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EU banking regulator ESMA: Brexit interim solution for stocks

Zu The big unresolved question of Brexit is how the EU will deal with access to the financial center of London. After the transition period expires at the end of the year, the UK will become a third country. The market access of British financial service providers to the EU then depends on whether the EU classifies British financial market regulation as equivalent – in technical jargon equivalent – to its own. Only when this equivalency decision has been made can investors buy and sell shares in London, among other things, at least from companies that are listed on both the island and the mainland. These include the pharmaceutical group Astra Zeneca, the media group Relx, the travel company TUI and the parent company of Iberia and British Airways.

The equivalence decision is a long time coming. The European Commission emphasizes that there is no connection between the difficult negotiations on the post-Brexit relationship between both sides and the decision on stock exchange equivalence. The reason for the delay is that there is still a lack of clarity about future British financial market regulation. However, in the dispute with Switzerland over a new framework agreement with the EU, the Commission used the equivalence decision as a means of pressure. This is one of the reasons why there has been growing concern in the Member States for some time that at the end of the year this point too will be in ruins.

Therefore, the relief is likely to be great that the EU securities supervisory authority Esma in Paris has now issued a transitional regulation for at least some of the double-listed companies. Esma said it was about minimizing market disruptions after the United Kingdom’s final withdrawal from the internal market. The authority therefore allows European investors to trade doubly listed shares with a European ISIN in London next year – but with one important restriction: this only applies to securities traded in pounds sterling. We can therefore only speak of a minimal solution.

According to Esma, it is less than 50 shares. The trading volume of these papers is below 1 percent of EU equity trading. They were not systematically traded by European investors, but rather irregularly on British stock exchanges, the supervisory authority announced. The exemption can only come into force if the British financial regulator FCA agrees. But this is a matter of form. There is still no solution for stocks traded twice in euros. This applies not least to Irish companies such as the airline Ryanair, the insulation technology manufacturer Kingspan or the “Bank of Ireland”. Last year Esma put the number of these papers at more than 6,200. Financial service providers and investors should not have much hope that Esma will issue a transitional regulation for these shares as well. You have already done the “maximum possible”, stressed the authority.

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