ETF Briefing; Consolidation: Euronext Acquisition Of Borsa Italiana – Finance and Banking

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ETF Briefing; Consolidation: Euronext Acquisition Of Borsa Italiana

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Trading on the London Stock Exchange after 31st December

Euronext acquisition of Borsa Italiana

It was recently announced that Euronext has entered into a
binding agreement with the London Stock Exchange
(“LSE”) to acquire the Borsa Italiana Group. Having
acquired Oslo Børs VPS in 2019 and the Irish Stock Exchange
in 2018, this is another significant step towards creating a single
pan-European stock exchange platform and towards Euronext’s
stated objective of “Creating the largest liquidity pool
within the European capital markets union aiming to deliver
sustainable superior market quality and value for local and global
clients”. An EGM of Euronext shareholders has been convened
on 20th November to approve the transaction.

The acquisition is also significant in the context of the
European ETF market. With fragmentation commonly cited as a major
reason Europe lags behind the US in the evolution of its ETF
industry, this consolidation is clearly a positive development for
the European ETF industry.

European Exchange ETF Market Share

While the Euronext ETF platform spans markets in Amsterdam,
Brussels, Dublin, Lisbon, Oslo and Paris, the addition of Borsa
Italiana is arguably the most significant acquisition yet,
particularly in terms of bolstering Euronext’s ETF market
share. With average daily trading value of €450 million
(Euronext) and €551 million (Borsa Italiana)1, as
at the end of August 2020, the trading volume across the newly
expanded Euronext group will more than double and make Euronext the
second largest ETF exchange in terms of average daily trading
value, behind Deutsche Borse.

Authorisation to market in the UK and trading on the LSE
after 31st December 2020

Following the conclusion of the Brexit transition period on 31
December 2020 (“Brexit Deadline”), existing Irish
domiciled ETF issuers that have entered the FCA Temporary
Permissions Regime will retain access to the UK market for those
existing ETFs which have registered for the regime. Such issuers
may also extend their permission to register new ETF sub-funds
authorised after the Brexit Deadline to market in the UK for a
period of up to 3 years from that deadline. Such ETF issuers may
continue to passport to trade such new ETFs on the LSE via the
simplified passport from a Euronext Dublin listing.

The process and requirements for UK market access (and therefore
access to trading on the LSE for ETFs) after the Brexit Deadline
will depend on the outcome of the Brexit negotiations and the
introduction the FCA’s new Overseas Fund Regime
(“OFR”). If Brexit negotiations fail to yield a
breakthrough, new ETF entrants will be required to apply for full
FCA recognition under section 272 of the Financial Services and
Markets Act or seek to market under the OFR. While the legislation
for the OFR was enacted in October 2020, the timing of the
introduction of the OFR for authorisation of offshore UCITS and
AIFs, including new ETF entrants, to market in the UK is still


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