Switzerland’s “too big to fail” regime for financial market infrastructures

Financial market infrastructures (FMIs) – such as stock exchanges or payment systems – are the backbone of an efficient and functioning financial system. As a disorderly failure of FMIs harbours risks for the financial system, they are described as “systemically important”. Like other TBTF institutions, FMIs must therefore have recovery and resolution plans.

FMIs ensure that the financial markets run smoothly. Central counterparties (CCPs) facilitate the processing of commercial transactions and reduce the counterparty risk for participants. Central securities depositories (CSDs) hold and manage securities and thus enable their ownership to be transferred without having to physically move them. Their failure can therefore lead to losses, liquidity shortages and technical disruptions on the financial markets.

The Swiss National Bank (SNB) is responsible for designating FMIs as systemically important. It also identifies their systemically important business processes. It listens to FINMA when making its decision. In Switzerland, the central counterparty SIX x-clear, the central securities depository SIX SIS and the SIX Interbank Clearing payment system are currently designated as systemically important.

SIX Interbank Clearing is operated by the SIX Group on the SNB’s behalf and thus falls within the SNB’s sole responsibility. SIX x-clear and SIX SIS are supervised by FINMA. Both companies are obliged to draw up a recovery plan that sets out the measures they would take to restore stability in the event of a crisis.

If recovery fails, it must be possible to resolve an FMI in order to avoid a disorderly failure. FINMA draws up a resolution plan for this purpose. The resolution plan shows how it would restructure or liquidate the systemically important financial market infrastructure if needed. The main priority of the resolution plan for FMIs is to ensure that their functions are maintained until financial market participants have found alternatives for their transactions.