Swiss feel Brussels' Brexit Bern

Romeo Lacher, chairman of SIX Swiss Exchange, Switzerland's main stock exchange, says that Bern has a contingency plan to avoid Swiss bourses being shut out of EU stock markets as a Brussels deadline approaches. 

Lacher's plan entails redirecting share dealing back to Switzerland — one of the EU's so-called 'third nations' — by prohibiting Swiss shares from being traded in the EU.

But time is running out. Swiss stock exchanges have temporary equivalence status under the EU's MiFID II (the Markets in Financial Instruments Directive 2004 — an EU law that provides harmonized regulation for investment services across the 31 member states of the European Economic Area). These expire at the end of the year. 

Without access to EU bourses, Switzerland would likely retaliate with the same measures for EU traders on Swiss bourses, with potentially dire effects for the Swiss economy. Some 30 percent of trading in Swiss shares is in the EU, the rest in Switzerland and most activity in Swiss shares on SIX comes from traders in the EU.

This also sends a strong signal to The City of London if and when Brexit goes ahead and the UK joins Switzerzland as a 'third nation.'

The EU has linked extending equivalence with Bern's completion of a framework agreement to replace 120 bilateral accords governing relations between Bern and Brussels. The 4-year talks have stalled as the soon to be 27-member bloc opposes Swiss bank guarantees and policies protecting higher wage levels in Switzerland. 

A framework agreement would force Swiss rules to automatically align with EU ones in areas such as legal development, supervision, interpretation and dispute settlement. In arbitration disputes between the EU and Switzerland, the European Court of Justice would also play a key role.

It's a political thing

Bern has accused the bloc of using the stock market as a political pawn.

Brexit has pushed the European Commission to ramp up pressure on Bern to sign the agreement. Some observers believe the EU's executive wants the framework to be more restrictive so Switzerland-EU relations can't be used as an example for countries looking to leave the EU. 

European Commission vice-president, Valdis Dombrovskis, said recently that insufficient progress had been made in talks with Bern to extend the recognition of Swiss stock exchanges regulation. 

Swiss voters rejected a referendum proposal to give the country's laws priority over international law, a development  that is seen as positive for the talks with the EU.

The shadow of Brexit

Charlotte de Montpellier, an economist with ING Belgium, told DW that the loss of market equivalence could permanently damage relations between Switzerland and the European Union.

"The problem is that the European Union is Switzerland's largest trading partner for trade in goods and services," she said.

"There is not much potential for negotiations to ever come to a conclusion after such a threat is implemented. I believe we could then witness a continuing deterioration of relations between Switzerland and the EU. This loss of equivalence could therefore have a significant impact on the Switzerland economy, which goes far beyond the financial markets."

She made it clear that she believesthe EU's tough stance with Switzerland is being influenced by the ongoing Brexit endgame.

"The problem is that the EU is putting pressure on Switzerland because it does not want Switzerland to be considered as an example by Brexiteers," she said.

"It has decided to link the progress of the negotiations with the recognition of the Swiss stock markets rules that allow cross-border trading. In short, in December 2018, without sufficient progress in the negotiations, European's access to the Swiss stock exchange and securities listed in Switzerland could be threatened."