Financial Market Infrastructure Act


On December 13 2013 the Federal Council presented a first bill for consultation for a new Financial Market Infrastructure Act that will implement both the G20 obligations and the Financial Stability Board's recommendations on over-the-counter (OTC) derivatives trading. The new law also aims to secure EU market access by implementing a regulation that is equivalent to that in the European Union.

The pre-draft Financial Market Infrastructure Act proposes a new legal framework for derivatives transactions and, in particular, imposes clearing, reporting, risk-mitigating and trading obligations not only on regulated financial institutions, but also on all other financial and non-financial entities that enter into derivatives contracts. While a certain level of harmonisation with the European Market Infrastructure Regulation is intended, the act deviates from the regulation on important aspects.

The new act is expected to enter into force in the first half of 2015.

Financial Market Infrastructure Act

The pre-draft act imposes certain obligations on all legal entities domiciled in Switzerland (including their foreign branches) that enter into (ie, are a counterparty to) derivatives contracts.

Small market participants may benefit from certain exemptions under the act if they qualify as either a small financial counterparty or a small non-financial counterparty.

Counterparties are subject to the following four obligations:

  • Clearing obligation – transaction must be cleared through a central counterparty:
    • not applicable if at least one counterparty is a small market participant.
    • applies only to standardised contracts.
    • clearing by a recognised foreign central counterparty is deemed equivalent.
    • intragroup transactions are exempt.
  • Reporting obligation – conclusion, modification and termination of transaction must be reported to a trade repository.
  • Risk mitigation obligation:
    • risk mitigation measures must be taken – not applicable if clearing obligation applies.
    • parties must exchange adequate collateral – small market participants are exempt.
    • value of outstanding contract must be marked-to-market on a daily basis – small non-financial market participants and intragroup transactions are exempt.
  • Obligation to trade over a platform – derivatives must be traded over a recognised platform. Will not become effective before such an obligation exists under EU regulation.

Small market participants

The pre-draft act divides counterparties into two categories:

  • financial counterparties; and
  • non-financial counterparties.

The distinction plays a role insofar as a small market participant is defined differently for each category. Small market participants are exempt from certain obligations under the act.

Small financial counterparties
The following legal entities are considered to be financial counterparties:

  • banks, securities traders, insurance and reinsurance companies and parent companies of a financial or insurance group;
  • entities regulated pursuant to the Federal Collective Investment Schemes Act (including, among others, fund managers and asset managers of collective investment schemes); and
  • pension funds and investment foundations pursuant to the Federal Law on Occupational Retirement.

A financial counterparty qualifies as a small financial counterparty if it enters into OTC derivatives contracts with the sole purpose of hedging risks resulting from mortgage transactions directly entered into with its clients, provided that the rolling average gross position of such an OTC derivatives transaction is below a certain threshold.

Small non-financial counterparties
All other legal entities are considered non-financial counterparties (eg, industrial, commercial and service enterprises).

A non-financial counterparty qualifies as a small non-financial counterparty if its outstanding OTC derivatives contracts have a rolling average gross position below a defined threshold. Derivatives transactions for the purpose of reducing risks (hedging) are not included in the calculation of positions if they are directly connected to the business activity or the liquidity or financial management of the relevant counterparty or group.

Relevant thresholds
The level of the relevant thresholds and calculation methods will be determined by the Federal Council in one of its ordinances for each derivatives category separately. A threshold is not deemed to be met if the relevant level has not been reached during a 30-day period, provided that the level has not been exceeded in the four preceding months. Positions of fully consolidated group entities are to be aggregated. The threshold is deemed to be exceeded if the rolling average gross position is above the threshold over 30 consecutive days. If the threshold is exceeded, the counterparty will become subject to the relevant obligation with regard to all derivatives contracts of any category.

It remains to be seen whether the Federal Council sets the relevant thresholds at EU level, which is set at:

  • €1 billion for credit and equity derivatives; and
  • €3 billion for interest rates, foreign exchange and commodity derivatives.

While there is uncertainty in this regard, counterparties may make preliminary assessments on the basis of the EU thresholds, since it is unlikely that the thresholds for Switzerland will be higher than those applicable under the EU regulation.


The pre-draft act imposes four obligations on counterparties.

Clearing obligation
The Swiss Financial Market Supervisory Authority (FINMA) will specify the types of derivative that are subject to the clearing obligation (a certain degree of standardisation and liquidity will be required). Such derivatives contracts must be cleared through a central counterparty authorised or recognised by FINMA. In contrast to the European Market Infrastructure Regulation, the clearing obligation also applies to derivatives contracts traded over a stock exchange.

The clearing obligation applies if both parties to the derivatives contract are counterparties. In cross-border transactions, the foreign party to the derivatives contract is also considered as a counterparty if it is subject to the clearing obligation and domiciled in Switzerland.

