35686_A4_GB_Retail_e.qxd 26.4.2000 13:08 Uhr Seite 6
T H E C H A N G I N G FA C E O F STOCK EXCHANGES The term “stock exchange” dates back to the 16th century. Banks and merchants met at the home of the Belgian patrician family Van der Burse to conduct their business. The first stock exchange building was erected in Antwerp in 1531. Initially, stock exchanges were there for trading in agricultural products. Today, stock exchanges are organized markets for securities or commodities. They are an integral part of everyday life, opening up new perspectives and exerting a significant influence on the economy. All of us, whether we are aware of it or not, are involved in stock market activities. The government raises finance there, pension funds invest their members’ monies in securities, and stock exchange transactions generate tax revenue which accrues to the public again. The importance of financial markets has grown in recent years. The advances in communications technology and the dismantling of trade barriers have ushered in an era of globalization. Thanks to electronic access to the world’s financial markets, securities are now traded round the clock. Stock exchanges are barometers for the health of a country’s economy and of individual economic sectors. Indices such as the SMI, Swiss Market Index measure the performance of a group of shares of different companies. All in all, it is impossible to imagine how the economy could function without stock exchanges today.
35686_A4_GB_Retail_e.qxd 26.4.2000 13:08 Uhr Seite 7
The SWX Swiss Exchange does not take However, stock price fluctuations may part in trading activities itself. As an
also be a reflection of political, eco-
utterly impartial body, it issues rules
nomic and social developments.
and directives governing the fair and
Investors buy and sell shares, bonds,
orderly conduct of trading. It places
derivatives, fund units and other trad-
the electronic securities stock exchange able instruments through a bank or brokerage house. Those institutional
E N S U R I N G FA I R A N D O R D E R LY T R A D I N G
stock exchange participants play a dual role – they look after the interests of their clients, as well as trade securities
system at the disposal of all participants and enforces compliance with the SWX Rules and Regulations. By regularly publishing comprehensive market data – encompassing prices, trading volume and the time transactions took place – the SWX Swiss Exchange ensures total transparency and, with respect to market information, affords identical conditions for all of its participants. It monitors trading activity to ensure that dealings are being conducted correctly and assumes the role of arbitrator. Companies and institutions go to the stock market in order to raise capital on favourable terms. The prices of a company’s shares are an indication of its state of health.
Blindtext!
for their own account.
35686_A4_GB_Retail_e.qxd 26.4.2000 13:08 Uhr Seite 10
. . . clients in Switzerland and abroad were receiving realtime prices from 18 vendors and 28 value-added resellers at the end of 1999.
35686_A4_GB_Retail_e.qxd 26.4.2000 13:08 Uhr Seite 11
The creation of the Geneva Stock
nant role in global portfolio man-
Exchange in 1850 laid the foundations
agement business. Approximately
for the Swiss financial centre. A lot
30% of all cross-border asset manage-
has changed since then. The stock
ment operations for private clients is
exchange landscape in Switzerland
conducted in Switzerland.
underwent a radical transformation
The most recent pioneering developments of the SWX Swiss Exchange
SWX SWISS EXCHANGE – A PIONEER
are the launch of SWX Repo and the integrated trading platform for SWX Eurobonds. SWX Repo is based on
in the 1990s. The floor exchanges of
the latest Internet technology. It is the
Berne, Lausanne, Neuchâtel and
first electronic repo trading applica-
St. Gallen ceased operations in 1991.
tion with automated clearing, and is
The SWX Swiss Exchange was estab-
thus a prime example of the tradi-
lished in 1993, and two years later the
tional expertise of SWX in integrated
regional exchanges of Geneva, Basle
trading, settlement and clearing sys-
and Zurich were merged.
tems. SWX Eurobonds provides par-
The SWX Swiss Exchange inaugurated ticipants with electronic trading facilelectronic trading in foreign shares
ities in foreign currencies (euros and
on 8 December 1995. The transfer of all
US dollars). With SWX Eurobonds and
the trading segments to the electronic
SWX Repo, the SWX Swiss Exchange
platform was completed in August
has once again demonstrated its tech-
1996. Efficiency, transparency and fair-
nological leadership.
