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How the dispute between Switzerland and the EU over shares ready them for the pandemic

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On November 29, 2018, an electronic display with share indices will be displayed at the headquarters of the Swiss stock exchange (Boerse), which is operated by the SIX Group in Zurich. – According to a document from the EU Commission, there is currently insufficient progress in Switzerland. According to media reports on November 28, 2018, an EU framework agreement was made to renew the status of the Swiss stock exchange in Europe with regard to financial equivalence.

FABRICE COFFRINI / AFP via Getty Images

The dispute between Switzerland and the EU, in which Swiss stocks were canceled from European exchanges, has helped the country's market weather the pandemic, Christian Reuss, CEO of SIX Swiss Exchange, told CNBC.

The European Union let the recognized equivalence of the Swiss stock exchange expire in 2019 after a dispute over a number of bilateral agreements on Switzerland's political relations with the bloc.

The EU grants "equivalence" to countries whose stock markets are considered to be equivalent to those of its member states, and the end of the agreement meant that EU stocks could no longer be traded on Swiss stock exchanges.

European traders were then banned from trading stocks in hundreds of Swiss companies, which, according to Reuss, led to the Swiss stock exchange gaining a "nearly 100%" share of the market. In 2019, the SIX Swiss Exchange overtook Euronext Paris and became the continent's third largest primary exchange after the London and Deutsche Börse.

"Of course that had some advantages for the market. If all of the liquidity is consolidated in one place, the spreads remain stable, the available liquidity has of course increased and if everything is consolidated there, you can trade bigger tickets," said Reuss.

Trading efficiency also improved as the SIX Swiss Exchange's order-to-trade ratio decreased, meaning trades were executed earlier.

"Another thing that is actually quite noticeable when you have all of your liquidity in one place is becoming more resilient to volatility shocks like we had in March with the volatility caused by Covid," Reuss told CNBC last Wednesday via video call and added that investors benefited from increased market resilience.

"What we saw was that our spreads widened just as much as other markets, and they came back faster. That's probably something to say that the concentration of liquidity helped."

Swiss-UK equivalence restored after Brexit

After the UK left EU orbit on January 1, a renewed equivalency agreement between the UK and Switzerland resulted in Swiss stocks being traded again on the London Stock Exchanges last week. A development that Reuss said "helps a lot when it comes to competition."

"There are two aspects to this. First, when liquidity is pooled in one place, it has tangible pricing benefits," he said.

"On the other hand, fragmentation also has its advantages, as it encourages competition and ensures that you stay close to your customers, develop innovative skills, and be competitive."

Alasdair Haynes, CEO of the London-based Aquis Exchange, told CNBC last week that the stock exchange equivalency agreement between the Swiss and UK governments was vital, adding that on January 4th there was a "massive overnight shift in liquidity" the shares held by the 27 EU member states have taken place from London.

"We saw that 95% of the deal was literally done overnight, which is a bit embarrassing for the UK but clearly a big win for the EU27," said Haynes.

"This shows that London and the UK have to do something very positive and constructive to maintain their position as a major financial center in Europe, and that of course means that we have to negotiate with people like Switzerland who we need to achieve equivalence London has to be incredibly innovative to maintain its position. "

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Katherine Clark