Swiss Finance: Capital Markets, Banking, and the Swiss Value Chain

CHAPTER 9

Swiss Derivative Markets

INTRODUCTION

Derivatives are central to today's financial markets and have grown to eclipse, in notional value,1 both the international equity and bond markets. A virtual explosion of derivative activity has occurred during the past 40 years, as exchange rates, interest rates, commodity prices, and credit ratings (private and government) have become more volatile, contributing to a growing demand for hedging these risks. Even though these markets have come under critical scrutiny for flagrant misuses,2 derivative instruments hold an important position in the financial community due to their ability to spread and diversify risk from those who do not want it to those who do.

Switzerland's financial sector (especially its banking sector) has been an active participant in the development of global derivative markets. Having created the world's first completely automated derivatives exchange (SOFFEX) in 1988, the pace of activity since then has accelerated, with a rapid-fire succession of mergers, acquisitions, and new product introductions. The key to success has been an ability to offer valued products at competitive prices with highly efficient (i.e., quick, and accurate) processes. These attributes have been combined with trusted commitments to protect client confidentiality and assurances of liquidity and solvency, especially during stressful financial periods. This chapter describes Switzerland's derivative markets and its financial industry's ...