Finanzplatz Schweiz: Finance Center Switzerland

Abstract

During the past forty years, Switzerland’s financial system has transformed itself from an outdated assortment of trading, clearing, settlement, and payment systems into “Finanzplatz Schweiz” (i.e., “Finance Center Switzerland”), a wholly integrated and fully automated electronic securities trading and post-trading infrastructure, operated and managed by the SIX Group. Because the nation’s financial system competes in a high-stakes global environment, where survival is based on successful risk management and state-of-the-art handling of financial instruments, doing so meant modifying and modernizing Swiss regulators and regulations. Customers expect ever-improving financial depth, breadth, and sophistication. These strengths form the basis for all value-added services the Swiss financial industry offers and enable Swiss financial institutions to compete internationally despite their home country’s diminutive geographical size.

Introduction

During the past forty years, Switzerland’s financial system has been transformed itself from an outdated assortment of trading, clearing, settlement, and payment systems into Finanzplatz Schweiz (i.e., Finance Center Switzerland), a wholly integrated and fully automated electronic securities trading and post-trading infrastructure operated and managed by the SIX Group.¹ Doing so meant modifying and modernizing Swiss regulators and regulations because the nation’s financial system competes in a high-stakes global environment where survival is based not only on successful risk management, but also on state-of-the-art handling of financial instruments, such as equities, bonds, derivatives, exchange-traded funds, and, now, blockchain assets. Customers expect ever-improving financial depth, breadth, and sophistication. To succeed, their transactions need to be executed in the blink of an eye, with massive amounts of financial information flowing securely in fractions of seconds. At the same time, regulations and tax rates cannot be so costly and burdensome that they become obstacles to international competition. To be an effective global competitor, Switzerland needs thoughtful regulations that are internationally accepted, so Swiss financial intermediaries are granted access to foreign nations’ customer bases, and vice versa.

SIX Group

The SIX Group operates Switzerland’s domestic financial infrastructure and has a broad international customer base. It was created in 2008 by the merger of three bank-operated businesses: SWX Group² (securities trading), SIS Group³ (securities services), and SIX Financial Information.⁴ Bundling these three financial intermediaries together was to guarantee optimal and sustainable services to customers by⁵:

• Fortifying Switzerland’s financial market infrastructure by enhancing both efficiency and innovation across the entire value chain;

• Strengthening Switzerland’s international competitive position by concentrating capital, encouraging innovation, enhancing governance, and reducing costs by increasing volumes (i.e., via economies of scale);

• Collaborating with international partners;

• Building an architecture that guarantees open access to trading (i.e., digital, online, and free-of-charge), clearing, and settlement⁶; and

• Creating a shareholder structure geared toward long-term stability by employing the “user-owned, user-governed” principle.

Since its founding, the SIX Group’s major subsidiaries have been vital pillars of Finanzplatz Schweiz, handling Switzerland’s entire securities and payment value chain.⁷ The SIX Group provides straight-through processing (STP) for security trading, transaction execution, and post-trade services, such as clearing, settlement, and custody. Transactions are processed from beginning to end electronically and automatically with no manual handling.

The SIX Group also disseminates high-quality financial information, provides reporting services, processes card-based payment transactions and interbank payments in Swiss francs and euros, and offers services for retail payments, such as debit advice procedures and electronic bill presentment and payment. Since the acquisition of Bolsa de Madrid Exchange (BME) Group in 2020, SIX Group has operated BME’s infrastructure as well. And it is also breaking new ground with the world’s first end-to-end exchange for digital assets, SIX Digital Exchange (SDX).

The SIX Group is user-governed and supervised by and accountable to the Swiss Federal Finance Market Supervisory Authority (FINMA) and the Swiss Financial Market Infrastructure Act (FinMIA). Therefore, even though the SIX Group has the authority to issue, monitor, and enforce regulations related to (1) listing securities, (2) company disclosures and obligations, and (3) market surveillance and enforcement, its powers and actions must follow Swiss laws and are subject to the FINMA’s approval.

SIX Group Shareholders

The SIX Group is an unlisted, public,⁸ and limited company domiciled in Zurich, owned by 120 national and international financial institutions that are also the main users of its services.⁹ In 2021, Switzerland’s big banks (i.e., UBS, UBS Switzerland AG, Credit Suisse, and Credit Suisse Switzerland Ltd.) were the SIX Group’s largest shareholders (34.5%), followed by Commercial and Investment Banks (17.6%), Foreign Banks (15.2%), Cantonal Banks (14.2%), Regional and Raiffeisen-Banks (8.5%), Others (4.1%), Own Shares (3.1%), and Private Banks (2.9%)¹⁰ (see Fig. 2.1). To promote sustainability and stability, the shares of SIX Group can only be transferred with the approval of the Board of Directors, and no shareholder or shareholder group owns an absolute majority.¹¹

Fig. 2.1

(Source SIX, ownership structure of SIX, https://www.six-group.com/en/company/governance.html [Accessed on June 17, 2022]. Due to rounding, the sum is slightly different from 100%)

SIX Group shareholder structure in 2021

SIX Group’s Employee Structure and Business Areas

At the end of 2021, the SIX Group had a team of 3826 employees and conducted business in 21 countries, with 60.3% of its staff working in Switzerland, 35.9% in Europe (approx. 21% in Spain), and 3.8% in other nations and regions, such as the United States, South America, and North Africa (see Fig. 2.2).¹²

Fig. 2.2

(Source SIX Group. 2022. SIX Group Annual Report 2021. https://reports.six-group.com/download/2021AR/en/SIX_Annual_Report_EN.pdf [Accessed on July 27, 2022])

Employee structure at SIX: number of employees and as percent of total (year end 2021)

Figure 2.2 shows the four main business areas in which the SIX Group is involved: Exchanges, Securities Services, Financial Information, and Banking Services.

Key Figures of the SIX Group and Its Business Units

Table 2.1 shows the income statement of SIX Group for the years 2020 and 2021. The COVID-19 epidemic (2020–2022+) posed special challenges for the SIX Group. Nevertheless, it managed to endure, increasing operating income and EBITDA in 2021 by 8.9% and 14.8%, respectively. One explanation for these robust results was the change in consumer payment behavior from cash to cashless payments, as the COVID-19 pandemic discouraged face-to-face transactions.

Table 2.1 SIX Group’s consolidated income statement: 2020 and 2021

Electronic and digital payments grew by 27% in 2021,¹³ a year in which the SIX Group also benefited from organic growth and from the new business in Spain, following the successful acquisition of BME, which contributed for the first time to the group’s income for a full 12 months period.¹⁴ The return on average equity as of December 2021—calculated with the adjusted net profit for that year—was 3.3%, compared to 2.6% for 2020.¹⁵ Adjusting SIX Group’s equity (2021: CHF 5.2 billion, 2020: 5.3 billion) for excess cash (2021: CHF 3.6 billion, 2020: CHF 4 billion), however, significantly increases returns on average equity to more than 10% in each of these two years, reflecting the operational and competitive strengths of SIX Group and indicating that shareholder value creation will depend significantly on management’s future capital allocation decisions.

The results for 2020 and 2021 are affected by special items in connection with the investment in Worldline. In 2021 the announcement of the sale of Worldline’s Terminals, Solutions & Services (TSS) business resulted in a negative effect due to an impairment charge. In contrast, the partial sale of the stake in Worldline¹⁶ and the merger of Worldline with the payment services provider Ingenico had a positive impact on the 2020 net financial income.¹⁷ As the last line in Table 2.1 shows, profit after tax adjusted for this special effect increased by 37.2% from 2020 to 2021.¹⁸

Russia’s invasion of Ukraine, which started in late February 2022, also posed special challenges for the SIX Group. It led many European countries to bar Russian access to their credit markets, thereby threatening this aggressor with acute liquidity shortages. Euroclear and Clearstream reacted by removing the ruble as an eligible settlement currency for transactions inside or outside Russia. In March 2022, Switzerland adopted the EU’s restrictions against Russian banks’ access to SWIFT, blocked the assets of Russian individuals, and banned exports that could contribute to Russia’s military and technological enhancement. By April 2022, Switzerland had frozen Russian-sanctioned assets worth more than CHF 7.5 billion and banned transactions with the Russian central bank.

