The Swiss Financial Market Supervisory Authority FINMA has recently announced that it will introduce the clearing obligation, meaning the obligation to clear certain derivatives over central counterparties, under the Swiss Financial Market Infrastructure Act (FMIA) that are traded by counterparties having the status of either an FC+, meaning large Financial Counterparty, or an NFC+, meaning a large Non-Financial Counterparty.
1. Derivatives subject to the clearing obligation under the FMIA
The following derivatives will become subject to the clearing obligation:
The Swiss universe of derivatives that will become subject to the clearing obligation under the FMIA is identical to the universe of derivatives subject to the clearing obligation under EMIR. That is why at least for now no Swiss Franc denominated derivatives will become subject to the clearing obligation.
2. Entry into force of the clearing obligation
The clearing obligation will enter into force on 1 March 2019 at the earliest and 1 March 2020 the latest depending upon the status of the counterparties. The effective date of the clearing obligation of each counterparty will be determined as follows:
a. 1 September 2018 plus six months: for derivatives transactions which participants in an authorised or recognised central counterparty conclude anew with one another;
b. 1 September 2018 plus 12 months: for derivatives transactions which:
1. participants in an authorised or recognised central counterparty conclude anew with other financial counterparties that are not small, or
2. other financial counterparties that are not small conclude anew with one another;
c. 1 September 2018 plus 18 months: for all other derivatives transactions concluded anew.
FINMA will however consider announcing exemptions to these clearing obligations if there will not be at least one CCP available to clear the above mentioned derivatives.
3. Affected counterparties
The clearing obligation will only apply to FC+, meaning large Financial Counterparties, and NFC+, meaning large Non-Financial Counterparties. These are typically larger banking groups or a group of financial institutions and large commodities trading houses.
4. Central Counterparties available for clearing
FINMA has currently recognized Central Counterparties (CCP) that are permitted to clear derivatives from the EU (Eurex Clearing Ltd., LCH Ltd., and LCH SA) and Japan (Japan Securities Clearing Corporation). CCP from the USA are currently in the final stages of recognition by FINMA (CME Inc., ICE Clear Credit LLC, and ICE Clear Europe). A recognition of a CCP by FINMA means an automatic acknowledgement of the equivalence of the corresponding jurisdiction with the clearing obligations under the FMIA (e.g. EMIR if clearing is made through Eurex Clearing Ltd., LCH Ltd., or LCH SA).