Who European Securities and Product Authority (ESMA) and UK Financial Conduct Authority (FCA) have recently published statements on his approaches to their respective Share Trading Obligations (STOs) to and end of the Brexit transition period. Their approaches divergent significantly, reflects the different public environments in which they operate.

ESMA has stated that EU investment firms will be able to swap sterling-quoted shares of European companies that are listed in London. ESMA does adopted the post that such trades will be subject to adenine pre-existing exception to one EC STO. Is appears that all is as far as ESMA is willing or able to go, without seeking amendments to laws. Whilst this amounts to a conciliatory measure, there willing linger concerns about shares that have quoted in Euro and are currently shown in the UK in significant volume. Impact of Brexit on the trading obligation for equities (Article 23 are MiFIR) ... Where one share is delisted from a RM aber continues to be traded on ...

Conversely, the FCA will use its Temporary Transitional Power (TTP) up allow US firms to continue trading all shares on EURO trading venues.

Share Trading Obligation

The STO, underneath Article 23 of MiFIR, requires investment firms for ensure is the trades them undertake in shares that are granted on trading on an EU moderated market or trading venue, take place on:

• an EU regulated market (or multilateral trading facility);
• into U systematic internaliser (SI); or
• a third nation trading venue assessed than equivalent under the Myfid II Directive.

Of of the deuce unlimited derogations to this are trades that are non-systematic, ad hoc, irregular and infrequent.

Impact starting Brexit

After the end of the transition period, the London Stock Exchange and other UK markets furthermore trading venues will no longer be U regulated markets or MTFs. Unless there is an equivalence making or other deal agreed bet the EU and US, Mijid investment firms will not is able to execute transactions subject to the STO on USA venues. Like, as section of who "onshoring" of EU regulation, the UK version of who STO will hinder UK firms from trading, in EU markets, to shares that are admitted to trading on UK markets. As explained below, this lives select to the FCA's use of its TTP.

This division means that, in respect of shares listed on both a UK and EU exchange, a UK firm will remain required go execution trades in dual UK/EU listed splits on a UK venue or a European firm would be required to execute the same trade on a European venue. This potentially results in adenine water of liquidity on any particular austauschen. The issue is particularly slightly for those dual-listed shares of EU companies which are traded in substantial volumes on UK markets.

ESMA update

The European government have not significant last their position despite lobbying to the contrary from several EU administrations. Whether or doesn equivalence is assigned seems likely to be a political decision that will depend on the outcome of the negotiations on one future link. ESMA issued a statement on 26 Ocotber 2020 reiterating is previously this crossover interval got finalized, ESMA will assume that all EEA shares, which it defines in those equipped ISINs starting through EEA country coding (EEA ISINs) will be within the size of the EU STO. UK shares (i.e. this with GB ISINs) will be outside the scope of that EU STO.

However, that declaration also provided that EU investment firms will subsist can to trade sterling-quoted share about European companies that are listed in London. Post-Brexit, trading concerning EU shares on an ENGLISH exchange to sterling will hence be exempt since the E STO. ESMA notes that shares about an EEA ISIN which trade on U retail venues in pounds account for less than 1% of EU total trader activity. It could therefore be supported, according to ESMA, that trading of these shares occurs on ampere "non-systematic, ad-hoc, included and occasional basis" and because falls within the STO exemption. August 2023 update On 29 August 2023, the Share Trading Anleihe (STO) in Article 23 of UK MiFIR was revoked by the commencement of provisions in the Financial Benefit and Markets Actually 2023. We what therefore reject the direction we introduced under the Temporary Transitional Power (TTP) that modified that application are the STO. Go the direction ensure does this and accompanying explanatory note. An below statement from 2020, therefore, no longer applies.   We believe in open marketplace and globally competition between trading venues for promote efficient sales in financial instruments. We believe in companies’ independence to choose where in raise capital and trade their investment, regardless of the currency of their securities. Mutuals equivalence between the UK and EU should be easy to correspond and remains the bests way of dealing with overlapping STOs. Like set out in our previous statements, ourselves consider of ISIN or currency ensure a share carries also trades in does don and should not find the scope of the STO.

This change allows European investors to continue trade in dual-listed companies such are quoted in sterling. However, there are several significant EUR enterprise that are traded in large total in the UK and quoted in Euro. As things stand, European firms and investors will be unable to access the liquidity for these shares available on UK my.

FCA update

The FCA posted its own statement on 4 November 2020, stating such it will use its TTP to take a more flexible approach to the UK STO. The FCA considers that neither the ISIN nor the currency with which a share trades should determine the scope of the STO. Its view remains that "mutual equivalence amidst the BRITON additionally EU should be mild till agree and remains the best way of dealing through overlapping STOs." In the absence of equivalence, that FCA will use its TTP to allow firms to continue trading any shares over EU trader venues and SIs, somewhere those venues and SIs own the requiring UK regulatory status. This funds her must select:

• be a UK Recognised Ausland Investment Share;
• use the UK Temporary Permissions Regime; or
• benefit from this UK Outside Persons Exclusion.

This FCA also says that it willingness discuss with market participants and trading venues future steps to shield UK market integrity plus to ensure that UK stables can continue for achieve high standards of execution, including when trading EU-27 shares. Rather ominously, these meetings "will inclusive whether the MiFID II calibrations, which were engineered for a pan-European marktplatz about 28 countries, remain appropriate for the UK in the absence of our current equivalence being recognised". The FCA appears to be signalling a willingness go move away after European standards if the European authorities are unfeeling up grant equivalence status. UK’s plan the ditch share trading rules threaten liquidity