Overview of the Financial Market Infrastructure Act

The Financial Market Infrastructure Act is a significant piece of legislation that aims to strengthen the stability of the financial system.

The Act sets out to achieve this by regulating the various components of the financial market infrastructure, including central counterparties, central securities depositories, and trade repositories.

The Act's scope is broad, covering a wide range of financial institutions and activities, including derivatives trading and settlement.

At its core, the Act seeks to promote the integrity and resilience of the financial system by establishing clear rules and standards for financial market participants.

The Financial Market Infrastructure Act has several key components that are crucial to its functioning. The Act establishes the Financial Market Infrastructure Authority, which is responsible for overseeing the stability of financial markets.

Clear and transparent rules are essential for maintaining trust in financial markets. The Act sets out clear rules for the operation of financial market infrastructures, including the use of central counterparties and trade repositories.

The Act also introduces a risk management framework to identify and mitigate potential risks in financial markets. This framework is designed to promote the stability of financial markets and prevent the buildup of excessive risk.

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In Switzerland, operating a stock exchange or multilateral trading facility requires authorization from FINMA, as per Article 4 of the Financial Market Infrastructure Act (FinMIA).

Stock exchanges are institutions where securities are listed and traded simultaneously among multiple participants, with contracts concluded based on non-discretionary rules, as stated in Article 26, letter b, of FinMIA.

To operate a stock exchange in Switzerland, you must be authorized by FINMA, a regulatory requirement that applies to all stock exchange operators.

Multilateral trading facilities, on the other hand, do not list the securities traded on them, setting them apart from traditional stock exchanges.

FINMA plays a crucial role in overseeing the authorization of trading venues in Switzerland, ensuring that they operate within the bounds of the law.

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In some markets, a central counterparty (CCP) acts as the contracting party between buyer and seller, becoming the legal contracting party for both parties.

This practice has become widespread in international stock exchange trading with shares, where CCPs play a crucial role in facilitating transactions.

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Trade repositories are a crucial component of the derivatives market, and they play a significant role in enhancing transparency.

They collect and manage data on derivatives transactions, making it easier to track and analyze market activity.

By doing so, trade repositories provide a centralized source of information, which helps to build trust and confidence among market participants.

This is particularly important for regulatory bodies, who can use the data to monitor market activity and identify potential risks.

Trade repositories are also available on the FINMA Erhebungs- und Gesuchsplattform (EHP), making it easy to access and utilize the data.

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Payment systems are facilities that clear and settle payment obligations.

They require FINMA authorisation only if necessary for the proper functioning of the financial market or the protection of financial market participants, and if the payment system is not operated by a bank.

This is stated in Article 4, paragraph 2 of the FinMIA.

Market participants need to understand their regulatory obligations under the FMIA, which includes licensing, clearing, reporting, and transparency rules.

The FMIA applies to both Swiss and foreign market participants, and they must assess their need for action at an early stage.

Companies affected by the FMIA include traditional financial institutions, such as banks, securities dealers, and insurance companies.

Non-financial counterparties, such as companies outside the financial sector, are also subject to the FMIA if they're involved in derivatives operations.

Every company registered with the commercial registrar that conducts derivatives is subject to the FMIA provisions, but individuals interacting with derivatives without registration are not.

Trade repositories collect and manage data on derivatives transactions, enhancing transparency in the derivatives market.

The obligations under the FMIA depend on the status of the company, and market participants must understand these obligations to comply with the act.

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FCP stands for Financial Counterparty, and it's a crucial concept to understand in this context.

Custody banks, representatives of foreign collective investment schemes, and fund distributors are not considered FCPs.

Asset managers and financial advisors are out of the scope.

Some of an FCP's key obligations include clearing, reporting, risk mitigation, daily valuation, and platform trading.

If an FCP's open rolling average gross positions of all derivatives contracts over the last 30 days are below a certain threshold, set at CHF 8 billion at the level of the financial group, it's considered a "small" counterparty, or Small FCP.

Small FCPs are exempt from certain obligations.

Here are the specific exemptions for Small FCPs:

NFCP stands for non-financial counterparties, which are companies outside the financial sector that are involved in derivatives transactions.

These companies are subject to the provisions of the FMIA if they conduct derivatives transactions.

Individuals interacting with derivatives without being registered with the commercial registrar as a company are in principle not subject to FMIA.

A NFCP is considered "small" if all its open rolling average gross positions of derivatives transactions over the last 30 days are below the thresholds for each derivatives category.

Here are the thresholds for a NFCP to be considered small:

Small NFCPs are exempt from certain obligations such as clearing, reporting, daily valuation, and platform trading.

The Financial Market Infrastructure Act (FMIA) sets out a comprehensive regulatory framework for financial market infrastructures and derivatives trading in Switzerland. The FMIA requires mandatory clearing via a central counterparty (CCP) for all standardized OTC derivatives contracts.

Clearing involves establishing a position, calculating net obligations, and making financial instruments or cash available to secure the position. Market participants can either act as direct clearing members of a CCP or enter into an agreement with a clearing member acting as an intermediary.

The FMIA also requires reporting to a FINMA-licensed or recognized trade repository (TR) for almost all new, modified, or terminated OTC derivative contracts and exchange-traded derivative contracts (ETDs). This ensures increased transparency and reduces systematic risks.

