Six Swiss Exchange opens Cosi listings to UK banks

The exchange will allow UK banks to issue products using its collateral secured investments (Cosi) service from the UK. Germany is also expected to be on the list to receive the extended service

Matthias Müller, Six Swiss Exchange

Banks with registered offices in the UK can now list on the Six Swiss Exchange, making use of the collateral secured investments (Cosi) service. The legal adjustments necessary to accommodate UK collateral providers and the changes to operational procedures have no impact on the rights of the investor, according to the exchange. Germany is expected to be one of the next countries to qualify for the extended service, according to Matthias Müller, senior product manager at the Six Swiss Exchange in Zurich.

"It took a long time to find a solution because we had to be sure the Cosi protection was the same for all investors. One of the reasons for concentrating on the UK market first is the sheer number of banks doing business."

Royal Bank of Scotland (RBS) is the first UK bank to announce its interest in using Cosi from London, according to local news reports quoting Irene Brunner, structured products specialist at RBS in Zurich. Six expects the first issuers with a UK collateral provider to begin using the service in the "next few months, while clarifications are still being carried out for further jurisdictions".

"Before today, issuers may be located in jurisdictions outside of Switzerland for tax reasons, but the collateral provider has to be legally based in the country," says Müller.

Six accepts four categories of collateral: first, collateral accepted by the Swiss National Bank (SNB) for repo transactions; selected types of collateral accepted by the European Central Bank (ECB); shares that are represented in recognised stock indexes, the acceptance criteria of which must ensure sufficient market liquidity, according to Six; and cash in Swiss francs, euros, UK sterling, yen and US dollars.

Before today, issuers may be located in jurisdictions outside of Switzerland for tax reasons, but the collateral provider has to be legally based in the country

Six sets the collateral margins at 2% for SNB bonds, 5% for ECB bonds and 10% for all shares, with no haircut required for cash collateral.

As of January 31, open interest in Cosi product offerings amounted to Sfr2.29 billion, dominated by 1,365 issues from EFG Financial Products. Bank Vontobel is the second biggest user of Cosi, with 273 issues. "There are five active issuers: EFG Financial Products, Bank Vontobel, Clariden Leu, Bank Julius Baer and Merrill Lynch Capital Markets," says Müller.

Though the last three issuers have only a handful of listings between them, Müller expects Clariden Leu to increase its activity from April, when it becomes fully incorporated in the Credit Suisse Group, while Merrill Lynch listed its second product yesterday (February 23). "There are two types of Cosi user: some, like EFG, use it most of the time; others use it only when there is specific demand," says Müller.

Euros and Swiss francs dominate the currencies in which Cosi products have been issued, sharing around 60% of the number listed. Equities make up around 90% of the underlyings.