At the headquarters of the Swiss stock exchange (Boerse) of the SIX group in Zurich on November 29, 2018, an electronic display with stock indexes can be seen. – According to a document from the European Commission, there is not enough progress on the Swiss for now.An EU framework agreement has been concluded to renew the ‘financial equivalence’ status of the Swiss stock exchange in Europe, the media reported on November 28, 2018.
FABRICE COFFRINI / AFP via Getty Images
The dispute between Switzerland and the EU, in which Swiss shares were removed from the European stock exchanges, helped the country’s market weather the pandemic, Christian Reuss, CEO of SIX Swiss Exchange, told CNBC.
The European Union dropped the recognized equivalence of the Swiss Stock Exchange in 2019 following a dispute over numerous bilateral treaties regulating Switzerland’s political relationship with the bloc.
The EU grants “equivalence” to countries whose stock markets are considered to be equivalent to those of its Member States, and the end of the agreement meant that EU shares could no longer be traded on Swiss stock exchanges.
European traders were subsequently banned from trading shares in hundreds of Swiss companies, which, according to Reuss, gave the Swiss exchange “close to 100%” market share in stock trading. In 2019, the SIX Swiss Exchange overtook Euronext Paris to become the third largest primary stock exchange on the continent, behind only the London Stock Exchange and Germany’s Deutsche Boerse.
“Obviously, that had some benefits for the market. When all the liquidity is bundled in one place, spreads remain stable, the available liquidity goes up, of course, and when everything is bundled there, you can trade bigger tickets,” said Reuss.
Trading efficiency also improved, with the SIX Swiss Exchange’s order-to-trade ratio decreasing, meaning trades are more likely to be executed.
“Another thing that is actually really striking when you have all the liquidity bundled in one place, it becomes more resilient to volatility shocks, like we had in March with the Covid-induced volatility,” Reuss told CNBC via video call last Wednesday. that investors benefited from greater market resilience.
“What we saw was that our spreads widened as far as in other markets, and they came back faster, so that’s probably something you could say that the concentration of liquidity contributed.”
Equality between Switzerland and the UK restored after Brexit
When the UK left the EU on January 1, a renewed equivalence arrangement between the UK and Switzerland caused Swiss shares to trade again on the London stock exchanges last week, a development that Reuss says “helps a lot with competition.”
“There are two angles. First, if liquidity is bundled in one place, it has tangible benefits for pricing,” he said.
“On the other hand, fragmentation has its advantages, because it brings competition and that ensures that you stay close to your customers, develop innovative capabilities and compete.”
Alasdair Haynes, CEO of London-based Aquis Exchange, told CNBC last week that the stock market equivalence agreement between the Swiss and UK governments was crucial, adding that on January 4, a “ massive overnight shift in liquidity ‘shares of the 27 EU member states away from London.
“We saw 95% of the business move literally overnight, which is somewhat embarrassing for the UK, but clearly a big win for the EU27,” said Haynes.
“What this 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 of course that means negotiating things with people like Switzerland. , and it does mean that London has to be incredibly innovative to maintain its position. ”