(Reuters) - The Swiss government has drawn up measures that it says will help protect the domestic stock market should the European Union seek to block EU-based investors from trading on Swiss exchanges in a row over a new treaty.
Frustrated by the lack of progress in treaty talks, the EU has said it will not recognize the equivalency of Swiss stock market regulation beyond the end of June, which would mean EU-based banks and brokers can’t trade on Swiss exchanges. They now generate more than half the turnover on Swiss stock markets.
To head off a possible liquidity crunch and channel share trading to domestic markets, the Swiss are introducing a new system in which foreign exchanges need Swiss permission to host trading in Swiss stocks. All venues except those in the EU get a green light to carry on as before.
Here are provisions of the ordinance the Swiss unveiled on Nov. 30 and set to take force when EU sanctions kick in:
Who could be affected?
Foreign trading venues, including stock exchanges and multilateral trading facilities. Switzerland will let them host trading in Swiss-registered companies only if the foreign venues’ regulations do not crimp trading of Swiss stocks in Switzerland.
In effect, only EU trading venues would not get Swiss certification. The issue would be moot if the European Commission extends recognition of Swiss market regulation beyond the end of June, allowing EU-based banks and brokers to keep trading in Switzerland.
Markets outside the EU won’t be affected. Once Brexit takes effect, British platforms could be certified provided their regulation does not interfere with trading on Swiss markets.
How are dual-listed stocks treated?
Stocks already listed both at a stock exchange in Switzerland as well as at a foreign stock exchange are exempt from any trading ban. This exception is available only to foreign stock exchanges, but not to other trading venues.
What measures are possible in case of violations?
Wilful as well as negligent violations of the Swiss ban could result in criminal charges, according to the Swiss proposal. Sanctions can target foreign trading venues as well as their management or board of directors. Intentional violations can trigger imprisonment of up to three years or a fine, while negligence could be punished with a fine.
Reporting by Michael Shields