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In the Swiss-versus-the-European Union battle that’s ensnared stock trading, the smaller market appears to have won the first round.
In the month after Switzerland demanded that all trading in Swiss shares happen in its own market, business was smooth and volumes in Zurich were up by a third. The trend largely continued into August, a spokesman for SIX Swiss Exchange AG said. The move, which unfolded under the specter of Brexit, came in retaliation after the EU attempted to force investors based in the bloc to trade inside its borders, and not use the SIX.
For Brexiteers who want to see Britain leave the EU with or without a deal on Oct. 31, the lesson they take is that if Switzerland can stand up to Brussels, so should the U.K.
“They fired a shot, and the shot didn’t hit the target,” said Ben Habib, a Brexit Party member who was elected this year as a U.K. member of the European Parliament in Brussels. “It’s obviously very encouraging for those of us who believe in Brexit and those of us who believe that our government has been timid in its dealings with the European Union.”
Jake Pugh, another Brexit Party MEP, said the EU is using access to financial markets as a “political tool” instead of following established regulations.
“One can only conclude that the EU may no longer be seen as an organization respecting the rules-based order,” Pugh said in an interview.
The Swiss-EU spat is being watched closely by traders and exchange executives in London because EU policymakers say their actions were intended as a warning shot to the U.K. about how it should expect post-Brexit negotiations on financial markets to unfold.
At issue is the EU’s so-called equivalence system, which allows foreign financial firms to do business in the bloc if regulations in their home country are deemed tough enough. The EU’s negotiators say the bloc will continue to use that process after Brexit -- with or without a deal -- despite years of complaints by the U.K. that it’s cumbersome and that equivalence findings could easily be allowed to lapse or be withdrawn, leading to market disruption.
The EU had granted equivalence to Switzerland for stock trading, allowing EU-based investors to trade Swiss shares anywhere they wanted. But the EU let the equivalence determination lapse at the end of June, and that’s when Switzerland enacted the law repatriating trading of Swiss-based companies’ shares.
That in turn led to London-based trading venues run by London Stock Exchange Group Plc, UBS Group AG, Aquis Exchange Plc and CBOE Global Markets Inc. to exclude securities by Swiss issuers -- and trading moved to SIX.
Graham Bishop, a consultant on EU integration who has advised lawmakers in both the U.K. and EU, said there is a risk of reading too much into the Swiss situation. Stock trading access is a “tiny issue” in the greater political tension between Switzerland and the EU, he says, and the City of London’s role as a financial hub for Europe is far more complex.
“If a few weeks of trading has not knocked Swiss shares massively, it would be a wrong step to conclude that the U.K. will be able to weather long-term loss of equivalence in finance and other sectors,” Bishop said. “I do not think this is comparing apples and apples, and also we need to see how things settle down over time.”
As for SIX, it has said regaining equivalence is a priority. It’s also considering buying an EU-based exchange if the impasse with the EU worsens, according to people familiar with the matter.
(Updates with August data in second paragraph.)
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