Swiss To Block Trading Of Swiss Shares On EU Exchanges As Brussels Battle Builds

Switzerland and the EU are embroiled in an ongoing dispute regarding long-standing financial, immigration and trade ties between the two, since Switzerland is not a member of the bloc. However, more critically, as CNBC's Elliot Smith notes, the stock market equivalence granted to Switzerland by the EU expires at the end of June.

As The FT reports, equity trading has become a flashpoint in a long process for the EU’s efforts to upgrade its messy relationship with non-member Switzerland, in which Brussels is seeking to switch about 120 bilateral treaties into an “institutional framework” that would require the Swiss to automatically to adopt some EU laws — a prospect Switzerland rejects.

If the deadline passes on Sunday without an agreement on the EU’s new political demands, and the bloc decides not to extend, “it is likely the Swiss authorities will remove the recognition that allows EU trading venues to offer trading in the Swiss equity securities.

“Everyone has accepted it will happen,” said a diplomat from a major EU member state.

And, according to comments by the Swiss foreign minister on Swiss Radio SRF, that is exactly what ios going to happen as Swiss authorities will unleash countermeasures to Brussels indignance by disallowing trading of Swiss shares in EU, instead rerouting all transactions back to Switzerland from July 1st.

Charlotte de Montpellier, an economist at ING, said Switzerland’s loss of stock market equivalence would be compensated by the protective measures.

“However, the risk is that difficult negotiations between Switzerland and the EU and threats from both sides could leave long-term traces on the relationship between the two entities and on Switzerland's economic performance. 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,” she said.

If, as expected, the two parties fail to agree new terms in the next two days, investors face the prospect of a major overhaul, since Swiss companies comprise around one fifth of the Stoxx 50 index by market capitalization (including blue chip giants such as Nestle, UBS and Novartis).