SWX message
no. 73/2006
From: Member Services Zurich
Member Services London
Tel.: +41 (0)58 854 24 73
+44 (0)20 7074 4556
E-mail: [email protected] Fax: +41 (0)58 854 24 76
+44 (0)20 7074 4524
Pages: 7 Date: 14.11.2006
Subject: Alex – the new European exchange for trading in Structured Products
(incl. Warrants) – framework
Ladies and Gentlemen
On 23 October 2006, the SWX Group and Deutsche Börse AG signed a cooperation agree-ment to found Alex Exchange Holding S.A., a European exchange for Structured Products. This message contains
1. strategic and organisational issues,
2. regulatory issues,
3. admission of participants and traders,
4. administrative issues
5. technical trading issues
in the context of the introduction of “Alex”.
1. Strategic and organisational issues
The joint venture partners are combining their existing trading activities in Structured Products. In Switzerland, this relates to the SWX Swiss Exchange market segment “Securitised Deri-vates” and in Germany, to the “Smart Trading” segment and all other Warrants and Certificates traded on the Frankfurt Stock Exchange.
The jointly owned exchange organisation will operate trading facilities in Frankfurt (for Germany and other EU countries) and in Zurich (for Switzerland) and will be launched on 1 January 2007.
Thereby, the Swiss venue for trading in Structured Products (incl. Warrants) will be operated from 1 January 2007 by the new Alex Exchange Switzerland Ltd., which is domiciled in Zurich. For more information on the new “Alex” exchange, the two marketplaces and their corporate and organisational structures, please visit www.alexchange.com on the internet.
The following information only concerns the Swiss venue for trading in Structured Products (incl. Warrants).
2. Regulatory issues
a) Listing, surveillance of trading and market control
Alex Exchange Switzerland Ltd. is a securities exchange under Swiss law and therefore subject to Swiss supervisory law.
It does not, however, have the authority to list (admit) issuers and their securities and does not perform its own surveillance of trading (surveillance and enforcement).
In practice, this will mean that:
• As at present, the Admission Board of the SWX Swiss Exchange will be responsible for
listing derivative products pursuant to Art. 8 SESTA and other applicable rules and regu-lations.
• As at present, Surveillance and Enforcement, a specialist department of the SWX Swiss
Exchange, will monitor trading in these products pursuant to Art. 6 SESTA.
• Market control of trading in Derivative Products on the other hand will be performed by
SWX Swiss Exchange in the name of Alex Exchange Switzerland Ltd.
b) Exchange and reporting requirement
The Exchange and reporting requirement for Derivative Products will remain unchanged. The SWX Swiss Exchange will be the central notification office for transactions in derivative products. The SWX will accept all transactions that are subject to the reporting duty to be re-ported if they are conducted (on order book) or rere-ported (off order book) via the trading platform of Alex Exchange Switzerland Ltd. (see Section 5).
Therefore, the reporting procedure and notification office for the associated participants’ report-ing duty (via RSD tool) will remain unchanged.
3. Admission of participants and traders to Alex Exchange Switzerland Ltd.
A "grandfathering" process for all participants (incl. remote participants) and traders of the SWX Swiss Exchange is planned for 1 January 2007. Its purpose is to make it as easy as possible for all involved parties to become a participant of and be admitted as a trader at Alex Exchange Switzerland Ltd.
This means that:
• As of 1 January 2007, all trading participants and traders of the SWX Swiss Exchange will
be recognised as trade participants and traders of Alex Exchange Switzerland Ltd.
• A participation or trader registration on Alex Exchange Switzerland Ltd. always requires a
participation at the SWX Swiss Exchange.
• Admission as a participant or trader at the SWX Swiss Exchange will automatically ensure
admission as a participant or trader at Alex Exchange Switzerland Ltd.
Apart from certain adjustments in connection with the securitised derivatives market, the regu-latory framework of Alex Exchange Switzerland Ltd. corresponds to that of the SWX Swiss Ex-change.
Participation in Alex Exchange Switzerland Ltd. will not be subject to additional participation or connectivity fees.
