ESMA to Restrict Stock Trading Within EU Post-Brexit

The European Securities and Markets Authority (ESMA) issued guidelines, ordering banks and asset managers to execute their share trades within the European Union after the exit of Britain from the bloc.

According to the EU securities watchdog’s revised share trading obligation (STO), the stock market players have to trade EU-listed shares within the bloc if the Brexit agreement restricts EU market access to London-based companies.

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However, the guidelines will allow trading of the EU-listed shares on platforms in London if they are traded in pound sterling. It is to be noted that less than 50 such European shares, less than 1 percent of the total shares, are being traded in pound sterling in London.

“This revised guidance aims at addressing the specific situation of the small number of EU issuers whose shares are mainly traded on UK trading venues in GPB,” ESMA stated.

Notably, three London-based pan-European exchanges: Cboe, the London Stock Exchange’s Turquoise, and Aquis Exchange, trade share on European exchanges. All three opened European hubs to offer euro-denominated shares to avoid disruption in services.

Meanwhile, the British regulators are yet to come up with rules for the trading of EU-listed shares and hoping Brussels to provide full access to the European markets.

“ESMA has done the maximum possible in close cooperation with the European Commission to minimize disruption and to avoid overlapping STO obligations and their potentially adverse effects for market participants,” the EU regulator added.

Uncertainties of Brexit

The divorce between the UK and the European Union was already finalized and the two are now in a transition period, which will end on December 31, 2020. Though the negotiations between the two sides are ongoing, the financial regulators are drafting guidelines to ease the market operations after the expiry of transition.

With the recent guidelines, ESMA is aiming to strengthen the capital markets of Europe, and it believes that trading in the non-EU currency will also increase currency risks to the EU investors.

Earlier, ESMA recognized three UK’s central counterparties (CCPs) as third-country CCPs to provide services post-Brexit.

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