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European traders banned from trading Swiss blue chips as EU talks break down

European traders banned from trading Swiss blue chips as EU talks break down

European traders are banned from trading stock in hundreds of Swiss companies from Monday following a breakdown of treaty talks between Switzerland and the European Union.

Swiss regulators have imposed a ban on EU exchanges trading Swiss equities after the European Commission allowed the ‘equivalence’ status granted to the Swiss stock exchange to lapse.

The move followed a lengthy standoff between Brussels and Bern over a host of political arrangements between Switzerland and the bloc.

For several years, the EU has sought to consolidate more than 120 bilateral treaties governing a range of political commitments into a single accord, in order to ensure Swiss cooperation with political commitments such as immigration without losing EU market access.

Last week, the London Stock Exchange’s Turquoise and MTF XLOM, Aquis Exchange and CBOE Europe all confirmed that they would be forced to halt trading in over 250 Swiss equities if the impasse continued and Switzerland’s ‘equivalence’ was revoked.

From Monday, trading of shares in Swiss blue chip companies such as Nestle, Novartis and UBS will only be permitted on the Zurich stock exchange, with European investors and traders facing financial penalties and possible imprisonment of up to three years for trading the stock, according to the countermeasures proposal published in November 2018 by the Swiss Federal Department of Finance (FDF).

Swiss traders could also lose their access to EU-based exchanges if they flout the ban.

‘Extremely damaging’
ING economist Charlotte de Montpellier told CNBC that Switzerland’s loss of stock market equivalence would be “broadly compensated by the protective measures,” but the dispute could leave “long-term traces on the relationship between the two entities and on Switzerland’s economic performance.”

“With regard to international trade, Switzerland has a great need for the European market, which accounts for two-thirds of its foreign trade, while the EU does not have a vital need for the Swiss market,” she said.

“More specifically, the EU is Switzerland’s largest economic partner. 53% of Swiss exports are destined for the EU – 18% for Germany, and 71% of Swiss imports come from the EU – 28% from Germany.”

Switzerland is a small open economy whose GDP growth depends heavily on foreign trade. Together, the value of exports and imports represent more than 82% of the annual GDP of Switzerland.

“A deterioration of relations and a greater difficulty of trade with the EU, its main partner, would therefore be extremely damaging for the Swiss economy,” de Montpellier added.

The gradual erosion of relations between Brussels and Bern could not only impact international trade, but may also deter foreign investment and lead to a relocation of business activity, de Montpellier suggested. This could extend to collaborations for research programs, which she said would be a “major concern for federal polytechnics, universities, research centers and companies.”