Regulatory

Swiss Regulatory Framework: Amendments to Digital Assets

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Introduction

In a time where digital assets are increasingly connected to financial markets, regulatory bodies are stepping up to create a framework that ensures stability, transparency, and security. The latest comes from the Regulatory Board of the Swiss Stock Exchange, dated 15 February 2024, and proposes significant changes in the regulatory landscape for digital assets, specifically those used as underlying instruments for derivatives and ETPs.

Expanding the Framework

Previously, the use of digital assets in derivatives and ETPs was tightly controlled, permitted only under specific conditions outlined in the regulatory circulars. However, with the amendments set to take effect on 1 April 2024, the scope for utilizing digital assets is set for a broadened horizon. This transition not only facilitates a more structured approach to listing such instruments but also aligns with the evolving market demands and dynamics.

Key Amendments and Introductions

The amendments include a detailed definition and the permissibility criteria for digital assets as underlying instruments, setting clear guidelines for what is allowed and what is not. Notably, there’s an emphasis on ensuring that certain assets, including privacy assets and security tokens, remain outside the scope of permissibility, aiming to strike a balance between innovation and risk management.

Further, the newly issued DCA as Underlying Instruments introduces precise requirements regarding market capitalization, liquidity, and history. These criteria are designed to improve the reliability and stability of instruments linked to digital assets.

For ETPs, the amendments introduce mechanisms for collateralization, compliance declarations by issuers, and obligatory disclosures in prospectuses regarding collateral and the associated risks. These provisions aim to increase protection and transparency.

Forward-Looking Approach

With these changes, the Regulatory Board underscores its commitment to fostering a regulatory environment that not only accommodates the rapid pace of innovation in the digital asset space but also safeguards the interests of participants and the integrity of the financial system. The introduction of a transitional period for issuers to comply with the new requirements reflects a pragmatic approach to regulatory evolution, acknowledging the complexities involved in adapting to new standards.

As the new regulations take effect, the landscape for derivatives and ETPs with digital assets as underlying instruments is set to evolve. It presents both opportunities and challenges, demanding a thorough understanding of the nuances of these amendments. For stakeholders in the markets, staying informed and agile will be key.

Conclusion

The amendments to the regulations governing digital assets as underlying instruments mark a significant step towards a more robust and nuanced regulatory framework. As the digital asset ecosystem continues to mature, such regulatory evolutions are crucial in shaping a market that is both vibrant and secure.

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