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Stock Exchange Supervision

Stock exchanges and securities firms have been subject to regulation and required a licence since the Stock Exchange Act (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

The overall supervision of domestic stock exchanges by FINMA mainly relates to granting operating licences and approving stock exchange rule books. It also covers ongoing monitoring by means of audits.

Under the self-regulatory powers granted to them, stock exchanges must be organised in such a way as to ensure they can provide operational, administrative and monitoring functions that are appropriate to their activities. This includes adequate organisation for trading, regulating the authorisation of securities firms 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, plus Scoach and Eurex, which are both joint ventures between SIX Group and Deutsche Börse 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 remote electronic 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.

Bodies similar to stock exchanges

Bodies similar to stock exchanges are a main 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. Application of the law may not be necessary, however. FINMA has been granted considerable discretion and the greatest possible flexibility in assessing whether bodies similar to stock exchanges come within its ambit. Where modern trading systems require it, they may be appropriately subject to the law and monitored. This allows suitable and tailored regulation of alternative trading systems (ATSs) and multilateral trading facilities under MiFID (MTFs).

FINMA partially regulates the International Capital Market Association (ICMA), which has its headquarters in Zurich, as a body similar to a stock exchange. The ICMA has a stock-exchange-type structure and is mainly active in international bond trading. It provides its members with a rule book for processing international trading in bonds.

BX Berne eXchange is also subject to FINMA regulation as a body 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.

Payment and securities settlement systems

The Swiss National Bank (SNB) and FINMA are jointly in charge of 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. Furthermore, FINMA might grant to the operator of a payment and securities settlement system under the Swiss Banking Act or the Stock Exchange Act a banking licence or securities dealer licence (Art. 1bis BankA, Art. 10bis SESTA). As to the division of supervisory functions, the SNB is responsible for the oversight of the system and FINMA is responsible for the prudential supervision of the system operator, thus guaranteeing complete regulatory oversight and supervision by the Swiss Authorities.

The Central Counterparty (CCP) qualifies as a securities settlement system. The key function of a CCP is to eliminate counterparty risk by assuming the respective payment and delivery obligations of the buyer and seller. The only CCP domiciled in Switzerland at present is SIX x-clear AG, one of SIX Group AG’s group companies. SIX x-clear AG acts as CCP for its participants on the SIX Swiss Exchange for trading in equities and exchange traded funds. SIX x-clear offers its services as competitive clearer as well as on European stock exchanges and on alternative trading platforms. SIX x-clear AG is supervised on the basis of the aforementioned legal acts by the SNB and FINMA.

Important foreign CCPs also offer their services in Switzerland. UK-based LCH. Clearnet Limited provides services to the SIX Swiss Exchange, and Germany’s Eurex Clearing AG is used by the trading parties of the derivatives exchange Eurex (as at mid-2009). 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. In granting authorisation for the Swiss financial market, both the SNB and FINMA rely on the regulators in the countries of origin for adequate supervision of these organisations.

The operators of securities settlement systems are also subject to internationally recognised minimum standards, notably the "Recommendations for Securities Settlement Systems" and, as the case may be, the "Recommendations for Central Counterparties". These two sets of standards were 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 in 2004 respectively. Swiss-based SIX x-clear AG was assessed against the "Recommendations for Central Counterparties", see.