LONDON, June 4 (Reuters) - European Union preparations for a no-deal Brexit would split stock markets in Europe, although the damage could be reduced if Britain spelled out in advance its approach to trading, a top EU regulator said on Tuesday.
The EU angered market participants in March when it said that if there is a 'no-deal' Brexit, investors in the bloc would only be able to trade shares which are listed in continental Europe as well as 14 which have a listing in Britain.
London is the centre for share trading in Europe, even for many non-UK shares, leaving EU asset managers facing a split pool of liquidity and less competitive prices.
After a spat with Britain's Financial Conduct Authority (FCA), the European Securities and Markets Authority (ESMA) last week partly reversed its "share trading obligation" (STO) so that EU investors could still trade the 14 shares in London.
"Despite this adjustment ... the STO will fragment markets and, being a supporter of open markets, I regret that result very much," ESMA Chair Steven Maijoor told a Federation of European Exchanges conference in Dublin.
The STO, however, is due to Britain deciding to leave the bloc and the risk of a no-deal Brexit, Maijoor said.
Britain has said that it will not disclose its approach to securities trading until it is clear there is no deal.
Britain is due to leave the EU on Oct. 31 and with no deal in sight Maijoor sought to pile pressure on the FCA to change tack so that there would not be clashing requirements.
"Practically, this may mean that clarity will only be provided a few days, or perhaps even a few hours, ahead of a no-deal situation," Maijoor said.
"To allow market participants to properly prepare for the risk of a no-deal, I sincerely hope that this timing is reconsidered, and that clarity is provided well-ahead of the October Brexit date."
Separately on Tuesday, market participants criticised what they saw as a push by the EU to build up its own capital market now that the region's largest, London, will be outside the bloc.
Bruce Savage, Deutsche Bank's head of regulatory affairs for listed derivatives, told a conference that STO was "clearly being used as a tool to move liquidity from London".
And asset managers are now making sure they have the ability to send share orders from their new EU hubs after Brexit to exchanges in the EU, Mark Hemsley, president of cross-border share trading platform Cboe Europe, said. (Reporting by Huw Jones; Editing by Alexander Smith)