Ban Forces Trading Shift for Europe’s Biggest Stocks
Switzerland’s benchmark equity gauge climbs, mirroring rally in global stocks
Investors and traders moved quickly Monday to shift trading of Europe’s largest stocks from London to Switzerland after a major diplomatic breakdown threatened to reverse decades of financial market integration.
Swiss stocks led by Credit Suisse Group AG and Roche Holding AG showed few signs of disruption as the new curbs on their trading within the European Union kicked in.
Starting this week, shares in Swiss companies can be traded only on local exchanges after a long-running showdown over rules that govern ties between Switzerland and the EU ended in deadlock.
The country’s benchmark index advanced 0.9% Monday, following European and Asian stocks higher as investors cheered the resumption of trade talks between the U.S. and China.
The muted consequences to curtailing trading of Swiss shares in London and other European financial centers may provide some cheer to market-watchers concerned about the U.K.’s pending divorce from the bloc.
Talks between the EU and Switzerland over the myriad treaties that govern their relationship dragged on for years and Brussels’ line grew tougher as the EU started negotiating with the U.K. over the terms of its exit.
The EU followed through with its pledge to withdraw a special status, known as “equivalence,” that allowed Swiss equities to be traded on platforms within the EU after the two sides failed to reach an agreement by the end of June. Bern retaliated with a decision to prohibit exchanges in the EU from trading Swiss shares.
There is little indication that talks between the EU and Switzerland are likely to advance or that the trading limits may be overturned. Mina Andreeva, spokeswoman for the European Commission, said there was no suggestion Switzerland intends to make further progress with the talks.
The new limits, which mean virtually all trading of Swiss stocks has to be done in Switzerland, had minimal impact Monday as investors can simply reroute trades to comply with the rules, according to traders in London.
Still, the ban is a sign of growing dislocation in global markets, according to Ben Ritchie, a senior investment manager on the U.K. and European equities team at Aberdeen Asset Management.
“It’s probably more of a shift in terms of the ‘Balkanization’ of things,” and marks a retrenchment from “a world where we’re breaking down borders and encouraging flows of capital across borders,” said Mr. Ritchie.
Officials in Europe have acknowledged the Brexit talks made the EU and its governments more determined not to make concessions to Switzerland and to demonstrate that there is a cost to not striking a deal.
A spokesperson for Zurich’s SIX exchange said it was too early to draw any conclusions on the impact that the withdrawal of stock market equivalence and Switzerland’s countermeasures will have on trading volumes.
Some 17.6 million shares of companies included in the Swiss market index traded hands by midmorning, compared with 46.7 million Friday.
For the 30 largest Swiss blue-chip companies, 70% of trading used to happen at exchanges in Switzerland, primarily on Zurich’s SIX exchange, while the other 30% was elsewhere in Europe—mostly in London. Swiss companies make up one-fifth of the Stoxx Europe 50 benchmark, which tracks the region’s premier companies, by market value.
Markus Ferber, a conservative member of the European Parliament from Germany, flagged concerns that the new rules mean the bloc has lost one liquid center for trading just as it prepares for Brexit, which could see London’s status as a regional trading hub overhauled.
“The commission is interested in getting this general agreement between Switzerland and the EU and therefore they are not granting anything else, but honestly if you fulfill the criteria of equivalence you should be granted it,” he said.
Longer term, the impasse may have more meaningful consequences for Switzerland’s economy, according to ING Bank economist Charlotte de Montpellier.
“Tensions between Switzerland and the EU aren’t good for trade, business investment, or for the funding of scientific research in Switzerland that depends on European funds,” she said Monday.