EU banks and fund managers faced being stopped from trading dual-listed companies in the UK capital, should Britain leave the bloc without a deal in place, under a rule from Europe’s markets watchdog to “significantly reduce the scope” of trading obligations. But the European Securities and Markets Authority (ESMA) has now announced a U-turn on the plans after “taking into account the concerns expressed by stakeholders”. ESMA said it had identified 6,243 companies that investors registered in the EU would have to trade on European exchanges in the event of Britain leaving in a hard Brexit scenario. Of this group, 14 dual-listed stocks – including Vodafone, BP, Royal Dutch Shell, AstraZeneca, GlaxoSmithKline and Coca-Cola European Partners – have their most active market in London.
In an announcement released yesterday, EMSA said it was now ditching the proposals after deciding the approach “would be more likely to minimise any such risk of disruption in the interest of orderly markets”.
The EU regulator added: ”ESMA is doing the maximum possible to minimise disruption and to avoid overlaps, bearing in mind the legal requirements.”
The London Stock Exchange said the news was positive for investors and a “step forward in avoiding market disruption in a no-deal Brexit”.
This sentiment was shared by the UK Financial Conduct Authority, who welcomed the news but warned it would be keeping an eye on further developments as Brexit becomes more clear.
It added it was concerned the revision could still cause problems and “would place restrictions on a company’s access to investors and freedom to choose where they seek a listing on a public stock market”.
The FCA said: “According to ESMA, the revised approach proposed today would mean that EU banks and investment firms will be able to trade all UK shares in the UK, where for most the primary centre of liquidity exists.
“Consistent with our objectives and the principle of best execution, we would want to ensure that markets in these shares currently available to both UK and EU investors in London would not be damaged.”
The UK regulator added: “The FCA stands ready to use the extra time available due to the delay to the UK’s withdrawal to engage constructively with ESMA and other European authorities to achieve either of these outcomes.”
EMSA said in a statement that it “remains mindful of the impact of a no-deal Brexit on EU market structures”.
The group added it is possible it could review its approach at the latest 12 months after the no-deal Brexit date.
The German Investment Funds Association, or BVI, had previously spoken out against the EMSA proposal and warned such a tough stance could encourage EU fund managers relocate to the UK.
While calling the decision to abandon the full-scale block “a great step forward for both investors and industry”, the BVI also remained sceptical.
The association said: “However, the solution is not complete as some EU stocks that trade mainly in London will still be caught by EU share trading obligations.”