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Potential “Brexit” may cause short term volatility but long term neutral to positive effect on capital markets, suggest ATF London results
The majority of senior buy-side traders believe that the long-term impact will be neutral to positive, according to the results of a survey carried out by K&K Global Consulting in London earlier this month.
K&K Global Consulting raised questions about the upcoming referendum and potential implications of a Brexit among senior and Heads of Trading at the Alpha Trader Forum (ATF) London equities trading debate 8th June 2016.
As part of that debate, 30 of the senior and Heads of Trading from the buy-side firms participated in a real time vote asking “How do you feel Brexit would impact the capital markets?” where the respondents gave an opinion about the short and long term outlook in the event of a positive Brexit vote.
While 80% of the UK buy-side are expecting short term market volatility, the majority 40% are expecting that a neutral impact on the capital markets in the long term. 33% were positive and 27% were negative.
So far, the major impact of the upcoming referendum vote (23rd June) on the trading desk has been to prompt traders to review counterparty risk and foreign exchange exposure.
Views are divided over whether the recent lower liquidity in the equities market has been affected by the potential Brexit or not. Some buy-side participants think Brexit is just an excuse and the real reasons are increased level of quant flow which is discouraging the long only investors. Another reason is the trend toward passive funds and ETF. The buy-side are therefore utilising more liquidity seeking algorithms to adapt to new market conditions.
Kristian Karppi, Managing Director of K&K Global Consulting mentions that this vote is only about the UK based buy-side Head Trader’s opinions. A Head Trader based in continental Europe may feel differently about the potential implications to European assets if the UK stops contributing with tax money in the future and if a potential Brexit would trigger further referendums in other countries.