Switzerland’s Financial Market Supervisory Authority (FINMA) has recently issued a license for the first decentralized ledger technology (DLT) trading facility. This facility, run by BX Digital, enables the trading of DLT securities and was authorized under the DLT Act.
BX Digital AG operates as a sister company of BX Swiss AG and is part of the Boerse Stuttgart Group. The facility is officially licensed under the Financial Market Infrastructure Act (FinMIA), which allows for the multilateral trading of DLT securities. In its operations, BX Digital plans to provide settlement services following trading but does not offer custody for DLT securities. The services are specifically aimed at supervised participants, typically banks.
In seeking to establish a DLT trading facility, BX Digital requested a license that corresponds to a small-scale operation, which permits certain regulatory simplifications, as outlined in the Ordinance to the Financial Market Supervision Act (FinMIO).
The DLT Act, which became effective on August 1, 2021, marks an important development in Swiss financial regulation. This legislative framework aims to adapt existing laws to advancements in DLT and to foster innovation within the country’s financial sector, particularly focusing on the FinTech industry, while ensuring that market stability and security are maintained. The foundation for the DLT trading facility is rooted in a robust legal and regulatory structure that facilitates multilateral trading.
During the licensing process, FINMA also evaluated key operational considerations, necessitating a strategy for business continuity management (BCM) along with the settlement infrastructure that employs a public blockchain. To mitigate operational risks, financial market regulations necessitate thorough technical assessments of the technologies employed, including verification of the source code in smart contracts.
The DLT trading facility utilizes Ethereum, a public blockchain, for its settlement process. It has a system in place that connects to the Swiss Interbank Clearing (SIC), which operates under the oversight of the Swiss National Bank. This infrastructure facilitates delivery-versus-payment processing via a smart contract, allowing simultaneous payment from a buyer’s account within the SIC system at the point of DLT securities transfer on the blockchain.
The issuance of this license for BX Digital is a significant step toward advancing DLT trading in Switzerland, demonstrating the country’s commitment to embracing innovative financial technologies while maintaining stringent regulatory standards. This development reflects the ongoing evolution of Switzerland’s financial landscape, adapting to new technologies, and potentially setting a precedent for similar initiatives in the broader financial market.