SIX Group has four business units, Exchanges, Securities Services, Financial Information, and Banking Services. To get an impression of the relative size of the four operating business units and their profitability, Fig. 2.3 shows the data for sales and profits. Banking Services is the smallest business unit and the one with the lowest profit margin in relation to total operating income. While the margin was negative in 2021, it reached positive territory (6%) in 2021 due to revenue growth of 8.3%. Significant growth in interbank payments via Swiss Interbank Clearing (SIC) (+23%) and in eBill transactions (+27%) contributed to the growth in operating income.

Fig. 2.3

Operating income and business unit profit for the four business units (excluding corporates*): 2020 and 2021 (in CHF Million and as Percentage of Total) (*Note Corporates are not included in the figures. This explains the difference in total operating income and the sum of business unit profits [i.e., operating profit] compared to Fig. 2.4. Corporates include Corporate IT services and activities that support the group as a whole: Risk Management, Legal and Compliance, Finance and Services, Human Resources, Marketing and Communications, as well as SIX Exchange Regulation; Source SIX Group. 2022. SIX Group Annual Report 2021. https://reports.six-group.com/download/2021AR/en/SIX_Annual_Report_EN.pdf [Accessed on July 27, 2022] and SIX Group. 2022. Full-Year 2021 Financial Results. https://www.six-group.com/dam/download/company/report/annual/2021/six-fy-2021-media-presentation.pdf [Accessed on June 27, 2022])

Securities Services achieved the highest growth rates from 2020 to 2021. Operating income grew 16.9% and profit 23.2%. The high growth rates were due to the international expansion, record volumes of outstanding trades on the Swiss repo market, and the complete takeover of European trade repository Regis TR. Profitability in this business unit amounted to 28.2% in 2021 (2020: 23.2%).

Exchanges was the business segment with the highest profitability (2021: 37.5%), though the margin deteriorated compared to 2020, where it reached 46.7%, a year which included for the first time a full 12 months of BME earnings. Against the backdrop of macroeconomic uncertainties, trading volumes in Switzerland and Spain declined by 27% resp. 12%, but there was an increase in IPOs on both exchanges (SIX and BME) compared to the previous year.

Financial Services operating income grew by 4.9% due to the contribution of the core business that sells reference and pricing data and information on corporate actions. The business unit also expanded its data offering of indices and ESG data resp. ESG regulatory data. The profit-to-operating-income ratio is 13.5%, somewhat like in 2020.

Organizational and Management Structure of SIX Group

Figure 2.4 provides the organizational and management structure of SIX Group, as shown in the financial report for the years 2021 and 2022.¹⁹

Fig. 2.4

(Source SIX, overview of SIX: integral structures ensure strategic success, https://www.six-group.com/en/company.html [Accessed on June 18, 2022])

SIX Group’s major business areas

• Exchanges: SIX Group Exchanges operate the SIX Swiss Exchange, offering security listing, trading, settlement, and custody services all under one roof. It also manages the SIX Digital Exchange (SDX), which trades digital products, and Spain’s Bolsa de Madrid Exchange (BME).

• Securities Services: SIX Group Securities Services offer post-trade securities services in more than 50 countries, including clearing, settlement, custody, collateral management, and repo transactions.

• Financial Information: SIX Group Financial Information collects and publishes reference statistics, pricing information, corporate action data, regulatory services figures, and indices.

• Banking Services: SIX Group Banking Services support financial institutions with innovative services, such as digitalized payment services, debit card and mobile payment solutions, and interbank payment processing facilities.

The following sections explain the SIX group’s major business areas, as outlined in Fig. 2.4.

Exchanges

The SIX Exchanges are platforms for investors and traders to trade securities across a wide range of asset classes. The SIX Group operates three exchanges, two in Switzerland, called SIX Swiss Exchange, and SIX Digital Exchange and the other in Spain, called Bolsa de Madrid Exchange (BME). The business unit exchanges comprises services for listing and trading securities, and the distribution of raw market data and index products. It provides a cash market for trading in shares, private and public debt, warrants, funds, financial and electricity derivatives, exchange-traded products (ETPs), securitized derivatives, and warrants. Service revenues are generated for access, admission of securities to trading and ongoing listing, as well as for the distribution of raw market data and index products.

SIX Swiss Exchange

Since its foundation in 1995, the SIX Swiss Exchange has consistently evolved its product offering, as well as its technical trading and settlement infrastructure. It is a self-regulated organization that lists more than 50,000 Swiss and global equities, bonds, exchange-traded funds, sponsored funds, and structured products, such as 200 crypto products providing access to 17 cryptocurrencies. Its straight-through processing of transactions supports customers from listing to trading to post-trade services. The latter include clearing, settlement, and tax services. SIX Swiss Exchange also provides considerable liquidity in “lit-book” and “non-displayed pool” transactions.²⁰

The SIX Group’s current corporate strategy dates from November 2017, when its Board of Directors decided on strategic and organizational adjustments to strengthen the competitiveness of the SIX organization and Finanzplatz Schweiz (i.e., Finance Center Switzerland). With the strategic realignment, focus was on SIX Group’s core businesses to provide infrastructure services for its shareholders and the financial center (i.e., securities business, payment transactions, and financial information). Two strategic thrusts emerged from this strategy, namely (1) international expansion and (2) technical innovation, to secure the SIX Group’s position as one of the leading infrastructure providers for capital markets.²¹

SwissAtMid

SwissAtMid is SIX Swiss Exchange’s on-exchange vehicle for wholesale (i.e., block) trades. To qualify, traded quantities must exceed a minimum threshold set by the exchange. By matching the bulk orders of buyers and sellers, individuals and businesses can reduce the chances of price slippage by communicating to the market large orders. SwissAtMid combines both open and non-displayed orders to execute equity trades at the midpoint of the Swiss Stock Exchange’s lit order book. Indicative (conditional) orders are non-binding and made by bulk traders to indicate market demand and supply. Binding (firm) orders must be transacted at the midpoint price.²²

SIX Exchange Regulation (SER)

SIX Exchange Regulation is responsible for monitoring and enforcing rules and regulations that govern issuer and participant behavior on the Swiss Stock Exchange.²³ To maintain its strong oversight profile (both in practice and appearance), SER is organized as an autonomous entity within the SIX Group. SER reports to the Chairman of the Board of Directors of the SIX Group, is subject to the Swiss Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading (FinMIA) and is supervised by the FINMA.²⁴

The legal provision of self-regulation under the supervision of FINMA is implemented through the separation of responsibilities between the regulatory board and SER. Regulations for issuers, participants, and traders, which are set by the regulatory board, must be approved by the FINMA. The Listing and Enforcement department of SER monitors compliance with regulations for listing and admission to trading; Surveillance and Enforcement is responsible for the supervision of price movements and trading. According to the principle of self-regulation, sanctioning processes are initiated in cases of rule violations, committed by issuers, exchange participants, traders, and reporting agents, which form the basis for adjudication. The SIX Sanction Commission can impose sanctions, such as reprimands, suspension, expulsion, revoking of registration, suspension of trading, and delisting, to fines of up to CHF 10 million.²⁵

SWXess

SWXess is the SIX Group’s trading platform, providing industry-standard interfaces adaptable to all asset trading classes, allowing customers to choose their configuration, speed, and capacity of trades.²⁶ Among these interfaces are the OUCH Trading Interface (OTI), Quote Trading Interface (QTI), ITCH Market Data Interface (IMI), SIX Multidimensional Data Flux Interface (SIX MDDX), Standard Trading Interface (STI), and Reference Data Interface (RDI).²⁷

SIX Digital Exchange (SDX)

The establishment of SDX Trading AG and the SIX Digital Exchange AG in 2018 was the official starting point for the world’s first holistic platform for trading, settlement and custody of tokenized assets based on the distributed ledger technology (DLT).²⁸ In September 2021, FINMA authorized SIX Digital Exchange AG as a central securities depository and the associated SDX Trading AG as an exchange.²⁹

The SIX Digital Exchange (SDX) is a FINMA-licensed and regulated financial market infrastructure (FMI), offering a digital marketplace for securities trading, settlement, and custody for digital assets.³⁰ As part of its strategy, the SDX collaborates with technologically advanced companies that can bring value to the Swiss financial value chain. A good example of this collaboration is its relationship with FQX, a Zurich-based company using blockchain technology to build a global debt-market infrastructure. In 2021, FQX won the Swiss Fintech award for “Early-Stage Startups” and the Fintech Germany Awards for “Foreign Entrant into the German Market.”³¹ FQX is an already globalized startup with well-heeled Fintech investors and a staff of about 20 people, working in Europe and Asia.

