• Chris

Equivalence of nothing

Updated: Sep 18, 2019

The threatened exclusion of the Swiss markets from the EU seems to have been more than sabre-rattling of legal quills. As I write, the Swiss have been given to the end of June (2019) to cower before the EU rulebook or be banished to “third country status”.

And the threat is equally cast in the direction of the troublesome British.

Aside from the accepted value of open access to cross-border financial markets, the issue at stake is “equivalence” - in other words reassurance that the market rules and procedures of another country are “equivalent” to those standards of the EU. Failure to meet whatever equivalence criteria are being used by the EU and the offending country is effectively cut-off from accessing the 400 million or so EU residents and their markets.

Given the manner in which Switzerland comes to national consensus, it seems pretty likely that the end of June will come and go and the Swiss markets will carry an EU label reading “3rd country”.

Bearing in mind the nature of market development over the last 30 years, this situation seems remarkable quaint and irrelevant. For example, major companies now have shareholder populations reaching over 140 different markets; trading in those shares happens on a 24 hour basis through many platforms, not all of which are regulated and supervised as exchanges. The share price is global despite being translated into different currencies.

The same companies may use the Eurobond market which, since its launch in 1963, continues to operate effectively on a global (or near global) basis without heavy-weight regulatory supervision. Issuers, be they EU in origin or 3rd country, raise capital in a small selection of currencies from a large population of investors from around the world.

What is the “equivalence” agenda here?

Is “equivalence” a modern device to reassert national barriers in a market environment where technology is the playing field?

If it is there may be a rude reminder on its way of what happens to attempts to constrain markets – the wet piece of soap shoots further away the harder it is squeezed.

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