Swiss exchange SIX's XBTR bilateral trading platform for structured products begun trading on April 15, 2016 with two participants of the platform, Leonteq and Credit Suisse, the first issuers to use the exchange's infrastructure to execute an OTC trade for a structured product.

SIX has been working on this development for the last three years but there was a delay in the implementation because of the break-up of the joint-venture with Scoach and the need to re-align the exchange to set the launch of the platform, according to André Buck, head of sales at SIX Swiss Exchange. "We began pushing the platform at the end of 2014 beginning of 2015, and signed Leonteq shortly after," said Buck. "This was followed by four other issuers signing up to use the platform including Credit Suisse with which we have been working very hard over the last couple of months to get them up and running on the platform."

According to Philipp Schubert, director at Credit Suisse, the XBTR platform will help market participants to achieve straight through processing (STP) on OTC transactions, “reducing operational risk and increasing efficiency”, as well as giving the end client more transparency as “trades are getting published”.

“I expect to speed-up the RFQ and trade confirmation process, even though the first transaction was still a manual process,” said Schubert. “[For Credit Suisse] the aim [of using the platform] is to be able to increase transparency and operate more efficient internally. I assume more participants will follow.”

SIX had been considering for some time to participate in the Swiss OTC market, an unregulated segment that has been driving much of the activity in the structured products market in Switzerland for many years. "At one point we made the decision to get involved by leveraging the exchange's infrastructure to build a platform to offer market participants more efficiency around OTC trading," said Buck.

The bilateral trading platform XBTR enables participants of SIX Swiss Exchange to trade and settle OTC products on a central platform with interfaces that already exist. XBTR is aimed at closing a gap in the trading-offer of structured products. Unlisted OTC products can now be traded and processed with the same level of efficiency as listed products, said Buck. The platform is targeted at professional market participants in the interbank business and is based on the Swiss Exchange's existing infrastructure, however it is separate from on-order-book trading from a regulatory and functional perspective.

"We believe this set up provides a more robust and efficient approach to trading," said Buck. "The platform offers a request for quote (RFQ) tool and it also provides full coverage of settlement and clearing. In a way, we are just providing issuers a platform to maximise what they were already using for their listed products."

The goal of the exchange is "to cover the whole market and sign as many issuers as possible", said Buck. "The more issuers using the platform the more appealing it will be, and will also provide more value," he said. "The timing is also right because each individual bank is reviewing its operations and moving towards an industrialised and automated set up for their processes and XBTR provides the right framework to achieve that by eliminating and automating some of the existing manual processes."

Bilateral interbank trading on XBTR as opposed to on-order-book trading will take place over a request-for-quote (RfQ)-based trading system, and is not regulated by the Swiss Financial Market Supervisory Authority (Finma), which means that trading takes place without market surveillance over onger trading times (from 8:00am until 6:00pm). In addition, XBTR offer instant trading availability - products can be traded based on their ISIN prior to the availability of the remaining master data and there is no formal approval process, technical validation and activation via Connexor, a central link service between all parties involved in the value chain of a financial instrument offered by SIX.

Three other undisclosed participants are connected to XBTR in addition to Leonteq and Credit Suisse, and "discussions about a connection are underway with additional participants", according to Buck.

"The XBTR trading platform provides off-exchange interbank trading of structured products with access to the Swiss Value Chain, thus enabling complete automation - from the placement of a product, its trading, through to final settlement," said Christoph Landis (pictured), division CEO SIX Swiss Exchange, in a statement. "This means significant improvements in efficiency for our participants."

Leonteq did not return calls requesting comment by press time. SIX declined to disclose any details about the trade as "bilateral trading activities are not reported, only the involved parties".

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