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Stock Exchange Supervision

Stock exchanges and securities firms have been subject to regulation and required a licence since the Federal Act on Stock Exchanges and Securities Trading (SESTA) came into force on 1 February 1997. Stock exchange legislation is intended to ensure transparency and equality of treatment for investors and create the framework for functioning securities markets.

The Swiss system of stock exchange supervision is based on the principle of self-regulation. The Stock Exchange Act is designed as a framework law that offers a high degree of flexibility. Regulatory functions in several areas are delegated to self-regulatory organisations. Authorised stock exchanges therefore assume considerable powers of monitoring and approval. The law makes a distinction between domestic stock exchanges, foreign stock exchanges and bodies similar to stock exchanges.

Domestic stock exchanges

FINMA's overall supervision of domestic stock exchanges involves granting operating licences and approving stock exchange rule books. It also includes an annual review of compliance with the Stock Exchange Act by an audit firm.

Stock exchanges must be organised in such a way as to ensure they can provide appropriate operational, administrative and monitoring functions. These include the establishment of an adequate trading organisation, regulation of the licensing of securities dealers and the listing of securities, a complaints procedure, and direct and efficient trade monitoring. The latter covers price creation and the execution and settlement of trades (see Market Supervision).

The domestic stock exchanges supervised by FINMA are SIX Swiss Exchange AG, SIX Structured Products Exchange AG and Eurex Zürich AG.

Foreign stock exchanges

Stock exchanges organised under foreign law must seek authorisation from FINMA if they wish to provide securities firms in Switzerland with access to their institutions. Recognition requires supervision by the competent foreign authorities, which must also grant permission for cross-border activity and be in a position to provide administrative assistance.

Institutions similar to stock exchanges

Insitutions similar to stock exchanges are a major feature of today's markets. They fall wholly or partially under the scope of the law to the extent that this is justified by the objectives of the law, these being: investor protection, transparency, equal treatment and protection of functioning. Supervision under the law may not, however, be deemed necessary. FINMA has been granted considerable discretion and the greatest possible flexibility in deciding whether bodies similar to stock exchanges fall within its remit. This means that, where modern trading systems require it, they can be appropriately supervised and monitored. This enables suitable and tailored regulation of platforms which would be regulated as alternative trading systems (ATSs) in the US or multilateral trading facilities (MTFs) under MiFID.

BX Berne eXchange has been authorized as an institution similar to a stock exchange. The degree of structure and organisation at BX is not equivalent to that of a stock exchange, so full regulation is not appropriate. The International Capital Market Association (ICMA) is mainly active in bond trading. In view of its stock-exchange-like structure, it too is subject to supervision by FINMA.as an institution similar to a stock exchange. The ICMA is mainly active in international bond trading.

Payment and securities settlement systems

The Swiss National Bank (SNB) and FINMA are jointly responsible for the oversight and supervision of payment and securities settlement systems. Based on Art. 19 of the National Bank Act (NBA), the SNB is responsible for overseeing payment and securities settlement systems, focusing primarily on systems that are of importance to the stability of the Swiss financial system.FINMA can subject the operator of a payment and securities settlement system to the Swiss Banking Act (BA) or the Stock Exchange Act (SESTA) and issue a banking or securities dealing licence (Art. 1b BA, Art. 10b SESTA). As far as the division of supervisory functions is concerned, the SNB is responsible for overseeing the system itself, while FINMA is responsible for supervising the system operators. FINMA has licensed SIX SIS AG as a bank. It is the operator of the SECOM securities settlement system and central depository for Swiss securities. SECOM must also comply with the requirements of the National Bank Ordinance (NBO) and is supervised by the SNB.

A Central Counterparty (CCP) also qualifies as a securities settlement system. The most important function of a CCP is to eliminate counterparty risk by assuming the payment and delivery obligations of the buyer and seller of a securities transaction. The only CCP domiciled in Switzerland at present is SIX x-clear AG which acts as CCP for its participants on the SIX Swiss Exchange to trade in equities, bonds and exchange traded funds. However, SIX x-clear also offers its services on European stock exchanges and alternative trading platforms. On the basis of the aforementioned legislation, SIX x-clear AG is supervised by the SNB and FINMA.

Major foreign CCPs also offer their services in Switzerland. UK-based LCH.Clearnet Limited provides services to the SIX Swiss Exchange, while Germany’s Eurex Clearing AG is used by the trading parties of the derivatives exchange Eurex. Although they are not domiciled in Switzerland, these providers and their securities settlement systems are relevant to the Swiss financial system and have been classified accordingly by the SNB. SNB and FINMA rely on the regulators in the countries of origin to ensure adequate supervision.

The operators of securities settlement systems are also subject to internationally recognised minimum standards, notably the "Recommendations for Securities Settlement Systems" and the "Recommendations for Central Counterparties" developed and published by the International Organization of Securities Commissions (IOSCO) and the Committee on Payment and Settlement Systems (CPSS) of the Bank for International Settlements (BIS) in 1999 and 2004 respectively. The CPSS and IOSCO jointly published the "Principles for Financial Market Infrastructures" in April 2012. These will be implemented in national legislation in the coming years.