FINMA Circular "Duty to report securities transactions"

I Background and purpose

Article 39 of the Financial Market Infrastructure Act (FinMIA; SR 958.1) sets out the duty of participants admitted to a trading venue under Article 34 para. 2 FinMIA to report all the information necessary for transparent securities trading (“reporting duty”).

Securities firms that engage in activities requiring authorisation in Switzerland but are not admitted as participants to a trading venue are required under Article 51 para. 1 of the Financial Institutions Act (FinIA; SR 954.1) to report all the information necessary to ensure a transparent market.

The trading supervisory body must have access to records of reportable transactions for the purpose of supervision (see Article 31 FinMIA) so as to ensure that the trading venue can notify FINMA in the event of suspected violations of the law.

This circular explains the duty to report under Article 39 FinMIA and Article 37 of the Financial

Market Infrastructure Ordinance (FinMIO; SR 958.11), Article 51 para. 1 FinIA and Article of the Financial Institutions Ordinance (FinIO; SR 954.11) as well as Articles 2-5 of the FINMA Financial Market Infrastructure Ordinance (FinMIO-FINMA; SR 958.111).

II Scope of application

This circular applies to all trading venue participants under Article 34 para. 2 FinMIA and to all other Swiss and foreign securities firms under Article 41 FinIA and Article 57 FinIO (hereinafter referred to collectively as “participants”).

III Definition of terms

Transactions:

Contracts entered into between participants to trade securities as defined in Margin no. below or derivatives as defined in Margin nos. 9 and 10 below that have as their underlying at least one security admitted to trading on a Swiss trading venue. This definition includes both the execution of orders and the forwarding of orders for subsequent execution.

Forwarding of orders: An order is forwarded when the participant involves a further participant for the purpose of executing the order or the transaction and acts in respect of that further participant in its own name for the account of a third party, in the name of a third party for the account of a third party or purely as an intermediary. This results in a chain of orders and/or transactions between the participants involved.

Admission to trading on a trading venue: The legal definition of the term “trading venue” can be found in Article 26 FinMIA, that of “admission to trading” in Articles 35 and 36 FinMIA.

Securities: 9 Securities under Article 2 let. b FinMIA in conjunction with Article 2 para. 1 FinMIO and Article 3 let. b FinSA that are admitted to trading on a trading venue in Switzerland. This definition also includes standardised derivatives suitable for mass trading such as exchange-traded derivatives (ETDs), warrants and structured products, including exchange-traded products (ETPs, a cover-all term for collateralised exchange-traded commodities (ETCs) and exchange-traded notes (ETNs)).

Derivatives: Derivatives under Article 2 let. c FinMIA in conjunction with Article 2 para. 2 FinMIO that are not securities as defined in Margin no. 9 above.

Swiss and foreign securities: Swiss securities Securities issued by a company with its registered office in Switzerland or listed in Switzerland. Foreign securities Securities issued by a company with its registered office outside Switzerland and not listed in Switzerland. Listing: Defined in Article 2 let. f FinMIA. Primary listing If a company is not yet listed on any other exchange when it applies for a listing on a Swiss exchange, its only option is a primary listing. Secondary listing Listing of securities in a country other than the one where the company first had its shares listed. The following possibilities therefore exist:

Issuing company Primary listing in Secondary listing on Classification with registered Switzerland a trading venue in office in Switzerland Switzerland

Yes No No Swiss securities

Yes No Yes Swiss securities

Yes Yes Yes Swiss securities

No Yes No Swiss securities

No No Yes Foreign securities

No No No Foreign securities

IV Principles of the duty to report

The duty to report applies to all participants as of their admission to a trading venue or their authorisation under Article 7 FinIA and ceases to apply when such admission or authorisation ends.

Each individual transaction by a participant in the transaction chain, from order generation to forwarding and execution (e.g. client → participant 1 → participant 2 → trading venue / execution outside trading venue) must be reported. Where orders are forwarded, the first participant with which a client holds an account or custody account must report the required information on the beneficial owner (or submit a full report in the European Union format, see Margin no. 31). The further participants in a transaction chain report the participant that forwarded the order in place of the beneficial owner. Where orders are forwarded, each participant in the transaction chain must additionally report the unique transaction identification code (trade ID) provided by the trading venue. If there is more than one trade ID due to partial execution, all trade IDs must be reported. The participants are also entitled to entrust a single participant or a suitable third party with the task of submitting an individual report or a full report on the entire transaction chain (Art. 37 para. 5 FinMIO).

