Nasdaq, in collaboration with its technology partner Chain, will develop a distributed ledger technology (DLT) for a minimum viable product (MVP) for Six Swiss Exchange's OTC structured products business.
The Nasdaq solution will integrate with several systems currently managed by Six and use the DLT capabilities at the core of the Nasdaq financial framework, the US exchange's next-generation enterprise architecture stack. With the MVP, Six will gains first-hand experience regarding the implementation of a DLT solution and investigating how to leverage blockchain technology for Six and its members in the post-trade environment.
Chris Landis (pictured), division CEO Six Swiss Exchange said that working together with Nasdaq reinforces the exchange's commitment towards being at the technology forefront and explore innovative technologies which could serve as basis for wider commercial offering.
"We plan to have developed an MVP that will go live only within a test environment by the end of this year, at first incorporating a few Swiss banks for trial runs and testing," said a Six Exchange spokesperson. "Our goal is to run tests on MVP parallel to our existing platforms that are already have made available to our customers."
There are no specific problems that Six is seeking to address in developing this MVP, according to Landis. "We just wanted to see and understand if the product brought any benefits to our structured products business, whether they are cost or operational efficiencies," said the spokesperson. "Expectations short term are to have an operating MVP until the end of the year and start testing."
In October 2016, Nasdaq and Six Swiss Exchange extended their current technology contract, which includes trading technology for Six equities, exchange-traded funds (ETFs), structured products, funds and fixed income markets, as well as Smarts Market Surveillance and Nasdaq pre-trade risk management. The two companies have been partners for more than 10 years.
'This project with SIX Swiss Exchange, one our long-term partners, is a prime opportunity to explore and implement blockchain technology in a controlled, highly collaborative environment,' said Lars Ottersgård, executive vice president and head of market technology, Nasdaq, in a statement.
Six Swiss Exchange, which launched its on-exchange OTC venue XBTR in 2016 to capture some of the OTC transactions in Switzerland, is seeking to promote its OTC structured products business platform as a complement to its core offering and a bridge for the buyside to access the structured products market. XBTR has been in talks with up to 15 buyside firms in Switzerland that have shown interest in transacting products on XBTR, once issuers make their offerings available.
However, the number of issuers remains marginal with only Leonteq and Credit Suisse signed up to the Six platform, although the exchange stated that a number of undisclosed 'issuers are already testing the platform and integrating it with their order-execution framework'. Earlier this year Vontobel joined Swiss Dots' OTC platform, which was launched in 2012 by Swissquote Bank, UBS and Goldman Sachs, and includes Deutsche Bank and Commerzbank as issuers.
Six Swiss Exchange reported earlier this month that trading turnover across all securities traded on exchange totalled CHF723.6bn (€655.3bn) in the first half of 2017, which represents an increase of 5.3% on the corresponding period last year. The average trading turnover per day came in at CHF5.8bn, while the number of transactions increased: 25,943,274 trades were conducted in total, a rise of 2.1% on the first half of 2016. However, the exchange also reported that, in the first six months of 2017, issuance of structured products and warrants fell by 3.5%.
SRP data, which captures the majority of products transacted on an OTC basis in Switzerland shows that issuance in Switzerland stood at 243,828 products, worth an estimated €18.2bn by year end 2016, whereas this year's issuance stands at 125,724, worth an estimated €8.7bn. The Swiss market is dominated by Vontobel (37% market share this year), Leonteq (21%), UBS (11%), Julius Baer and Credit Suisse (7% apiece).
Six Structured Products Exchange was absorbed in May 2017 by Six Swiss Exchange after a period of 10 years where exchange trading in structured products in Switzerland has been operated by Six Structured Products Exchange.
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