Stock Exchange Equivalence

Abstract

Swiss Government Enables EU Securities Dealers to Continue Trading Swiss Shares on Swiss Stock Markets

The Swiss federal government has enacted measures to ensure that EU securities dealers may continue trading Swiss shares on the SIX Swiss Exchange (SIX). These measures will prevent the potential loss of trading volume on the SIX if the European Commission (EC) chooses not to extend its equivalence recognition of Swiss stock exchange regulations beyond the end of 2018. In this Bulletin, we explain the new measures and discuss their impact on Swiss issuers, foreign securities dealers and trading venues in and outside the EU.

Background

Securities dealers located in the EU generate a significant portion of the share trading volume on the SIX. Under the EU Markets in Financial Instruments Regulation (MiFIR), EU securities dealers are only allowed to trade shares on the SIX if either the EC has recognized the equivalence of Swiss stock exchange regulations or the respective shares are not traded «systematically, regularly or frequently» in the EU. As certain Swiss shares are also traded on EU trading venues, EU securities dealers have been relying on the EC’s equivalence recognition to trade Swiss shares on the SIX as well.

However, in December 2017, the EC decided to extend the equivalence recognition only until the end of 2018. While EU authorities had previously determined that Swiss stock exchange regulations are equivalent to the EU’s, the decision has been made for political reasons, in order to exert pressure in the context of unrelated bilateral discussions. Currently, it is uncertain whether the EC will extend the equivalence recognition beyond the end of 2018.

What did the Swiss government do?

On November 30, 2018, the Swiss Federal Council — the executive body of the federal government — enacted an ordinance to enable EU securities dealers to continue trading equity securities of Swiss issuers which are listed or traded on a Swiss stock exchange even if the EC does not extend the equivalence recognition beyond the end of 2018.

As from January 1, 2019, the new ordinance will require trading venues outside Switzerland to be recognized by the Swiss Financial Market Supervisory Authority FINMA if Swiss shares are traded on them or if they enable such trading. EU (and other) stock exchanges where Swiss shares have a pre-existing formal dual listing do not have to be recognized with regard to the continued trading of such shares. The FINMA will be unable to recognize EU trading venues if the EC does not extend its equivalence recognition with respect to the Swiss stock exchange regulations. Consequently, Swiss shares would no longer be traded «systematically, regularly or frequently» in the EU. This would allow EU securities dealers to continue trading such shares on the SIX under the MiFIR.

What does this mean for Swiss listed companies and share trading in Switzerland?

We do not expect the new ordinance to impact Swiss issuers or share trading in Switzerland. Rather, the ordinance is aimed at preventing the loss of trading volume on the SIX, which might occur if the EC withholds its equivalence recognition.

What does this mean for securities dealers out-side Switzerland?

The new ordinance does not create any obligations for securities dealers in the EU, the UK, or elsewhere who trade shares in Switzerland. Rather, it aims to enable EU securities dealers to continue trading Swiss shares on the SIX even if the EC does not extend its equivalence recognition.

What does this mean for EU trading venues?

Although the new recognition requirement — which would only apply if the EC does not extend its equivalence recognition — would de facto prohibit EU trading venues from enabling trading of Swiss shares, the Federal Council has emphasized that it will fall away if the equivalence recognition is extended.

What does this mean for UK trading venues?

Until the United Kingdom exits the EU, the effect on trading venues in the UK is the same as on trading venues elsewhere in the EU. The Federal Council has announced that if post-Brexit UK financial market regulations do not limit or significantly impair trading of Swiss shares in Switzerland, Swiss authorities would recognize UK trading venues quickly and seamlessly.

What does this mean for trading venues in the United States and elsewhere?

The Federal Council has announced that trading venues in the United States and all other relevant jurisdictions except in the EU will be recognized automatically and seamlessly as per January 1, 2019. FINMA has already published a list with recognized foreign trading venues, including in the United States. Therefore, the new ordinance will not have an impact on them.

What does this mean if the EU does extend the equivalence recognition?

The ordinance will not be relevant if the EU extends the equivalence recognition either for another fixed term or permanently. In such case, EU securities dealers may continue trading Swiss shares either at Swiss stock exchanges or at trading venues in the EU.

If you have any queries related to this Bulletin, please refer to your contact person at Homburger or to: