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[ N E W S
R E V I E W ]
ESMA adjusts share trading obligation plans
for no-deal Brexit to ease industry concerns
European regulatory watchdog revises approach to STO for 14 UK stocks after FCA
raises alarm over liquidity and market fragmentation under a no-deal scenario.
T
he European Securities and
Markets Authority (ESMA)
has revised its proposal to
the share trading obligation (STO)
after market participants expressed
concerns that UK stocks would be
traded on European venues.
ESMA has revised its proposal
for the STO regime published on
19 March which stated that 14
of the UK’s biggest stocks would
have to trade on venues inside the
EU, which included Vodafone,
Coca-Cola, BP, Rio Tinto and
GlaxoSmithKline, should the UK
leave the European Union in a no-
deal scenario.
In a statement released on 29
March, ESMA confirmed that it
would not be applying the STO
restrictions to the 14 GB ISINs
(International Securities Iden-
tification Number) included in
its previous guidance to “further
mitigate potential adverse effects of
the application of the STO, within
the constraints of the extraordinary
circumstances of a no-deal Brexit”.
The UK’s Financial Conduct Au-
thority (FCA) was quick to express
concern over ESMA’s March an-
nouncement, which would result in
European banks and buy-side firms
not being able to trade the listed UK
shares, despite some of them being
listed in the country, or EU stocks
on UK-based trading venues.
The European regulator acknowl-
edged “concerns expressed by some
stakeholders about the guidance” in
its revised proposal.
“After careful consideration, and
in coordination with the [European
Commission], ESMA has concluded
that an approach to the STO based
only on the ISIN of the share would
be more likely to minimise any such
risk of disruption in the interest of
orderly markets. As a consequence,
the EU27 STO would not be applied
to the 14 GB ISINs included in its
previous guidance,” ESMA’s state-
ment said.
ESMA confirmed that stocks with
an ISIN corresponding to a member
nation of the European Union, in
addition to those from Iceland,
Liechtenstein and Norway (as EEA
ISINs) will be included under the
STO, while British ISINs will fall
outside the EU27 STO scope.
In response to ESMA’s announce-
ment, the FCA was “encouraged” by
the revised proposal and the steps
taken to ensure access to liquidity
is maintained for UK-based shares.
However, the regulator warned that
the STO regime will “still cause dis-
ruption to investors, some issuers
and other market participants”, that
would lead to market and liquidity
fragmentation across the UK and
the EU.
“A number of shares with EU-27
ISINs have both a listing, as well
as their main or only significant
centre of market liquidity, on UK
markets. In our view, the ISIN that
a share carries does not and should
not determine the scope of the STO.
Some shares have their main or only
centre of market liquidity outside
the country in which the issuer is
incorporated. This approach would
place restrictions on a company’s
access to investors and freedom to
choose where they seek a listing
on a public stock market,” said a
statement issued by the FCA, also
on 29 March.
The FCA statement continued
that the “risk of disruption from
potentially conflicting EU27 and
UK STOs” was not adequately mit-
igated by ESMA’s revised proposal
“given that article 23 of the on-
shored MIFIR implies overlapping
obligations for firms.”
ESMA said that it remains “mind-
ful” of the impact a no-deal Brexit
would cause across the European
financial markets and that revisions
of its approach up to 12 months
after the date of the UK’s departure
from the European bloc was an
option.
“There is still a high level of un-
certainty as to the final timing and
conditions of Brexit. Should these
change or should there be devel-
opments on the application of the
STO in the UK, ESMA will assess
whether its approach needs to be
adjusted and will inform the public
accordingly,” ESMA concluded.
Issue 60 // TheTradeNews.com // 15