July 1, 2019 / 11:15 AM / a year ago

Breakingviews - EU sacrifices own market principles in Swiss row

Trams drive past the offices of Swiss banks UBS (L) and Credit Suisse at Paradeplatz square in Zurich August 10, 2012. REUTERS/Arnd Wiegmann

MILAN (Reuters Breakingviews) - The European Union is sacrificing its own market principles in a diplomatic row with Switzerland. By cancelling Zurich’s status as an approved stock market from Monday, the EU Commission is undermining its objectives for making equity trading cheaper and more transparent. Swiss bourse SIX will enjoy higher volumes, but European investors will have fewer places to buy and sell stocks like Nestlé and Roche Holding.

Brussels’ decision to effectively eject Zurich from the EU-regulated common area for stock trading is highly political. It stems from the Alpine nation’s unwillingness to back, after years of talks, an agreement to simplify bilateral relations. And it has nothing to do with Swiss exchanges being unsuitable places for EU investors to trade.

Judging by the initial stock market reaction on Monday, Swiss blue chips largely shrugged off the bourse battle. The closely-watched Swiss Market Index was up 0.8% in Zurich on Monday, in line with gains at other European venues. And there were no obvious disruptions to trading.

Yet, the consequences of Brussels’ move run deeper. To protect its main stock market SIX, Bern has prohibited investors from buying or selling shares of nearly 300 Swiss companies on EU trading venues. The ban is aimed at shifting to Zurich the around 30% of trading in Swiss stocks previously carried out in the EU. This effectively recreates a Swiss stock-trading monopoly in the Alpine nation, shutting out EU-based exchanges such as CBOE Europe or Turquoise.

The longer-term costs of restricting competition remain to be seen. Nevertheless, the spat shows the EU executive is willing to contradict its long-term objectives to pursue a political goal. Brussels promoted the creation of alternative trading venues to challenge national exchanges about a decade ago. And last year it finalised rules to make EU securities trading more transparent – and therefore more efficient. Yet, by withdrawing equivalence, commission President Jean-Claude Juncker has triggered a series of events that effectively restrict competition.

Lack of choice in where to transact will probably drive up prices and reduce efficiency. That’s a bad outcome for EU investors and brokers. More importantly, it sends a contradictory message about the EU’s financial priorities.


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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