Brussels resists plan to safeguard post-Brexit share trading

Brussels has pushed back against a move by EU governments to legislate against future friction over access to City of London share trading, saying the plan would cut across Brexit talks.

The European Commission is resisting proposals discussed by EU governments to legislate now to counter the risk that trading in European companies listed in London could be heavily curbed after Britain’s post-Brexit transition period expires on January 1.

National experts from across the EU last week discussed concerns raised by Ireland that current EU rules could create hurdles for companies whose shares are traded both in the UK and in the EU, potentially blocking EU investors from trading the stocks in London’s deep capital markets.

The problem arises because of an EU rule, known as the “share trading obligation”, or STO, that limits trading on exchanges outside the EU once a particular share is regularly bought and sold on venues inside the 27-nation bloc. 

There are many such dual-listed companies including Ryanair and Tui, the travel company. London is the biggest centre for share trading on the continent and handles up to 30 per cent of the €30bn-a-day market on exchanges such as CBOE Europe.

But the commission has argued that the threat of losing access to London should be dealt with by other means for now. 

Diplomats told the FT that the commission warned governments at two separate EU meetings last week that changing EU legislation to accommodate for Brexit disruptions was the wrong approach, and that such issues should not be broached in the middle of negotiations with the UK. 

The issue is one of a number of financial access questions the EU is facing as it deliberates over how to handle future relations with the City, a global financial centre that will henceforth be outside the single market. 

Michel Barnier, the EU’s chief Brexit negotiator, has publicly questioned whether the City should be allowed to retain its “prominent position” in serving EU customers, but there are also pressures within the bloc to minimise friction for business. 

Brussels has insisted throughout Brexit talks that future financial services ties should be based on regulatory permissions, known as “equivalence” rights, that the commission can award to non-EU countries unilaterally. 

It has suggested that this approach, coupled with action by the EU financial markets authority, Esma, should be enough to largely address the problem for dual-listed shares in the short term. Brussels would then review the situation next year.

But diplomats confirmed that, during a video meeting of national officials on September 28, close to 10 governments including Ireland, Luxembourg and the Baltic states spoke favourably of exploring rapid legislation to deal with the problem.

This would be done by inserting a solution into an otherwise unrelated financial-markets law that the commission proposed earlier this year.

A spokesperson for the commission said that this draft markets law was intended to spur Europe’s recovery from Covid-19, not to address Brexit.

“The commission decided to focus the MIFIR review included in the Capital Markets Recovery Package on targeted priority actions which are important for the recovery, while other issues including the share trading obligation will be reviewed next year,” the spokesperson said. 

“The commission continues to believe that this phased approach is the most appropriate and that the Capital Markets Recovery Package is not the right place to deal with this matter.” 

According to diplomats, Brussels has also complained that it has no time to assess the impact of the solution being discussed by governments. 

EU governments are examining different political legislative tweaks, based on ideas presented separately by Ireland and by Esma.

Ideas under consideration include adjusting EU law to create exemptions for non-EU trading of stocks that do not have an official identification number, known as an ISIN, that labels them as being from the EU. Governments are also looking at granting flexibility to stocks not denominated in euros.

The commission stance has some backing from governments, including from France, which has stressed that the priority should be to look at derivatives rather than shares. 

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