211/98
17 December 1998
SWISS EXCHANGE GETS RECOGNITION
The Swiss Exchange will be able to provide direct access to UK firms to its screen-based trading system following its recognition as an Overseas Investment Exchange by the Treasury, the Economic Secretary Patricia Hewitt announced today.
The Exchange has satisfied the conditions under Sections 37 and 40 of the Financial Services Act 1986 to be recognised as an Overseas Investment Exchange. UK firms, through remote membership, will be able to access the exchange directly through the use of terminals here in London.
Announcing the decision Ms Hewitt said:
"Dealing in Swiss securities will become more convenient, and more business should be routed through London. UK investors should benefit from greater choice and lower transactions costs, while both the markets and investors will benefit from increased competition through improved efficiency and innovation, and a strengthening of the UK's financial services industry. Greater liquidity and depth will also reinforce London's position as one of the world's top international financial centres.
"More overseas exchanges do business in the UK than in any other country. London offers a wide range of choice for internationally mobile financial services firms, making it extremely attractive for them to base their operations here."
NOTES TO EDITORS
1. Recognition as an "overseas investment exchange" under sections 37 and 40 of the Financial Services Act 1986 means that the exchange may carry out investment business in the UK. As far as the Swiss Exchange is concerned, this will involve installing screen-based trading terminals giving UK firms access to the exchange, and establishing a physical presence in the UK. Remote members of the Swiss Exchange based in London will have access to trading terminals in their offices. The Swiss Exchange intends to have screens in place by the spring of next year.
2. Recognition allows overseas exchanges to compete on equal terms with domestic exchanges, promoting greater efficiency and innovation to the benefit of all, including consumers and the UK's financial services industry. Recognition should lead to more trade in Swiss securities taking place in London, should provide UK investors with greater choice and lower transactions costs, and should provide the marketplace with greater liquidity and depth. This will reinforce London's position as one of the world's top financial centres.
3. The Chicago Mercantile Exchange, the Chicago Board of Trade, the NASDAQ, the New York Mercantile Exchange, Delta and the Sydney Futures Exchange. Under the EU Investment Services Directive, all investment exchanges in the EU (except commodity exchanges) do not need to be recognised in order to carry out investment business in the UK. There are now more overseas exchanges doing investment business in the UK than in any other country. London offers a wide range of choice for internationally mobile financial services firms, making it extremely attractive for them to base their operations here.
4. Criteria for the recognition of overseas exchanges are laid down in sections 40 and 119 of the Financial Services Act 1986. In summary, the main criteria are:
- that the Exchange is subject to regulation and supervision in its home country, which, together with its own rules and practices, affords UK investors protection at least as good as that provided by UK regulatory arrangements relating to UK exchanges;
- the Exchange is able and willing to cooperate by sharing information and otherwise with the UK authorities, and that adequate arrangements for such cooperation exist between the relevant national authorities;
- that none of the rules, guidance and clearing arrangements have significantly anti-competitive effects, or if they do, that these effects are no greater than is necessary to protect investors. The Director General of the Office of Fair trading advises HM Treasury on this point.
5. The Swiss Exchange applied for recognition on 11 May 1998. The report of the Director-General of Fair Trading was received on 10 December 1998.
6. Overseas exchanges are regulated primarily by their home state regulatory authorities. The Swiss Exchange is regulated by the Swiss Federal Banking Commission (SFBC). In addition, the Swiss Exchange has its own internal surveillance, monitoring, and regulatory systems. Before being recognised, the Treasury must be satisfied that an applicant exchange is subject to supervision, which together with its rules and practices, protects investors to the same standards as those provided in the UK by domestic exchanges. Once recognised, an exchange is required to provide the Treasury with regular information on changes to its rules and practices so that the Treasury and Office of Fair Trading remain satisfied that the recognition criteria continue to be met. The Treasury and Swiss regulatory authorities have confirmed that they are willing and able to exchange regulatory information.
7. A wide range of criteria are examined to determine whether investor protection is satisfactory, as set out in the 1986 Financial Services Act. The exchange must have financial resources sufficient for the proper performance of its functions. The rules and practices of the exchange must ensure that business is conducted in an orderly manner. The exchange must limit dealings to investments where there is an orderly market. Proper information must be provided to market participants to ensure that prices are fair. Clearing arrangements must guarantee transactions in the event of default. Transactions must be recorded, and the exchange must have adequate arrangements and resources to ensure compliance with its rules. We must be satisfied that these rules do not allow for any anti-competitive practices. In addition, the Swiss authorities will regulate the activities of the exchange, and arrangements are in place to provide for the exchange of information between the Swiss and UK authorities.