EU Statement on the Impact of a No-Deal Brexit on the Share Trading Obligation

May 29, 2019 update: ESMA's guidance of March 19, 2019 has been superseded by revised guidance issued, details of which are available here.

The European Securities and Markets Authority has published a statement on the impact of a no-deal Brexit on the trading obligation for shares. The Markets in Financial Instruments Regulation requires investment firms to conclude transactions in shares admitted to trading on a regulated market or traded on an EU trading venue, i.e. namely regulated markets, multilateral trading facilities, systematic internalisers and equivalent third-country trading venues. The requirement is not applicable to transactions in shares traded in the EU on a non-systematic, ad-hoc, irregular and infrequent basis. ESMA's statement is relevant should there be a no-deal Brexit (currently set for March 29, 2019) and there is no equivalence decision for the U.K.

ESMA's statement clarifies that for shares traded in the EU, Iceland, Liechtenstein, Norway and the U.K., EU27 shares (ISINs starting with a country code corresponding to an EU27 Member State) and shares with an ISIN from Iceland, Liechtenstein and Norway are within the scope of the EU trading obligation. In addition, U.K. shares (those with ISINs starting with the prefix "GB") are assumed to be traded on a "non-systematic, ad-hoc, irregular and infrequent" basis in the EU27, unless those shares qualify as liquid in the EU27. ESMA has used 2018 trading data to determine which GB shares are liquid, and therefore subject to the share trading obligation, and has published a list of shares (ISINs) to which the share trading obligation will apply.

ESMA states that the application of the trading obligation to shares with a different ISIN should continue to be determined by reference to its guidance, published in November 2017, and, where applicable, the equivalence decisions adopted by the European Commission.

The U.K. Financial Conduct Authority has published a statement in response to ESMA's statement, agreeing with the intention to create certainty for market participants. However, the FCA considers that a coordinated approach is necessary to avoid firms being subject to overlapping requirements because on a no-deal Brexit, U.K. legislation will also impose a share trading obligation.

Neither the U.K. nor EU27 regulators seem prepared or motivated unilaterally to grant such an equivalence, given that doing so could lead to liquidity in certain instruments moving to the markets whose regulators have not declared equivalence.

View ESMA's statement.

View the FCA's statement.

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