volumes to rise
as a result. Trading venues and vendors are also expecting a bonanza from increased volumes, while
banks and future commissions merchants (FCMs) worry that the transition will layer on new regulatory
and compliance headaches.
Andy Nybo
V14:048
August 2016
www.tabbgroup.com

The Brexit Vote: The Financial Industrys View on Its Impact |

August 2016

Introduction
TABB Group conducted an electronic survey on TabbFORUM for a two-week period directly
following the Brexit vote of June 23, 2016. The respondents to the survey include a diverse
set of participants from around the world. The following analysis examines three key
segments of the data set: sell-side firms including broker dealers, banks and FCMs; buyside firms including asset managers, hedge funds and proprietary trading firms; and
infrastructure providers including technology vendors and exchanges, swap execution
facilities (SEFs) and clearinghouses.

A Brexit Reversal?
What is done is done. Survey respondents were generally in agreement that the Brexit vote
is unlikely to be reversed. The sentiment was clear across all respondents and regions with
the exception of one group of respondents. Perhaps somewhat ironically the majority of
respondents identifying themselves as regulators indicated they thought Brexit would
ultimately be reversed. In the weeks following the vote the view seems to have become
even more negative. But it has also become clear that any sort of reversal would be a long
and convoluted political process (see Exhibit 1).
Exhibit 1
Do you expect the Brexit vote to be reversed?
All Respondents

Demographics of respondents
believing Brexit will be reversed

Source: TABB Group

And Now Even More Regulation?

Regulatory costs have been an increasingly heavy albatross around the necks of the
financial industry, especially since the 2008 financial crisis, with local and regional
regulatory initiatives still driving business strategies across the financial industry. Whether
it be Markets in Financial Instruments Directive (MiFID) in Europe, Dodd Frank in the US, or
national regulatory mandates being implemented in isolation, regulation is a costly part of
doing business in the global financial industry. And Brexit will only drive costs higher, as
the European financial industry seeks to deploy a two-pronged approach to regulating
trading on the Continent and in the UK.
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The Brexit Vote: The Financial Industrys View on Its Impact |

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Regulatory bifurcation resulting from the two-pronged approach is viewed as having the
greatest negative impact as a result of Brexit, followed by the potential cost of new trade
barriers to the industry. Both are clearly related as regulation around trade and new
barriers to the free movement of capital will not only cost more to the industry but also will
reduce returns to any investor looking to access cross-border opportunities.
Interestingly, barriers to staff mobility remained of lesser concern to most respondents,
perhaps as the staff to support disparate operations already are in place within regional
offices and locations. Supporting two markets with existing staff seems to be less of a
burden within the minds of respondents, despite the furor surrounding changes in
immigration policies that were a key point of the debate prior to the vote (see Exhibit 2).
Exhibit 2
Which potential impact of Brexit concerns you the most?

Source: TABB Group

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The Brexit Vote: The Financial Industrys View on Its Impact |

August 2016

Yet Another MiFID Delay?

With the topic of regulatory bifurcation comes an expected focus on MiFID. Regulatory
deadlines have a tradition of slipping and perhaps nowhere has this been more apparent
than with MiFID 1 and 2. The vote for Brexit is surely going to have an impact on the
ultimate roll out of MiFID 2, especially for any sort of clearing-related regulatory mandates.
Yet the respondents in our survey were not necessarily convinced that Brexit will delay the
regulation any more than the regulation has been stalled to date (see Exhibit 3).
The banking and dealer community were somewhat more optimistic about any potential
delay, although they were only marginally more expectant than exchanges and the vendor
community. The difference in attitude was clearly more pessimistic about the prospects for
a delay, with proprietary trading firms the most pessimistic with MiFIDs implementation and
asset managers not far behind.
Exhibit 3
How will the implementation of MiFID be impacted?

