Swiss seek higher financial profile
With a pension fund industry enjoying healthy growth underpinned by good market performances, the Swiss authorities are embarking on a programme to strengthen Switzerland's position as a financial centre.
In September the Swiss Bankers' Association (SBA), the Swiss Insurance Association (SIA), the Swiss Funds Association (SFA) and the companies responsible for Switzerland's financial infrastructure (SWX Group, SIS Group and Telekurs Group) produced a joint strategy for the Swiss financial sector.
The aim is to position the country among the world's top three centres of international finance. "The targeted growth would create between 40,000 and 80,000 new jobs and generate CHF11-17bn (€6.7-10.3bn) in additional new tax revenues, depending on economic trends and how successfully the strategy is put into practice," the organisations said in a statement.
The move recognises the fact that finance is the most important sector of the Swiss economy and that competition in financial services in Europe is intensifying. In terms of growth, Switzerland has slipped back to sixth place internationally from second place in the 1980s.
The Swiss authorities recognise that such ambitions require those financial institutions operating in the country to continue to act "in an entrepreneurial spirit". Equally important are the operating conditions market participants enjoy. Among these is the financial infrastructure, which in Switzerland is very efficient.
Also in September, members of the SWX Swiss Exchange Association and the shareholders of SIS Swiss Financial Services Group and Telekurs Holding voted unanimously to combine the activities of the three companies under the roof of a joint holding entity, to be called Swiss Financial Market Services.
The shareholder base of the new enterprise will consist of the three companies' previous shareholders, comprising mainly domestic and foreign financial institutions that are also users of the financial market infrastructure.
Romeo Lacher, chairman of the board of the SIS Group, says: "Our new enterprise is committed to the Swiss financial centre and will ensure the long-term Swiss sovereignty of the country's securities trading activities and all related services. At the same time, the traditional multi-provider architecture will be preserved, which can face up to the competition beyond national boundaries."
Stephan Zimmermann, chairman of the board of the Telekurs Group, says the merger will strengthen the Swiss financial centre "by providing a spectrum of financial market infrastructure and services that covers the entire value chain. As a result, the new enterprise will be in an excellent position to press ahead with the expansion of its services both at home and abroad."
Among these services is SIS x-clear, which SWX now uses as a clearing central counterparty (CCP). On 7 September, more than 237 securities became eligible for clearing and some 29,322 trades were matched on the exchange resulting in 58,644 transactions being cleared by SIS x-clear. Settlement of SWX cleared products, using the existing services of SIS SegaInterSettle, remained unchanged.
However, the introduction of a CCP facilitates netting and 34,011 transactions were instructed for settlement resulting in reduction of transaction required for settlement and a netting ratio of 42%.
The CCP, a clearing institution that stands between buyers and sellers to ensure that money and securities change hands smoothly and efficiently with minimum counterparty risk, will deliver a number of benefits to Swiss market participants.
These include standardised processing that will deliver lower operating costs and greater efficiency, reduced counterparty risk through better risk management practices and a reduction in the number of trades requiring settlement, thereby improving liquidity and effectively increasing market capacity.
The high efficiency of the Swiss market infrastructure is attractive to global custodians and securities services providers.
In 2006 BNP Paribas Securities Services rolled out a global custody offering in addition to its other services in the Swift market. During 2007 the bank gained its first Swiss pension fund mandate, booked out of its Zürich global custody centre. "We have since been further tailoring our services to the Swiss pension fund community. Our growth has been impressive and we have added full pension fund capabilies in 2007," says Garrick Smith, managing director of BNP Paribas Securities Services in Zürich.
Last December the Bâloise Insurance Group, one of Europe's leading insurers with CHF65bn of assets under management, awarded a global custody and investment administration services mandate to BNP Paribas. The mandate covers multiple locations across Europe.
The transaction encompasses the pan-European asset-servicing requirements of 16 different Bâloise entities located in the firm's home market of Switzerland as well as in Germany, Luxembourg and Belgium.
In addition to global custody, BNP Paribas will provide Bâloise with depotbank services and a range of treasury and liquidity management solutions that include securities lending, cash management and foreign exchange.
Smith says that, in addition to global custody, Swiss pension funds are interested in all the required compliance monitoring, investment accounting and performance measurement. "Many larger pension schemes are putting pension assets into fund structures and therefore are requiring depotbank capabilities as well as fund accounting," he says.
In the year ahead, Smith says the Swiss regulators may well look to implement an official depotbank type structure for pension funds. "This may not all happen in the coming year but the trend is clear and will be a challenge in the years to come," he says.