SWITZERLAND Law and Practice Contributed by: Olivier Favre and Tarek Houdrouge, Schellenberg Wittmer Ltd
1. General 1.1 Overview of Derivatives Markets Segments of the Swiss Derivatives Market The Swiss derivatives market can be divided into the following segments: • OTC derivatives – the OTC derivatives market consists of Swiss derivatives dealers trading OTC derivatives with other Swiss or international dealers in the inter-dealer market as well as transactions entered into between a Swiss dealer and end- users. The end-users may be corporations using derivatives for their hedging, investment or treasury management purposes or investors using deriva - tives for hedging or investment purposes. OTC derivatives may be cleared or uncleared products. However, there is no Swiss clearing house provid - ing clearing services for OTC derivatives. • Exchange-traded derivatives (ETDs) – the Swiss ETD market involves Swiss banks acting as clear - ing brokers or clients of clearing brokers providing Swiss end-users with access to the clearing ser - vices of a central counterparty (CCP) of the rel - evant exchange where the ETDs are traded. There is no Swiss ETD exchange or Swiss CCP for ETDs. For this reason, the Swiss parties involved in the clearing chains always access the clearing services provided by foreign CCPs. • Structured products – these are usually issued under a programme for such products. To the extent that the products may be sold to retail investors, they must be issued or guaranteed by a regulated issuer (ie, a bank, a securities house or an insurer) or the products must be fully collater - alised. The products have an international securi - ties identification number (ISIN) and are issued as securities. The pay-out of the products references an underlying asset and such products therefore have the economics of a derivative, but they are issued in securitised form. Such structured prod - ucts may be listed on a Swiss regulated exchange (eg, SIX Swiss Exchange). Structured products may be used, for instance, to have exposure to a new asset class of underlyings such as digital assets, but in the form of traditional securities (eg, through exchange-traded products (ETPs), which are products listed on a Swiss regulated exchange
that are secured by liquid assets or through tracker certificates on such underlyings that may or may not be secured by collateral). Applicable Regulatory Requirements OTC derivatives OTC derivatives are subject to the Swiss regulation of derivatives under the Swiss Financial Market Infra - structure Act of 19 June 2015 (“FinMIA”). These regu - latory requirements are the Swiss equivalent of the European Market Infrastructure Regulation (EMIR) and include: • a reporting obligation for all such derivatives transactions other than transactions entered into between small non-financial counterparties; • a clearing obligation for certain types of OTC derivatives (including some interest-rate derivatives and credit derivatives on indices as underlyings), except if they are entered into with a small financial or a small non-financial counterparty; and • risk mitigation obligations for uncleared derivatives – including: (a) variation margin requirements for any transac - tions other than those entered into with a small non-financial counterparty; (b) initial margin requirements for financial coun - terparties and large non-financial counterpar - ties crossing a threshold of CHF8 billion in aggregated average notional amounts; (c) the obligation to agree to portfolio reconcilia - tion and dispute resolution (PRDR) processes and, to the extent the transaction is entered into with a counterparty other than a small non-financial counterparty, perform portfolio reconciliations; (d) the obligation to perform portfolio compres - sions in trading relationships that include more than 500 transactions; and (e) the obligation for any counterparty other than a small financial or small non-financial counter - party to value transactions. Under the rules of the FinMIA, financial counterpar - ties are regulated banks, securities firms, insurance and reinsurance companies, holding companies of financial or insurance groups, managers of collective investment schemes, fund management companies,
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