The clearing obligation does not apply if at least one party to the derivatives contract is either a small financial or small non-financial counterparty. Further, the clearing obligation is deemed to be fulfilled if clearing is affected by a central counterparty that is subject to foreign regulations which have been recognised by FINMA. Finally, intragroup transactions are exempt from the clearing obligation if, among other things, both counterparties are subject to the same full consolidation.

Counterparties have access to a central counterparty if they are direct clearing members or if indirect access to the central counterparty is granted to them through the direct clearing members.

Reporting obligation
Counterparties and central counterparties must report the details of a derivatives contract on conclusion, modification or termination of the contract to a trade repository authorised or recognised by FINMA. The information is collected by the trade repository and published in an anonymised form.

The reporting obligation applies to all counterparties and central counterparties. Intragroup transactions are not exempt from the reporting obligation. The reports shall specify at least the parties to the contract (as opposed to the European Market Infrastructure Regulation, not the beneficiary), as well as the main characteristics of the contract – including its type, the due date, notional value, price, settlement date and currency. Reporting may be delegated to a third party.

A Swiss counterparty (in particular, a Swiss bank) may be asked by its foreign counterparty which is subject to foreign reporting regulation to report a transaction to a foreign trade repository. While such reporting is generally permitted, no personal data must be reported to the foreign trade repository without the consent of the person involved.

Risk-mitigation obligation
The risk-mitigation obligation applies if the derivatives contracts need not be cleared by a central counterparty (eg, if one party is a small financial or a small non-financial counterparty or in intragroup transactions).

The risk-mitigation obligation is threefold:

  • Mitigating the operational risk – each counterparty must ensure appropriate procedures and arrangements are in place to measure, monitor and mitigate operational risks and counterparty credit risks – including, in particular, timely confirmation of the terms of the relevant derivatives contract and adequate processes to reconcile portfolios, management of associated risk, monitoring value of outstanding contracts and identifying disputes between parties early and resolving them.
  • Valuation of outstanding contracts – each counterparty, except for a small financial or a small non-financial counterparty, must mark-to-market on a daily basis the value of outstanding contracts. Where market conditions prevent marking-to-market, adequate valuation models must be used that are recognised in the industry.
  • Exchange of collateral – each counterparty, except for a small non-financial counterparty, must exchange appropriate collateral (margins) with the other counterparty. Intragroup transactions are exempt, provided that certain requirements are met. Among other things, there must be no burden (neither legal, nor factual) to the immediate transfer of capital or repayment of liabilities by the relevant affiliates – a requirement that may be difficult to fulfil in practice.

Obligation to trade over platform
The pre-draft act provides for an obligation to trade all derivatives that must be cleared by a central counterparty (ie, each transaction that is subject to a clearing obligation) over a platform authorised or recognised by FINMA. However, the obligation to trade over a platform will not become effective before such an obligation has been implemented under the applicable regulation (the EU Markets in Financial Instruments Directive II or the EU Markets in Financial Instruments Regulation).


A violation of any of the four obligations may be punished by a fine of up to:

  • Sfr500,000 in case of intent; or
  • Sfr250,000 in case of negligence.

In addition, regulated counterparties (ie, most financial counterparties) may become subject to enforcement by FINMA in case of a violation of the obligations imposed on them by the act.


Some of the obligations imposed on counterparties do not have to be fulfilled by small market participants. In particular, a small-non financial counterparty has only a reporting obligation and an obligation to mitigate operational risk.

Since the relevant thresholds are still to be determined by the Federal Council, various companies (in particular small and medium-sized firms) cannot yet assess whether they will benefit from the exemptions. However, on the basis of the thresholds applicable under the EU regulation, a rough assessment can be made. Derivatives contracts used for hedging purposes that are directly connected to the business activity or the liquidity or financial management of the relevant counterparty or group can be deducted.

In order to fulfil the obligation to mitigate operational risk, a counterparty should at least have the implementation of the relevant internal procedures on its corporate agenda. Further, each Swiss entity using derivatives contracts should, in particular, ask itself whether:

  • it would be considered a small financial or small non-financial counterparty if thresholds similar to the EU thresholds apply;
  • it has a system in place for assessing on a daily basis if a certain threshold has been reached;
  • it has the required procedures in place to measure, monitor and mitigate operational risks and counterparty credit risks;
  • collateral can be provided under its derivatives contracts;
  • it has sufficient collateral available; and
  • it will enter into intragroup derivatives transactions.

The new regulation is expected to enter into force in the first half of 2015. The Federal Council will have to determine whether the new rules will also apply to derivatives transactions that are outstanding at the time the new law enters into force.

For further information on this topic please contact Ansgar Schott at FRORIEP by telephone (+41 44 386 6000), fax (+41 44 383 6050) or email ( The FRORIEP website can be accessed at