The new General Conditions and Directives of Alex Exchange Switzerland Ltd., as well as other legal documents, will be sent to you separately at a later date.
4. Administrative issues
From 1 January 2007, the regulatory and organisational framework described above will entail the following legal and administrative procedures for trading participants of Alex Exchange Switzerland Ltd.:
SWX Alex Exfeed
Listing of issuers and derivative securities
Listing applications should be sent to … X
Listing procedure
Notices relating to maintenance of listing (ad hoc publicity) should be sent to … X
Information
provider Notices relating to listing, and their publication, will be handled by … X
Invoices The listing and maintenance fees will be invoiced by … X
Questions Questions relating to listing and admission should be directed to … X Participant/trader admission and connectivity
Applications for admission as a participant or trader should be sent to … X
Applications for admission as an associated participant should be sent to … X
Admission procedure
Trader examinations will be held by ... (and recognised by Alex) X
Information
provider Information/notices relating to participants will be handled by … X
Invoices Participation and connectivity fees will be invoiced by … X
Questions Questions relating to participant/trader admission should be directed to … X Exchange trading (incl. market surveillance and market control)
Trading
procedure Information relating to trading should be sent to … X
Notices relating to trading, and their publication as part of market surveillance (trading
violations, etc.), will be handled by … X
Auditor's reports should be submitted to … X
Information provider
Notices relating to trading, and their publication as part of market control (mistrade
decisions, etc.), will be handled by … X
Trading fees will be invoiced by … X
Capacity fees (QPS) will be invoiced by … X
Invoices
Reporting fees (associated participants) will be invoiced by … X
Questions relating to surveillance of trading should be directed to … X
Questions
Questions relating to market control should be directed to … X
Clearing and settlement
Questions Questions relating to clearing and settlement should be directed to … X
Market data and distribution of information Market data
procedure Market data will be distributed by … X
Information
provider Notices relating to market data feed will be handled by … X
Invoices Market-data fees will be invoiced by … X
Questions Questions relating to ad hoc evaluations and statistics should be directed to … X
From mid-March 2007, all information relating to Alex and to the technical aspects of trading will be available at www.alexchange.com. Until then, www.swx.com will be the official publica-tion medium for the derivatives market.
5. Technical trading issues a) SWX Platform
From a trading point of view, there will be no changes for trading participants or to their IT
in-frastructures. From 1 January 2007, the securitised derivatives market of the SWX Swiss Ex-change will be carried on seamlessly by Alex ExEx-change Switzerland Ltd. on the same trading platform (the SWX Platform with quote system (Quotematch) and order system within the Ex-change System). There will be no technical migration of securities on the SWX Platform itself.
In particular, this means that:
• On 1 January 2007, all existing and valid orders will remain unchanged in the Exchange
System (no order deletions).
• Trade slips will remain unchanged in terms of both content and format.
• No new exchange code will be introduced to the SWX Platform or its interfaces. The only
currently valid exchange code of the SWX Platform, "XSWX" (or "XVTX" for the virt-x in-stance) will remain unchanged and will not be supplemented by an additional code.
• There will be no software adaptations made to the existing connectivity options (SWX
Trading System, SWX FIX, Network Linked, FIX Linked Connectivity, Quote System API).
b) Alex exchange
It will be possible to distinguish between the two exchanges (SWX and Alex), as well as
be-tween their securities universes, on the Trading Platform (and at their interfaces) simply on the
basis of the Security Type Code of a given security.
The following Security Type Codes, which already exist, will define the new “Alex” securities
exchange from 1 January 2007:
Please note that the Security Type Codes RI (Rights), SW (Shareholder Warrant) and WB (Warrant of Bond) will technically be listed as derivatives on the SWX Platform (Instrument Type Code 2) but will not belong to the securities universe of the “Alex” exchange.
As a preparatory measure, the following new Security Type Codes will be introduced on 1 January 2007 in order to categorise structured products in a way that is more in line with the needs of the market. The new Security Type Codes will also belong to the securities universe of the “Alex” exchange, but they will not be activated until further notice.
