The Federal Act on Financial Market Infrastructures has introduced a new regulatory framework for over-the-counter (OTC) derivatives transactions. In line with recognised international standards (in particular, the European Market Infrastructure Regulation), the Federal Council and the Swiss Financial Market Supervisory Authority (FINMA) have recently published draft versions of their implementing rules (ie, the Financial Market Infrastructure Ordinance and the FINMA Financial Market Infrastructure Ordinance), which regulate the clearing obligation in more detail and define the criteria according to which derivatives are subject to a clearing obligation. The clearing obligation is expected to enter into force in 2016.
Like the European Market Infrastructure Regulation, the Federal Act on Financial Market Infrastructure identifies two categories of counterparty to which the clearing obligation applies:
financial counterparties; and non-financial counterparties. The following are considered to be financial counterparties:
banks; securities dealers; insurers and reinsurers; parent companies of a financial or insurance group or conglomerate; entities regulated pursuant the Federal Act on Collective Investment Schemes (including collective investment schemes); and pension funds and investment foundations. Non-financial counterparties are all other legal entities that do not qualify as financial counterparties - such as industrial, commercial and service enterprises. Foreign corporations (including trusts or similar constructs) are covered insofar as they qualify as legal entities according the applicable law.
Financial counterparties with low derivatives positions and non-financial counterparties with low speculative (non-hedging) derivatives positions are exempt from the clearing obligation if certain clearing thresholds are not exceeded. In this case, they are considered to be small counterparties. Transactions that reduce risks directly relating to the commercial activity or treasury financing activity are considered to be hedging derivatives - for example, if they:
cover the risks arising from the potential change in the value of assets and liabilities and the indirect impact on the value of assets, services or products resulting from fluctuations in interest rates, foreign exchange rates or credit rates; or qualify as a hedging contract pursuant to the International Financial Reporting Standards. A...