The SDX’s digital platform offers eNotes™, which are standardized, short-term debt instruments with an unconditional promise to repay a specific sum. Single eNotes are stored as non-fungible tokens (NFTs) on a blockchain and used as financing sources. An eNote can be used for spot or forward payments. The SDX has collaborated with Zurich-based FQX AG to increase the liquidity, efficiency, and global reach of Switzerland’s financial markets.³²

BME Exchange

In 2020, the SIX Group acquired 93.16% of the shares in Bolsa de Madrid Exchange (BME),³³ an all-cash voluntary tender offer. Subsequently, shareholders representing 2.151% of BME’s share capital exercised their sell-out rights, allowing the SIX Group to control more than 95%.³⁴ It was an orderly execution and settlement of a squeeze-out transaction.³⁵ Upon settlement in September 2020, the SIX Group owned 100% of the shares in BME, which were subsequently delisted from the Madrid, Barcelona, Bilbao and Valencia stock exchanges.³⁶ The BME is the operator of all stock markets and financial systems in Spain, offering services related to equities, fixed income, derivatives, clearing, settlement, market data, and value-added services, such as global regulatory reporting.

The acquisition of BME by SIX Group resulted in several advantages for both partners from the mutual complementation of their business areas. With focus on innovation and technology, BME benefited from SIX Group in terms of trading in digital assets and the associated technology. SIX Group also brought the strength from its business area Financial Information into the combined business. SIX Group’s product offering was expanded with new fixed income products, derivatives, and services. Both partners benefited from the increased global reach, which meant Swiss asset managers could now use BME as a go-to Europe hub. And for its clients from Middle East, Africa, and Latin America, BME would become more attractive across all services. SIX Group further got access to EU trading and clearing solutions, as well as EU and cross-border CSD services, and to BME’s emerging and growth markets network and reach.³⁷

In the announcement of SIX Group’s tender offer for BME, it was expected to create a top-3 European financial markets infrastructure group. In terms of market capitalization of listed companies, SIX Group was the third largest stock exchange operator in Europe as of May 2022 (see Fig. 2.5).

Fig. 2.5

(Source Data from The World Federation of Exchanges. Statistics Portal. https://statistics.world-exchanges.org [Accessed July 26, 2022])

Top five exchanges in Europe: total equity market capitalization per end of May 2022 (In USD Billion) of companies that were listed on the respective exchange

Participation on the SIX Exchange

The SIX Exchange offers four main participation levels: Trading Participants, General Clearing Members, Traders, and Sponsored Access.

Trading Participants

Trading Participants are security traders or foreign security exchange members authorized to perform trades on behalf of their customers. They have access to the reference market for Swiss securities. Becoming a Trading Participant is a two-step process involving business and operations setups. Successful applicants must comply with Switzerland’s Stock Exchange Act, be authorized securities traders or members of a foreign securities exchange, comply with organizational, accounting, and auditing standards, and follow the rules and directions established by the Swiss Stock Exchange. Trading rules are set by the Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading (FMIA).³⁸

General Clearing Members

The Swiss Stock Exchange is a network of national and international General Clearing Members and Trading Participants. General Clearing Members provide their services for Trading Participants dealing in CCP-eligible securities.³⁹ SIX x-clear, LCH Ltd., and EuroCCP act as central counterparties, offering clearing services for all securities traded on the Swiss Stock Exchange. A General Clearing Member wanting to provide its services to Swiss Trading Participants has no choice but to participate via SIX x-clear AG, LCH Ltd., and EuroCCP.

LCH Ltd

LCH Ltd. is a UK-registered multi-asset class clearing house, serving many exchanges and platforms, and a range of over-the-counter (OTC) markets.⁴⁰ It provides clearing services such as SwapClear, ForexClear, RepoClear Ltd., EquityClear Ltd., CommodityClear, and a cleared Listed Rates business. In 2009, LCH.Clearnet Limited and SIX x-Clear AG signed a Global Master Link Agreement to provide competitive clearing for trading venues.⁴¹

To increase efficiency and reduce costs, LCH Ltd. also provides post-trade services and uses advanced margin methodologies and collateral standards to safeguard the interest of the company’s shareholders and contributors to its default funds. LCH Ltd. has been developing segregation and clearing models, such as a margin methodology for which the initial margin is calibrated so that it is sufficient to offset losses that might occur under normal market conditions.⁴² Margins for all services are back-tested daily for each clearing member using a 99.7% confidence level.

EuroCCP

EuroCCP provides clearing and settlement services for 47 platforms, including the SIX Swiss Exchange. It also clears OTC trades for European cash equities. By connecting directly to Switzerland’s central securities depository (CSD), EuroCCP offers Swiss customers a way to manage settlement obligations with SIX SIS. EuroCCP submits both legs of each settlement instruction to SIX SIS when a clearing participant chooses the CSD Power of Attorney (PoA), increasing the transactions’ timeliness and accuracy. SIX SIS’s “auto-split” functionality allows clearing participants and CCPs to settle their available positions at seven batch times, which are 4:50, 10:50, 12:50, 13:50, 14:15, 15:15, and 16:15 CET.⁴³ Clearing participants can also release available stock at their discretion. If they are outside the split-batch window, the instructed quantities are sent automatically to the CCP.

Traders

Traders and reporting agents on the SIX Exchange must be registered following the approved process requirements, hold a Trader’s license from the SIX, and pass a qualifying examination. Afterward, they can carry out trade activities in their name or on behalf of clients, which in turn must be registered at SIX.

Sponsored Access

Sponsored Access to the Swiss Stock Exchange is through Trading Participants, who are the “sponsors” of their clients. Customers place their orders, which are executed by the internal electronic trading system of the Trading Participants. To help sponsors manage these positions and exposures, the Swiss Stock Exchange provides pre-trade and at-trade risk management controls that set customers’ limits and control their trading activities. Included in this package of risk-management tools is the ability to create lists of restricted stocks and kill switches that delete outstanding client orders.

Securities Services

Securities Services offer post-trade services in more than 50 countries, including custody, central counterparty (CCP) clearing, and securities financing services. It operates as the central securities depository (CSD) for Switzerland and Spain, as well as an international custodian across various global markets. Furthermore, it delivers comprehensive custody services for Swiss, Spanish, and other international securities. These services comprise issuer and asset servicing, cash management, queries, reporting, and tax services, as well as settlement services, repo transactions, and fund processing. With its access to multiple trading venues and matching platforms across Europe, Securities Services is a highly diversified CCP that provides multi-asset clearing services. Among the security finance services are repo trading, securities lending and borrowing, and collateral management.

SIX SIS

SIX SIS is Switzerland’s central securities depository (CSD) and international central securities depository (ICSD), as well as a licensed bank.⁴⁴ It is responsible for the settlement and custody of securities and, as a global agent, offers client banks tailor-made global custody services in various markets based on a network of CSDs and affiliated custodians.⁴⁵ Security settlement on SIX SIS is provided on a simultaneous and irrevocable final-delivery-versus-payment basis to engender client confidence and trust.

SIX SIS’s fees are internationally competitive, and SIX SIS has developed expertise in settling repo transactions, which are handled by the Swiss value chain on a guaranteed, irrevocable trade-by-trade basis.⁴⁶ Sponsored funds are settled by SIX SIS Clearstream,⁴⁷ and non-Swiss-franc-denominated bonds are settled by Euroclear.

In addition to being an intense competitor, SIX SIS is also a respected collaborator with strong ties to European CSDs and ICSDs. In this regard, SIX SIS has launched a joint venture called “Link Up Markets” with several other European CSDs (including Clearstream). The key objective of the partnership is to improve efficiency and reduce post-trade processing costs of cross-border security transactions.⁴⁸

SIX X-Clear

SIX x-clear acts as a CCP that intermediates between trading parties by taking on the obligations and guarantees needed to fulfill contract obligations.⁴⁹ When settlement is made, it initiates delivery and payment, as well as tracking, valuing, and offsetting trading positions.⁵⁰

SIX x-clear acts as the CCP for the SIX Swiss Exchange and is a recognized overseas clearing house (ROCH) in the United Kingdom. It also offers clearing services to the London Stock Exchange (LSE), with the intention of becoming one of Europe’s leading clearinghouses. As a CCP, SIX x-clear offers post-trade anonymity and can reduce systemic risks and cuts costs by netting transactions, hence reducing the settlement volume.

