Securities Services: Developing Innovations That Today Shape the Securities Landscape of Tomorrow

Securities Services: Developing Innovations That Today Shape the Securities Landscape of Tomorrow

Javier Hernani, Head Securities Services at SIX, takes stock in an interim review after his first few months in office. He explains that securities services are more than just post-trade services, and points out the opportunities that an industry in a constant state of regulatory change presents.

You have been in charge of the Securities Services business unit at SIX, which comprises, among other things, the post-trade service offering in Switzerland and the one from BME Spanish Exchanges, since the start of 2021. How well are the Swiss and Spanish cultures coalescing?

Everything, in fact, is going smoothly. Although they come from countries with distinct differences, our Spanish and Swiss employees – not just within our business unit, but also across the entire company – are very cooperative and show respect and understanding for each other’s needs and cultural backgrounds. This is crucial to truly coming together as a team.

We are making strenuous efforts to help our employees get acquainted with their colleagues’ customs and even the languages they speak. And one day it will become possible again to travel back and forth between Switzerland and Spain, and to work together in person.

From a business standpoint, we have created a joint organization whose goal is to continue providing top-notch services and to grow. We are now looking at synergies with that objective in mind.

We will use our strong position and our longstanding customer relationships in both countries to engage in cross-selling.

SIX and BME each have their own clearing house and their own custody offering. Where do you see the greatest possibilities for synergies between the central counterparties (CCPs) and central securities depositories (CSDs)?

As I said, we want to grow, but we also want to optimize our cost base. This means exploiting synergies on both the revenue and expense sides. But it’s also about seizing new business opportunities. In other words, our overarching objective is to boost efficiency, quality, and innovation across the entire value chain, and to enhance our ability to compete by standardizing some of our internal processes.

Both CCPs are very diversified, offer services for numerous asset classes in a highly regulated environment, and manage risks in real time. SIX x-clear and BME Clearing both rank among the most qualified, stable, and best-capitalized CCPs in Europe. SIX x-clear, for example, has just been awarded the title of Clearing House of the Year at the Trading & Tech Awards hosted by Financial News. We will use our strong position and our longstanding client relationships in both countries to engage in cross-selling.

There are also synergies between the CSDs. We are working on a link between SIX SIS and Iberclear. This will allow us to offer Spanish securities to Swiss clients and Swiss securities to Spanish clients – and it will open up a broad range of new business opportunities. In addition, Iberclear is connected to several Latin American markets, which we can now easily access for the Swiss market as well.

You mentioned strong positions in the Swiss and Spanish markets. But when it comes to growth in the post-trade space, this can only mean thinking globally. What do the plans here look like?

One primary goal for the post-trade space and thus for our Securities Services business unit is the same as for the other business units at SIX: to grow. In the context of our strategy, more growth also means deeper reach alongside greater volume. We want to extend and broaden the reach of our products and services by supplying them more widely internationally and by developing new products and services for clients in markets that we already cover.

The combined strengths of SIX and BME, and the resulting further enlargement of our know-how, enable us to continue rolling out innovations to that end. Markets with changing conditions, due to new regulations for example, are an ideal target area for us.

Markets with changing conditions, due to new regulations for example, are an ideal target area for us.

As a result of Brexit and the mutual recognition of stock exchange equivalence between Switzerland and the UK, exchanges in London resumed hosting trading in Swiss stocks on 3 February 2021. Recognition of stock exchange equivalence between Switzerland and the EU has not yet been reestablished. How does the regulatory landscape look in the post-trade space?

The regulatory landscape in the post-trade space is not affected by the decision regarding exchange equivalence. Our Swiss CCP operates in both the EU and the UK. In the EU, SIX x-clear supplies its services under third-country recognition pursuant to EMIR, the European Market Infrastructure Regulation – authorized by ESMA, the European Securities and Markets Authority. SIX x-clear can continue providing its services post-Brexit to its clients in the UK under the Temporary Recognition Regime. This regime, granted for two years, can be extended by the UK authorities while the formal authorization process is progressing. Continuous operation is thus guaranteed.

SIX SIS, our CSD domiciled in Switzerland, can continue to supply its services in the EU based upon a grandfathering clause in the CSDR, the European Central Securities Depositories Regulation.

The Spanish infrastructure, by the way, operates in the UK also under the Temporary Recognition Regime.

Clearing, settlement, and custody form the core of our securities services. What other services do we offer beyond that?

We are positioned across the entire value chain [see box]. Our post-trade offering of clearing, settlement, and custody is supplemented, for example, by our global fund services, which provide a single- source solution for all mutual fund transactions, and by our issuance services, which assist issuers in registering new financial instruments.

Under our tax services offerings, we take over all the process steps ranging from the filing of market-specific tax forms, to coordination and reconcilement with tax authorities, and the securing of tax refunds. We particularly help avoid double taxation and facilitate the reporting in connection with taxes. Our trade repositories facilitate the reporting in connection with derivatives.

I would like to mention our real-time securities finance offering more at length. We ensure continuous liquidity on the market by securing access to central-bank money and money from commercial banks. To do that, we operate a fully automated trading platform in Switzerland for the secured money market, the market for short-term lending between financial institutions. Some 160 banks and insurance companies take part in this repo market, including the Swiss National Bank, which uses it to steer the Swiss money market.

In our role as a triparty agent, we monitor repo transactions and execute the collateralization fully automatically. On a related note, our introduction of the Collateral Cockpit in November 2019 has freed our clients almost entirely from having to intervene manually in back-office and risk management processes.

This last example shows that we never grow tired of developing innovations that today shape the securities landscape of tomorrow.