The three key duties of the FMIA requirements on derivative contracts are:

These new regulatory requirements aim to reduce systematic risks by reducing counterparty risks and increasing transparency.

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The regulatory framework in Switzerland is designed to reduce systematic risks by implementing stricter regulations on over-the-counter (OTC) derivatives. The Financial Market Infrastructure Act (FMIA) is the Swiss answer to international requirements, and it entered into force on January 1, 2016.

The FMIA requires all standardized OTC derivatives contracts to be cleared via a central counterparty (CCP). This means that counterparties must establish a position, calculate net obligations, and make financial instruments or cash available to secure the position.

There are two ways to fulfill the clearing duty: direct clearing as a member of a CCP or indirect clearing through an intermediary. In the CCP model, each market participant has a legal relationship with and exposure to the CCP only, regardless of the identity of their counterparty in the underlying trade.

Reporting to a FINMA-licensed or recognized trade repository (TR) is also mandatory for almost all new, modified, or terminated OTC derivative contracts and exchange-traded derivative contracts (ETDs).

Here are the three key duties required by the FMIA:

These regulatory requirements aim to reduce counterparty risks and increase transparency in the derivatives market.

Public Takeover Offers are a crucial aspect of the regulatory framework. Article 128 Review of the offer is a key component, ensuring that all public takeover offers are thoroughly examined.

The Takeover Board plays a vital role in proceedings before them, as outlined in Article 139. This process helps maintain fairness and transparency in the takeover process.

In the event of a public takeover offer, the Review of the offer under Article 128 is a mandatory step. This review helps determine whether the offer is valid and compliant with regulations.

The Takeover Board's proceedings under Article 139 are a critical part of this process, ensuring that all parties involved are held to the same standards.

The Legal Provisions section is a treasure trove for those looking to navigate the complex world of takeover regulations. It offers direct access to all current takeover regulations in .pdf format.

You can easily find the immediately preceding versions of any overridden provisions, which is super helpful for understanding the changes that have taken place.

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The Financial Market Infrastructure Act has been implemented to enhance the stability and resilience of financial market infrastructure in Australia. This includes the establishment of a new regulatory framework for central counterparties, such as the Australian Securities Exchange (ASX).

The Act requires central counterparties to meet stringent risk management and operational requirements, including the maintenance of adequate capital and liquidity buffers. This is designed to mitigate the risk of default and ensure the continuity of critical financial market services.

The implementation of the Act has already had a positive impact on the Australian financial market, with the ASX reporting a significant reduction in systemic risk and improved market resilience.

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The audit process is a crucial aspect of compliance with the Financial Market Infrastructure Act (FMIA). External auditors must assess whether the Central Counterparty (CP) complies with its obligations regarding derivative trading.

In Switzerland, the external auditors must follow the guidelines set out in articles 727 and 727a of the Swiss Code of Obligations. The audit procedure for Central Counterparties (CPs) involves evaluating their compliance with financial market acts.

For Financial Counterparties (FCPs), the audit process depends on the specific financial market acts applicable to them.

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The current status of the Financial Market Infrastructures Act 2021 is an important aspect to consider. The FMI Act was enacted on 10 May 2021 and will be implemented over an 18 month period.

The Reserve Bank of New Zealand (RBNZ) and the Financial Markets Authority (FMA) are the joint regulators of financial markets infrastructures (FMIs) under the FMI Act. They issued two consultation papers on 26 July 2021.

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These consultation papers focused on the framework for identifying systemically important FMIs and the design of regulatory requirements for designated FMIs. Submissions could be made until 20 September 2021.

A finalised framework for identifying systemically important FMIs has been developed. The RBNZ and FMA will release an exposure draft of the standards for designated FMIs in 2022, seeking public submissions.

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The Case Law Commentary feature is a valuable tool for navigating complex legal provisions. With a click on the left-hand column, you can access the full text of a provision, marked with a corresponding symbol.

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The Financial Market Infrastructure Act is a significant piece of legislation aimed at maintaining a sound and efficient financial system.

The Bill was introduced to Parliament on December 17, 2019, with the primary goal of preventing significant damage to the financial system.

The regulators, RBNZ and FMA, will jointly oversee Financial Market Infrastructures (FMIs) except for designated payment systems, which will be regulated solely by the RBNZ.

The Bill distinguishes between designated and non-designated FMIs, with systemically important FMIs being designated for more intensive regulation.

Designated FMIs will be subject to legally binding standards, monitoring powers, and crisis management powers, among others.

Regulators will have the power to make standards that apply to designated FMIs, covering areas like governance and liquidity.

The regulators will also have oversight powers over the rules of designated FMIs, except for overseas FMIs.

The Bill was referred to the Finance and Expenditure Committee, which produced a select committee report recommending amendments to the Bill.

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Some of the key recommendations include ensuring the regime is flexible to manage different types of FMIs and broadening the circumstances under which the regulators can agree to act as sole regulators.

The Bill had its second reading on March 16, 2021, and attained royal assent on May 10, 2021, after a debate by a committee of the whole House.

Here are some of the key changes made to the Bill: