SDX Clearing and Settlement: How Switzerland's Digital Exchange Processes DLT Securities
The SIX Digital Exchange (SDX) represents a fundamental rearchitecting of securities market infrastructure. Rather than layering distributed ledger technology onto existing clearing and settlement processes, SDX has built an integrated platform where issuance, trading, clearing, settlement, and custody occur within a unified DLT-based environment. This architectural choice eliminates the fragmented post-trade chain that characterises conventional securities markets and introduces atomic settlement as the default operating model for DLT securities in Switzerland.
Institutional Architecture
SDX operates under two FINMA licences: as a stock exchange under Article 26 of the Financial Market Infrastructure Act (FMIA) and as a central securities depository (CSD) under Article 61 FMIA. This dual licence enables SDX to provide the full lifecycle of securities services — from primary issuance through secondary trading to final settlement — within a single regulated entity.
The decision to licence SDX as both an exchange and a CSD reflects the integrated nature of DLT-based market infrastructure. In traditional markets, the exchange, central counterparty (CCP), and CSD are typically separate entities with distinct regulatory regimes. The fragmentation creates operational complexity, introduces settlement risk during the interval between trade execution and final settlement, and generates costs associated with reconciliation across multiple systems.
SDX’s integrated model collapses these layers. When a trade executes on the SDX exchange, the settlement occurs atomically on the same ledger, with the transfer of securities and the corresponding payment completing simultaneously and irrevocably. There is no settlement window, no counterparty exposure between trade and settlement, and no need for a central counterparty to guarantee performance during an interim period.
The DLT Settlement Mechanism
SDX settlement operates on a delivery-versus-payment (DvP) basis, implemented through the simultaneous atomic swap of tokenised securities and tokenised cash on the ledger. The mechanism ensures that the buyer receives the securities if and only if the seller receives the payment, and vice versa. This atomic DvP eliminates the principal risk — the risk that one leg of the transaction completes while the other fails — that is the primary concern of traditional settlement systems.
The settlement process begins when a matched trade is confirmed on the SDX exchange. The settlement engine validates that the seller holds the requisite securities in their SDX account and that the buyer has sufficient funds (in the form of tokenised central bank money or commercial bank money) to complete the purchase. If both conditions are met, the engine executes the atomic swap, simultaneously debiting the seller’s securities account and crediting the buyer’s, while performing the reverse operation on the cash accounts.
The finality of SDX settlement is a critical feature. Under Swiss law, a DLT security transfer completed on a qualifying securities ledger is final and irrevocable once the transfer is recorded on the ledger. This legal finality, established by the DLT Act amendments to the FMIA, provides the same level of settlement certainty as the finality protections applicable to transactions processed through traditional CSDs and payment systems.
Cash Settlement: Central Bank Money and Alternatives
The cash leg of DLT securities settlement has been one of the most challenging aspects of building digital market infrastructure. SDX has pursued multiple approaches to cash settlement, each with distinct characteristics regarding credit risk, liquidity, and regulatory treatment.
The most significant development is the settlement of SDX transactions in tokenised Swiss franc central bank money. Through collaboration with the Swiss National Bank (SNB), SDX has enabled the use of wholesale central bank digital currency (wCBDC) for the cash leg of DLT securities settlements. This arrangement, which evolved from the Helvetia Project pilot programme, provides risk-free settlement in central bank money — the gold standard for securities settlement from a systemic risk perspective.
For more detail on the central bank collaboration, see our analysis of Project Helvetia and Project Jura.
Commercial bank money settlement offers an alternative for transactions where central bank money is not available or not required. In this model, the cash leg is settled using tokenised deposits issued by commercial banks on the SDX ledger. While this approach introduces credit risk on the issuing bank, it provides greater flexibility and avoids the constraints associated with central bank money access.
Stablecoin-based settlement remains a theoretical option that SDX has not adopted for regulated securities settlement. The credit risk, liquidity risk, and regulatory uncertainty associated with stablecoins make them unsuitable for the settlement of regulated securities under current FINMA expectations. However, the evolution of stablecoin regulation — both in Switzerland and internationally — may alter this assessment over time.
Clearing and Risk Management
The atomic settlement model employed by SDX fundamentally changes the role of clearing in the securities transaction lifecycle. In traditional markets, the CCP interposes itself between buyer and seller after trade execution, guaranteeing the performance of both parties during the settlement window. The CCP manages this risk through margin requirements, default fund contributions, and a waterfall of financial resources designed to absorb losses in the event of a participant default.
SDX’s atomic settlement model largely eliminates the need for a CCP in the traditional sense. Because trade execution and settlement occur simultaneously, there is no settlement window during which counterparty exposure accumulates. The buyer and seller are never in a position where one has performed its obligation while the other has not. This structural feature removes the principal risk that CCPs are designed to mitigate.
However, pre-trade risk management remains important in the SDX model. The exchange must ensure that participants have adequate resources — both securities and cash — to settle their trades at the point of execution. Pre-trade risk checks, including position limits, credit controls, and real-time balance verification, serve as the primary risk management mechanisms in an atomic settlement environment.
Market risk between the time an order is placed and the time it is matched also requires management. In fast-moving markets, the value of securities can change significantly between order submission and execution, potentially resulting in losses for participants. SDX addresses this through conventional exchange risk controls, including price bands, circuit breakers, and order size limits.
Custody and Asset Servicing
SDX’s CSD function encompasses the safekeeping of tokenised securities and the processing of corporate actions. As a FINMA-licensed CSD, SDX is subject to the same regulatory requirements as SIX SIS — Switzerland’s traditional CSD — regarding the protection and segregation of client assets.
Tokenised securities held in SDX custody are recorded on the distributed ledger, with the CSD maintaining the authoritative record of ownership. Participants in SDX hold accounts that reflect their proprietary positions and their clients’ positions, with client assets segregated from the participant’s own holdings. This segregation is essential for the protection of client assets in the event of a participant’s insolvency, as it enables the identification and return of client property.
Corporate action processing for tokenised securities — including dividend payments, capital increases, share splits, and voting events — is facilitated by smart contract functionality on the SDX ledger. Dividend payments, for example, can be distributed automatically to all registered holders at the record date, with the smart contract calculating each holder’s entitlement and executing the payment in tokenised cash. This automation reduces the operational complexity and error risk associated with traditional corporate action processing.
Interoperability with Traditional Infrastructure
The coexistence of SDX with traditional market infrastructure creates the need for interoperability solutions that enable securities and cash to move between the two environments. SIX Group’s ownership of both SDX and the traditional SIX Exchange and SIX SIS CSD positions it to develop bridging mechanisms that connect the DLT-based and conventional systems.
Interoperability operates at multiple levels. At the securities level, mechanisms are needed to allow tokenised securities to be delivered against conventional securities, enabling cross-platform trading and settlement. At the cash level, the conversion between tokenised and traditional cash must be seamless and efficient, without introducing settlement risk or liquidity fragmentation.
The regulatory framework for interoperability between DLT-based and traditional market infrastructure is still developing. FINMA has indicated that interoperability arrangements must not compromise the risk management standards applicable to either system and that the responsibilities of each infrastructure provider must be clearly defined. The international dimension of interoperability — connecting SDX with foreign CSDs and payment systems — adds further complexity, as it involves the coordination of multiple regulatory regimes and legal systems.
Regulatory Supervision and Systemic Importance
As a systemically important financial market infrastructure, SDX is subject to heightened supervision by FINMA and oversight by the Swiss National Bank. The regulatory framework for SDX reflects the international standards for financial market infrastructures set out in the CPMI-IOSCO Principles for Financial Market Infrastructures (PFMI), adapted to account for the specific characteristics of DLT-based systems.
Key supervisory considerations include operational resilience, cyber security, governance, and access arrangements. FINMA expects SDX to maintain robust business continuity arrangements, including the ability to recover critical functions within defined recovery time objectives. The cyber security requirements are particularly demanding, given the novel attack surfaces introduced by DLT technology and the systemic consequences of a successful attack on a securities settlement system.
The governance of SDX must ensure that the interests of its participants and the broader financial system are adequately represented in decision-making. FINMA’s requirements for the governance of financial market infrastructures include provisions for independent board members, risk committees, and conflict-of-interest management that apply to SDX in the same manner as to traditional infrastructures.
Future Development Trajectory
The evolution of SDX will be shaped by several factors: the pace of institutional adoption, the development of interoperability solutions, the availability of central bank money for settlement, and the emergence of international standards for DLT-based market infrastructure.
The expansion of the SDX product range beyond bonds and structured products to include equities and fund units is a critical milestone. The technical infrastructure to support equity settlement exists, and the regulatory framework — established by the DLT Act — is in place. The remaining barriers are primarily commercial, relating to the critical mass of issuers and investors needed to generate sufficient liquidity for a viable equity market.
International expansion, whether through direct access for foreign participants or through interoperability arrangements with foreign DLT-based platforms, represents another significant growth vector. The cross-border settlement of tokenised securities raises complex questions about legal finality, conflict of laws, and regulatory cooperation that the international community is beginning to address through multilateral initiatives.
For related analysis, see our examination of the Swiss central securities depository landscape and tokenised equities.
Donovan Vanderbilt is a contributing editor at ZUG DLT, covering distributed ledger technology law, regulation, and institutional adoption from Zurich. The Vanderbilt Portfolio AG provides research and analysis on Swiss digital asset infrastructure.