SIX x-clear is responsible for managing significant risks for the entire SIX Securities Services Division, such as counterparty, market, operational, and liquidity risks. Because it is a licensed bank, SIX x-clear is supervised by the FINMA, and because it has a key position in Switzerland’s financial market infrastructure, it is also under the supervision of the Swiss National Bank (SNB).⁵¹

SIX x-clear Ltd. offers customers a fully automated clearing and settlement process that links all trading steps (i.e., from order entry to settlement) by straight-through processing. Multicurrency compatibility and a choice of partners for national and international clearing and settlement add to its flexibility and reach.

SIX Repo

Repurchase agreements are vital to Switzerland’s financial system because they link banks to the SNB, and their interaction changes domestic liquidity levels. Purchasing securities from banks injects central bank money (i.e., monetary base) into Switzerland’s financial system, and their scheduled repurchase drains these funds. Similarly, selling securities to banks extracts liquidity from the financial system, and their scheduled repurchase reinjects it.

SIX Repo is the sole provider of repo services in Switzerland. Its multi-faceted electronic trading facility, CO:RE, provides single-point access to more than 160 financial counterparties, such as banks, broker-dealers, insurance firms, commercial banks, and other repo-trading participants in 14 countries.

SIX operates two repo markets, CH Repo and OTC Spot. CH Repo services the SNB’s open market operations, and OTC Spot handles the SNB’s auctions for Treasury Bills, Federal Bond Issues, and SNB Bills. SIX Repo also has a Special-Rate Repo facility (aka, Liquidity Shortage Financing Facility), through which the SNB provides banks with short-term liquidity (e.g., until the next working day).⁵²

SIX Terravis

In January 2012, the Canton of Thurgau began a yearlong pilot program called SIX Terravis, which introduced a new electronic business transaction service to the Swiss market. Terravis provides a single-interface service for real estate transactions between land registries, notary offices, and banks. Its standardized electronic communication network increases the safety and speed of notarial registrations, registered mortgage notes, and repayment of mortgage loans among banks. It also reduces both the cost and risk of errors. Terravis is part of the eGRIS project, supervised by the Federal Office of Justice, the Cantons of Thurgau and Uri, and the SNB.

Financial Information

SIX provides verified, consolidated, normalized, and enriched (i.e., structured) referencing, pricing, and regulatory data on more than 30 million financial instruments sourced from over 1,800 worldwide sources.⁵³ Financial Information provides procurement, processing and distribution of reference data, and pricing information (real-time) market data and offers display products. In addition, it delivers complete reference data required in the context of local and cross-border regulatory and tax compliance. Index services includes calculating indices and offering licenses for SIX indices.

SIX Financial Information

SIX Financial Information has been supplying financial data and services to the Swiss financial markets for more than 90 years. In this role, it procures, structures, integrates, standardizes, and distributes international financial data from more than 1800 sources, including stock exchanges, alternative trading venues, and other contributors.⁵⁴ In 2022, it provided information on almost 30 million financial instruments, had a presence in 20 countries and was one of Europe’s largest financial data providers.⁵⁵ In addition to stock exchange and currency data, SIX Financial Information provides analytical and background information, evaluates prices, and distributes financial news regarding security markets. Its 2007 acquisition of Fininfo, a French financial information business, has reinforced its strong market position.

SIX Financial Information’s data feeds offer continuous, real-time market data, statistical information, and economic news from international agencies. Its reference data feed delivers structured and codified company statistics and events to the databanks of clients. In addition, SIX Financial Information’s suite of display solutions provides users with a range of user-friendly but sophisticated international financial data. Finally, it offers financial institutions data relating to compliance rules and regulations, such as the EU’s Markets in Financial Instruments Directive (MiFID).

The financial services activities of SIX Financial Information are divided into four product and service categories: Solutions, Reference Data and Pricing, Market Data, and Display.⁵⁶ They were created to address client demands for specialized data requirements and information needs. With them, SIX Financial Information can offer customized solutions for displays, real-time calculations, reference data-based solutions, trading and portfolio management, compliance and risk management, operations, and hosting. From modest beginnings, it has expanded to provide comprehensive services to customers worldwide.

Reference and Pricing Data

SIX Financial Information operates a securities database that captures and organizes financial information from more than 1500 global sources. The reference data service covers all the financial information associated with a security, such as reference and descriptive data, new issues, changes to existing securities, cash flow terms and conditions, ratings from leading rating agencies, company information, global security ID cross-references, corporate actions, pricing data, and evaluated prices.⁵⁷

Global Corporate Actions Data and Services

The Global Corporate Actions SIX Financial Information provides a unique service in the market, enabling the automation of operations in corporate actions to support customers’ cash flow management, income distribution, and risk management. SIX Financial Information works together with more than 50 partners to deliver aggregated corporate actions data in a wide variety of formats. The sourced and processed information comprises dividends and other distributions, as well as corporate events (i.e., name or domicile changes, mergers, spin-offs, purchases, reorganizations, bankruptcies and liquidations, class actions, capital increases and reductions, splits/reverse splits and share conversions, delivered in near-real time).⁵⁸

Market Data and Services

Market Data and Services offers a stream of market quotes, delivered in real-time, intraday, end-of-day, and time series formats, regardless of where in the world it originates. SIX Financial Information sources and consolidates market data from the broadest range of sources all over the world.⁵⁹

Fund Data and Services

Fund Data (Premium Fund Data) services offer the access to fund data from a single, reliable source, covering all core European markets. SIX Financial Information not only provides reference fund data combined with third-party fund data, but also enriches the information with content needed for regulatory and tax compliance and validates all the gathered information. The Premium Fund Data service includes in its display of financial instruments complete and up-to-date fund data that are certified by assigning a premium flag.⁶⁰

Display and Delivery Capabilities

SIX Financial Information’s suite of Display and Delivery Capabilities provides different ways and payment models to access data and financial information. SIX Flex® is the delivery platform for all financial data provided by SIX, designed for procuring, interpreting, and working with financial information.⁶¹ Data can be delivered via data feeds, Valordata Feed for Reference Data⁶² and Market Data Feed⁶³ for global real time market data. apiD is a platform for developing custom tools for Internet, intranet, and extranet applications with SIX extensive real-time database to integrate a vast array of data into customers’ internal, external, and web-based functions.⁶⁴ SIX iD is a display solution that gives access to reference and market data provided by SIX. The user interface has many features that simplify the processing of information to support efficient decision making.⁶⁵

ESG Data and Services

SIX also offers ESG information relating to regulatory requirements, performance, and indices, becoming more and more relevant to meeting the challenges of the climate crisis and the associated regulatory requirements.⁶⁶

Regulatory Data and Services

SIX Financial Information is specialized on data and services relating to legal and regulatory requirements. This relates to the areas of tax, investor protection, and regulatory reporting. Table 2.2 provides an overview of regulatory services provided by SIX Financial Information. Regulatory Hub is an innovative regulatory platform designed to connect the buy- and sell-side with each other so data and documents can be exchanged in a standardized, automated, and digital way.⁶⁷

Table 2.2 Overview of regulatory services of SIX financial information

Indices

Under the label SMI Indices SIX offers a range of equity, bond, real estate, and strategy indices for the Swiss market. At the top of the list is the SMI, Switzerland’s most important equity index calculated by SIX.⁶⁸ The rule-based, transparent methodology of the SMI indices is compliant with the International Organization of Securities Commission’s (IOSCO) Principles for Financial Benchmarks. Major Swiss indices are endorsed under the EU Benchmark Regulation (BMR),⁶⁹ carried out by SIX Financial Information Nordic AB in Stockholm, which is also a Benchmark Administrator under BMR, confirmed by the Swedish Financial Supervisory Authority.⁷⁰

Access to the Swiss indices requires a subscription, if SIX indices are used as underlying for index-based products such as ETFs, fund solutions, and structured products, but also as benchmarks for portfolio management. Table 2.3 provides SIX Group’s Swiss offer of major standardized and advanced strategy indices. SIX Group is one of the largest providers of indices in the Nordic by calculating and offering more than 400 indices covering Sweden, Denmark, Norway, and Finland.⁷¹ Not only for standardized and advanced strategy indices, but also for specific index solutions offered for individual clients, SIX guarantees high standards and transparency.

