Exchange of the year: SIX Swiss Exchange

In a tough year for exchanges, SIX continued to innovate

André Buck, SIX Swiss Exchange

Structured Products Europe Awards 2016

There is no getting around it – it's been a tough year to be an exchange. Exchange-traded structured product volumes have cratered in the absence of high volatility and bullish equity indexes. In the year to the end of October, total turnover in structured products and warrants on SIX Swiss Exchange totalled Sfr13.5 billion ($13.9 billion), down nearly 44% on the first 10 months of 2015, when turnover surpassed Sfr24.1 billion. That equates to a 26% drop in the underlying number of trades, from 747,000 to 554,000.

"It has been a difficult year for structured products in Europe," says André Buck, head of sales at SIX Swiss Exchange. "The low volatility makes it less attractive to invest in leveraged products – and two-thirds of our products are leveraged – while the negative interest rate we have in Switzerland makes it more difficult to create meaningful structured products."

Yet SIX has refused to become discouraged, continuing to invest in its Structured Products Exchange as it adapts to changing market conditions and the advent of new regulations. A major milestone for 2016 was the launch of XBTR, a bilateral trading platform for structured products that started trading with two participants – Leonteq and Credit Suisse – in April.

XBTR allows exchange participants to trade and settle over-the-counter structured products on a central request-for-quote platform with the same efficiency that has come to be expected from the listed market. By October 2016, the platform had five participants and 650 products live, with more clients expected to join in the coming months.

"Not all structured products are suitable to be listed and we had been thinking for some time about how we might service the unlisted part of the market. XBTR allows clients to use the same framework they would use on the listed market to transact more tailor-made bilateral products," says Buck.

Meanwhile, SIX plans to introduce a new pricing regime at the start of 2017, lowering fees to make its platform more attractive for issuers and investors. Both listing fees and quotes-per-second capacity fees will fall substantially as the exchange seeks to respond to client feedback and cost pressures across both the buy side and sell side.

XBTR allows clients to use the same framework they would use on the listed market to transact more tailor-made bilateral products
André Buck, SIX Swiss Exchange

SIX has also shown a commitment to confronting broader industry issues. As a member of the Swiss Structured Products Association, the Structured Products Exchange has hosted the International Structured Products Forum for the past seven years. This year's two-day event, held in Lucerne in September, had a natural focus on European regulation, with the planned implementation of the Packaged Retail and Insurance-based Investment Products (Priips) regulation just months away.

"As an exchange, we have always looked at the whole structured products ecosystem of issuers and clients rather than just focusing on our own platform. I don't expect Priips to impact trading volumes, because most issuers have been very good at quickly creating product documentation for a long time," says Buck.

Elsewhere, SIX took over the distribution and marketing of a range of Swiss indexes this year from Stoxx, which had been responsible for them since 2010. The established Swiss equity and bond indexes are used both as underlyings for index-based products, such as exchange-traded funds, fund solutions and structured products, and for activities in the portfolio management process.

And in September 2016, the exchange launched a new index family comprising seven single-premia indexes and one multi-premia index, with the goal of diversification over several sources of return. The composition of the single-premia indexes is determined by selecting the 60 largest and most-liquid securities from the Swiss Performance Index and reviewing them for specific factors.