What is the issue?
Under MiFIR Art 23, Switzerland needs an equivalence decision from the EU Commission
On 3 January 2018, MiFID II / MiFIR was implemented in the EU with the aim to increase market transparency and thus improve market stability and investor protection. MiFIR Article 23 introduced an obligation for European investment firms to trade shares on a trading venue in the EU or on an equivalent third-country trading venue (the so called 'trading mandate' or 'Share Trading Obligation'). This obligation covers all shares admitted to trading on a regulated market or traded on a trading venue in the EU, which includes most of the equity securities traded on SIX and means that Switzerland needs equivalent third-country status under MiFID II / MiFIR in order for EU trading participants to be allowed to continue accessing the Swiss market locally.
EU granted equivalence only for 1 year
On 21 December 2017, the EU Commission ('EU Com') issued an Implementing Decision granting Switzerland equivalence and formally confirming the requirements to achieve this status had been fully and unequivocally met. However, the decision on Switzerland was limited to a period of 1 year and expired on 31 December 2018. EU Com stated they will closely monitor the impact of this decision and consider the broader political context, notably the progress in the negotiation of the institutional agreement with Switzerland before extending.
Swiss Federal Council's Ordinance
In June 2018 the Swiss Federal Council expressed its intention to implement a contingency measure and announced on 30 November 2018 the implementation of an Ordinance based on the Federal Constitution. The Ordinance entered into force on 30 November 2018. The Ordinance aims at protecting and safeguarding the functioning of the Swiss stock exchange infrastructures as an essential element of the Swiss financial system. On 1 January 2019 it introduced a new recognition regime for foreign trading venues which trade equity securities (e.g. shares) issued by companies with registered offices in Switzerland where such equity securities are listed on a Swiss stock exchange or are traded on a Swiss trading venue ('Swiss shares').
Based on the new recognition regime, FINMA will only grant recognition if the jurisdiction, in which the foreign trading venue is located, does not restrict market participants from trading Swiss shares on trading venues in Switzerland. If this condition is not met, the foreign trading venue will not be granted recognition by FINMA; consequently, these venues will not be allowed to offer trading in Swiss shares.
The intended consequence of the Ordinance is that EU investment firms should continue to have access to the Swiss domestic market and continue to be able to trade Swiss shares in their home market, because the shares are no longer subject to the EU trading mandate (Share Trading Obligation) in MIFIR Art. 23. The Ordinance is designed in such a way that in case of an extension of the stock exchange equivalence, in practice, the Ordinance would have no effect on market participants.
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