Table 2.3 Overview of SIX Group’s Swiss major indices

Rolotec

Rolotec is a majority-owned subsidiary of SIX Financial Information. It was acquired in January 2017 to create and develop online software information solutions for customers.⁷² Rolotec specializes in integrating real-time data into solutions for stock exchange information systems, databases and data processing, knowledge management, consulting, project management, monitoring and ICT security operations, and maintenance. Before its acquisition, Rolotec worked closely with SIX Financial Information and, afterward, became the prime coordinator within the service category called SIX Financial Information Solutions.⁷³ Today, Rolotec also has customers in Europe, the United States, and Asia.

Swiss Fund Data

Swiss Fund Data AG is owned by the Swiss Fund Association and SIX Swiss Exchange. As its name indicates, Swiss Fund Data provides investors access to financial information, notices, documents, and other information on authorized investment funds, which are segregated pools of assets, professionally managed by fund managers. It is designed for medium to long-term asset growth. Delivery is efficient, uncomplicated, cost free, and beneficial because it increases market transparency. The Swiss investment fund industry uses this information source as a cost-effective, official publication channel to enhance competitiveness.

Banking Services

The business unit Banking Services supports financial institutions with billing and payment services, ATM transaction processing and infrastructure services in Switzerland, as well as processing services for debit card issuers. SIX Interbank Clearing Ltd. (SIC) processes retail and wholesale payments in Swiss francs on behalf of the SNB and provides a gateway for Euro payments for the Swiss financial community (euroSIC). Banking Services also provides the infrastructure for digital billing in Switzerland, for example eBill and direct debits, such as LSV+ and BDD.

Against the backdrop of increasing cyber risks, secure access to infrastructure services is an essential prerequisite for operating a well-functioning financial market infrastructure. Based on the SCION technology developed at ETH Zurich, the SNB and SIX Group have created the Secure Swiss Finance Network (SSFN). This controlled and secure network allows the exchange of data between financial market participants in accordance with the highest requirements and standards in terms of security and availability. Since June 2022, the SSFN has provided a connection to the SIC (and also the euroSIC) payment systems, as well as to the ATM Monitoring Services of SIX (remote ATM monitoring).⁷⁴

SIX Interbank Clearing

Swiss Interbank Clearing (SIC) began in 1987, creating a nationwide electronic payment network to efficiently and accurately clear domestic transactions, such as fund transfers, security payments, cash management services, and borrowed/lent securities. Because of its importance to Switzerland’s financial system, the SNB classifies the SIC system as a “systemically important financial market infrastructure” (SIFI).⁷⁵

SIX Interbank Clearing operates SIC and EuroSIC payment systems for transactions conducted between financial institutions.⁷⁶ Because SIC functions on behalf of the SNB, it is subject to the central bank’s supervision.⁷⁷ The SIC utilizes its SNB deposits for payments and receipts, integrating its actions with SNB’s monetary policies.

Swiss Euro Clearing Bank (SECB), euroSIC, and SIC provide processing and settlement systems for euro-denominated payments within Switzerland and across its borders. They give their customers real-time connections to all the financial institutions in the EU, through TARGET2 RTGS, and to EEA countries. SIC is a real-time gross settlement system (RTGS), which means it settles each irrevocable and final transaction by individually adding or deducting the amount to/from a participant’s central bank account.⁷⁸ This means debiting and crediting banks’ reserve accounts already deposited at the SNB.

SIC also offers net clearing systems to reduce counterparty risk. By netting counterparty payments, default and systemic risks (e.g., for other nonpayment reasons) can be minimized. The SNB accomplishes this by posting a bank’s net position to its reserve/settlement account only at the end of the settlement period, which occurs at a predetermined time or when a threshold value or quantity of payment orders has been reached. Only at this point are the netted transactions considered both irrevocable and final.⁷⁹

SIC increased the speed and volume of cleared financial transactions among Swiss banks. In June 1987, eight banks were connected to the system, and about 15 million transactions were made during the first year. By 2000, SIC’s yearly transactions reached almost 150 million; in 2021, they reached nearly 900 million. Figure 2.6 highlights the development of transactions and turnover from 2017 to 2022. In June 2022, the system processed approximately 78.5 million transactions, with their turnover valued at CHF 4,371 billion.⁸⁰ The next generation of SIC, SIC5, will be released in 2023, hopefully enabling instant payments by August 2025 (i.e., payments that can be processed 24 hours a day, 7 days a week, 52 weeks per year).⁸¹

Fig. 2.6

(Source Data from SNB. Economic Data. Payment transactions via Swiss Interbank Clearing (SIC). https://data.snb.ch/ [Accessed on August 1, 2022])

SIC payment system number of transactions in CHF Millions and turnover (In CHF Billion): 2017–2021

SECB

Founded in 1998, SECB is operated by SIX Interbank Clearing and acts as a system manager for the euroSIC system. It connects financial institutions (mainly) in Switzerland and Liechtenstein to the main euro clearing and payment systems. Furthermore, it acts as the liquidity manager and settlement agent for system participants.⁸² The SECB’s connection to European payment processors allows SEPA-compliant credit transfers and direct debits via the Swiss payment channel euroSIC.⁸³ In 2021, euroSIC handled 14.730 million transactions with a turnover of EUR 2227.173 billion.⁸⁴

euroSIC

The euroSIC system is supervised and monitored by Swiss Euro Clearing Bank (SECB). Through euroSIC, Switzerland gains efficient and secure interfaces with EU financial institutions, without becoming a member of the EU. It connects to the Eurozone’s TARGET2 RTGS system and the German and pan-European EMZ and STEP2 wholesale payment systems. It further connects financial institutions (mainly) in Switzerland and Liechtenstein to the main euro clearing and payment systems in the EU and in EAA countries. EuroSIC provides a safe connection for EU and EEA members who wish to conduct euro-denominated exchanges with its members. It provides liquidity and executes daily, irreversible transactions by balancing payments with sight deposit accounts at the SECB.

SIX Card Solutions

SIX Card Solutions offers merchants card-based payment solutions for major international credit and debit cards. It also provides customers with value-added services, such as mobile vouchers for prepaid mobile phones and dynamic currency conversion, which allow cardholders to choose the settlement currency of a transaction. SIX Card Solutions empowers customers with a payment infrastructure needed for point-of-sale and Internet transactions. It also processes transactions for acquirers and card issuers (e.g., banks), where the processor provides claim handling, risk management, and other related functions.

Billing and Payments

SIX Group’s Billing and Payment unit provides reliable and secure payment solutions for the Finance Center Switzerland, generating synergies and economies of scale by bundling and standardizing payments infrastructure. SIX Group’s Billing and Payment services ensure that funds are quickly, reliably, and securely taken from the security purchaser’s bank account and deposited into the security seller’s account. Two relatively recent innovative solutions are eBill and QR-bill (explained below). By 2028, the SIX Group aims to digitally settle 60% to 80% of its business-to-customer invoices and transfer them to eBill. The network partner for eBill is SIX Paynet Ltd., one of the leading e-invoicing providers in Switzerland. To boost digital payments, SIX transferred the e-invoicing business, formerly operated by SIX Paynet Ltd., to PostFinance Ltd. in 2021. QR-bill is a transitional solution on the way to digitize the entire value chain of payment transactions, from invoicing to payment, without any media disruption.⁸⁵

eBill

In 2018, the SIX Group introduced eBill, a digital invoice system that electronically receives customer invoices from vendors and automatically pays them without using mail or e-mail correspondence.⁸⁶ In 2022, eBills had approximately two million registered users, with 95% of all Swiss financial institutions connected to its infrastructure. As of 2022, eBill’s high security standards had resulted in no cases of fraud or abuse. The eBill system automatically gives bank customers complete control over the invoices they wish to process, allowing them to manage their finances by adding or subtracting bills.

