EU Doesn't See Case for Green Light on Swiss Stock Exchange

(Bloomberg) -- The European Union piled more pressure on Switzerland to resolve a political gridlock, with the bloc’s top financial regulator saying he doesn’t yet see the grounds for extending market access for the Swiss stock exchange.

“At this point in time, there is not sufficient progress in our discussions with the Swiss authorities to allow for the extension of the equivalence decision,” European Commission Vice President Valdis Dombrovskis said in a letter to EU lawmaker Markus Ferber dated Nov. 27.

The letter reinforces the focus on the Bern-based government’s next scheduled meeting on Friday, just before the Dec. 1 deadline it has set for announcing a retaliatory counter-measure. The Swiss stock market’s equivalence under the EU’s MiFID II regime is set to expire at the end of the year, and the government in Bern has committed to taking action to protect it, should EU recognition not be extended.

Current system:EU-based traders may buy and sell Swiss stocks on the Swiss exchange
If equivalence expires:EU could forbid traders to access the Swiss exchange, causing a major decline in trading volumes for SIX
Bern’s countermeasure (to be enacted only if the EU doesn’t at least commit to extending equivalence):EU-based traders could be prohibited from trading Swiss shares within the EU, which would re-route volumes back to Switzerland

In response to the Dombrovskis letter, Swiss Finance Ministry spokesman Peter Minder referred to an earlier statement announcing the counter-measure and said the government would communicate its decision once it had been taken.

Other major financial centers were granted indefinite equivalence before MiFID II came into force at the start of the year. Switzerland -- which is in the middle of renegotiating its relationship with the EU -- accused the bloc of political maneuvering at the time.

Relations between Bern and Brussels are regulated via some 120 bilateral agreements and the two parties for years have been in talks on a framework accord to replace the current regime. With those talks stalled over Swiss objections on labor market access, the EU made Swiss stock market recognition contingent on framework-deal progress.

An EU diplomat said on condition of anonymity that a draft agreement has been reached among Swiss and EU negotiators at technical level, but this is subject to political endorsement by Swiss government, which will discuss the matter on Nov. 30. Asked whether technical talks have indeed concluded, an EU Commission spokeswoman said “there are no further negotiation rounds planned indeed because -- as we have also said before -- the issues open are of political nature and hence the ball is now in the Swiss court.”

“The European and Swiss financial markets are tightly interwoven and we can’t afford any disruptions -- last year’s decision shows that the criteria for the recognition of equivalence are fulfilled,” Ferber, a lawmaker in the European Parliament, said in an email. “The commission has to stop playing political games.”

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