ness were enhanced, with all participants having access to a comprehensive market overview at any time. The Swiss financial and securities trading centre occupies a leading position worldwide, underpinned by its domi-
35686_A4_GB_Retail_e.qxd 26.4.2000 13:08 Uhr Seite 14
AT T R A C T I V E PA R T N E R The SWX Swiss Exchange entered into cooperation agreements with Telekurs SIC and SIS SegaInterSettle at a very early stage, in order to expand networking for all its participants. The world’s very first fully integrated securities trading system was itself implemented on the basis of close cooperation. Apart from fair and transparent trading, this system also offers the advantage of making participation possible from any location around the globe and ensuring equality of treatment for all participants. The SWX Swiss Exchange has embraced its role as a pioneer and set new technological standards. This is mirrored in high market liquidity (meaning the tradeability of SWX-listed securities) and the very small difference between bid and offered prices. The SWX Swiss Exchange is a private organization with the legal status of an association. The supreme governing body is the general meeting, which elects the Board of Directors with its 14 members. Ultimate management responsibility is vested in the Board of Directors, which issues rules and regulations, formally approves the budget and the annual financial statements, and appoints the members of the general management and the committee of the board. The organization includes an admissions board and a surveillance office. Trading takes place in accordance with the principle of self-regulation and is governed by internal rules and regulations. The SWX Swiss Exchange had 84 participants at the end of 1999.
35686_A4_GB_Retail_e.qxd 26.4.2000 13:08 Uhr Seite 15
The electronic trading platform of the
matic clearing and settlement. The
SWX Swiss Exchange enables the fully
Internet is coming to play an increas-
automated execution of all securities
ingly important role, accounting as
transactions – a single click of the
it does for 10% of all trades executed
mouse initiates order execution, pay-
on the SWX Swiss Exchange today.
ment, settlement and confirmation.
In developing this system, the SWX Swiss Exchange was responsible for
ALL WITH ONE MOUSE-CLICK
the trading aspects, SIS SegaInterSettle for clearing and settlement – i.e. the transfer of securities from the account
Trading begins with the investor. The
of the seller to that of the buyer –
investment advisor at one of the
and Telekurs SIC for payment trans-
SWX participant institutions composes
actions. Stringent SWX admission
the orders. These are then passed on
criteria set high accounting and audit-
to the securities trading department,
ing requirements for stock exchange
where they are checked and entered
participants, who must also comply
directly into the SWX trading system.
with provisions on equity capital and
The system confirms receipt of each
risk distribution. Traders have to pass
order, time-stamps it and verifies that an entrance examination and be offiits parameters are correct. Buy and
cially registered by a participant. Only
sell orders are assembled in an elec-
licensed traders may place orders
tronic orderbook and executed in
and have them executed – every stock
accordance with clearly defined regu-
exchange-related activity carries the
lations known as Matching Rules.
trader’s personal ID number.
Regardless of their size and origin, orders are executed firstly according to price priority and secondly according to their time of entry (price/time priority). The conclusion of a transaction immediately triggers auto-
35686_A4_GB_Retail_e.qxd 26.4.2000 13:08 Uhr Seite 18
WORTHY OF CONFIDENCE The core business of the SWX Swiss Exchange is to ensure secure and trouble-free conduct of securities trading operations. In order to strengthen confidence in its system and maintain its competitiveness, the SWX Swiss Exchange has an array of protective and supervisory measures at its disposal. It initiates investigations and informs the regulatory authorities in cases of suspected breaches of the law and SWX rules. The following organizational units guarantee efficient supervision: The Disclosure Department primarily supervises the obligation of issuers to publicize price-sensitive facts such as changes in capital and repayments. The Disclosure Office supervises the obligation of issuers and investors to notify changes in shareholdings. The Exchange Operations Department ensures fair and orderly trading and intervenes in the event of mistrades. The Market Supervision Department keeps an eye on price and volume movements. If it suspects insider dealing, price manipulation or other breaches of the law, it passes on the results of its investigations to the Swiss Federal Banking Commission and, where appropriate, to the relevant criminal prosecution authorities. Before a company is admitted to listing on the SWX Swiss Exchange, the Listing Department checks the listing particulars and the listing notice as well as the legal and regulatory requirements.
