Non-extension of stock exchange equivalence – backfire on the EU

by René Zeyer

If the cock crows on the dunghill, stock market will change or – not. Old stock exchange equivalence rule re-interpreted.
 This rule has just been updated. By EU Commissioner Johannes Hahn (Hahn means cock), who wants to teach naughty Switzerland a lesson. Out of frustration because the Eurocrat responsible for negotiations with Switzerland is unlikely to see the conclusion of an agreement as long as he is in office.
Since neither the EU nor Austria have the necessary military means to do so, the EU is now doing something that, with respect, must be called childish.
The so-called stock exchange equivalence exists, so that shares can be traded both on EU stock exchanges and on Swiss stock exchanges, and that by traders based in the EU or in Switzerland. This mutual recognition is as important as the mutual acceptance that motorway signs in Switzerland are green and in Germany blue.
Actually, merest trifle, if you do not want to sink to the level of a bully, for whom every pretext is right to start a brawl. So at the end of 2018 the EU only extended this equivalence for half a year. In the hope that Switzerland could be moved to sign the Framework Agreement.
Now, the EU Commission has missed the time at which it must have proposed the recognition of the SIX Swiss Exchange for renewal. This means that the exchange equivalence should expire on 1 July. In concrete terms, this means that banks and other financial traders from the EU will no longer be allowed to trade on the Swiss stock exchange. Does that mean anything?
That does not bode well, but for the EU. Last year, SIX alone had a trading volume of CHF 1361.3 billion. In terms of market capitalisation, the Swiss stock exchange is number four in Europe after the German one. So what happens if this mutual recognition is unilaterally cancelled by the EU? Quite simply: SIX could lose a pretty piece of its trading business. Would that be bad? Not really, because for once the Swiss Federal Council has a stick in its pocket for defending itself against the EU bully.
As a precautionary measure, it has already decided that in this case – tit for tat – the EU stock exchanges will be prohibited from trading in Swiss shares. This would mean that the Swiss stock exchange would even attract more volume than before. And since trading or buying on the Swiss stock exchange is generally also cheaper than in the EU, the bully would, so to speak, have hit himself in his private parts. Paris, Frankfurt and also London would lose volume.
These are the technical consequences. But much worse for the EU is the harm it is causing to the Swiss population. Because the typical Swiss cannot stand a rasping assessment, that Switzerland needs “a shot across the bows” because it lacks the “political will” to conclude the Framework Agreement before the end of Hahn’s term of office.
Of course, the threat is also directed towards London, to make it clear to the British that the EU does not want to react reasonably to the Brexit, but like a disdained lover. This miserable picture is rounded off by the persistently shattered state of the euro, trouble spots everywhere, and the state of the European Central Bank, which has bought up almost the entire market of somewhat valuable debt securities. According to the principle of “left trouser pocket, right trouser pocket” in its own currency.
It is particularly important in this context that Switzerland takes care of its own central bank. It is also bloated, but not by buying bonds in Swiss francs, but by holding assets in euros, dollars and gold. And not to forget its equity capital of around 150 billion dollars.
After all, the Swiss government has also decided that, in view of such an unfriendly and childish act, the disbursement of the second cohesion billion will also be put on ice. Although it may seem so at times, the Federal Council is not a meeting of masochists who still pay a lot for being tortured. After all.    •

Source: In$ide Paradeplatz. Finanznews aus Zürich, from 26 June. Reproduced with kind permission of the author.

(Translation Current Concerns)

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