Financial market infrastructure
Systemically important financial market infrastructures in Switzerland
The Swiss Interbank Clearing (SIC) payment system
Swiss Interbank Clearing (SIC) is the central electronic Swiss payment system, in which the participating financial institutions process their large-value payments as well as a part of their retail payments in Swiss francs. It is operated on behalf of the Swiss National Bank (SNB) by SIX Interbank Clearing Ltd. SIC also has a key role to play in the implementation of the SNB’s monetary policy.
The SIX SIS central securities depository and the SECOM securities settlement system
As one of the key elements in Switzerland’s financial market infrastructure, the SECOM securities settlement system, which is operated by the SIX SIS Ltd central securities depository, provides for the custody and settlement of tradable financial instruments in Switzerland. Financial market transactions concluded at SIX Swiss Exchange – the Swiss stock exchange – can be settled fully automatically through SECOM, i.e. without any manual intervention. This contributes to the low-cost, low-risk integration of trading, clearing and settlement. The custody and settlement of financial instruments entails various risks, both for the service provider and for their users. The organisation and design of SECOM ensure that custody and settlement risks are minimised or eliminated as far as possible.
SIX x-clear, the central counterparty
When a trade is concluded on a trading platform, a central counterparty acts as intermediary between the trading partners. In so doing, it takes on the obligations incurred by the trading partners and guarantees the fulfilment of the obligations. In addition, a central counterparty keeps account of, sets values for and offsets the trading positions. On the settlement date, it initiates the settlement of the delivery and payment obligations. SIX x-clear Ltd takes on these tasks for shares, exchange-traded funds (ETFs) and bonds traded on SIX Swiss Exchange (SSX) and on the London Stock Exchange (LSE). It also offers its clearing services on various multilateral trading facilities (MTFs). SIX x-clear is interoperable with central counterparties LCH.Clearnet Ltd and EuroCCP N.V.
Foreign systemically important financial market infrastructures
Continuous Linked Settlement (CLS), the foreign exchange settlement system
Continuous Linked Settlement (CLS) is an international payment system through which foreign exchange transactions in 17 currencies can be settled. By using a payment-versus-payment mechanism, CLS eliminates the settlement risk inherent in the settlement of currency transactions via correspondent banks. Given the substantial transaction volumes on the global foreign exchange market, CLS, by virtue of its risk-reducing settlement mechanism, makes a significant contribution to the stability of the global financial system.
LCH.Clearnet Ltd is part of LCH.Clearnet Group, which is majority-owned by the London Stock Exchange (LSE). LCH.Clearnet Ltd is one of Europe’s leading central counterparties. Its activities include clearing share trades and ETF transactions for the London Stock Exchange (LSE), SIX Swiss Exchange, BATS Chi-X Europe and Equiduct.
Eurex Clearing AG
Eurex Clearing AG is owned by Deutsche Börse Ltd and is one of Europe’s leading central counterparties. For the Swiss financial market, Eurex Clearing’s activity as central counterparty for the Eurex stock exchange is important; this exchange is used for trading, among other things, derivatives based on underlying Swiss assets.
Retail payments include payments for the purchase of goods and services. Such payments are usually for small amounts and not urgent, and account for the lion’s share of all the payments processed in an economy. Another characteristic of retail payments is that a variety of different payment instruments can be used, and that a number of banks and non-banks are involved in the provision of payment instruments and the processing of payments. By contrast, large-value payments between financial market participants tend to be urgent and time-critical, and are usually settled through central banks’ real-time gross settlement systems. Although large-value payments make up a small proportion of the total number of payments in an economy, they vastly exceed retail payments in terms of the amounts involved.
The SNB’s system oversight mandate also covers retail payments, albeit with a different focus compared to its oversight of systemically important financial market infrastructures. Participants in retail payments are subject to a duty to provide statistical information and – depending on their importance – an obligation of disclosure to the SNB. In the area of retail payments, the SNB focuses mainly on monitoring for the early identification of relevant developments and possible hazards.
Payment card systems
Payment cards are one of the payment instruments used in retail payments, and allow cashless payments at the point of sale. In broad terms, they can be divided into three categories: pay later (credit cards), pay now (debit cards) and pay before (prepaid cards). In addition to consumers and merchants, there are two other groups that are involved in payment card systems: issuers (the companies that issue the cards) and acquirers (the companies that recruit merchants). The coordination of all the parties involved is multi-layered and complex, not least because payment card systems are two-sided markets, which are governed by laws of economics that differ considerably from those governing conventional goods markets.
Swiss value chain: integration of systems
The Swiss value chain allows the complete electronic integration of securities trading, clearing and settlement. This ensures efficient and safe settlement of securities transactions according to the delivery-versus-payment principle, thereby eliminating settlement risk. The Swiss value chain consists of four elements: (1) the electronic trading platforms SIX Swiss Exchange (securities and structured products), SIX Repo AG (repo) and Eurex (derivatives); (2) the central counterparties SIX x-clear, London Clearing House (LCH) and Eurex Clearing; (3) the securities settlement system SECOM; and (4) the payment systems Swiss Interbank Clearing (SIC) and euroSIC. The individual systems of the Swiss value chain are joint enterprises of the Swiss financial marketplace and are owned by Swiss financial intermediaries (except for Eurex, which is owned by Deutsche Börse Ltd; Eurex Clearing is, in turn, a subsidiary of Eurex).