Date laid: 13 January 2021
Parliamentary procedure: negative
This instrument specifies that the legal and supervisory framework for stock exchanges in Switzerland meets at least equivalent outcomes to the UK’s regime, enabling UK shares to be traded on Swiss stock exchanges. According to HM Treasury, Switzerland is expected to reciprocate the decision in due course, enabling Swiss shares to be traded on UK stock exchanges. Given that this recognition marks a departure from the current EU position, and the significance of the financial services sector to the UK economy, the instrument may be of interest to the House.
The instrument is drawn to the special attention of the House on the ground that it is politically or legally important and gives rise to issues of public policy likely to be of interest to the House.
4.This instrument has been laid by HM Treasury (HMT) with an Explanatory Memorandum (EM). The purpose of the instrument is to specify that the legal and supervisory framework for stock exchanges in Switzerland meets at least equivalent outcomes to the UK’s regime. This will allow UK shares to be traded on Swiss stock exchanges.
5.HMT explains that trading services for UK firms can only be provided by venues in a third country if they have been deemed equivalent by HMT through a procedure set out in the Markets in Financial Instruments Regulation (MiFIR), as it forms part of retained EU law. For third country trading venues to be recognised as equivalent under MiFIR, HMT must be satisfied that the legal and supervisory framework of the third country is equivalent to the UK’s regime for trading venues. Third country trading venues must also be subject to effective supervision and enforcement in the third country.
6.According to HMT, a third country’s legal and supervisory framework may be considered equivalent where the framework meets the following conditions:
7.Following an assessment and technical advice from the Financial Conduct Authority, this instrument specifies that the legal and supervisory framework for stock exchanges in Switzerland meets at least equivalent outcomes to the UK’s regime. Once the equivalence decision enters into force on 3 February 2021, UK firms will be able to trade shares on Swiss stock exchanges, specifically BX Swiss AG and SIX Swiss Exchange AG.
8.We asked HMT whether Switzerland was expected to reciprocate HMT’s equivalence decision, so that Swiss shares could be traded on UK stock exchanges. HMT told us that:
“The Swiss State Secretariat for International Financial Matters (SIF) have confirmed that once in force, they will reciprocate by removing restrictions on UK trading venues. UK venues will then be able to register with The Swiss Financial Market Supervisory Authority (FINMA) in order to trade Swiss shares.”
9.As the EU has not currently granted equivalence to Switzerland, we asked whether the EU had concerns about the Swiss legal and supervisory framework which were not shared by HMT. HMT explained that:
“The European Commission issued a decision on 21 December 2017 granting Switzerland’s stock exchanges equivalence. However, the decision was limited to 1 year (31 December 2018) on the understanding that it would be extended if Switzerland made progress in discussions with the EU on the EU-Switzerland Institutional Framework Agreement (IFA). Although the decision was extended by 6 months (until 30 June 2019), it was not extended beyond that.
When the Commission decided not to renew their STO [share trading obligation] equivalence decision for Switzerland in 2019, they were clear that their decision was due to insufficient progress in the IFA discussions, and not because Switzerland’s regulatory framework for stock exchanges was no longer equivalent to the EU’s.
HM Treasury has assessed the legal and supervisory framework, following advice from the FCA, and is content that Switzerland’s framework for trading venues, as it relates to stock exchanges, meets at least the equivalent outcomes to the ones provided in the UK’s corresponding regime (MiFIR Article 23 as retained EU law).”
10.Finally, we asked HMT whether the UK and the EU had mutually recognised their legal and supervisory framework in this area, enabling shares to be traded on their respective stock exchanges after the end of the Transition Period. HMT told us that:
“No we have not agreed mutual equivalence with the EU for trading venues.
Although this has meant that a number of EU shares that were previously traded on UK venues have had to move to EU venues, EU shares that are traded in sterling and non- EU shares can continue to be traded in the UK, and UK exchanges remain some of the biggest and deepest in the world.
In the absence of mutual equivalence, UK action on the share trading obligation (STO) has ensured that firms operating in the UK can continue to access the most liquid global markets, and achieve the best prices for investors. However, the overlap between the UK and EU’s STO can only be fully solved by mutual equivalence, which is in the interests of both UK and EU firms. We continue to believe in open, global markets and firms’ ability to choose where to trade, and remain open to discussing mutual equivalence for trading venues with the EU.”
11.This instrument specifies that the legal and supervisory framework for stock exchanges in Switzerland meets at least equivalent outcomes to the UK’s regime, enabling UK shares to be traded on Swiss stock exchanges. Switzerland is expected to reciprocate the decision in due course, enabling Swiss shares to be traded on UK stock exchanges. Given that this decision departs from the current EU position and the significance of the financial services sector to the UK economy, the instrument may be of interest to the House. The instrument is drawn to the special attention of the House on the ground that it is politically or legally important and gives rise to issues of public policy likely to be of interest to the House.