An electronic display with stock indices will be seen on November 29, 2018 at the headquarters of the Swiss Stock Exchange (Boerse) operated by the SIX Group in Zurich. According to a document from the EU Commission, not enough progress has been made with the Swiss-EU framework agreement to renew the ‘financial equivalence’ status of the Swiss stock exchange in Europe, the media reported on 28 November 2018 .
STOF COFFRINI / AFP via Getty Images
The dispute between Switzerland and the EU, in which Swiss shares are removed from European stock exchanges, has helped the country’s market to endure the pandemic, Christian Reuss, SES of the Swiss Stock Exchange, told CNBC.
The European Union has allowed the recognized equivalence of the Swiss stock exchange to lapse in 2019 following a dispute over a number of bilateral treaties governing Switzerland’s political relationship with the bloc.
The EU grants ‘equivalence’ to countries whose stock markets are equivalent to those of its member states, and at the end of the agreement EU shares could no longer be traded on Swiss stock exchanges.
European traders were then banned from trading shares in hundreds of Swiss companies, which according to Reuss, according to the Reiss, said the Swiss stock exchange acquired an almost 100% market share in stock trading. In 2019, the SES Swiss Stock Exchange surpassed Euronext Paris to become the third largest primary stock exchange on the continent, behind only the London Stock Exchange and the Deutsche Boerse in Germany.
“It obviously had some benefits for the market. If all the liquidity is put together in one place, the spreads stay stable, then of course the available liquidity has increased, and if everything is put together there, you can trade bigger tickets,” said Reuss.
Trading efficiency has also improved, with the SIX Swiss Exchange’s ratio declining, meaning transactions are more likely to be executed.
“Another thing that’s actually striking about putting all the liquidity together in one place is becoming more resilient to volatility, like we had with the Covid-induced volatility in March,” Reuss said via a video last Wednesday. call told CNBC. that investors benefit from increased market resilience.
“What we saw was that our spreads increased just as much as other markets, and that it came back faster. This is probably something where you can say that the concentration of liquidity helped.”
Swiss-UK equivalence restored after Brexit
As the UK left the EU on 1 January, a renewed equivalence arrangement between the UK and Switzerland last week allowed Swiss shares to be traded on London stock exchanges again. A development that Reuss said “helps tremendously with competition.”
“There are two angles to this. If liquidity is combined in one place, it holds benefits for price formation,” he said.
“On the other hand, fragmentation also has its advantages because it brings competition and it keeps you close to your customers, develops your innovative capabilities and competes.”
Alasdair Haynes, chief executive of the London Aquis Exchange, told CNBC last week that the agreement between the Swiss and British governments was crucial in the stock market, adding that on January 4 there would be a “massive overnight shift in the liquidity “of shares of the 27 EU member states away from London.
“We have seen 95% of the business move literally overnight, which is somewhat embarrassing for the UK, but it is clearly a big win for the EU27,” Haynes said.
‘What it shows is that London and the UK need to do something very positive and constructive to maintain their position as a major financial center in Europe, and that of course means that we have to negotiate things with people like Switzerland, which we has to get equivalence, and that does mean that London has to be incredibly innovative to maintain its position. ‘