Exchange Equivalence

MiFIR Art. 23 requires European investment firms to trade shares on a trading venue in the EU or an equivalent third party trading venue ('trading mandate' or 'Share Trading Obligation'). In the absence of recognition of equivalence, EU investment firms would no longer be able to trade Swiss shares in their home market in Switzerland, which is also the market with the best liquidity, the deepest order book and thus offers best execution.

The intended consequence of the Ordinance is that EU investment firms can continue trading Swiss shares on Swiss exchanges irrespective of equivalence being granted or not, because the shares would no longer be subject to the trading mandate (Share Trading Obligation) in MIFIR Art. 23.

The EU Share Trading Obligation only applies to shares; other securities such as derivatives, ETFs, structured products are not subject to MiFIR Art. 23. The Ordinance applies to equity securities and thus namely shares. This means such other securities (e.g. derivatives, ETFs, structured products) can continue to be traded on Swiss or foreign trading venues as before.

The implementation of the Swiss Federal Council's Ordinance means that from the date of activation of the Ordinance, foreign trading venues that have not been recognized will no longer be able to offer their trading participants the ability to trade equity securities (e.g. shares) issued by companies with a registered office in Switzerland if such Swiss shares are also listed on a stock exchange in Switzerland or traded on a Swiss trading venue (‘Swiss shares’). Specifically, trading venues in the EU would not be recognized, if equivalence is not extended. There is no change regarding trading venues in other jurisdictions.

This would have the effect of removing Swiss shares from trading on EU venues and – resulting from this – those shares would no longer be ‘admitted to trading’ (or trading volumes of Swiss shares would not be 'substantial') which means the trading mandate in MIFIR Art. 23 would no longer apply to them. The consequence of this is that it would enable EU investment firms to continue trading Swiss shares directly on the Swiss exchange, irrespective of whether equivalence is granted or not.

Investment firms accessing SIX  will have to re-route their trade flows and adjust their order routing engines in order to ensure orders in relation to Swiss shares are directed to SIX in the future and not to EU trading venues.

From the date of activation of the Ordinance, they can trade Swiss shares that are within the scope of the Ordinance on a Swiss trading venue and on a foreign trading venue if the foreign venue has obtained recognition pursuant to the Ordinance.

They can trade dual-listed Swiss shares on a Swiss trading venue and on the foreign regulated market on which the Swiss share is already dual listed.

The Ordinance does not restrict trading in foreign shares  on a Swiss trading venue (if admitted) or on a foreign trading venue  as is the case today.

From the date of activation of the Ordinance, they can trade Swiss shares that are within scope of the Ordinance on a Swiss trading venue and on a foreign trading venue if the foreign venue has obtained recognition pursuant to the Ordinance.

The Ordinance does not restrict trading in foreign shares on a foreign trading venue as is the case today.

Dual-listed shares where the shares are listed on a stock exchange in Switzerland and a foreign stock exchange not located in the EU would not be affected in practice as it is expected that such foreign stock exchanges will be recognized pursuant to the Ordinance.

According to the Ordinance introduced on 30 November 2018, there is an exception for equity securities of companies with a registered office in Switzerland with a dual listing (primary or secondary) on a foreign stock exchange before 30 November 2018. Foreign stock exchanges are not required to obtain recognition for the trading of such dual-listed equity securities, but are nonetheless required to obtain recognition for the trading of other equity securities of companies with a registered office in Switzerland (cf. Article 1 paragraph 2 Ordinance). This exception is available only to foreign stock exchanges, but not to other trading venues. The issuer must have expressly consented to the listing at the foreign stock exchange. Listing and explicit consent must have occurred prior to 30 November 2018.
This means that Swiss shares with a dual listing (primary or secondary) in the EU can continue to be traded on SIX  as well as the EU exchange where these shares are dual listed, but not on EU MTFs.

According to the Ordinance introduced on 30 November 2018, shares of companies not incorporated in Switzerland with shares listed on SIX are not in scope of the Ordinance and therefore may remain subject to the EU Share Trading Obligation.

The Ordinance seeks to ensure that trading of equity securities of companies with a registered office in Switzerland that are listed on a Swiss stock exchange or are traded on a Swiss trading venue (‘Swiss shares’) can continue to be traded in their home market, i.e. the deepest and most liquid market in these instruments, offering Best Execution. EU-based investment firms seeking the best execution results for investors can continue to access the Swiss market as the Share Trading Obligation will not be applicable to Swiss shares (exceptions see above) – therefore, SIX does not expect any negative impact on the liquidity of Swiss shares covered by the Ordinance.

The Ordinance is deemed to be a financial market act pursuant to the Federal Act on the Swiss Financial Market Supervisory Authority (Financial Market Supervision Act, FINMASA, SR 956.1). Willful as well as negligent exercise of an activity that requires a license, recognition, admission or registration without such corresponding license, recognition, admission or registration may lead to criminal law sanctions (Article 44 FINMASA). Corresponding criminal law sanctions can target foreign trading venues as well as their responsible bodies (e.g. management, board of directors). Sanctions include, in case of willful conduct, an imprisonment of up to three years or a monetary penalty, and a fine in case of negligent conduct.
For more information, please refer to the above link to FAQ of Federal Department of Finance.

If the EU Commission extends equivalence after activation of the Ordinance, EU trading venues will receive recognition pursuant to the Ordinance.

No. This particular equivalence recognition is specific to trading shares on a third country trading venue.
SIX x-clear and SIX SIS are not impacted by this equivalence recognition and it does not negate any authorisations both companies currently have.

ESMA issued guidance on the transparency requirements for activity executed on a third country trading venue aiming to ensure that duplicate reports are not routinely published when the third country trading venue has similar transparency provisions to EU trading venues. SIX fulfils all criteria set out by ESMA in their guidance.
This assessment is different to the equivalence determination made by the EU Commission under MIFIR Art 23.

ESMA stated that ‘In order to contribute to the smooth implementation of MiFID II/MiFIR as of 3 January 2018 and to maintain a level playing field between third country trading venues, transactions on third country trading venues should not be required to be made post-trade transparent under Articles 20 and 21 of MiFIR pending the publication of the outcome of the assessment of the criteria stated in paragraph 10. So far ESMA have not concluded any determinations of third country trading venues.