Almost six months have passed since the European Commission finally decided in favor of a last-minute six-month extension period of Switzerland’s stock exchange under MiFID II rules. While the equivalence period ends in 30 June 2019, a final decision should be made earlier this month, as the EU Commission will review progresses of relations with Switzerland on Tuesday. Although another extension of Swiss stock exchange recognition is very likely, concerns over wage welfare should maintain the discussion opened beyond the second half of the year.
The December 2018 drafted framework agreement supposed to rule new EU – Swiss ties came under Swiss politics scrutiny with a rather constructive appraisal albeit three areas require clarification: state aid, immigration and wage protection. While the first two conditions can be satisfied amicably, Swiss wage protection stays a sticking point, as cheaper cross border competition benefitting from free circulation would become a major impediment for Swiss operating companies, thus requiring more patience from both negotiating sides. Furthermore, the start of Swiss Parliamentary elections in 20 October 2019 could well slowdown the process, as approval of the Parliament is required before signing the treaty, while a referendum following a potential ratification is very likely. Considering the recent developments, we expect the EU to extend the equivalence of Swiss stock exchange, while an appliance of EU sanctions would trigger Swiss government ordinance consisting of a trading ban of EU-based banks and brokers of Swiss shares. Even if a liquidity crunch would be surmountable (30% of trading in Swiss shares carried out on EU platforms), the launch of IPOs in Switzerland would become more challenging.
EUR/CHF trades at 1.12078, approaching 1.12160 short-term.