[ I N - D E P T H
|
S W I S S
E Q U I V A L E N C E ]
only game
in town
The
Following the removal of Swiss equivalence in the European Union in July this year,
Hayley McDowell examines the fallout of the political development and finds buy-
side traders are benefitting from the substantial shift in market structure.
E
arlier this year, SIX Swiss
Exchange overtook Eu-
ronext Paris to become the
third-largest primary exchange in
Europe. Behind only the London
Stock Exchange and Germany’s
Deutsche Börse, the paradigms of
the European equities landscape
drastically shifted during the
summer months following a spat
between the European Union and
Switzerland.
The disagreement in ques-
tion centred on Switzerland’s
equivalence status, which the
EU decided not to renew on 30
June, the result of which meant
that EU-listed securities could no
longer be traded in Switzerland.
In response, Switzerland moved to
ban Swiss shares from being trad-
ed on venues within the EU the
42 // TheTrade // Winter 2019
very next day. The result is that
European traders can only trade
Swiss equities on the SIX Swiss
primary exchange via a recognised
broker, or through a systematic in-
ternaliser (SI) operating in the EU,
as the ban does not apply to over
the counter (OTC) activity.
The impact, traders feared,
would be severe. Historically,
around 30% of Swiss equities
are traded on EU-based venues
such as Cboe Europe, Turquoise
and Aquis Exchange, and the
ban implemented on 1 July saw
more than 300 stocks delisted
from those venues. The primary
concern was that less competition
and choice in Switzerland would
drive the costs of trading up over
time. Several weeks later, high-
speed trading firm and market
maker Virtu Financial published a
damning report, which stated the
fears of increased trading costs
had indeed been realised.
“While the impact to end inves-
tors from ending equivalence of
Swiss stocks is not fully under-
stood yet, we do observe increas-
es in trading costs for the 100+
institutional managers included in
our peer universe, with small and
mid-cap Swiss stocks becoming
around 20% more expensive,”
Virtu Financial said.
“With essentially only two
options to source liquidity now
(SIX Exchange for lit liquidity or
SIX SwissAtMid for dark liquid-
ity), anyone capturing mid-price
liquidity is going to trigger a
reaction on the SIX lit market
from other market participants