EU markets watchdog intervenes in share trading ahead of Brexit

By Huw Jones

LONDON (Reuters) - The European Union's markets watchdog has proposed measures to stop share trading platforms based outside the bloc having an unfair advantage over EU rivals as Britain readies for Brexit.

The European Securities and Markets Authority (ESMA) said on Friday it wanted to make sure that minimum "tick sizes" or monetary increments for non-EU shares traded in the European Union are in line with tick sizes in their home market to avoid unfair competition.

Britain is home to the EU's main pan-EU trading platforms like Cboe Europe and London Stock Exchange's Turquoise. Both, however, have applied for EU licences to open EU hubs before the United Kingdom leaves the bloc next March.

ESMA wants to make sure that such hubs and platforms already based in EU countries excluding Britain are not at a disadvantage to trading venues based in London or elsewhere by having to offer less attractive tick sizes.

"The number of third country instruments is likely to increase as a consequence of the UK's withdrawal from the EU," ESMA said in its consultation paper on Friday.

"While it remains difficult to accurately assess the number of shares that might become third country instruments post-Brexit, due to current uncertainties, under ESMA's current estimation roughly 18 percent of the shares currently reported into FIRDS have their most liquid trading venue located in the UK."

FIRDS refers to ESMA's database on shares being traded on authorised platforms.

Currently up to 10,000 financial instruments, including shares, traded in the EU may qualify as third country, meaning their most liquid market is outside the bloc.

"If we considered shares that are currently available for trading not only on a UK trading venue but also in another EU jurisdiction, this represents around 1,900 potentially affected shares."

"These specific cases where EU trading venues might be subject to minimum tick sizes larger than those applicable on non-EU venues may have the unintended result of putting EU trading venues at a competitive disadvantage," ESMA Chair Steven Maijoor said in a statement.

"This might result in scarcer and shallower liquidity being available on EU trading venues which can be detrimental to those trading on those venues. This timely consultation looks to address these cases and contributes to orderly financial markets."

The public consultation ends in September and ESMA will then send a final proposal to the European Commission, the EU's executive body, for endorsement.

(Reporting by Huw Jones; Editing by Susan Fenton)