QR-bill

Another step in Switzerland’s payment system development occurred in June 2020, when the SIX Group introduced the QR-bill, which uses a QR code to simplify payment transaction processing. Scanning a QR code makes payment transactions easier, quicker, more convenient, and more accurate than other payment methods because account numbers and payment information are scanned. Each QR-bill consists of separate payment and receipt sections,⁸⁷ with the QR code containing all the relevant information about invoicing and payment. Once in place, customers can pay their bills using mobile banking, e-banking, or mail simply by scanning their QR codes.⁸⁸

LSV+ and BDD

LSV and BDD are two direct debit procedures used by Swiss banks. LSV+ is for individuals and provides the right of objection, while BDD is for corporate businesses and does not provide users with such a right. They are used, regularly, to settle claims in Swiss francs and euros. Agreed participation conditions regulate the relationship between creditors and banks, and the debit authorization document maintains the relationship among creditors, debtors, and the financial institutions.⁸⁹

PaymentStandards.CH

PaymentStandards.CH is a Swiss financial center initiative to standardize and harmonize Switzerland’s payment system. It communicates information to stakeholders from the SIC, making payments simpler and more economical.

bLink

bLink is a platform that connects financial institutions to software and service providers. It provides an efficient and secure platform where software and service providers can access bank account information and asset data at custodian banks on behalf of their customers. From bLink, customers can transmit bank payments automatically and place stock exchange orders.

Worldline

The Banking Services segment of the SIX Group is responsible for accepting, recording, and smoothly processing cashless payments (e.g., credit, debit, value, and customer cards). It also operates the interbank clearing system for transactions denominated in Swiss francs and euros and provides services for retail payments, such as debit advice procedures, as well as electronic bill presentment and payment. In May 2018, the SIX Group sold its banking services division, SIX Payment Services, to Worldline for a 27% equity stake in the company and two seats on Worldline’s board of directors.⁹⁰

Swiss Value Chain

The core and, at the same time, the backbone of the Swiss financial center is the Swiss (Securities) value chain, which represents the fully automated electronic infrastructure for trading securities, clearing, settlement and custody, and payment. SIX Group operates the Swiss value chain by providing the integrated financial market trading and post-trading infrastructure for the Finanzplatz Schweiz (i.e., Finance Center Switzerland) under one roof.

SIX Group’s financial market infrastructure subsidiaries operate with state-of-the-art technologies, including the corresponding interfaces with the highest processing speed and efficiency standards to meet the needs of capital market participants. The launch of the SIX Digital Exchange (SDX) in November 2021 shows SIX Group’s support for digital transformation and development by integrating forward-looking distributed ledger technology (DLT) into the Swiss value chain.

Figure 2.7 shows the trading process and institutions connected to the Swiss financial value chain. Customer orders move automatically through four layers of financial processing, from Trading to Products to Clearing to Settlement. To address the needs of these integrated layers, Switzerland developed the SIX Swiss Exchange (i.e., the SWXess), its automated, electronic platform that offers a complete set of industry-standard interfaces that accommodate each financial asset class. Trades follow direct computer linkages, eliminating the need to enter data more than once, thereby increasing efficiency and reducing the likelihood of errors.

Fig. 2.7

(Source SIX Swiss exchange, clearing and settlement, https://www.six-group.com/en/products-services/the-swiss-stock-exchange/trading/trading-provisions/clearing-and-settlement.html [Accessed on June 18, 2022])

SIX Group value chain: trading, products, clearing, and settlement

On a typical trading day, counterparties submit their buy and sell orders to the exchange, which are recorded on the SWXess trading platform of the SIX Swiss Exchange Ltd. At the exchange, the orders are then executed according to the SIX Exchange’s matching rules. SIX x-clear Ltd. acts as the CCP for sellers and buyers to reduce risk for both trading parties. As CCP, SIX x-clear Ltd. steps between the seller and buyer, immediately when the buy and sell orders are matched. Doing so ensures the shares are delivered to the buyer and payment is made to the seller, thereby eliminating the credit risk.

Trading Participants must be members of the CCP (i.e., in this example SIX x-clear Ltd., or use the services provided by a General Clearing Member).⁹¹ For assuming the default risk, the CCP requires margin payments and contributions to a default fund that covers losses in the event of a default. Execution occurs two days after the trading day via SIX SIS Ltd., which operates SECOM, the securities settlement system, and central securities depository (CSD) for Switzerland. Based on the notification of the trade from SIX x-clear Ltd., SECOM checks whether the seller has the number of shares in her securities account, blocks them, and initiates payment via the SIC payment system, a real-time gross settlement system (RTGS) operated by SIX Interbank Clearing Ltd. Once payment is made via SIC by SIX x-clear Ltd. to the selling party, the shares are transferred to SIX x-clear Ltd.’s securities account. Similarly, settlement and payment are carried out between SIX x-clear Ltd. and the buyer. SECOM checks whether SIX x-clear Ltd. holds the correct number of shares in its securities account and blocks them. After the transfer of the payment via SIC by the buyer, the shares are then transferred to the buyer’s securities account.

Payments in the SIC system are settled with central bank money (i.e., bank checking accounts at the SNB). Therefore, each SIC participant⁹² has a sight deposits (i.e., central bank money) account with the SNB. At the beginning of a settlement day, sight deposits are transferred to the SIC participant’s settlement account with the SIC system. All the payments on settlement day are processed through this settlement account. Payments are only executed by SIX if they are covered. At the end of the settlement day, the settlement account’s balance is transferred back to the sight deposit account with the SNB. By netting counterparty payments, default and systemic risks (e.g., for other nonpayment reasons) can be minimized.⁹³ As this example illustrates, Switzerland’s security transactions system can be described as a simultaneous, final, and irrevocable delivery-versus-payment system, with security buyers getting instant access to the securities and security sellers getting instant access to cash.⁹⁴

Trading

Buyers and sellers of Swiss and global securities meet electronically on the SWXess platform to determine prices and quantities traded per period. In 2020, it was Europe’s third largest stock exchange in market value and the continent’s leader in Life Sciences, with a free float market capitalization of CHF 1.5 trillion⁹⁵ and about 250 companies, which ran the gamut of sizes and nationalities.⁹⁶ In 2022, the SIX Swiss Exchange offered more than 50,000 securities, including equities, bonds, exchange-traded products funds, and structured products, including large European blue-chip stocks, about 200 crypto products, and 17 cryptocurrencies.⁹⁷ It was also active in initial public offerings (IPOs), spin-offs, and new fund listings.⁹⁸ The SIX Swiss Exchange’s financial services include listing, trading, post-trade, structured products (via SDX), market data, and education. It also prepares and distributes price and volume information and calculates performance indices. Switzerland’s Federal Law on Stock Exchange and Securities Trading governs the SIX Swiss Exchange, and the FINMA supervises the SIX Swiss Exchange.⁹⁹

Products

The SIX Swiss Exchange Ltd. trades both clearing-eligible products and non-clearing eligible products. Examples of clearing-eligible products are shares, exchange-traded funds (ETFs), and Swiss franc bonds that can be cleared through SIX x-clear Ltd. Examples of non-clearing-eligible products are structured securities, non-Swiss franc bonds, and sponsored foreign shares,¹⁰⁰ which cannot be cleared through SIX x-clear Ltd.

Clearing

Clearing-eligible products are sent, together with automated settlement instructions, to one of three clearing agents, SIX x-clear Ltd., LCH. Ltd., or EuroCCP.

Settlement

Clearing-eligible products are sent to and settled by SIX Securities Services Ltd. Financial products classified as non-clearing-eligible are sent directly from the SIX Swiss Exchange to either Euroclear Bank or Clearstream Banking Luxembourg, where they are settled.¹⁰¹

SIX Securities Services Ltd.

SIX Securities Services Ltd. provides information technology and logistic support to clients of the SIX Securities Group. This support is usually provided via outsourced partnerships having expertise in using SIX Systems’ technologically advanced computer infrastructure. The combined efforts of three organizations accomplish settlement:

• SIX Interbank Clearing Ltd., for cash transactions

• SIX Interbank Clearing Ltd. and SIX SIS (CSD), for OTC transactions, and

• SIX Interbank Clearing Ltd., SIX SIS (CSD), and SIX x-Clear for on-exchange transactions.

