MILAN/LONDON (Reuters) - The London Stock Exchange LSE.L will move its European government bond trading from London to Italy before Britain's exit from the European Union next March, it said on Monday.

Signage is seen outside the entrance of the London Stock Exchange in London, Britain. Aug 23, 2018. REUTERS/Peter Nicholls

The LSE’s electronic government bond trading platform, known as MTS Cash, trades a daily average of 13.4 billion euros ($15.31 billion) of bonds. About 20 percent of this will shift to Milan, while trading in British government bonds will remain in London.

London is a major center for trading and clearing euro denominated securities, but the EU and the European Central Bank want to move it to the euro zone where they can regulate it directly, given that Britain will not be an EU member state from March.

A shift would also allow cross-border trading to continue if Britain were to crash out of the bloc without deal. MTS Cash became part of the LSE group when the exchange bought Borsa Italiana.

A source close to the matter said the move would be effective from March 1, 2019. The source also said MTS chief executive Fabrizio Testa recently wrote to clients to reassure them that the move and Brexit would not affect the functioning of markets.

A second source said new regulations were being currently discussed with debt management offices of the countries whose bonds are affected by the move.

The switch by MTS, first reported by the Financial Times, mirrors a similar move by rival BrokerTec, which accounts for a large chunk of trading in government bonds from the rest of Europe.

BrokerTec, part of CME CME.O, is moving trading in euro-denominated repos and government bonds from London to a new hub in Amsterdam by February to avoid splitting liquidity.

The LSE has already faced Brexit pressure on another front as customers of its clearing unit LCH in London shift some of their euro denominated repo transactions to an LCH subsidiary in Paris.

Deutsche Boerse’s Eurex Clearing is offering a profit-sharing deal for banks that clear BrokerTec bond and repo trades in Frankfurt.

Eurex says it is already clearing interest rate derivatives worth an average 64 billion euros in October or 6 percent of a market that is still dominated by LCH from London.

The LSE has said its LCH unit in Paris has no plans to apply for a license to clear interest rate swaps, a sign of its confidence that the bulk of euro IRS clearing will stay in London for the foreseeable future.

Twenty-five banks in London are applying to the ECB for licenses to open hubs in Frankfurt, and will have to move staff and activities there.