Client orders executed internally must also be reported. Collective orders must be reported both when executed via a trading venue and when definitively allocated to clients. A direct placement to the client without booking to the nostro account requires only one report. The report on interal client allocations must be submitted before the close of trading on the following trading day at the latest. If a single report is submitted in consolidated form for several partial executions, this report may show the average price.

V Reportable transactions

The duty to report covers all of a participant’s transactions in securities as defined in Margin no. 9 above as well as all transactions in derivatives where at least one underlying has a weighting of more than 25% and is a security as defined in Margin no. 9. If this 25% threshold is exceeded by the sum of several underlyings but not by one single underlying, the duty to report does not apply.

Where changes to the composition of the underlyings through discretionary decisions during the term of a derivative are excluded (passive management), the status at the time the derivative was created (i.e. whether or not the threshold was exceeded) applies to all transactions in that derivative.

Participants are additionally entitled to report transactions in derivatives that are not subject to any duty to report under this circular.

Transactions executed by participants via a trading venue in Switzerland as defined in Article

26 FinMIA may be reported after the fact before the close of trading on the following trading

day.

Transactions must be reported in Swiss francs, irrespective of whether the price is quoted in Swiss francs or a foreign currency. Prices must be converted into Swiss francs at a recognised reference exchange rate or the exchange rate prevailing on a liquid currency trading platform at the time of the transaction.

The duty to report covers both participants’ own-account transactions and their transactions for clients (see Art. 37 para. 3 FinMIO and Art. 75 para. 3 FinIO).

VI Exemptions from the duty to report

Transactions in securities and in derivatives with securities as their underlyings that are executed outside Switzerland do not have to be reported, subject to the conditions outlined in Margin nos. 22-26 below.

A. Transactions executed outside Switzerland in Swiss securities and in derivatives with Swiss securities as their underlyings

Participants under Article 34 para. 2 let. c FinMIA (foreign participants) and foreign branches of Swiss securities firms are not required to report transactions executed outside Switzerland in Swiss securities and in derivatives with Swiss securities as their underlyings, provided that they fulfil the duty to report in the country in question and that the conditions specified in Article 37 para. 4 let. a FinMIO or Article 75 para. 4 let. a FinIO are met.

Where there is no agreement to exchange information under Article 37 para. 4 let. a FinMIO or Article 75 para. 4 let. a FinIO, foreign participants may also report transactions executed outside the trading venue and outside Switzerland in Swiss securities and in derivatives with Swiss securities as their underlyings to a foreign disclosure office recognised by the trading venue (see Margin no. 33).

B. Transactions executed outside Switzerland in foreign securities and in derivatives with foreign securities as their underlyings

All participants and foreign branches of Swiss securities firms are exempt from the duty to report transactions in foreign securities and in derivatives with foreign securities as their underlyings in Switzerland if such transactions are executed via a recognised foreign trading venue or a recognised foreign organised trading facility (OTF) (see Art. 37 para. 4 let. b FinMIO and Art. 75 para. 4 let. b FinIO)1.

Transactions executed between a foreign participant and a foreign counterparty outside a trading venue and outside Switzerland in foreign securities and in derivatives with foreign securities as their underlyings are additionally not covered by the duty to report in Switzerland. Foreign participants may also report other transactions executed outside a trading venue and outside Switzerland in foreign securities and in derivatives with foreign securities as their underlyings to a foreign disclosure office recognised by the trading venue (see Margin no. 33).

Furthermore, foreign participants and foreign branches of Swiss securities firms are not required to report transactions executed outside Switzerland in foreign securities and in derivatives with foreign securities as their underlyings, provided that the conditions specified in Article 37 para. 4 let. a FinMIO or Article 75 para. 4 let. a FinIO are met.

VII Information on the beneficial owner

For the purposes of the duty to report, establishing the identity of the beneficial owner is carried out in accordance with the Anti-Money Laundering provisions. By way of exception to this principle, however, operating legal entities, foundations and collective investment schemes are also to be reported as beneficial owners. In the case of trusts, the trustee must be reported.

