Switzerland’s stock exchange is seeking a global lead in the trading of digital assets, announcing plans for new market infrastructure which will boost the country’s credentials as a “crypto nation”.
The platform being built by the Six exchange is designed to be used for cryptocurrencies such as bitcoin and will be based mainly on Blockchain distributed ledger technology. As well as trading, the Six digital exchange will offer integrated post-transaction services such as deal settlement and asset custody.
Jos Dijsselhof, Six’s chief executive, said: “For us it is abundantly clear that much of what is going on in the digital space is here to stay and will define the future of our industry. The financial industry now needs to bridge the gap between traditional financial services and digital communities.”
Digital currency systems were developed as an alternative to the global monetary system and potentially disruptive ways of conducting financial transactions. But many industry executives accept they will have to be “professionalised” to turn them from niche interests into trading and payments system used by millions.
Six, which is regulated by Finma, the Swiss financial supervisor, and the Swiss central bank, said it expected its digital exchange would “enjoy the same standard of oversight and regulation”. The first services would be rolled out in the first half of 2019, it said on Friday.
Despite scepticism among regulators globally, Switzerland has sought to steal a lead in the emerging financial products. This year, Johann Schneider-Ammann, economics minister, said Switzerland wanted to become the “crypto nation”. Crypto start-ups have been attracted to Switzerland by its regulatory and tax environment, with the tiny canton of Zug, close to Zurich, promoting itself as the heart of “crypto valley”.
As well as the Six initiative, Swiss politicians and officials are working on plans to remove obstacles which prevent conventional banks from providing services to crypto companies. Finma earlier this year set out guidelines to help local initial coin offerings, where start-up companies sell digital tokens to investors.
Cryptocurrency exchanges are beginning to copy the safeguards commonly used by their securities and derivatives counterparts after a steady stream of hacks, asset thefts and technical issues.
Trading venues were initially targeted at the retail market but are now courting institutional investors such as hedge funds, wealthy investors and proprietary traders. The latter group are keen to invest in digital assets, but require higher standards of protections for their funds.
Coinbase, a crypto exchange, has begun offering custody services to investors concerned about the safety of their assets. Huobi, one of the world’s largest crypto exchanges, has a default fund to protect users against some specific shocks.
Meanwhile, traditional exchanges are also looking at targeting institutional investors wanting to trade cryptocurrencies, hoping their experience in building high-capacity, secure systems will offer asset managers more reassurance. Nasdaq, the US exchange, will supply surveillance technology to Gemini, the cryptocurrencies trading venue run by US internet entrepreneurs the Winklevoss twins.
Thomas Zeeb, Six’s head of securities and exchanges, said the challenges for the digital sector lie “less in the trading of assets but rather in the custody and asset servicing, including asset safety.” Six would provide “all steps of the chain in an integrated and secure model”.
The Swiss exchange is rare in Europe in operating a major payments system alongside its traditional trading and clearing services.