Source: TABB Group

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The Brexit Vote: The Financial Industrys View on Its Impact |

August 2016

Revenue Impact
Perhaps of most concern to the industry (besides rising costs) is the potential impact on
revenues resulting from Brexit. No surprise that the revenue impact of Brexit may be a
double-edged sword. Trading firms tend to see the Brexit vote as a revenue growth
opportunity, while banks and FCMs fear that Brexit will be another regulatory-like offering
that will curtail business and cause costs to rise.
The increased volatility in the aftermath of the vote is already propelling the fortunes of
trading firms. Not surprising, proprietary trading firms were the most positive about the
prospects for post-Brexit increased revenue. Hedge funds and asset managers were
generally positive with respect to revenue
Exhibit 4
growth opportunities, albeit less
How will your revenue be impacted as a result of
optimistic than proprietary trading firms.
Brexit?
Trading venues were also generally more
Exchange SEF/
positive about the revenue impact as
29%
6%
50%
15%
Clearinghouse
were vendors supporting capital market
Vendor
25%
12%
48%
15%
participants.
Asset Manager
24%
9%
27%
39%
The optimism was clearly missing from
the execution side of the business with
banks and FCMs seeing more red ink as a
result of Brexit. The indication of
negativity from these firms was the
highest of all respondents as well, with
more than one-quarter of respondents
from both segments indicating revenue
would decline (see Exhibit 4).

Broker-Dealer / FCM

18%

Bank 4%

24%
27%

Proprietary Trading Firm

Hedge Fund / CTA
Asset Manager

38%
50%

41%

19%
41%

29%

24%

21%

43%

9%

27%

18%
29%

39%

Will cause revenue to increase

Will cause revenue to decline

Uncertain

No impact

Source: TABB Group

Favored Economic Model

The revenue impact of Brexit is largely dependent on the trade agreements that ultimately
are struck with the EEU. Although it is early in the Brexit process, the economic impact of
the vote will linger on for years past any ultimate date for a formal exit from the EEU. The
UK and EEU will have to formulate an economic policy that will govern trade relations and
economic tariffs between the two regions, an effort that is sure to take time.
The negotiation process is sure to be contentious, acrimonious, subject to debate within
each economic jurisdiction and ultimately decided upon with plenty of conciliatory gestures
by both parties. Our survey respondents generally indicated that the slate is wide open for
compromise; there was a healthy difference of opinion with deployment of a Swiss or
Norwegian trade model slightly besting the implementation of the European Trade
Association agreement. But options for multiple model deployment were generally the
preferred choice of most respondents with a multi-pronged approach most likely to be the
ultimate model used to govern trade between the two regions (see Exhibit 5, next page).

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The Brexit Vote: The Financial Industrys View on Its Impact |

August 2016

Exhibit 5
What economic model will be used to govern trade between the UK and the EEU?

Source: TABB Group

A Potential Benefit to the UK?

The debate surrounding the impact of Brexit focused mainly on the negative in the days and
weeks following the Brexit vote. However, one area that has gotten short shrift is the
potential for positive results of the Brexit vote, with an economic benefit to the UK resulting
from Brexit not entirely out of the question.
Interestingly, opinions on the potential
benefit to the UK are correlated to those
who will be most impacted. The most
negative constituents were Canada-based
respondents, with eight out of nine
respondents saying that it would have a
negative outcome for the UK economy; this
is perhaps a result of the current protracted
Canadian effort to negotiate a free trade
agreement with the EU. Not far behind were
respondents based in Continental Europe,
with two-thirds seeing negative
consequences for the UK.

Exhibit 6
Is it possible that Brexit will benefit the UKs
economy?

Source: TABB Group

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The Brexit Vote: The Financial Industrys View on Its Impact |

August 2016

Those most optimistic of a positive outcome were US-based respondents, with 61% opining
that Brexit would be good for the UK economy. The sentiment was further reinforced with
more than half of UK based respondents and
Exhibit 7
to a lesser extent those based in Asia (see
Where will the FTSE be on December 31, 2016?
Exhibit 6).

