City grasps lion's share of forex and overseas equity trade

THE CITY'S share of world financial markets has soared this year, despite the intensifying efforts of other financial centres to entice business away from the Square Mile.

London's foreign exchange market, already the biggest in the world, has seen the fastest growth, according to international market operators. And derivatives markets such as the London International Financial Futures Exchange (Liffe) and the market in overseas equities have also seen sharp increases over the past two years.

News of the City's robust health will surprise critics, who claimed that London was losing out to increasing competition from other financial centres, particularly Frankfurt and Paris. Fears that London was becoming over-regulated, wracked by scandal, and unattractive to foreign investors appear unfounded.

The Corporation of London calculates that the City's share of global foreign exchange turnover has rocketed to almost 40 per cent, compared with 27 per cent recorded in a survey by the Bank of International Settlements in 1992. Insiders believe global turnover is now probably greater than pounds 400bn a day compared with pounds 300bn two years ago. Official figures will not be produced by the BIS until next year.

Hongkong & Shanghai Banking Corporation claims that it now handles 5 per cent of world turnover, since basing its foreign exchange operations in London following its purchase of Midland Bank last year. Barclays and National Westminster also claim a substantial percentage of global turnover.

'There has been a big switch by international players towards basing all their foreign exchange business on one centre where you can deal and hedge all at the same time,' said Michael Cassidy, a Corporation of London executive. 'Since London is already the biggest market, they come here.'

Trading in futures, options and other financial derivatives products in London has surged. Daily turnover on Liffe is now worth pounds 115bn, an increase of 80 per cent so far this year compared with earlier annual growth rates of 50 per cent since the market was founded in 1992. It is now the second largest futures exchange outside Chicago.

'I would guess about 90 per cent of all European derivatives now go through London,' said Neil Mackinnon, chief economist at Citicorp.

Trading in the shares of foreign companies has also continued to grow rapidly this year after rising by 75 per cent in value last year, the London Stock Exchange said. Nearly pounds 580bn of foreign shares were traded in London in 1993, making it the largest overseas equity market in the world.