ESMA has published a statement on the application of the share trading obligation in the event of a hard Brexit which has some unwelcome implications. Under MiFID II/MiFIR, European firms may only undertake trading of EU-traded shares on European venues or third-country venues that have been deemed equivalent (the “share trading obligation”). In a hard Brexit, UK venues will become third country trading venues and therefore European firms will not be able to trade a share on UK venues if it is also traded on an EU venue unless the UK venue is assessed as equivalent. This has the potential to create significant market disruption and impact the ability of market participants to obtain best execution post-Brexit.

However, rather than recognise the UK venues as equivalent, ESMA has deemed that all European shares and 14 UK shares with significant liquidity in the EU must be traded on a European venue in accordance with the share trading obligation. This is regardless of the relative trading volumes and ease of execution of the European venue in comparison to the UK venue. The FCA has been critical of this but as of yet, no UK equivalence decision has been made in respect of European venues. Absent any decision or guidance from the FCA or HM Treasury, UK firms would be required to trade dual-listed shares on UK venues. See our in-depth article for a further discussion on these issues.