SWITZERLAND Law and Practice Contributed by: Olivier Favre and Tarek Houdrouge, Schellenberg Wittmer Ltd
2.5 Asset Classes Swiss law does not restrict any particular asset class as an underlying of a derivatives transaction. However, certain exemptions from regulatory require - ments apply with respect to some types of asset classes (see 2.6 Exemptions, Non-Derivative Prod- ucts and Spot Transactions ). To the extent that derivatives transactions are not traded as transactions in the inter-dealer market, but are traded with a client as a financial service like any other financial instrument, the relevant point-of-sale obligations resulting from the FinSA must be complied with. As regards such point-of-sale obligations, FINMA introduced additional risk disclosure requirements in connection with complex products offered to retail cli - ents such as contracts for differences (CFDs). When disclosing the risks associated with financial instru - ments, the provider must inform its clients of: • the proportion of clients who lose money in con - nection with CFDs; • the potential obligation to make additional pay - ments and the risk of unlimited losses; and • leverage and margin rules, as well as counterparty and market risk. New types of asset classes that are emerging in Swit - zerland include derivatives on cryptocurrencies and other digital assets as underlyings, derivatives on verified carbon credits (VCCs) and equity derivatives used in the context of complex equity financing trans - actions (eg, in the context of an accelerated share buy-back). 2.6 Exemptions, Non-Derivative Products and Spot Transactions Non-Derivative Products and Spot Transactions From a Swiss perspective, a derivative is defined as a financial contract (i) with a value depending on one or more underlying; and (ii) that is not a spot transaction. With regards to (i) having a value depending on an underlying:
Swiss law does not provide for an exhaustive list of underlying assets or values of a derivative. While the Ordinance to the FinMIA (the “FinMIO”) mentions shares, bonds, commodities and bullion as underly - ing assets as well as currencies, and interest rates and indices as underlying values, these are only examples. A contract referencing other assets or values that will be used to determine the value of the contract (eg, economic statistics, inflation rates or climatic varia - bles) is also considered a derivative for the purposes of the FinMIA. For the purposes of classifying a contract as a deriva - tive under the FinMIA, it is a requirement that the value of the contract directly or indirectly depends on the price of the underlying asset. Therefore, the reference to the value of the underlying must result from the terms and conditions of the financial contract. It is not sufficient that the value is derived from an asset pool. As a result, asset-backed securities or collater - alised loan obligations do not qualify as derivatives for the purposes of the FinMIA. In addition, shares in an investment company investing in underlying assets are also not classified as derivatives for the purposes of the FinMIA. Any instrument issued in the form of a certified or uncertified security would not be classified as a derivative in the sense of the FinMIA, even if its value is directly or indirectly dependent on the price of an underlying asset. For instance, any structured prod - ucts issued in securitised form would not be viewed as a derivative. Moreover, the definition of derivatives for the purposes of Swiss law does not include instruments, where a derivative is only an embedded element, but the pri - mary purpose of the contract is different (eg, stock options forming part of a stock option plan paid as compensation under an employment agreement or put/call options embedded in a shareholders’ agree - ment). To be classified as a derivative for the purposes of the FinMIA, the main contractual obligations of the parties must depend on the value of the underlying assets or values. With regards to (ii) not being a spot transaction:
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