At a Glance: Derivative Clearing, Exchange Trading and Collateral in Switzerland

Types of operations

Clearing Transactions

What categories of equity derivative transactions should be centrally cleared and what rules govern the clearing?

According to the rules of the Federal Law on Financial Market Infrastructure (LIMF), equity derivatives do not fall under the clearing obligation.

stock market trading

What categories of equity derivatives should be traded on an exchange and what rules govern trading?

According to FMIA rules, equity derivatives do not fall within the scope of an obligation to trade on the platform.

Guarantee agreements

Describe common collateral arrangements for listed, cleared and uncleared equity derivative transactions.

Regarding ETDs and cleared equity derivatives:

  • Currently, no Swiss CCP clears equity derivatives. The clearing chain is therefore engaged, at the level of the CCP, with a foreign entity subject to its rules; and
  • Collateral terms between the client and a Swiss broker are generally agreed in the terms and conditions governing ETDs and cleared equity derivatives.

Regarding non-cleared OTC equity derivatives:

  • collateral agreements are agreed with the relevant counterparty on a bilateral basis;
  • to the extent the parties are subject to regulatory margin requirements, the parties may use the market standard document for the exchange of variation margin (e.g. an ISDA 2016 VM Credit Support Attachment) and, where if applicable, the relevant documentation for the variation margin exchange. initial margin; and
  • as the parties are not subject to regulatory margin requirements, collateral documentation often depends on the context of the business relationship. For example, if it arises from the wealth management business, Swiss dealers may prefer to enter into a pledge agreement for a one-way guarantee providing them with security rather than entering into a credit support document which would provide margin bilateral.

Warranty exchange

Do counterparties have to exchange collateral for certain categories of equity derivative transactions?

To the extent that the parties to the transaction fall within the scope of the bilateral margin requirement under the FMIA (i.e. if they are FC or NFC+), they must exchange collateral in the commercial relationship (obligation to exchange variation margin, and, if they cross the relevant thresholds, initial margin).

ETDs and cleared equity derivatives that are cleared at a CCP approved by the Swiss Financial Market Supervisory Authority do not fall under these requirements.

With regard to the scope of the product for uncleared equity derivatives, an exemption applies to options on individual stocks, on baskets of stocks or options on stock indices. For these exempted products, the variation exchange and initial margin requirement has been deferred until January 1, 2024. For all other uncleared equity derivatives, the bilateral margin requirements apply in full.