London stock exchange could halt trading of Swiss companies like UBS amid EU standoff

The London stock exchange (LSE) has warned investors they could be forced to halt the trading of Swiss stocks from Monday due to a political standoff between Switzerland and the European Union (EU).

According to a notice released Tuesday night, the exchange could halt trading in as many as 254 equity securities issued by Swiss companies.

All of the shares are currently traded on the London Stock Exchange’s MTF XLOM, a multilateral trading facility. MTFs are part of the European Union regulatory framework and provide an alternative to traditional stock exchanges, so none of the companies are listed on the main London Stock Exchange.

Similar warnings have also been issued by exchange operators Aquis Exchange, CBOE Global Markets and UBS.

Switzerland and the EU are embroiled in an ongoing dispute regarding long-standing financial, immigration and trade ties between the two, since Switzerland is not a member of the bloc. The stock market equivalence granted to Switzerland by the EU expires at the end of June.

If the deadline passes on Sunday without an agreement on the EU’s new political demands, and the bloc decides not to extend, the LSE notice explained that “it is likely the Swiss authorities will remove the recognition that allows EU trading venues to offer trading in the Swiss equity securities.”

Nescafe Production As Coffee Stimulates Growth For Nestle SA 180823
A pedestrian passes a Nestle SA logo at the Nescafe factory, operated by Nestle SA, in Tutbury, U.K., on Thursday, Aug. 23, 2018.
Simon Dawson | Bloomberg | Getty Images

European venues would face restrictions to trading in Swiss companies, including blue chip giants such as Nestle, UBS and Novartis, on Monday if Switzerland is not granted equivalence by the start of trading.

A Nestle spokesperson told CNBC that the company is “observing the situation” but does not anticipate a “significant impact” on its shares.

The obligation has been applicable to foreign trading venues if they admit shares of Swiss registered companies since January 1, but the Swiss Federal Department of Finance issued a statement Monday indicating that it is prepared to withdraw the recognition of EU venues.

“Trading venues in the EU would thus be prohibited from offering or facilitating trading in certain shares of Swiss companies from that date,” the statement said..

“Activating the protective measure with regard to trading venues in the EU serves solely to protect the functioning of the Swiss stock exchange infrastructure.”

If the two parties fail to agree new terms in the ensuing days, investors face the prospect of a major overhaul, since Swiss companies comprise around one fifth of the Stoxx 50 index by market capitalization.

For several years, the EU has been trying to implement a new framework consolidating over a hundred bilateral treaties governing ties between Brussels and Bern into one accord, in order to ensure the Swiss cannot renege on obligations such as immigration without losing EU market access.

The EU’s bargaining chip was a change to the way it grants market access, or equivalence, allowing Swiss companies to be traded on European exchanges. Switzerland received a one-year extension to agree to Brussels’ demands in late 2017, and a further six-month extension at the end of 2018, which expires on Sunday, June 30.

Beat Wittmann, partner at Zurich-based Porta Advisors, told CNBC’s “Squawk Box Europe” on Wednesday that the Swiss had more to lose from a fraying of relations.

“Switzerland has the most complex bilateral arrangement which served both sides pretty well, and quite frankly the Swiss only got away with this because we are relevant economically, prudent financially and very export sensitive, but we are not a big power at the table,” he said.

Wittmann added that while the equivalence discussion is “only a little part of the great picture,” the issue was heating up ahead of Swiss elections this fall, with “nationalist and populist forces” keen to capitalize on anti-EU sentiment.


Author: Lili