The EU markets regulator has taken steps to partly assuage investor concerns about trading after Brexit by indicating EU investors will be able to trade sterling-quoted shares of European companies listed in London.
The European Securities and Markets Authority on Monday made the policy change because of concerns among businesses and some EU governments that the bloc’s regulations could fragment the share market and cut European companies out of deep pools of capital in London.
The Paris-based agency said that trading of EU shares on a UK exchange in pounds will be exempt from an EU rule, known as the share trading obligation, which determines which venues investors can use to trade.
That means EU investors will still be able to trade dual-listed companies like AstraZeneca, Relx, Tui, British Airways parent IAG and G4S in London as those companies are listed in sterling. However many Irish companies, like Ryanair, Kingspan and Bank of Ireland will remain vulnerable as they trade in euros.
One industry lobbyist in Brussels said it was “the narrowest of accommodations”, adding that it “does not solve what Ireland needs”. Another described it as “pretty underwhelming”.
Normally, EU investors can only buy and sell stocks in countries Brussels has deemed as having a regulatory and supervisory system as rigorous as the EU’s own — a system known as “equivalence”.
London is the biggest share trading centre in Europe, handling more than a quarter of the €40bn daily market. Without equivalence, some of that business will move to Amsterdam and Paris because EU-based institutions will be barred from trading in London.
Esma estimated the policy change announced on Monday accounted for less than 1 per cent of total EU trading. There were fewer than 50 companies trading in London with an EU identification code, known as an ISIN, it said.
So far the European Commission has given no indication as to whether a decision on equivalence will be forthcoming for the UK, and it has instead warned that a lack of clarity about the details of Britain’s future regulatory regime have made such assessments difficult.
Banks, high-frequency traders and asset managers across Europe had been losing hope in recent weeks that London and Brussels would agree to keep the cross-border share trading market intact beyond January.
The commission told the Financial Times last week that equivalence assessments “are challenging because they will have to be forward-looking, taking into account overall developments, including any intention by the UK to diverge from EU rules”.
But the ambiguity has worried EU national governments, which last month discussed enacting emergency legislation to stave off the threat to dual listed shares — prompting complaints from the commission that such a move would send a signal of weakness at a sensitive moment in the Brexit talks. It turned to Esma to come up with a solution.
Esma insisted on Monday it had done “the maximum possible” to minimise market disruption. However the agency warned that its UK counterpart, the Financial Conduct Authority, needed to make similar concessions with its own rules for the solution to work.
The comments reflect the risk that traders could, in theory, be faced with conflicting EU and UK rules on dual-listed shares unless both sides grant the necessary regulatory permissions.
The FCA said it considered mutual equivalence the best solution for the market. “However, we note Esma’s latest interpretation of the scope of the EU [share trading obligation], and we will set out our approach in due course,” it said.