The Swiss Financial Market Supervisory Authority (FINMA) has issued to BX Digital AG a first-ever distributed ledger technology (DLT) trading facility license. BX Digital is an affiliate of BX Swiss Exchange AG, which operates the second-largest stock exchange in Switzerland (SIX Swiss Exchange is the largest). Both firms are subsidiaries of the Boerse Stuttgart Group, the sixth-largest exchange group in Europe.
The license granted to BX Digital aims to simplify the multilateral trading of DLT securities. The licensing procedure is governed by the Financial Market Infrastructure Act (FinMIA), with the thresholds and further details outlined in the Financial Market Infrastructure Ordinance (FinMIO). The license was introduced as part of the Swiss “DLT Act,” which included several smaller (but important) revisions of existing acts and came into force in 2021. The legal framework for the DLT trading facility license is detailed in Article 73a et seqq. of the FinMIA and Article 58a et seqq. of the FinMIO.
BX Digital is the first institution to receive FINMA’s approval for DLT trading. BX Swiss announced its efforts to create a “digital European issuance and settlement platform” and intend to leverage the Ethereum blockchain — as opposed to other payers that focus on permissioned networks. This approach should allow BX Digital to bypass intermediaries like central securities depositories (CSDs).
Although SIX Digital Exchange, a digital stock exchange licensed in Switzerland and an affiliate of SIX Swiss Exchange, has issued over CHF 1.5 billion in securities on its platform, it operates through conventional CSD licenses. This approach differs from the one taken by BX Digital based on the Ethereum blockchain and the DLT trading facility license. BX Digital’s goal is to “become the leading Swiss financial market infrastructure for trading and decentralized settlement of digital assets”.
FINMA’s DLT trading facility was granted under various conditions, including business continuity management, ensuring service continuity during times when technical issues are experienced. BX Digital also had to demonstrate the robustness of the smart contracts used. FINMA will watch these and further aspects during its ongoing supervision and monitoring.
Payment processing connects to the Swiss Interbank Clearing (SIC) system managed by the Swiss National Bank. The smart contracts used are programmed to ensure delivery-versus-payment, allowing simultaneous payment from the buyer’s SIC account when transferring DLT securities on the public blockchain.
For now, BX Digital requested to operate a small-scale DLT trading system subject to reduced supervision. Against this background, the following thresholds must not be exceeded: annual trading volume of CHF 250 million; custody volume of CHF 100 million; and annual settlement volume of CHF 250 million.
Looking ahead, BX Digital AG aims to extend its services to include clearing, the final step of the trading process. This would likely imply compliance with stricter rules as the trading volume increases.