Natural persons are reported using their nationality and date of birth together with an internal identification number created by the participant in the following order: 1. Nationality format: two-letter country code according to ISO 3166-1 alpha-2;

1 The list of recognised foreign trading venues under Article 37 para. 4 let. b FinMIO and Article 75 para. 4 let. b

FinIO can be found on the FINMA website: www.finma.ch > Authorisation > Financial market infrastructures and foreign market participants.

2. Date of birth format: YYYYMMDD;

3 Participant’s internal identification number. This can be the master number assigned

to the business relationship, even if the participant has several business relationships with the same natural person and has assigned a different master number to each one.

If the participant has recorded more than one nationality for a particular person, it uses the country code that comes first in the alphabetical list according to ISO 3166-1 alpha-2.

If the beneficial owner is an operating legal entity, foundation or collective investment scheme, it is normally reported using the standardised international identification system for financial market participants, the Legal Entity Identifier (LEI). Where no LEI is available, the Business Identifier Code (BIC) according to ISO 9362:2014 or the Commercial Register number preceded by the country code (see Margin no. 28) may be reported.

Alternatively, a disclosure office may accept a full report in the European Union format as specified in the regulatory and technical implementing standards (RTS 22) for Article 26 of Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No 648/2012 (MiFIR). Natural persons are identified in such reports either as set out in Margin no. 28 above or by means of CONCAT in accordance with Article 6 para. 4 RTS 22. The disclosure office may only allow such alternative reports under MiFIR if it is able to assess these equally for the purpose of supervising trading under Article 31 para. 1 FinMIA.

VIII Disclosure office

The Swiss trading venues operate a disclosure office that acts as the point of contact for submitting reports.

Foreign participants must report transactions executed outside the trading venue either to the trading venue’s disclosure office or to a foreign disclosure office recognised by the trading venue. The trading venue requires the foreign disclosure office to provide it with the reported information for the purpose of supervising trading, i.e. information reported to a foreign disclosure office recognised by the trading venue must be forwarded to the Swiss disclosure office, or the Swiss disclosure office must be given access to such information.

IX Transitional provision

The entry into force of this circular renders FINMA Circular 2008/11 “Duty to report securities transactions” null and void.

X Summary of key information

Information Duty to Comments

A. Equities

Buyback of own shares Yes Transactions resulting from buybacks of own shares are reportable.

Assignment of own (group) shares to No The internal transfer (assignment) of own (group) shares to staff is not reportable. staff

Exercise of convertible preferred No The exercise of preferred shareholders’ right to convert their preferred shares into or- shares dinary shares is not a fundamental element of securities trading and thus not reportable.

Issue of free shares (including stock No The issue of free shares takes place on the primary market and is not reportable. dividends)

B. Bonds

Redemption of bonds at or prior to No Bond redemptions are not securities transactions under the Financial Market Infra- maturity structure Act.

Buyback of bonds Yes Buybacks of bonds admitted to trading on a trading venue in Switzerland are securi- ties transactions under the Financial Market Infrastructure Act.

Information Duty to Comments

Distressed bonds Yes Even when the issuer fails to make interest payments, bonds still qualify as being ad- mitted to trading and are subject to the duty to report.

Trading in delisted bonds Yes As long as they can continue to be traded on a Swiss trading venue, delisted bonds still qualify as being admitted to trading and are subject to the duty to report.

Separation of warrant bonds into war- No The act of separation itself, which comprises booking out the warrant bond and book- rant and “ex option” bond compo- ing in the warrant and the “ex option” bond, is not reportable. nents

Exercise of conversion rights and No The exercise of conversion rights (in relation to convertible bonds) and warrants (in warrants relation to warrant bonds) is not a fundamental element of securities trading and thus not reportable.

C Derivatives

Assignment of (OTC) options to staff No The internal transfer (assignment) of options to staff is not reportable. However, subse- quent sales of OTC options by staff may be reportable.

Exercise and assignment of standard- No The exercise and assignment of derivatives contracts admitted to trading on a trading ised derivatives venue in Switzerland are not fundamental elements of securities trading and thus not reportable.

