After the Swiss parliament passed into law the Federal Act on Financial Market Infrastructures ("FMIA") on 19 June 2015, the Federal Department of Finance, the Swiss Financial Markets Authority FINMA and the Swiss National Bank opened a consultation on three ordinances implementing the FMIA. The consultation closed 2 October 2015 and we expect the FMIA together with its implementing ordinances to enter into force on 1 January 2016 subject to the phasing-in of specific obligations. This briefing expands our more general briefing on Derivative Trading under the FMIA by focusing on the impact of the FMIA on foreign financial institutions and market counterparties with a special focuses on the impact of FMIA on foreign entities.
In the wake of the Dodd-Frank Act in the United States and EMIR, MiFID II and CSDR in the European Union, the FMIA seeks, on the one hand, to put in place a dedicated regulatory framework for financial market infrastructures, a broad concept encompassing stock exchanges, multilateral trading venues and organized trading venues, central depositories, central counterparties, payment systems and trade repositories and, on the other hand, to regulate market conduct in securities and derivatives trading.
The main novelty for market participants and the focus of this client briefing will be the rules on derivatives trading. In this context, the FMIA provides for three duties:
clearing requirements: OTC derivative trades among counterparties that are not small need to be cleared through an authorized or recognized central counterparty (CCP); reporting obligations: counterparties are required to report their trades in OTC and exchange traded derivatives to a trade repository on the business day following the trade; risk mitigation obligations: non-cleared OTC derivatives are be subject to risk mitigation requirements, including requirements regarding timely confirmation, portfolio reconciliation, portfolio compression, mark-to-market valuation and margining. Furthermore, the FMIA lays the legal foundation to introduce an obligation to trade certain designated derivatives on trading platforms and to introduce position limits on commodities. These last two duties, however, will probably not enter into force before an international consensus emerges on their implementation, which does not seem likely in the immediate future.
As a matter of principle, the FMIA applies only to entities with a seat in Switzerland, including their foreign branches, as...