An electronic screen is shown showing the stock indices at the headquarters of the Swiss Stock Exchange (Boerse) operated by the SIX group in Zurich on November 29, 2018. – According to a document from the EU Commission, for now, there is not enough progress in An EU framework agreement was agreed to renew the financial equivalence status of the Swiss stock market in Europe, as reported by the media on 28 November 2018.
FABRICE COFFRINI / AFP via Getty Images
The dispute between Switzerland and the EU that caused Swiss stocks to withdraw from European stock markets helped the country’s market overcome the pandemic, SIX Swiss Exchange CEO Christian Reuss told CNBC.
The European Union allowed the recognized equivalence of the Swiss stock market to expire in 2019 following a dispute over a series of bilateral treaties regulating Switzerland’s political relationship with the bloc.
The EU grants “equivalence” to countries whose stock markets are considered equivalent to those of their member states, and the end of the agreement meant that EU shares could no longer be traded on Swiss stock exchanges.
Subsequently, European traders were banned from trading shares in hundreds of Swiss companies, which allowed the Swiss stock exchange to gain a market share of “almost 100%” in equity trading, according to Reuss. In 2019, the SIX Swiss Exchange overtook Euronext Paris to become the continent’s third largest stock exchange, just behind the London Stock Exchange and the German Deutsche Boerse.
“This, of course, had some advantages for the market. When all the liquidity comes together in one place, the spreads remain stable, the available liquidity, of course, increased and, if everything is combined, they can be change bigger tickets, ”Reuss said.
Trade efficiency also improved, with the decrease in the SIX Swiss Exchange order ratio, which means that transactions are more likely to be executed.
“Another thing that’s really amazing when you have all the liquidity grouped in one place, it becomes more resistant to volatility shocks, like we had in March with Covid-induced volatility,” Reuss told CNBC via video call last Wednesday, adding that investors benefited from increased market resistance.
“What we saw was that our spreads widened as much as other markets, and they came back faster, so it’s probably something where you can say that the concentration of liquidity helped.”
The Switzerland-UK equivalence was restored after Brexit
With the UK leaving the EU orbit on 1 January, a renewed UK-Switzerland equivalence agreement saw Swiss stocks resume trading on the London Stock Exchange last week, a development that Reuss said “helps the competition tremendously.”
“There are two angles. First, if liquidity comes together in one place, for price formation it has tangible benefits,” he said.
“On the other hand, fragmentation also has its advantages, as it entails competition and this ensures 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 exchange equivalence agreement between the Swiss and British governments was crucial, adding that on January 4 there was a “massive overnight liquidity change” of shares of 27 EU member states away from London.
“We saw that 95% of the business was moving literally overnight, which is embarrassing for the UK, but it’s clearly a big win for the EU-27,” Haynes said.
“What it’s showing is that London and the UK have 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 the equivalence, and that means London has to be incredibly innovative to maintain its position. “