Worried About Trading in Swiss Stocks? Here’s How It May Look
Worried About Trading in Swiss Stocks? Here’s How It May Look
(Bloomberg) -- To investors worried about not being able to buy and sell Swiss shares starting Monday, traders say: don’t worry. For the most part, that is.
Europe’s equity desks are getting ready to redirect trades in most Swiss stocks via Zurich following an unprecedented measure by Switzerland to block trading of its shares in the European Union starting July 1. That came after talks between the country and the EU failed to make progress on a new umbrella treaty governing their bilateral relations.
The standoff will leave around 5,000 affected EU-based index funds with about 26 billion euros ($29.6 billion) invested in Swiss shares unable to buy or sell them on trading venues in the bloc, the European Fund and Asset Management Association, or EFAMA, estimates. Millions of investors in those and other asset management products will have to bear the negative consequences of bad pricing and squeezed liquidity, it said.
For now, traders are trying to find ways to keep buying and selling those shares through outlets in Switzerland. While there will be some disruption, trading in the likes of food giant Nestle SA or pharma company Novartis AG won’t be an issue, they said. Trading shares of engineering company ABB Ltd. and cement maker LafargeHolcim Ltd., however, could prove trickier because they have listings and liquidity in EU markets.
‘Dramatic Swings’
“We could see some dramatic swings in prices for stocks like ABB and LafargeHolcim because the trades will have to go via Euronext or other European primary markets where there’s very little liquidity,” said Eric Hassid, a trader at Aurel BCG in Paris. “This will be a problem.”
Hassid said he plans to re-route all his trades in Swiss stocks via Zurich, but won’t be allowed to do that for ABB, LafargeHolcim, BB Biotech AG, a fund investing in biotech companies, baker Aryzta AG and Cie. Financiere Tradition SA, all of have dual EU listings.
Such companies remain the main concern for some traders. Others said it may be a non-issue. “Since these dual listings usually are two primary listings in tightly regulated markets, continued trading on these primary listing markets should be possible,” said Daniel Kalt, chief economist and regional chief investment officer for Switzerland at UBS AG.
Still, It’s not clear what exactly the liquidity situation for these stocks will be, a spokeswoman at the German Investment Funds Association BVI said, noting that it may prompt a discussion with relevant EU authorities.
‘Door Open’
“In case we experience major impact on one of our Swiss stocks, we will have to review such holdings.” said Guillermo Hernandez Sampere, head of trading at German asset manager MPPM EK.
Swiss shares seemed to be shrugging off concerns, with the Swiss Market Index up 0.3% as of 4:45 p.m. in Zurich. It has risen 3.8% this month and is among Europe’s best-performing major indexes this year.
As matters stand, Friday is the last trading day for equities before recognition under EU equivalence rules expires. Without the Swiss countermeasures, EU investors would have lost access to the country’s stock exchanges. Switzerland put in place the measures to offset a loss of liquidity after the European Commission said it wouldn’t extend recognition of the country’s stock exchange beyond the end of this month.
It’s not clear how long the blockage will last. The commission said Thursday that its “door remains open to conclude the agreement” before the close of the current executive body’s mandate in October.
The EFAMA fund management association said in a statement that it wants the “EU and Swiss authorities to continue working together to address this issue, which we believe could be solved by a decision of continued recognition of the equivalence of Swiss trading venues which as such was never questioned.”
Excluding Securities
In the meantime, London-based trading venues run by London Stock Exchange Group Plc, UBS Group AG, Aquis Exchange Plc and Cboe Global Markets Inc. have warned clients they will exclude securities from Swiss issuers. EU venues are responsible for about 30% of the flow in Swiss equities, meaning that volumes on SIX, Switzerland’s main exchange, are likely to spike because of the re-routing.
Berenberg said it plans to route orders in Swiss-issued shares and issues whose primary liquidity is on SIX to Swiss venues, and “will continue to provide trading access to Swiss listed shares to its clients.” The rerouting of liquidity “should not have an impact on the prices,” Union Bancaire Privee’s Swiss and Global Equity team said in a statement by email.
“As long as your private banker or your clearer has a Swiss office it’s usually fine for trading Swiss stocks,” Keith Temperton, a trader at Tavira Securities, wrote by email in response to a Bloomberg query. “There’s always a way around these things.”
Swiss Attractiveness
Still, while the consequences are manageable for Switzerland and EU traders in the short-term, in the long run it’s the attractiveness of Switzerland’s market place that may take a hit, said Vincent Mivelaz, a market analyst at Swissquote Group Holding SA.
“Some portfolio managers may ultimately decide to no longer have such a big focus on Swiss shares given the complexity and given we don’t know how this will end,” Mivelaz said. “It may also become harder to find funds for Swiss IPOs, so we could end up seeing fewer of these.”
--With assistance from Jan-Patrick Barnert, Ksenia Galouchko, Viren Vaghela and Alexander Weber.
To contact the reporter on this story: Albertina Torsoli in Geneva at atorsoli@bloomberg.net
To contact the editors responsible for this story: Beth Mellor at bmellor@bloomberg.net, Vidya Root, Blaise Robinson
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