European stock investors and brokers are rushing to find workarounds before Swiss shares are blocked from trading on EU exchanges on Monday after a collapse in talks to resolve a dispute between Brussels and Switzerland.
In a heated row over a stalled partnership treaty, Switzerland said on Thursday that it would trigger retaliatory measures against the European Union for forbidding access to its stock markets.
That means as of Monday almost 300 shares in Swiss companies, including Nestle, Roche and Novartis, cannot be traded at EU stock exchanges which normally see around 30 percent of the volume in Zurich-listed shares.
The Swiss stock market has a market capitalisation of €1.1 trillion, more than 10 per cent of the pan European STOXX 600 index’s total.
While few traders expect the ban to lead to a major market dislocation, some said it could deter them trading.
Costly
It could also get “trickier and more costly” for investors who do not have direct access to the Swiss exchange, Edward Park, deputy chief investment officer at Brooks Macdonald in London, said.
Many investors and brokers were caught by surprise by the ban, saying they were unsure how trading will work.
“The only consensus at the moment is confusion,” the head of electronic trading at one global brokerage said.
“All brokers are coming up with different answers depending on where they’re regulated, who your client is, it’s a very confusing situation,” he added.
How the aftershocks of the dispute play out will be closely watched by British officials, as they try to assess how EU shares can continue to be traded in London after Brexit.
“It will be interesting to see what happens and see if all the systematic fixes work and go smoothly because that will be the case for the UK going forward,” one trader said.
Some EU regulators and politicians want to end Britain’s dominance of European financial markets, raising speculation that they have opted for a tough line with Switzerland in order to set a precedent.
“This is a proxy of what Brussels could inflict on London,” said Stephane Barbier de la Serre, a macro strategist at Makor Capital Markets in Geneva.
Platforms
The proliferation of stock trading platforms in Europe since the 2007 EU MiFID regulation created competition between exchanges, often leading to investors getting better prices. But for Swiss stocks, the choice of venues is set to narrow.
"About a third of the Swiss market is traded outside Switzerland; that volume moves back to Switzerland so I can still trade there . . . but it's annoying as I can't use all my execution channels the way I did before," said Eric Boss, global head of trading at Allianz Global Investors.
CBOE, Aquis and London Stock Exchange’s Turquoise platform, which have been handling around 25-30 per cent of trade in Swiss stocks, have said they will cease trading these from Monday, meaning most investors will have to use Swiss exchange SIX instead. One exchange executive said that most investors will find a way to trade, but the overall volume will likely be lower.
Most major instititutional investors already have ready access to SIX so can move their business there or else opt to do trade over-the-counter or using some investment banks’ own internal trading platforms called “systematic internalisers”.
Both Swiss and EU officials have indicated the situation is unlikely to be permanent, but it will add an operational headache to investors already grappling with rising costs. - Reuters