SECOM

SECOM is Switzerland’s custody and securities settlement platform for on- and off-exchange transactions. Managed by SIX SIS Ltd., it services more than 50 markets.¹⁰² Using real-time straight-through processing, SECOM handles a broad spectrum of Swiss and foreign asset classes and currency security transactions.¹⁰³ It has direct links to custodian banks and CSDs.¹⁰⁴ Since 2015, SECOM has had a direct connection to T2S, the pan-European settlement platform, giving Swiss customers the ability to settle security transactions on SECOM or T2S security platforms.¹⁰⁵

Payment takes place when SECOM or T2S contact SIX SIS, which contacts SIC. Consequently, final settlement occurs when SECOM or T2S makes the appropriate security-related debits and credits, and final payment occurs when commercial banks or the SNB make the appropriate bank-related debits and credits. Switzerland’s security transactions system has been described as a simultaneous, final, and irrevocable delivery-versus-payment system, with security buyers getting instant access to the securities and security sellers getting instant access to cash.¹⁰⁶

Euroclear Bank

Euroclear Bank is a Belgium-based financial services company focused on security settlement, custody, and management services. It provides these services to more than 90 countries, including Switzerland. Euroclear covers Eurobonds, international Exchange-Traded Funds (ETFs), and domestic securities from 48 countries, including equities, bonds, money market instruments, and funds.¹⁰⁷ The company is also an ICSD for post-trade services.¹⁰⁸ In 2014, SIX Securities Services and Euroclear formed an alliance targeting Swiss private banks and wealthy customers interested in making cross-border investments beyond what SIX offers. The Agreement covers order routing and unit settlement for fund transactions.

Clearstream Banking Luxembourg Ltd.

Clearstream is a wholly owned subsidiary of Deutsche Börse and a leading European supplier of post-trading services, including clearing, settlement, payment, custody, and management for more than 300,000 domestic and internationally traded securities. It settles more than 250,000 transactions daily, conducting trades in more than 110 countries.¹⁰⁹ Clearstream processes real-time payments in Swiss francs and euros across Switzerland, Europe, and globally. Customers benefit from easy access to banking services using their smartphones and mobile apps.

Markets and Tradable Financial Instruments

In mid-2022, the number of tradable Swiss financial instruments exceeded 60,000, covering the equity, bond, and fund markets, as well as exchange-traded and structured products. Table 2.4 provides an overview of these financial instruments, separated by the markets and trading segments operated by the SIX Swiss Exchange. Each trading segment is subject to specific listing requirements, rules for trading, and regulatory requirements.¹¹⁰

Table 2.4 Tradable financial instruments by number: end of July 2022

In contrast to the number of tradable securities on the markets, Fig. 2.8 shows the turnover in the segments. Domestic shares have represented a relatively stable portion of the Swiss equity market, with shares varying between approximately 75% and 80% of market turnover. While turnover increased steadily from 2017 to 2019, the high turnover in 2020 reflects the turbulence in the financial markets caused by the global COVID-19 pandemic, with the subsequent negative impact on the global economy in 2021, which led to the corresponding decline in trading activity in the financial markets. As a result, trading turnover on SIX Swiss Exchange decreased by 27% to CHF 1282 billion in 2021 compared to 2020.

Fig. 2.8

(Source Data from SIX Swiss Exchange. Market Data. Statistics. Monthly Reports. https://www.six-group.com/en/products-services/the-swiss-stock-exchange/market-data/statistics/monthly-reports.html [Accessed on August 1, 2022])

Annual trading turnover of tradable financial instruments on SIX Swiss exchange: 2017–2021 (In CHF Billion)

Trading Participants of the SIX Exchange

Trading Participants¹¹¹ interact directly on the SIX Swiss Stock exchange, on behalf of clients or on their own account. They are security traders or foreign security exchange participants authorized by the FINMA. They must comply with Switzerland’s Stock Exchange Act and with organizational, accounting, auditing standards, as well as follow the rules and directions established by the SIX Swiss Stock Exchange. As of end of July 2022, the list of Trading Participants includes a total of 95 financial services institutions, 44 of which are Swiss and 51 foreign.¹¹²

Becoming a Trading Participant is a two-step process, involving business setup with membership application and FINMA approval on the one hand, and operational setup on the other hand, that can be completed after only four weeks.

Trading Participants must meet the following requirements for admission:

• 1. They must be authorized as a securities firm or as a foreign security exchange participant by the FINMA. Under the Swiss Federal Act on Financial Institutions,¹¹³ securities firms are defined as entities, that, on a commercial basis;

  • Perform trades in securities on their own name for the account of clients;

  • Trade in securities for their own accounts on a short-term basis (as a member of a trading venue); or

  • Trade in securities for their own accounts on a short-term basis and furthermore quote continuously prices for individual securities to the public upon request.

• 2. They must participate in a SIX Swiss Exchange-recognized CCP or have access to one via a General Clearing Member.

Parallel to the business setup (i.e., membership application and FINMA approval), the operational setup process can start. Trading Participants must set up their trading infrastructures and networks while the SIX assembles the target configuration. The SIX Swiss Exchange works closely with Infrastructure Service Providers (ISP), Independent Software Vendors (ISVs), and Application Service Providers (ASPs) to support customers’ trading infrastructure setups and optimize trading conditions.¹¹⁴

SIX Swiss Exchange supports three methods for Trading Participants’ submissions of client orders. In all three cases, Trading Participants are responsible for the activities under their trading identification:

• 1. Client orders are directly entered and submitted to the exchange by registered traders of a Trading Participant under the participants’ trading identification.

• 2. Via Direct Electronic Access (DEA), Trading Participants permit their clients to transmit orders electronically to the participant’s internal electronic trading systems for automatic onward transmission to the exchange under the participant’s trading identification.¹¹⁵

Trading Participants (“sponsors”) may offer their clients a direct connection to the SIX Swiss Exchange via Sponsored Access (SA).¹¹⁶ Sponsored users transmit orders directly and electronically to the exchange under the participant’s identification, without the orders being routed through the participant’s internal electronic trading systems. Because the legal relationship is between SIX Swiss Exchange and the Trading Participant and between Trading Participant as sponsor and the sponsored user, the participant is liable for all acts and omissions of the sponsored user, in the same way as for its own acts and omissions.

To help sponsors¹¹⁷ monitor and manage sponsored users’ positions and exposures, the SIX Swiss Exchange provides pre-trade and at-trade risk management controls that set customers’ limits and control their trading activities. Included in this package of risk-management tools is the ability to create lists of restricted stocks and kill switches that delete outstanding client orders. Via the real-time feed FIX Drop Copy sponsors are informed about all the trading activities and the order flow of their sponsored users.¹¹⁸

To ensure that there is sufficient liquidity in certain trading segments and that trades can be executed, two functions are required on the exchanges: market makers and liquidity providers. These functions are performed by trading participants on the exchange.¹¹⁹

Stock Exchange Laws and Regulations

In June 2007, the Swiss parliament approved the Federal Act on the Swiss Financial Market Supervisory Authority (FINMASA), which entered into full force on January 1, 2009. Under FINMASA, government supervision of banks, insurance companies, stock exchanges, and other financial intermediaries¹²⁰ were merged into one authority called the Swiss Financial Market Supervisory Authority (FINMA), whose primary objective is to protect creditors, investors, and insured individuals. In addition, this Act aimed to guarantee the efficient functioning of financial markets, reinforcing Switzerland’s competitiveness and reputation as an important financial center.

Supervision of the Swiss Stock Exchange is based on the principle of self-regulation. Enforcement of executive regulations is handled by SIX Exchange Regulation; legislative regulations are managed by the Regulatory Board; and judicial responsibilities are the responsibility of the Sanction Committee, Appeal Board, and Board of Arbitration.¹²¹ The FINMA has ultimate supervisory powers, but it is limited to granting operating licenses, approving stock exchange rulebooks, and conducting ongoing audits.¹²² This regulatory setting has given the Swiss Stock Exchange a relatively high degree of flexibility and considerable powers to self-monitor, self-enforce, and self-approve market actions.

