City of London has safeguarded market share since euro's launch, says Bank of England report

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The Independent Online
THE CITY of London has safeguarded its market share since the launch of the euro, according to a new Bank of England report. However, there has been a significant decline in turnover in the foreign exchange market, in which London has a dominant position.

The findings echo a recent speech by Eddie George, in which the Governor said the City had "thrived" outside the single currency, and was making an important contribution to the success of monetary union.

The Bank concludes that monetary union has given "an important boost to the integration of European capital markets". The past year has seen a "spectacular" increase in corporate bond issuance in the euro area.

The report, "Practical issues arising from the euro", looks at the City's business in the entire range of markets and financial services.

"All the available evidence confirms that London has to date fully maintained its position as the main international financial market in the European time zone, not withstanding the UK's position outside the euro area," it says.

It admits that the location of activity in many wholesale financial markets can be hard to pin down, but says capital market activities, treasury and risk management operations, trading, fund management and research are all concentrating in London.

Investment banks have been building up staff to deal with the substantial rise in mergers and acquisitions both in London and Euroland.

The one potential concern is a drop of between 15 and 30 per cent in activity in EU foreign exchange business. The decline in turnover in London, which accounts for about a third of the world foreign exchange turnover, has been somewhat less but is still down by 5 to 10 per cent.

The fall is due in part to the replacement of 11 currencies by the euro a year ago, but also reflects the move of spot trading onto electronic broking systems.

Market estimates put the share of electronic systems in the London market at 70 per cent now, up sharply from 40 per cent in April 1998.