What effect would an EU freeze have on the Swiss stock market?

The Swiss stock exchange remains upbeat about counter-measures to restrict the impact of the EU ban. © Keystone / Ennio Leanza

The European Union looks set to follow through with its threat to lock the Swiss stock market out of the EU market from Monday. Switzerland, in turn, is poised to retaliate tit-for-tat, denying Swiss company stocks from trading on EU exchanges. 

Relations between Switzerland and the EU have become increasingly strained ever since Swiss voters decided in 2014 to restrict immigration from the EU. Brussels has been pushing for around 120 existing bilateral accords, including the free movement of workers, be consolidated under a new set of “framework” rules. 

Negotiations have hit an impasse with Switzerland calling for more time to allow its system of direct democracy to absorb and adjudicate a preliminary agreement. The EU seems to have run out of patience, and as a first demonstration of this, will deny the Swiss stock exchange “equivalency” – or the right to trade EU company shares – from July 1. 

This would result in a loss of trading volume for the Swiss stock exchange SIX Group, but the government hopes to recoup some of these losses by concentrating trading of Swiss securities in Switzerland. The London and Frankfurt stock exchanges are among the EU platforms that have already stated they will suspend the trading of Swiss stocks due to the Swiss ban. 

EU-based banks and traders would then be forced to trade Swiss shares on SIX by going through Swiss brokers. Some market observers believe this tactic may help Switzerland reverse the damage imposed by the EU, but the longer the situation drags on, the worse it will be for both sides. 

Furthermore, the Neue Zürcher Zeitung newspaper writes that EU market regulations provide a loophole. They allow EU traders to turn to other platforms if a share is not “systematically and regularly traded on an exchange recognised by Europe”, NZZ states.  

In its statementsExternal link SIX has been upbeat about the situation, saying it has “prepared for this eventuality by establishing direct links to all its clients over the past seven months so that trading will not be disrupted. In addition, it has implemented a fast track process for bringing new participants on board.”

However, CEO Jos Dijsselhof has privately expressed a stronger viewExternal link. On social media he said the Swiss retaliation “has significantly defused the situation with regard to investor protection” in the short term.

But he said the political row that provoked the impasse would have a “negative effect” on the Swiss economy if it continues for much longer. “As powerful as it is – [the Swiss economy] needs a strong capital market and an independent domestic stock exchange with international reach. Without this Switzerland would be less attractive for investments, company takeovers, or company start-ups,” he wrote.

“I think it is very shortsighted, when I hear that it doesn’t matter where customers buy their shares,” he added. But Dijsselhof also took the opportunity to take aim at Switzerland’s “tiresome” tax rules that he believes already turns foreign investment away from Switzerland.

Multinationals such as Roche and Nestlé have downplayed the impact on their share price, but said they are monitoring the situation.

Pharmaceuticals giant Novartis believes that trading of its shares will most likely just shift to the Swiss exchange and non-EU platforms such as the United States. “Novartis therefore expects no major impact on the trading and market liquidity of its shares,” it stated.