35686_A4_GB_Retail_e.qxd 26.4.2000 13:09 Uhr Seite 19
Securities exchanges develop and
tronically and can trade directly from
operate platforms for orderly trading
other countries in all securities listed
among participants. Issuers offer se-
on the SWX Swiss Exchange.
curities on the financial market, where
All participants have to pay Swiss
investors purchase them through a
stamp tax. This pushes up the cost of
financial institute with the intention
trading. While the SWX Swiss Exchange charges a turnover fee of 0.1‰ – which
PA R T I C I PA N T S AT HOME AND ABROAD
is low by international standards – the stamp tax is 0.75‰ for domestic securities and 1.5‰ for foreign securities.
of making a profit. A distinction is
This is why transactions are increas-
made between institutional investors
ingly being executed outside Switzer-
(insurance companies, pension funds,
land and Swiss shares are traded
investment funds, banks, etc.) and
abroad. Securities business and jobs
private investors. For their part, SWX
may also migrate as a result of this,
participants trade in securities as
leading to reduced revenue from
intermediaries – acting on behalf of
stamp tax. SWX Eurobonds provides
and in the interest of their clients –
a good example of the influence the
and also conduct transactions for their
tax has: ever since Eurobond trades
own account.
were exempted from it, turnover in
The SWX Swiss Exchange currently has
this segment has expanded markedly.
84 domestic and foreign participants. With their very considerable placing power, these participants are the core of the Swiss financial centre. The SWX Swiss Exchange provides its participants with the regulatory framework and places its fully integrated trading system at their disposal. This also applies to remote participants, who are linked to the system elec-
35686_A4_GB_Retail_e.qxd 26.4.2000 13:09 Uhr Seite 22
EUREX – NUMBER ONE WORLDWIDE The SWX Swiss Exchange has set itself the goal of actively shaping the process of structural change under way in the world’s securities markets. It enters into cooperation agreements with other exchanges for the benefit of its customers. Eurex, the largest marketplace for options and futures, is the result of a joint venture by Deutsche Börse and the SWX Swiss Exchange. Each partner has a 50% stake in this first-ever transnational derivatives exchange, which today boasts more than 400 participant firms around the globe. Eurex was officially inaugurated on 28 September 1998 after the merger of the two fully electronic futures exchanges, DTB (the German Options and Futures Exchange) and SOFFEX (the Swiss Options and Financial Futures Exchange). From the very beginning, this cross-border market for derivatives exceeded all expectations and set new milestones along the way. Eurex established a new world record with more than 379 million contracts traded in 1999, thus replacing the Chicago exchange in the number one slot. Euro Bund futures registered the single highest volume, with more than 144 million contracts changing hands. Eurex offers a broad product palette encompassing equity options, index futures and options, as well as fixed-income derivatives.
35686_A4_GB_Retail_e.qxd 26.4.2000 13:09 Uhr Seite 23
Derivatives trading has its origins in
in these instruments offers high profit
the commodities markets. Producers
potential, but it also harbours greater
wanted to hedge against the effects
risks.
of overproduction and any resultant
Trading on a centralized market such
fall in the market price of their goods, as Eurex guarantees a high degree of and so they acquired the right to sell
flexibility for investors, who may at any time take a position that reflects
D E R I VAT I V E S E N H A N C E THE MARKETS
their assessment of the market and their risk tolerance. They can also react swiftly to changes in the market. At
the goods at a specific price for delivery
the same time, smoothly functioning
at a pre-determined date. Today, it
options and financial futures markets
is hard to imagine a financial centre
enhance the efficiency and liquidity
without derivatives markets. The fact
of the cash markets. Eurex thus plays
is that options and financial futures
a significant role in increasing the
enable efficient and cost-effective risk
attractiveness of the Swiss financial
management, and investors can trans-
marketplace.