Security Type Code Category
CW Covered Warrant DR Warrant on Commodity OW Other Warrant KO Knock-Out-Warrant KI Knock-In-Warrant WC Warrant on Currency
WI Warrant on Interest Rate SP Structured Products Warrants SO Structured Products Commodities SC Structured Products Certificates SB Structured Products Bonds
Further information on the new Security Type Codes will be provided in an SWX message when they are activated or actively used.
Leveraged products
(Code range W (first code position), second code position starting at J and ending at Z)
Security Type Code Category
WJ Warrant
WK Knock-Out-Warrant WL Mini-Futures
WZ weitere Hebel-Produkte
Yield-optimisation products
(Code range X (first code position), second code position starting at A and ending at Z)
Security Type Code Category
XA Discount-Zertifikat XB Barrier-Discount-Zertifikat XC Reverse Convertibles XD Barrier-Reverse-Convertibles XE Capped-Outperformance-Zertifikat XF Express-Zertifikat XG Step-Zertifikat XZ weitere Rendite-Optimierungs-Produkte Capital-protection products
(Code range Y (first code position), second code position starting at A and ending at Z)
Security Type Code Category
YA Kapitalschutz-Produkte ohne Cap YB Kapitalschutz-Produkte mit Cap YZ weitere Kapitalschutz-Produkte
Participation products
(Code range Z (first code position), second code position starting at A and ending at Z)
Security Type Code Category
ZA Tracker-Zertifikat ZB Bonus-Zertifikat ZC Outperformance-Zertifikat ZD Twin-Win-Zertifikat ZE Airbag-Zertifikat ZZ weitere Partizipationsprodukte
The new Security Type Codes conform precisely to the classification of the Swiss Structured Products Association (SSPA). In order to reflect new product categories defined by the SSPA later on, each of the main categories (leveraged products, yield-optimisation products, capital-protection products and participation products) is given its own code range, which is defined by the first and second code position (see above).
All other existing Security Type Codes not listed here will continue to define the securities
c) Market data distribution (SMF/QMF) (new market code)
A new Market Identification Code (MIC) will be introduced for market data distribution (SMF/QMF).
From 25 June 2007, the new MIC "ALEX" or the corresponding Exchange Code with a value of
3 will be available exclusively via SMF/QMF, the Swiss market data feed, for the
above-mentioned securities universe of Alex Exchange Switzerland Ltd. (see Section b).
d) Transitional period for technical adjustments in order to reflect the new exchange
The technical framework described under Sections a) to c) will have a direct impact on the in-terfaces and systems that receive and process your data.
Therefore, in order to comply with
• Daily journal-keeping and reporting requirements (Art. 1 and Art. 5 SESTO-SFBC),
• Transparency obligations in connection with customer settlement (Art. 7 of the Rules of
Conduct for Securities Dealers in Carrying Out Securities Transactions, guidelines of the SBA) and
• Market and basic data delivery to vendors (e.g. in order to value securities positions),
25 June 2007 was submitted as the desired implementation deadline in the application for approval as a securities exchange that was lodged with the Swiss Federal Banking Commission. Participants and vendors will have to introduce the new “Alex” exchange before this deadline.
In other words:
• The new Alex Exchange Switzerland Ltd. will be launched and will actively participate in
the market on 1 January 2007 (as descrtibed in Sections 1-4).
• Both vendors and banks will have to reflect the new “Alex” exchange and its legal and
technical ramifications by 25 June 2007.
• The precise implementation date for the new MIC/ISO market code for market and basic
data delivery by the vendors will be communicated to you directly by the relevant vendors. Implementation must be complete by 25 June 2007.
We hope you find this overview helpful. Should you have any questions, please do not hesitate to contact us.
For business-related information, please contact:
Member Services Zurich +41 (0)58 854 24 73 [email protected]
Member Services London +44 (0)20 7074 4556 [email protected]
For technical information, please contact:
Local Support Center Zurich +41 (0)58 854 24 00 [email protected]
Local Support Center London +44 (0)20 7864 43 64 [email protected]
Local Support Center Geneva +41 (0)58 854 56 42 [email protected]
Yours sincerely
SWX Swiss Exchange
Christoph Bigger Adrian Isler