Exercise of warrants and structured No The exercise of warrants and structured products admitted to trading on a trading products venue in Switzerland, obligations arising from their exercise and redemption or delivery on their expiry are not fundamental elements of securities trading and thus not reportable.

Information Duty to Comments

Exercise of OTC options No The exercise of OTC options on securities admitted to trading on a trading venue in Switzerland and obligations arising from their exercise are not fundamental elements of securities trading and thus not reportable.

Issue of free options No The issue of free options (including shareholder options) takes place on the primary market and is not reportable.

D. Pre-emptive rights

Trading in pre-emptive rights Yes Pre-emptive rights are securities under Article 2 let. b FinMIA and are subject to the duty to report. Internal offsetting of purchases and sales must be reported on a collective basis. Participants of a trading venue fulfil the duty to report by using the trading system. Other Swiss securities firms are also required to report.

Exercise of pre-emptive rights No The exercise of pre-emptive rights admitted to trading on a trading venue in Switzer- land is not a fundamental element of securities trading and thus not reportable.

E. Collective investment schemes

Issue and redemption of fund units No The issue and redemption of fund units take place via the custodian bank on the pri- mary market and are not fundamental elements of securities trading and thus not reportable.

Information Duty to Comments

Creation and redemption of ex- The creation/issue of ETF units by the ETF issuer is a primary market transaction and change-traded funds (ETFs) from the is not reportable. The redemption of ETF units by the ETF issuer also qualifies as a issuer’s point of view: primary market transaction and does not give rise to a duty to report. a) issue and redemption of ETF No The receipt and return of the basket of shares, meanwhile, do give rise to a duty to reunits port for the ETF issuer on creation and redemption. These are securities transactions b) receipt and return of the basket of Yes (transfers of ownership), not exchanges. shares

Creation and redemption of ETFs The receipt and redemption of ETFs through the creation and redemption processes from the market maker’s point of do not give rise to a duty to report for the market maker. view: a) issue and redemption of ETF No The transfer and return of the basket of shares, meanwhile, do give rise to a duty to units report for the market maker on creation and redemption. These are securities transacb) receipt and return of the basket of Yes tions (transfers of ownership), not exchanges. shares

F. Transactions outside Switzerland

Transactions in American Depositary Yes ADRs are securities (share certificates denominated in USD, mostly in small denomi- Receipts (ADRs) where the underly- nations) that are not formally identical to the corresponding Swiss securities. They are ing share has its primary listing in subject to the duty to report if the underlying share is a Swiss security that has its pri- Switzerland mary listing on a trading venue in Switzerland.

Transactions in ADRs where the un- No There is no duty to report if the underlying share does not have its primary listing on a derlying share does not have its pri- trading venue in Switzerland. mary listing in Switzerland

Information Duty to Comments

G. Other reportable information

Securities lending and borrowing No Securities lending is not a fundamental element of securities trading.

Repurchase agreements No Repurchase agreements (repos) are not reportable.

Transfer as collateral No The transfer of securities and derivatives as collateral is not reportable.

Combination of spot and futures Yes These are two separate transactions and must be reported as such. The futures transactions concerning securities transaction must also be reported on the trade date (time of entering into the obligation).

Volume-weighted average price Yes Under Article 3 FinMIO-FINMA, hedging transactions for the purpose of fulfilling (VWAP) orders VWAP orders must be reported as client transactions (with the participant as agent). A VWAP order is a client order with a price guaranteed by the securities firm.

Discretionary orders Yes Under Article 3 FinMIO-FINMA, discretionary orders must be executed and reported as client transactions (with the participant as agent). They must be executed separately from nostro trading.

Information Duty to Comments

Grey market transactions (e.g. in eq- No In principle, transactions prior to the first day of trading, i.e. before the official admis- uities, warrants and bonds) sion to trading (known as grey market transactions) are treated as secondary market transactions (see FINMA Circular 08/4 “Securities journals”, Margin no. 22) and are reportable under Article 39 para. 1 FinMIA or Article 51 para. 1 FinIA from the first day of trading (see Margin no. 12). There is no duty to report between the date of public announcement/launch and the first day of trading (the grey market period). Transactions executed during this period do not have to be reported after the fact on the first day of trading.