FTSE Prognostication a Little

Less Rosy
Despite potential aspects of a positive
outcome of Brexit for the UK economy, the
prospects for a corresponding influence on
the Financial Times Stock Exchange 100
Index (FTSE 100) are somewhat less robust.
Just 27% of respondents expect the FTSE
100 to be up 5% or more by the end of
2016, with just 7% seeing an increase of
Source: TABB Group
10% or more by year end. Those expecting
declines are more pronounced, with 51%
expecting to see a decline of 5% or more by year-end, 20% of those seeing a 10% or more
decline (see Exhibit 7).

European Financial Center of 2020

So what does Brexit mean for London in its role
the Brexit turmoil, initial indications are that
London seems to be secure in its role for
Europe through 2020. That opinion was
definitive across the regions for all
respondents, although those based in
continental Europe had a slightly greater
affinity for Frankfurt. The splitting of the
EEU also raised the specter of, perhaps, an
additional financial center emerging in
Europe, with 6% of respondents postulating
that there would be dual financial centers by
the end of the decade (see Exhibit 8).

as the financial center of Europe? Despite

Exhibit 8
Where will the financial center of Europe be
located in 2020?

Take-Aways
Source: TABB Group
It is still far too early in the aftermath of
Brexit to have distinct clarity on the future
prospects for the UK financial industry. The regulatory environment is certain to become
more complex and business operations that transgress the borders of Europe and the UK
will require a measure of logistical finesse.

The industry is certainly in agreement on the potential for varied outcomes, which are
generally dependent on location and vocation. One thing is clear: the uncertainty resulting
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The Brexit Vote: The Financial Industrys View on Its Impact |

August 2016

from Brexit is a major concern of the industry and represents another impediment that will
need to be addressed by the global financial industry even as it struggles to address the
regulatory overhang from the 2008 financial crisis.

The Survey Respondents

TABB Group surveyed its capital markets community just after the vote in order to gather
immediate feedback on the impact of the vote. We received 322 survey responses
representing a cross-section of global capital markets. Almost half the responses were from
US domiciled respondents, with one quarter coming from the UK and an additional 16%
from continental Europe. Asia represented 7% of the total responses, with a smattering of
responses from Africa and South America rounding out the sample (see Exhibit 9/10).
Exhibit 9/10
Survey Demographics
Type of firm

Location

Source: TABB Group

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The Brexit Vote: The Financial Industrys View on Its Impact |

August 2016

About
TABB Group
TABB Group is a financial markets research and strategic advisory firm focused exclusively
on capital markets. Founded in 2003 and based on the methodology of first-person
knowledge, TABB Group analyzes and quantifies the investing value chain, from the
fiduciary and investment manager to the broker, exchange, and custodian. Our goal is to
help senior business leaders gain a clearer understanding of financial markets issues and
trends so they can better grow their businesses. TABB Group members are regularly cited in
the press and speak at industry conferences. For more information about TABB Group, visit
www.tabbgroup.com.

The Author
Andy Nybo
Andy Nybo has more than 25 years of experience in research and technology applications in
the global capital markets and is a Partner and Global Head of Research and Consulting at
TABB Group. Currently focusing his research on the over-the-counter and listed equity
derivatives markets and examining how technology is playing an increasingly integral role
on both the buy-side and sell-side desktops, he has written the following TABB Group
studies: US Options Trading 2014/5: The Buy-sides Insatiable Thirst for Liquidity, US
Options Market Making 2013: Scale, Scope and Survival, US Options Trading 2012:
Standing Out in the Crowd, Processing Complexity: Back Office Challenges of Listed
Derivatives, Innovations in Accessing Asia: Listed Equity Derivatives & Delta One
Products, and Accelerated Expirations: The Growing Relevance of Short Term Options.

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The Brexit Vote: The Financial Industrys View on Its Impact |

August 2016

www.tabbgroup.com
New York
+ 1.646.722.7800
Westborough, MA
+ 1.508.836.2031
London
+ 44 (0) 203 207 9477

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