Oversight of financial market infrastructures
The Swiss National Bank’s oversight mandate
The National Bank Act requires the SNB to oversee financial market infrastructures in Switzerland and also, in certain circumstances, abroad. In addition, the SNB lays down special requirements for the operation of financial market infrastructures which pose risks for the stability of the financial system. The implementing provisions on oversight are set out in the National Bank Ordinance. Since 1 January 2016, some of the provisions on oversight of systemically important financial market infrastructures are contained in the Financial Market Infrastructure Act (FMIA).
By overseeing financial market infrastructures operated by the private sector, the SNB promotes their security and efficiency. In so doing, it gives priority to reducing systemic risk. First, it is important to ensure that neither technical system failure nor financial difficulties on the part of financial market infrastructure operators give rise to major credit or liquidity problems for financial intermediaries or that these result in severe disruption on financial markets. Second, the contractual framework, and, in particular, the rules and procedures for the different systems should be formulated such that payment or delivery difficulties of individual system participants do not spill over to other financial intermediaries, linked financial market infrastructures or the financial markets. The sole objective of system oversight by the SNB is to ensure financial stability, which in turn is a precondition for the effectiveness of monetary policy. Individual creditor protection, consumer protection or the protection of financial market infrastructures from criminal abuse, however, are not objectives of SNB oversight.
A glimpse behind the scenes of the Swiss financial markets
Roughly speaking, the financial system can be subdivided into three main components: financial markets, financial intermediaries and the financial market infrastructure.
The primary task of the financial markets is to gather information and process it in the form of prices, which allow financial market participants to allocate resources and risks efficiently.
Financial intermediaries are market participants themselves. At the same time, they also play an important role in bringing the other market participants together – in other words, they match supply and demand in the various market segments. In order to fulfil these tasks efficiently, financial markets and intermediaries depend on an appropriate financial market infrastructure. Particularly important are stock exchanges and trading platforms, as well as post-trading systems for clearing and settling payments, securities and other financial instruments, such as payment and securities settlement systems, central counterparties and central depositories. These systems are summarised under the term financial market infrastructures. The task of financial market infrastructures is to correctly transfer and record the financial assets (e.g. book money, securities and other financial instruments) traded between the parties and to do so at the time agreed.