Secondary offering Yes Where securities are placed directly with clients without the use of a nostro account, each client transaction must be reported separately. If the securities are first booked to the securities firm's nostro account and only placed with clients in a second step, two reports are required: one for the booking to the nostro account, another for the placement with the client or third party.

Transactions outside a trading venue Yes Transactions executed outside a trading venue are reportable, regardless of any inter- during interruptions to trading ruption to trading.

Transactions outside a trading venue Yes Transactions executed outside a trading venue in securities that are suspended from while trading is suspended trading are reportable for the duration of the suspension.

Exchange of American Depository No Exchanging ADRs for Swiss securities does not entail a change in beneficial owner. Receipts (ADRs) for Swiss securities

Transactions in securities provision- Yes Securities that are provisionally admitted to trading are treated as having been admit- ally admitted to trading ted to trading (see Margin no. 8).

Transactions initiated by representa- Yes Either the representative office or the foreign securities firm itself must fulfil the duty to tive offices of foreign securities firms report. in Switzerland

Information Duty to Comments

Transactions between natural per- No sons and/or legal entities without securities firm status

Transactions between natural per- Yes Transactions between two unregulated parties that involve a participant or securities sons and/or legal entities without se- firm acting neither as buyer nor as seller must be reported once by the participant or curities firm status in which a partici- securities firm. pant or securities firm acts purely as an intermediary

Intermediation of transactions in se- Yes In this case, the participant or securities firm executes two transactions (purchase and curities and derivatives with securi- sale) and must therefore submit two reports. ties as their underlyings between clients where the intermediating participant or securities firm buys the position from one client and sells it to another client

Transactions executed by independ- Yes A licensed securities firm operating as an independent asset manager is subject to ent asset managers with securities the duty to report. firm status

Direct orders from clients of a third- Yes Depending on the type of transaction concerned, the trading venue participant reports party bank to participants of a trading either automatically using the trading venue’s systems or via appropriate third-party venue systems. The participant or securities firm that maintains the account or custody account is also required to report (see Margin nos. 12-14 and 80).

Orders from group companies Yes Transactions due to orders received from other group companies (e.g. a parent com- pany or subsidiary) must be identified as client transactions with the participant or securities firm as agent.

Information Duty to Comments

Merger of participants or securities No When participants or securities firms merge with each other, there is no duty to report firms (share exchange, cash pay- in respect of the shares exchanged. The remaining fractions from the share exment of fractions) change, which are paid out in cash, are also not covered by the duty to report.

H. Miscellaneous

Duty to report/record-keeping duties Participants and securities firms must fulfil the record-keeping duties under Article 38 FinMIA in conjunction with Article 36 FinMIO and Article 51 para. 1 FinIA in conjunction with Article 75 FinIO irrespective of the duty to report. These are more stringent in that securities that are not admitted to trading on a trading venue in Switzerland must also be recorded in the journal (see FINMA Circular 08/4 “Securities journals”).

Verifying reported transactions Responsibility for fulfilling the duty to report in terms of content, deadlines and compli- ance with the legal requirements always lies with the participant or securities firm. Audit firms verify compliance with the duty to report in accordance with FINMA Circular 13/3 “Auditing”.

Delegation or outsourcing of the A participant or securities firm may delegate or outsource its duty to report to a third duty to report party. If this third party is also a participant or securities firm and is simultaneously tasked by the delegating or outsourcing participant or securities firm with forwarding transactions in securities or in derivatives with securities as their underlyings, it must submit two reports for each transaction: one for itself and one for the delegating or outsourcing participant or securities firm.

Information Duty to Comments

Reportable price In principle, the price actually achieved on the market must be quoted in order to fulfil the duty to report.

Net transactions: A net transaction is one where the price charged to the client includes all fees and commissions. For net transactions, the amount after deduction of all fees and commissions must be reported as the price. Where a participant or securities firm acts as an intermediary in a transaction between two clients on a commission basis, the mid price may be charged and reported, provided that the same fees and commissions are charged to both clients. In all other cases, the reportable price is calculated by deducting the client-specific fees and commissions from each of the two net prices.

List of modifications

The references and terms were adjusted upon the entry into force of FinIA and FinSA on 1 January 2020.