An electronic display showing the stock indices is seen at the headquarters of the Swiss Stock Exchange (Boerse) operated by the SIX group in Zurich on 29 November 2018. – According to a document from the EU Commission, for the time being, there is no enough progress in Switzerland. The EU framework agreement was made 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The dispute between Switzerland and the EU, which saw Swiss stocks withdrawn from European exchanges, helped the country’s market to resist the pandemic, SIX Swiss Exchange CEO Christian Reuss told CNBC.
The European Union has allowed the recognized equivalence of the Swiss stock exchange to expire in 2019, after a dispute over a series of bilateral treaties that govern 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 deal means that EU shares can no longer be traded on Swiss exchanges.
European traders were subsequently banned from trading shares in hundreds of Swiss companies, a move that saw the Swiss stock exchange obtain “almost 100%” from the stock market, according to Reuss. In 2019, the SIX Swiss Exchange overtook Euronext Paris to become the third largest primary exchange on the continent, behind only the London Stock Exchange and Germany’s Deutsche Boerse.
“This, of course, has brought some benefits to the market. When all the liquidity is brought together in one place, spreads remain stable, the available liquidity, of course, has increased and, if everything is gathered there, you can trade bigger bonds “said Reuss.
The efficiency of the trades has also improved, with the reduction of the SIX Swiss Exchange order-trade ratio, which means that trades were more likely to take place.
“Another thing that is really impressive when you have all the liquidity gathered in one place, it becomes more resistant to volatility shocks, as we had in March with Covid-induced volatility,” Reuss told CNBC by video call on Wednesday last week, adding that investors benefited from greater market resilience.
“What we saw was that our spreads widened as much as other markets, and came back faster, so it’s probably something that you can say that the concentration of liquidity helped.”
Swiss-UK equivalence re-established after Brexit
With the United Kingdom having left the orbit of the EU on January 1, a renewed equivalence agreement between the United Kingdom and Switzerland saw Switzerland’s shares resume trading on the London stock exchanges last week, a development that Reuss said “helps tremendously with the competition “.
“There are two angles to this. First, if liquidity is grouped in one place, for pricing it will have tangible benefits,” he said.
“On the other hand, fragmentation also brings benefits because it brings competition and ensures that you are close to your customers, that you develop innovative capabilities and compete.”
Alasdair Haynes, CEO of the London-based Aquis Exchange, told CNBC last week that the stock market equivalence agreement between the Swiss and British governments was crucial, adding that January 4 saw a “massive overnight shift in the liquidity “of the shares of the 27 EU member states outside London.
“We have seen 95% of businesses literally change overnight, which is somewhat embarrassing for the UK, but it is clearly a major victory 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 we have to negotiate things with people like Switzerland, we need to get equivalence, and that means London has to be incredibly innovative to maintain its position. “