fer unacceptable risks to others more willing to assume them. The capital outlay involved is small in relation to the value of the underlying instruments controlled with such an investment. But the range of price fluctuation, known as volatility, is nevertheless much wider for options and financial futures than for traditional investments. In other words, trading
35686_A4_GB_Retail_e.qxd 26.4.2000 13:09 Uhr Seite 26
STOXX – NEW EUROPEAN I N D E X FA M I LY Indices are a means of measuring price movements by combining a number of constituents and averaging them into a single figure. Charts normally plot the historical movement of an investment and show the relationship between time and price. They form the basis of technical analysis, whose spiritual father is considered to be Charles Dow, an American born in 1851 who co-founded Dow Jones & Company in 1882. The Swiss Market Index (SMI®) and the Swiss Performance Index (SPI®) are among the best-known indices of the SWX Swiss Exchange. As in other areas, the SWX Swiss Exchange identified the market needs with regard to indices at an early stage. In February 1998, together with its partners Deutsche Börse, ParisBourseSBF and Dow Jones & Company, it launched a new index family of European shares under the name of Dow Jones STOXXSM. A number of factors determine the quality of an index. STOXX Limited applies what is known as the SPACE concept: Stable – despite increasing cross-border consolidation, the indices are very robust. Predictable – thanks to regular reviews of their composition, the indices are reliable and transparent. Accurate – the indices reflect the breadth, depth and liquidity of the underlying markets. Consistent – the index methodology is rigorously implemented by specialists. Economical – the indices are correctly sized for cost-efficient replication and trading.
35686_A4_GB_Retail_e.qxd 26.4.2000 13:09 Uhr Seite 27
STOXXSM consists mainly of two
industry sectors. Among others,
broad-based benchmark indices and
five Swiss companies are included:
three blue-chip indices:
Novartis, Roche, Nestlé, CS Group and Swiss Re. The Dow Jones
T H E I N D U S T RY S TA N D ARD FOR EUROPE
STOXX NORDIC 30SM is made up of the most highly capitalized Scandinavian share issues.
The benchmark indices: benchmark
Indices are vital for the measurement
here refers to a valuation level
of investment performance. The
used for comparative purposes. Such segregation of indices according to an index contains closely followed
industry sector – as provided by
securities and is computed on the
STOXX Limited – is all the more
basis of their prices. It mirrors the
important at a time when investors
trend of a specific segment or an
are increasingly focusing on entire
entire market. The Dow Jones
industries, rather than confining
STOXX
themselves to individual countries.
SM
comprises 600 share
issues traded on the 16 most import-
In this respect too, the SWX Swiss
ant exchanges in Europe. For its
Exchange and its international part-
part, the Dow Jones EURO
ners are consistently responding to
STOXX
market needs.
SM
is computed on the basis
of 300 Eurozone stocks. The blue-chip indices: blue chips refer to actively traded stocks of major international companies. The index for the Eurozone (Dow Jones EURO STOXX 50SM) and that for all of Europe each consist of 50 issues. The Dow Jones STOXX 50SM contains leading shares from 16 European countries and 19 specific
35686_A4_GB_Retail_e.qxd 26.4.2000 13:09 Uhr Seite 30
500 000 000 . . . Swiss francs was the average market capitalization of the six companies listed on the SWX New Market in the year under review.
35686_A4_GB_Retail_e.qxd 26.4.2000 13:09 Uhr Seite 31
The SWX New Market was established
firms operating in traditional sectors
in 1999 in order to provide innovative
and showing above-average growth
companies with direct access to the
thanks to new products and pro-
Swiss capital market. Many companies
cesses. The listing rules meet the needs
in future-oriented industries achieve
of issuers and investors alike. Accord-
above-average rates of growth, but
ingly, the minimum requirements for equity capital were lowered, but
SWX NEW MARKET – F O R I N N O VAT I V E Y O U N G C O M PA N I E S
tougher disclosure requirements were also introduced: the obligation to publish quarterly financial reports means that investors are kept regu-
over the short term they are often
larly informed of developments. This
unable to generate the funds necessary enhances security, since growth-stock to consolidate their business and main-
markets not only offer potentially
tain their competitive edge. Going
high rewards but involve considerable
public is an opportunity for them to
risks as well. Like their counterparts
obtain the capital they need to turn
in the main market, issuers benefit
their innovations into commercially
from the advantages of the Swiss finan-
viable products, build up distribution
cial centre, the fully integrated trad-
channels and open up new markets.
ing platform and access to interna-
The proceeds from an initial public
tional investors. What is more, the
offering (IPO) frequently supplant
listing rules ensure very positive effects
what is known as venture capital. The
on the publicity side, heightening
SWX New Market is designed for
public awareness of the company and
companies involved in life science
its products or services. The SWX
(pharmaceuticals, medicine and bio-
New Market is an attractive market-
technology), information technology
place for both domestic and foreign
(Internet, software, telecommunica-
companies and investors.