During the past two decades, Swiss regulatory authorities have moved from a traditional, principle-based system to one that relies increasingly on detailed rules and regulations for reporting, transparency, and shareholder rights. Prior to 1990, listed companies were not required to publish audited, consolidated reports. There were no reporting requirements regarding shareholdings, and takeover defense tactics were, for the most part, unrestrained. Minority shareholders’ rights hardly existed, and there were virtually no limitations on a corporation’s right to purchase its own shares.

Times have changed, and recent trends in Switzerland favor inundating shareholders with corporate information, such as quarterly financial statements and daily news reports of business events. Swiss managers would rather err on the side of disclosure because they fear regulators might later interpret a piece of missing information as essential to a stock price’s evolution.

Today, Switzerland requires disclosure of shareholder identities when an individual’s ownership level reaches, exceeds, or falls below (separately) 3, 5, 10, 15, 20, 25, 33.3, 50, or 66.67% of all outstanding shares.¹²³ Furthermore, a listed corporation’s ability to refuse share registration is constrained to percentage limits that are incorporated in its articles of association. A minority shareholder’s request for business information, if supported by a majority of shareholders, cannot be refused.

Conclusion

Despite its diminutive geographic size relative to many other international competitors, Switzerland has built an excellent financial infrastructure focused on its customers’ needs, especially in private banking. Swiss capital and money markets offer high levels of efficiency and a user-friendly orientation that can be traced mainly to private ownership and the self-regulatory structure of the SIX Group.

Switzerland’s capital-intensive financial infrastructure and harmonized regulatory environment have enhanced the competitiveness of its financial intermediaries and reinforced an already-existing drift toward consolidation through mergers, acquisitions, and affiliations. Still, this trend is not unique to Switzerland. Since the beginning of the twenty-first century, numerous European and (particularly) Asian stock exchanges have merged and plan to continue doing so in the future.

The SIX Group is rolling out its innovative payment systems, called eBill and QR-bill, which will make payments simpler, faster, and more efficient by reducing the chances of making errors. Furthermore, partnering with the FQX and bringing eNotes on the SDX platform will help create a global debt infrastructure. The collaboration will allow institutional investors to access eNotes directly from the custodial banks.

Moving forward, the SIX Group, like all its competitors, will have to weigh the cost-saving advantages of consolidation against the specialized care and tailor-made solutions that customers increasingly demand. While the future is not predictable, it is conceivable. Switzerland has moored its financial ship to private banking services, one of the market’s most rewarding but demanding sectors. Fortunately, Swiss financial institutions have centuries of first-hand experience in this area, an embedded client base, and a financial system that delivers high-quality services at competitive prices.

Finanzplatz Schweiz is not a destination but a journey, which Switzerland began about four decades ago and continues today. Keeping pace with changing global demographics, financial and payment systems will take careful and concerted steps, particularly with the threat that DLT platforms could make existing fixed assets anachronistic.

Appendix: Listing of Six Corporate Services

The SIX Group offers numerous services to its customers. This appendix lists them according to whether they are in the “Exchanges,” “Securities Services,” “Financial Information,” or “Banking Services” business areas.

Exchanges

SIX Swiss Exchange

• Listing

  • Equities

    • ○ IPO

    • ○ IPO for SMEs

    • ○ Services for Equity Issuers

  • Bonds

    • ○ List of ETFs, ETPs, and Funds

      • ETFs

      • ETPs

      • Mutual Funds

  • Structured Products

  • Connexor

• Trading

  • Markets

    • ○ Equities

    • ○ SwissAtMid

    • ○ Swiss EBBO

    • ○ Sponsored Foreign Shares

    • ○ Bonds

    • ○ ETFs

    • ○ ETPs

    • ○ Mutual Funds

    • ○ Structured Products

  • Participation

    • ○ Trading Participants

    • ○ General Clearing Members

    • ○ Traders

    • ○ Sponsored Access

  • Trading Platform

    • ○ Industry-standard Interfaces

    • ○ Connectivity Options

    • ○ Microwave Technology

    • ○ Service Providers

  • Trading Provisions

    • ○ On-order-book Trading

    • ○ Orders and Quotes

    • ○ Trading Hours

    • ○ Reporting

    • ○ Clearing and Settlement

    • ○ Regulation

  • Deal Pool

  • Investing Sustainability

• Market Data

  • Shares

  • Bonds

  • ETFs

  • ETPs

  • Mutual Funds

  • Structured Products

  • Swiss Indices

  • Statistics

  • Data Services

• Education

  • Pre-IPO (Sparks IPO Academy)

  • Equity Issuers

  • Trading

  • Post-Trading

  • Advanced Financial Training

  • Derivatives Fundamentals Class (DFC)

  • Derivatives Master Class (DMC)

SIX Digital Exchange

BME Exchange

SIX Group Participants

• LCH Ltd.

• EuroCCP

Securities Services

• Clearing

  • Clearing Products

  • Clearing Membership

  • Clearing Contractual Framework

• Settlement and Custody

  • Settlement and T2S

  • Swiss Custody

  • International Custody

  • Asset Servicing

  • Global Fund Services

  • Issuer Services

  • Technical Connectivity

• Securities Finance

  • Repo

  • Securities Lending & Borrowing

  • Triparty Collateral Management

  • Collateral Cockpit

• Tax Services

  • Advanced Tax Services

  • Standard Tax Services

  • Regulatory Tax Services

• Trade Repository

Financial Information

SIX, Financial Information, https://www.six-group.com/en/products-services/financial-information.html (Accessed on July 11, 2022).

• Reference and Pricing Data

  • Reference Data

  • Global Corporate Actions

  • Market Data

    • ○ Mdf

    • ○ apiD

    • ○ SIX Flex

    • ○ SIX iD

  • Fund Data

• Regulatory Services

  • Tax and Compliance

    • ○ Sanctioned Securities Monitoring Service

    • ○ SIC Tax Score

    • ○ SIX Tax on Instrument

    • ○ Stamp Duty and Financial Transaction Tax

    • ○ Domestic Tax Packages

    • ○ FATCA Compliance

    • ○ Legal Entity Identifier (LEI) Data Service

    • ○ IRS 871(m)

  • Investor Protection Services

    • ○ MiFID II

    • ○ Financial Service Act (FinSA)

    • ○ Priip Kid

    • ○ Priip Kid

    • ○ Product Risk Indicator (PRI)

    • ○ AIFMD

    • ○ Solvency II

  • Reporting Services

    • ○ CSDR Data Service

    • ○ SFTR Data Service

    • ○ CRS & AEOI

  • ESG Regulatory Data

• Indices

  • Swiss Indices

    • ○ Swiss Market Index (SMI)

    • ○ Swiss Bond Index (SBI)

    • ○ Swiss Reference Rates (SARON)

    • ○ ESG Indices

    • ○ SPI Multi Premia

    • ○ SPI Gender Equality

    • ○ SIX Crypto Market Index 10

    • ○ SDX Crypto Indices

  • Benchmark Regulation Swiss Indices

  • Nordic Indices form SIX

    • ○ Sweden

    • ○ Denmark

    • ○ Finland

    • ○ Nordic

  • Crypto Indices

    • ○ SIX Crypto Market Index 10

    • ○ SDX Crypto Indices

  • Customized Indices

  • BME Indices

• Display and Delivery Capabilities

  • SIX Flex

  • Valordata Feed

  • Market Data Feed

  • Intraday Pricing Services

  • Regulatory Hub

  • apiD

  • SIX iD

• ESG data

  • ESG Regulatory Data

  • ESG Performance Data

  • ESG Indices

    • ○ ESG Equity Indices

    • ○ ESG Bond Indices

    • ○ SPI Gender Equality

    • ○ ESG Strategy Indices

Banking Services

• Billing and Payments

  • eBill

  • QR-bill

  • Payment Standards

  • Paynet

  • Direct Debits LSV+ and BDD

• Debit and Mobile Services

  • Issuing Processing

  • Issuer Services

  • License Processing

  • SIX Account Gateway

  • New Debit Card

  • Digital Services

• Cash

  • Transaction Processing

  • Cash Services

  • National Cash Scheme

• Connectivity

  • bLink

• Interbank Clearing

  • SIC System

  • euroSIC System

• Standardization

  • ISO payments

  • QR-bill

  • IBAN

  • EBICS

  • SEPA