Switzerland’s Financial Market Supervisory Authority (FINMA) has granted a license for the first-ever Distributed Ledger Technology (DLT) trading facility. This new trading venue, operated by BX Digital, is established for trading DLT securities, compliant with the provisions of the DLT Act.
BX Digital AG, which is affiliated with BX Swiss AG and part of the Boerse Stuttgart Group, has now been officially recognized as the initial DLT trading facility under the regulatory framework of the Financial Market Infrastructure Act (FinMIA). The licensing allows for the multilateral trading of DLT securities, targeting primarily supervised entities, such as banks, for its trading services. However, it is important to note that BX Digital does not provide custody solutions for DLT securities.
The firm applied for permission to operate a small DLT trading facility, adhering to the thresholds established in the Ordinance to the Financial Market Supervision Act (FinMIO). This classification brings about a degree of regulatory leniency, which can facilitate smoother operations.
The DLT Act came into effect in Switzerland on August 1, 2021. This legislative framework is part of the Federal Act on the Adaptation of Federal Law to Developments in Distributed Ledger Technology (DLT) and aims to enhance the financial market infrastructure. It stimulates innovation within the financial sector, particularly benefiting FinTech initiatives, while maintaining market stability and security. As such, this new trading facility is grounded in a robust legal and regulatory framework, ensuring a secure environment for the multilateral trading of DLT securities.
During the licensing process, FINMA underscored the necessity of a comprehensive strategy for business continuity, particularly pertaining to settlement infrastructure reliant on public blockchain technology. To mitigate operational risks, the regulatory body mandates that the facility perform thorough technical evaluations of the employed technology, including an assessment of the source code utilized in smart contracts.
The DLT trading facility established by BX Digital employs the Ethereum blockchain for its settlement processes. Additionally, it is integrated with the Swiss Interbank Clearing (SIC) payment system, managed by the Swiss National Bank. The implementation of delivery-versus-payment processing is facilitated through a smart contract initiated by BX Digital, which allows for the simultaneous transfer of funds from the buyer’s account in the SIC system when DLT securities are transferred on the public blockchain.
This licensing development marks a significant advancement for the cryptocurrency and blockchain sectors within Switzerland, aiming to bolster the growth of innovative financial technologies while ensuring a secure and regulated market environment.