tions, multimedia) and micro-technology (micro-mechanics, micro-electronics, micro-biology) as well as for
35686_A4_GB_Retail_e.qxd 26.4.2000 13:10 Uhr Seite 34
SWX EUROBONDS – CREATING T R A N S PA R E N C Y Bonds are fixed-income securities with a predefined life span that enable issuers to obtain financing in the form of borrowed capital. In doing so, the issuer undertakes to repay the amount borrowed, plus interest. Eurobonds are placed by an investment banking consortium in several countries at the same time. Public-sector entities, supranational organizations, financial institutions and corporate borrowers are issuers in this market. Switzerland has traditionally played a significant role in the trading of Eurobonds: customer accounts with Swiss asset managers are the ultimate repository of roughly 40% of all Eurobonds issued. The SWX Swiss Exchange introduced its trading platform for Eurobonds in July 1998. Thanks to the integration of computer systems and the establishment of links to international clearing organizations, Eurobonds can for the first time be traded and settled on a fully automated basis. But despite all the advantages in terms of costs, efficiency and transparency, the breakthrough for SWX Eurobonds only came once two conditions were in place: exemption of foreign investors from stamp tax and the entry into this segment of the first market makers (i.e. financial institutions which quote firm bid and asked prices, thereby ensuring the necessary market liquidity). Turnover figures and prices on SWX Eurobonds are also published on a delayed basis over the Internet. This increase in transparency and efficiency exerts a positive influence on pricing, which benefits not only participant banks and market makers but institutional and private investors as well.
35686_A4_GB_Retail_e.qxd 26.4.2000 13:10 Uhr Seite 35
A repo (sale and repurchase agree-
ing. Repos also enable money market
ment) is a transaction in which secur-
traders to borrow funds against secur-
ities are sold on condition that they
ities. The public repo market in the
will be bought back again later. Essen-
United Kingdom has existed since 1996;
tially, it is a loan backed by collateral
Switzerland’s market was established
in the form of securities. Upon expiry
in April 1998. Repo trading represents one of the fastest growing financial
SWX REPO – AHEAD OF THE COMPETITION
markets in the world. The SWX Swiss Exchange recognized the potential of repos and the grow-
of the agreement, the seller must
ing demand for an electronic trading
repurchase the collateral at the original
platform early on. Together with
selling price and also pay the buyer
SIS SegaInterSettle and the Swiss
the repo interest due. If one of the par-
National Bank, it made fully integrat-
ties does not fulfil its obligations,
ed repo trading a reality by creating a
the buyer can liquidate the collateral
straight-through means of trading,
or the seller can replace the securities
clearing and settlement. This increased
with the cash received at the outset.
the efficiency and security of the
Risk and reward both lie with the sell-
settlement process and simultaneously
er: if the value of the collateral falls
reduced error rates and costs. With its
or the issuer of the securities goes
multi-currency capability, this system
bankrupt, the seller bears the entire
also enables repos to be traded in
loss. The buyer’s risk is minimal.
euros and other currencies.
Repo trading is conducted primarily on an interbank basis. For bond dealers, repos are a cost-effective source of financing, without which they would have to rely on traditional lend-
35686_A4_GB_Retail_e.qxd 26.4.2000 13:10 Uhr Seite 38
SMF – WELL-INFORMED, WELL-INVESTED The strengths of a securities market depend on a number of factors. Besides efficiency, liquidity, flexibility, innovation and safety, transparency is of overriding importance. It guarantees the correctness of each transaction and reinforces the trust of all participants in the market. The SWX Swiss Exchange ensures a very high degree of transparency by compiling and disseminating financial data and relevant market information. One of the important services it provides is the daily publication via the Swiss Market Feed (SMF) of roughly 1.2 million items of information on prices, trading volume and the time of transactions. The SMF also disseminates data on the indices computed by the SWX Swiss Exchange. These realtime data are sold directly to providers of financial information services. They collect and reprocess the information for onward transmission to their own customers. Participants who do not subscribe to the SMF or one of these other services can receive securities information from various websites – for example, www.swx.com – albeit with a 30-minute time delay. Technological advances also benefit private investors; realtime data is now available via mobile phones in SMS format.
35686_A4_GB_Retail_e.qxd 26.4.2000 13:10 Uhr Seite 39