No access to capital market equals economic stagnation

Published by: Jos Dijsselhof, Chief Executive Officer, SIX Oct 2019

A properly functioning capital market is a driver for each economy. This applies in particular to Switzerland - a country with an international network. However, the stock market landscape is affected by political and technological developments. 

In my life I have lived on various continents and worked for companies from all over the world. But, if someone asked me which country I would describe as international and open, I would answer without hesitation: Switzerland. No other country is as global as Switzerland. No other country of that size has more global leaders in so many business sectors. The backbone of this economy is in an independent stock exchange with an international reach.

The Swiss Exchange (SIX) is currently the fourth largest stock exchange in Europe based on the total number of free-float shares (free-float market capitalisation). Therefore, it comes as no surprise that we attract companies with various roots, of different sizes and from a range of sectors. This year, we have already listed a handful of companies on our stock exchange: the IPO of Stadler Rail was one of the biggest initial public offerings in Europe.

If this is not enough, three out of five companies with the highest market capitalisation in Europe are also quoted on our stock exchange. This is something we are proud of. However, the Swiss Exchange is not only a trading platform for Nestlé, Roche or Novartis. We continue to be the platform for big and small companies looking for capital. Approximately one hundred companies are traded here with market capitalisation constituting CHF 100 million to CHF 1 billion.

In the last few months, we have partly faced heterogeneous and difficult challenges - the political discussion on the equivalence of the Swiss stock exchange, regulations and the continuous pressure on existing business models. After the European Commission expressed politically motivated objection against equivalence, the measures taken by the Federal Council to protect the Swiss capital market were successful. The EU’s trade volume of Swiss shares has been seamlessly redirected to SIX. This has caused the volume on the Swiss Exchange to increase. Nevertheless, it is still our highest priority that the EU recognises stock exchange equivalence, since all corresponding technical requirements are being fully met by the Swiss stock exchange regulations. Capital markets should not lock themselves away. This would mean a step backwards. Open markets and legal certainty are of crucial importance for the functioning of capital markets. Only then will we be able to serve the interests of the economy, banks, issuers and investors in the best way possible.

But how do matters stand for the stock exchange of the future in a rapidly changing financial world? In this regard, SIX developed a whitepaper this year which outlines possible scenarios for the 'Future of the Securities Value Chain'. According to its authors, stock exchange listings will remain a mark of quality in the future. On the contrary, the number and diversity of digital assets will literally explode. For example, shares in a luxury car, or a painting or real estate, including the rights of use, will be acquired and traded in just two clicks.

SIX is well prepared for this future. The Swiss capital market has been built on a solid and reliable foundation. From this strong position, we will be taking the next step. 23 years after the launch of the first electronic stock exchange in the world, SIX is working on another ground-breaking innovation. Next year, SIX will introduce the Digital Exchange (SDX) - the first fully integrated infrastructure in the world for listing, trading, settlement and safekeeping of digital assets, all in a secure and regulated environment. SDX will facilitate new services such as the tokenisation of existing securities as well as the integration of assets which are not currently established in the financial system (non-bankable assets), for example the above-mentioned cars, paintings and real estate, such as holiday houses. Around 70% of assets globally are non-tradable, and SDX can unlock this enormous potential.

What is the added value of SDX for our customers? The first benefit is the immediate settlement and transfer of digital assets (instant settlement). Nowadays millions of francs are bound as securities. By means of the distributed ledger technology, these securities are instantly released, and ownership can be immediately transferred. The second benefit constitutes tokenisation. It allows our customers - Swiss banks - to develop new products and services for their customers. For example, if a person has no abundant budget, yet wants to diversify their portfolio, they will obtain opportunities beyond investment funds.

The regulations are also on a good track. By means of proposed revision “Adaptation of Federal Law to Developments in Distributed Ledger Technology”, the Federal Department of Finance EFD has succeeded to provide not just a tongue twister, but a targeted proposal. The proposed revision is an essential milestone that brings regulations and challenges of digitisation together.

Many forces in the Swiss financial center, such as banks, political institutions and authorities, as well as technology suppliers, are pulling in one direction to equip the capital market for the future and actively shape the necessary transformation. This makes me more than optimistic about the upcoming years and promises anything but stagnation.