SWITZERLAND Law and Practice Contributed by: Olivier Favre and Tarek Houdrouge, Schellenberg Wittmer Ltd
A spot transaction is a transaction that is settled within two trading days (T+2) of the trade date or within the longer settlement period that is customary for such transaction. A transaction does not qualify as a spot transaction where the parties provide for a postponement of the delivery of the underlying asset that is longer than two days or, if longer, the custom - ary settlement period for the assets concerned (one settlement cycle). However, if there is no customary settlement period for a specific product, the ques - tion may arise how to distinguish a spot transaction from a forward contract. In the event that the parties determine a settlement date that is not the shortest possible settlement date, the transaction is likely not to be qualified as a spot transaction but as a forward transaction (ie, a derivative for the purposes of the FinMIA). A transaction for the sale and purchase of securities in any currency that settles within one settlement cycle of the securities transaction (securities conversion transaction) is also viewed as a spot transaction. This raises the questions: (i) whether this also applies to foreign exchange transactions entered into separately from the securities transaction and, if so; (ii) whether there is a maximum time limit for the settlement cycle that would have to be complied with to fall into the scope of this exemption. On the basis that securities conversion transactions qualify as spot transactions in the sense of Article 10 (2)(c) MiFID II Delegated Regulation (ie, they are settled within the customary settlement cycle for the underly - ing securities transactions, which is not longer than T+5), the Swiss analysis should be that such transac - tions should also be classified as spot transactions for the purposes of the FinMIA. Regarding the cap of five trading days, while this is not addressed in the Swiss rules, the authors believe it is advisable to stay within the limit set by the EU regulation as a “safe harbour” in order for the transactions not to be classified as derivatives for the purposes of the FinMIA. Rolling spot transactions are permitted in Switzerland and qualify, depending on their structure, either as spot transactions or as derivatives for the purposes of the FinMIA. To the extent spot transactions do not include an enforceable obligation to extend the trans -
action (ie, if the parties can decide freely whether or not they wish to roll over the economic terms of a spot transaction) and provided further that such extension of the spot transaction is not the normal market prac - tice between the parties, such transaction would be treated as a spot transaction. However, if the parties are obliged to roll a spot transaction or if such exten - sion of a spot transaction is the normal market prac - tice, such transaction would be qualified as a deriva - tive for the purposes of the FinMIA. Exempted Transactions Under the Swiss rules, the following types of transac - tions are exempt from the derivatives regulation: • physically settled commodity derivatives, except if they are traded on a regulated exchange, on a multilateral trading facility or on an organised trad - ing facility; • physically settled commodity derivatives on power or natural gas as underlyings traded on an organ - ised trading facility; and • derivatives regarding freight, inflation rates, climatic variables or official economic statistics that are cash-settled only upon default or termination. Other transactions are only exempt from certain obli - gations, as follows: • ETDs are only subject to a reporting obligation, but not to other obligations of the derivatives regulation resulting from the FinMIA. • Physically settled FX forwards and swaps, where the confirmation specifies that the transactions will be physically settled (however, the calculation should include cash-settled FX forwards (ie, NDFs) and swaps, FX options and currency swaps), are only subject to a reporting obligation, but not to other obligations of the derivatives regulation resulting from the FinMIA. • Currency swaps, which combine a swap of curren - cies and an interest rate derivative, are not subject to the initial margin requirement for the FX compo - nent. • Options on single names or baskets of equities as underlyings and equity index options benefit from a temporary exemption from the variation and initial margin requirements that is currently in place until
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