Today the Swiss National Bank clarified the criteria for allowing DLT trading facilities to access to the Swiss Interbank Clearing (SIC) payment system. One of the objectives of blockchain-based securities exchanges is to enable atomic settlement. This simultaneous exchange of a tokenized asset for cash ideally requires access to the payment system and an account at the central bank.
Last year Switzerland changed its laws and the Financial Market Infrastructure Act (FinMIA) allows for ‘DLT trading facilities’. These were primarily designed to enable security token trading venues, including tokenized assets or asset-backed securities (but not derivatives). Without this rule, separate licenses would be needed for trading versus custody and settlement.
For these DLT financial market infrastructures (FMIs) to access SIC, they need to be licensed by the Swiss regulator FINMA although it is the SNB that grants access to SIC. To get a FINMA license, they need to be a DLT trading facility that has at least one of these three features:
- provides a trading facility that serves retail customers as well as institutions
- holds DLT securities in central custody
- clears and settles DLT transactions.
The SNB says it will consider DLT applications that don’t pose major risks, operate a securities settlement system, and settle payments in Swiss Francs via SIC.
DLT trading facilities that use SIC are expected to have a central bank account or ‘sight deposit’. It’s possible to use SIC without a central bank account via a third party provider, but we don’t believe this is the route that DLT facilities are expected to use. After all, the whole point of a DLT platform is to reduce inefficiencies.
As a side note, it’s worth noting that the SIX Digital Exchange (SDX) is not licensed as a DLT trading facility. It has conventional licenses. Which means it cannot deal with retail customers. Also, SIX subsidiary SIX Interbank Clearing operates SIC on behalf of the SNB.
Given participation in SIC is governed by agreements that involve the SNB and SIX Interbank Clearing, arguably, it provides a front row view of potential SDX competitors, their transaction volumes and the parties involved. We asked the SNB whether this might represent a conflict of interest for SIX.
This is an extract of the SNB’s response:
The SIC system is operated by SIX Interbank Clearing Ltd on behalf of the SNB. The relevant data – including transactions and volumes – belong to the SNB, and SIX Interbank Clearing Ltd is not allowed to pass this data on to other parts of the SIX Group. As such the SNB sees no potential for a conflict of interest.
It stated it was important to distinguish SIC from other FMIs that SIX operates. And said, “SNB respects the principle of equal treatment”. A copy of SIC’s disclosure report is available here.
Another takeaway is that the SNB is not planning to introduce a wholesale CBDC any time soon.
Update: The response from the Swiss National Bank has been added
