SIX publishes requirements for cryptocurrencies as an underlying instrument for derivatives

In its amendment of Circular No. 3 “Practice for the Listing of Derivatives” (CIR3), SIX introduced the below requirements and criteria for cryptocurrencies to be permitted as an underlying instrument for derivatives. The issuer of a derivative must ascertain whether these criteria are being met prior to registering derivatives for provisional admission.

Background

In its amendment of Circular No. 3 “Practice for the Listing of Derivatives” (CIR3), SIX introduced the below requirements and criteria for cryptocurrencies to be permitted as an underlying instrument for derivatives. The issuer of a derivative must ascertain whether these criteria are being met prior to registering derivatives for provisional admission.

General requirements for cryptocurrencies as underlying instruments

Under the newly introduced requirements, cryptocurrencies are permitted as underlying instruments if:

• they are issued as coins which are based on open-source software, functioning based on the principles of blockchain technology (not permitted as underlying instruments are tokens in the sense of units from a project, which are often issued as part of an initial coin offering (ICO));
• issuance of further units of the cryptocurrency follows a clearly defined process and does not systematically favour any individual persons;
• the cryptocurrency is among the 15 largest cryptocurrencies (measured by market capitalization in USD as referenced on the website CoinMarketCap)^[1];
• transactions are verified by network participants using a clearly defined process;
• the consensus protocol is applied.

Further requirements

Furthermore, it must be ensured that the prices for the cryptocurrencies used are set regularly and are readily and publicly available online. Also, it must be confirmed that the cryptocurrency can be traded directly against an established fiat currency like USD or EUR and that the price feed is available via a reputable information system such as SIX Financial Information, Bloomberg, Reuters, etc.

At least one trading venue must be available, which offers trading against an established fiat currency, creates transparency by publishing prices, provides an API, and has its website available at least in English.

When using a cryptocurrency for the first time, SIX must be informed of how the aforementioned criteria have been met prior to the submission of the request for provisional admission^[2].

Procedure in the event of a fork

In the event of a fork in the cryptocurrency used as an underlying instrument during the term of a derivative traded on SIX, the derivative which refers to the new cryptocurrency and is allocated to the existing investors without a countervalue may also be admitted to trading.

Also permitted is the adding of a new cryptocurrency as an extra underlying instrument of the existing product. This may only be done if the new cryptocurrency fulfils all requirements outlined above, except the one with regard to a placing among the 15 largest cryptocurrencies (the provisional admission of new derivatives based on a new cryptocurrency is possible if the requirements have been met, including the one that refers to a placing among the 15 largest cryptocurrencies).

Requirements of the listing prospectus

With regard to cryptocurrencies, the listing prospectus must provide details on the following points:

• the main differences between traditional currencies and the cryptocurrency and resultant risks (e.g. no intrinsic value, trading of cryptocurrency on non-regulated online exchanges, small trading volume and higher volatility).
• specific risks relating to cryptocurrencies products, particularly fraud risks and hacker attack risks.

^{[1] This requirement must be met at the time of applying for provisional admission to trading.}

^{[2] Information can be provided to SIX via the e-mail: listing@six-group.com.}