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EU-based traders caught in Swiss ‘equivalence’ spat


EU-based banks and fund managers face the threat of imprisonment in Switzerland from Monday if they flout a ban on trading hundreds of Swiss stocks following the breakdown of talks between Brussels and Bern.

Swiss regulators have imposed a ban on trading Swiss equities on exchanges in the EU after the European Commission let the “equivalence” status granted to Switzerland and its stock exchange expire, amid failed negotiations over a trading agreement with the EU.

The equivalence permit lets Swiss and EU investors freely trade across each others’ borders. From Monday, Swiss shares can only be traded on the Zurich exchange, via a recognised broker.

European investors will face punishments ranging from financial penalties to imprisonment of up to three years if they trade stocks, such as consumer company Nestlé or pharmaceutical group Novartis, away from Switzerland’s exchange.

As a result of the impasse, Swiss traders will also lose their access to EU-based stock exchanges from Monday.

The regulatory moves mark a new low for EU-Swiss relations, which have been strained for months over talks to formalise more than 120 bilateral treaties into a single framework deal that would require Switzerland to adopt some EU laws automatically.

Brussels has hardened its stance in light of negotiations with the UK where equivalence is likely to be the status granted to the City of London after Brexit. 

To put pressure on Swiss authorities to accept the treaty, Brussels has kept the country’s traders on a tight leash, granting short-term equivalence permits since December 2017. The latest six-month extension expires on Sunday and will not be renewed unless there is a breakthrough in treaty talks, the Commission said. 

“At this stage we have no indication about any intention of our Swiss partners to make further progress and hence there is no justification to extend the current equivalence decision beyond 30 June”, said a Commission spokesperson. 

The “equivalence” permit let Swiss and EU investors freely trade across each others’ borders. From Monday, Swiss shares can only be traded on the Zurich exchange, via a recognised broker.

Around 30 per cent of daily trading in Swiss stocks takes place in London. UK trading venues such as CBOE Europe, Turquoise and Aquis Exchange have stopped trading Swiss equities over the weekend.

Traders expect some business to move to private marketplaces run by banks and high-frequency platforms, which sit outside the scope of the Swiss rules. Overall trading volumes may also be hit because some traders will no longer be able to exploit minuscule differences in prices of the same stock traded on two different venues. 

EU officials admit they do not know the level of market disruption to be caused from the diplomatic spat. “It could take weeks or months for the dust to settle,” said one official. 

Brussels has accused Switzerland of foot-dragging in talks to finalise the partnership deal. Swiss authorities wrote to Jean-Claude Juncker, commission president, this month asking for a series of clarifications over an agreement that would mean Bern accepting rulings from Luxembourg judges and providing labour market benefits to EU citizens in Switzerland. 

Trading executives expect the Swiss edict will result in most Swiss trading moving to Zurich. Even so, the complexity of the rules for trading shares has left many grey areas. Lawyers say there are problems with companies with dual listings in the EU and Switzerland, such as electronics firm ABB.

The Commission told companies they must make their own assessments about where they can lawfully trade Swiss shares. European investors may have to check an EU database to find out whether a particular stock is caught by the rules, said Leonard Ng, a partner in Sidley Austin in London.

Ignazio Cassis, Swiss foreign minister, has said the countermeasures were “temporary”.

“In the European Union one has the feeling that we are playing for time. We in Switzerland know we are not playing for time, we need time because we have a different political structure and we cannot simply decide in the government and that’s it,” Mr Cassis told Swiss television last week.



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