London to Resume Trading Swiss Shares After Losing EU Billions

(Bloomberg) -- The City of London can tout a rare benefit of Brexit this week, when Swiss shares such as Novartis AG and Nestle SA are expected to be readmitted to trading in London.

The return comes after an 18-month hiatus triggered by Switzerland protecting its markets in a stand-off with the European Union. The U.K. is looking to embrace other partners after jettisoning ties with the world's biggest trading bloc.

The swift reintroduction reflects political and economic imperatives, with the U.K. government under pressure to show tangible benefits of a departure that's been dominated by a steady flow of news around the gradual diminution of the City of London as a financial center. Chancellor of the Exchequer Rishi Sunak met with his Swiss counterpart last week to hasten the deepening of financial services ties in the wake of Brexit.

“This will be an interesting development,” said Robert Barnes, head of LSE's Turquoise venue. “The extraordinarily quick move towards equivalence between Switzerland and U.K. sends a positive message to the world, promoting the growth of capital markets.”

London Stock Exchange Group Plc, Cboe Europe and Nomura Holdings Inc. are among the companies planning to restart Swiss trading in the U.K. capital.

Still, it's hardly a like-for-like swap. Before Switzerland lost equivalence from the EU, London averaged 1.3 billion euros ($1.6 billion) in Swiss share trades per day. This compares with 6.3 billion euros of EU share trading that left London overnight after Jan. 1. In 2018, U.K. financial services exports to Switzerland, excluding the insurance and pension fund industry, was 2.5 billion pounds, compared to 21.2 billion pounds to the EU, according to the Office for National Statistics.

“It's a little bit of a pyrrhic victory,” given what London has lost, said Niki Beattie, founder at Market Structure Partners.

Allying with Switzerland may also risk further alienating the EU. It underlines the U.K.'s divergence from the bloc, a shift unlikely to boost the City of London's bid to be granted untrammeled market access for financial services.

Read more on equivalence and post-Brexit banking

The Swiss experience highlights the fraught nature of equivalence negotiations with Europe.

Switzerland is no further along the road to winning Brussels' seal of approval 18 months after the EU withdrew its equivalence stamp. Switzerland retaliated by banning trading in about 200 Swiss shares on venues inside the 27-nation bloc.

If the EU were to grant the U.K. equivalence, one condition might be the U.K. rescinding its Swiss decision, according to Beattie.

For now, the return of Swiss trading is an emblem of the trade-offs inherent to Brexit.

“Whereas the loss of EU share trading was an own goal for the U.K. this is more of a free kick, definitely not a goal,” said Alasdair Haynes, chief executive officer at Aquis Exchange.

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