SWITZERLAND Law and Practice Contributed by: Lukas Morscher and Lukas Staub, Lenz & Staehelin
trading of digital assets (see 6.1 Permissible Trading Platforms ). 6.7 Rules of Payment for Order Flow The rules on best execution (see 3.3 Issues Relating to Best Execution of Customer Trades ) as well as the general principles on fees apply (see 2.3 Compensa- tion Models ). 6.8 Market Integrity Principles The FMIA is designed to ensure the transparency and proper functioning of the securities markets, and stipulates two types of market abuse, which are described in the following. Insider Trading The use of insider information is unlawful if the person knows or should know that it is insider information and such person: • exploits it to buy or sell securities admitted to trading on a trading venue in Switzerland or to use financial instruments derived from such securities; • discloses it to another person; or • exploits it to recommend to another person the acquisition or sale of securities admitted to trading on a trading venue in Switzerland or to use finan - cial instruments derived from such securities. Market Manipulation It is unlawful to publicly disseminate information, or to carry out transactions or give buy or sell orders, if the person knows or should know that such behaviour gives false or misleading signals regarding the supply, demand or price of securities admitted to trading on a trading venue in Switzerland. In addition, most FINMA-supervised institutions must also meet certain organisational requirements regard - ing market integrity, which FINMA has detailed in its Circular 2013/8 Market Conduct Rules. The require - ments include: • investigating trades that may involve unlawful mar - ket behaviour (if there are clear indications of this); • handling insider information in a way that prevents unlawful market behaviour and enables its detec - tion; and
• ensuring that people who decide on securities and/or derivative transactions do not have access to insider information and monitoring employee transactions. Note that Circular 2013/8 in principle also applies to markets where the FMIA rules on insider trading and market manipulation do not apply (eg, trading outside of stock exchanges, including in tokens). 7. High-Frequency and Algorithmic Trading 7.1 Creation and Usage Regulations Algorithmic trading is based on computer algorithms that automatically determine the triggering and indi - vidual parameters of an order (such as time, price or quantity). High-frequency trading is an extension of algorithmic trading, having very low delays in order transmission and, usually, a short-term trading strat - egy. Its distinctive feature is a high number of order entries, changes or deletions within microseconds. The FMIA and the related Financial Market Infrastruc - ture Ordinance (FMIO) have introduced measures to address certain negative effects of algorithmic trad - ing and high-frequency trading. The regulation follows international standards and is based on EU law. Specifically, stock exchanges, multilateral trading systems and organised trading systems must ensure orderly trading. In particular, they must ensure that their trading systems are in a position to temporarily suspend or restrict trading if there is a significant price movement in the short term as a result of an effect on this market or a neighbouring market (so-called circuit breakers). It must also be possible to identify orders generated by algorithmic trading. In addition, traders who engage in algorithmic trad - ing and high-frequency trading are subject to various obligations. In particular, they must ensure their sys - tems cause no disruption to the trading venue and are subject to appropriate testing of algorithms and con - trol mechanisms. Furthermore, certain transparency requirements apply (see 7.2 Requirement to Register as Market Makers When Functioning in a Principal
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